Creative states

Is state-led risk-taking the answer to post-Covid-19 recovery?

With Covid-19 vaccines starting to be rolled out, and an end to the pandemic in sight, states around the world are beginning to look ahead to economic and social recovery. The technological innovation that led to the development of vaccines and treatments seems to have provided an exit strategy from the pandemic, but not from its dire global consequences. At the time of writing, more than 2 million people have died, economies and lives in many parts of the world have been brought to a standstill and healthcare systems have all but collapsed. Covid-19 has caused economic growth to slow, increasing unemployment, poverty and hunger.

In response, several innovation and political theorists, such as the economist Mariana Mazzucato, argue that today it is more necessary than ever to rethink the state’s entrepreneurial role in society and welfare. Their argument provides justification for a strong state that is committed to investing in knowledge, institutions and infrastructure, including public health, and to taking risks for the sake of reducing uncertainty through innovation. For example, the entrepreneurial state can take on the financial risk of investing in new genetic technologies such as gene editing, artificial intelligence and machine learning for healthcare; these solutions may not result in a swift financial return but may ultimately improve health system efficiency and accelerate our understanding of diseases such as Covid-19.

Mission-led states

In the view of innovation theorists, tackling the crisis and ensuring rapid economic recovery require a missionary state – a state that focuses its policies on problem-specific challenges – with the ability and vision to coordinate, finance and direct innovation and development towards high-value activities. They argue that it is this missionary approach that put man on the moon and facilitated the creation of innovative technologies such as the internet, biotechnology and nanotechnology, among others. 

Although the risk-taking argument provides a clear way forward and justifies policies of economic and social intervention for post-Covid-19 recovery, it is not underpinned by a coherent political conception of the state. Given that the authority of the democratic state is derived from the people themselves, any risk-taking for innovative enterprise and mission-oriented investment for post-Covid-19 recovery needs to be justified and – more importantly – legitimised on the grounds of principled democratic procedures. This implies that mission-led innovation itself is a value-laden political process, requiring civic participation in decision-making and standards of fairness.  

I would argue that other forms of the state – liberal, welfare, authoritarian – also have key obligations that might constrain or condition their strategic vision of risk-taking. To put it another way: becoming an entrepreneurial state in the post-Covid-19 era is not a straightforward process, no matter what the innovation theorists might say.

The politics of innovation

Until very recently, the notion of the state as a political institution that has a role to play in the generation of new knowledge and technologies was absent from innovation studies. More than 100 years ago, the founding father of this interdisciplinary area, Austrian political economist Joseph Schumpeter, saw clearly the interplay between politics and economics, influencing the ideas of British economist Chris Freeman, British-Venezuelan scholar Carlota Perez and others. However, for more than two decades (1990–2010), political notions such as the state almost vanished from academic and policy debates on technological change and progress. This is partly because politics and the state were attacked and increasingly dismantled during the peak of neoliberalism in western economies, and partly because of the domination of innovation studies by liberal economists who were sceptical about the importance of politics in understanding economics. Economics has overwhelmingly focused on efficiency and growth, overlooking the distributional effects of innovation, which are, by definition, political. Innovation can improve inclusion or exacerbate exclusion depending on the political framework within which it is generated and distributed. 

In the early 2010s, a number of innovation scholars and political scientists propounded that technological progress would not automatically lead to social progress, and that the state was in fact behind almost all investments in radical technological revolutions, including the internet and subsequent digital revolution. The return of the state in innovation was essentially confirmed in 2013 with the publication of Mariana Mazzucato’s book The Entrepreneurial State. This work follows a trend of state intervention theory and reaffirms the idea of the strategic state that has been around for more than half a century. Mazzucato goes further than the theorists before her, arguing that the state is not a simple facilitator of economic growth. Rather, it should be understood as a key partner of the private sector when it comes to searching for growth and technological change.

Can the state be visionary?

One of Mazzucato’s key arguments, and one that I think has merit, is that the current economic theory that guides public policy is not inspiring enough to encourage truly visionary state action. This is a problem in terms of regenerating post-Covid-19, when we will need original, innovative methods to recover economically and socially.

At present, state entrepreneurialism is often justified by ‘market failure’ arguments. For instance, during the first wave of the pandemic, in spring 2020, the UK market failed to ensure sufficient availability of personal protective equipment (PPE) and some medicines due to deindustrialisation and outsourcing of manufacturing to emerging economies. This justified state intervention for emergency repurposing of manufacturing facilities in the UK. In the post-Covid-19 era, such justifications might indeed encourage policies aimed at funding basic research and infrastructure projects in order to tackle the unwillingness or inability of private firms to invest in social and economic recovery. However, such an approach would not go far enough. The state needs to play a visionary strategic role that provides direction for innovation rather than just fixing market failures. The state needs to be entrepreneurial, engaging in risk-taking, shaping markets and creating a new vision.

