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on 2 September 2016
Really enjoyed reading what is clearly a well researched book

It calls into question the whole free market ideology that privatisation is good for nation states and the idea that it is private business that is at the forefront of innovation and creativity

The material/research identified by the author in actual fact reveals that is is public investment i.e. tax payer money that underlies the greatest innovations/creative leaps

As a whole - the book is easy to read (even for the layman), concepts and ideas are expressed clearly and objectively (I myself underook some research in order to find fault with this book - I found next nothing to contradict the material in this book)

Overall, ver well written, easily explained and well presented book

I highly recommend it to lay people and those with an interest in socio-economic/socio-political thinking
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on 16 November 2014
This book is an absolute must! Economic decisions about the best allocation of resources must be based on the truth. To base economic decisions on half-truths and deception is to waste resources and leads to the ineffeciencies that all rational people wish to avoid. The Soviet Empire collapsed because it made economic decisions based on half-truths and deception. Western economies should not follow the Soviet example but should embrace the truth to achieve maximum efficiency and the best allocation of resources. And that is why this book is so important, because it rejects the superficial dogma put forward by neoliberal fundamentalists, that governments can never pick winners, only markets can. This very well researched book should be read by all political decision-makers, especially by neoliberals. It is a sign of robust and honest thinking to dare confront yourself with points of view that challenge your beliefs. Let the neoliberals show us that they are robust and honest thinkers by reading his book and then telling us where this book is wrong, if that is still what they truly believe after reading it.
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on 18 July 2017
This book was very accessible without watering down the argument at all, which is a very difficult thing to achieve. It is full of very interesting examples throughout, especially with often not talked about industries. It was a very hard book to put down.
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on 28 April 2017
A welcome antidote to the false prevailing wisdom about the value of the state. Mostly US examples, but very relevant for the UK too. It is also clearly written with plenty of relevant examples.
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on 18 August 2013
This well researched book proves that most important innovations are based on financing from government. Apple's iPods, iPhones and iPads are presented as one of the examples. The author describes in detail how the government has financed all essential technological innovations used. The author recognizes the genius of Steve Jobs by visualizing an attractive product that people would buy, selecting technologies, and putting them together in a compact beautiful package.

At first sight this appears the way it should be. The government finances technological breakthroughs that are picked up by business. The problem she sees is financing by the government. Governments are pressured to reduce costs and furthermore are accused to be highly inefficient in everything they do. She describes how for example the governments the US, Germany and Denmark invest heavily and effectively in research and development. They act as entrepreneurs taking the highest risks.

She shows that businesses, in the medical electronic and other fields have radically reduced their funding of the more longer term research and development on which breakthroughs depend. Business and venture capitalists are short term orientated. When "innovative" companies are hugely profitable they buy back shares and/or raise dividends but do not invest it in the longer-term future. She presents a lot of statistics to prove this point.

She considers that it is very important for the people at large to recognize the essential role government plays as the fundamental force in innovation. This role goes beyond developing new knowledge. The state in many cases also has to finance the development of a new technology to the point where it is applied and achieve critical mass. The governments is involved in the supply side but in important cases also on the demand side. The government chooses, has to choose, the winners.

The United States is by far the most effective and largest investor in innovation. Many people believe that the free market and entrepreneurs are the driving force in innovation. She refers to this as a "myth" presenting many examples.

Companies in general but especially highly profitable global companies go out of their way to reduce their taxes. Statistics show that these global companies are highly successful on this point. The tax income in addition to being reduced is also not going to the countries that have financed the new technologies that played an important role in generating the profits. She believes it is naive to believe that national governments can enforce tax regulations on global companies and therefore proposes other solutions.

One suggestion is to attach a royalty obligation to a technological innovation. The first buyer, as the public at large financed the innovation, should after a few years of exclusive rights, license other companies to use the innovation. She also refers to government financed development banks that provide financing for the early sages of development. A good example is such a bank in Germany the KfW (www.KFW.de).

She considers the present system as "dysfunctional", where governments take the highest risks and businesses take all the profits being an example where risks are socialized and the profits privatized.

I have worked extensively in this field, both in business and for government. I found this book stimulating to read and recommend it to others. I am however not sure, to what extent, the suggestions can be implemented. I do not doubt the importance and essential role the government plays in financing R&D. That kind of financing and managing, early stage innovation even including the creation of demand can also be seen as a logical task of government. I do agree that it is important that people at large should become more aware of the entrepreneurial role of government in innovation, and the necessity to organize and finance it.
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on 28 September 2013
This book shows in detail how most of the West's economic success since World War Two has been based on massive state investment in new technologies. Private enterprise mostly takes up things that state spending has pioneered.

