Critically, this will require an industrial strategy that recognises the public sector’s crucial role in enabling and supporting innovation and technological adoption, underpinned by an entrepreneurial state that is confident in shaping and co-creating markets.

While the top 1% of firms have seen average productivity growth of around 6% per year since 2000, one-third of UK companies have seen no rise in productivity at all. This – not cutting edge innovation – is at the heart of our productivity crisis.

And it isn’t just a UK phenomenon. Across the OECD, labour productivity in the manufacturing sector at the global frontier increased at an average annual rate of 3.5% over the 2000s, in contrast non-frontier firms managed just 0.5%. In the services sector, productivity of frontier firms grew 5%, but actually fell by 0.1% in non-frontier firms.

A critical factor in explaining these productivity gaps is the slowing rate of diffusion of technologies from the minority of frontier firms to the majority of slow-adopting everyday firms: three-quarters of productivity improvements related to technological change are estimated to come from the broader adoption of technologies as companies catch up with sector leaders.

In other words, to boost productivity we need to accelerate the effective adoption of best practice across the economy as a whole, not just support innovation at the frontier.

And closing the gap between leaders and laggards could prove transformative. As Andy Haldane, chief economist of the Bank of England, points out: if the productivity growth of firms in each of the bottom three quartiles could match that of the quartile above them, it would increase aggregate UK productivity by around 13%.

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That’s a big boost to the economy, which is going to be particularly important as we manage demographic change. Given that employment growth contributed almost half of all increased output in the major global economies in the past half century, our ageing society requires a step change in productivity – otherwise the rate of per capita GDP growth among advanced economies will experience a historic fall.

The pace at which we adopt new technologies is critical to determining the health of our economy in the decades ahead – that requires focusing on five things: the cost of developing and deploying these technologies, the relative cost of capital and labour, the broader economic benefits of automation, the balance of economic power between labour and capital, and social and regulatory acceptance. All these factors are strongly affected by public policy, and that means the state has a key role to play.

In our automation discussion paper, the IPPR Commission on Economic Justice proposes the establishment of a new body, Productivity UK, to drive firm-level productivity across the economy. Its goal would be to help small and medium-sized businesses to understand the productivity-raising potential of new technologies and to accelerate their introduction, through information and advisory services, and grants and loans for investment.

Crucially, a national adoption programme must also increase worker engagement in the process. If automation and other digital technologies are to bring better, and better-paying, jobs then workers should be involved in their introduction – with trade unions key to achieving this.

Seizing the immense opportunity that digital technologies offer will require much greater public ambition. The Government’s industrial strategy contains a welcome commitment to a more entrepreneurial state, one that actively shapes new markets and industries. But the focus is primarily on firms operating at the frontiers of technology, with policy shaped to support new forms of innovation.

Yet great gains are to be made from supporting the creativity and capability of ordinary workers and businesses in the everyday economy to integrate new technologies. Such a twin track approach would make for a truly entrepreneurial state – one that delivers benefits for everyone.

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The seductive new ideology of the ‘entrepreneurial state’ is the wrong way to go. Most of the challenges listed above will only be solved by means of hefty doses of new technology and business models. Anything that reduces the global economy’s ability to innovate, however well-intentioned, will have serious consequences.

The first two decades after the collapse of the Soviet Union were difficult for socialism. The centre left was forced to concede the primacy of markets, the hard left was forced into exile. All of that changed with the financial crisis. Suddenly capitalism looked vulnerable again, but if it was to take advantage of the situation, the Left needed new ideas. Lo and behold, along came two: Thomas Piketty’s inequality and Mariana Mazzucato’s entrepreneurial state.

Piketty and Mazzucato both based their prescriptions on painstaking research. Piketty’s volume Capital in the 20^th Century – bought by so many, read by so few – is a tour de force of statistics, carefully arranged to show wealth increasingly concentrated in the richest few percent of society. Mazzucato, for her part, tracked the origins of the technologies behind some of the era’s most iconic products, in particular the iPhone, showing the extent to which they originated with state funding and programmes.

The reason Piketty and Mazzucato became instant champions of the Left lay in the solutions they were proposing: Piketty became a vocal advocate for punitive levels of redistributive taxation; Mazzucato’s entrepreneurial state more subtly suggests that the state should maintain (at least part) ownership of the technologies whose development it has helped to fund – in effect a combination of state planning and a tax on innovation.

The intellectual flaws in Mazzucato’s work lie not in what she has proven, but in what she has omitted. Yes, state funding helped create a number of valuable technologies – but at what cost? Would additional state investment result in more innovation, or more waste? What innovations might have resulted had money not been siphoned off by the state in the first place? Why only technology? By Mazzucato’s logic every logistics company which uses publicly-funded roads should be government-owned.

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Mazzucato also fails to describe the bureaucracy needed to administer the new state-owned intellectual riches. An entrepreneurial state would need to manage thousand upon thousands of venture investments each year, and track myriads of innovations as they aggregate into products – often combining multiple platform technologies like flat screens, quantum computing, graphene, nanotechnology or genetics. Most universities now have commercialisation offices; generally they are regarded as incompetent by the industries with whom they interact and by the scientists whose intellectual property they attempt to market, rarely are they staffed by top-drawer venture capitalists.

Perhaps the most critical omission in Mazzucato’s work is the impact the entrepreneurial state would be likely to have on the willingness of private investors to put capital at risk. Even if it is only needed later in the innovation process – to integrate different technologies into products and services, market them, and build the fabric of businesses – they provide real risk capital, often on a scale which dwarfs that invested in early technology research.

Mazzucato claims to have bust the myth that state actors cannot be innovative. However, that is not in fact a myth but a straw man. What is not a myth is the fact that state actors are very bad at delivering innovative new products and services. It’s one thing funding the development of internet protocols, quite another thing to create Facebook, Google, Amazon or YouTube. Minitel anyone?

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Mazzucato is right to highlight how state-funded research has helped create huge corporations which have concentrated wealth disproportionately in the hands of their founders and shareholders, while paying little or no tax. Risk has been socialised and profits privatised on an epic scale.

However, if tax avoidance is the problem, then perhaps the solution is, you know, to get serious about clamping down on it – not using it as an excuse to build a vast new technology bureaucracy.

Despite these flaws – or perhaps because of them – the entrepreneurial state found a receptive audience among those who dislike American technology companies on principal, and want to get their hands on a greater tax take. Carlos Moedas, European Commissioner for Research, Science and Innovation hired Mazzucato as a consultant to advise on the next €100 billion, seven-year EU programme for research and innovation, due to launch in 2021.

