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The Entrepreneurial (risk taking) State b uilding ‘ symbiotic ’ innovation eco-systems Mariana Mazzucato R.M. Phillips Professor in Economics of Innovation Science Policy Research Unit (SPRU) University of Sussex, UK www.marianamazzucato.com @MazzucatoM.
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The Entrepreneurial (risk taking) State building ‘symbiotic’ innovation eco-systems Mariana Mazzucato R.M. Phillips Professor in Economics of Innovation Science Policy Research Unit (SPRU) University of Sussex, UK www.marianamazzucato.com @MazzucatoM
Rebalancing: industrial policy is back! source: Bank of England, Haldane 2011
Big battles require big (policy) thinking “Smart” innovation-led growth (battle vs. ‘secular stagnation’, consumer debt-driven growth) “Inclusive” growth (battle vs. increasing inequality) “Sustainable” growth (battle vs. climate change) “Rebalancing” away from speculative finance (battle vs. short-termism, speculation, ‘financialization’)
Biggest battle: what should the State do? “The important thing for Government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all.”John M. Keynes, The End of Laissez Faire, 1926 (p. 44) “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 (p. 383)
What is the State’s role in the economy? • Set ‘level’ playing field then get out of the way • Solve market ‘failures’ • Something more interesting?
Market failure view: correcting ‘inefficiencies’ to bring markets back to default ‘efficient’ position A different view: Shaping and creating markets actively Market shaping not (only) fixing
‘mass production’ system • aviation technologies • space technologies • IT • internet • nuclear power • nanotechnology Market failure policies don’t explain the advent of key General Purpose Technologies
market and technology risk Discontinuity Radical New TECHNOLOGY Increasing risk Existing Evolutionary Leverage base Existing New MARKET
Mission oriented investments along entire innovation chain Patent Invention: functional prototype Viable business Business Validation Innovation new firm or program 3. early stage technology development (ESTD) 2. concept/ invention 4. Product development 5. production/ marketing 1. research Angel investors, corporations, technology labs, SBIR VC, public venture capital, NIH, labs, ARPA-E NSF, NIH, DARPA Corporate research Corporate venture funds, equity, commercial debt Source frequently funds this technological stage Source occasionally funds this technological stage source: Auerswald/Branscomb , 2003
Number of Early Stage and Seed Funding Awards, SBIR and Venture Capital (source: Block and Keller, 2012)
What makes the iPhone so ‘smart’? source: Mazzucato (2013), p. 109, Fig. 13
National Institutes of Health budgets 1936-2011 Total NIH spending, 1936-2011 in 2011 dollars=$792 billion NIH budget for 2012=$30.9 billion source: http://officeofbudget.od.nih.gov/approp_hist.html
new vs. ‘me too’ in pharma (1993-94) 67% Radical innovation funded almost entirely by NIH funding (75% of P NMEs) Variations of existing drugs Priority NMEs Standard NMEs 14% 19% source: Angell (2004)
Source: OECD 2012 http://www.oecd.org/sti/sti-outlook-2012-financing-business-rd.pdf
technology risk in clean tech (venture capital will ride the wave, who will kick/push?) source: Ghosh and Nanda, 2011
Who is funding the green revolution? source: Frankfurt School-UNEP Centre/BNEF (2013)
China Development Bank China’s 2020 goal of producing 20% energy from renewables. 5 year plan includes $1.7 trillion dollars in 5 new (green) sectors. CDB founded CDB Capital, a ‘public equity’ fund with $US 5.76 bn to finance innovative start-ups from the energy and telecom sectors. Yingli Green Energyreceived $1.7 bn from 2008 through 2012 with a $5.3 bn line of credit opened for it.LDK Solar ($9.1 bn); Sinovel Wind ($6.5 bn); Suntech Power ($7.6 bn); and Trina Solar ($4.6 bn), Patient committed finance has “allowed Chinese companies to further ramp up production and drive down costs” of renewable energy technologies (source: Sanderson and Forsythe, 2013)
Where are energy’s Xerox Parcs & Bell Labs? source: Nemet and Kammen (2007), “U.S. energy research and development: Declining investment, increasing need, and the feasibility of expansion”, Energy Policy, 35 (1), 746-755
parasitic vs. symbiotic eco-systems
Repurchases, dividends, net income, R&D 1980-2006 (293 corporations in the S&P500 in October 2007 in operation in 1980) Fortune 500 companies have spent $3 trillion on buybacks over the last decade… FINNOV WP 5 (Bordeaux)
Source: http://www.youtube.com/watch?v=x54bVuduggU A key element to get an energy breakthrough is more basic research. And that requires the government to take the lead. Only when that research is pointing towards a product then we can expect the private sector to kick in.
Yet… 2010: US American Energy Innovation Council (AEIC) asked for 3x spending on clean technology to $16 billion annually, with an additional $1 billion given to the Advanced Research Projects Agency for Energy (ARPA-E) Yet 7 companies that form AEIC have together spent $237 billion on stock repurchases between 2001-2010.
A new pharmaceutical that brings in more than $1 billion per year in revenue is a drug marketed by Genzyme. It is a drug for a rare disease that was initially developed by scientists at the National Institutes of Health. The firm set the price for a year’s dosage at upward of $350,000. While legislation gives the government the right to sell such government-developed drugs at ‘reasonable’ prices, policymakers have not exercised this right. The result is an extreme instance where the costs of developing this drug were socialized, while the profits were privatized. Moreover, some of the taxpayers who financed the development of the drug cannot obtain it for their family members because they cannot afford it. (Vallas, Kleinman and Biscotti, 2009, p. 24) Was this the point of Bayh-Dole?
Warren Buffet “I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.” And….why did capital gains fall in 1976?
And where will the money come from? Are taxes enough? • IPR golden share • Income contingent loans • Retain some equity (e.g. SITRA with Nokia) • % payback into an ‘innovation fund’ • State investment banks • Sovereign wealth funds? Lessons from Solyndra and Tesla: win some lose some. How to cover the losses and have enough for next round?
Talk based on following research: The Entrepreneurial State: debunking private vs. public sector myths (2013) Anthem Press: London, UK. Apple's Changing Business Model: What Should the World's Richest Company Do with All Those Profits? (2013), Accounting Forum. 37: 249-267, with Bill Lazonick The risk-reward nexus in the innovation-inequality relationship: Who takes the risks? Who gets the rewards? (2013), Industrial and Corporate Change, 22:4:1093-1128, with Bill Lazonick Smart and inclusive growth: rethinking the State’s role and the risk–reward relationship, (2013) in Innovation studies: evolution and future challenges. J. Fagerberg et al (eds.) Oxford University Press. Accounting for productive investment and value creation (2014), Industrial and Corporate Change, with Alan Shipman.
