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The Industrial Revolution, here depicted in the opening ceremony of the 2012 Olympics, was achieved under laissez-faire conditions
 
When a government minister (David Willetts) and his shadow (Liam Byrne) unite in praising a deeply politicised book, and the praise is echoed by glowing reviews in publications ranging from the Financial Times and the Economist to the New York Review of Books and the Guardian, then the Standpoint reader knows only one thing: the book is a misleading one.

The book in question is The Entrepreneurial State by Mariana Mazzucato (Anthem Press, £13.99), published last year but now accumulating encomiums at an accelerating rate. Mazzucato, a professor at the Science Policy Research Unit of the University of Sussex, is the Thomas Piketty of entrepreneurship, and like M Piketty she believes she has identified a problem from which only the state — oh, that lovely institution, the state — can rescue us.

The Entrepreneurial State made its media breakthrough when Martin Wolf lauded it in the FT. The book is "a brilliant exploration" of how government rather than the private sector is "the entity that achieves the greatest breakthroughs". The book established, he wrote, that it is the state which provides the research and investment that underpins the drugs and biotechnology industries. The state underpinned the achievements of two iconic companies, Google and Apple. And it is the state's research that gave us fracking.

The book does indeed make those claims and they are, in a narrow sense, true. The state did give us those things — but only because that self-same state had crowded out the private funding that would otherwise have funded them. And, moreover, the state wasted its (our) research money in ways the private sector would never have done.

Mazzucato trades in anecdotes, but in a damning rebuttal of the anecdotal school of science policy the OECD published in 2003 its "Sources of Economic Growth in OECD Countries", a systematic review of the factors that accounted for the differential growth rates of the world's leading industrialised nations between 1971 and 1998. It found that only privately funded research and development led to economic growth. Publicly funded R&D provided no economic benefit and, indeed, seemed only to crowd out privately funded R&D.

That piece of contemporary econometric research is compatible with the history which shows, for example, that the US was laissez faire in research until 1940, even though by 1890 it was the richest (and most technologically advanced) country in the world, having — in the absence of government money for R&D — produced scientific and engineering giants such as the Wright brothers, Edison and Tesla. The introduction of government money for research since 1940 has not increased its long-term rates of economic growth nor of total-factor productivity. The UK's record of successful research before 1914 (the Industrial Revolution was achieved in a laissez-faire environment) which subsequent government funding has not fructified, is similar.

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grimm
June 22nd, 2014
4:06 PM
"The Slide Rule", an autobiographical book by the Neville Shute describing his life as an aeronautics engineer in the 1920s - 1940's gives an interesting view of state funded as opposed to privately funded technological development. In particular he discusses two concurrent airship projects, R100 privately funded and built by Vickers which Shute worked on and R101 state funded which crashed on its maiden flight killing 48 of the 54 on board. Shute is scathing about the unnecessarily extravagant funding of R101 and the failure of its makers to acknowledge the design flaws which led to the craft's destruction. Strangely, the Air Ministry records and plans of the R101 project, stored in the Public Record Office, were kept unavailable for public viewing until early in 21st Century (around 2012 I believe). Something to hide?

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