Review: 'The Entrepreneurial State'

Review: 'The Entrepreneurial State'

12-01-2016 | Insight

How innovative should governments be? Very innovative, according to Mariana Mazzucato. Robeco’s chief economist Léon Cornelissen reviews her book The Entrepreneurial State.

  • Léon  Cornelissen
    Chief Economist

Speed read

  • Government is the driving force behind major, innovative programs 
  • Without government investment, the iPhone would be little more than a gadget today 
  • European governments should follow the US approach

"The IMF should stop forecasting renewed growth and issue a warning that the global economy will remain weak and vulnerable unless world leaders act energetically to spur innovation and growth. Such an effort is long overdue," laments Ashoka Mody of the Bruegel think tank in his blog entitled ‘Another slow year for the global economy’, dated January 5.

Mariana Mazzucato, Professor in the Economics of Innovation at the UK’s University of Sussex is undoubtedly in complete agreement with him. In her engaging, sometimes amusing and controversial book The Entrepreneurial State she emphasizes the importance of government as the boldest and most valuable innovator.

Mazzucato is right to emphasize that although the pragmatic United States talks about little government interference and free markets, their large public investment programs in technology and innovation are actually why they are so successful. From internet, biotechnology, nanotechnology to shale gas, the government plays a key role in achieving innovation-driven growth.

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Smartphone thanks to the government

An interesting example is the separate chapter on Apple. This is a company that understandably promotes the myth that it is primarily qualities like individual genius, eye for design, playfulness and even madness that are responsible for revolutionary products like the iPad and the iPhone. But without the large-scale government investment which made the internet and computer revolution possible, this would have only resulted in a new gadget and not in products that have drastically changed the way we work and communicate, argues Mazzucato.

One ironic detail is that Apple does not publish impressive R&D figures. But this is understandable because it does not focus its inventiveness on developing new technologies and components, but on integrating these into an innovative architecture. However, it is less ironic that the US government sees little in return for the investments that have actually made the iPhone so smart.

Mazzucato states that it is no coincidence that the weakest countries in the Eurozone are those that spend the least on R&D and promoting human capital. Yet these countries are also accused of spending too much. But to copy the American model you have to look at what they do, not at what they say. Smart, inclusive and sustainable growth doesn't just happen on its own.

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What is a Wholesale Client?
A person or entity is a “wholesale client” if they satisfy the requirements of section 761G of the Corporations Act.
This commonly includes a person or entity:

  • who holds an Australian Financial Services License
  • who has or controls at least $10 million (and may include funds held by an associate or under a trust that the person manages)
  • that is a body regulated by APRA other than a trustee of:
    (i) a superannuation fund;
    (ii) an approved deposit fund;
    (iii) a pooled superannuation trust; or
    (iv) a public sector superannuation scheme.
    within the meaning of the Superannuation Industry (Supervision) Act 1993
  • that is a body registered under the Financial Corporations Act 1974.
  • that is a trustee of:
    (i) a superannuation fund; or
    (ii) an approved deposit fund; or
    (iii) a pooled superannuation trust; or
    (iv) a public sector superannuation scheme
    within the meaning of the Superannuation Industry (Supervision) Act 1993 and the fund, trust or scheme has net assets of at least $10 million.
  • that is a listed entity or a related body corporate of a listed entity
  • that is an exempt public authority
  • that is a body corporate, or an unincorporated body, that:
    (i) carries on a business of investment in financial products, interests in land or other investments; and
    (ii) for those purposes, invests funds received (directly or indirectly) following an offer or invitation to the public, within the meaning of section 82 of the Corporations Act 2001, the terms of which provided for the funds subscribed to be invested for those purposes.
  • that is a foreign entity which, if established or incorporated in Australia, would be covered by one of the preceding paragraphs.
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