Lunch with Mariana Mazzucato

That is today’s FT “Lunch with” piece, by John Thornhill, and of course she is an economist at Sussex.  I hope the article is not too gated for you.  Here is one bit:

As professor in the Economics of Innovation at Sussex University, Mazzucato is much in demand on the international lecture circuit for her iconoclastic views about how wealth is generated and the public sector’s vital role in promoting innovation. She is as forthright in her opinions as she is eloquent in expressing them.

She also has four children and I can testify she is what they call “a commanding presence.”  In Singapore not long ago I told her she should have her own TV show, and I would not be surprised if this someday came to pass.  Here is more:

Even Silicon Valley’s much-fabled tech entrepreneurs are not as smart as they like to think. Although Mazzucato lavishes praise on the entrepreneurial genius of the likes of Steve Jobs and Elon Musk, she says their brilliance tells only part of the story. Many of the key technologies used by Apple were first developed by public-sector agencies. Most of the key technologies that do the clever stuff inside your iPhone — including its geo-positioning system, the Siri voice-recognition service and multi-touch screen — were the offspring of state-funded research. “Government has invested in basic research, it has invested in applied research, it has invested in concrete companies [such as Tesla] all the way downstream, doing what venture capital should be doing if it was really playing the role it says it plays,” she says. “It is an incredibly active, mission-oriented role.”

In my view she overstates what are essentially some worthwhile points.  For more you can read her book The Entrepreneurial State.  Here is her home page.  Here is her Wikipedia page.  Here is her TED talk.  She is here on Twitter.

From the interview, I enjoyed this line:

I walk in as an economist and I walk out as a life coach…

She ordered the soup and the duck.

Comments

The FT lunch series is always good, this one especially so.

Then innovation is easy! Let's turn open the spigot of public spending on 'R&D.' Where are all the Silicon Valleys apart from Silicon Valley? Bueller? Bueller?

Boulder and Portland are doing pretty well. http://www.paulgraham.com/siliconvalley.html

Correction: she ordered the soup, followed by the duck. The interviewer ordered the sea bream.

thanks, fixed...

Many of the key technologies used by Apple were first developed by public-sector agencies.

Sure, but at what cost?

Uh…I don't see anyone else doing it.

So, Tyler what is your view after reading her book? Aside from overstating some points.

She is building a straw man. VC doesn't claim to do basic research - that is for universities - VCs fund innovation, not inventions. This is stuff they taught im the first 2-3 lessons in the innovation mgmt course I did 15 years ago in uni.

Also, the fact that governments have managed to invest in 1-2 successful companies is not an argument

I'm not sure this is a direct comparison, but, back in the 80's politicians and others in the US complained a lot about how Japanese conglomerates "just copied" US technology, failed to do basic research and just generally ripped us off.

But, some Japanese industrialist responded that Japanese corporations excel at "Marketing Invention" or "Marketing Innovation" (or some term like that). And I think they do. The cars Japanese makers were offering were in some ways much better than those from US makers, and it's unclear that US makers would ever have "innovated" their way to such high quality product offerings without following a path first forged by Japanese car makers.

Also, anyone who's ever worked at a venture backed tech startup which is trying to make a business out of some pre-existing, government-funded basic research knows that there are A HELL OF A LOT OF PROBLEMS TO SOLVE to make that "free basic research" into a viable, useful, cost-effective, real-world product.

Indeed. Anyone who asserts the opposite is trying to sell you something.

When I use GPS is doesn't mean someone accurately targets me to kill me. That is what government does. To make it useful for anything else required huge investments in many many different things, and much innovation.

Did government come up with the management techniques that enable large scale software/hardware development to occur on time and on budget? That has been an arguably far more difficult challenge than running a bunch of satellites that tend to do what you tell them to do.

'Did government come up with the management techniques that enable large scale software/hardware development to occur on time and on budget?'

Yes - but we don't talk about the Apollo program much anymore, now that the U.S. is incapable of putting a man on the moon in a decade.

Look up "operational research" in world war two. State funded academics, scientists and military men apply statistics and systems thinking to practical problems in a way never done before and invent much of modern project management. Unbound Prometheus by Thomas Hughes is a good account.

Look up "operational research" in world war two. State funded academics, scientists and military men apply statistics and systems thinking to practical problems in a way never done before and invent much of modern project management. Rescuing Prometheus by Thomas Hughes is a good account.

None of this contradicts what seems to be Mazzucato's basic point: that Government research is a necessary part of the an innovative ecosystem. I don't read the quotes above as saying that the other parts aren't signficant.

What I am more queasy about was the "active, mission-oriented" role. Short version: thje Tesla motor company might impress me, but the subsidies certainly don't.

