Mariana Mazzucato, The Entrepreneurial State
Mariana Mazzucato, The Entrepreneurial State (London: Anthem Press, 2013)
On the 4th August 2013 Martin Wolf, the celebrated Financial Times columnist, reviewed this book in glowing terms. It was, he wrote, “a brilliant exploration [of] government … not the private sector, [as] the entity that achieves the greatest breakthroughs.” This book established, Wolf wrote, that it is the state that provides the research and investment that underpins the drugs and biotechnology industries. It is the state, even, that underpinned the achievements of two iconic companies, Google and Apple. And it is the state’s research that gave us fracking
The book does indeed make those claims, but unfortunately they are false – and they are falsified by a key passage in the book itself, on page 26:- “top pharmaceutical companies are spending decreasing amounts of funds on R&D at the same time that the State is spending more … this is free riding.” So it is. Yet Professor Mazzucato’s solution to the problem is, paradoxically, even more government money for research.
It is now over a decade since Walter Park of the American University, the OECD and I reported, independently, that the international data showed that the government funding of R&D simply crowded out its private funding. The US, for example, was laissez faire in research until 1940, but by 1890 it was already the richest (and therefore the most technologically-advanced) country in the world, and in the absence of government money it produced scientific and engineering giants such as the Wright brothers, Edison and Tesla. Grievously, the introduction of government money for research did not increase the US’s long-term rates of economic growth or of total factor productivity, it simply crowded out its private funding.
But Professor Mazzucato denies the existence of crowding out in science funding, because she defines crowding out (page 24) as the state using “up savings that could have been used by the private sector for its own investment plans.” But that is a narrow definition which allows Professor Mazzucato to thus claim that by definition (page 26) free riding is “not the ‘crowding out’ effect.” But that is exactly what it is, as even Professor Mazzucato’s natural supporters such as ....
Paul A. David, Bronwyn H. Hall and Andrew A. Toole confirmed in their classic review of the field “Is public R&D a complement or substitute for private R&D? A review of the econometric evidence” (Research Policy2000, 29: 497–529.)
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