As Andrew Little, Grant Robertson and the rest of the Labour caucus scratch around for relevant economic ideas, they could do worse than to go past Mariana Mazzucato, an academic at the University of Sussex and champion of state led innovation and intervention in a mixed rather than pure market economy.
The government, in Mazzucato’s universe, is visualized as one which not only sets up the rules for businesses but also actively engages in entrepreneurial activity. The standard argument in mainstream economics posits that governments can only incentivize entrepreneurial activity through taxation, subsidies and so on. But it is the private sector that engages in innovation. In her work, Mazzucato has shown that this dichotomy should be done away with, and points to the public sector roots of innovation by private firms.
Mazzucato has a TED presentation which illustrates this by showing how Steve Job’s genius with the i-phone was in fact utilising existing government funded and developed technologies in a useable and well marketed combination. He did not invent the Internet, touch screen, micro chips, Siri, GPS, lithium-ion batteries etc.
Indeed Apple itself was funded by by a state programme SBIC (Small Business Investment Company). In the US many technological innovations come from government defence and energy research programes like DARPA and ERDA. A key point that Mazzucato and others have made is that the private sector prefers to avoid risk and uncertainty as much as possible. After all their primary objective is making a profit and doing so before their capital is exhausted. They naturally have a short time frame and like asset sales, want to cherry pick. The state however should have a much longer time frame, a vision if you like, and put the long term public good before short term return. As Mishra quotes Mazzucato;
“Whether the state is making an investment in the internet or clean energy in the name of national security or in the name of climate change, it can do so on a scale and with tools not available to businesses (i.e. taxation, regulation). If a central hurdle to business investment in new technology is that it will not make investments that can create benefits for the ‘public good’ then it is essential the State do so—and worry about how to transform those investments into new economic growth later.”
In the New Zealand context we already have excellent Crown Research Institutes who work with industry to commercialise some outstanding collaborative research, mostly in the agricultural field. I say collaborative because this often runs counter to the economic beliefs of the government centred around competition.
For instance I was struck talking to an HR person at Plant and Food a few years ago. I asked if staff had financial incentives for their work to encourage competition and innovation. He replied no, that in fact this would be counter productive as it would result in less collaboration and people keeping their research to themselves. The scientists that they employed wanted, and the ethos they followed, was fair pay and a collegial environment rather than competition. Not to say there are not personal rivalries as amongst any group of people, just that financial incentives would be a barrier and divisive. These are not merchant bankers.
Unfortunately what we see in the university system is the institutions being pitted against one another for funding and students. Like many other areas of the economy this is counter productive in a small nation (think ports, health boards and SOE’s). By all means oversee institutions and make sure they are efficient in their operation but they should be collaborative parts of a whole, not competing silos. Why can’t there be complete crossover between the CRI’s, SOE’s and universities in their research and development, in their staff, in their management ideas, working together for the public good with plenty of public funding. Who knows what innovations might spring from such co-operation as opposed to the supposed “efficiency” of the current competitive models. And if those ideas are to be commercialised into the private sector, should not the government take an equity stake in the enterprise and share in the rewards as well as the risk?
In a compelling article titled Who will lead the green revolution? Mazzucato advocates much of what Russel Norman and the Green Party have been calling for. A government actively involved in green tech. Not just talking about it and leaving it to “the market”, but having a clear vision and funding research that the private sector can later utilise.
Only long-term policy decisions can reduce the uncertainty of transforming core business from legacy into clean technologies. In fact, no other high-tech industry has been created or transformed with a ‘nudge’. Most likely, a strong state-led ‘push’ is needed. Thus, rather than relying on the false dream that markets will run the world optimally for us ‘if only we just leave them alone’, policymakers must learn how to efficiently use the tools and means to shape and create markets – making things happen that otherwise would not.…
It is of course important not to romanticize the state’s capacity. The state can leverage a massive national social network of knowledge and business acumen, but we must make sure its power is controlled and directed through a variety of accountability measures and diverse democratic processes. However, when organized effectively, the state’s visible hand is firm but not heavy, providing the vision and the dynamic push to make things happen that otherwise would not have. Such actions are meant to increase the courage of private business. This requires understanding the state as neither a ‘meddler’ nor a simple ‘facilitator’ of economic growth. It is a key partner of the private sector – and often a more daring one, willing to take the risks that business won’t. The state is thus the iron horse of the green revolution: the speed and direction of change will crucially depend on it.
If Labour and the Greens want a common policy to collaborate on that is in stark contrast to Steven Joyce and the National Party, Mazzucato’s ideas would be a great place to start. Only the state has the resources and the time frame to make big leaps in research and technology and its application for the common good. All Labour needs is the vision and the courage of its convictions. Being a fast follower doesn’t cut it.