The memorably vitriolic and immensely readable H.L.Mencken, once said, “Democracy is the art and science of running the circus from the monkey cage.” While anything that is attempted to be run by a democratically elected Government has both its adversaries and advocates, one thing which the common populace neither acknowledges nor accuses the State of, is the possession of an entrepreneurial bent. In a world where innovation is attributed to ingenuity originating from run down garages and the cubby holes of lone wolf geniuses, the credit for providing a traction for these endeavours is the sole preserve of Venture Capitalists and Angel Investors. The legion of examples cited by publications of repute and news channels of worth extolling the virtues of Venture Capitalists has almost transformed into proselytization.

In her extremely provocative and insightful book, “The Entrepreneurial State: Debunking Public Vs Private Sector Myths” (“The Book”), Mariana Mazzucato (“the author”) makes a refreshing attempt to set the facts right and give the State its fair share of the credit in so far as pioneering innovation is concerned. Her theme for the book is laid down by a strong quote, courtesy Paul Berg, the 1980 Nobel Prize Winner in Chemistry. Berg asks, “Where were you guys [venture capitalists] in the ‘50s and ‘60s when all the funding had to be done in the basic science? Most of the discoveries that have fuelled [the industry] were created back then.” Primarily written in the context of the USA & UK ‘country contexts’, this book is nonetheless relevant across geographies and where States are equally involved in paving the paths for innovations.

The author argues that the typical image of lethargy, insipidness and regulatory obsession that is layered upon a State does it no justice. Arguing that some of the most seminal innovations in fact have been conceptualized/ideated and driven by the State she proceeds to list some of the path breaking achievements that have seen the light of the day due to the stellar efforts expended by the state. “The progenitor of the Internet was ARPANET, a program funded in the 1960s by the Defense Advanced Research Projects Agency (“DARPA”), which is part of the Defense Department. The Global Positioning System (“GPS”) began as a 1970s US military program called NAVSTAR……many of the promising new drugs trace their origin to the research done by the taxpayer funded National Institutes of Health (“NIH”), which has some annual budget of some $30 billion.”

However, the strongest argument for the State’s role in innovation is the preserve of one of the lengthiest Chapters in the book. Imaginatively titled, “The State Behind The iPhone”, the author vigorously contends that “Apple was able to ride the wave of massive State investments in the ‘revolutionary’ technologies that underpinned the iPhone and iPad: internet, GPS, touch screen displays and communication technologies. Without these publicly funded technologies, there would have been no wave to foolishly surf.” The author also argues that in spite of contributing so much to the development of the iPhone and a whole horde of other products in the Apple stable that have now attained iconic success, the State has been rewarded or unrewarded, unfairly. While shareholders walk off with $453 billion worth of market capitalization. The sophisticated major components embedded within the Apple products are mainly procured from foreign manufacturers in South Korea, Taiwan and Japan, while the final assembly is contracted out to the company Foxconn in China. In 2011, Apple’s top 9 executives earned $441 Million, the equivalent of the annual earnings of 95,000 Foxconn assembly workers. Apple continues to institute complex corporate structures that primarily aid and assist in the evasion of taxes. This according to the author is a brazen dichotomy between socialization of risks and privatization of rewards.

The Government, as per the author is also unfairly accused of not having the ability to ‘pick winners’. A classic case in point is the much touted and lamented about example of the bankruptcy of Solyndra. Under the American Recovery and Reinvestment Act of 2009, the brainchild of the Obama Administration, Solyndra received a $535 million U.S. Energy Department loan guarantee. Solyndra designed, manufactured, and sold solar photovoltaic (PV) systems composed of panels and mounting hardware for large, low-slope commercial rooftops. The panels perform optimally when mounted horizontally and packed closely together, the company claimed, covering significantly more of the typically available roof area and producing more electricity per rooftop on an annual basis than a conventional panel installation. Within two years of all the fanfare and flamboyance, Solyndra had filed for bankruptcy. The State was panned in various academic, business and political circles for not possessing the acuity to back the proper horse. While the successes of the State go unnoticed the failures become a scarring testimony to their inabilities.

The author also underscores the primacy of the entrepreneurial state in incubating major new industries which are stepping stones to the urgently required transition to a low carbon, sustainable economy. She demonstrates how state investment in basic research becomes fundamental to the development of wind and solar power technologies for commercial applications Germany and China are well on their way towards making this endeavor a reality.

