By Bojidar Marinov
Like I said before, you know when the Left is in trouble: They start praying to (or invoking) Jesus. And you know when the Fabian socialists are in trouble: They admit that, no matter what Fabians themselves have said in the past, entrepreneurial spirit and markets are good and necessary. We’ve always been at war with Eurasia, we’ve always been at war with East-Asia, markets and entrepreneurship are bad, markets and entrepreneurship are good. Doublethink, you know, and black-white. Orwell knew very well the true mentality of his own fellow socialists.
Well, all doublethink always has an agenda, and the Fabian agenda in admitting markets and entrepreneurship back on the positive side of the political values scale can be seen in a past article by Mariana Mazzucato in The New Statesman; the same New Statesman that is the flagship of modern Fabian socialism in Britain. In the article titled “The state doesn’t need the private sector to be entrepreneurial,” she tries to defend the position that the private sector’s monopoly on entrepreneurship is a myth, that in fact the state, “especially in the most uncertain phases of technological development and/or in the most risky sectors,” is much more risk-taking and innovative than the “inertial private sector which only enters and invests once the state has absorbed most of the uncertainty, before walking off with all the gains.” She claims there are “countless” such examples in history, and she mentions just a few of them: Internet, of course, the favorite example for all socialists, and some more obscure like funding drugs research or the algorithm that led to the initial success of Google.
In other words, if there was no private sector in the economy to “walk off with the gains,” and the state was the only economic agent, innovation, growth, and entrepreneurship would flourish and the economy would prosper. Just like it was in the Soviet Union, one might add.
Mazzucato’s factual arguments, of course, are easy to refute. Come on, seriously, does she expect us to believe that the few “countless” examples – if they are real – of successful government investment can be compared to the vast ocean of the private sector’s innovations, discoveries, and entrepreneurial endeavors? To make another comparison, of all the countless trillions of dollars wasted on useless and even harmful government projects, should we look to the couple of billions of dollars that somehow contributed to some positive development, and decide that the “state is entrepreneurial”? Every once in a while a blind squirrel will find a good nut; should we expect then Mariana Mazzucato to write an article or even a book on Blind Squirrels: The Cutting Edge of Discovery? Let alone the fact that some of her own examples are not very convincing: “the algorithm that led to Google’s success was funded by a public sector National Science Foundation grant.” Such an example doesn’t reveal the state’s “entrepreneurial spirit,” it only tells us that private entrepreneurs occasionally can be persuasive enough to successfully lobby government bureaucrats. Nothing more than that.
But I am not going to talk about Mazzucato’s factual and logical fallacies; I want to look at the moral side of the issue of the “entrepreneurial state.” Even if for the sake of the argument we ignore all the evidence and accept that somehow the state is entrepreneurial where the private sector is inertial and fearful, can we still accept the moral validity of a state that invests in innovations, research and development? Is it morally acceptable to let the state take risks, to be an investor and entrepreneur? Is the economy really developing in result of these government-sponsored innovations?
To answer these questions, we need first to understand the nature of entrepreneurship and of the entrepreneur himself as a market agent. True enough, the entrepreneur is someone who sees opportunities to satisfy new needs and demands – like developing computers and cell phones in our days. Or satisfy old needs and demands in a new way that is more efficient than the old – Ford’s conveyor belt, for example, which decreased the cost for the production of automobiles. Or an entrepreneur is one who finds a niche on the market where no one else has tried to enter before – for example start a good old-fashioned grocery store in a remote rural area. An entrepreneur is indeed an innovator – sometimes in technology and science, sometimes in the organization of labor, sometimes in just seeing new opportunities in an area no one has seen them before.
But the innovation is not the only characteristic of an entrepreneur. He must be driven by a motive in order to abandon the comfort zone of the secure old world and venture into the world of the new and the unknown. There has to be personal gain for the entrepreneur that beats the alternatives of being paid for doing the old things the old way. While a few innovators will innovate for the sheer psychological satisfaction of making something new, most entrepreneurs will do it for financial gain – which in our modern economic language is called profit. That profit must be much higher than the regular pay for the regular daily working routine of a paid worker – otherwise an entrepreneur won’t spend the effort to build a new business and innovation. An entrepreneur, if he is to be successful, is expected to do more than just the regular daily working routine – and therefore he expects to be rewarded better than the regular worker.