Carefully referenced and with many detailed examples.
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on 18 April 2015
A well-written and timely rebuttal of the contribution of the private sector to entrepreneaurialism. Several examples demonstrate how modern innovation is founded mostly on government-funded basic research. Even the great Apple is built on a strong foundation of public research.The private sector, when it finds a good idea, launches it well through good industrial design and marketing.
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on 28 October 2015
Having written a masterly review of State funded innovation benefiting the private sector the Apple case study is fascinating.Integrating key technologies (GPS,Touch Screen Functionality and Voice Activation ) into their tablet and Iphone offerings Apple have been able to turn themselves into the world's largest corporation.But where is the return to the State and ultimately the taxpayer.The only people to directly benefit are the VCs and Apple shareholders.
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TOP 500 REVIEWERon 9 October 2013
Could not be reading this book at a more appropriate time. Last week Merck announced they are firing some 7.500 scientists. This week it's Alcatel firing another 5,000. That's not any company, Alcatel, it's owned by Lucent, previously known as Bell Labs.

One of the main theses of the book is that business these days concentrates its efforts in bidding up the share price through buybacks, that it puts more emphasis on returning money to its shareholders rather than fostering the research that benefits all stakeholders and society in general. Government, on the other hand, can be and has been a patient long term investor.

My problem with the book is that it moves freely from facts to theories, from theories to conjectures, from conjectures to opinions, from opinions to pure ideology and from ideology back to facts. There are no clear demarcations here.

Example of a very powerful fact from the book: The NIH spends USD 30 billion per annum on research. To which my reaction is "wow, shame on me, I had no idea, that's massive"

Example of a well-accepted theory from the book: There are times when the government is best placed to step in. Market failures (example: lighthouse, air traffic control), national interest (the military springs to mind), externalities (example: curbing pollution, getting everybody to learn how to read and write). Few people dispute this.

Example of a conjecture in the book: The state is capable of kickstarting a green economy through 1. fostering the right collaborative environment for researchers in universities and the private sector and 2. through backing early initiatives with patient capital. (You'd have to agree, is my view, the question is what else that money could have gotten for you, of course.)

Example of an opinion from the book: Companies should not pursue profit maximization first and foremost. (For the record, I find the alternatives appealing, but ultimately romantic dead ends. There! How's that for an opinion?)

Example of (implicit) ideology from the book: Bottom of page 187 the author starts a sentence as follows: "While the classical economists (such as David Ricardo or Karl Marx) studied innovation and distribution together..." and it's a good thing she tucks that in so deep in the book rather than at the beginning, or I would have put the thing down. I genuinely don't think "classical economist" is the first description of Karl Marx that springs to anybody's mind.

Don't mean to subvert here, just to point out that the book definitely has an angle and plays around with facts, theories, conjectures, opinions and ideology.

I am a former entrepreneur, have suffered in the hands of the VCs the author has so little time for (the accusation is they find the ready work of government and jump in at time epsilon before there's any money to be made) and I'm extremely sympathetic to many of the arguments she makes. I really really wanted this book to be awesome.

It falls short.

The weakest part of the book is the case against Apple. I really could not care less that the government invented/fostered/supported technologies such as 1. The DRAM cache, 2. Lithium-ion batteries, 3. Signal compression 4. Liquid Crystal Display 5. Micro Hard Drives, 6. Microprocessors, 7. Click-wheel, 8. Multi-touch screen, 8. GPS, 9. The Internet, 10. Cellular technology, 11. SIRI.

I credit my wife with being an excellent cook. She goes to the same supermarket that's available to me. She can make a dinner to truly entertain ten people; I am merely qualified to poison them. It took a mad (and mad he was) genius to take all these technologies and put them in the palm of my hand. Perhaps I know this (and the author does not) because I'm a former entrepreneur:

Mariana, my friend, IT'S IN THE DOING. Steve Jobs did it. Thousands failed. So did he, at first. Ever played with an Apple Newton?

It gets better. Apple made millions, but others are now catching up. Pretty soon, unless it innovates again, Apple will be making "normal profits" on the devices it pioneered. Rich fellows like me paid 700 dollars for an iPhone, but in ten years' time everybody will be able to buy an iPhone equivalent for ten bucks, if the phone company is not already giving one away with the contract.

The other thing I found a bit disingenuous is the following: The ten inventions mentioned above were all fostered by the Department of Defence. Forgive me, but as far as I'm concerned, there is no worse den of inefficiency on the face of the planet. I know, this is ex-post. If we had the red flag flying here my feelings would be very different. We'll never know, because we don't have the "what-if" world to compare with.

But I've read the book and I'll be damned if the author disagrees with me that the DoD wastes tons and tons of money. They HAD BETTER be getting some type of dividend from their work. I don't think this can all be presented as some sort of triumph.

