26 | NewScientist | 24 August 2013 IMAGES of tech entrepreneurs such as Mark Zuckerberg and Steve Jobs are continually thrown at us by politicians, economists and the media. The message is that innovation is best left in the hands of these individuals and the wider private sector, and that the state – bureaucratic and sluggish – should keep out. A telling 2012 article in The Economist claimed that, to be innovative, governments must “stick to the basics” such as spending on infrastructure, education and skills, leaving the rest to the revolutionary garage tinkerers. Yet it is ideology, not evidence, that fuels this image. A quick look at the pioneering technologies of the past century points to the state, not the private sector, as the most decisive player in the game. Whether an innovation will be a success is uncertain and it can take longer than traditional banks or venture capitalists are willing to wait. In countries such as the US, China, Singapore and Denmark the state has provided the kind of patient and long-term finance new technologies need to get off the ground. Investments of this kind have often been driven by big missions, from putting a human on the moon, to solving climate change. This has required not only funding basic research – the typical “public good” that most economists admit needs state help – but applied research and seed funding too. Apple is a perfect example. In its early stages the company received government cash support via a $500,000 small business investment company grant. And every technology that makes the iPhone a smartphone owes its vision and funding to the state: the internet, GPS, touchscreen displays and even the voice-activated smartphone assistant Siri all received state cash. The US Defence Advanced Research Projects Agency (DARPA) bankrolled the internet, and the CIA and the military funded GPS. So, although the US is sold to us as the model example of progress through private enterprise, innovation there has benefited from a very interventionist state. The examples don’t just come from the military arena, either. The US National Institutes of Health spends around $30 billion every year on pharmaceutical and biotechnology research and is responsible for 75 per cent of the most innovative new drugs annually. Even the algorithm behind Google benefited from US National Science Foundation (NSF) funding. Across the world we see state investment banks financing innovation. Green energy is a great example. From Germany's KfW state bank to the Chinese and Brazilian development banks, state-run finance is playing an increasing role in the development of the next big thing: green tech. In this era of obsession with reducing public debt – and the size of the state more generally – it is vital to dispel the myth that the public sector will be less innovative than the private sector. If not, the state’s ability to continue to play its enterprising role will be weakened. Stories about how progress is led by entrepreneurs and venture capitalists have aided lobbyists for the US venture capital industry in negotiating lower capital gains and corporate income taxes – hurting the ability of the state to refill its innovation fund. The fact that companies like Apple and Google pay hardly any tax – relative to their massive profits – is all the more problematic, given the significant contributions they have had from the government. Thus, the “real” economy (made up of goods and services) has experienced a shift similar to that of the “financial” economy: the risk has been increasingly moved to the public sector while the private sector keeps the rewards. Indeed, one of the most perverse trends in recent years is that while the state has increased its funding of R&D and innovation, the private sector is apparently de-committing itself. In the name of “open innovation” big pharma is closing down its R&D labs, relying more on small biotech companies and public funds to do the hard stuff. Is this a symbiotic public-private partnership or a parasitic one? It is time for the state to “Every technology that makes the iPhone a smartphone owes its vision and funding to the state” State of innovation Forget Silicon Valley entrepreneurs. It is government that should be credited for backing wealth-creating technology, says economist Mariana Mazzucato OPINION
Transcript
26 | NewScientist | 24 August 2013
IMAGES of tech entrepreneurs such as Mark Zuckerberg and Steve Jobs are continually thrown at us by politicians, economists and the media. The message is that innovation is best left in the hands of these individuals and the wider private sector, and that the state – bureaucratic and sluggish – should keep out. A telling 2012 article in The Economist claimed that, to be innovative, governments must “stick to the basics” such as spending on infrastructure, education and skills, leaving the rest to the revolutionary garage tinkerers.
Yet it is ideology, not evidence, that fuels this image. A quick look at the pioneering technologies of the past century points to the state, not the private sector, as the most decisive player in the game.
Whether an innovation will be a success is uncertain and it can take longer than traditional banks or venture capitalists are willing to wait. In countries such as the US, China, Singapore and Denmark the state has provided the kind of patient and long-term finance new technologies need to get off the ground. Investments of this kind have often been driven by big missions, from putting a human on the moon, to solving climate change. This has required not only funding basic research – the typical “public good” that most economists admit needs state help – but applied research and seed funding too.
Apple is a perfect example. In its early stages the company received government cash support via a $500,000 small business investment company
grant. And every technology that makes the iPhone a smartphone owes its vision and funding to the state: the internet, GPS, touchscreen displays and even the voice-activated smartphone assistant Siri all received state cash. The US Defence Advanced Research Projects Agency (DARPA) bankrolled the internet, and the CIA and the military funded GPS. So, although the US is sold to us as the model example of progress through private enterprise, innovation there has benefited from a very interventionist state.
The examples don’t just come from the military arena, either. The US National Institutes of Health spends around $30 billion
every year on pharmaceutical and biotechnology research and is responsible for 75 per cent of the most innovative new drugs annually. Even the algorithm behind Google benefited from US National Science Foundation (NSF) funding.
Across the world we see state investment banks financing innovation. Green energy is a great example. From Germany's KfW state bank to the Chinese and Brazilian development banks, state-run finance is
playing an increasing role in the development of the next big thing: green tech.