It’s not that the EU doesn’t need new ideas on research and innovation. Last year’s interim assessment of Horizon 2020, the €80 billion programme which draws to a close in 2021, blandly stated that “the benefits of Horizon 2020 are… hard to monetise” – it certainly was unable to enumerate any in terms of new products, services, companies or jobs.

This is entirely consistent with its predecessor programmes. Essentially, by 2021 the EU will have spent nearly €200 billion (in real terms) on research and innovation over 37 years, with little to show for it but some macroeconomic modelling claiming it was a good idea.

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Mazzucato is right to state that “innovation has both a rate and a direction”. She is right to point out that policy-makers need to “act in bold ways to shape new futures, solving public problems and create new markets”. They must, however, do it in such a way that it enables, rather than stifles, the very innovation it is intended to produce. They must foster competition between private players, not suppress it, bureaucratise it or crowd it out.

What is needed is a joined-up set of policies across research and development, infrastructure, taxation, trade, government procurement and regional development to target public priorities. Policies which, taken together, encourage capital formation, entrepreneurship, and the creation of intellectual property.

What is not needed is an entrepreneurial state – or in the case of the EU, superstate – to centrally plan and nationalise the development of technology.

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On Wednesday, I wrote about the French government’s long infatuation with Minitel – a demonstrably inferior rival to the internet. But that sort of folie du grandeur is hardly unknown on the other side of the English Channel. Time and again, Her Majesty’s Government has misallocated the country’s wealth on a monumental scale.

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It has had ample opportunity to do so, because the modern state always has been, and always will be, the country’s biggest investor. When it spends between a third and a half of UK GDP every year, it could hardly be otherwise. Of course, most of this is current spending on things like public sector pay, pensions and benefits. But there’s also a huge capital spend of nearly £80 billion every year.

On top of that, there’s the influence of government decision-making on private sector investment. On matters like planning, transport and energy, government policy has shaped, and continues to shape, the development of entire industries and regional economies.

Before we give the entrepreneurial state an even bigger role, we need to examine its past performance as an investor – which, by any fair standard, is distinctly chequered.

What follows is a top ten of terrible investment decisions made by British governments since the Second World War:

1. Heathrow Airport

London is a global city it needs a world class airport – ideally a hub airport.

So where do you put it? How about right up against the city itself, surrounded be residential suburbs, hemmed in by reservoirs and within the orbit of the main ring road – thereby maximising the number of people whose lives are blighted by noise and air pollution, while minimising the space for expansion? Yep, that’ll do!

How on earth did the British government first make (in 1946), and then keep reinforcing, such a shortsighted decision? Well, there was an military airfield that needed a purpose immediately after the war[1. Jason Ford, ‘January 1946: The origins of Heathrow Airport’, The Engineer, 18 January 2018] – and it wasn’t as if air travel was ever going to find a mass market, was it?

It later dawned upon the geniuses of Whitehall that perhaps a mistake had been made – and that maybe, just maybe, a coastal location on the Thames estuary might be a better option. But government finds it hard to correct mistakes; and, expertly guided by those with a vested interest in the status quo, it follows the path of least resistance as surely as a pilot follows the path of a runway.

2. The Beeching Cuts

Few people doubt that post-war Britain had to prune the dense Victorian tangle of its railway network.

However, when Dr Richard Beeching was asked to propose a programme of rationalisation, his tool of choice wasn’t a pair of secateurs, but an axe.[2. Christian Wolmar, ‘Beeching guilty as charged but should not have been alone in the dock’, Christian Wolmar blog, 17 March 2013]

The biggest villain, however, was Ernest Marples – the government minister who commissioned the Beeching report. Marples also just happened to be the founder of a motorway construction company. No conflict of interest there!

The decimation of the network was bitterly opposed at the time (the Beeching report was published in 1963) and bitterly regretted in later decades[3. Jonathan Glancey, ‘It looks like Dr Beeching was too hasty after all’, Telegraph, 22 March 2013] – when demand for rail travel began to rise again. Though some lines and stations have been reopened, in many cases it’s no longer an option because tracks have been ripped up and land sold off for development.

To give just one example: the Oxted line used to connect London, via its Uckfield branch, down to Lewes and Brighton. It could have been upgraded to supplement the now heavily used Brighton mainline. Unfortunately the line from Uckfield to Lewes fell victim to Beeching’s axe and the old route is now blocked by development. An immensely valuable corridor from London to the south coast was lost to Beeching’s myopia and Marples’ dodgy machinations.

3. Concorde

Ah, Concorde – you were the future once!

The supersonic plane is reckoned to be the most beautiful passenger aircraft that ever flew. Unfortunately, it was also one of the most expensive.

The enterprise began in the 1960s as a joint venture between the British and French governments. There were great hopes of sales all around the world. However, British Airways and Air France (both state-owned at the time) were the only airlines to purchase and operate the aircraft. Escalating development and manufacturing costs led other airlines to back out at supersonic speed. In the end, only twenty were ever built, including the prototypes.

The first flight was in 1969, but commercial services didn’t start until 1977. One had to be seriously rich to afford a ticket – but there were takers because, at twice the speed of sound, Concorde could cross the Atlantic in a mere three hours. Sadly, its speed was also a weakness – the sonic boom phenomenon meant that supersonic flight was banned over inhabited areas, limiting services to trans-oceanic routes.

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Concorde wasn’t the biggest white elephant to get airborne. A more worthy candidate for that honour is the Tupolev Tu-144, developed by the Soviet Union at around the same time as Concorde (and so similar in looks that it was nicknamed the ‘Concordski’). However, it greatly exceeded its western cousin in the scale of its economic and technological failure. Crashes brought an end to commercial flights shortly after they started.[4. ‘Concordski: How the Soviet Union lost the supersonic race, BBC, 1 June 2016]

Tragically, it was a crash – Air France Flight 4590 – that brought about the end for Concorde too.[5. The disaster, in which all aboard were killed, together with four people on the ground, is believed to have been caused by debris from another aircraft]

4. AGR nuclear power stations

Tony Benn, that great champion of socialist state planning, was, as ‘Minister of Technology’, instrumental in saving Concorde from cancellation in late 60s.[6. Tony Benn, ‘Concorde special – the politician – Tony Benn’, Flight Global, 21 October 2003] Fittingly, he also played a pivotal role in another ill-fated venture – the Advanced Gas-cooled Reactor or AGR.[7. Geoffrey Owen, ‘Book review: ‘The Fall and Rise of Nuclear Power in Britain’’, Financial Times, 7 March 2016] The supposedly superior design was meant be a sure-fire winner for British industry. In practice, the AGRs were plagued by construction delays and operational problems. Many of the problems continue to this day and we still have the decommissioning costs to look forward to – which were, of course, significantly underestimated.

