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The entrepreneurial state

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Guest Connolly

The entrepreneurial state

 

Friday, 27 January 2012

 

The current debate on the need to cut back the state in order to unleash the power of entrepreneurship and innovation in the private sector builds upon a stark contrast that is repeatedly drawn by the media, business and libertarian politicians: a dynamic, creative competitive private sector versus a sluggish, bureaucratic, inert, ‘meddling' public sector. Company heads complain about the state stifling innovation; in the US, Tea Party politicians call for the state not to meddle in areas like healthcare that are more efficiently run by the market; David Cameron calls civil sector workers the `enemies of enterprise', and editorials in theEconomist call for the public sector to be reduced to open up opportunities for innovation and competition.

 

In painting this contrast, it is assumed that the private sector is inherently more innovative, more able to think out of the ‘box' and to lead a country towards long-run innovation-led growth. In this view, the retrenchment of the public sector will inherently make the economy more productive and achieve higher growth. But many examples in the history of innovation, entrepreneurship and competition, in different sectors and across different countries, paint a very different picture - of a risk taking innovative state - especially in the most uncertain phases of technological development and/or in the most risky sectors - versus a more inert private sector, which only invests (in innovation, in new start- ups, in networks) once the state has absorbed most of the uncertainty.

 

There are plenty of examples. In the pharmaceutical industry it is the state-run labs that have been responsible for the discovery of the most radical new important drugs, with private pharma focused on the less risky slight variations of existing, ‘me too', drugs (such as Viagra in different colours and dosages). In the USA and Europe, state funding has been responsible for most, if not all, general-purpose technologies, i.e. those technologies that help achieve economy-wide growth (aviation, computers, electricity, internet, nanotechnology). The biotech revolution owes its success not to venture capital (as is commonly assumed) but to major inventions within the UK's Medical Research Council and the US's National Institute of Health, as well as pro-innovation regulations that have made it easier for these inventions to be commercialised. This has not been just a question of ‘research', but of the state having the courage to think about completely new areas of development, invest its resources into uncertain territory, open multiple windows of exploration, fund early-stage risky research, create organisations dedicated to funding and supporting new start-ups, and formulate dynamic ‘networks' between science, business and finance.

 

In most cases of the development of general purpose technology it has been the state that has gone against the grain, thought ‘out of the box', and risked large amounts of money; while the private sector has more often been wedded to the status quo, where short-run returns are inevitably more secure. Similar examples can be found in the creative sector, where, for example, innovative first-time directors can ‘enter' the industry only through risky state-backed funds or state-owned broadcasters. In this sense, the state has played a role that goes beyond the Keynesian emphasis on taxation, subsidies, spending and regulation, and the Schumpeterian emphasis on creating the ‘right conditions' for innovation and growth. It has played an active entrepreneurial role - envisioning new technological opportunities in high-growth areas; undertaking the very early risky investments that lay the groundwork for future exploration of these areas; funding new start-ups that commercialise the innovations; and in some cases even bringing the product to market. It has in fact not only solved ‘market failure' (of which there are many instances); more importantly, it has solved ‘network' or ‘opportunity' failures. It has not only ‘fixed' markets; it has actively led the creation of new ones.

 

Read further:

 

http://politico.ie/crisisjam/8239-the-entrepreneurial-state-.html

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Its really the biggest failure of the Left in Europe and the US that they have not clearly made this argument, and hammered it home at every opportunity. But, then we have the problem of what the "Left" are supposed to be. Labour and PSF consider themselves Left, but they also regard themselves as parties of business. For them, being "Left" means providing a few bandages for the victims of capitalism. And these victims are in the hundreds of millions, in the West alone. Looking around, I would actually say that one of the biggest threats to capitalism, at the moment, is the sheer numbers of almost totally disfunctional people it is producing.

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And we shouldn't overlook that fact that so many professional economists, who cheerlead the benefits of "business solutions" to all the world problems, run to take up jobs in the public service and universities, whenever the chance arises. Again, it's socialism for themselves - and capitalism for the victims.

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