But this is not all. Not every entrepreneur is successful. There is risk involved; if there wasn’t, everyone would want to be an entrepreneur because the costs involved would be low, and the possible benefits high. That risk is called loss, and it is the first level that sifts out those that won’t be good entrepreneurs and would only waste resources in futile undertakings. And then, of those that still decide to start something new, not all really have good ideas; some ideas might turn out to be unprofitable and very often outright useless. The mechanism of loss and profit sifts out those that would only waste resources, and keeps on the market only those that are successful in utilizing resources to meet the needs and the demands of the consumers.
Now, a very important part of the market system of entrepreneurship is that the same person who will possibly reap the benefits of the new enterprise also bears the risk of its possible failure. More than obvious, if an entrepreneur doesn’t bear the possible risks of his own venture, he is only spending someone else’s money on his own whims; such activity is not entrepreneurship in the real sense of this word. Common sense wisdom tells us that if a person is spending his own money for his own goals, he’ll be very careful in both how much money he spends and what he purchases with them; he will try to be efficient to the maximum with the resources he has. And that’s part of the very definition of entrepreneur: One who is more efficient with the same resources than anyone else in the same field and therefore can make a profit. If a person is not bearing the risks, he won’t care how much money is spent; and therefore the innovation won’t be an innovation, just the same old way of spending resources.
Of course, very often an innovation requires more initial capital than the entrepreneur personally has. Then he will try to involve other people with money who would be willing to trust his skills in forecasting the market. The investors, though, will be under the same profit-loss limitation – they will bear the risk proportionally to the expectations of profit they have from the venture. Both the entrepreneur and the investors must self-consciously and willingly accept the risk of losing their resources for the opportunity of gaining profit from the possible success.
In short, entrepreneurship requires a person who has a vision for the future but also requires the profit-loss mechanism to tell him whether his vision is successful or not, and whether it really serves the consumers or only serves his own narrow desires and goals. The cost for the new enterprise compared to the revenues from it show him what resources he has used up, and how much value for the society he has produced to match that lost value in resources. Therefore, for the equation to be complete, the profit-loss mechanism is there to prevent the waste of resources and to encourage the responsible use of it.
Well, what about the “entrepreneurial state” of Ms. Mazzucato? Who is making the decisions there, and how does the profit-loss mechanism apply? Let’s see.
First, the decisions are made by government bureaucrats. They are paid salaries, just like any other wage worker. The life of a bureaucrat doesn’t change whether he has made a decision for innovation or not; the pay remains the same. A bureaucrat may get a different, non-economic and political reward if he makes a popular decision; and usually the “popularity” is determined by the standards of the main stream media who seldom have an objective way of making economic evaluations. There is no mechanism to reward a successful economic decision by a bureaucrat; in fact, there is no way for the government to decide if a decision leads to successful result or not, only if the decision is popular among the politically active and powerful groups in the society. Without the profit statement, who knows if the consumers want the innovation or not, and whether it makes anyone’s life better or not?
Second, as a matter of fact, we know that bureaucratic entrepreneurship makes the life of most people worse. Why? Because of who bears the risks: The taxpayers. The few examples of successful state entrepreneurship Mazzucato came up with – like pharmaceuticals and nano-technologies – may have produced small markets for highly specialized professionals and companies. But the trillions of dollars wasted on useless and risky government projects came out of the pockets of the taxpayers. It is the taxpayers, not the state, who are the investors in all the experiments of government “entrepreneurship”; and unlike investing in the private sector, the taxpayers are forced to invest and risk their money on the decisions of government bureaucrats. While in private investments the investors must balance the risk of losses with the promise of gains, the unwilling investors in state projects have no gains to hope for, only losses. They are forced by the power of the state to “invest” in ventures they wouldn’t have invested if they were free to decide. At the end of the day, the taxpayers are worse off, the bureaucrats make the same salaries, and a small group of lobbyists who have invested in a field undesirable for most investors, have used the state to force entire nations to create a profitable market for their enterprises.
