Impossible Conversations - The Entrepreneurial State: Debunking Public vs. Private Sector Myths

Tuesday, August 5, 2014

Kent Aitken RSS / cpsrenewalFacebook / cpsrenewalLinkedIn / Kent Aitkentwitter / kentdaitkengovloop / KentAitken

Note: for this review/reflection, we're experimenting with formats, aiming for more of a dialog that better reflects the evening we spent talking about the book in person (and via Google Hangouts). The result for this one - in my view - is a longer, but deeper and more worthwhile exploration. Would welcome feedback.

We’ve probably all heard or read the viewpoint that the behemoth of government is anything but innovative - it's slow and bureaucratic, but if we cut the red tape, perhaps if we lower taxes, the canny private sector will do its work.

This month’s book was The Entrepreneurial State by economist Mariana Mazzucato, who attempts to shake the foundations of that viewpoint. Drawing from anecdotes and economic models, her take is instead that governments are very much so in the innovation game, laying the foundations for future private capital-driven products and services. In particular, government has a distinct role in driving early and/or basic research, when returns on investments are more uncertain or long-term.

Much of the book is dedicated to correcting the (perceived) skewed discourse about innovation, the public sector, and the role of the state in markets. Later in the book, Mazzucato also tackles a particular angle of publicly-funded research: the idea that the long-term uncertainty and risk is borne by the public writ large through taxes, whereas the bulk of the rewards are privatized into select hands. In her view, this asymmetry hurts countries’ capacity for future innovation and funding.

Our discussion focused on a few key themes:
  1. The strength of her arguments: how many counter-examples could we find, and is the model she proposed complete? What’s the counterfactual, or, what would happen in the absence of government in a market failure?
  2. How this logic maps to the Canadian context: are we better to piggyback on the US or others, and does our system lend to risky, long-term investments from the public sector?
  3. The nature of innovation: what is innovation, and what is the difference between social, policy, and technological innovation? Is innovation necessarily a good thing? Does innovation disproportionately reward a subset of citizens?
And of course - as always, it seems - we hit on questions about the nature of the social contract, and this time added ponderings about humanity’s role in the history of the universe.

Tariq Piracha RSS / cpsrenewalFacebook / cpsrenewaltwitter / tariqpiracha

I must confess that the idea of government as a catalyst and prime investor of science and innovation is new to me and I missed a good portion of the discussion on the book. That said, I am not without opinion. 

I’m a bit torn about how to handle the relationships and the notion of the free-rider who takes the government-supported science to reap the rewards. The question that I have, and that I’m not sure Mazzucato answered, is how to ensure that rewards are socialized. This would likely be most salient for those who are focusing more and more on on open government and open data.

In terms of how this maps to the Canadian context, Mazzucato mentions a meso perspective that could serve us well: "The perspective is neither macro nor micro, but more meso, where individual firms are seen as part of broader network of firms with whom they cooperate and compete.” It’s the network perspective, the matrix of relationships and organizations across a broad spectrum of stakeholders that becomes the focus of analysis. This again gets back to Kent's post on deep understanding, that requires us to dig a little deeper about what we’re trying to accomplish and how we ensure the benefits of innovation are public good outcomes, not only private. 

I think that Mazzucato does present a compelling case that there is enormous opportunity for government and private sector cooperation on science and innovation. However, I felt that there was a gap in that she didn’t touch on the history of science and policy in a government context. UNESCO, for example, has an interesting history of trying to find some kind of balance between state interest in directing science, and a separation between science policy and the people actually doing the science. (See Martha Finnemore’s International organizations as teachers of norms: the United Nations Educational, Scientific, and Cutural 

In a nutshell, if we are going to talk about government’s role in backing the science behind innovation, and the public good, there’s some serious thinking to do around the motivations behind that support. Particularly, I think it is naive to assume that we’re all on the same page about what constitutes the public good or what role the government ought to be playing in support of science and innovation, whether that means more involvement, less involvement, or something in between. 