With an unerring failure to learn from past mistakes, the current UK Government is now committed to Hinkley Point C – the fabulously expensive[8. Holly Watt, ‘Hinkley Point: the ‘dreadful deal’ behind the world’s most expensive power plant’, Guardian, 21 December 2017] new nuclear power station due to be built next to Hinkley Point B, the first of the AGRs. HPC is of a different and more recent design – but one that already has a track record of construction delays and cost overruns. Undaunted, the Government has signed us up to the project – only this time we’ll be blowing billions to the benefit of French-owned industries instead of British ones. Brilliant!

5. The overbuild of coal-fired power stations

Another triumph for state planning and investment in the energy sector was the massive overbuild of dirty coal-fired power stations in the 1960s and 1970s.[9. Dieter Helm, Credible energy policy: Meeting the challenges of security of supply and climate change, Policy Exchange, 2008, chapter 2]

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The state-owned Central Electricity Generating Board (CEGB) had assumed that demand for electricity would increase in line with economic growth. In fact, thanks to energy efficiency and the off-shoring of manufacturing capacity to the Far East, energy demand has increasingly decoupled from growth.[10. Euan Mearns, ‘UK electricity demand, GDP and energy policy’, Energy Matters, 16 October 2013, figure 1]

The legacy of the CEGB’s strategic error has been one of pollution plus a UK energy sector focused on ‘sweating assets’ not the development of greener, cleaner energy technologies fit for the 21st century.

6. The strangling of Birmingham

Britain’s great industrial cities literally made the modern world. Their decline in the 20th century was due to many factors, but one of the most important was the centralisation of political power in London.

In the post-war period, Whitehall decreed that the growth of Birmingham, which was booming at the time, had to be curtailed – in order to reallocate growth to cities further north.[11. Henry Overman, ‘Booming Birmingham and the Need for Rebalancing’, Spatial Economics Research Centre blog, 28 May 2013]

The central planners would discover that this is not how growth works. The long-term impact of their meddling hobbled Birmingham’s economy[12. ‘How to kill a city’, The Economist, 31 May 2013] while doing nothing to help the North. Instead, by an amazing coincidence, investment and enterprise became concentrated where the politics and the power was – i.e. London.

7. The fall of Euston

The strangling of Birmingham was greatly assisted by town planners and architects. The city’s fine Victorian architecture was marred by, or demolished to make way for, ring roads, tower blocks and other concretopian horrors.

For instance, the city’s Birmingham New Street station – a wonder of the industrial revolution – was knocked-down and replaced in the mid-60s by one of the most hated buildings in the country. At the other end of the line to London, the classical wonder that was Euston station met the same fate: demolished to make way for a modernist successor.

But while Birmingham plumbed the depths of brutalism, the new Euston didn’t even achieve that dubious distinction. It is an architectural non-statement – a low-slung slice of lifelessness. Not before time, it’s now set to be replaced – as Birmingham New Street already has been.

The plans for the new new Euston include a reconstruction of the Euston Arch – a famous landmark that was destroyed, quite unnecessarily, as part of 1960s redevelopment.

It tells you a lot about the mentality of the time that British Rail – the state-owned company that destroyed the Arch – refused to say what had become of its remains. Fortunately, these were rediscovered in the 1990s by Dan Cruikshank.[13. Daniel Wright, ‘Lost beauty #9: Hardwick’s Hall (the old Euston station, London, UK)’, The Beauty of Transport, 10 June 2015] 

If the old stones can’t be be incorporated into the reconstructed arch, they should instead be fashioned into a monument to the spirit of post-war architecture and central planning. An extended middle finger, perhaps?

8. Insanity begins at home

Arguably, the best location to assess the acumen of government bodies is in their headquarters. After all, if they can’t run their own homes properly, why should we trust them with anything else?

Happily, there’s a long tradition of buildings that symbolise what we’ve come to expect from the organs of the state that reside within them.

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For instance, there’s the Home Office – whose cleaners turned out to be illegal immigrants. Or the Department of Energy and Climate Change, whose HQ was so energy inefficient that they had to turn off the air-con to cut back on its carbon footprint. Or Alexander Fleming House, once home to the Department of Health and Social Security – when it was notorious for Sick Building Syndrome. Outstanding stuff.

My favourite example, however, was an edifice known as Marsham Towers (a.k.a. ‘the three ugly sisters’). Completed in 1971, the complex consisted of three slab-like towers of twenty storeys each. They only interconnected at ground level, which wasn’t a big issue when the plan was to accommodate three separate government departments. However, the layout became a serious problem when the ministries were merged into one. How’s that for joined-up government?

And the name of the new super-ministry whose HQ wasn’t just dysfunctional, but also the most notorious eyesore in London? Why, the Department of the Environment, of course.

Just over thirty years after it opened, the building was knocked-down – a testament to the sustainability of purpose-designed state architecture.

9. Gordon’s gold

At about the same time that Marsham Towers was being reduced to rubble, the Government was completing the disposal of another asset – the country’s gold reserves. Gordon Brown, then Chancellor of the Exchequer, believed that gold was a ‘lazy asset’,[14. Robert Peston, ‘Gold and Gordon Brown’, BBC, 4 March 2008] because it just sat in a vault offering no guaranteed return. So, between 1999 and 2002, he sold off 395 tons of gold at an average price of $275 per ounce.[15. Paul Farrow, ‘Gold: Does Gordon Brown’s regret selling half of Britains’ gold reserves 10 years ago?’, Telegraph, 8 May 2009] By 2007, gold was trading at $600 per ounce. The price peaked at over $1,800 in 2011. Even today, it trades at something like $1,200.[16. https://tradingeconomics.com/commodity/gold] Buy low, sell high, is basic idea when it comes to trading, but Brown had sold at the very bottom the market – a decision that cost the country billions.

Brown had forgotten that the purpose of gold is not to provide a predictable return, but a hedge against instability in the foundations of economic policy. As one of the key architects of those foundations – including the regulatory framework for the world’s most important financial centre (the City of London) – Brown was in no position to make an objective decision as to their soundness.

