Mariana Mazzucato: The Entrepeneurial State

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A professor of innovation economics, Mariana Mazzucato explains how the schism between the risk-taking private sector and the investment-averse public sector is not only a myth, but one that directly runs counter to progress and growth. IKT-Norge conference NEO2014

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  • After the financial crsiis
  • Mariana Mazzucato: The Entrepeneurial State

    1. 1. The Entrepreneurial State Rethinking Risks and Rewards in Innovation Mariana Mazzucato R.M. Phillips Professor in Economics of Innovation Science Policy Research Unit (SPRU) University of Sussex, UK www.marianamazzucato.com @MazzucatoM
    2. 2. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. John Maynard Keynes, The General Theory of Employment Interest and Money, Ch. 24, p. 383
    3. 3. a)Set „level‟ playing field then get out of the way b)Solve market „failures‟ c)Something more interesting? What is the State‟s role in the economy?
    4. 4. “..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
    5. 5. VS.
    6. 6. Business R&D spending across Europe
    7. 7. The Entrepreneurial (risk taking) State
    8. 8. Market failure policies don‟t explain the advent of key General Purpose Technologies • „mass production‟ system • aviation technologies • space technologies • IT • internet • nuclear power • nanotechnology
    9. 9. MARKET Radical Leverage baseEvolutionary Discontinuity NewExisting NewExisting TECHNOLOGY market and technology risk
    10. 10. Valleys of death and Darwinian seas 1. research 2. concept/ invention 3. early stage technology development (ESTD) 4. Product development 5. production/ marketing Angel investors, corporations, technology labs, SBIR NSF, NIH, DARPA Corporate research Corporate venture funds, equity, commercial debt VC, public venture capital, NIH, labs, ARPA-E Source frequently funds this technological stage Source occasionally funds this technological stage Patent Invention: functional prototype Business Validation Innovation new firm or program Viable business source: Auerswald/Branscomb , 2003
    11. 11. bumpy investment landscape
    12. 12. Number of Early Stage and Seed Funding Awards, SBIR and Venture Capital (source: Block and Keller, 2012)
    13. 13. What makes the iPhone so „smart‟? source: Mazzucato (2013), p. 109, Fig. 13
    14. 14. Microchips powering the iPhone owe their emergence to the U.S. military and space programs, which made up almost the entire early market for the breakthrough technology. In the 1960s, the government bought enough of the initially costly chips to drive down their price 50x in a few short years, enabling numerous new applications. The early foundation of cellular communication lies in radiotelephony capabilities advanced throughout the 20th century with support from the U.S. military. The technologies underpinning the Internet, which gives the “smart phone” its smarts, were developed and funded by the Defense Department‟s Advanced Research Projects Agency in the 1960s and 70s. GPS was created/deployed in 1980s/90s by the military‟s NAVSTAR satellite program and still today maintained via public funds The multi-touch display that makes using an iPhone so intuitive has the government‟s fingerprints all over it. The revolutionary interface was first developed by a brilliant pair of University of Delaware researchers supported by NSF and CIA grants SIRI, iPhone 5‟s personal assistant, developed initially in DARPA. Source: Mazzucato (2013) and The Breakthrough Institute: Where Good Technologies Come From?, 2011
    15. 15. Total NIH spending, 1936-2011 in 2011 dollars=$792 billion NIH budget for 2012=$30.9 billion source: http://officeofbudget.od.nih.gov/approp_hist.html National Institutes of Health budgets 1936-2011
    16. 16. Variations of existing drugs Priority NMEs Standard NMEs 67% Radical innovation funded almost entirely by NIH funding (75% of P NMEs) 19% 14% new vs. „me too‟ in pharma (1993-94) source: Angell (2004)
    17. 17. France France France Germany Germany Greece Greece Greece Ireland Ireland Ireland Italy Italy Italy Japan Japan Japan Portugal Portugal Portugal Spain Spain Spain United Kingdom United Kingdom United Kingdom United States United States United States Average OECD Average OECD Average OECD Average OECD EU-15 EU-15 EU-15 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 GERD as a percentage of GDP PIIGS!!
    18. 18. Source: OECD 2012 http://www.oecd.org/sti/sti-outlook-2012-financing-business-rd.pdf
    19. 19. source: Ghosh and Nanda, 2011 technology risk in clean tech (VC will ride the wave, who will kick/push?)
    20. 20. Where are energy‟s Xerox Parcs & Bell Labs? 0 100 200 300 400 500 600 700 800 900 2002US$million Renewable energy R&D investments in the U.S. in million 2002 dollars Public sector Private sector 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
    21. 21. 0 10 20 30 40 50 60 2004 2005 2006 2007 2008 2009 2010 2011 2012 US$billion Renewable energy investments Development bank (data available for 2007-2012 only) Venture capital, private equity and stock markets Government R&D Corporate R&D source: Frankfurt School-UNEP Centre/BNEF (2013) Who is funding the green revolution?
    22. 22. BNDES (Brazil) disbursements for innovation
    23. 23. China Development Bank CDB key in 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 Energy received $1.7 bn from 2008 through 2012 with a $5.3 bn line of credit opened for it. Since 2010, CDB has made available $47.3 bn in credit lines for Chinese wind and solar energy companies and other $30.6 bn for clean energy transmission, distribution and efficiency investments. In 2010, the list of Chinese alternative energy technology companies receiving CDB lines of credits included LDK Solar ($9.1 bn); Sinovel Wind ($6.5 bn); Suntech Power ($7.6 bn); and Trina Solar ($4.6 bn), which “allowed Chinese companies to further ramp up production and drive down costs” of renewable energy technologies (source: Sanderson and Forsythe, 2013)
    24. 24. anti–competitive?
    25. 25. source: Bank of England, Haldane 2011 Financialization not good for Innovation!
    26. 26. 0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 2.00 2.20 2.40 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 ratio TD/NI RP/NI (TD+RP)/NI RP/R&D Repurchases, dividends, net income, R&D 1980-2006 (293 corporations in the S&P500 in October 2007 in operation in 1980) FINNOV WP 5 (Bordeaux) Fortune 500 companies have spent $3 trillion on buybacks over the last decade…
    27. 27. 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. Source: http://www.youtube.com/watch?v=x54bVuduggU
    28. 28. 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. Yet…
    29. 29. THE GREAT TRANSFORMATION  From CROWDING-IN to TRANSFORMING-IN  From PICKING WINNERS to WIN SOME LOSE SOME  From SUPPLY OF FINANCE to QUALITY OF FINANCE  SYMBIOTIC vs PARASITIC ECO-SYSTEMS  From DE-RISKING to SHARING RISKS AND REWARDS
    30. 30. Are taxes enough? •IPR golden share •Income contingent loans •Retain some equity (e.g. SITRA with Nokia) •% payback into an „innovation fund‟ Lessons from Solyndra and Tesla: win some lose some. How to cover the losses and have enough for next round? And where will the money come from?

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