I think that many of the hesitations Tariq expresses on the government’s role in backing the science behind innovation relate back to our conversation’s third key theme: is innovation necessarily a good thing? I’d like to get back to that idea a bit later, but allow me to start by making a few points on one the earlier theme of the book’s methodology, which Kent mentioned above.

I can’t help but seek to poke a few holes in the author’s approach here. Indeed, Ms. Mazzuccato is often too quick to attribute causality, and then to derive grandiose conclusions on the strength of those attributions. That’s a big no-no.  

A second issue is that the portrait she draws is far from comprehensive. Sure, the book provides many examples of transformative technologies and of entire industrial sectors which (seemingly) owe their existence to state support.  But what about all those technologies and all those sectors which have had a transformative impact, and which didn’t receive any support?  The closest the author comes to addressing this is on page 62, when she quotes another scholar who argues that “... large-scale and long-term government investment has been the engine behind almost every GPT in the last century” (GPTs, or general purpose technologies, are those which have an impact on a wide variety of sector sin the economy and lead to economy-wide growth, like electricity or computers). But wait a minute, how many GPTs are we talking about here? And what about those which were largely driven by the private sector alone? Similarly, Mazzucato dispenses with the issue of failed attempts at state interventionism like the Concorde experiment or the American Supersonic Transport project by arguing that “[the State] was trying to do something much more difficult than what many private businesses do” (p. 18). That’s possible, but it doesn’t make the argument that the State fails often at picking winners irrelevant. A comprehensive survey would discuss how often the State succeeds and compare it to how often it fails.  

More broadly, a scientific approach to this kind of inquiry would involve selecting case studies on some objective basis, and attempting to suss out when and why State intervention succeeded or failed in each case. Here, in her quest to change discourse, the author selects a relatively small amount of examples which support her central claim, and does not treat them thoroughly.  

Kind of sounds like I didn’t really like the book and that I am ready to dismiss its argument, doesn’t it? Well, not quite.  Despite its omissions and the many shortcuts some of its examples take, the book does succeed in debunking the myth that the State cannot be entrepreneurial, by providing some key examples which are truly compelling, and also in identifying some of the conditions for successful State-led industrial innovation. My criticism is that it doesn’t give you a proper idea of how often the State acts entrepreneurially, or of how likely it is to succeed when it tries to - so I would caution anyone against taking Ms. Mazzucato’s new discourse at face value.

But back to this idea of the innovation being a good thing. Let’s say we are in fact convinced that it is possible for the State to successfully spur the development of new and transformative technologies.  The question then becomes, is this even an appropriate role? Is it possible for innovation to have an adverse impact on a nation’s citizenry? Are there certain technologies which the government should avoid supporting, whether for moral or other reasons? During the conversation, someone (*cough* Nick *cough*) even asked what kind of philosophical position could justify such a role for the State.  

All thought-provoking questions. My short answer: it is an important role for the state, because transformative technologies lead to economy-wide growth, which, while imperfect, is our best proxy for increases in living standards. Beyond that, ‘the fear of the robot’ is rooted in a miscomprehension of how labour markets operate (we would really only ever be justified in burning down the factories of robots capable of producing other robots); and, philosophically speaking, utilitarianism may provide a worthy framework for justifying such a role for the State - the average level of utils in society would go down significantly if you took away people’s computers and electricity, you know.   

But what did others think of this part of our conversation on the “value” of innovation? And does anyone out there find my methodological complaints to be too nitpicky, or otherwise unjustified?

Nick Charney RSS / cpsrenewalFacebook / cpsrenewalLinkedIn / Nick Charneytwitter / nickcharneygovloop / nickcharneyGoogle+ / nickcharney

Obviously innovation is valuable, no one is against innovation, at least not publicly. I would echo Francis’ point above about the book being debunking the myth that the state can’t be entrepreneurial. But then again, I never thought it couldn’t be, so perhaps the book overall suffers a bit from preaching to the choir. I didn’t take issue with the methodology – everyone who has ever written anything is guilty to some extent of cherry picking, providing insufficient counterfactuals, or casting correlation as causation – in so much as I was disappointed that it wasn’t written in a more popular style because at the book casts government as solution rather than problem; and a more popular approach would make that argument more accessible.

