I would like to talk to you about one of the biggest crises we face today, a crisis of language when we talk about the public sector. In order to achieve the big ambitions, such as the need for smart and sustainable growth and to rebalance the economies away from speculative and short-term growth and towards the long-run, we need very big thinking by both the public and private sector. Whereas we have talked in detail about what private organisations should do, we have completely dismissed the role of the public sector. We have not really thought of the public sector’s role as an engine of growth. Nor have we thought about how to organise public sector institutions and how to go beyond the usual discussion of how the public sector is not only de-risking the private sector, but actually taking on the big vision risk and missions and should therefore participate in the rewards which are a result of this investment.
Keynes captured this message by stating: "Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. …I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas." (The General Theory of Employment Interest and Money, 1936). He was of course referring to the fact that behind every practical man or woman there was a defunct economist. He talks about the encroachment of ideas in policymakers’ minds and in terms of narrow economic thinking driving policy. What I want to focus on is the very narrow, encroached and captured way in which we talk about the role of the state in the economy. I will be focusing on the role of the state in what we – and you here in the OECD – call "smart growth", innovation-led growth.
The narrow way of talking about it is the state, at best, fixing certain types of market failures, I am sure a lot of you are already well informed of that approach. The most typical market failure in innovation is the whole public good problem of basic research. Basic research has very high spill overs, it is very hard to appropriate its returns and has very little private investment. So the overall consensus is that the public sector and different kinds of public investments should be funding innovation, as it mainly concerns the public good. This is what we are taught when we study industrial organisation and the role of the public sector in innovation. Of course we are also told that it is very important for government to be fixing different types of system failures.
I am honoured to have the R.M Phillips Chair at SPRU – which Christopher Freeman held. He was very important in founding the systems of innovation literature which has very much informed different types of national and transnational policies which focus on horizontal measures. These underline that it is not enough to solely get great knowledge in science, but also to invest in these horizontal institutions, such as science-industry links, to actually allow this new information in science to get disseminated and diffused throughout the economy. Chris Freeman’s work runs very deep. Unfortunately however, the way it has been interpreted is only through the role of government in terms of facilitating innovation and creating the conditions for innovation in the private sector through these different horizontal measures which include: funding education, infrastructure, science-industry links and appropriate financial tools for industry.
What I want to focus on is what is missing from these narratives, but before I do, let me read a quote by the Economist: "Governments have always been lousy at picking winners, and they are likely to become more so, as legions of entrepreneurs and tinkerers swap designs online, turn them into products at home and market them globally from a garage. As the revolution rages, governments should stick to the basics: better schools for a skilled workforce, clear rules and a level playing field for enterprises of all kinds… Leave the rest to the revolutionaries." (The Third Industrial Revolution, The Economist, April 21, 2012).
Mariana Mazzucato received a BA from Tufts University in International Relations and History and a PhD in Economics from the Graduate Faculty of the New School.
After her Marie Curie funded post-doctoral fellowship in economics at the London Business School, she held academic posts at Denver University, the Open University, Bocconi University, and Sussex University where she now holds the prestigious RM Phillips chair in the Economics of Innovation in the Science Policy Research Unit (SPRU).
Her research focuses on the relationship between financial markets, innovation, and economic growth at the company, industry and national level. Between 2009-2012 she directed a large 3 year European Commission FP7 funded project on Finance and Innovation (FINNOV); her current project on Financing Innovation is funded by the Institute for New Economic Thinking (INET); and her project on Finance and Mission Oriented Investments is funded by the Ford Foundation's Reforming Global Financial Governance initiative.
Her new book The Entrepreneurial State: debunking private vs. public sector myths (Anthem, 2013) has been translated into 8 languages and was on the 2013 Books of the Year list of the Financial Times, Forbes and the Huffington Post.
The book focuses on the need to develop new frameworks to understand the role of the state in economic growth—and how to enable rewards from innovation to be just as ‘social’ as the risks taken.
In 2013 the New Republic called her one of the '3 most important thinkers about innovation'. She advises different governments and the EC on innovation-led growth.
©OECD Observer February 2015