Mariana Mazzucato: Government -- investor, risk-taker, innovator

Why Are Innovative Companies Predominantly from the U.S.?

The Dominance of U.S. Companies in Innovation

• The speaker questions why innovative companies like Apple, Google, and Facebook primarily emerge from the United States, noting that while there are exceptions like Spotify, they haven't had the same impact.

• The speaker works as an economist studying innovation's relationship with economic growth and collaborates with global policymakers who are curious about Europe's lack of similar tech giants.

Market vs. State: Understanding Silicon Valley's Success

• The discussion highlights different market-making mechanisms behind Silicon Valley's success, including a dynamic venture capital sector that supports high-risk innovations.

• There's a narrative suggesting that private sectors are more innovative due to their ability to think outside traditional frameworks compared to public sectors which may be seen as restrictive.

Perceptions of Public Sector Limitations

• The speaker contrasts the vibrant entrepreneurial spirit in the U.S. with Europe’s more equitable but potentially less dynamic environment due to a larger public sector.

• Media often portrays the state as a hindrance to innovation, emphasizing its role in addressing market failures while advocating for minimal intervention beyond basic infrastructure and research funding.

Rethinking Public Spending and Innovation

• The implications of this juxtaposition extend beyond innovation policy into broader discussions on public spending cuts and outsourcing of services.

• There is a call to reconsider how we view public services' roles in fostering innovation rather than seeing them solely as burdensome regulations.

Government Funding Behind Technological Innovations

• The speaker encourages reflection on revolutionary technologies found in devices like smartphones, highlighting government-funded advancements such as the Internet and GPS.

• Key components of modern technology (e.g., touchscreen displays), often credited to private innovation, were significantly supported by government grants and military programs.

Broader Implications for Various Industries

Understanding the Role of State in Innovation

Revolutionary vs. Incremental Medicine

• The classification of medicines into revolutionary new drugs (new molecular entities with priority rating) and incremental changes (slight variations of existing drugs) highlights the innovation spectrum.

• A significant 75% of revolutionary new drugs are funded by public sector labs, challenging the perception that only Big Pharma drives innovation.

Big Pharma's Spending Habits

• While Big Pharma invests in marketing and stock buybacks, their R&D spending is often overshadowed by these expenditures.

• Companies like Pfizer and Amgen prioritize share repurchases over research, indicating a troubling trend in corporate investment strategies.

The State as an Innovator

• The state plays a crucial role beyond merely fixing market failures; it actively shapes and creates markets through funding both basic and applied research.

• Public programs like SBIR and STTR provide essential early-stage financing for small companies, filling gaps left by private venture capital which typically seeks short-term returns.

Risk-Taking and Market Shaping

• Contrary to traditional narratives, the state has been instrumental in high-risk innovations across various sectors, including technology development.

• The term "nanotechnology" originated from government initiatives, illustrating how state involvement can drive entire fields forward.

Rethinking Public-Private Partnerships

• By framing the state's role as merely de-risking investments, we limit our understanding of its potential to foster dynamic public-private partnerships.

• Successful organizations like DARPA exemplify how embracing failure can lead to groundbreaking innovations; they understand that most experiments will not succeed.

Implications of State Risk-Taking

• If the state takes on substantial risks without adequate rewards, it raises questions about how society compensates for these efforts.

• Traditional views suggest that tax revenues from job creation are sufficient rewards for state investments; however, globalization complicates this narrative as many jobs move abroad.

Addressing Reward Mechanisms

• Companies benefiting from state-funded innovations often contribute little back through taxes; thus, alternative mechanisms for return generation should be considered.

The Role of State Investment in Innovation and Value Creation

State Equity Retention in Investments

• Countries like China and Brazil are retaining equity in their investments, which allows them to benefit financially from successful ventures.

• Sitra, a public funding agency in Finland, invested in Nokia and retained equity, leading to significant financial returns that funded subsequent rounds of investment.

• The Brazilian Development Bank has announced a $56 billion program for clean technology while also retaining equity in its investments.

Innovation Fund Concept

• The speaker suggests that if the U.S. government had established an innovation fund, it could have generated substantial revenue from Internet profits.

• A mere 0.05% return on Internet-generated profits could have significantly bolstered funding for green technology initiatives today.

Strategic Role of the State

• There is a discussion about the perception of the state as merely a backseat player in value creation within the economy.

• The importance of recognizing the state's role as a lead player in creating economic value is emphasized.