In this era of obsession with reducing public debt – and the size of the state more generally – it is vital to dispel the myth that the public sector will be less innovative than the private sector. If not, the state’s ability to continue to play its enterprising role will be weakened. Stories about how progress is led by entrepreneurs and venture capitalists have aided lobbyists for the US venture capital industry in negotiating lower capital gains and corporate income taxes – hurting the ability of the state to refill its innovation fund.
The fact that companies like Apple and Google pay hardly any tax – relative to their massive profits – is all the more problematic, given the significant contributions they have had from the government. Thus, the “real” economy (made up of goods and services) has experienced a shift similar to that of the “financial” economy: the risk has been increasingly moved to the public sector while the private sector keeps the rewards. Indeed, one of the most perverse trends in recent years is that while the state has increased its funding of R&D and innovation, the private sector is apparently de-committing itself. In the name of “open innovation” big pharma is closing down its R&D labs, relying more on small biotech companies and public funds to do the hard stuff. Is this a symbiotic public-private partnership or a parasitic one?
It is time for the state to
“Every technology that makes the iPhone a smartphone owes its vision and funding to the state”
State of innovation Forget Silicon Valley entrepreneurs. It is government that should be credited for backing wealth-creating technology, says economist Mariana Mazzucato
OPINION
130824_Op_Comment.indd 26 16/8/13 17:24:09
24 August 2013 | NewScientist | 27
get something back for its investments. How? First, this requires an admission that the state does more than just fix market failures – the usual way economists justify state spending. The state has shaped and created markets and, in doing so, took on great risks. Second, we must ask where the reward is for such risk-taking and admit that it is no longer coming from the tax systems. Third, we must think creatively about how that reward can come back.
There are many ways for this to happen. The repayment of some loans for students depends on income, so why not do this for companies? When Google’s future owners received a grant from the NSF, the contract should have said: if/when the benefactors of the grant make $X billion, a contribution will be made back to the NSF.
Other ways include giving the state bank or agency that invested a stake in the company. A good example is Finland, where the government-backed innovation fund SITRA retained equity when it invested in Nokia. There is also the possibility of keeping a share of the intellectual property rights, which are almost totally given away in the current system.
Recognising the state as a lead risk-taker, and enabling it to reap a reward, will not only make the innovation system stronger, it will also spread the profits of growth more fairly. This will ensure that education, health and transport can benefit from state investments in innovation, instead of just the small number of people who see themselves as wealth creators, while relying increasingly on the courageous, entrepreneurial state. n
Mariana Mazzucato is an economist and professor of science and technology policy at the University of Sussex, UK. Her latest book is The Entrepreneurial State: Debunking public vs. private sector myths. She tweets on @MazzucatoM
Comment on these stories at newscientist.com/opinion
As longtime champion of a national park on the moon, what do you think of the bill in the US Congress that proposes to create one? I wasn’t involved in writing the bill, but I applaud those who put it forward. It is a first attempt to secure legal protection for the Apollo moon landing artefacts. Will it succeed? Probably not. But if it opens the discussion, that’s good.
Why do such remote sites need protecting? There are plans to return to the moon. There's the Google Lunar X Prize, which is a competition for a robotic mission, and eventually people are going to go back too. We have lost a lot of things on Earth by not having the protocols in place. In my deepest fears the moon becomes a marketplace. You only have to look at sites selling space memorabilia. Some of these things are very, very valuable.
Is a US national park the best solution? When we say the US will make a park, people in the international community may perceive that as a claim of sovereignty. We have been very careful to talk about just the artefacts. The trick is the legality of doing this. That’s what I have struggled with for the last 14 years. I am a believer that when those first people went to the moon they didn't just represent America but humanity as a whole. Ultimately, the attempt to preserve sites has to be international.
Are there any precedents? Antarctica, which we have protected by a series of treaties with different countries. The other analogy is Admiralty law, which covers the oceans.
Does other space material need protection? Vanguard 1 is a good example: it’s the oldest artificial satellite still in orbit and NASA predicts it will be there for another 600 years. Hubble is due to be retired. Is there a way to preserve these in space, put them at a Lagrangian point – where they can maintain a stable orbit – and leave them for future space tourism? Colleagues of mine were distressed when Russia's Mir space station came down in 2001. Could it have been saved?
One minute with...
Beth O’Leary
Apart from advocating preservation, what do you do as a space archaeologist? We look at material culture left in outer space or on other celestial bodies. It is quite a recent group of artefacts and sites, but you can do archaeology in all places. This place happens to be off Earth.
How can you work at such distances? A lot of archaeology is now done by remote sensing, using aerial or satellite photos. The Lunar Reconnaissance Orbiter, which maps the moon, came close enough to image the Apollo 11 lander and traces of the astronauts’ presence. These are comparable to the kind of pictures we would take of the remains of ancient roads in the Chaco canyon in New Mexico, for example.
How did you get interested in this field? As a girl I wanted to be an astronaut. But I chose another A-word, archaeology. In 1999, a student asked whether federal preservation law applies on the moon. You know, when you get a good question like that, you just have to go with it. Interview by Jon White
A bill that proposes a US national park on the moon is one small step towards preservation, says the space archaeologist
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ProfileBeth O’Leary is an archaeologist at New Mexico State University. She has created a project with NASA to make the 1969 Apollo 11 lunar landing site a National Historic Landmark