When the financial crisis burst almost every asset bubble except gold, Brown’s arrogance was fully exposed. It is not so much his failings as a commodity trader that condemns him, but his fundamental misunderstanding of risk.

Are these really the sort of people we want running an entrepreneurial state?

***

So there you go – my top ten statist fiascos. Of course, I do realise that I’ve only provided nine of them – but I’ve already exceeded my word count and blown through several deadlines. Things didn’t quite turn out as planned.

Of course, they never do. So perhaps we should think twice before entrusting major investment decisions to people who aren’t qualified to make them and who’ll never be held accountable for the consequences.

Adjusted for inflation, however, defence R&D has fallen by 61% since 1990. Unsurprisingly, that decline in investment coincided with the Soviet Union’s demise. But as defence is the first duty of government, making sure the armed forces are able to fight the next war, rather than refight the last, means investing heavily in R&D.

In The Entrepreneurial State (2013), economist Mariana Mazzucato advocates more government spending on R&D generally. She debunks the belief in the ‘small state’ and the innate superiority of lightly regulated private enterprise – something she believes that the facts of technological innovation in the US simply do not bear out.

It is, though, a powerful American myth, celebrated even in that long-running encomium to the Democratic Party, The West Wing. In Episode 55, 100,000 Aeroplanes, President Bartlett gets a “legacy idea”: just as Kennedy put a man on the Moon, the government will cure cancer. This is the ensuing discussion between two of the President’s advisers, Sam Seaborn and Joey Lucas:

Joey: Federal government shouldn’t be directing scientific research.

Sam: Why?

Joey: Because you stink at it. If it was up to the NIH [National Institutes of Health] to cure polio through a centrally directed program instead of an independent investigator driven discovery, you’d have the best iron lung in the world, but not a polio vaccine.

Sam: When did you get an M.D.?

Joey: I was just quoting Samuel Broder.

Sam: Who’s he?

Joey: The former director of the National Cancer Institute.

Joey, the audience is supposed to conclude, is presenting ‘the American way’ – the private sector innovates, and the government should get out of the way.

But then something contrary happens. Sam Seaborn’s Democratic high-mindedness (and remarkable recall of historical defence statistics), preaches that presidential overreaching is both good and effective:

“In 1940 our armed forces weren’t among the 12 most formidable in the world, but obviously we were going to fight a big war. And Roosevelt said the US would produce 50,000 planes in the next four years. Everyone thought it was a joke and it was, because we produced 100,000 planes. Gave our armed forces an armada which would block out the sun.”

Conveniently, Roosevelt was a Democrat. Seaborn could have chosen a much more recent triumph – and of actual R&D rather than of production.

The US Strategic Defence Initiative of the 1980s – a space-based missile defence system that would intercept all incoming Russian intercontinental ballistic missiles (“Star Wars” as it was dubbed) – can trace its origins to the Second World War, when the US Army began thinking of a defence system to counter the German V2 rockets. It lingered on in the minds of various scientists and research institutes, some of them partially government-funded, but it was going nowhere fast. Then, in 1967 the idea lodged in Ronald Reagan’s mind when as governor of California he attended a lecture by Edward Teller, who had worked on the Manhattan Project – the development of the atomic bomb.

SDI became Reagan’s signature project when he became president in 1981, and he threw huge resources at the R&D. The costs have never been publically aggregated, but in 1985 one scientific study estimated that by 1990 SDI would absorb one quarter of the US Defense Department’s R&D funding. The programme was progressively abandoned after 1992, although some aspects were incorporated in other (non-strategic systems).

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No project in history that did not get beyond the development stage ever had the strategic effect of SDI. It convinced the Soviets that the US could achieve a position of invulnerability from which they could launch a nuclear attack on the Russian homeland. It precipitated the end of the Cold War and the break up of the USSR. And it was conceived and driven by government rather than industry.

Britain’s greatest strategic defence programme – radar – was conceived and researched independently in a university laboratory (Dundee, by Robert Watson Watt) before the First World War, and then developed by the Meteorological Office (a branch of the Board of Trade). It came to fruition in large part through the Committee for the Scientific Survey of Air Defence, set up and funded by the government in 1934 under Sir Henry Tizard, principal of Imperial College London. The committee persuaded the RAF of radar’s potential, and its development was then funded in full by the Air Ministry. Without radar the Battle of Britain in 1940 might have been lost.

Given the urgency and complexity of both the SDI and radar programmes it was wholly beyond private R&D, although some subsidiary elements were taken up from concepts stemming from private research. There comes a point when government must make the critical decision to accelerate investment in R&D, whether in its own research departments or via the private sector (the latter will probably be increasingly the case with cyber).

Without that state action,  priorities would not be met in time. Private enterprise, after all, cannot be expected to be more certain of a concept – and therefore more generous in its R&D – than its intended user.

There is a danger, however. Unchecked, the close and mutually beneficial relationship between government and private defence R&D will tend towards ever greater spending, since the potential of technology is in large part a function of how much is spent. President Eisenhower – who had been a soldier for 41 years – famously warned in his farewell address in January 1961 of this tendency: “We must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military–industrial complex.”

For this reason government must be prepared to direct defence R&D along specific lines of exploration, based on its own assessment of future operating conditions. In other words, the state must make choices, and in doing so direct its entrepreneurial capability to smart ends. That means resisting routine, incremental R&D that is likely to yield only marginal advantage – a notoriously profitable area for defence companies. Instead, the state must be alert to unexpected technological potential from ‘off-field’, and agile enough to fund urgent R&D to the point that a decision about viability can be taken – a fine balancing act.

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Although in the past there has been much commercial spin-off from defence R&D, it is not obvious that in the future this will be so. Indeed, defence acquisition will increasingly become a business of technological repurposing. To meet the likely increase in R&D expenditure needed in a world where the rate of technological change is increasing at an unprecedented pace, government spending might have to be offset by limiting production. In the past production has tended to automatically follow development – that must change.

Whatever the mercantilist advantages of the entrepreneurial state, however, it is worth recalling Eisenhower’s specific concern about R&D:

“Yet, in holding scientific research and discovery in respect, as we should, we must also be alert to the equal and opposite danger that public policy could itself become the captive of a scientific-technological elite. It is the task of statesmanship to mold, to balance, and to integrate these and other forces, new and old, within the principles of our democratic system – ever aiming toward the supreme goals of our free society.”