The question is whether any state can become fully entrepreneurial in the long term, or whether there are moral, political, epistemological, and even contextual, constraints that prevent certain forms of the state from adopting a strategic risk-taking vision.

For example, can relatively young states in the contexts of developing countries become entrepreneurial, taking risks and engaging in co-creation activities with innovators and communities? The answer seems to be no, since there are many developing states that either institutionally lack the capacity or fail to perform certain functions, including protecting citizens against fraud and theft. States such as Somalia, Nigeria, South Sudan and Libya, which are included in the Fragile States Index (published by US thinktank The Fund for Peace), appear to be unable to control all their territories, let alone establish institutions that can foster innovation and growth.

Contemporary innovation theorists, however, put forward an abstract theory of the entrepreneurial state, having in mind the nation-state in developed countries of the western world. Even so, they neither define the state nor provide a holistic theory of the state functions and institutions. On the contrary, they consider the state to be an institutional fixity, as with government. But as Greek sociologist Nicos Poulantzas has shown, the state is neither one formal unity nor identical to government. The state is a dynamic condensation of different logics and formations. The structures and functions of the state at given historical moments in time put more constraints on some missions and fewer on others.

Innovation theorists seem to overlook or ignore such constraints of the state in a way that results in a false impression being given; one in which all forms of the state can potentially be entrepreneurial without constraints and legitimacy conditions. Thus, for innovation theorists, it is simply a matter of convincing governments around the world, no matter their liberal democratic or authoritarian profile, of the importance of mission-oriented state innovations. But this is a naïve, or even unrealistic, prospect, even in the forthcoming era of post-Covid-19 recovery.

The authoritarian state

The proposed entrepreneurial state as a way of achieving post-Covid-19 economic and social recovery, although possible, will always have constraints and conditions in place. The legitimacy requirements of each form of state – whether authoritarian, liberal, relative autonomous welfare state, neoliberal or libertarian – will shape what these constraints and conditions are.

Take first the authoritarian entrepreneurial state. Although it may seem that such a state could undertake any mission it wished, due to not having to comply with democratic norms, it in fact has constraints built in. This state earns its legitimacy through providing its citizens with social and economic security, even though it achieves this through imposing its vision on its citizens.

The authoritarian entrepreneurial state pushes forward undemocratically decided mission-oriented investments for innovations; such as, for example, disease surveillance technologies, which could maximise the social distributive benefits for citizens. But if the promised benefits, especially economic security, do not materialise from these mission-oriented investments, then an authoritarian state would no longer be permitted to function as an entrepreneurial state. As people ceased to trust state missions, civil unrest and/or disobedience would break out. States such as China and Singapore appear to have adopted this constrained form of entrepreneurial state. The authoritarian missions of these states in certain areas of industrial innovation have already delivered benefits to citizens by controlling Covid-19, strengthening public health infrastructures and increasing productive capabilities. But the Chinese state knows that public health innovation is not enough if it comes at the expense of GDP growth or standards of living: it is no accident that the Chinese economy grew 4.9% between July and September 2020. Draconian control measures aimed at limiting the spread of Covid-19 were implemented, but authoritarian state entrepreneurialism also created millions of new jobs.

The liberal capitalist state

The liberal capitalist state would prioritise individual freedom and private property – upon which its social contract is based – when negotiating its vision for post-Covid-19 recovery. This would imply formal democratic participation in the decision-making process for investments that are likely to contribute to individual freedom and protect private property institutions. For example, such investments might include research and development (R&D) for new technologies that could lead to a green post-Covid-19 recovery. However, if such contributions did not take place (or failed to deliver), a liberal capitalist state would lose its legitimacy as an entrepreneurial state. Liberal states across Europe, including France and Germany, might face legitimacy crises as entrepreneurial states if they were, for instance, to raise taxes to strengthen public health and green manufacturing, or due to their tendency to pick up industrial winners, violating the liberal principle of state neutrality towards different conceptions of good in technology and society. Reorienting the functions and priorities of liberal capitalist states towards redistribution while maintaining and respecting the principles of individual freedom and private property is a difficult balance to achieve in the 21st century. 

