Economic insight

Mariana Mazzucato, professor of economics at The Open University, believes the state plays a greater rolein entrepreneurship than it gets credit for.

Mariana Mazzucato, professor of economics at The Open University, believes the state plays a greater rolein entrepreneurship than it gets credit for.

Governments normally get characterised as bureaucratic and inertial, while it’s assumed that the private sector takes on the real risks in bringing new products and technologies to market.

However, if you look at where the really radical innovation comes from, say in the pharmaceutical industry, you’ll find that most new molecular entities (as opposed to ‘me too’ drug launches) originate from research in state-funded laboratories.

Although small companies can be more nimble and are naturally entrepreneurial, they often lack the resources to fund really radical innovation. Larger corporates have the big research labs, but they are also more likely to be wedded to the status quo, and they will weigh the possible benefits of any innovation against the dent in their profits.

Venture capitalists (VCs) often claim to be driving innovation. But they fund companies very late in the day, after the uncertainty has gone. If you look at who is taking the real risk in the early stages, it is actually the government.

This is not to say that smaller companies, larger companies and VCs don’t all play important roles in bringing innovations to market. But there is a real issue over who is appropriating the returns. If the biggest risks are being taken by the state, then why is it the pharmaceutical companies are charging such high prices?

When we ask governments to slash research funding in the name of entrepreneurship, we have no idea where that entrepreneurship is coming from.