Mariana Mazzucato: Government -- investor, risk-taker, innovator

203,471 views ・ 2013-10-28

TED


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Have you ever asked yourselves why it is that
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companies, the really cool companies,
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the innovative ones, the creative,
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new economy-type companies --
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Apple, Google, Facebook --
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are coming out of one particular country,
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the United States of America?
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Usually when I say this, someone says, "Spotify!
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That's Europe." But, yeah.
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It has not had the impact that these other companies have had.
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Now what I do is I'm an economist,
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and I actually study the relationship
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between innovation and economic growth
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at the level of the company, the industry and the nation,
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and I work with policymakers worldwide,
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especially in the European Commission,
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but recently also in interesting places like China,
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and I can tell you that that question
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is on the tip of all of their tongues:
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Where are the European Googles?
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What is the secret behind the Silicon Valley growth model,
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which they understand is different
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from this old economy growth model?
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And what is interesting is that often,
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even if we're in the 21st century,
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we kind of come down in the end to these ideas
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of market versus state.
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It's talked about in these modern ways,
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but the idea is that somehow, behind places like Silicon Valley,
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the secret have been different types of market-making mechanisms,
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the private initiative, whether this be about
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a dynamic venture capital sector
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that's actually able to provide that high-risk finance
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to these innovative companies,
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the gazelles as we often call them,
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which traditional banks are scared of,
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or different types of really successful
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commercialization policies which actually allow these companies
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to bring these great inventions, their products,
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to the market and actually get over this
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really scary Death Valley period
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in which many companies instead fail.
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But what really interests me, especially nowadays
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and because of what's happening politically around the world,
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is the language that's used, the narrative,
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the discourse, the images, the actual words.
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So we often are presented
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with the kind of words like that the private sector
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is also much more innovative because it's able to
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think out of the box.
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They are more dynamic.
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Think of Steve Jobs' really inspirational speech
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to the 2005 graduating class at Stanford,
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where he said to be innovative,
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you've got to stay hungry, stay foolish.
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Right? So these guys are kind of the hungry
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and foolish and colorful guys, right?
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And in places like Europe,
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it might be more equitable,
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we might even be a bit better dressed
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and eat better than the U.S.,
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but the problem is this damn public sector.
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It's a bit too big, and it hasn't actually allowed
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these things like dynamic venture capital
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and commercialization to actually be able to really
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be as fruitful as it could.
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And even really respectable newspapers,
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some that I'm actually subscribed to,
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the words they use are, you know,
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the state as this Leviathan. Right?
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This monster with big tentacles.
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They're very explicit in these editorials.
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They say, "You know, the state, it's necessary
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to fix these little market failures
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when you have public goods
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or different types of negative externalities like pollution,
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but you know what, what is the next big revolution
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going to be after the Internet?
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We all hope it might be something green,
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or all of this nanotech stuff, and in order for that stuff to happen," they say --
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this was a special issue on the next industrial revolution --
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they say, "the state, just stick to the basics, right?
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Fund the infrastructure. Fund the schools.
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Even fund the basic research, because this is
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popularly recognized, in fact, as a big public good
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which private companies don't want to invest in,
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do that, but you know what?
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Leave the rest to the revolutionaries."
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Those colorful, out-of-the-box kind of thinkers.
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They're often called garage tinkerers,
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because some of them actually did some things in garages,
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even though that's partly a myth.
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And so what I want to do with you in, oh God,
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only 10 minutes,
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is to really think again this juxtaposition,
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because it actually has massive, massive implications
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beyond innovation policy,
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which just happens to be the area
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that I often talk with with policymakers.
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It has huge implications, even with this whole notion
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that we have on where, when and why
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we should actually be cutting back on public spending
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and different types of public services which,
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of course, as we know, are increasingly being
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outsourced because of this juxtaposition.
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Right? I mean, the reason that we need to maybe have free schools or charter schools
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is in order to make them more innovative without being emburdened
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by this heavy hand of the state curriculum, or something.
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So these kind of words are constantly,
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these juxtapositions come up everywhere,
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not just with innovation policy.
