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<\/a><\/p>\nYes, I know, but then economists don\u2019t have much in the way of jokes. The laughter is because Ms. Mazzucato is the economist who insists that government is responsible for innovation in this world of ours. Yes, that\u2019s right, the same government that took four months to notice a typo on a visa application, she argues, is the one which made the iPhone possible.<\/p>\n
She\u2019s written an entire book<\/a> on the subject of the entrepreneurial state and is setting up an institute to propagate the idea.<\/p>\n Invention vs. Innovation vs. Government<\/strong><\/p>\n The problem with her assertion is that she, and her acolytes<\/a>, have forgotten the basic economics of invention and innovation \u2013 something which we really should remember given that William Baumol<\/a>, the man who explained it all to us, died this past week.<\/p>\n The essential point is that we must distinguish between invention \u2013 the creation of new things \u2013 and innovation \u2013 the combining of extant things to enable new things to be done. Baumol was insistent that the state was equally good, or equally bad, if you prefer, at that invention part in comparison with the market unadorned. But the market performed heroically in comparison with the state with regard to innovation.<\/p>\n This is a hugely important distinction \u2013 don\u2019t forget that the word “entrepreneur” is not meant to mean someone who invents new stuff, it\u2019s meant to mean someone who organizes<\/em> stuff in a new manner. An entrepreneur collates capital, labor, and technology in order either to sate some human need or to do so in a different manner. The state, as Baumol insists, is bad at being the entrepreneur.<\/p>\n It\u2019s not even, as a series<\/a> at The Register<\/a><\/em> shows<\/a>, very good at supporting the invention either.<\/p>\n Mazzucato\u2019s basic observation is that the varied underlying technologies which go into an iPhone were all backed by government money. The touch screen, for example: it was, in a small way, state-funded in America. But the Register<\/em> story is all about how the British state invested in an earlier solution to the same problem and entirely messed it up.<\/p>\n You\u2019d think that if the state were taking 40 percent of everything everyone does every year, then, as with the blind monkey who occasionally finds a banana, we should get some useful tech out at the other end. However, the broad point is that this isn\u2019t an efficient way of doing it \u2013 whether or not it produces the odd useful result.<\/p>\n Where Government Funds Start and Stop<\/strong><\/p>\n And even this is to miss Baumol\u2019s point. Let us concede, for the sake of argument, that all of the iPhone technologies did come from government paid research. GPS, for example, was designed to let soldiers know where they were and where the enemy was assumed to be. We can call that invention. But no government ever thought to put that same technology into a smartphone so that we could be sent an ad by the doughnut shop we just walked past. That\u2019s innovation, a new use for an extant piece of technology.<\/p>\n Nor has any government ever designed a successful smartphone. Even if the basic technologies all were tax-supported, government didn\u2019t do the innovation. Apple designed and made the iPhone, not government.<\/p>\n As for our government, we wanted\u00a0to have a slice of the equity in what was being developed with tax money \u2013 the touch screen technology. The American version of the same sort of thing was also developed with tax money through Darpa, the defense research agency. But the one thing that Darpa never does do is take equity stakes in technologies it funds. That\u2019s\u00a0why any old\u00a0entrepreneur can pick up a Darpa-funded technology, play with it, and see if it can be combined in some useful manner into something people want.<\/p>\n Mazzucato, however, insists this\u00a0sort of government invention must be run the British, unsuccessful way, not in the successful and American manner.<\/p>\n This is to misunderstand economics at an even more basic level than Baumol\u2019s ideas, for the reason that we ask government to fund basic research is because it is a \u201cpublic good,\u201d something that the private sector will not fund because it is almost impossible to make a profit out of it. Thus there will be too little production of public goods and we\u2019ll be made richer if the state overcomes this problem.<\/p>\n Mazzucato is now insisting that the state must take ownership of the public goods it creates. Yet the very reason we ask the state to create them is because it\u2019s damn near impossible to usefully own them. This is not a notably logical line of reasoning.<\/p>\n The very analysis which leads to us asking the government to tax-fund certain research is the very reason why the government shouldn\u2019t be trying to own the results.<\/p>\n Inventions are public goods. Gaining access to public goods is one of the reasons we have government \u2013 because ownership of such isn\u2019t really possible. Which is why, if the state does produce them, it should give them away. We\u2019ve paid our taxes, we\u2019ve got our public goods, what\u2019s the problem here?<\/p>\n And no, the state did not invent the iPhone. That\u2019s innovation, the one thing government is provably, ridiculously, bad at.<\/p>\n Republished from CapX<\/a>.<\/em><\/p>\n Tim is a Fellow at the Adam Smith Institute in London<\/p>\n
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\nTim Worstall
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