Cepal Prebsich Lecture 2016 - Mazzucato Final

7/26/2019 Cepal Prebsich Lecture 2016 - Mazzucato Final

1/39

The Entrepreneurial StateIm lications for market creation and economic develo ment

Ral Prebisch Lecture, CEPALApril 19 2016, Santiago, Chile

Mariana MazzucatoR.M. Phillips Professor in Economics of Innovation

Science Policy Research Unit (SPRU), University of Sussex, UKwww.marianamazzucato.com @MazzucatoM


2/39

The 3 great challenges of our time

Smart growth (better innovation)

Sustainable rowth more reen

Inclusive growth (less inequality)


3/39

Public goodse.g. knowledge,

clean air

Public goodse.g. knowledge,

clean air

Negativeexternalities

e.g. pollution

Negativeexternalities

e.g. pollution Informationfailures

e.g. SMEfinance

Informationfailures

e.g. SMEfinance

Policy as (just) fixing market/system failures?

Coordination

failurese.g. pro-cyclical

investment

Coordination

failurese.g. pro-cyclical

investment

Imperfectcompetitione.g. monopolies

Imperfectcompetitione.g. monopolies


4/39

The road to free markets was opened and keptopen by an enormous increase in continuous,centrally organized and controlledinterventionism Administrators had to be

constantly on the watch to ensure the free workingof the system.

Karl Polanyi, The Great Transformation, 1944

A different view: market shaping & creating

The important thing for Government is not to dothings which individuals are doing already, and to

do them a little better or a little worse; but to dothose things which at present are not done at all.

John M. Keynes, The End of Laissez Faire, 1926


5/39

State as Lead Risk Taker, Investor of First Resort


6/39


7/39

The success of a theory consists in thatsuddenly everyone begins to reason

according to new categories

Albert Hirschman


8/39

ROUTES & DIRECTIONS. Policy as actively setting direction ofchange. How to foster a more democratic debate about possibledirections (and stop useless fear about picking winners)?

ORGANIZATIONS. How to build explorative public sector

Categoriesfor Public Policy: ROAR!

organ zat ons t at earn- y- o ng, an we come tr a an error

ASSESSMENT. How to evaluate public sector market creatinginvestments (pushing market frontiers beyond crowding in)?

RISKS AND REWARDS. How to form new deals between thepublic and private sectors, socializing both risks and rewards?


9/39


ORGANIZATIONS. How to build explorative public sectororgan zat ons t at earn an we come tr a an error




10/39

Market failure policies dont explain

General Purpose Technologies

mass production

system aviation technologies space technologies

IT internet nuclear power

nanotechnology green technology


11/39

Missions and risk-taking along

entire innovation chain

2. conce t/

3. early stagetechnolo

Patent Invention: functional prototype Business Validation Innovation new firm or program Viable business

.

inventionDevelopment

.

development

.

marketing

Angel investors,

corporations,technology labs,SBIR, NASA

NSF, NIH,

DARPACorporateresearch

Corporate venturefunds, equity,commercial debt

VC, SBIR,

InQtel, NIH,ARPA-E

Source frequently funds this technological stageSource occasionally funds this technological stage

Source: Auerswald/Branscomb , 2003


12/39

Small Business InnovationResearch

(SBIR)

National Institutesof Health (NIH)

KFW

R$

0

R$5,000

R$10,000

R$

15,000

R$20,000

R$25,000

R$30,000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Millions

BNDES'

disbursements

for

the

green

econom

!nd

c"im!te

ch!nge

PublicTransport

CargoTransport

Other

Agriculturalimprovements

!"roelectricplants#over30M%

&oli"'astemanagement

ater

an"

se'age

management

(orests

Rene'ableenerg!an"energ!e))icienc!

A"apta ontoclimatechangean""isasterris*

management

&ource+-./&

BNDES


13/39

What makes the iPhone so smart?

Source: Mazzucato (2013), p. 109, Fig. 13


14/39

Prebisch lives in Asiaand Silicon Valley

Whereas the government had spawned new industries in

the old economy using State-owned enterprises andimport substituting policies tools such as tariff protection,local content regulations and development banking, it didso in the new econom usin s in-offs from State-owned

research institutes and science parks, together with importsubstituting policy tools such as subsidies to public andprivate R&D, tax breaks and favorable conditions inscience parks.

Alice Amsden, Import substitution in high-tech industries:Prebisch lives in Asia!, CEPAL Review, April 2004


15/39

Tilting the playing field via Demand

Source: Carlota Perez, Why ITand the green economy are thereal answer to the

financial crisis, Green Alliance2012


16/39


ORGANIZATIONS. How to build explorative public sectororganizations that learn and welcome trial and error?




17/39

NASAs mission is to Drive advances in science, technology, aeronautics, and spaceexploration to enhance knowledge, education, innovation, economic vitality, andstewardship of Earth. NASA 2014 Strategic Plan

Creating breakthrough technologies for national security is the mission of theDefense Advanced Research Projects Agency (DARPA).

The ARPA-E mission is to catalyze the development of transformational, high-impact

Creating missions not fixing markets

energy ec no og es.

NIHs mission is to seek fundamental knowledge about the nature and behavior ofliving systems and the applicationof that knowledge to enhance health, lengthen life,and reduce illness and disability.

The mission of the KfW Group is to support change and encourage forward-lookingideas in Germany, Europe and throughout the world.

The mission of BNDES is to foster sustainable and competitive development in the

Brazilian economy, generating employment while reducing social and regionalinequalities.