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And so to think again,
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there's no reason that you should believe me,
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so just think of some of the smartest
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revolutionary things that you have in your pockets
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and do not turn it on, but you might want to take it out, your iPhone.
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Ask who actually funded the really cool,
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revolutionary thinking-out-of-the-box
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things in the iPhone.
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What actually makes your phone
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a smartphone, basically, instead of a stupid phone?
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So the Internet, which you can surf the web
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anywhere you are in the world;
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GPS, where you can actually know where you are
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anywhere in the world;
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the touchscreen display, which makes it also
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a really easy-to-use phone for anybody.
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These are the very smart, revolutionary bits about the iPhone,
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and they're all government-funded.
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And the point is that the Internet
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was funded by DARPA, U.S. Department of Defense.
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GPS was funded by the military's Navstar program.
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Even Siri was actually funded by DARPA.
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The touchscreen display was funded
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by two public grants by the CIA and the NSF
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to two public university researchers at the University of Delaware.
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Now, you might be thinking, "Well, she's just said
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the word 'defense' and 'military' an awful lot,"
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but what's really interesting is that this is actually true
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in sector after sector and department after department.
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So the pharmaceutical industry, which I am personally
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very interested in because I've actually had the fortune
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to study it in quite some depth,
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is wonderful to be asking this question
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about the revolutionary versus non-revolutionary bits,
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because each and every medicine can actually be
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divided up on whether it really is revolutionary or incremental.
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So the new molecular entities with priority rating
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are the revolutionary new drugs,
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whereas the slight variations of existing drugs --
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Viagra, different color, different dosage --
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are the less revolutionary ones.
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And it turns out that a full 75 percent
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of the new molecular entities with priority rating
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are actually funded in boring, Kafka-ian public sector labs.
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This doesn't mean that Big Pharma is not spending on innovation.
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They do. They spend on the marketing part.
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They spend on the D part of R&D.
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They spend an awful lot on buying back their stock,
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which is quite problematic.
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In fact, companies like Pfizer and Amgen recently
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have spent more money in buying back their shares
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to boost their stock price than on R&D,
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but that's a whole different TED Talk which one day
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I'd be fascinated to tell you about.
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Now, what's interesting in all of this
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is the state, in all these examples,
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was doing so much more than just fixing market failures.
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It was actually shaping and creating markets.
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It was funding not only the basic research,
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which again is a typical public good,
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but even the applied research.
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It was even, God forbid, being a venture capitalist.
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So these SBIR and SDTR programs,
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which give small companies early-stage finance
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have not only been extremely important
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compared to private venture capital,
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but also have become increasingly important.
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Why? Because, as many of us know,
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V.C. is actually quite short-term.
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They want their returns in three to five years.
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Innovation takes a much longer time than that,
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15 to 20 years.
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And so this whole notion -- I mean, this is the point, right?
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Who's actually funding the hard stuff?
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Of course, it's not just the state.
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The private sector does a lot.
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But the narrative that we've always been told
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is the state is important for the basics,
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but not really providing that sort of high-risk,
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revolutionary thinking out of the box.
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In all these sectors, from funding the Internet
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to doing the spending, but also the envisioning,
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the strategic vision, for these investments,
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it was actually coming within the state.
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The nanotechnology sector is actually fascinating
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to study this, because the word itself, nanotechnology,
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came from within government.
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And so there's huge implications of this.
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First of all, of course I'm not someone,
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this old-fashioned person, market versus state.
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What we all know in dynamic capitalism
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is that what we actually need are public-private partnerships.
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But the point is, by constantly depicting
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the state part as necessary
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but actually -- pffff -- a bit boring
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and often a bit dangerous kind of Leviathan,
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I think we've actually really stunted the possibility
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to build these public-private partnerships
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in a really dynamic way.
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Even the words that we often use to justify the "P" part,
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the public part -- well, they're both P's --
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with public-private partnerships
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is in terms of de-risking.
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What the public sector did in all these examples
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I just gave you, and there's many more,
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which myself and other colleagues have been looking at,
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is doing much more than de-risking.
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It's kind of been taking on that risk. Bring it on.
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It's actually been the one thinking out of the box.
