The CP is picking winners – it crowds out superior forms of tech innovation and prevents solving societal problems.

The call for state entrepreneurship is for the state to be not just entrepreneurial, but rather something like the entrepreneur: what Schumpeter (1961) identified as the force that moves the economy toward new equilibria. The difference is that the forces bringing those equilibria about are determined from the top down rather than from the bottom up. The result is a situation in which state entrepreneurship crowds out market-driven entrepreneurship. Indeed, a central tenet of mission-oriented policy is tilting the playing field away from unwanted solutions (Mazzucato, 2016). This process then obviously involves picking winners—an activity for which many of us are not convinced of the state’s expertise.

Researchers who push this narrative do argue that the state must be brave in these endeavors and indeed willing to fail. The problem is that the risk component inherent in the definition of entrepreneurship (Shane & Venkataraman, 2000) is lacking in state entrepreneurship. It is simply difficult to draw the line for what constitutes failure. Failure takes place in two main ways: we can succeed at doing the wrong thing, or we can fail at doing the right thing. The market is a mechanism that distinguishes failure from success in brutal fashion, regardless of the source of the failure. Whether entrepreneurs are unsuccessful at valued ends or successful at unvalued ends does not matter. Whether an entrepreneur produces bad ice cream and falls to competition from other ice cream firms or produces the best typewriters in the world and falls to competitive pressures from the computer industry matters little for the result. The government would need two mechanisms: one for each source of error. When the state fails at the right thing, the main risk is crowding out, in the ordinary sense: firms and technologies that would have better solved the problem are outcompeted. But the biggest long-term threat is that the state succeeds at doing the wrong thing and locks us into a suboptimal equilibrium by tilting the playing field: It crowds out alternative solutions and means altogether. No known method of evaluation could deal with these problems, because the biggest risk is wrapped in a counterfactual.

The two overarching questions are first, how do we ensure that the state pays a price for being wrong? And second, when is that price high enough for us to know it is time to cut our losses? The fact that the state can produce policy failure by being wrong about means or ends severely complicates this question. In addition, even when and if the state’s venture appears highly successful, we simply do not know the counterfactuals. How large is the graveyard of ideas that were never put into practice because the state tilted the playing field the other way? The answer is not merely unknown but unknowable. It is, in Bastiat’s (1850) words, not seen.