The Entrepreneurial State: Redefining Government's Role in Driving Innovation and Value Creation

The podcast challenges the conventional view of government as merely a market failure fixer or facilitator, arguing instead for the concept of the "entrepreneurial state." Professor Mariana Mazzucato posits that public actors are often investors of first resort, undertaking the high-risk, early-stage investments crucial for radical innovation, citing examples like the internet, GPS, Siri, touchscreen technology, and early funding for Tesla. This perspective debunks the notion that government should only provide background conditions and avoid "picking winners," highlighting that successful innovations like the Google algorithm were publicly funded, demonstrating the state's proactive, value-creating role.

Mazzucato emphasizes that the prevailing discourse, which frames public policy as merely de-risking or leveling the playing field, creates a self-fulfilling prophecy that undermines public sector confidence and capacity. She distinguishes between innovation's rate and its crucial "directionality," arguing that public policy must be mission-oriented to tackle grand challenges like climate change and secular stagnation, rather than just facilitating growth. She critiques neoclassical economic theory's focus on representative agents and equilibrium, advocating for a view of competition driven by innovation and differentiation, as inspired by Marx and Schumpeter, which better reflects the dynamic nature of capitalism.

The discussion highlights the need for a fundamental rethinking of public administration education to foster risk-taking, experimentation, and learning from failure within government. Mazzucato suggests that innovation policy should focus on solving "problems" (e.g., going to the moon, reducing industrial material content) rather than just sectors or technologies, requiring cross-sectoral collaboration. Crucially, she recommends structuring public investments to ensure that the public, which socializes the risks, also benefits from the rewards, proposing mechanisms like equity stakes in successful downstream ventures and renegotiating patent and Intellectual Property Rights (IPR) conditions to reflect public contribution.

The implications extend to how profits generated from collective innovation are managed, critiquing practices like share buybacks that divert funds from real economy reinvestment. The episode underscores that patents, as government-granted monopolies, must be negotiated to ensure public benefit and prevent the blocking of scientific progress, especially upstream research tools. By recognizing the state's value-creating role, societies can foster more inclusive and sustainable growth, demanding a more deliberate and conscious approach to strategic choices and public-private partnerships, moving beyond a simplistic market-failure framework to one of co-creation and co-shaping markets, as exemplified by Germany's Energiewende policy.

practitioners who think they're on the ground just kind of doing stuff you know doing good or bad things on the ground in terms of economic policy they're actually slaves of defunct economic theory

this idea that you wait for something to go wrong to then fix it to put bandages this notion that the market sometimes goes wrong and it causes market failures so the policy-making process is just fixing market failures is the key point that we try to debunk

we have a discursive problem how we actually talk about the state is a problem and we get us a self-fulfilling prophecy

public actors have actually played a very important role as an investor a first resort

without a vision in the public sector we wouldn't have the internet we wouldn't have GPS we wouldn't have Siri we wouldn't have touchscreen display all sorts of technologies inside our smart products today

we would have never had the internet how do we use cost-benefit analysis and we won't solve climate change with cost-benefit analysis

innovation first of all is a very collective process... it's a nonlinear process it takes a very long time and it's a collective process

by not talking about innovation as a collective process the rewards to the innovation have often been distributed in a much more narrow way than the risk-taking was distributed

by admitting that innovation is a collective process it's a social process we have to be careful to not just socialize the risks but also the rewards

patents themselves are government-granted monopolies for 20 years it's not granted from God