Empirics reflect the law of large numbers – when the state funds many projects, cherry-picking some successes is inevitable

Mazzucato (2011) deserves credit for reinvigorating the discussion of the role of the state in the innovation process. As she correctly points out, innovation is a complex and messy process, with many fits and starts along the way, and historically state agencies and state funding have played important roles in promoting technological progress. Moreover, some of the most successful recent commercial innovations, particularly in information technology, relied on discoveries and developments from state-funded projects.

However, we think this evidence does not suggest a stronger role for the state in promoting entrepreneurship and innovation, much less a fundamental rethinking of the cumbersome, bureaucratic, politicized governmental apparatus as a praiseworthy entrepreneurial state. States fund a lot of R&D projects and, inevitably, some will end up being commercially (and socially) beneficial. But this is simply the law of large numbers! The relevant question is whether heavy state involvement gives us better innovations than we otherwise would have had, and here both theory and evidence are less persuasive.

Specifically, we have argued here that the case for the entrepreneurial state rests on an undertheorized and superficial view of the state itself, one that discounts what we know from property-rights economics, public administration, technology strategy, and public finance about how state funding and intervention can harm market performance. In particular, we have pointed to the ownership competence perspective as a missing element in these discussions. When considering the relative competence of private and public owners, the case for government intervention in markets for technology becomes even weaker. Private ownership and competition tend to direct ownership titles into the hands of those with the highest levels of ownership competence (Foss et al., 2021), and these are likely to be private entrepreneurs and firms, not state bureaucrats. Entrepreneurship, not state action, is the key to successful innovation, economic growth, and improvements in overall well-being.