Long version: The best practical innovations to come from government research are not very goal directed. Either it is something built on basic science or else (like GPS) it is a re-targeting of an originally military use. Sure the _military_ was "misson oriented", and got what it wanted from GPS, but the benefits in other fields had little to do with a top-down planning.

Yes, the military drives innovation. For example (off the top of my head) the wrist watch (WWI), Teflon, fuel injection, penicillin (WWII), were all government sponsored or driven.

Her point is good, and it's equivalent to saying our existing patent system is broke and does not really reward innovation, and needs to be fixed either with funding basic research or making better patents. I have some innovative ideas I've bounced off of AlexT and I hope AlexT advocates them, along with his 'multi-tier' patent protection, prizes, and other such proposals.

The US government is so large, you can blame/credit it for everything by the logic that its involvement was necessary. She's popular because progressives like convoluted 'scientific' arguments that prove the state should be bigger, and there are lots of progressives.

Note where she ends up: she thinks the public schools and green energy need more funding, so it would have been nice for the government to get a slice of equity in every start-up (because all start ups use something derived from something that used government resources). What a dumb idea and objective. Schools are not helped by simply giving them more money, indeed, it makes them more complacent; state-sponsored green energy is basically a sham, as it has encouraged wasteful ethanol production that is bad for the environment, and discouraged nuclear or clean coal.

Yes, nuclear is awesome for the environment ;)

True, but it's the GMO of technologies attracting all sorts of irrational fears, sort of like vaccinations and government funding of basic research.

In my opinion nuclear power is very environmentally friendly. All the spent fuel produced worldwide, stored in concrete casks, would only take up a few dozen acres, and 97% of it is the same uranium hauled from the ground. Some of what's left is Plutonium, which could be used as fuel, and a lot of the fission products will become inert within tens of years, leaving only a small volume that needs to be confined long-term. And there is a lot that more abundant energy could do to help improve environmental sustainability, as well as economic development. For example, the production of solar panels results in silicon tetrachloride, the recycling of which is energy intensive. Other recycling processes are also energy intensive. Other things you could do are desalination (avoiding depleting aquifers, and allowing groundwater to run its natural course, benefiting wildlife) and replacing methane use with hydrolysis in fertilizer production. You could produce nuclear-assisted biofuels where you only use agriculture to fix carbon, and hydrolyze the products using nuclear energy.
I get the impression that a lot of postmodern environmental thought is just hostile to heavy industry generally. Maybe this is caused by people no longer having a connection to it in the service economy, even though they are still using it's products.

You live near Lake Anna? The bass are bigger in the cooling ponds, not to mention they glow in the dark.

But it's true what you say: fission nuclear energy is safe, except (statistically) for the people that work in the plants, or build them. They get dosed with radiation more and develop cancer more so than the average as I recall reading. Maybe radiation hardened robots are the answer? And to jettison somehow the spent fuel into deep space, using a high-strength 'space elevator' cable? Something like that, aside from developing fusion.

Construction crews for nuclear plants get no radiation doses as the fuel is loaded after construction is complete. Nuclear plant workers don't get that much extra radiation. Many other occupations are far more hazardous. Burial of nuclear waste is a simple, safe and effective solution.

Switching to thorium reactors would be a big improvement. They are safer, we have more thorium than uranium, and bombs cannot be made from them. It was the latter fact that led the US government to pursue uranium reactors rather than thorium ones decades ago after TVA first successfully tested thorium fission.

Full life cycle CO2 emissions of solar power are still an order of magnitude greater than those of nuclear.

LOL, "clean coal."

It. Doesn't. Exist.

Technically, yes, but the key is not to compare it to naive hypotheticals. 40% of our energy comes from coal, so to enhance its efficiency will lower CO2 output much more than windfarms and solar energy, which are never going to scale. 'Clean coal' isn't about making it more efficient than natural gas or nuclear, just about making coal better, which sadly is being neglected because it's considered too short sighted.

That's what the Southern Baptists said about "safe sex." You don't want to be like the Southern Baptists, do you?

> Even Silicon Valley’s much-fabled tech entrepreneurs are not as smart as they like to think.

Plato, Aristotle, Socrates... Morons!

+1. How smart are we supposed to think they think they are?

I'd like to see the cost benefit analysis of the different stages of basic research => applied research =>investor. Better still I'd like to see the move to applied research and investor justified case by case by cost benefit analysis. My guess is that the successes of the later will turnout to be justified only in cases where political constraints prevents government from doing its basic job of fixing market failures and taxing/subsidizing externalities. Are there any green investments that are better than a carbon tax?

