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What UK plc needs?

Innovation is vital to balance the 'real' economy and the financial sector. But what role should the state play? Look at the US, argues Mariana Mazzucato.

It is something of a myth that the UK has a dynamic, creative, colourful, entrepreneurial private sector that needs unleashing from the constraints of the public sector.

The latter is depicted as perhaps necessary for investing in public goods, such as infrastructure, or basic research, to fix ‘market failures’, but is viewed as inherently bureaucratic, slow, grey, and often too meddling. It should stick to the basics and avoid getting too directly involved in the ‘real’ economy.

Instead, if we look around the world, those countries that have grown – or are growing – through innovation-led growth are countries where the state did not limit itself to just solving ‘market failures’. Theyn actually developed strategic missions, actively directing public investment in particular areas, and with scale and scope. As a result, they have changed the technological and market landscape in the process.

Ironically, one of the most active governments is the US government, which is usually depicted in the media, and by politicians, as being more ‘market oriented’. From putting a man on the moon, to developing what later became the internet, the US government provided direct financing of basic and applied research through a host of different public agencies. It has even invested in early-stage public venture capital – Apple received $500,000 directly from public funds. In each case, it provided funding for the highest risk investments, while the private sector sat waiting behind.

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