The document discusses the role of the state in innovation and risk-taking. It argues that market failures do not fully explain major technological breakthroughs, which often relied on significant public funding and investment during early development phases. Examples are given of technologies powering the iPhone that emerged from military and government research programs. Charts show declining private sector investment in areas like energy innovation and increasing stock buybacks instead of R&D. The document advocates for an "entrepreneurial state" that takes on more risk during early stages of development to help drive radical innovation.

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. 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. 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. “..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. VS.

6. Business R&D spending across Europe

8. The Entrepreneurial (risk taking) State

9. 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

10. MARKET
Radical
Leverage baseEvolutionary
Discontinuity
NewExisting
NewExisting
TECHNOLOGY
market and technology risk

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. bumpy investment landscape

13. Number of Early Stage and Seed Funding Awards,
SBIR and Venture Capital
(source: Block and Keller, 2012)

14. What makes the iPhone so „smart‟?
source: Mazzucato (2013), p. 109, Fig. 13

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. 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

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. 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!!

19. Source: OECD 2012 http://www.oecd.org/sti/sti-outlook-2012-financing-business-rd.pdf

20. source: Ghosh and Nanda, 2011
technology risk in clean tech
(VC will ride the wave, who will kick/push?)

21. 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

22. 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?

24. BNDES (Brazil) disbursements for innovation

25. 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)

26. anti–competitive?

27. source: Bank of England, Haldane 2011
Financialization not good for Innovation!

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. 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

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.
Yet…

31. 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

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?