From her web page, below is an abstract of what seems to be a typical academic journal article. She reminds me of Yanis Varoufakis--another attractive, charismatic economist who has become a media darling by bashing markets and private enterprise. This fashion trend looks to be gaining strength. Even mainstream lefty economists like Stiglitz and Summers are hopping on the neo-Marxist bandwagon.

APPLE’S CHANGING BUSINESS MODEL: WHAT SHOULD THE WORLD’S RICHEST COMPANY DO WITH ALL THOSE PROFITS?
Lazonick, W. Mazzucato, M. and Tulum, Ö. (2013), in special issue of Accounting Forum, Volume 37, Issue 4, Pages 249–267.
Apple Inc. stands out as the world’s most famous, and currently richest, company. To the general public, Apple is known for three things: its intriguing CEO Steve Jobs, who has achieved iconic status in death as in life; its amazing iOS products, especially the iPhone and the iPad, and their predecessor the iPod, which have literally placed sophisticated technology in the hands of the masses; and its stratospheric stock price, which even when in March 2013 it had dropped to 63 percent of its September 2012 peak, gave Apple the highest market capitalization of any company in the world. As a result of its phenomenal success, at the end of fiscal 2012 Apple had $121 billion in liquid assets. In April 2013 the company committed to distributing as much as $100 billion to shareholders in stock buybacks and cash dividends by the end of calendar 2015. By employing the theory of innovative enterprise to analyze how over the course of its 37-year history Apple became so profitable, we argue that there is no economic justification from a risk-reward perspective for this distribution to Apple’s shareholders. Taxpayers and workers have superior claims on these profits. In analyzing by whom value is created as a basis for considering for whom value should be extracted, we raise the implications of Apple’s changing business model for the future of innovation at this heretofore exceptional American company and even in the U.S. economy as a whole.

So government should receive remuneration for the positive externalities it creates.

What about the negative ones? Every deadweight loss they create, they have to pay for.

How do you think it would work out on net?

They kind of do; ever heard of superfund sites? Huge amounts of money spent on cleaning up government messes.

Is superfund confined to cleaning up just government messes? I thought it cleaned up messes created by corporations too.

https://en.wikipedia.org/wiki/Superfund

Corporation tax?

I, for one, look forward to finding out how much of their own profit Apple's investors deserve.

From reading reviews and excerpts only: I like that the Author appears to be dismissing the relevance of Big Government Public Sector vs Innovative and Dynamic Private sector - but this does not go near far enough and I believe is not helped by referring to historical precedent. The bottom line is that we don't have the ability to assess the worth and potential of every individual person in real time (though we are close at school age), provide the cutting edge education and work assignments to challenge their individual abilities and ambitions, and then 'healthily' tie that all together into a fully-utilized society - a system not much different from one of those massive multi-player online games, frankly. Until that magical day happens, such conversations are navel-gazing and usually used to justify the life decisions of those who chose 'the other side'. We fear, as a society, to simply make a schedule of every job's worth - with the most valuable being: the most abstract, intensely difficult to learn and maintain, combined with a requirement for teaching, lecturing, policy-advising, and other periphery interactions that create actual value (perhaps multi-displinarian high math types who influence design of bio-machines, but also teach, lecture, influence society policy) -- down to the most mundane and non-value-adding jobs such as business administration, sales, sports (insofar as it does not 'create' content), retail, finance, low-dexterity manual, etc. Like many professional sports, such a hyper-mertiocratic system would mean that high income years would likely be in late 20s to early 40s with natural decline beyond (with indicators for productivity, of course (ironically taken from the private sector - i suppose that sector does have its use, as data)). The high earners would pre-dominantly be high productivity, dedicated, science-types who design and artistic-types who create - the individuals who add the most value to society. With such a society, issues of discrimination, politics, scarcity-as-value, risk-as-value, corporate entities vs other, and other such drama would be irrelevant. Plug into your job, receive your work assignments/research, think, produce, be peer-reviewed, and move on (or maybe change with its requisite learning, etc). Too many people dismiss their school age years as something to get past rather than as a model for future society. Further, those that did not finish in the top 25% of class, but were ambitious, would fight against a society that did not value those who could network, marshal and guide the creatives, or be an entrepreneur of new but ultimately simple industries -- when, in an ideal world this would be done by management apps and policy guides as itemized as a 'Domino's Pizza Franchises - from empty site to multi-store empire', step-by-step. Ho-hum - at least Ms. Mazzucato brought forth the idea of the non-sensical nature of the Public vs Private debate. Let’s take it and actually create a society worth producing within.

