Mariana Mazzucato: The (Green) Entrepreneurial State


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Mariana Mazzucato, Reginald M. Phillips Professor in the Economics of Innovation in the Science and Technology Policy Research centre (SPRU), at the University of Sussex, gave this public lecture as part of the STEPS Centre Summer School on 12 May 2014. FInd out more:

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  • After the financial crsiis
  • Mariana Mazzucato: The (Green) Entrepreneurial State

    1. 1. The (Green) Entrepreneurial State Risks, Rewards, and Directionality in Innovation Mariana Mazzucato R.M. Phillips Professor in Economics of Innovation Science Policy Research Unit (SPRU), University of Sussex @MazzucatoM
    2. 2. Framework matters: de-risking? High risk innovation? Who takes risks, who takes rewards? Green evidence Directionality and Organizations Inequality…
    3. 3. The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. 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
    4. 4. Market Fixing vs. Market Shaping Market failure view: correcting ‘inefficiencies’ to bring markets back to default ‘efficient’ position A different view: Shaping and creating markets actively
    5. 5. 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?
    6. 6. VS.
    7. 7. “..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
    8. 8. The Entrepreneurial (risk taking) State
    9. 9. Market failure policies don’t explain the advent of key General Purpose Technologies • mass production • aviation technologies • space technologies • IT • Internet • nuclear power • nanotechnology • Green tech?
    10. 10. MARKET Radical Leverage baseEvolutionary Discontinuity Increasing risk NewExisting NewExisting TECHNOLOGY market and technology risk
    11. 11. 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
    12. 12. bumpy investment landscape
    13. 13. Number of Early Stage and Seed Funding Awards, SBIR and Venture Capital (source: Block and Keller, 2012)
    14. 14. What makes the iPhone so ‘smart’? source: Mazzucato (2013), p. 109, Fig. 13
    15. 15. 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
    16. 16. Total NIH spending, 1936-2011 in 2011 dollars=$792 billion NIH budget for 2012=$30.9 billion source: National Institutes of Health budgets 1936-2011
    17. 17. 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)
    18. 18. Green?
    19. 19. source: Ghosh and Nanda, 2011 technology risk in clean tech (VC will ride the wave, who will kick/push?)
    20. 20. source: Frankfurt School-UNEP Centre/BNEF (2013) Who is funding the green revolution?
    21. 21. Who is funding the green revolution? source: Climate Policy Initiative (2013), The Flows of Climate Finance 2013 (
    22. 22. source: Bloomberg New Energy Finance
    23. 23. BNDES (Brazil) disbursements for innovation
    24. 24. 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)
    25. 25. Lesson for the green revolution? Will never take off with private capital alone Not about ‘nudging’ : need to push. Especially in high risk, capital intensive areas Must welcome failure and experimentation: “ARPA-E …feels like Google!” (Grunwald, 2012) Talent/expertise (in public sector) crucial Need symbiotic public-private partnerships. Xerox Parc and Bell Labs were key partners in IT revolution -- where are the energy companies?
    26. 26. 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
    27. 27. source: Bank of England, Haldane 2011 Financialization not good for Innovation!
    28. 28. 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…
    29. 29. 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: v=x54bVuduggU
    30. 30. 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. Look out Green!
    32. 32. Inequality
    33. 33. 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?
    34. 34. time Cumulative innovation curve
    35. 35. “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? VC from IT! Are renewables creating different ‘narrative’? Warren Buffet
    36. 36. Organizations
    37. 37. “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
    38. 38. Shaping and creating markets (not just fixing) (and why its great to be at Sussex!) GREEN as re-direction of production, distribution, consumption (IT deployment), Carlota Perez. TRANSFORM research outside of private sector boundaries, John Abraham. MULTIPLE pathways, Andy Stirling. TRANSITIONS, civil society and and strategic niches, Johan Schot. STATE CAPACITY? What happens when public intelligence is outsourced?
    39. 39. Who is funding the green revolution? New work with Caetano Penna State Investment Banks & Mission Oriented Policies BNDES and the Brazilian Pharma Risk Landscape Picking winners: the real story