Book Review: The Entrepreneurial State

A much better version of this post is on my new blog. The text below is kept for posterity.

When I was first getting interested in Cognitive Science, I started reading “How to Build a Brain” by Chris Eliasmith. By the end of it, I truly felt biologically plausible modelling was hugely important for the advance of Cognitive Science. I also knew this feeling was misleading given I had no familiarity of the argument landscape. Why wasn’t everyone else doing biologically plausible modelling? Why were they still using their seemingly inferior frameworks? It took me three years, a conference, part of my master’s degree, more than a hundred questions on CogSci.SE and multiple blog posts to figure out satisfactory answers to those questions.

And now, after reading “The Entrepreneurial State: debunking public vs. private sector myths” by Dr. Mazzucato, I feel the same way, but I don’t have three years to dedicate to it’s investigation.

The central thesis of The Entrepreneurial State is that government funded research drives the economy of the nation.

The state is able to fund foundational technological research and bring it to market. The government does this in ways that venture capital and industry is unable, despite the opposite is usually thought of as common knowledge. It is able to do this due to it’s size. It’s able to absorb the risk long-term landscape using funding organisation like via funding organisation and developmental banks such as DARPA, NIH and ARPA-e. Examples of countries currently doing this successfully are Germany and China.

This basic research is one of the core drivers of the economy, thus it takes priority over controlling deficits of spending. However consideration is given to how the government gets this money. Mazzucato argues the taxation reforms put forth by Piketty are insufficient given the ease of tax evasion. Consequently, the government must tax the use of the technologies it creates.

Mazzucato gives multiple examples of the importance of basic research being funded by the government. Specifically, the IT revolution, drug development and the Green revolution.

The section on the IT revolution focuses on Apple and how every aspect of their products, from integrated circuits, small form-factor hard-drives and touch screens to the software behind Siri, were funded by government initiatives. Consequently, Apple’s “innovation” lies in synthesizing products after all the hard research has been done.

The Green Revolution section more generally gives a tour of various attempts at solar/wind energy and how government support differentiated companies (Vestas, Kenetech and Tesla) who fell versus those who succeeded after temporary setbacks.

Most of the counter-arguments I’ve found boil down to:

• The effect of “crowding out” needs to be taken into greater account. Basically, R&D personnel are a finite resource and government funding consumes the supply of talent unproductively compared to the private sector. This ties interestingly into the idea of there being no shortage of STEM graduates, but a glaring shortage of competent people.
• A statistic was mis-interpreted in an argument in the book
• The critic didn’t read the book, but doesn’t like what it’s implying. Consequently, instead of critique the arguments, they’re going to argue semantics to death.

Links to well thought-out criticisms, particularly in peer-reviewed journals, would be appreciated.

Overall, the book is masterfully written, but it raises more questions than it answers. What does a good developmental bank look like? Why are the DARPA folks so good at determining when to pull out of a bad investment? How does a government know when it has committed sufficient amount of funding? How does a government know if the distribution of spending is adequate? Can all of these goals be accomplished transparently? When are shareholder buy-backs reasonable and not a sign of a dysfunctional economy?

I supposed my inability to answer these questions is due to the fact I am neither a politician, nor an economist. However, recommendations for further reading to answer these questions would be appreciated. Until then, you’ll probably be finding me on Economics.SE in the near future.

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