Mariana Mazzucato

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Once a thing is developed and the dollar signs are in sight, venture capital is a really effective means of bringing it all home. But in those early days when it’s just risk without reward, government plays a crucial role. For political means, Mitt Romney excoriated the Obama Administration in 2012 for investing in alternative energy companies like Solyndra (a bomb) and Tesla (a boom), but as the philanthropic Bill Gates 2.0 recently pointed out, federal investment in such technologies is vital. Even far-less-essential tools like the Internet would not have gotten off the ground without DARPA dollars. 

In a smart Alternet Q&A, Lynn Stuart Parramore asks economist Mariana Mazzucato about the interdependence of public and private sectors in birthing new industries and devices, including the ever-present iPhone. An excerpt: 

Lynn Parramore:

We constantly hear that anything to do with government is incompetent and inefficient. Yet as you show, many of the industries and products that make our lives better wouldn’t exist without government-funded research. The whole process of economic growth is hugely interdependent with governmental action.

What about something like the iPhone? Is it a product of Silicon Valley magic and the genius of Steve Jobs? Or is there more to the story?

Mariana Mazzucato:

Economists have recognized that government has a role to play in markets, but only to fix failures, like monopolies, for example. Yet if we look at what governments have done around the world, they have not just stepped in to address failures. They have actually actively shaped and created markets. This is the case in IT, biotech, nanotech and in today’s emerging green economy. Public sector funds have not only supported basic research, but also applied research and even early-stage, high-risk company finance. This is important because most venture capital funds are too short-termist and exit-driven to deal with the highly uncertain and lengthy innovation process.

I often use the iPhone as an example of how governments shape markets, because what makes the iPhone “smart” and not stupid is what you can do with it. And yes, everything you can do with an iPhone was government-funded. From the Internet that allows you to surf the Web, to GPS that lets you use Google Maps, to touchscreen display and even the SIRI voice activated system —all of these things were funded by Uncle Sam through the Defense Advanced Research Projects Agency (DARPA), NASA, the Navy, and even the CIA.

These agencies are all mission driven, which matters to their success, including who they are able to hire. The Department of Energy was recently run by Steve Chu, a Nobel Prize-winning physicist, who wanted the Advanced Research Projects Agency-Energy (ARPA-E) to do for energy what DARPA did for the Internet. Would he have bothered leaving academia to join the civil service just to “fix” markets? Surely not. That’s boring.•

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Anyone who’s studied Silicon Valley for about five minutes knows that community’s shocking success is a hybrid of public-private investment, not just some free-market dream realized. Before the Y Combinator, there’s often an X factor, namely a government incubator like DARPA which births and nurtures ideas until they can crawl into the arms of loving venture capitalists. The Internet, of course, is the most obvious example. Even the transistor itself sprang from Bell Labs, which was essentially a government-sanctioned monopoly.

The economist Mariana Mazzucato hasn’t been shy about shooting down the excesses of the sector’s mythologizing, which boasts that brilliant upstarts with startups simply think (ideate!) their way into billions. Not quite. These lone creators don’t only lack the funds to develop an Internet or transistor, Mazzucato doesn’t believe they have the time or stomachs for such risks, either. The market demands corporations opt for safer short-term gain or the shareholders will revolt. (Look at the blowback Google’s received for its moonshot investments, perhaps one reason it reorganized itself into Alphabet this week.) The companies aren’t, then, caged lions held back by regulation, but, as Mazzucato sees it, usually kittens unable to roar on their own.

From John Thornhill at the Financial Times:

Even Silicon Valley’s much-fabled tech entrepreneurs are not as smart as they like to think. Although Mazzucato lavishes praise on the entrepreneurial genius of the likes of Steve Jobs and Elon Musk, she says their brilliance tells only part of the story. Many of the key technologies used by Apple were first developed by public-sector agencies. Most of the key technologies that do the clever stuff inside your iPhone — including its geo-positioning system, the Siri voice-recognition service and multi-touch screen — were the offspring of state-funded research. “Government has invested in basic research, it has invested in applied research, it has invested in concrete companies [such as Tesla] all the way downstream, doing what venture capital should be doing if it was really playing the role it says it plays,” she says. “It is an incredibly active, mission-oriented role.”

One of the original engines of Silicon Valley’s creativity, she argues, was the Defense Advanced Research Projects Agency (Darpa), founded by President Dwight Eisenhower in 1958 following the alarm caused by the Soviet Union’s launch of the Sputnik rocket. Darpa, run by the US Department of Defense, has since pumped billions of dollars into cutting-edge research and was instrumental in developing the internet. According to Mazzucato, the publicly funded National Institutes of Health has played a similar role in nurturing the US pharmaceuticals industry. The Advanced Research Projects Agency-Energy (Arpa-E), set up by President Barack Obama and run by the US Department of Energy, is designed to stimulate green technology.

Mazzucato points to the critical role played by government agencies in other economies, such as China, Brazil, Germany, Denmark, and Israel, where the state is not just acting as a market regulator, it is actively creating and shaping markets. For instance, the Yozma programme in Israel that provided the funding and expertise to create the so-called “start-up nation”. “My whole point to business is, ‘Hello, if you want to make profits in the future, you had better understand where the profits are coming from’. This is a pro-business story. This is not about socialism,” she says.

Her arguments stray into more radical territory as we discuss how the fruits of this technological innovation should be distributed. If you accept that the state is part responsible for the success of many private sector enterprises, she says, should it not share in more of their economic gains?•

 

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