Thursday, July 11, 2013

Innovation and Government (Mariana Mazzucato)

The idea of the "entrepreneurial state" has been in vogue lately. The idea, quite simply, is that the government and not private enterprise has been the main driver of innovation. The concept is simple enough. After all, government funded research has played a role in almost all of the consumer goods we take for granted today, be it the iPhone or the internet.

But, what advocates of this "entrepreneurial state" neglect to mention is that government has never been good at making useful consumer items that enhance the standard of living of a population. Google, Youtube, iPhone, Facebook, etc are all made possible by technology that has at least some of it's roots in government funding, but in the end all of these things were brought to us by private entrepreneurs pursuing their own self interest (not to suggest that financial self interest was the sole motivator).

The technology that the government developed was developed for defense related purposes. Without private entrepreneurs, the technology was basically useless to average consumers. This seems fairly obvious to me, but apparently this is lost on Mariana Mazzucato, who thinks that imposing heavy taxes on the profits of tech companies to pay for government led entrepreneurial investment would be a big boon for innovation.

The free flow of information is one of the most essential conditions for innovation. The idea that companies who use technology that was pioneered by government "owe" huge tax payments to the government is a recipe for stagnation. Indeed, this sort of thinking is behind the problems associated with copyright laws that also stymie innovation.

Mazzucato seems to think that very few people know about the role that government financed research has played in technological innovation, and I would assume her explanation of this has something to do with her view that anti government ideologies have increased in influence. But, it seems to be Mazzucato who needs to be educated on the process of innovation. Perhaps her pro government ideology has blinded her to the important role that private entrepreneurs have played in innovation and the inability for government to make items that are directly useful to consumers.

She is certainly right that the narrative that technological innovation is entirely a private sector phenomenon with government only hindering progress is wrong. However, her own narrative that private entrepreneurs are free riders and that government is really capable of outdoing the private market when it comes to consumer goods strikes me as even more wrong. This is a complex issue, but Mazzucato criticizes a simplistic and incorrect narrative by embracing an even more simplistic and incorrect narrative. 

It is not necessarily a private sector vs public sector argument here. Both play unique roles in the process of innovation that the other one is not capable of doing. The private sector simply doesn't provide the kind of basic research needed, and the public sector doesn't provide the kind of consumer goods that greatly improve quality of life. Instead, the key ingredient in innovation is the free flow of information. A free flow that would be significantly hindered if Mazzucato's ideas were to implemented.

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