Can the UK become an ‘Entrepreneurial State’?

02 December 2014

Caroline Kuzemko - Research Fellow in the Energy Policy Group at the University of Exeter and the author of The Energy Security-Climate Nexus: Institutional Change in the UK and Beyond 

The key question is what, politically, might motivate a country, like the UK, to want to move in that direction

A couple of weeks or so ago, along with a good number of others, I listened with great interest to Mariana Mazzucato’s prize lecture in recognition of the award to her of the first ever New Statesman SPERI Prize for Political Economy.

Mariana is surely worthy of this prize.  Her analysis is critical and visionary, but also theoretically and empirically rigorous.  She is unquestionably passionate about her work and is a clear and brave communicator.  Her lecture made me think about the UK state’s role in innovation and, more generally, about inequality and crises, but also about what we, as political economists, can do to make failures apparent, to re-explain markets and to provide new visions for the role of the state.

Much of the lecture was centred upon themes familiar to those who know her book The Entrepreneurial State – inequality, market creation, innovation and the role of the state (as broadly conceived).  The basic message was that many innovations, in technology, health and energy, have only been realised because state institutions have acted as a force for change and to create new markets.  This of course runs counter to the more common narrative, in countries like the USA and the UK, which categorically upholds that innovations happen only in the private sector.

Her most often cited example of this not being the case is that of the iPhone, almost always claimed to be the product of private innovations, but actually only made possible because of US state actions.  What is most shocking about this realisation is not only that the role of the state in innovating is not overtly recognised (therefore leading to misdiagnoses of what causes innovation), but also that the state has not enjoyed financial returns from such investments in the (many) instances wherein companies, including Apple, do not pay their fair share of taxes.

It appears that one of the drivers behind Mariana’s incredible dissemination schedule is to put right some of these misdiagnoses – not least because some countries then go on to design fruitless new policies to support innovation on the back of them.  For example, the UK, back in 2002, planned to encourage a UK Silicon Valley by instigating tax breaks for small and medium enterprises (SMEs) which, it was thought, would boost entrepreneurship.  But this missed Mariana’s central point, which is that the state needs to act as entrepreneur in the early stages of innovation development.  This is because innovations can take decades to develop and those finance sources usually cited as suitable to investing in innovations, such as venture capital, are too short-term in their thinking and, as such, just not set up properly to see through investments of this nature.

photo credit goes here

In fact, The Entrepreneurial State does not have much positive to say at all about the UK and innovation.  It is described as forever ‘nudging’, instead of leading, as lacking in vision, and as being ideologically too fixed on letting markets innovate.  These observations chime with some of the work on sustainable energy innovations and governance undertaken at the University of Exeter.  This compares the UK, unfavourably in most instances, with Denmark, Germany and some US states.  We argue that part at least of the explanation for the UK’s relative failings has to do with a lack of state willingness and capacity to intervene – beyond attempting to ‘fix market failures’.  It has delegated responsibility for the delivery of services and also, in the case of energy policy objectives, to the private sector.  The quid pro quo for this has been that knowledge, and economic, power in so many sectors now lies in private hands, with little or no requirement to share information with state actors and institutions.  By comparison, government, and quasi-government departments, look to be increasingly hollowed out and dependent accordingly on corporate actors for information and policy direction.  In essence, they have become the opposite of informed, brave leaders and investors in and designers of new markets.

So all of this surely begs the question: can the UK ever become an entrepreneurial state, or is it so entrenched in its current path, institutionally so far from Mariana’s idea of what an innovative state looks like, that it is a hopeless case?  Although Mariana’s work is very much about the kinds of institutions required for innovation (such as mission-oriented state banks and finance for research and development centres), it addresses less overtly the key political question of what might motivate a country, like the UK, to move in that direction.

However, there are clues.  In a similar vein to institutional concepts of punctuated evolution, Mariana claims that narratives that can redefine how we comprehend states and markets (in relation to innovation) are fundamental to enabling change.  Political economists need therefore to continue questioning what markets are, who is allowed to be an active and ongoing part of them, and why they exist in the formats that they do.  Such narratives, and the analyses upon which they are based, need also to challenge existing institutions and draw attention to the failings in UK ideas, institutions and policies, as well as to continue suggesting solutions based on those critical challenges.

Political economy is well positioned to be at the forefront of re-envisioning states, markets and the myriad and complex inter-relationships between the two.  We may, however, need to learn more about how to design our work so that broader audiences can access it, see things anew and be inspired to change.  In this, without doubt, Mariana Mazzucato leads the way.

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