The Entrepreneurial State

Mariana Mazzucato, a Professor of the Economics of Innovation at the University of Sussex puts forward her thoughts on what one of the roles of government should be in capitalist markets. Recognising that market efficiency is theoretical rather than reality, she argues that policymakers should use the tools and resources available to them that are not available to the “free market” to construct and mould markets, and to fill gaps and catalyse opportunities aligned to what the country needs. Her view that “increasingly, this requires growth to be not only ‘smart’ but also ‘inclusive’ and ‘sustainable’” is highly relevant in our society, which is one of the most unequal (and thus unsustainable) ones in the world.

Since the failure rate at start-up level is always high, she argues that where the public sector is catalysing growth and innovation in the private sector, the government’s performance should not be measured simply through a cost-benefit analysis which does not capture the true value to society. Furthermore, the government should benefit from the returns available, to create some self-sustainability for its investment funds, rather than allowing the returns to be almost completely captured by the private sector, where a minority benefit exponentially, often to the exclusion of society as a whole, whose funds have de-risked a sector or investment for private gain.

Read the full article here.  The article itself was adapted from Maria’s book: The Entrepreneurial State: Debunking Public vs Private Sector Myths.

The South African government has so much potential to play a critical role in growing the economy and supporting the inclusion of previously disadvantaged people within the economy, but so often, we see a disconnect between what is needed and what is provided. State-owned entities such as SAA get continual bailouts rather than being forced to operate as a going concern while loss-making divisions within developmental government organisations get shut down because they are loss-making and there is pressure for the government to show governance and value for taxpayers money.

According to the recent budget speech, social grants have now reached R129 billion, increasing further to R165 billion by 2019. By contrast, the IDC will invest a further R20m per year over the next 5 years in manufacturing. While government funds, even grants, are available for certain initiatives like job creation, match funding or “after the fact” reimbursements and the requirement for proven models that have the most likelihood of success mean that the most innovative, high-risk opportunities remain severely underfunded.

I wonder what innovations and how many jobs could be created if just half of the money set aside for social grants annually was invested into high risk, catalytic initiatives which expect to fail as a means for investing in a pipeline of business development which South Africa desperately needs. There are some players in just such a space but not nearly enough. What is needed is a change of mindset and an alignment in incentives across the board in order to drive real sustainable impact, rather than throwing money at the symptoms only.

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