Alt fails in theory and practice.

Critics such as Mazzucato maintain that, while economic growth and social welfare is driven by innovation, the state must intervene to prevent private actors from extracting too much value from their own innovations. This argument relies on four important assumptions. First, Mazzucato sees value extracted by private innovators as a rent, not a premium for their efforts and investments. In this perspective, entrepreneurs are myopic and must be prodded by the benevolent Leviathan to take a “patient,” long-term perspective. Even using the Ricardian role of rentiers as responsible of economic stagnation, the modern state is itself a rentier, a much larger one than entrepreneurs or large firms and one that bears little risk (unlike private capital, taxpayers’ money is always available). Moreover, the claim that innovators appropriate too much value from innovations with high social benefits is hard to square with the conventional notion that, in the face of positive spillovers, there is too little innovation in R&D (Arrow, 1962)!.

Second, these criticisms view the state is a priori entitled to appropriate a part (which? Half? 90%? 100%?) of the innovation’s value because of its “dirty job.” An example highlights the inconsistency of this argument. Suppose a firm that produces mobile phones uses a natural resource to create a specific component. The firm can buy the natural resource and make the component in-house or buy from an outside supplier. Either way, this process is facilitated by market transactions, either in the market for the resource or the market for the finished component. Assume the state owns the natural resource or the supplier producing the component is a state-owned firm. In both cases, the firm has paid a price to the state for its contribution to innovation (i.e., owning the natural resource or contracting with the supplier). An entrepreneur or group of entrepreneurs perform the central role of combining resources and bearing the uncertainty associated with value creation (production takes place before the product is offered and promoted to consumers, who may or may not buy the product). Why should the state be entitled to a share of the created value? A typical answer is that the entrepreneur is leveraging prior investments, infrastructure, institutions, education, etc. provided by the state. And yet, the entrepreneur, the investors, and other stakeholders have already paid for these, in the form of taxes, credit expansion, or however else the state funds its expenditures. Why should the innovator pay an additional “tax” on innovation?

Third, critics argue that, because of the background, public investments allegedly underlying private innovation projects, as well as targeted innovation programs, the downside risks of innovation are partly socialized. Shouldn’t the upside benefits be socialized as well? This argument begs the question of why the state should be financing innovation, displacing private and more competent investors, in the first place. Fourth and more worrying, Mazzucato’s entrepreneurial state is picking socially productive activities. The state has to engage in mission-oriented policies and orient private investments towards specific areas and industries decided and identified by the government—the key message of Mazzucato when she was consultant for the Italian government led by the populist Prime Minister Conte.

In sum, the purpose of the entrepreneurial state is not just to shape technologies, but also to directly control, create and shape new markets (and even destroy markets and businesses considered as unproductive by the Leviathan). Mazzucato’s work has mainly been influential in Europe, but there are also increasing calls in the US for a more active role for government in the tech sector. It is easy to see that this fits within the Great Reset mélange.

A basic problem with these arguments is that they fail to confront incentive and information problems facing public actors that have been familiar to economists in particular (but not exclusively) for decades. Public actors have historically acted as monopolists in the provision of several products and services and, as a rule, government decision makers lack the high-powered incentives and access to the specialized knowledge held by market participants, making it difficult for them to choose among competitive technologies. Moreover, public actors do not directly bear the risk of bad decisions. While they can take credit for creating value by cherry-picking high-quality projects, funding companies and technologies that would have been successful anyway, hence wasting public resources, they can also blame failures on short-sighted private investors who fail to supply the complementary private capital. Obviously, the loss of money used to finance these failing projects is borne by the taxpayers, and not directly by the public actors.

Government officials and politicians rarely act as benevolent planners: they seek to maximize their private interests (e.g., influence or votes in the case of politicians). They don’t seek to maximize profits in the marketplace as they don’t directly join the returns of these positive states of nature (probably only politicians in the form of arguments to be used in the political campaigns). Proponents of the Great Reset have not explained how short-sighted bureaucrats and politicians with objectives that likely differ from that of the electorate can bring about successful tech entrepreneurship, and more in general innovation, that will facilitate the various Great Reset goals. Of course, the historical record is not comforting, with ample evidence of the failure of government-led innovation programs such as Minitel (in France), Solyndra (in the US), and Universal Credit (in the UK), among many other examples (Datta-Chaudhuri, 1990, Helm, 2010, Keech and Munger, 2015).