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Mariana Mazzucato (2013) The Entrepreneurial State: Debunking Public vs. Private Sector Myths Published in 2011 as a pamphlet:The Entrepreneurial State.

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Presentation on theme: "Mariana Mazzucato (2013) The Entrepreneurial State: Debunking Public vs. Private Sector Myths Published in 2011 as a pamphlet:The Entrepreneurial State."— Presentation transcript:

1 Mariana Mazzucato (2013) The Entrepreneurial State: Debunking Public vs. Private Sector Myths Published in 2011 as a pamphlet:The Entrepreneurial State. London: Demos (a think-tank focused on power and politics) 1

2 Myth-busting n.1: R&D is not enough Myth-busting n.2 : small is not necessarily beautiful Myth-busting n.3: venture capital is not so risk- loving Myth-busting n.4: a patent doesn't necessarily mean progress Other two myths discussed in the book 5: the problem of Europe is not only the commercialization of innovation 6: it is not true that private companies invest if there are less taxes and less bureaucracy 2

3 BEYOND MARKET FAILURES: What type of risk? The Schumpeterian entrepreneur Frank Knight concept of entrepreneurship Entrepreneurial risk-taking is not just risky, it is highly 'uncertain'. Knight (1921) Risk, Uncertainty and Profit distinguished risk from uncertainty in the following way: "The practical difference between the two categories, risk and uncertainty, is that in the former the distribution of the outcome in a group of instances is known... While in the case of uncertainty that is not true, the reason being in general that it is impossible to form a group of instances, because the situation dealt with is in a high degree unique." 3

4 "By ‘uncertain’ knowledge, let me explain, I do not mean merely to distinguish what is known for certain from what is only probable. The game of roulette is not subject, in this sense, to uncertainty... The sense in which I am using the term is that in which the prospect of a European war is uncertain, or the price of copper and the rate of interest twenty years hence, or the obsolescence of a new invention... About these matters there is no scientific basis on which to form any calculable probability whatever. We simply do not know!" 4 Keynes J.M. (1936) The General Theory of Employment, Interest and Money

5 Investment in basic research is a typical example of 'market failure' (the market alone would not produce enough basic research, so the government must intervene) Advancement in knowledge R&D: general, horizontal policy Mission oriented R&D: identification of specific structures, institutions and incentives Pharmaceuticals: private companies have mainly invested in less risky variations of existing drugs, while state-funded labs have invested in the most risky (uncertain) phases Being the source of most radical path-breaking types of innovation, the state has not just fixed markets but actively create them 5

6 US National Institute of Health (NIH) Through a system of nearly 50,000 competitive grants, the NIH supports more than 325,000 researchers at over 3,000 universities, medical schools, and other research institutions in every US state and throughout the world These grants represent 80 per cent of the agency’s budget with another 10 per cent used to directly employ 6,000 individuals in its own laboratories The agency’s 26 research centres in Maryland serve a prominent role in the biotech industry 6

7 Chapter 4: The US entrepreneurial state Despite the perception of the USA as the epitome of private-sector led wealth creation, in reality the state has been engaged on a massive scale in entrepreneurial risk-taking to spur innovation DARPA, SBIR, Orphan Drug Act and NNI DARPA (Defense Advanced Research Projects Agency): created, along with NASA, in 1958 (after the Soviet launch of Sputnik in 1957) President Eisenhower enacted the National Defense Education Act. This bill encouraged students to go to college and study math and science (tuition fees would be paid for). This led to a new emphasis on science and technology in American schools 7

8 SBIR (Small Business Innovation Research Programme) Orphan Drug Act – 1983: tax incentives, clinical as well as R&D subsidies, fast-track drug approval, strong intellectual and marketing rights to drugs treating rare conditions A rare disease is defined as any disease that affects less than 200,000 people. Given such a small market, these potential drugs would remain ‘orphans’ without financial incentives National Nanotechnology Initiative - late 1990s Industry generally invests only in developing cost-competitive products in the 3 to 5 year time frame. It is difficult for industry management to justify to their shareholders the large investments in long-term, fundamental research needed to make nanotechnology-based products possible. Furthermore, the highly interdisciplinary nature of the needed research is incompatible with many current corporate structures 8

9 Final thoughts on risk-taking in innovation: who gets the return? Government returns from its risk-taking investment: higher tax receipts resulting from higher economic growth Are these indirect returns enough? Is it right that, in the US, the National Science Foundation did not reap any financial return from funding the grant that produced the algorithm that led to Google’s search engine? 9


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