Mariana Mazzucato
The most difficult challenge that US president Barack Obama faced in his attempt to reform the US health care system is the scepticism of US citizens towards the government's role in the economy.
While it is commonly felt in the US that it is ok for the government to protect private property, fund the military and the police, construct schools and motorways, the idea that government should get involved in the functioning of capitalist markets is deemed out of place and dangerous.
This is why the Republican campaign against Obama's reform has worked, by convincing the US public that government intervention in healthcare would mean the government meddling in personal decisions and eventually reducing the incentives for innovation.
But words like "intervention" and "regulation" hide a deep truth; the history of capitalism shows that, in fact, governments have not only intervened in and regulated markets but have often been a driver for the creation of new markets and entrepreneurship.
Entrepreneurship is about taking on risk to develop new products or new markets. Without entrepreneurship there is no innovation. The key word is risk. The probability of failure around innovation is extremely high and this high risk means that we don't see enough innovation as profit-led companies fear short run losses.
In fact it has often been the government-run laboratories or government-funded universities that have funded the most radical innovations- from the internet, which was largely created by the US Department of Defence,
to innovation around green technology.
Take the pharmaceutical and the biotechnology industry. Innovation
in both these industries is extremely risky. Research and development for a new drug takes 17 years on average. The failure rate is very high: only one in 10,000 compounds reach approval phase. Of 1072 drugs approved by the Food and Drug Administration agency between 1993 and 2004, only 146 were new molecular entities. Most were 'me too' drugs. Big pharma has not played an entrepreneurial role.
The same can be said of the 1980s biotech revolution. Private venture capitalists bought in only after 20 years of government spending in the most risky phase. The groundwork was carried out by a publicly-funded body, the National Institutes of Health, in its labs by its own talented scientists with a budget that reached $4.5bn in 1984. Their research yielded important breakthroughs. Yet the lay person thinks that it was venture capital.
During a US tour, President Francois Mitterrand visited California's Silicon Valley to see entrepreneurial drive at work. Over lunch, Mitterrand listened as Thomas Perkins, a partner in the venture capital fund that started Genentech, extolled the virtues of the risk-taking investors who finance the entrepreneurs.
Perkins was interrupted by Stanford University's Professor Paul Berg, a Nobel Prize winner for his work in genetic engineering, who asked where was the venture capital in the 1950s and 60s, when all the funding was needed in the basic science. "Most of the discoveries that have fueled [the industry] were created back then," said Berg.
So all credit to the government, which has been doing more than just 'meddling'. It has, in fact, played an important role in the process of creative change. Unfortunately, with capitalism often comes inequality. This is where the regulation comes in, and where Obama's plan is crucial to ensuring that the new drugs have a more equitable market. The ideology behind the role of government needs radical overturning for this to happen more quickly.
Professor Mariana Mazzucato is professor of economics at The Open
University, Economics Director of the ESRC Centre for Social and
Economic Research on Innovation in Genomics (Innogen) and
co-ordinator of FINNOV
From Whitehall Watch
From Bubb's Blog
From Flip Chart Fairy Tales