R&D is an infinite process. Every new technological concept begins the process of counter-concept, and the ‘threat’ is an ever-evolving one. State investment is essential to ensure urgent needs are met. But success breeds ever more demands for more investment in new R&D projects, and government must be disciplined in resisting that pull. Benjamin Franklin famously remarked “nothing can be said to be certain, except death and taxes”, to which should now perhaps be added “more R&D.”

Germany remains some 30% more productive than the UK; France and the US some 25%. This is in part because business investment has stalled, not helped by a retrenchment of public sector capital spending in the years following the crisis. Without investment, innovation atrophies, and with it growth.

R&D expenditure in the UK stands at a paltry 1.67% of GDP – below the European average of just over 2%, and well below world leaders Israel and Japan, both of whom spend over 4%. And within this total R&D, government spends just £10 billion per annum, or a disappointing 0.6% of GDP.

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The latest industrial strategy pledges to increase the total spend to 2.4% by 2027 – clearly indicating that the Government sees innovation as a ‘public good’ – but whether that can be achieved remains to be seen.

The worry is that individual companies would not, if left to themselves, make the level of investment needed to boost the economy as a whole. Businesses take a narrow definition of benefits, they do not price in any positive ‘spillover’ effects (seemingly unconnected benefits) or ‘externalities’ (benefits to others) that flow to the rest of the economy as a result of investment.

If the market is failing to innovate adequately, to the detriment of the economy, does that mean that state intervention is justified? In my mind the answer is a resounding: yes! The dilemma, of course, is how best to intervene.

The ideal, surely, would be to change market incentives by putting more emphasis on long-term returns. But that would require changing accepted norms and cultures. Even though R&D spending should increase innovation, efficiency and productivity, such benefits take time. In the short term, profits are cut – and that isn’t always favoured by institutional investors.

Perhaps it would be better to just alter the fiscal framework, or increase government subsidies. But that requires an understanding of ‘additionality’ – in other words, whether the desired outcomes would have happened anyway, meaning that taxpayers’ money is wasted. Was it worth, for example, the UK government introducing in 2013 a low tax ‘patent box’ to encourage companies (like big pharma) to invest in R&D and commercialise their patents, or would firms have invested in the UK anyway? A better focus for taxpayer investment might be small and medium size businesses where the need is likely to be greater and the impact wider.

Or perhaps greater competition is the answer. Large monopolies, or oligopolies, enjoying high profits have little incentive to invest. While on the other hand, the difference innovation can make for a competitive firm can be significant. Research clearly shows a positive relationship between competition and innovation.[1. See for example Richard Bundell et al., ‘Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms’, The Review of Economic Studies, 1999; Paul Geroski, ‘Innovation, Technological Opportunity and Market Structure’, Oxford Economic Papers, 1990].

This all suggests that a mix of better conditions for innovation, and a series of targeted but properly costed and evaluated interventions may help boost the UK’s lagging productivity – and with it, all important economic growth.

The UK has done a number of things already. The Technology Strategy Board, now Innovate UK, emerged from the first innovation strategy produced in the early 2000s. In 2016-17 it provided some £560 million worth of project funding, and also attracted large private funding, to assist collaborative research in areas such as emerging and enabling technologies, life sciences, scientific instruments and manufacturing and materials.

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The government agency that made Silicon Valley

By Nigel Cameron

There is now also a £725 million Industrial Strategy Challenge Fund focused on innovation, announced in the 2017 Industrial Strategy White Paper, and ten ‘catapults’ which are not-for-profit centres aimed at promoting innovation by connecting businesses with universities and other research organisations.

These are positive steps, but more needs to be done and the sums are still small. Academics like Mariana Mazzucato would argue that an obsession with limiting state intervention to correcting market failure is misplaced. Instead, the state should be actively shaping markets.

That implies, however, that government knows best, and there’s not much evidence that it has been particularly successful at picking winners so far. Current suggestions for a National Investment Bank, for example, would only make sense if it functions at arm’s length from politicians, and it is staffed by experts with banking and commercial skills.

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But as Mazzucato suggests, “building dynamic public-private partnerships” to drive innovation makes sense, particularly if that partnership shares the risks and profits. Sadly, the UK is behind the curve. It missed out on developing a sovereign wealth fund, for example, as Norway did so successfully with the oil and gas proceeds when they were at their height in the 1970s and 1980s.

To that end, taking a strategic stake in firms as Mazzucato proposes, and investing in innovation though the process, may indeed be the way forward. Perhaps the UK should take a leaf out of France’s book. The most state-controlled country in Western Europe is, under Macron’s Presidency, about to sell off state shares in companies, partly to raise funds for – you guessed it – a €10 billion Innovation Fund.

Except that the origins of the internet are deeply statist. Indeed, the Defense Advanced Research Projects Agency (DARPA) – which created the internet in its original form – can be described as an arm of America’s ‘deep state’.

ARPANET on the one hand, Minitel on the other

On UnHerd this week, Nigel Cameron provides an account of how DARPA developed ARPANET, which evolved into the internet we know today. He goes on to describe how it also serves as Exhibit A in Mariana Mazzucato’s[1. Mariana Mazzucato, The Entrepreneurial State. Debunking Public vs. Private Sector Myths. Revised edition, Public Affairs, 2015] case for an entrepreneurial state. And no wonder, the internet’s story provides powerful support for all three parts of her argument: firstly, that the state plays a vital role in scientific progress and innovation; secondly, that the state has a special role to play in creating the shared infrastructure that supports private enterprise; and, thirdly, the state should itself be much more entrepreneurial – not least in capturing (and reinvesting) a fair share of the private sector profits enabled by its inventions.

Further reading

The government agency that made Silicon Valley

By Nigel Cameron

There’s a great deal in Mazzucatoism that I support. However, it’s vital that we go into this with our eyes open. The entrepreneurial state doesn’t always get it right – and when it gets it wrong it can do so on a scale and with a degree of bloody-mindedness that the private sector would be hard-pressed to match.

So while the example of ARPANET should inform public policy – and a shift to a more entrepreneurial state – it needs to be considered alongside the great counter-example: Minitel. 

But before I get on to that bittersweet tale, some historical context.

When did you first encounter the internet? If you’re old enough to recall the information Stone Age, there must have been some point at which you realised that a new age was dawning. For me it was the early 1990s, when, on a visit to Goldsmiths college, a member of faculty showed me a system that allowed academics to exchange knowledge online. This was my first glimpse of the internet. Ironically, the chap was a communist – a nice one as it happened, but seemingly oblivious to the hyper-commercialised behemoth the internet would become.