Yes, gated out so instead, I reread Paradoxes of Libertarianism http://www.cato-unbound.org/2007/03/11/tyler-cowen/paradox-libertarianism and suspect it explains some of why they would get along well. Guessing they are joined in a fairly pragmatic utilitarianism with some human rights both positive and negative, and the hero's quest for better bigger government. Idyllic but inertly incremental. Not sure if there is a better alternative.

"Professor Mazzucato dislikes venture capitalists. She believes that they capture a disproportionate share of the profits of innovation, and that they make false claims to courage and risk taking and entrepreneurship. Indeed they do. But it was the Professor Mazzucatos of this world who created venture capitalists."

That's my pull quote from an unfavorable review by Terence Kealey, whose views are roughly diametrically opposed to hers. http://pricesandmarkets.org/volume-3-issue-3-winter-2015/mariana-mazzucato-the-entrepreneurial-state/

Don't VCs overall have pretty poor returns, especially risk-adjusted?

Should be easy enough to graph inventions per research spending dollars in government versus the private sector, and another comparison for countries in which r&d is mostly government versus countries that are mostly private sector.

How many new medicines did the USSR develop?

You are familiar with phage therapy, right? https://en.wikipedia.org/wiki/Phage_therapy

Periodically I email Russ Roberts with EconTalk guest suggestions. One of my first such was Mazzucato, not because I agree with her thesis about the entrepreneurial state, but because I think Russ could give her some good pushback and get a good conversation out of it. Unfortunately he has yet to get her on the show (I'm not sure if he has tried).

What portion of those government-driven innovations were developed to serve the US war machine? Do the people who routinely highlight government innovations implicitly endorse a Cold War mentality and a healthy military industrial complex?

Depends - Prof. Cowen, a self-declared libertarian, is certainly on board with explicitly endorsing such a framework, for example -

'Rather, the very possibility of war focuses the attention of governments on getting some basic decisions right — whether investing in science or simply liberalizing the economy. Such focus ends up improving a nation’s longer-run prospects.

It may seem repugnant to find a positive side to war in this regard, but a look at American history suggests we cannot dismiss the idea so easily. Fundamental innovations such as nuclear power, the computer and the modern aircraft were all pushed along by an American government eager to defeat the Axis powers or, later, to win the Cold War. The Internet was initially designed to help this country withstand a nuclear exchange, and Silicon Valley had its origins with military contracting, not today’s entrepreneurial social media start-ups. The Soviet launch of the Sputnik satellite spurred American interest in science and technology, to the benefit of later economic growth.' http://marginalrevolution.com/marginalrevolution/2014/06/is-the-lack-of-war-hurting-economic-growth.html

As can be seen from that excerpt, he pretty much agrees with Prof. Mazzucato.

I was surprised to learn a few years ago that the biggest employer in Silicon Valley in the 1980s, when the startup/IPO hype was quite strong, had been Lockheed's submarine missile factory with 28,000 workers. The Cold War was run on a vast scale

Fred Terman helped run Harvard's electronic warfare lab during WWII, and when he came home to Stanford he made sure Stanford got a huge cut of Uncle Sam's money during the Cold War.

Gosh, Tyler. I would have thought we would have had a report of you having lunch with her at a much cooler place than this third rate joint the FT took her too. I mean, sea bream, how boring, how yesterday, or even the day before yesterday.

So, yeah, she is really very cool and articulate and smart, even if one wants to disagree with her on certain points. But, hey, I'll have lunch with her anytime anywhere, within reason, of course, :-).

I'm gonna assume that Cowen is being Straussian and he doesn't stand this horridly annoying b... woman.

Else why would he link to her insufferable TED talk?

Government has invested in basic research, it has invested in applied research, it has invested in concrete companies [such as Tesla] all the way downstream, doing what venture capital should be doing if it was really playing the role it says it plays, It is an incredibly active, mission-oriented role.

Post hoc ergo propter hoc is more of a logical fallacy than an economic argument, but if that's how this woman can make money from books and lectures then more power to her.

like Zingales said, you can be statalist if you are in Sweden but if you are in Italy you are a fool.

Mazzucato figured out that if you lavish 50% or more of a country's GDP on the public sector, from time to time some useful things get done or created. As an economist, does she know about opportunity costs? That benefits have costs, which may or may not be lower than the benefits?

I don't see a theory of process. Many innovations that came out of government research were serendipitous in their eventual application, there was no clear intent to create whole new industries within the process. Simply because government funded research is not a reason to suppose that innovation would not have been shaped by market forces. Also, her point about "paying back" those who initially funded the research, the taxpayers, is flawed for the entrepreneurs never capture but a fraction of the positive externalities from their efforts. I see nothing in her work to make me any less skeptical of the so-called honorable nature of government bureaucrats.

Comments for this post are closed