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Mariana Mazzucato on Industrial Policy
European Straits #26
A recent Vox article makes the case that we’re witnessing the end of Internet startups. In the past, the likes of Google, Facebook, and Amazon benefitted from relatively little resistance while conquering industries such as content, advertising and retail. But today the ease with which startup entrepreneurs once harnessed the power of technology and entered new markets seems to have come to an end.
The reason is that the giants of the day didn’t simply secure dominant positions on their original market. They also did what it took to sustain the continuous innovation and diversification that is so critical for large companies to stay dominant in the Entrepreneurial Age, thus making things harder for new entrants. And by the way, every past technological revolution has seen the rise of a first generation of companies that come to dominate the entire economy for a very long time.
Could industrial policy be a remedy to this apparent drying up of entrepreneurial opportunities? This is where Prof. Mariana Mazzucato, the founder of UCL’s new Institute for Innovation and Public Purpose (IIPP), enters the stage. As she suggested last week at the Department for Business, Energy & Industrial Strategy in London (I was there), a mix of antitrust policy (a Sherman Act for the digital economy), government support for certain companies and industries, and entrepreneurship by the state itself could contribute to making economic growth more sustainable, inclusive, and competitive.
I still have mixed feelings about the very concept of industrial policy. For one, I’m not certain the state still has the capacity to work in the general interest. We’re not at the end of the 19th century, when the state was still small and could be shaped to serve the greater good. Nor are we in the 1950s and 1960s, when the Cold War focused Western state leaders on the goal of ensuring technological domination over the Soviet Union. Today, the state is simply lagging behind; and it is widely influenced by corporate interests that have learned to harness its power to serve their goals instead of the public’s.
Furthermore, as argued by Prof. Rainer Kattel (who’s working with Mariana Mazzucato to build the IIPP), it takes a certain organizational form to support innovation in the economy. And based on my experience as a former senior civil servant, I highly doubt that the current form of the state (that of a cathedral) allows it to impose what Carlota Perez calls a “direction for innovation”—one that would lead us all to the Golden Age of ubiquitous computing and networks.
In truth, Internet startups and the state are two sides of the same industrial coin. As for startups (including The Family’s), today’s adversity suggests that opportunities are now in industries that have yet to be conquered by a dominant tech company: it’s about agriculture, healthcare, and energy, not music, advertising, and retail. Additionally, new startups should resist the temptation to diversify early, as being focused on one problem only is key to succeeding in today’s adverse environment.
As for the state, it is mostly lacking a strategy in line with the current techno-economic transition. Only once this strategy has been designed will the state be able to embrace the right form, take bold risks and allocate large amounts of taxpayer money to eventually failed projects as well as transformative ones.
Michael J. Mauboussin (formerly of Credit Suisse) put it this way: “Capital allocation is not about assessing and approving projects, but rather assessing and approving strategies and determining the projects that support the strategies… There can be value-creating projects within a failed strategy, and value-destroying projects within a solid strategy.” This lesson has long been learned by many great investors and executives. It remains to be seen if it can be rediscovered by the state.
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Related to this subject, here is my contribution to a recent book published by Policy Network: Public Policy in the Digital Age: The State as a Platform [PDF].
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