Yes, I am guilty of asking the underlying question of whether or not people in the room thought it was the role of the state to support innovation and what school of political philosophy that view was informed by. I wasn’t trying to bog down the conversation in so much as tease out people’s view of the role of government. I’m always interested in people’s worldviews because as Tariq points out above, it would be naive to think we have a shared understanding of the public interest. Furthermore, how we see the view of the state informs how we go about our work in its service. We may be non-partisan by profession but I doubt any of us are a-political by nature.

As far as myth-busting and demonstrating the State’s role in the innovation ‘ecosystem’, I agree with fellow book clubbers: mission accomplished, as far as I’m concerned. I don’t know who’s tuning in to the sermon besides the choir, but it’s an important message. So often, innovation is portrayed as being the purview of creative geniuses, venture capitalists, and the private sector, in general:
We are constantly told that the State should have a limited role in the economy due to its inability to ‘pick winners’, whether the winners are new technologies, economic sectors or specific firms. But what is ignored is that, in many cases the State ‘failed’, it was trying to do something much more difficult than what many private businesses do: either trying to extend the period of glory of a mature industry (the Concorde experiment or the American Supersonic Transport project), or actively trying to launch a new technology sector (the Internet, or the IT revolution).
Mazzucato provides ample evidence that one of the ways the State is entrepreneurial is in its capacity and willingness to play the unpredictable long-game. It can take (arguably) required risks to invest in projects for the public good when and where no other entity is willing or able. Mazzucato doesn’t argue that the State is or should be the only player that drives innovation, but demonstrates that it’s a critical player. The State’s role in innovation isn’t simply a matter of economic growth and living standards, it’s also a matter of national security particularly when you consider the scale, scope, and what’s at stake over time (e.g. beyond shorter term potential pay-offs).

Karl Polanyi’s The Great Transformation was written at a different time, but its legacy lives on in The Entrepreneurial State. As Joseph Stiglitz writes in the Forward of the 2001 edition:
…Polanyi exposes the myth of the free market: there never was a truly free, self-regulating market system. In their transformations, the governments of today’s industrialized countries took an active role, not only in protecting their industries through tariffs, but also in promoting new technologies. In the United States, the first telegraph line was financed by the federal government in 1842, and the burst of productivity in agriculture that provided the basis of industrialization rested on the government’s research, teaching and extension services.
A lot has changed since then, including accelerating technological change, increasing interconnectedness, and a proliferation of societal actors who have a stake in the innovation game and the capacity to mobilize resources. Has the fundamental role of the State in promoting innovation for the public good changed? It’s likely evolving, but Mazzacuto makes a compelling case that (a) it still has an important role and, as Tariq mentions above, (b) there’s a need for a more “symbiotic” relationships between the public and private sectors (as a opposed “parasitic” ones): “Innovation cannot be pushed without the efforts of many, and it cannot proceed without a long-term vision that sets the direction and clarifies objectives.”

Kent Aitken RSS / cpsrenewalFacebook / cpsrenewalLinkedIn / Kent Aitkentwitter / kentdaitkengovloop / KentAitken

Conclusion: two notes in closing.

First, not everyone that participates in book club also jumps into these reviews and reflections, or, sometimes people are busy. So one dissenting view from the in-person discussion should be mentioned, which was the idea that the entire book took a narrow, non-inclusive view of progress and innovation, and that this bias undermined many of the arguments. I shan't expand, only because I'd certainly mangle the argument.

Second, the common threads from the above (at the risk of speaking for my confederates). One seems to be that if innovation is the goal, the common perception of government as an innovation black hole is wrong. At the very least, the story is more nuanced than that. And likely a lot longer, given the sorts of innovation we're talking about here (early medical research, infrastructure, GPTs). The other seems to be that we take much for granted that merits closer examination. The ideology of innovation - and of the public sector writ large - is far from universal. So, even if everyone's answer to "whether innovation is the goal" is yes, a conversation about why would be useful and revealing.