I first came across the theories of Italian economist Mariana Mazzucato a few years ago in a debate with an anti-capitalist who argued that the government, not Steve Jobs, invented the iPhone, and that the same applies to all great inventions. Since I am well aware of the story of how the iPhone came about, I quickly realized that this anti-capitalist did not fully understand the role of the entrepreneur.
Entrepreneurs are not necessarily inventors or scientific researchers, but more like artists who use their creativity to transform existing things into something entirely new – an innovative product that provides value to customers. It is absurd to accuse Picasso of simply rearranging existing colors, or to counter Karl Marx by claiming that he simply remixed the theories of Hegel, Adam Smith, and David Ricardo.
Successful businessmen, whether it be Sam Walton of Walmart or Bill Gates of Microsoft, didn’t create their breakthrough ideas themselves; they borrowed them from others. And most inventors of products like Coca-Cola or technologies like the operating system that later became known as MS-DOS didn’t get rich off their inventions. The real key to financial success lies in the ability to build a strong business model around these ideas and effectively serve consumer demand in the marketplace.
One notable example is the recipe for Coca-Cola, invented by pharmacist John Stith Pemberton. He had a laboratory in Atlanta where he manufactured medicines. Among his inventions was a tonic infused with coca leaves and kola nut, designed to relieve a variety of ailments, including headaches, fatigue, impotence, and weakness. Launched in 1886, Pemberton’s tonic was a syrupy concoction that quickly proved to be a delicious drink when mixed with water.
Pemberton failed to realize the enormous commercial potential of his invention and sold his company and the secret formula of Coca-Cola to several people, including Asa Griggs Candler. In 1892, Candler founded The Coca-Cola Company with his brother and two other investors. Candler paid just $500 in total. There is a world of difference between being an inventor and being an entrepreneur.
Mazzucato has many fans because she misinterprets and downplays the role of the entrepreneur and grossly exaggerates that of the state, which has put her at the forefront of the zeitgeist: former President Barack Obama is an admirer, as is Robert Herbeck, the German minister of economics who is bankrupting the German economy.
American economist Deirdre Nansen McCloskey and Italian political scientist Alberto Mingardi have critically analysed Mazzucato’s work in their books. The myth of the entrepreneurial nation.
Their main objection is that Mazzucato emphasizes only isolated cases where the state has successfully promoted innovation, ignoring the many more cases where so-called “industrial policies” have failed. Of course, anyone can give examples of great innovations promoted by the state.
“But such issues of cherry-picking are especially problematic in light of the enormous increases in public spending since 1900. none Half of the funds something “It is technically relevant,” they wrote.
Apart from the fact that citing only a few examples in which the state played an active role does not prove the basic thesis, Mazzucato presents many inventions, including the Internet, as the direct result of state action, which they are not, as the authors demonstrate in the chapter “The Internet, for example, was not a direct result of state action.” do not have “Invented by the state.”
If politicians and civil servants possessed the level of ingenuity that Mazzucato suggests, they would have become fabulously wealthy long ago, because they would have achieved and financially benefited from all the breakthrough inventions and innovations in the private sector. As former President Ronald Reagan once said, “The best minds are not in government. If they were, business would take them away.”
Mazzucato and his many supporters idealize politicians while criticizing private entrepreneurs for prioritizing short-term profits. They believe that politicians only act to promote the long-term interests of their countries, that they are omniscient, and that they have a level of insight beyond that of entrepreneurs when it comes to determining which innovations are promising and which are not. In reality, we all know that politicians are primarily concerned with how to win the next election, and that their decisions are heavily influenced by countless lobbyists.
The number of projects promoted by “industrial policy” that later failed miserably is the stuff of legend, and the illusion that politicians and civil servants are smarter than millions of entrepreneurs and consumers is absurd. Of course, it’s not just government projects that fail: the vast majority of new products launched by private companies suffer the same fate.
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“But at least it is voluntary and can be corrected by failure, and the government can always get around it with additional coercive taxation and corresponding subsidies to close friends,” McCloskey and Mingardi wrote.
When entrepreneurs fail, they are punished by the market or, worse, go bankrupt. When politicians fail on industrial policy, they pour more taxpayer money into the project to cover up their failure.
Rainer Zitelmann is the author of the book The power of capitalism and How a nation can escape poverty.
