Does Mariana Mazzucato have the solution to Canada's innovation deficit?
The British-based economist has captivated everyone from the folks at the Broadbent Institute to former BlackBerry chief Jim Balsillie with her prescription for a more activist – or entrepreneurial – Canadian state as the answer to this country's failure to innovate its way to prosperity.
That record was most recently confirmed by the Conference Board of Canada's latest innovation ranking that placed this country ninth among 16 developed countries, far behind Sweden, Denmark, Finland and the United States. The weakest link in Canada's innovation chain remains anemic spending (by global standards) on research and development by the private sector, which fell from 1.26 per cent of gross domestic product in 2001 to an embarrassing 0.88 per cent in 2012.
The oil patch, whose R&D expenditures in good times were barely a quarter of those of the manufacturing sector as a share of GDP, sees research as dispensable in bad times. It's yet more proof that, when the going gets tough, Canadian business seems to gather its marbles.
Enter Ms. Mazzucato. The University of Sussex economist changed the global conversation on innovation with The Entrepreneurial State, her 2013 breakout book on the role governments play in developing new inventions and creating markets. "A visionary state with the courage to direct mission-oriented investments, rather than just 'de-risk' the private sector, is needed to spur smart innovation-led growth," Ms. Mazzucato wrote after a recent Canadian visit.
Ms. Mazzucato's book neatly encapsulates her thesis by demonstrating that most of the technologies that wound up revolutionizing smartphones with the 2007 release of the iPhone – from the Internet itself to touch screens and voice-activated digital assistants – sprung from the U.S. military, publicly funded universities and government research agencies. She concludes that the real risk-taker was the U.S. state, not Apple, even though the company pocketed the profits.
"Ignoring the key role of the state – or the taxpayer – in wealth creation has been a lead cause of inequality, allowing some (hyped up) actors to reap a rate of return way beyond their actual contribution," Ms. Mazzucato said last October in accepting the inaugural New Statesman SPERI prize in political economy, beating out the likes of Thomas Piketty, author of Capital in the Twenty-First Century.
The Ottawa-based Broadbent Institute, which played host to a lecture by Ms. Mazzucato earlier this year, seized on her research to say that it "shows how the risks associated with innovation are socialized while the rewards are privatized." The left-leaning think tank endorsed her recommendation that the state not only directly fund promising technologies – as opposed to the Canadian approach of mainly providing tax incentives for private-sector R&D – but that it also take equity stakes in companies so that taxpayers can share in the profits from innovation.
Canadian innovation policy needs a more fundamental overhaul than the tweaks the Conservative government has offered in the past few years. Ottawa has moved some support for innovation out of tax credits and into more direct funding through the Industrial Research Assistance Program and venture-capital funds run by the Business Development Bank of Canada. But Canada can never match the heft or sophistication of the U.S. Defense Advanced Research Projects Agency. Even if it could, who's to say Canadian bureaucrats would be any better at picking successful disruptive technologies than they have been in the past?
Ms. Mazzucato underestimates the risks that private actors take in moving technology from the lab to the market. As Stian Westlake, executive director of policy and research at British innovation charity Nesta pointed out in The Guardian, Apple's genius lies in integrating a panoply of disparate technologies and making them broadly usable. "Anyone who doubts that commercializing smartphone technologies is risky should look at what happened to the share price of companies like Nokia, [Blackberry] or Motorola that screwed up … despite having access to the same public technologies Apple did." What's more, Mr. Westlake noted, "companies risk a lot more money on these 'integrative' undertakings than either they or the government spends on technological R&D."
It is not clear if Ms. Mazzucato's book carries much relevance for the Canadian situation, other than to remind us that the state has critical role in financing basic research, through universities and other public institutions. Canada already performs comparatively well on this front. Basic research is a public good in the sense that private players won't typically pay for research that might help their competitors more than themselves.
Applying Ms. Mazzucato's ideas here might be as pointless as trying to download the Uber app on a BlackBerry.