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      chapter14
      # Public Private Partnerships

      Lerner, J. (2009). Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed--and What to Do About It. Princeton University Press. Author: Hamlin, Madeleine Rose; Editor: Creedon Jr, John Thomas

      Mazzucato, M. (2013). The Entrepreneurial state: Debunking Public vs. Private Sector Myths. Anthem Press. Author: Perez, Philip A; Editor: Tansits, Colin E

      This article reviews the book by Mariana Mazzucato entitled The Entrepreneurial State: Debunking Public vs. Private Sector Myths.

      **Main Article**

      The author begins by giving the reader an idea of Mazzucato’s argument, which is essentially that while Apple and other technology companies are widely considered to be the embodiment of a grassroots, bottom-up type innovation style, these companies would not have succeeded without help from the state.

      The armed forces created the internet, GPS, and also provided early funding for Silicon Valley. The author provides other examples such as that publicly funded university scientists developed touchscreens and HTML, a government body lent Apple $500K before it went public, Google’s search engine algorithm was financed by a grant from the National Science Foundation, and that pharmaceutical companies benefit from research by America’s National Institutes of Health. The author notes that Mazzucato thinks it’s an injustice that Apple reduces its US tax burden by moving money overseas and assigning its IP to low-tax states such as Ireland.

      The author notes one of Mazzucato’s arguments is that governments that invest in entrepreneurship do more than makeup for market shortcomings—they actually create and shape future markets. According to the author, Mazzucato thinks the U.S. government has successfully funded innovation by “talking like Jeffersonians but acting like Hamiltonians,” which essentially means the government has sought to be viewed as having a limited role, yet in reality has been involved in innovation. The author notes that the government has historically been involved in spreading existing technologies, such as railways, and in seeking scientific breakthroughs, as demonstrated by financing 60% of basic research.

      The author states that Mazzucato failed to acknowledge that some governments invest in companies that fail, and whereas private capital will eventually stop funding such projects, governments may continue to set taxpayer money on fire.

      The author suggests that Mazzucato’s criticism of private capital, that private businesses are too shortsighted, also applies to governments. The author also responds to Mazzucato’s suggestion that anti-statist ideology is preventing the government from making long-term investments by pointing to entitlement spending by the government—a highly expensive long-term program that diverts funds from being invested in entrepreneurship.

      The author finds that Mazzucato offers an incomplete answer to the question posed by her book, which is “why are some states successful entrepreneurs while others are failures?” However, successful governments promote competition among those seeking funding and leave decision-making to experts rather than politicians.

      The author concludes by acknowledging Mazzucato was right to argue that the U.S. government played a central role in fostering innovation, and that the government’s “contribution to the success of technology-based businesses should not be underestimated.” The author concludes by arguing that the government’s role in innovation justifies “moderni[zing] the state and bring[ing] entitlements under control.”

      **Author’s Response**

      Mariana Mazzucato responds to the author’s review of her book in a featured comment. She clarifies three points and elaborates on her argument.

      First, she clarifies that her point is that the government _can be_ entrepreneurial, not that governments have always been entrepreneurial. She makes this point because there is a widespread ideological view that government inhibits business and technological innovation, despite the fact that no empirical data supports this idea.

      Second, her argument is that the form of government assistance matters as to whether an investment is successful, as evidenced by the Silicon Valley example. Top down decisions are less successful than bottom up decisions made by decentralized, well-funded, and coordinated government agencies. To attract the top talent required to produce innovation, governments must create the right kind of missions and give the appropriate agencies major funding.

      Third, the government must consider the risk-reward relationship in innovation, which does not mean seeking profits, but instead means avoiding ventures in areas being pursued by private capital, and investing in big ideas for which private venture capital is too risk averse.

      The author suggests that the government’s role is to “make[] things happen that otherwise would not,” and that if the innovation is being funded by the taxpayer, then the rewards should also go to the taxpayer in the form of reinvestment in government innovation funding.




      Case Study on Public Private Partnership