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But also, I'm sure you all have had experience
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with local, regional, national governments,
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and you're kind of like, "You know what, that Kafka-ian bureaucrat, I've met him."
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That whole juxtaposition thing, it's kind of there.
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Well, there's a self-fulfilling prophecy.
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By talking about the state as kind of irrelevant,
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boring, it's sometimes
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that we actually create those organizations in that way.
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So what we have to actually do is build
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these entrepreneurial state organizations.
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DARPA, that funded the Internet and Siri,
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actually thought really hard about this,
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how to welcome failure, because you will fail.
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You will fail when you innovative.
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One out of 10 experiments has any success.
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And the V.C. guys know this,
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and they're able to actually fund the other losses
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from that one success.
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And this brings me, actually, probably,
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to the biggest implication,
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and this has huge implications beyond innovation.
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If the state is more than just a market fixer,
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if it actually is a market shaper,
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and in doing that has had to take on this massive risk,
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what happened to the reward?
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We all know, if you've ever taken a finance course,
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the first thing you're taught is sort of the risk-reward relationship,
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and so some people are foolish enough
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or probably smart enough if they have time to wait,
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to actually invest in stocks, because they're higher risk
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which over time will make a greater reward than bonds,
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that whole risk-reward thing.
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Well, where's the reward for the state
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of having taken on these massive risks
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and actually been foolish enough to have done the Internet?
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The Internet was crazy.
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It really was. I mean, the probability of failure was massive.
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You had to be completely nuts to do it,
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and luckily, they were.
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Now, we don't even get to this question about rewards
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unless you actually depict the state as this risk-taker.
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And the problem is that economists often think,
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well, there is a reward back to the state. It's tax.
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You know, the companies will pay tax,
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the jobs they create will create growth
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so people who get those jobs and their incomes rise
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will come back to the state through the tax mechanism.
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Well, unfortunately, that's not true.
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Okay, it's not true because many of the jobs that are created go abroad.
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Globalization, and that's fine. We shouldn't be nationalistic.
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Let the jobs go where they have to go, perhaps.
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I mean, one can take a position on that.
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But also these companies
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that have actually had this massive benefit from the state --
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Apple's a great example.
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They even got the first -- well, not the first,
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but 500,000 dollars actually went to Apple, the company,
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through this SBIC program,
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which predated the SBIR program,
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as well as, as I said before, all the technologies behind the iPhone.
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And yet we know they legally,
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as many other companies, pay very little tax back.
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So what we really need to actually rethink
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is should there perhaps be a return-generating mechanism
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that's much more direct than tax. Why not?
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It could happen perhaps through equity.
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This, by the way, in the countries
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that are actually thinking about this strategically,
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countries like Finland in Scandinavia,
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but also in China and Brazil,
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they're retaining equity in these investments.
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Sitra funded Nokia, kept equity, made a lot of money,
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it's a public funding agency in Finland,
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which then funded the next round of Nokias.
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The Brazilian Development Bank,
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which is providing huge amounts of funds today
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to clean technology, they just announced
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a $56 billion program for the future on this,
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is retaining equity in these investments.
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So to put it provocatively,
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had the U.S. government thought about this,
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and maybe just brought back
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just something called an innovation fund,
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you can bet that, you know, if even just .05 percent
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of the profits from what the Internet produced
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had come back to that innovation fund,
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there would be so much more money
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to spend today on green technology.
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Instead, many of the state budgets
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which in theory are trying to do that
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are being constrained.
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But perhaps even more important,
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we heard before about the one percent,
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the 99 percent.
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If the state is thought about in this more strategic way,
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as one of the lead players in the value creation mechanism,
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because that's what we're talking about, right?
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Who are the different players in creating value
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in the economy, and is the state's role,
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has it been sort of dismissed as being a backseat player?
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If we can actually have a broader theory
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of value creation and allow us to actually admit
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what the state has been doing and reap something back,
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it might just be that in the next round,
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and I hope that we all hope that the next big revolution
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will in fact be green,
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that that period of growth
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will not only be smart, innovation-led,
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not only green, but also more inclusive,
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so that the public schools in places like Silicon Valley
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can actually also benefit from that growth,
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because they have not.
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Thank you.
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(Applause)
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