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The State's role in technological revolutions

This research stream analyses the role of the state in driving innovation to generate innovation-led, inclusive economic growth.

The research will build on the work of Carlota Perez on the role of the co-evolution of the role of the state and the role of finance during  technological Revolutions, and the work of Mariana Mazzucato on the Entrepreneurial State in being the ‘investor of first resort’ and lead risk-taker, during recent waves of innovation.

The stream will explore questions such as:

  • How have technology and economic growth intersected, from the first Industrial Revolution to the present day?
  • What has been the role of public policy in actively investing in new areas, beyond just facilitating and de-risking?
  • How can the lessons from past technical revolutions, and the role played by the State in the deployment periods, inform future policy direction?
  • How can the State best harness the potential of ‘turning points’ to deliver ‘golden ages’ of growth and stability, at individual, country and global levels, instead of periods stagnation and social unrest?
  • What has been the distribution of risks and rewards across the innovation chain amongst different actors?
  • How have different actors (public, private and third sector) combined their activities across the innovation chain?

Beyond ‘turning points’

Carlota Perez’s research explores how the five major technological and economic upheavals since the start of the Industrial Revolution in the 1770s have each heralded ‘golden ages’ of productivity and radically shifted the centres of industrial and global power. Throughout history, these technological revolutions have been followed by a major bubble, then a financial crash.

Historically, ‘turning points’ occur when new technologies and infrastructures have been installed, but their potential has yet to be deployed. They can be marked by income inequality, ‘secular stagnation’ and social unrest. But if the right choices are made, and if the State is active in setting a direction, they also have the potential to be periods of flourishing industry and growth.

IIPP research in this stream will look at the historical role played by the State during these turning points, and address questions such as:

  • Are fears of secular stagnation justified or short-sighted?
  • Can we foresee the impact of ICT and globalisation on full global employment?
  • Are there peaceful alternatives to the crises and wars that have marked previous Turning Points?
  • What are the roles of finance, government and the social economy?
  • What is the potential for ‘smart green growth’ to direct resource-efficient innovation in the age of ICT?
  • What role might lifestyle change play in shaping demand and innovation trajectories?

The entrepreneurial state

Mariana Mazzucato’s work on the Entrepreneurial State has explored the role of the state in fostering long run, innovation-led growth.  Her 2013 book, "The Entrepreneurial State: debunking public vs. private sector myths", set out a series of case studies of the state's critical impact in developing sectors including IT, biotech, nanotech and today’s emerging green tech. Mazzucato also shows how the technologies that make the iPhone ‘smart’ were publicly funded: the Internet, GPS, its touch-screen display and the voice-activated Siri.

Orthodox economics limits the state's role to fixing market failures.  Mazzucato's book showed how a decentralised network of public sector actors had made risky investments, along the innovation chain, critical to co-creating and shaping new markets.  This insight prompts new questions that IIPP's research is addressing, including:

  • How can governments move on from fear of ‘picking winners’ to focus instead on missions which can bring about transformative change across many sectors?
  • How can governments embrace uncertainty and failure as part of the learning process, as innovative private sector organisations do?
  • What new tools are needed to measure and assess the dynamic impact of different types of public policies that aim to create markets not only fix them?
  • How can public and private sectors share both the risks and rewards of innovation so that growth is more inclusive?

Many of these questions are also being addressed through IIPP's work on mission-oriented innovation policy.  Read more here.

Research publications

Mission-Oriented Innovation Policy: Challenges and Opportunities
Working Paper
Ref: IIPP WP 2017-01

Thinking About Technology Policy: ‘Market Failures’ versus ‘Innovation systems’
Working Paper
Ref: IIPP WP 2017-02

Further reading

Mariana Mazzucato (2013), "The Entrepreneurial State: debunking public vs. private sector myths", Anthem Press: London, UK, ISBN 9780857282521, US edition (Public Affairs) and translated into Italian (Laterza), German (Kunstmann), Spanish (RBA Books), Portuguese (Companhia Das Letras), Dutch (Nieuw Amsterdam), Greek (Kritiki), and forthcoming in Chinese, Japanese, Korean and Polish.

Mariana Mazzucato (2013), “Financing innovation: creative destruction vs. destructive creation,” in special issue of Industrial and Corporate Change, M. Mazzucato (ed.), 22(4): 851-867

Mariana Mazzucato (2015). "The Innovative State". Foreign Affairs.

Carlota Perez (2002). "Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages". Cheltenham: Edward Elgar.

Carlota Perez (2009). “The double bubble at the turn of the century: technological roots and structural implications”, Cambridge Journal of Economics, Vol. 33, No. 4, pp. 779-805 ISBN 0-86187-949-X

Carlota Perez (2016) “Capitalism, Technology and a Green Golden Age: The Role of History in Helping to Shape the Future”, Beyond the Technological Revolution Working Paper BTTR WP2016-01. Working Paper version of the chapter of the same title in Michael Jacobs and Mariana Mazzucato (eds) (2016) "Rethinking Capitalism: Economics and Policy for Sustainable and Inclusive Growth". London: Wiley-Blackwell

Carlota Perez (2010) “Technological Revolutions and Techno-economic paradigms" in Cambridge Journal of Economics, Vol. 34, No.1, pp. 185-202. Available as a Technology Governance Working Paper (Tallinn University) .

Carlota Perez (2013) "Financial bubbles, crises and the role of government in unleashing golden ages" in Pyka, A. and Burghof, H.P. (eds.) (2013) Innovation and Finance. London: Routledge, Ch.2, pp. 11-25. Also available as the FINNOV Working Paper DP 2.12 (2012) of the same title.

Mariana Mazzucato and Carlota Perez (2014), “Innovation as Growth Policy: The Challenge For Europe”, SPRU working papers, 2014-13.