Videotex – just like the internet, only much worse

I had somewhat more of an inkling, however – because I saw something like the internet back in the 1980s. It was called Prestel, which was a UK-based videotex service – and at the time it struck me as being entirely commercial in purpose. In someways it was even more commercial than today’s internet because there was a price tag attached to every page of information.

Videotex is similar to teletext, the system that was used to provide TV subtitles for the hard of hearing. Videotex, however, allows for the two-way exchange of information. Therefore, it can perform many of the functions provided by the internet – including text messaging, online shopping and other interactive services. Unlike teletext, which you only needed a (analogue) TV to access, videotex services typically required a phone line, a modem and a terminal. They were  usually operated by phone companies (rather than broadcasters) – who saw videotex as a way of generating extra revenue.

Like ARPANET, Prestel was developed by the state – specifically the Post Office (the state-owned monopoly that used to run the UK’s telephone network as well as the postal service). When, in 1984, the telecoms side was privatised as British Telecom, Prestel was privatised with it. BT continued to develop and market the videotex service, but it never achieved more than 90,000 subscribers – and in 1994 it was sold off. The new owners tried to make a go of it, but by the mid-nineties it was becoming clear that that the internet was the future. And that was pretty much the end of Prestel. Indeed, it is all but lost to history – just a few pages of content (of which there were tens of thousands) saved to users’ floppy disks.[2. ‘Prestel introduction’, Celebrating the viewdata revolution, accessed 19 June 2018]

Vive la différence

In France, however, it was a very different story. Like the British Post Office, the French state telecoms company, PTT (later France Télécom), decided to develop a videotex service – which was named Minitel. France Telecom wasn’t privatised until 1998 and the French government decided to back Minitel in a big way. Millions of Minitel terminals were given away free during the 1980s and 90s – thus overcoming the cost hurdle that prevented the widespread adoption of Prestel in the UK. As a result, the French were communicating, shopping and banking online long before it became the norm in other countries. I can remember French relatives of my parents’ generation ’emailing’ one another at a time when the only Brits doing the same were academics and socially-awkward young men with neck-beards (overlapping categories, I know).

That part of the service known as Minitel rose (‘pink Minitel’)[3. John Lichfield, ‘How France fell out of love with Minitel’, Independent, 9 June 2o12] enabled the French to pioneer another digital activity: the mass consumption of online pornography – even if it was mainly text-based. Like today’s internet companies, the government passed the buck of child protection to parents – but, being French, they did slap a tax on the offending sites.

The inability of Minitel to display more than rudimentary graphics (of whatever nature) was a key reason for the decline of the system. Despite a user-base of 25 million at its mid-90s peak, the reality was that the technical limitations of videotex could not compete with the internet. Once broadband was rolled out, Minitel’s fate was sealed. In 2012, the system was shut down (though with hundreds of thousands of terminals still in use).[3. Hugh Schofield, ‘The life and death of the France-wide web, BBC, 28 June 2012]

Pourquoi?

Various post-rationalisations can be made for the great Minitel experiment – not least that France became the first country to develop a mainstream online culture. But where is the entrepreneurial legacy of all that investment? If you look at rankings of the world’s top internet, IT and software companies, you will see that most of them are American or (increasingly) Chinese. There are some Japanese and other Asian companies, but very few European companies and none to speak of from France.

Of course, the private sector is also capable of backing the wrong technology (remember Betamax?). Alternatively, they might miss the boat when a new technology disrupts a once thriving business model (the impact of digital cameras on Kodak being the classic example). But when private companies make the wrong call, they either find a way of moving on or they go under. Either way the mistake is terminated.

However, the entrepreneurial state does not face the same constraints: it can’t easily go bust; it can easily raise capital from its ‘investors’ by taxing them; and it’s under little pressure to show a short-term return. This has the great advantage of allowing it to become a patient investor in technologies that might take decades to achieve their full potential (as was the case with ARPANET). But it also has the great disadvantage of allowing politicians to take an entire nation up a technological dead end – and to persist in that folly long after a private company would have given up.

C’est la folie

Commenting on the Charge of the Light Brigade, Field Marshal Pierre Bosquet said “C’est magnifique, mais c’est pas la guerre” (it’s magnificent, but it’s not war). Replace war with entrepreneurship and you could say the same about Minitel. You could go even further and see the whole episode as a metaphor for the French way of doing things – gloriously dirigiste, but doomed to be superseded by les Anglo-Saxons.

And yet this is not an exclusively French vice. Later this week I’ll be presenting a list of the British state’s worst investment decisions. Brace yourselves!

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Flyover France – the forgotten frontier

By Peter Franklin

In the United States, President Roosevelt’s wartime science guru, Vannevar Bush, laid out a plan for a post-war government-science partnership that resulted in the National Science Foundation.[1. The report that led to the National Science Foundation (and its equivalent in every developed nation) – Science, the Endless Frontier. His brief and extraordinary essay published in 1945 in Atlantic Magazine, As We May Think actually envisages an “internet” as a hyperlink system based on microfiche! “Consider a future device…  in which an individual stores all his books, records, and communications, and which is mechanized so that it may be consulted with exceeding speed and flexibility. It is an enlarged intimate supplement to his memory.”] The core idea: governments need to fund basic research.[2. The parallel National Institutes of Health, first funded for cancer research, is now the big brother as bioscience has flourished. Current funding: NSF $8 billion. NIH $35 billion.]

A decade later, the Soviet Union’s launch of the world’s first satellite, Sputnik, in 1957, sent shock-waves through America and refocused government minds on innovation. How on earth could this despised centrally-managed regime have beaten the US into space?

In February of 1958 President Eisenhower set up the Advanced Research Projects Agency (DARPA – the D for Defense was added later) with a simple mission: to make sure the US would never again be surprised by developments in new technology.

From the start, DARPA has operated as a unit of the Department of Defense, though it’s been free to think long-term and not feel bound by the need to develop weapons. It’s a nimble organisation, with only a couple of hundred employees – and a budget of $3 billion.

Its approach is to look way into the future and find and fund the smart people who will get us there. Some of its work is seriously secret.[3. I was once asked to help a company get funding from DARPA, and I hired a former DARPA programme manager to make it happen. Then he explained that if DARPA really liked the company’s hush-hush product they might just decide to classify it – make it a state secret. And the company decided to look elsewhere.] But many of its innovations are well known.

