Entrepreneurship versus the state
In it she makes the point that lobbyists for tech companies have overemphasized the role of the entrepreneur in our nation’s technological advances, and likewise underemphasized the role of the state. From the article:
Whether an innovation will be a success is uncertain, and it can take longer than traditional banks or venture capitalists are willing to wait. In countries such as the United States, China, Singapore, and Denmark, the state has provided the kind of patient and long-term finance new technologies need to get off the ground. Investments of this kind have often been driven by big missions, from putting a human on the moon to solving climate change. This has required not only funding basic research—the typical “public good” that most economists admit needs state help—but applied research and seed funding too.
One of her examples was the internet itself, which brings me back – my mom was involved with that project.
Some of my earliest memories are going with my mom to fix something at BBN where she had superuser access on the internet back when it was populated by very few people – the president and some army generals. And no, she didn’t have any kind of clearance, they didn’t think very hard about computer security back then, but on the other hand my mom is scrupulously honest and would never read anyone else’s mail. And it was all done through DARPA or other Department of Defense funding.
Funny story. When I was little, my mom was in charge (with some other people, on a rotation) of keeping the internet running, which she would refer to as “being on call”. She’d leave, sometimes in the middle of the night, to get these massive computers booted back up. I’d go with her if nobody else was around to watch me, and I remember she’d sometimes get underneath these massive metal boxes, and I’d just see her feet sticking out at the bottom, not unlike a mechanic under a car at a garage.
Anyway, the story is that one time she was on call on Christmas Eve and got called in on an emergency, and in my stocking the next morning I got “IOU” notes. That makes for a pretty crappy Christmas morning when you’re 8! My personal sacrifice for the internet.
Going back to the “state vs. entrepreneur” debate. One thing Mazzucato didn’t mention, but that I will, is the issue of waste. People talk all the time about how wasteful the state is – how there are too many people, and they don’t do much, and they never get fired – but they don’t appreciate how very wasteful the world of start-ups is. Most new companies fail entirely and never do anything at all constructive. I personally have seen hundreds of people working on projects for years in the realm of “entrepreneurs” that everyone knows will do nothing. Talk about waste!
Next, let’s go to why this all happens. It’s all about taxes. From the article:
In this era of obsession with reducing public debt—and the size of the state more generally—it is vital to dispel the myth that the public sector will be less innovative than the private sector. Otherwise, the state’s ability to continue to play its enterprising role will be weakened. Stories about how progress is led by entrepreneurs and venture capitalists have aided lobbyists for the U.S. venture capital industry in negotiating lower capital gains and corporate income taxes—hurting the ability of the state to refill its innovation fund.
Totally agreed. It’s a beautiful story aimed at confusing people about whether Apple or Google or GE should pay any taxes at all.
But here’s where I don’t follow her, when she suggests a possible solution:
It is time for the state to get something back for its investments. How? First, this requires an admission that the state does more than just fix market failures—the usual way economists justify state spending. The state has shaped and created markets and, in doing so, taken on great risks. Second, we must ask where the reward is for such risk-taking and admit that it is no longer coming from the tax systems. Third, we must think creatively about how that reward can come back.
There are many ways for this to happen. The repayment of some loans for students depends on income, so why not do this for companies? When Google’s future owners received a grant from the NSF, the contract should have said: If and when the beneficiaries of the grant make $X billion, a contribution will be made back to the NSF.
It’s not that I don’t like the idea in principle. But a problem with the corporation/ people debate is that one critical way that corporations are not like people is in terms of long-term liability. People work at corporations, and when it’s convenient for them, they leave and go somewhere else or start a new company (whereas it’s harder to change bodies). That makes sense in many situations, but it wouldn’t be consistent with her tax-me-when-you-get-rich plan.
In other words, say I form a company that gets NSF funding, comes up with something brilliant, and starts to make huge profits. Then, in order to avoid losing any of my hard-earned dough, I dissolve my company, fire most of the workers, and then start up a new company that doesn’t owe anything to the NSF. I can’t see how this doesn’t happen, and I can’t see how the NSF fights back against it. Lawyers, please explain why I’m wrong.
Personally, I think the real solution is to stop listening to lobbyists and raise taxes, or at the very least make the tax rates effective rather than nominal.