As we survey the intellectual rubble left from the irruption of the pandemic into society one idea that seems definitively collapsed is Mariana Mazzucato’s idea of The Entrepreneurial State. For her argument is that government should not just pay for – as if often does – basic research and even hte development of certain products but should guide that process in detail.
Well, OK, that’s something that has been tested here.
Pfizer specifically and deliberately declined money to develop their vaccine. The CEO is on record as insisting that having the bureaucrats looking over shoulders would delay the work that needed to be done. Too much form filling and oversight that is.
Sanofi was the French government’s standard bearer here and they’ve abandoned development on the grounds that their vaccine doesn’t work.
But there’s more to it than this. Look at the EU’s nonsense about insisting upon lower prices, allocation of liability. That second being really silly to the point of insane actually. For it’s a standard part of vaccine development that there will be allergic reactions and they will kill people. Which is why sensible countries have vaccine compensation funds – the US and UK certainly do. Some people really are going to be stone deaded by having a vaccine. About one in a million is the usual rule of thumb. Which is harsh on that one in a million but the more general population and societal effects are such that they are sacrifices on the altar of public health.
At which point we all, as a society, chip in to pay the compo through the tax system. So the EU trying to dump that on the vaccine firms was close to insane.
What actually has worked here? Governments opening their wallets. Operation Warpspeed in the US, whatever we called it in the UK. Advance buy doses from whatever looks like it might work. That is, underwrite, financially, the work that it is necessary to do.
But, crucially, that’s all. Open wallets and stand back. Don’t try to own the produce of the subsidy, don’t try to make the subsidy back through said ownership nor taxation of the revenues/profits from it.
That is, realise that one of the reasons we have government is to gain access to public goods that we’re not going to gain – or will gain late – through purely market processes. So, if we gain those public goods through government action great, excellent, we’re done. Because that’s the aim, gaining those public goods, that’s what we pay our taxes for.
Mazzucato’s idea is to go rather further. The state should be directing, in detail, that research,. Then, also, be profiting from it. As to why this is the answer’s pretty simple. The EU wanted a source of “own funds”. That is, a cashflow that it didn’t have to beg national governments for. So, when it had raised this great big fund to invest in new tech and so on it needed an excuse to start to own what was developed using those funds. Enter a research project to justify ownership of the developed technologies – The Entrepreneurial State.
That this is simply silly doesn’t seem to matter. The argument in favour of state aided development is that these are public goods that the private sector won’t develop. Why? Because as a public good it’s somewhere between difficult and impossible to make a profit from having developed it. So, now arguing that the state must profit from the development of public goods is to be very silly indeed. For by definition if it’s possible to profit then it’s not a public good that requires the state direction and subsidy.
It’s possible to collapse this down to a different example. Mazzucato continually invokes DARPA as a state directed innovation funding mechanism. Yep, it does work. The reason it works is that they say, hmm, it would be great to have “this”. If they spot someone who might be able to make this then they subsidise them. If it works then they gain a supply of this, which is a good thing.
But the one thing DARPA never does do is take a stake in the company, own the patents, oversee the development process, they simply hand out the cash. Which is why it works. Mazzucato then uses this to prove that government should take stakes, own patents and…..you see the problem with this argument?
Back to vaccines. Surveying the world around us right now sure, we can see a role for government in the development of vaccines. That role being to open the societal wallet to anyone and everyone how looks like having a chance at producing that desired good. Further, the closer the government, the state, has got into actually directing or trying to own or profiting from the developed item the worse the project has done.
Which does rather lead to the death of the Mazzucato thesis, doesn’t it? She insists that government should direct and profit from research and development. Nope, as we’ve just proven, it should pay for then leave well alone.