The book concludes with a set of policy recommendations for furthering a purposeful public private partnership in the overall interests of society. It needs to be mentioned that some of the measures are UK-specific prised out from the book’s original manifestation as a Demos pamphlet. Some key proposals are:

• Governments should not underinvest in R&D and human capital formation;
• Expansion and reformation of the Technology Strategy Board (now Innovate UK);
• Scrapping the patent box regime and taking a hard look at small business subsidies;
• Participation of the State in the upside of its innovation funding;
• Instituting schemes involving “Golden shares of IPR and a national innovation fund, income-contingent loans and equity; and development banks.”

Mariana Mazzucato does an exemplary work of “debunking Public Vs Private Sector Myths” (in her own words). This meticulously researched book will serve as a reliable and unbiased yardstick in evaluating the future contributions of both the Public and the Private sector in so far as path breaking innovations are concerned. At a time when government measures of any kind are vilified by ascribing to them the taint by ideologies and ‘direction-leanings’ while paradoxically the ventures of capitalistic entrepreneurship stay glorified, this book aims to demolish this ‘one directional’ sense of received wisdom.

“The Entrepreneurial State” – Relevant and Responsible that makes for Recommended Reading.

The 10 Commandments of the Second Machine Age

1. Thou shall recognize the Infection point enveloping the world

From driverless cars to intelligent computers that have the potential to defeat World Chess Champions and reality show experts, the world is experiencing a paradigm shift. Technology is taking giant leaps to upend the received wisdom of the Moravec Paradox. This Paradox which postulates that Moravec’s paradox, “contrary to traditional assumptions, high-level reasoning requires very little computation, but low-level sensorimotor skills require enormous computational resources.”  As Brynjolfsson & McAfee assert, “the next round of robotic innovation might put the biggest dent in Moravec’s paradox ever.”  Unimaginable concepts such as 3D Printing, also known as “additive manufacturing” is toppling conventional theories on their heads. A community of additive manufacturing hobbyists and tinkerers, Carl Bass and many other companies currently employ the technique of additive manufacturing to produce “final parts ranging from plastic vents and housings on NASA’s next generation Moon rover to a metal prosthetic jaw bone for an eighty-three-year-old woman.”

Key Takeaway in the authors’ words: “the three key characteristics of the nature of technological progress are that it is exponential, digital and combinatorial.”

2.    Remember never to forget Moore’s Law

The co-founder and Chairman emeritus of Intel Corporation, Gordon Earle Moore is credited with propagating one of technology’s most influential postulates. As per Moore, “the number of components (transistors, resistors, diodes or capacitors) in a dense integrated circuit had doubled approximately every year, and speculated that it would continue to do so for at least the next ten years.”  In the words of Brynjolfsson & McAfee, “Moore’s biggest mistake was in being too conservative.” Burgeoning improvements in technology and innovative scaling of ingenuity have propelled Moore’s predictions further and further on an upward curve that shows no signs of slowing down. To provide a startling example of this rampant progress, “The ASCI Red, the first product of the U.S Government’s Accelerated Strategic Computing Initiative, was the world’s fastest supercomputer in 1996. Costing $55 million, it was the first computer to score above one teraflop per second. Nine years later, another computer hit 1.8 teraflops………This computer was the Sony PlayStation 3, which matched the ASCI Red in performance, yet cost five hundred dollars, took up less than a tenth of a square meter, and drew about two hundred watts.’

Key Takeaway in the authors’ words: “the accumulated doubling of Moore’s Law and the ample doubling still to come, gives us a world where supercomputer power becomes available to toys in just a few years….”

3. Thou Shall Digitize

In the words of economists Carl Shapiro and Hal Varian, digitization, in their path breaking 1998 book is defined as, “encoding information as a stream of bits.” Digitization is increasingly becoming an integrated part of our everyday lives. From the GPS application Waze to cloud services such as Dropbox, digitization is revolutionizing the way the world goes about its ways. By March 2012, Google had completed a jaw dropping exercise of scanning more than twenty million books published over several centuries.

