What Drives Innovation? The State

Magazines like The Economist mock industrial policy while piling praise on the private sector. The more one knows about the intertwining of state and market in health care, defense, telecommunications, energy, and banking, the less realistic any strict divide between “public” and “private” appears. Moreover, even the internet sector, that last bastion of venture capital and risk-taking, is more a creature of state intervention than market forces. As Mariana Mazzucato argues:

Whether an innovation will be a success is uncertain, and it can take longer than traditional banks or venture capitalists are willing to wait. In countries such as the United States, China, Singapore, and Denmark, the state has provided the kind of patient and long-term finance new technologies need to get off the ground.

Apple is a perfect example. In its early stages, the company received government cash support via a $500,000 small-business investment company grant. And every technology that makes the iPhone a smartphone owes its vision and funding to the state: the Internet, GPS, touch-screen displays, and even the voice-activated smartphone assistant Siri all received state cash. The U.S. Defense Advanced Research Projects Agency bankrolled the Internet, and the CIA and the military funded GPS. So, although the United States is sold to us as the model example of progress through private enterprise, innovation there has benefited from a very interventionist state.

VC’s and other financiers exaggerated their role in promoting innovation in order to get capital gains tax breaks. And while they retreat ever further from taking risks on game-changing advances in productivity, the tax breaks endure, starving the state of the revenues it needs to continue its history of subsidizing innovation. The California Ideology gradually undoes its own material foundations, but its adherents are unfazed. They are content to reap the benefits of past decades of government investment. From Silicon Valley to Wall Street, seed corn is the tax-cutters’ favorite meal.

One thought on “What Drives Innovation? The State

  1. Yes, it’s worth emphasizing that new and even “freer” markets require new and/or more rules, in this case, regulations that promote financial innovation (and as an inevitable effect: speculation). At bottom, the “liberalization” of markets, in other words, requires state intervention and management. Periodic crashes, manias, and crises caused by “overaccumulation” and the “tendency” towards a falling rate of profit assure the quest for new markets, new technologies, global expansion of circuits of capital, credit multiplication, “and state intervention directly into the relations of production.” The state has the unenviable and democratically challenging task of organizing the management of capitalism’s contradictions, in our case, facilitating the penetration and integration of other states into the neoliberal economic order (albeit largely on ‘our’ terms), assuring some level of cooperation in setting the international terms of trade and investment.

    Financial scandals and crises are eventually addressed by financial elites and their government counterparts fashioning new rules and regulations that lay yet more tracks for further growth of financial capital while at the same time serving to pacify populist protest and discontent: after all, even the masses have a stake in the stability and reproduction of financial capitalism: their lives and livelihood are utterly dependent on it (and hence the need to actively promote an ‘economic’ theory of democracy and the citizen as consumer!). The intertwining of state and market is unavoidable if only because the Federal Reserve and Treasury are structurally tied to financial markets, markets with capitalist imperatives that cannot be ignored or denied (‘leading corporate lawyers and financiers have moved between Washington and Wall Street ever since the age of the “robber barons” in the late 19th century’). The latest economic crisis reminds us of the necessary “and central role of the U.S. state in keeping the system going.” A capitalist democracy cannot declare war on Wall Street nor revolutionize the commercial and investment banking system. It can and does serve to socialize risk, collude in the “flexibilization” of labor (e.g., lowering ‘working-class wages—labor costs—rights, and expectations,’ including decimation of unions and collective bargaining), and subsidize capitalist innovation and welfare provisions generally for the corporate world. Whatever the Neoliberal rhetoric of “marketization” or “privatization,” for example, “if anything, bureaucracies become more unwieldy under neoliberal regimes” and “in practice, ‘deregulation’ always cashes out as ‘regulation,’ only under a different set of ukases.”

    As Philip Mirowski repeatedly reminds us, Neoliberalism understands that its vision of the good society must be “constructed” with concerted and ever-vigilant political effort and organization, the state playing a prominent if not the paramount role in such an endeavor (despite the ‘laissez-faire’ dreams of classical liberal doctrine or the delusional fantasies of contemporary libertarians): “A primary ambition of the neoliberal project is to redefine the shape and functions of the state, not to destroy it.” Libertarian or libertarian-like entrepreneurial arguments and politics are as relevant today as they were in opposition to the Tennessee Valley Authority (TVA) in 1933.

    Quotes and much of the material summarized above is taken from or inspired by two books: Greg Albo, Sam Gindin, and Leo Panitch, In and Out of Crisis: The Global Financial Meltdown and Left Alternatives (PM Press, 2010), and Philip Mirowski, Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown (Verso, 2013).

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