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@semihakcomak – beni düşündüren şeyler – things that make me think

Entrepreneurial state is cool but what policy for the developing world?

entrepWhen I was teaching a course this semester on the current trends in innovation policy around the world I recognized that today’s innovation policy has somehow become stagnant. Most examples we discussed in class were old style supply-side neo-classical designs where the main economic rationale for policy is market failure. World is full of copy-paste policy designs that actually question the very nature of innovation policy: context-specificity. Regardless of sector and country most policy documents mention about policies such as supporting SMEs (SBIR like designs) financially, enhance networking, support clusters etc. Mariana Mazzucato’s new book the ‘Entrepreneurial State’ breathed new life into innovation policy making. Let’s shortly have a look at the main arguments of the book and then move to our question: Cool but what does it imply for policy making in developing and underdeveloped world?

The book is framed on the clash between two opposing views. On one hand there is a humble role for the government. Through R&D supports, tax credits and related tools the government can set up an environment where private returns increase. The market will deal with the rest. On the other hand there is much more pro-active and entrepreneurial role for the government. Especially for radical technical change to occur the state should deliberately intervene to create markets in the first place. For many radical technologies the initial spark came always from the government (for instance, nuclear power reactors, microchip, internet, google, GPS, biotechnology, nanotechnology etc.).

This entrepreneurial role for the government comes together with its own policy implications where emphasis is more on innovation but also on R&D: (i) support new technology producing young high-growth firms, not small firms, (ii) monitor the R&D funds, tax-credits. If it doesn’t work cut or abandon, (iii) direct commissioning of technology is far more effective than lavishly spending money on SMEs, (iv) pay attention to complementary factors (basic science base, human capital, financial institutions), (v) venture capital markets work when risks are calculable. Any technology to reach that state has to be financed by the government.

If I look at the vision of the ‘entrepreneurial state’ and the policy implications several observations and questions emerge:

  • Creating a market is an expensive business. It needs money and huge amount of investment. That sort of money does not exist in the South. Maybe in BRIC and some other countries but in most others definitely not. Most developing and underdeveloped countries have yet to complete capital accumulation. How is market creation to be financed?
  • Creating a market demands visionary human capital. It not only demands high quality visionary scientists but also high quality science and technology bureaucrats and policy makers. The latter has to grasp what the former says. I do not think the South is rich in terms of both, especially the latter (again excluding some countries).
  • Creating a market demands complementary assets such as well-functioning institutions, secondary and tertiary education system, fully working financial system etc. These are generally available as a package in the North but not in the South.

Let me further support the three claims above by referring to the Turkish case. As for the first point we talk about huge money. At the moment Turkish government is spending about 1.9 billion US Dollars to support R&D and innovation. Only the budget of Defense Advanced Research Project Agency (DARPA) in US is 50% more than this amount. In a similar manner the National Nanotechnology Initiative budget more or less equals to the whole R&D spending of Turkey; maybe even more. What I am saying is that only a few developing countries can act as an entrepreneurial state regarding financial capital. What about the rest?

As for the second point visionary human capital is something scarce in Turkey. Unfortunately we lose the ones that we already have because of wrong government policy. The nano project in US started when only a bunch of people in the whole world knew the term “nanotechnology”. It was the product of visionary scientists thinking about the next big thing after the internet. Science and technology bureaucrats were supporting these visionary scientists. To have visionary scientists first you have to have a solid university system and science base. Then you have to let these people work freely to produce knowledge that is at the world frontier. Let’s look at the Turkish case: poor university system and incompetent science base. Moreover the autocratic government creates an environment where scientists cannot voice their opinions. The science base is deteriorating continuously as pure science departments in the universities are constantly losing funds and brains. The only large scale government basic and applied research centre in the country (TUBITAK-MAM) is being degraded in the last years. Surely it is difficult to talk about entrepreneurial state in Turkey under these circumstances.

As for the third point the quality of the complementary assets is questionable in many developing countries. The justice system is unstable just like the secondary education system. There have been about 20 changes (minor and major) in the secondary education system in Turkey in the past 15 years. The government still talks about education reform. The financial system is developing but not much yet regarding venture capital. And finally there has always been a problem regarding networking, coordination and working together to solve problems. So in terms of complementary assets Turkey’s position is not that bright as well.

I might be a bit biased given the social turmoil in streets of Istanbul, Ankara, Izmir and all over the country. However this does not make the question and remarks above less significant for the developing world. I am sure that many developing countries share the issues raised above regarding financial and human capital, complementary assets and well-functioning institutions. This short piece aims to open a discussion on what “entrepreneurial state” implies for the developing and underdeveloped world.

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