Key Takeaway in the authors’ words: “Digital information isn’t just the lifeblood for new kinds of science; it’s the second fundamental force (after exponential improvement) shaping the second machine age…”

4. Remember to Innovate

Seminal innovations in powerful technologies according to Bob Gordon and Tyler Cowen, are central to economic progress. Digital innovation is not merely landmark but also “recombinant in its purest form.” Facebook built on the Web infrastructure by permitting people to digitize their social network and put media online sans having to learn HTML.

Key Takeaway in the authors’ words: “…countless other innovations will add up over time, and they’ll keep coming and keep adding up.

5. Think Beyond GDP

Plaudits and inevitability aside, GDP does not succeed in quantifying our welfare. Much of the information and entertainment that is available today for free are excluded by the GDP statistics. “In some ways the proliferation of free products even pushes GDP downward.” The countless hours that people spend on social media commenting on photos, tagging friends and uploading pictures, creates memorable value for a whole horde of people. Since these hours are neither quantified nor valued, not a single hour of such time gets added to the GDP numbers. Hence new metrics are required to enhance the GDP more purposively. Alternative indices such as human development index, multidimensional poverty index and Social Progress Index are emerging as popular and viable alternatives.

Key Takeaway in the authors’ words: “in the meantime we need to bear in mind that the GDP and productivity statistics overlook much of what we value, even when using a narrow economic lens.”

6. Technology Cleaves

The bounty created by technology also widens the spread of social and cultural inequality. “The top 1 percent increased their earnings by 278 percent between 1979 and 2007 compared to an increase of just 35 percent for those in the middle of the income distribution. The top 1 percent earned over 65 percent of income in the United States between 2002 and 2007.”  These economic shifts have birthed three overlapping pairs of winners and losers. The first two winners comprise those accumulating material quantities of the right capital assets. The remaining winners are the ‘superstars’ who are bestowed with either special talent – or luck.

Key Takeaway in the authors’ words: “rewards earned by capitalists may not automatically grow relative to labour. Instead the share will depend on the exact details of the production, distribution, and governance systems.”

7. Honour thy co-existence with thy machine

“Ideation, creativity and innovation are often described as ‘thinking outside the box’. Man’s potential for thinking outside the box coupled with the good processing power of a computer means that an optimal combination is ripe for the taking. While computers are extraordinarily good at pattern recognition within their allocated frames, the multiple senses possessed by humans make their frames inherently broader than those of digital technologies.

Key Takeaway in the authors’ words: “People will need to be more adaptable and flexible in their career aspirations, ready to move on from areas that become subject to automation, and seize new opportunities where machines complement and augment human capabilities.”

8. Remember to harness technology for the common good

The potential to harness the power of technology for the general welfare of humanity is unlimited. A classic example being the field of education. The advent and evolution of online learning platforms such as Massive Online Open Courses (“MOOCS”), have enabled “low cost replications of the best teachers, contents and methods.”

Upgrading infrastructure, providing greater impetus to start-ups, broadening the tax base by resorting to innovative measures such as negative income tax and Pigouvian taxes represent the way forward.

Key Takeaway in the authors’ words: “Inequality and other forms of spread are increasing and everyone is not sharing in all the types of bounty the economy is generating”

9. The spread of the bounty is uneven

Instagram has allowed more than 130 million people to share some 16 billion photos. Barely 15 months into its founding, Instagram was purchased by Facebook for $1 billion. Kodak, on the other hand declared bankruptcy a few months after the Instagram sale. This ‘photography paradox’ exemplifies the uneven division of bounty. Not only has Instagram created a new class of super-rich entrepreneurs and investors, but it has done so with a company that employs only 4,600 workers. Compare that with Kodak, which at its peak employed 145,000 workers in mostly middle-class jobs.

Key Takeaway in the authors’ words: “we’re now in the second machine age: steady exponential improvement has brought us into the second half of the chessboard—into a time when what’s come before is no longer a particularly reliable guide to what will happen next.” 

10. Change is Constant

Science Fiction like developments such as slam and artificial intelligence are more likely than nor to put in peril workers in diverse jobs hitherto deemed safe from the touch of technological displacement. Even though historical record suggests that demand for new goods and services will be sufficiently elastic to compensate for jobs lost as a result of innovation, no economic law guarantees employment for all willing workers at a wage sufficient to live on.

Key Takeaway in the authors’ words: “if we are looking at the wrong gauges, we will make the wrong decisions.”