I found a compelling TED talk by Mariana Mazzucato called “Government: Investor, Risk-taker, Innovator” which describes her argument regarding government’s investment and support in private sector research and innovation. She details the misconceptions about ‘revolutionary’ firms who innovate and the persistent idea that government should simply support basic institutional structures to maintain stability and promote growth and innovation in the private sector.
Using the example of an iPhone and the pharmaceutical industry, she explains how many of the innovative features, the truly revolutionary aspects of the technology, are actually backed by government projects and funding. From the internet, GPS, microchip and touchscreen capabilities on modern phones, to truly ‘new’ pharmaceuticals, funds from the US Department of Defense, CIA grants and other government sources are the backbone of the research and development of these innovations.
While the government is often looked at as a “leviathan” which steps in to correct markets, it has much more importance in the private sector and a critical role in innovative developments and research. Mazzucato emphasizes the need for public sector investment, not only to mitigate the massive risk associated with innovation, but to acknowledge the need for government influence and the widespread benefits that result from market-shaping and the returns that exist but are often overlooked from public projects.
Overall, she introduces a compelling point about the preconceived notion of public sector influence on private sector, and how value is actually created. The last few minutes of her presentation depict the conceptual importance of government involvement and the risk-return tradeoff, with some key points about how that influence provides benefits and innovation. Around 11 minutes into the presentation, she describes these aspects and ends with a contrasting view of how our misconceptions can hurt institutions, but embracing this idea can allow for a period of sustainable, improved growth that we have yet to see.