Its most recent claim to fame is self-driving cars. Big car companies are now sparring with Silicon Valley start-ups to turn their experimental vehicles into production models, but it was as recently as 2004 that DARPA kick-started this rapid technological development. Instead of splashing out large sums to university researchers, DARPA decided to run a competition. Anyone could compete, their cars had to trundle across 142 miles of desert to get to the finish line, and the winner would take home $1 million. Incredibly given where we are now, every single entry in that first round failed to make it. But DARPA persisted, and in 2005 five vehicles crossed the finishing line, with Stanford University taking home the prize. DARPA moved on to an urban course, and then decided its support was no longer needed.

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Of course, DARPA’s biggest claim to fame is the internet. Or, as it was originally called, the ARPANET. Back in the 1960s there was a simple need: a system that could not be destroyed by a Soviet nuclear attack. Hence the idea of joining up computers – initially between universities – in a network that did not depend on any single hub. And that burning platform led to DARPA funding 70% of all US computer research in the early 60s.

It was two key thinkers working on the project, Vint Cerf and Bob Kahn, who came up with what we now recognise as the internet. The story goes like this: Cerf was hanging around in a hotel lobby and came up with the idea of a new ‘communications protocol’ that would enable networks to connect with each other. It came to be known as TCP/IP. First tested on ARPANET in 1977, it’s the standard we’re still using today. [4. For more details, see the article on ARPANET in Encyclopaedia Britannica]

The outlines of this story are well-known, but its implications less so. Because DARPA and other US government funding agencies did not just invent the internet – they devised the tools that made the digital economy possible; and enormously profitable.

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As economist Mariana Mazzucato demonstrates in her celebrated book The Entrepreneurial State, for example, every key component in the iPhone was developed by the United States government. [5. Mariana Mazzucato, The Entrepreneurial State. Debunking Public vs. Private Sector Myths. Revised edition, Public Affairs, 2015] And it’s quite a list. Aside from the internet itself, which is the basis of every single 21^st century high-tech company (including the 60+ ‘unicorns’, Silicon Valley start-ups valued at more than $1 billion), the whole succession of technologies that power our devices has emerged from publicly-funded science. From touch-screens to voice-activated Siri (and her equivalents) we have government investment to thank.

In fact, the entire eco-system of the internet was funded by DARPA. This article on “10 amazing DARPA inventions” starts off with the internet, and moves onto hyper-text linking (which led to the World-Wide Web); an early version of Google street-view; the Unix operating system; and GPS.

And while it’s true that Sergei Brin and Larry Page wrote the algorithm that created Google, what’s less well-known is that they made their key discoveries with funding from the National Science Foundation.

Mazzucato’s argument is simple. As a matter of history, the core technologies that enabled Silicon Valley were not developed by Silicon Valley geniuses funded by Silicon Valley venture capital. It was the federal government, chiefly through DARPA, who made the development of these now ubiquitous technologies possible, and who gifted them to anyone who was interested.

American (and, of course, increasingly, Chinese) companies have been very interested, and their vast profits are the fruit of investment by the US taxpayer. Public risk, private profit.

Let’s take Apple, who have sold over a billion iPhones: current net profits are around 20%, its market capitalisation is edging towards one trillion dollars, and at the moment it has nearly $300 billion just sitting in the bank. If anyone has done well out of US public science investment, it’s the company Steve Jobs built.

This story of how a government agency, DARPA, jump-started the digital economy needs to be better known, and one signal service of The Entrepreneurial State has been to help puncture the illusion that the Silicon Valley geniuses came up with it all themselves. It also raises some big questions about who drives innovation, and how it is paid for.

If American taxpayers funded the research that led to the development of the iPhone, shouldn’t those taxpayers share in the rewards? Mazzucato makes a strong case for a clawback, which could be recycled into further public science investments. She may be right, if it can be done in a way that does not inhibit the next round of entrepreneurs. But it’s important to note that these companies already benefit the economy – and therefore the public purse. They pay tax, have created a lot of high-paying (as well as low-paying) jobs, and had the usual multiplier economic impact on their localities and supply chains that vibrant innovative companies produce.

Nonetheless, a windfall tax on digital companies making outsize returns – ring-fenced to fund new research – could be one solution to the Mazzucato challenge. A form of DARPA dividend. It’s worth noting that Apple’s current cash mountain alone could fund DARPA one hundred times over.

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Test article

By Nigel Cameron

A more fundamental question is whether governments should see themselves as “entrepreneurial”, and set out to do just what DARPA did, as a matter of practice. The idea that governments should set industrial policy is hotly contested, with critics tending to characterise such an approach as ‘picking winners and losers’.

It’s ironic that while European governments (and the Japanese) are happier talking like this, it was in the United States, where the rhetoric of free-market capitalism tends to shut down conversations about industrial strategy, that the DARPA-digital lift-off actually took place. There’s a good argument that governments can’t avoid industrial policy choices – either they have one they talk about, or they have one by default. On the other hand, there’s also an argument that the DARPA-digital story is unusual, perhaps unique, and certainly not something that a government could set out to replicate.

Maybe it was unique, but that’s no reason to sit on our hands. Governments have nothing to lose and everything to gain by funding far-sighted research. One of the beauties of the DARPA model has been to keep this separate from the National Science Foundation/National Institutes of Health funding, which suffers from traditional peer review (fellow-experts who tend to strangle really fresh thinking at birth), and also from pressures to make it translate readily into business ideas and profits. The internet is worth trillions, but it took a generation before that became clear.

While there have been huge commercial and economic benefits from these technical advances, it is, however, important to remember that neither Vannevar Bush nor President Eisenhower had profit on their minds as they planned science and technology’s central role in America’s future. Their focus was security – keeping ahead of the Soviet Union. Their efforts succeeded beyond their wildest dreams, in part precisely because the focus was on long-term innovation rather than economic returns. There will always be private capital for the latter.

The clearest lesson from The Entrepreneurial State is that the blue-sky thinking of the mid-20th century paid off in the 21st – but that the original objectives of that research investment could not have foreseen the digital revolution that it spurred.

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Mission to make money: a new space race is taking off

By Nigel Cameron

Across Asia the state played a crucial role in promoting successful industrialisation. This is true of India, Indonesia, Japan, Singapore, South Korea and Taiwan. Even the odd man out – independent Singapore after 1965– had ‘government linked corporations’, and still has an investment vehicle (Temasek Holdings) with assets of $275 billion and a sole shareholder – the Ministry of Finance. It is much more than a sovereign wealth fund.

