“Don’t bite off more than you can chew” is advice often given. Similarly, businesses are counselled to “stick to their knitting”, that is, concentrate on what they are good at either through natural endowments or because of first mover advantage.
It is often said that the best thing governments can do for the economy is to get out of the way. The argument is that the legitimate role of government is a small one to set the background conditions which allow the private sector to invest and get on with the job of wealth creation.
Now, is there a shift in this conventional wisdom?
Even if controversial, action is being canvassed to change investment decisions in the energy market. There is greater willingness to stimulate economies in the face of global disruptions. We see direct intervention to increase the supply of affordable housing, and subsidies to declining industries and vulnerable regions against business closures and job losses.
Do we need to be more active and ambitious to secure a prosperous future? Being satisfied with minimum operations to make a living or to keep the national economy ticking over may not be enough to succeed in times of fast-paced global technological and social change.
Economist and author of ‘The Entrepreneurial State’, Professor Mariana Mazzucato of University College London, puts the case for activism.
Professor Mazzucato and her research colleagues argue that creating both economic and social value requires innovation-led, sustainable and inclusive growth. Such growth depends on both public and private sector actors investing strategically in solving large-scale problems and big challenges, setting missions that inspire and make a difference and in the process, that create new markets, industries and skills that underpin long-term prosperity.
Collaboration or co-creation of value is the key. Professor Mazzucato is scathing about “the fabricated image of a lazy State and a dynamic private sector”, similarly of “the one-sided myth of the lone entrepreneur”. She rejects the conventional view that governments should only intervene to set the rules for a level playing field and to fix market failure.
Rather, Professor Mazzucato sees governments as agents of transformation. A significant purpose is to create and shape markets; to be a lead investor in innovation and research and funders of experimentation for multiple plausible solutions to big societal challenges; to open up new opportunities and to create a network of willing agents keen to seize these opportunities in mutually-beneficial public-private partnerships. In this way, governments can impact not only on the rate of growth, but on its strategic direction.
Despite popular perceptions to the contrary, the success of activist governments is already in evidence. Mazzucato cites the crucial role of public funding, procurement policies and collaboration initiatives in all recent technological revolutions. Information technology breakthroughs including the internet, the iPhone, touchscreen technology, and even SIRI were kick-started by public funds to research or grants and loans to entrepreneurs. A similar story applies for energy and space technologies and health and medical innovations. This investment lead by government encourages private investment to follow and sets the pathway for success by entrepreneurs like Steve Jobs and Elon Musk.
Public sector leadership and funds can have the effect of ‘crowding in’, not crowding out, private sector investment which otherwise would have been unlikely, given uncertain markets and high levels of risk.
The same debate is playing out in Australia with commentary on superannuation funds using their clout as investors to seek to transform Australian businesses and promote the concept of long-term value. Whether this is radical action or just responsible investor behaviour, the call is on for companies to think about how to sustain value over decades, focusing not only on financial outcomes, but equally on environmental, social and governance performance.
Deciding whether to be bold or bashful in striving for long-term prosperity is a vital and immediate choice for businesses, policy-makers and the community at large.
Mariana Mazzucato, ‘The Entrepreneurial State. Debunking Public vs Private Sector Myths’, Penguin Random House, 2013.
Danny Davis, ‘Super power: why the future of Australian capitalism is now in Greg Combet’s hands’, The Conversation, 20th March 2019.