According to conventional wisdom, innovation is best left to the dynamic entrepreneurs of the private sector, and government should get out of the way. But what if all this was wrong? What if, from Silicon Valley to medical breakthroughs, the public sector has been the boldest and most valuable risk-taker of all?
Mariana Mazzucato wrote The Entrepreneurial State in 2013, to combat the view that in order to restore growth after the 2008 financial crisis, all that was needed was to reduce deficits by cutting public spending. Besides reminding readers that the financial crisis was caused by private debt, not public debt, she argued that it was futile for countries to think they can ‘cut’ their way to growth, given that a key driver of economic growth has been public investment in areas like education, research and technological change. It is the quality not the quantity of debt that matters as the quality can affect long-run growth opportunities. A greater understanding is thus needed about the dynamic of the public investments that led to the Internet, to advances in health innovation, and to those that are today spearheading the green revolution. In all these examples, public funds provided the patience and the long-term strategy, that later made the more risk-averse private sector willing to invest. The problem here, however, is not public vs private, but how to reframe the debate about the state’s role in the economy away from ideology, and towards practical thinking that can steer economies in ways that addresses societal and technological challenges ahead.
The BoM is the new Penguin edition, released in March. The argument is more relevant now than ever, for two reasons.
First, in 2018, a decades-old debate among economists is hotting up again: does austerity help or hurt economic growth? Broadly speaking, the debaters fall into two camps: conservatives who call for limited public spending, and thus a smaller state; and progressives who argue for greater investment in public goods and services such as infrastructure, education, and healthcare. Of course, reality is more complex than this simple demarcation implies, and even orthodox institutions such as the International Monetary Fund have come around to the view that austerity can be self-defeating. As John Maynard Keynes argued back in the 1930s, if governments cut spending during a downturn, a short-lived recession can become a full-fledged depression. That is exactly what happened during Europe’s period of austerity after the 2008 financial crisis.
Second, in this intellectual climate it has become much easier for politicians to call for public-sector downsizing than to defend public-sector risk taking. And, in the process, they attack not simply the size of public-sector budgets, but the sector’s organizational structure. Not surprisingly, US President Donald Trump has targeted the US Advanced Research Projects Agency-Energy (ARPA-E is the Department of Energy’s key innovation agency, and the sister organization of the Defense Advanced Research Projects Agency—DARPA—in the Department of Defense), while congressional Republicans routinely threaten the public broadcaster PBS. In the UK, the BBC’s prestige has not insulated it from years of fierce attacks.
The attack on public organizations, not just public budgets, means that the progressive agenda cannot be just about increasing public spending. It must also be about safeguarding the structures and organizations that, when dismantled, can take decades to reconstruct. While budgets come and go, organizations don’t. They take time to build and to take on the nature of the movements that created them—whether green movements, or movements for transparency and objective broadcasting.