In China the party-state assumed the burden of reconstructing a country ravaged by civil war, occupation and revolution. The industrial scene was dominated by State-Owned Enterprises (SOEs), though from the late 1970s an incipient private sector – both in agriculture and light industry – developed in line with Deng Xiaoping’s dictum about the colour of cats (meaning the balance of state and private) being irrelevant to whether they caught mice.

The drive to reform eventually spread to SOEs under premier Zhu Rongji (1998-2003), whose mantra was ‘grasp the large, release the small’. Tens of thousands of failing SOEs were liquidated or privatised, with 40 million workers redirected into the booming private economy in a brief five years period. Many surviving SOEs were restructured and often listed on the stock exchange.[1. Nicholas Lardy, ‘The Changing Role of the Private Sector in China’, Reserve Bank of Australia, 2016] Unlike free market fundamentalist ‘shock therapy’, Zhu Rongji’s approach ensured continuous economic growth and social stability despite tens of millions losing their jobs.

Today’s SOEs are fewer and much bigger, so much so that western corporates quake at their approach. There are two categories. First, ‘national champions’ in banking, defence, energy, mining, telecommunications, transport and utilities. Three of these giant corporations, China National Petroleum, Sinopec and State Grid, are on the list of the world’s ten largest companies, and all with assets equivalent to entire countries. The oil giant Sinopec, for example, disposes of only slightly less revenue than the Australian government.

Below them are many more local and provincial SOEs, often in sectors like automobiles, IT, hotels and restaurants.[2. Korin Kane, ‘The size and sectoral distribution of state-owned enterprises’, OECD, 28 September 2017] While many SOEs are lackluster performers, there are many that do innovate, albeit in unsexy areas like viscose thread, affordable TV sets, and hot coil boxes in steel works.

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Nonetheless, it is often said that SOEs are a pernicious drag on China’s economy, often by westerners who regard them as an obstacle to their own market penetration. While China’s SOE’s generate 16% of all jobs, and a third of industrial output, they also soak up a third of all loans, thereby contributing to China’s unsustainable domestic debt.

There has been constant talk of reform of SOEs but much of it is the equivalent of shuffling a pack of cards to give the illusion of activity. The November 2013 Third Plenum of the 18^th Central Committee decreed: “we must ensure that the market has a decisive role in the allocation of resources”, albeit within a system still based on “the dominant position of public ownership” and “the leading role of the state-owned sector”.

Private sector investment in SOEs was encouraged. But private investors were reluctant to risk becoming involved in bloated enterprises, where the men with a red Party telephone on their desks call the shots following the instructions – and priorities – of Beijing.[3. As vividly described in Richard McGregor’s The Party, London, 2016] The Party may order continued loss making over-production to guarantee local jobs, or suddenly cut back coal or steel production as happened earlier this year, to head off a trade war. Increasingly corporate rearranging of the chairs replaces more hard-nosed structural reform.

The thinking seems to be that through sheer scale, these companies can force their way onto the world stage, especially if they digitalise production and supply chains. As in life, so in industry, marrying one fat slob with another rarely produces an entrepreneurial genius.[4. Sara Hsu, ‘China goes in circles: another attempt to reform state-owned enterprises doesn’t do enough’; Forbes 13 June 2017] Most recently, there has been a further ‘statist’ resurgence, with the levels of private sector investment declining to a mere 0.3 times that of the state.[5. Wendy Wu, ‘Chinese state firm executives frozen out of Central Committee as Xi Jipling’s anti-corruption plan bites’, South China Morning Post 26 October 2017]

Which brings us to the current era dealt with by Mazzucato. Conventional Chinese SOEs are unlikely to create the 15 million jobs a year China needs, 8 million of them graduate positions, and they are yesterday’s news in terms of the advanced sectors the Party wishes to see flourish.

In the most advanced industries, Chinese companies are rapidly catching up in purely innovative terms, and clichés about copycats and espionage no longer hold. China is in the lead, for example in next generation technology which will merge on and offline worlds through face or voice recognition technology, while Da Jiang Innovations makes 80% of the world’s commercial drones.

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The catch-up rates are striking. TenCent ($405 billion), which owns WeChat, is more valuable than Facebook ($399 billion), and Alibaba ($437 billion) is closing on Amazon ($459 billion). Together with Baidu, hence the acronym BAT, these giants finance start-ups in cities like Shenzen, which has eclipsed Hong Kong’s ‘old’ economy of finance and property and is now where Californian techies seek out cutting edge innovations. To hedge their bets, the Chinese invest in San Francisco and Indian start-ups too.

China’s government plays a major role in innovation, although having a huge population which readily adopts new technology also helps – the Chinese spend $790 billion using their phones, eleven times more than is spent by people in the US.

The government has boosted the number of graduates from one to seven million over the last fifteen years, with a further 11 million attending technical and vocational colleges. 188 million Chinese school children, including those in remote rural areas, will soon find themselves being individually taught by AI-enabled ‘teachers’ which recognise their faces.

The Chinese state has encouraged partnerships with leading universities and the Academy of Sciences and industry. It encourages competition between cities and regions to grow their economies and to attract talent. It has no inhibitions about people becoming incredibly rich, provided corruption is not involved, which may explain why so many western trained Chinese techies are heading back to the motherland.

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Through central plans, the government sets priority – currently electric vehicles, robotics, quantum computers, biomedicine and new materials. It sets tight deadlines for when China has to achieve global dominance in solar panels, 3-D printers, drones and robots. It does this through subsidies, tax breaks, loans and cheap inputs like electricity and low rents, not to mention an R&D budget that will reach 2.5% of GDP by 2020. If needs must, China can simply buy interesting European companies, as Midea in Guangdong did with Germany’s Kuka robotics. The Chinese state is driving innovation, and with it, economic growth.

Although, contrary to Mazzucato’s claims about the state doing the breakthrough research, much of China’s R&D budget is devoted to late-stage research, rather than the fundamental research which still absorbs most western R&D spending.

But China’s government also knows when to leave things alone, which is why data management, privacy and commercial rights issues are omitted until after tech champions like Tencent are up and running, another reason why China is ahead in exploiting freely available big data.

One final thought. Mazzucato felt obliged to write a book on the entrepreneurial state, while a Chinese scholar didn’t, precisely because ideological wrangling is so pervasive here. This debate is incomprehensible in China. The Chinese just look at the functionality of the cat, rather than its ideological coloration, and that may well be why they will be the innovative power in decades to come.

More on the entrepreneurial state...

The government agency that made Silicon Valley

By Nigel Cameron