Moreover, if we spend on energy what we've spent on defence, I bloody hope we solve the energy problem forever. Funnily enough, the amounts the government has spent on defence since the end of the war are similar order of magnitude to the amounts the US has spent on energy.

China is presented as some kind of poster-boy for fostering green energy, except the very company the author decides to make an example of has gone bankrupt.

Don't get me wrong. Ultimately, I share the author's view that there's something fundamentally wrong with capitalism in 2013 versus capitalism in 1960. I also share the author's view that there is a clear role for government in innovation. The paper lists today who works for government because we're in the middle of the 2013 US government shutdown as I'm reading this. Away from the military, it looks bloody lean to me (and stop pelting me with rotten tomatos before you look at the numbers for yourselves!!!!)

There's one more thing here that's of interest. The author is an expert in mathematical models of growth and innovation. She refers briefly to the various "endogenous models" for innovation, but merely to mention they exist. Why not dedicate a chapter in the book to how these models work? Give us some credit, maybe we could read them and stay with you. I don't bear Stephen Hawking any grudge for that book I bought once, and he lost me pretty early on!

In summary, this is not a book that has served me a great deal of ammunition to fuel my prejudices. Which is a shame.
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on 12 March 2014
This is a very confused and confusing book. To begin with, contrary to what the blurb on the back of the book says, Mazzucato does not debunk the myth of the State as a bureaucratic organisation, since she only deals with one aspect of government policy namely R&D spend. Moreover as I will come on to argue her arguments are on the whole anything but convincing. However the book is not wholly without merit as will be seen.

The main problems with the book can be grouped into five main areas. Firstly, Mazzucato is a unabashed statist. She states (p.197) that "As anyone who has worked in the private sector knows, there are plenty of 'bureaucratic' and inertial businesses. There is nothing in the DNA of the public sector that makes it less innovative than the private sector." These are two of the most absurd statements I have heard from an economist. It is of course true that some businesses are bureaucratic, inefficient and suffer from poor decision making. However it is exactly these businesses that tend to get undermined by less bureaucratic, more efficient and better managed companies. A number of factors may slow this process down (market concentration, barriers to entry, etc) but occur it does in industry after industry. There are simply too many examples to choose from. So in food retail we had Sainsbury undermined by Tesco (lower prices) who in turn are undermined by Waitrose (better products at a similar price) and the discounters (similar products at an even lower price). In technology Microsoft/IBM's duolopy was gradually eroded by Apple, etc while Apple's dominance in smartphones is now being underminded by Samsung et al. The problem with the public sector is that there is no obvious mechanism to erode or keep in check bureaucracy - there is no market mechanism, no profit motive and no market in M&A to bring in fresh management with fresh ideas. All we have are periodic government reviews which appear (on the face of it) to make little progress. Numerous studies have demonstrated how management practices in the private sector have evolved (better management qualifications, better information systems, ERP, etc) whereas those in the public sector have lagged behind.

Secondly, Mazzucato seems to think the Keynesian approach to macroeconomic policy has been a great success. Any perusal of the empirical evidence will show that it has been largely an unmitigated disaster resulting in rampant public and private sector debt. Each recession requires a greater fiscal and monetary stimulus to prevent catastrophe. Capital has long been mispriced by the manipulation of interest rates (holding them below nominal GDP growth) while the scale of waste in public sector spending (benefits, procurement, etc) has been well documented. Theoretically Keynes was naiive. He ignored evidence over rent seeking activity capturing the benefits of public spending. He also assumed a closed economy (in the General Theory) thus precluding the application of his theory from most economies. He also, and this is the biggest irony, named his theory "General" after Einstein's theory of general relativity. In effect, Keynes saw himself as providing laws of economics that would operate through all time and space - in effect he ignored the important institutional changes i.e. in labour markets that actually often determine which polices have greater impact. The pioneering work of economic historians such as Douglass North is worth reading on this subject. Mazzucato's eulogisation of Keynes is, in this regard, particularly ironic as she frequently criticises mainstream economists for their belief in models.

