Directed innovation boosts growth and competitiveness – empirically it can promote innovation more effectively than IPR

Volume 151, June 2023, //DH

Perhaps less widely acknowledged is the economic case for a mission-oriented Entrepreneurial State. The economic impacts from such policies are often hard to quantify empirically (Bloom et al., 2019), being them associated with dynamic spillovers, even when the social ones are quite obvious. A priori, we would expect Entrepreneurial State policies to have high potential for generating growth due to the fact they target new markets, technologies and directions of discovery. This means they have also the potential to create opportunities for advancement in productivity, consumer demand, international competitiveness and so forth, which would not be created by the private sector alone (Mazzucato, 2013, Mazzucato, 2018). A recent assessment of the US moonshot program implemented during the 1960s finds large, first order and long lasting growth effects induced by public R&D conducted through the NASA (Kantor and Whalley, 2022). However, novel opportunities come together with additional risks, and it is not automatic that missions-oriented programs translate into success stories; to the contrary, for every winning mission-oriented investment there are many possible failures (Mazzucato, 2016). The ultimate result likely depends both on the uncontrollable uncertainty of the search process itself (Dosi, 1988) - which may well reveals unsuccessful - and on the politically controllable willingness of the government to sustain eventual costs and losses during the research path.

The historical record provides compelling cases in support of Entrepreneurial State interventions. Governments invested directly in the technologies that enabled the emergence of mass production and IT revolutions and undertook the bold policies required to deploy them throughout the economy (Block, Keller, 2015, Ruttan, 2006). Many of the examples of this relate to the pervasive impact of military and space innovation (the Manhattan project, the Apollo program and ARPANET - the progenitor of the internet - are among the most famous; see Gross, Sampat, 2020, Gross, Sampat, 2021) but, more recently, successful results have been highlighted across many other technological landscapes, including the biotechnology industry (Lazonick and Tulum, 2011), nanotechnologies (Motoyama et al., 2011), and the emerging clean-tech sector (Mazzucato, 2015, Steffen, Egli, Schmidt, et al., 2020). To the contrary, failed missions exist and the literature’s focus on case studies has often tended to highlight successes and provide too few examples of failures, which may lead to overstate the positive consequences and downplay the negative effects of mission-oriented R&D programs (Mowery, 2010). Indeed, dramatic flops have been reported for energy, defense and aerospace related programs (Mazzucato, 2016, Mowery, 2010, Nelson, 1982). Even though it is empirically difficult to balance the economic significance of failures against successes, often because of missing counterfactual cases (Mowery, 2010), this paper attempts at contributing to such assessment by means of a simulation laboratory.

One of the implications of the “market failure approach” is that it calls for the state to intervene as little as possible in the economy, in ways that minimize the risk of “government failures”, whatever that means in complex evolving economies. A corollary is also the drive to outsource the innovation process from public organizations to private firms.

To the contrary, a mission-oriented Entrepreneurial State aims at shaping the direction of technological change, employing a mix of indirect instruments (schemes of incentives) and, much more important, direct interventions (e.g. through public agencies, formal public-private collaborations, use of public banks to finance bold R&D projects), and coordinating the governance of the whole innovation chain.3 Under this perspective, the State should not limit itself to provide funding for basic knowledge and help protecting innovation through implementation of IPRs, as the market failure theory would suggest, but also identify and rectify such systemic problems coordinating all levels of public administration and private stakeholders (Edquist, 2011, Metcalfe, 1994, Metcalfe, 1995).