Jeff Madrick wrote a review in praise of Mazzucato’s effort in the New York Review of Books: Innovation: The Government Was Crucial After All. He summarized the issue quite succinctly.
"We could perhaps forgive Friedman’s ill-informed remarks as a burst of ideological enthusiasm if so many economists and business executives didn’t accept this myth as largely true. We hear time and again from those who should know better that government is a hindrance to the innovation that produces economic growth. Above all, the government should not try to pick ‘winners’ by investing in what may be the next great companies. Many orthodox economists insist that the government should just get out of the way."
Mazzucato focuses on the concept of risk in discussing the appropriate roles to be played by the public and private sectors. The public sector has the duty to participate in the development of promising technologies when the timescale and/or cost of such development are too great for the private sector. This duty exists particularly in high-risk situations where the potential for payoff is very large, but the probability of success is low.
She uses the history of investment in "focused" basic research that has characterized the United States since World War II as an example of how the State can be effective in both supporting and encouraging private sector investment. Her book is focused on the United States, both to remind us that we have pursued effective policies even if we refuse to recognize the fact, but also to warn her European nations that they have not been as wise in their investments in the past, and seem to be headed in the wrong direction now.
Mazzucato tells us in no uncertain terms that this view is false.
She invites us to think in terms of the government and its "visible hand."
"But how many people know that the algorithm that led to Google’s success was funded by a public sector National Science Foundation grant?"
"How many people realize that many of the most innovative young companies in the US were funded not by private venture capital but by public venture capital, such as that provided by the Small Business Innovation Research (SBIR) program?"
She is not impressed by the role of venture capital in driving innovation.
She even suggests that the government is the entity that is driven by Keynes’s "animal spirits."
What has made the US system so productive is that public investments were always viewed as collaborations between government, academia and the private sector—a "symbiotic" relationship. Mazzucato discusses in detail four public investment programs: DARPA (Defense Advanced Research Projects Agency), SBIR (Small Business Innovation Research), the Orphan Drug Act, and the National Nanotechnology Initiative. A brief description of DARPA will suffice to explain what is meant by a "symbiotic" relationship.
DARPA (originally known as ARPA) was formed in 1958 in response to the Sputnik excitement. It was tasked with pursuing more-novel, higher-payoff, and higher-risk technology development than was emerging from the DOD with its more incremental mindset. While DARPA has a significant amount of money to spend, it could hardly be called a vast bureaucracy. It has few permanent employees. It functions by recruiting ambitious and intelligent people from universities, government labs, and the private sector to serve as project managers in particular technology areas. These people serve for 4-6 years and then move on, usually back to the sector from which they emerged.
These project managers entertain proposals for technology development or demonstration from whoever has a good idea. They define the area of interest, but the proposals come from the three communities. The goal is to get industry, academia, and government working together on solutions and proposing specific projects which will further progress. Proposals can range from basic research to commercialization demonstrations of a product. Projects that are not making progress are defunded in order to provide more support to those that are more successful—clearly a good example to set.
To provide an example of how prevalent the fruits of government sponsored research are within our economy, Mazzucato produced this diagram illustrating the source of the technologies Apple packaged together to create its highly profitable IPod, IPhone, and IPad products.
Apple, as so many others, said thank you to the government by applying its creative talents to tax-avoidance schemes.
The lack of appreciation for the government’s contributions to the economy increases the risk that our ability to continue a mutually beneficial relationship between public and private sectors will be lost.
Let’s finish with a quote provided by Mazzucato to produce an interesting perspective on our strange history. It is attributed to Erik Reinert (2007):