Policy report

The entrepreneurial state

Business innovation Innovation Entrepreneurship
Attachment Size
The entrepreneurial state 1.24 MB

Across the globe we are hearing that the state has to be cut back in order to foster a post-crisis recovery, unleashing the power of entrepreneurship and innovation in the private sector. This feeds a perceived contrast that is repeatedly drawn by the media, business and libertarian politicians of a dynamic, innovative, competitive private sector versus a sluggish, bureaucratic, inertial, ‘meddling’ public sector. So much so that it is virtually accepted by the public as a ‘common sense’ truth.

The report is structured as follows:

Chapter 1 sets the scene by summarising the academic framework regarding the debate around growth; whereas a generation ago, technological advance was seen as something that was externally given, there is now extensive literature to show that actually it is the rate, and direction, of innovation that drives the ability for economies to grow. This provides the justification for increased focus on the role that government can play to facilitate precisely that innovation, while at the same time exploding some of the myths that abound in Westminster, the European Commission and Washington about what actually drives innovation and growth. Specifically, it draws on recent academic literature to show that targeting resources towards R&D spend, patenting or small firms in isolation misses the point and that similarly waiting for venture capital to do all the heavy lifting is likely to be futile.

Chapter 2 describes the importance of the government’s role in investing where the private sector will not, in the most uncertain risky areas. But rather than understanding this through the usual lens of ‘market failures’, the concept of entrepreneurial risk-taking is introduced. The public sector has indeed fulfilled an important role in undertaking the most risky research, even when that research was not ‘basic’. Private sector examples are provided from the pharmaceutical and biotech industries where it has been the state, not the private sector, that has created economic dynamism. Risky research is funded by the publicly funded labs (the National Institutes of Health or the MRC) while private pharma focuses on less innovative ‘me too drugs’ and private venture capitalists enter only once the real risk has been absorbed by the state. And yet make all the money. In industries with such long time horizons and complex technologies, it is argued that return-hungry venture capital can in fact sometimes be more damaging than helpful to the ability of the sector to produce valuable new products.

Chapter 3 argues that it is only by creating a so-called national system of innovation built on sharing knowledge that the necessary, if not sufficient, conditions start to be established. An example is drawn by comparing and contrasting the two examples of Japan and the Soviet Union. It then develops the concept of the entrepreneurial state where not only is there a fully functioning national system of innovation, but this system is catalysed by proactive, flexible, decentralised action on the part of government.

Chapter 4 examines aspects of the recent industrial policy history of the USA, and shows that despite common perceptions, the US state has been extremely proactive and entrepreneurial in the development and commercialisation of new technologies. Four examples—the Defense Advanced Research Projects Agency (DARPA), Small Business Innovation Research (SBIR), orphan drugs and recent developments in nanotechnology—are used to illustrate this point.

Chapter 5 provides some reflections that are relevant to the situation faced by the UK at the moment, with policy recommendations for the development of green technology, and technology, generally. Green technology has the potential to become the next technological revolution, but as no other technological revolution has simply been ‘nudged’ by the state, it is unrealistic that this one can be without the type of large scale (though decentralised) investments that have been made in the case of other important new technologies.

And finally, chapter 6 concludes with some reflections on the implications of the concept of the entrepreneurial state for the debate around fairness and distribution.

Publication Details


Publication Year: