…[T]he state can proactively create strategy around a new high growth area before the potential is understood by the business community (from the internet to nanotechnology), funding the most uncertain phase of the research that the private sector is too risk-averse to engage with, seeking and commissioning further developments, and often even overseeing the commercialization process.. In this sense it has played an important entrepreneurial role.
Mariana Mazzucato, 2011, The Entrepreneurial State, Demos
Let’s imagine a hypothetical official who wants to implement an entrepreneurial state, but then wonders what they should actually do. Where is the instruction manual? The economist quoted above, Mazzucato, has popularized the entrepreneurial state, defining it (in a single paragraph, pp. 19-20, here) as:
- Targeted
- Proactive
- Able to take risks
- Creating a highly networked system of actors harnessing the best of the private sector for the national good over a medium to long-term horizon
- Catalyst
- Lead investor
- Sparking the initial reaction in a network that will then cause knowledge to spread
- Creator of the knowledge economy
Mazzucato’s claim is that governments could be more proactive in the ways they intervene in the economy – the definitions above imply a state of mind rather than a set of implementable programs.
The term ‘entrepreneurial state’, as one would expect, is a much older coinage than the contemporary discussion, with a vast literature going back at least five decades.
Directing firms
One prominent early notion of the entrepreneurial state was that it directed companies in key sectors, often but not exclusively, via obtaining equity or controlling credit. This state might also have both low welfare and armaments spending. In some instances, the concept was only felt applicable to underdeveloped states. Authors have named diverse states as ‘entrepreneurial’ in these senses, e.g., Kenya, Turkey, Mexico, South Korea, Japan, & Chile (see table at end of article – list very far from exhaustive).
Like any investor, being able to pick at least some winners was vital validation for entrepreneurial states. (The question, of course, is what a ‘win’ looks like.) The phrase ‘picking winners’ is significant, & has origins in debates on future industrial policy and competitiveness, as early as 1979. It was simply a logical statement that urged governments to support industries ‘of the future’, not prop-up ailing firms.
The prescient The Transition to Reality: Directions for Canadian Industrial Strategy (1980), by John J. Shepherd, references ‘picking winners’, as follows:
The problem of priorities has to be grasped because the scarce financial resources for productivity improvement must be channeled into those areas where growth is most promising. The concept of choosing priorities and picking winners need not be frightening. In most countries with whom we compete, the selection of priorities for national investment is commonplace, and potential growth is the criterion for decision.
The context for this statement was that Shepherd believed that:
- Canadian R&D performance had been generally abysmal (in his view)
- Canadian policy had ‘secured the commanding heights of the dying industries’
- The famous Japanese Ministry of International Trade and Industry (MITI) picked winners (future industries where Japan could and would lead) – Canada ought to imitate it.
For Shepherd, the UK, similar in terms of economic size to Canada, was probably also guilty of not picking winners – one gathers this from his approving citation of a piece in The Economist:
The industries MITI wants to protect are the industries that don’t yet exist, and the old ones it wants to kill are those which we British taxpayers are subsidizing to keep going.
During the 1980s, Western observers, principally, Johnson (1982), argued that MITI was the reason behind Japan’s industrial successes, and other countries should imitate it. ‘The Japanese approach’, however, was somewhat discredited after the Tokyo stock market crash in 1989 & subsequent recessions.
A lot of countries in the post-war boom had government organizations that at least resembled MITI (& that, like MITI, could trace their origins back to the Great Depression). One is reminded of Italy’s ENI & IRI; Ginsborg (1990) considers that these agencies ‘played a notable role’ in the origins of the Italian economic ‘miracle’ (here, pp. 213-214).
Italy was a country which, like Japan and many other Western European states, grew fast after WWII (before slowing in the painful decades following the oil crisis). UK never benefited from stupendous economic growth rates like competitor countries, but it (briefly) had an equivalent of MITI, IRI, etc., called the Ministry of Technology (MinTech).
This ministry was created in 1964; closed in 1970; and aimed to bring advanced technology and new processes into industry. This story is well-covered in the work of historian David Edgerton; I would also note this intriguing article by Coopey (2008), which features comments by the original participants (obtained in a seminar chaired by Hennessy), & the wider context written up by the same author in Coopey, et al., 1993, The Wilson Governments, 1964-1970. Overall, we could say MinTech was not tried for long enough to work.
Johnson identified a system within Japan’s MITI whereby a revolving door operated between the ministry and major private firms, according to the idea (apparently) that this provided for greater coordination of public and private action. One might say this was the royal road to kleptocracy. But as Johnson also pointed out, this system was not unique to Japan, being found in, say, France (pantouflage) or the UK. Indeed, one can often get a feel for the seriousness of industrial policy (or lack thereof) in any given country by looking at which people & sectors are going through that revolving door.
Encouraging entrepreneurial activity in the private sector
A more expansive notion of the entrepreneurial state emerged from analysts in the 1980s/early 1990s. This state was one that not only directed firms, but explicitly encouraged entrepreneurial activity in the private sector.
Tony Fu-Lai Yu, an economist who is a leading authority on ‘the theory of the entrepreneurial state’, posited a constellation of such entrepreneurial states across Asia. In his view, some are themselves entrepreneurial, while others encourage entrepreneurial activity outside the state. His examples included Hong Kong SAR (not a state, as such), Taiwan, Singapore, & South Korea. We could add mainland China to this list, citing the work of Duckett (1998) on Tianjin.
On the one hand, government can create an environment which facilitates the development of private entrepreneurship. On the other hand, government can act as an entrepreneur, govern the market, and lead the direction of growth. In both cases, one may refer to them as “entrepreneurial states”
Tony Fu-Lai Yu, 1997, Entrepreneurship and Economic Development in Hong Kong
The dominant notion in Yu’s writing (as of others in this vein) seems to be that the entrepreneurial state is in essence a pragmatic attitude in government (apparently more akin to individuals running a firm than bureaucrats). This notion was not confined to analysts of Asia; one particularly well-developed example comes from the 1988 book by the sociologist Peter Eisinger, The Rise of the Entrepreneurial State.
In this account, ‘state’ refers to Massachusetts and other US states (literally meant) that were encouraging entrepreneurial activity among private firms, as well as making strategic investments themselves. Eisinger believed these entrepreneurial states were defined by new kinds of ‘demand-side’ response such as creating local markets and identifying opportunities for private sector investment (which he contrasted to ‘traditional’ supply-side measures such as location subsidies).
His conclusions about the pragmatic nature of the entrepreneurial state most closely match those of Mazzucato (mentioned at the top), and both analysts have very much anchored their views in American experiences. However, it is worth noting that Eisinger ascribed entrepreneurial behaviors primarily to the state and local governments (not the Federal government). In her account, by contrast, Mazzucato referred to federally-funded agencies such as DARPA (‘the military-industrial complex’ – not her words, but mine).
In the preface of his book, Eisinger goes as far as to associate notions about an entrepreneurial state with the African-American mayors of Atlanta & Detroit, respectively, Jackson & Young, who in the 1970s sought to attract investment to their cities. Regrettably, he does not explore this line of argument further, but an intriguing implication of his book is that the entrepreneurial state in its American form was fundamentally an African-American innovation, connected with the civil rights era.
I will finish this brief survey by noting a particularly dystopian connotation of the entrepreneurial state that appeared in the 1990s (perhaps, mainly referring to Europe):
The Keynesian welfare state has been replaced [with] on the one hand, an ‘entrepreneurial’ state characterized by deregulation and privatization and, on the other hand, a ‘soup kitchen’ state mopping up the effects.
Steven Pinch, 1997, Worlds of Welfare: Understanding the Changing Geographies of Social Welfare Provision, p. 82
It has to be said that most of the Thatcherite policy prescriptions implied by Pinch, ironically enough, probably raised the barriers to entry for would-be entrepreneurs.
Arguments against the state
Evidently a state can, in principle, be both entrepreneurial itself – and encourage entrepreneurs in the private sector. Yet time and again, we find analysts on the right concluding that state investment hinders entrepreneurs in the private sector. The latest critique from the ‘libertarian’ wing aimed at the aforementioned Mazzucato (the most recent academic exponent of the entrepreneurial state) once again replicates these arguments.
In Britain the phrase ‘picking winners’ took on a sarcastic tone, after John Burton, the libertarian and economist (Institute of Economic Affairs), wrote a paper (1983) entitled: Picking losers…?: the political economy of industrial policy. His argument seems essentially one against feather-bedding of industry via subsidy, according to the claim that officials did not know how to invest.
Herein lies another related claim from the right: that officials, because they are not putting their own money on the line, cannot assess potential opportunities in the way that the lone entrepreneur is able to do so.
While one can argue that public money gets spent in unaccountable ways that would not be feasible in a well-run company, one can also say that public officials might be expected to deliver a wider range of goals than business seeking profit, such as social cohesion, or political compromise. Besides, governments, even right wing ones, did indeed continue to pick winners – although they did not necessarily win.
Conclusion
What can we conclude? Evidently, a motley collection of leadership styles, contexts, political systems, and policies, not to mention analytical approaches applied to them. Entrepreneurial states might involve governments directing companies; and/or encouraging entrepreneurs (plus a bit of pragmatism; some elements of rack-and-ruin, violence & indeed, dystopia). Much of this was conceived at the level of the nation state, while admitting we also see sub-national examples such as in the US, mainland China, & Hong Kong SAR. One common feature in most of these analyses is the lack of agency afforded to citizens.
Policy delivery involves a high degree of vacillation, set-backs, and so forth; ex-post appraisals tend to identify strategic goals that were lacking in the day-to-day. Given that the above policies were all carried out over decades, by multiple people – multiple careers, etc. – consistent strategy would presumably be an exception not a rule. Most of the above would also appear to be just analysts’ frameworks applied to the real world, rather than explicitly-stated government strategies (I would like to know which governments actually announced they intended to be an entrepreneurial states).
Questions remain on whether we really do need lots of entrepreneurs. But there would be interesting implications for a policy that actually created entrepreneurs (employed by the state, as well as in the private sector, indeed, wherever they might be needed).
Entrepreneurial states as identified by analysts
| Analyst, publication year | Place(s) analyzed | Explanation |
| Friedman, 1961 | ‘Underdeveloped countries’ | View that only ‘underdeveloped countries’ need an entrepreneurial state, unlike the US, in which the ‘principles of free enterprise’ are adequate |
| Baklanoff, 1968 | Mexico | Referenced problems of entrepreneurial state whereby public sector enterprises absorbed ‘abnormally large’ amounts of foreign loans |
| Unknown author, 1970 | Kenya | An ‘aggressive, entrepreneurial state’ (possibly referring to policy of planning minister, Mboya*) |
| Ashdown, 1979 | South Korea† | ‘An Entrepreneurial State knocking everyone into one line’ |
| Bennett & Sharpe, 1980 | Mexico | State as the major banker & entrepreneur in economy; Nacional Financiera (NAFIN) as the institutional arm of state’s entrepreneurial activities |
| Kato, 1984 | Japan; UK (attempted) | ‘Japan in the 1960s was a typical entrepreneurial state with no real welfare and heavy armament outlays…UK attempted to become an entrepreneurial state characterized by new liberalism; Japan remained the most profitable type of capitalist state, the entrepreneurial state’ |
| Larroulet, 1984 | Chile | Gradual building of estado empresario 1930s-1972‡ meaning public ownership of industrial firms, banks & farmland |
| Eisinger, 1988 | Massachusetts | Identified ‘new’ phenomenon in which US states encouraged entrepreneurial activity in private firms |
| Pinch, 1997 | No information given | ‘Entrepreneurial’ state characterized by deregulation & privatization; ‘soup kitchen’ state mopping up the effects |
| Yu, 1997 | Hong Kong SAR; Taiwan; Singapore; South Korea | An environment which facilitates development of private entrepreneurship; government acts as an entrepreneur, governs market, and leads direction of growth |
| Duckett, 1998 | Tianjin | Entrepreneurial state as new phenomenon in China facilitated by market reforms coupled to command economy & one party state |
| Chomsky, 1999 | South Korea | Economy functions with ‘a guiding hand’. Entry into OECD delayed because of unwillingness to subscribe to market-oriented policies |
| Evans, 2018 | Japan; Turkey; England during ‘original’ industrial revolution | Entrepreneurial state central to economic development; not a new phenomenon |
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