Thirdly, I was also taken aback with how dismissive Mazzucato is of the empirical research on government debt. On p.17 she writes,"Reinhart and Rogoff (2010) shows just how heated the debate is [on fiscal policy/government debt]. What was most shocking, however, from that recent debate was not only the finding that their statistical work published in what is deemed the top economics journal was done incorrectly (and recklessly) but how quickly people had believed the core result: that debt above 90% of GDP will necessarily bring down growth." This is complete bunk. Mazzucato obviously did not read Reinhart and Roggoff's book (This Time is Different: Eight Centuries of Financial Folly). Nor did she apparently read Reinhart and Roggoff's precise and highly effective refutation of Herndon, Ash and Pollin. R&R's full response is on Carmen Reinhart's website. To cut a long story short R&R always emphasised the mean number in their result not the median (which had been skewed by an excel error spotted by Herndon). The mean result is simply that countries with public debt to GDP above 90% (R&R grouped countries into three - 30%-60%, 60%-90% and 90%+ public debt/GDP levels) experienced 1ppt less GDP growth on average than those in the 30%+ and 60%+ buckets. They also did not selectively exclude data or unconventionally weight data. It is also important to note that R&R's conclusion that very high levels of public debt to GDP is associated with lower economic growth is not controversial supported as it is by hundreds of other economic studies. Should we be surprised that very high levels of debt might be a hindrance to growth?

Fourthly, and to come to the nub of Mazzucato's thesis, the arguments presented in the book do not convince me that industrial policies have been succesful. Mazzucato is highly selective in which industries she writes on. She largely tells stories about what happened with little systematic collation of data. She also ignores the most egregious industrial policy calamities (aside from mentioning Concorde repeatedly as though this was the only failure of British industrial policy. Incidentally she tries to explain this away by saying it was an obvious mistake to target a mature industry. This really baffled me as the project originated in the early 1950s less than a decade after the invention of the jet engine). She also follows in the tradition (which she acknowledges and indeed advocates as supportive of her arguments) of industrial policy advocates like Chalmers Johnson ("Developmental State"). Johnson argued (MITI and the Japanese Miracle, 1982) that Japanese bureaucrats and in particular the Ministry of International trade and Industry (MITI) drove Japan's economic growth by targeting and shifting investment into new industries. Such writers urged President Regan to copy this `Japanese model'. In fact the empirical evidence is overwhelming against Johnson's thesis. The sector of the Japanese economy that received the greatest level of public spending was also the most inefficient (agriculture/rice). One of the most successful industries received the least level of support (electronics). In another famous example, in the early 1960s MITI tried to force Japanese auto producers to merge into one company in order to create a national champion (think British Leyland!). The companies successfully resisted MITI (that in itself is a common thread through Japanese post war economic history) and it was partly the strong competition between them helped spur efficiency and innovation leading Japanese auto companies to rapidly expand exports to the US and Europe in the 1970s. What is also amusing about Johnson is that his eulogy to the 'Japanese model' came less than a decade before the start of the extreme economic stagnation that has afflicted Japan since 1990. In addition, the US is no longer seen as the basket case it was seen as during the 1980s (by the pro-industrial policy folk who raved about Regan ignoring lessons from Japan). Mazzucato tries to square this circle by saying that the US has long had a secret industrial policy! Seriously, you could not make this up.

Fifthly, where Mazzucato has some serious points she still overplays her hand. In the chapter on Apple/tech companies she shows how several of the key technologies were originally developed for military use and that Apple paid a pittance to use them in the private sector. But this is really the point about the private sector - it takes an entrepreneur of the calibre of Steve Jobs to see the potential of these technologies - to envisage a product that consumers would want to buy (before the protoype has even been built). Another example is the internet which came out of a 'small ARPANET [US defence department] project'. The point is that the most useful technologies (for consumers) are often not those that have the most money spent on them. I won't even go into detail on the daft chapter on green technologies. Wind and solar energy is a market created by governments and completely distorted by subsidies, guaranteed prices, etc. I fail to see what general lessons can be learned from this area.

Having said all of this, Mazzucato's book is not without merit. I share her criticism of R&D tax credits as these merely subsidise spending that would have taken place anyway (this point at least is empirically grounded). Likewise she is right to criticise current tax regimes that allow corporates to minimise their tax contributions. However I do not blame the companies (management after all have a fidicuary duty to maximise shareholder value and I do not agree with her criticism of the private sector for this) as she does. To deal with this issue there needs to be greater global co-ordination of tax regimes. If companies go global so too must the framework they operate in. This will, however, require a greater degree of international co-operation than has hitherto been possible.

Finally I fully accept Mazzucato's argument that the private sector will not engage heavily in fundamental research as they cannot appropriate the rewards. In this respect the State's contribution to economic growth is underplayed and her suggestions for a national innovation fund, funded from royalties from the technologies that the private sector ends up utilising (but which were developed by the State) seems worth exploring. However I am very sceptical of state involvement in the economy based on all the empirical evidence. For this reason I would suggest (along the lines of Popper's small social experiments) that this idea be initially trialled in one industry (Pharmaceuticals seems a good idea as Mazzucato makes some valid points about the level of public vs private innovation in that industry). This could be reviewed periodically and if after 5-10 years it was conclusively proved to be a successful measure it could be quickly rolled out to other industries.
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