18/39


19/39

We measure success by how many risks we have been willing to take (with

inevitable failures) and whether the successes actually matter.Cheryl Martin, ex-Director ARPA-E


20/39

Organizational ExperimentationThe design of a good policy is, to a considerable extent, thedesign of an organizational structure capable of learning and ofadjusting behavior in response to what is learned

Dick Nelson and Sydney Winter, 1982

Policy as ProcessShift from total confidence in the existence of a fundamental

solution for social and economic problems to a more questioning,pragmatic attitude from ideological certainty to more open-ended, eclectic, skeptical inquiryAlbert Hirschman, 1987

The Hiding Hand (Serendipity)Historys generous tricks, silver linings and felicitous andsurprising escapes from disaster

Albert Hirschman


21/39


ORGANIZATIONS. How to build explorative public sectororganizations that learn-by-doing, and welcome trial and error?


RISKS AND REWARDS. How to form new deals between thepublic and private sectors, socializing both risks and rewards.


22/39

More than crowding-in: creatinganimal spirits

Businessmen have a different set of delusions from politicians,and need, therefore, different handling. They are, however,much milder than politicians, at the same time allured and

terrified by the glare of publicity, easily persuaded to bepatriots, perplexed, bemused, indeed terrified, yet only tooanxious to take a cheerful view, vain perhaps but very unsure of

, .do anything you liked with them, if you would treat them (eventhe big ones), not as wolves or tigers, but as domestic animalsby nature, even though they have been badly brought up and

not trained as you would wish.

John M. Keyness private letter to Franklin D. RooseveltFeb 1, 1938


23/39

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


24/39

Business R&D spending (BERD)


25/39

Measuring the dynamising in process


26/39

BBC Charter Review: why not soap operas?

Do public banks do what private ones dont?

-

From Public Choice/Goods to Public Values

Did anyone bother measuring the spillovers fromthe Concorde failure?

Are multipliers higher for directed stimulus?


27/39

Rethinking Public Values

Public values are those providing normative

consensus about (1) the rights, benefits, andprerogatives to which citizens should (and should

i l 2 li i f i iz

society, the state, and one another; (3) and theprinciples on which governments and policies shouldbe based(Bozeman, 2007, 13).

(beyond static/ideological measures of public good)


28/39


ORGANIZATIONS. How to build explorative public sector- - ,




29/39


30/39

A new pharmaceutical that brings in more than $1 billion peryear in revenue is a drug marketed by Genzyme. It is a drug for

a rare disease that was initially developed by scientists at theNational Institutes of Health. The firm set the price for a yearsdosage at upward of $350,000. While legislation gives the

Socialization of Risks AND Rewards

governmen e r g o se suc governmen - eve ope rugsat reasonable prices, policymakers have not exercised thisright. The result is an extreme instance where the costs ofdeveloping this drug were socialized, while the profits were

privatized. Moreover, some of the taxpayers who financed thedevelopment of the drug cannot obtain it for their familymembers because they cannot afford it.

Source: Vallas, Kleinman and Biscotti, 2009, p. 24


31/39


32/39

Cumulative innovation curve

time


33/39

Source: Piketty, 2013


34/39

I have worked with investors for 60 years and I have yet to seeanyone not even when capital gains rates were 39.9 percent

in 1976-77 shy away from a sensible investment because ofthe tax rate on the potential gain. People invest to make money,and potential taxes have never scared them off. And to those

Warren Buffet

,

a net of nearly 40 million jobs were added between 1980 and2000. You know whats happened since then: lower tax ratesand far lower job creation.

And.why did capital gains fall in 1976?


35/39

1.20

1.40

1.60

1.80

2.00

2.20

2.40

ratio

Repurchases, dividends, net income, R&D 1980-2006(293 corporations in the S&P500 in October 2007 in operation in 1980)

Fortune 500 companies have spent $3 trillion onbuybacks over the last decade

Value creation vs. Value extraction!

0.00

0.20

0.40

0.60

0.80

1.00

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

TD/NI RP/NI (TD+RP)/NI RP/R&D

Source: Lazonick & Mazzucato, 2013; Lazonick, 2014


36/39

I expect to see the Statetaking an ever greaterresponsibility for directly organizing investment

and I conceive, therefore, that a somewhatcomprehensive socialization of investment will

approximation to full employment

JM Keynes, 1936


37/39

limiting share buybacks

retaining golden share of IPR

capping prices (Bayh Dole act allows it)

negotiating conditions (generics)

Better deal between public & private

income contingent loansretain some equity (Tesla & Solyndra lesson)

% payback into an innovation fund

State investment banks

and more(but where is the conversation?)

(discussed in Mazzucato, 2013; 2015)


38/39

References


39/39

The Entrepreneurial State: debunking private vs. public sector mythsAnthem Press:

London, UK, 2013

Innovation Systems: From Fixing Market Failures to Creating Markets,Intereconomics, Vol. 50 (3);120-125, 2015

The risk-reward nexus in the innovation-inequality relationship: Who takes the risks?Who gets the rewards? Industrial and Corporate Change, 22:4:1093-1128, with BillLazonick, 2013

"

banks, SPRU Working Paper Series, 2014-21, with Caetano Penna, 2014

Accounting for productive investment and value creation, Industrial and CorporateChange, with Alan Shipman, 2014

Innovation policy: smart and inclusive? in New Perspectives on Industrial Policy fora Modern Britain. D. Bailey, K. Cowling and P.R. Tomlinson (eds.) Oxford UniversityPress: Oxford, 2015

Innovation as Growth Policy (2015), in The Triple Challenge: Europe in a New Age.

J. Fagerberg, S. Laestadius, and B. Martin (eds.) Oxford University Press: Oxford,with Carlota Perez, 2015

Cepal Prebsich Lecture 2016 - Mazzucato Final

Documents

Transcript of Cepal Prebsich Lecture 2016 - Mazzucato Final