The aff’s a bureaucratic nightmare, and every metric for measuring “social goods” would be endlessly litigated and error-prone

One of the most distinctive and thematic recommendations – the idea that innovation systems should be set up so that the state shares in the gains from innovation – is one that I find particularly problematic.¶ (NOTE: Before I go on, I should explain why I’m focusing on this recommendation. Several of the recommendations in The Entrepreneurial State’s Appendix make good sense. The argument that governments should not underinvest in R&D and human capital formation (p 196) is wise, especially (as Professor Mazzucato points out) in the context of ongoing Eurozone austerity. The idea of expanding and reforming the Technology Strategy Board (now Innovate UK), scrapping the Patent Box and taking a hard look both at small business subsidies and the short-termism of British capital markets are sensible ideas that have been advocated by a range of economists and innovation experts.¶ But the recommendation that the state should be entrepreneurial by participating in the upside of its innovation funding deserves special attention partly because of its originality, partly because of the attention that it has attracted in the sector, and partly because of its prominence both in the book’s conclusion and in other summaries of The Entrepreneurial State’s argument, such as this one from Professor Mazzucato’s own department.)¶ The point of The Entrepreneurial State’s gain-sharing recommendation is to change the balance of risks and rewards the state faces when it comes to innovation: “reward the wins when they happen so that the returns can cover the losses from the inevitable failures” (p187). Mazzucato suggests three ways of doing this: “golden shares of IPR and a national innovation fund”, “income-contingent loans and equity” and “development banks”.¶ In practice they all involve the government retaining a financial interest in companies developing innovations based on public funding. But this proposal looks deeply problematic, both from the point of view of public administration and politics.¶ First of all, it presumes a clear link between specific IP and business performance. This may be straightforward for, say, a biotech company developing a single drug based on a molecule discovered with an NIH grant: the research is a significant cause of most or all of the firm’s business.¶ But it rapidly becomes hard to measure. Rolls-Royce plc relies on hundreds of pieces of research, many of which have been funded by public funds. Some may be vital to Rolls-Royce’s profitability, some may be marginal. What will Rolls-Royce owe the taxpayer? Will it be agreed when the IP is handed over, or ex post? Will we employ civil servants to work it out? How will they know? It’s hard to see how this would not cause huge uncertainty to companies considering commercialising public research while at the same time entail a prodigious, possibly impossible bureaucratic challenge.