The moral basis for the entrepreneurial state thus is no different from the moral basis for the scientific research of Dr. Josef Mengele, the cruel Nazi doctor who performed genetic and medical experiments on concentration camp inmates in the 1940s. Following Mariana Mazzucato’s own logic, we can show that Dr. Mengele was far ahead in terms of his research compared to his colleagues in America who were “inertial” and averse to risk, being bound by their old-fashioned superstitions that experiments could not be conducted on people without their consent. Dr. Mengele, being an agent of the state, showed that the state can lead the innovations in medical research by taking risks no private doctor or researcher would take. Of course, the risks taken were on the bodies of his inmates, against their will, but who cares, if the final result was scientific research? Mariana Mazzucato certainly wouldn’t care – if she praises government confiscation of private funds for the goals of state “entrepreneurship” and “innovation,” then there shouldn’t be any problem for her with the government confiscation of private bodies and body parts and human lives for the purposes of state-sponsored genetic and medical research. In both cases the benefits flow to the state or to its agents and lobbyists, and the tab is picked up by the politically weak.
Morally, Mariana Mazzucato’s “entrepreneurial state” is no different from the Nazi concentration camps. After all, the concentration camps were set up as government enterprises.
The question remains, even if the state “entrepreneurship” is morally wrong because it imposes losses on the reluctant public, isn’t it better to develop those areas where the private sector is “inertial”?
What must be understood is that the private sector is never “inertial”; it is reluctant to buy into specific projects at a specific time. When a person is shopping at the grocery store, and when they have doubts about the quality of the tomatoes because they look rotten, that doesn’t make them “inertial,” but reluctant to buy those specific tomatoes at that specific time. The shopper assesses the true value of the tomatoes to be lower than the price on the tag, and therefore refuses to buy. Different tomatoes at a different time may look better and have better consumer value, and therefore a shopper will buy them. In the very same way, if the private sector refuses to invest into nanotechnologies and drugs, it is not because it is “inertial” but because for the specific time and the specific markets these field of possible innovation and entrepreneurship are “rotten,” i.e. their real value is much lower than the value of the resources required to invest in them. Using the analogy with Dr. Mengele, the American physicians and medical scientists of the 1940s were not “inertial” compared to the “entrepreneurial” Dr. Mengele, they just judged his methods to be “rotten,” believing that no medical advancement can be worth the brutal torture and horrible death of thousands unwilling victims.
So when Mazzucato praises her “entrepreneur state,” she in fact asks the state to force the taxpayers to buy the rotten tomatoes of our modern science that no one really wants; and she declares that the dubious advances of some technological fields justify any government compulsion and theft, in the name of some “advancement” that no one is willing to voluntarily pay for.
Being a Fabian socialist, Mazzucato can’t help but have a very simplistic, primitive view of our social reality. She believes that if there is a scientific possibility for a certain technological advancement, it must be invested in right away. And if the private sector is reluctant to do it, the government must push it down everyone’s throat, no matter what the economic or the social reality is. But in the real world, you can’t change one thing only; the change in one thing will require changes in the whole fabric of society. The ancient Greeks had some knowledge of electricity and its properties; should they have forced its technological development right away? If they had, it would have created economic chaos. Electricity, in order to be efficient and working in the economy, requires the gradual development of many more other things: steam, combustion engines, magnets, plastics, and many more. Not to mention that agriculture must be developed well beyond the subsistence level for the society to feed enough workers and engineers and scientists who will build the infrastructure. An undue forced focus on electricity would have created dis-balance in the ancient economy and would have destroyed it. You can’t change one thing only; it is only socialists who believe that individual fields can be changed without other fields being affected. Similarly, the modern reluctance of investors to invest in nanotechnologies stems from their understanding that it is a little too early to develop these technologies, and investments in that field will only draw resources from other, more important areas of our economy, thus distorting our economic reality and in fact impeding its development.
So when the state intervenes and forces the whole society to invest in a field that can not produce benefits for everyone at the present state of our social organization and technology, it only makes things worse, not better.
Ms. Mazzucato and her Fabian friends understand very well that the decades of Fabian policies in Britain and Europe have exposed the poverty of their socialist philosophy. The European populations are beginning to return back to the good old conservative Christian values of work ethics, entrepreneurship, free markets, thrift, and family-based economy. The Fabians are in panic, searching for ways to keep their statist religion afloat in a world that is gradually waking up to their agenda. They are now trying to adopt the old conservative values and make them serve the religion of the totalitarian state. But it is not going to work. Socialism is on its death bed, and no effort by bureaucrats like Mazzucato and her Fabian friends can save it.
Article from Americanvision.org