The welfare state

The welfare state would promote risk-taking as a post-Covid-19 strategy for recovery as long as it contributes to an increase in social welfare without threatening the narrow interests of the ruling class in capital accumulation. The legitimacy of mission-oriented investments for generating post-Covid-19 innovation and growth would be conditional on maximising social welfare through the innovative outcomes of such investments and ensuring the interests of the ruling class were not compromised by new technologies. Often missions lose sight of their purpose and end up undermining social welfare. Fred Block, an American sociologist, and Mazzucato provide a number of examples of missionary innovations that began with the objective of addressing social welfare issues but ended up appropriated and privatised for the sake of individual welfare. These include biotechnology companies that received millions of dollars in R&D funds from the state intended to benefit the public good, but which resulted in the drug companies themselves profiting.

The neoliberal, or libertarian, state

A fourth, and most constrained, form of entrepreneurial state would be the neoliberal or libertarian state. The latter would not allow any extensive risk-taking for post-Covid-19 recovery beyond defence and police services, on the grounds that it would be epistemologically impossible and morally indefensible. Although previous forms of entrepreneurial state seem to assume unlimited knowledge that allows for market intervention, a neoliberal or libertarian state assumes strict epistemological limitations. These would prevent successful intervention in the market for the sake of mission-oriented innovation, let alone creating new fairer conditions of growth. Under such an entrepreneurial state, the focus of public policy would be on growth by means of competition between technology-based firms under free market capitalism. A neoliberal or libertarian state would be incompatible with any redistributive policies based on the returns of successful innovations.

This raises the question of the relevance of the entrepreneurial state argument for some parts of the western capitalist world. A number of capitalist states, including the US and the UK, have adopted a neoliberal state ideology. This is the reason why the US budget for disease control and prevention has been alarmingly reduced in recent years and why austerity cuts in the UK have led to millions of pounds being slashed from the NHS. Although the Covid-19 crisis has forced some neoliberal states, including the UK, to retreat from austerity policies and instead strengthen their health systems and protect labour through direct redistribution schemes (such as the UK’s furlough scheme), these states cannot envisage any long-term entrepreneurial activity on their part taking place outside the market realm. In the context of neoliberalism, public policy tends to be technical and depoliticised, given the state’s withdrawal from interventionary macroeconomic policy. Often state initiatives for macroeconomic intervention are branded as illiberal or are criticised on epistemological grounds.

If there was such an entity as a non-constrained or full entrepreneurial state, this would be a state able to pursue whatever missions and technological opportunities it wished without having to consider the political costs of its choices (it is likely that only the economic cost would matter). However, such a state would not survive in practice. The state as such is a political institution not an economic one.

Entrepreneurialism after Covid-19

I believe that the state in the post-Covid-19 era can be as entrepreneurial as its form allows it to be. This implies two things. First, some states (authoritarian, socialist, welfare) might possess the legitimacy to openly become more entrepreneurial than others (liberal, neoliberal, libertarian) in order to successfully deal with the problem of post-Covid-19 recovery. Second, the entrepreneurial interventions of some states (especially neoliberal or libertarian states) might not be sustained long term. They are bound to be short-term ‘institutional entrepreneurs’ due to the lack of legitimacy that arises owing to their inevitable failure to maintain neutrality towards particular innovations and/or firms, or as a result of their failure to control the impact of these innovations on fundamental freedoms and individual rights (for example, digital surveillance). To put it another way, the more entrepreneurial neoliberal or libertarian states become, the more they contradict their own principles and foundations. The result is a legitimation crisis.

All missions have something in common. Whether neoliberal or welfarist, authoritarian or democratic, they tend to require centralised organisation. In the post-Covid-19 era, what we should expect is centralisation of public policy and governance systems in order to address rising unemployment, poverty and inequality. Evidence-based central planning will be essential. What we should not expect is any radical reconstruction of society and economy under the entrepreneurial state. Capitalism cannot be remade.

In theory, what the entrepreneurial state could do is mitigate the consequences of unfettered capitalism and improve some social inequalities; for instance, reducing unequal private property relations through taxation for funding missions and through redistribution of the benefits of innovation. Thus, its role would be to respond to citizens’ claims for minimum social justice requirements in the process of post-Covid-19 recovery. In order for the public policy of a legitimate entrepreneurial state to promote such a recovery, the active support of communities of innovators and members of the public would be required.

But although the post-Covid-19 era presents an opportunity for radical reconstruction, the constrained forms of entrepreneurial state can only reproduce capitalist economy and society. They have not the ambition to change the fundamental social relations of capitalism; until then, the entrepreneurial state can only achieve so much.

The entrepreneurial state could work in practice so long as it takes into account its constraints. Whether authoritarian, liberal, neoliberal or welfarist, these constraints will provide the basis for ethical-political contestation and legitimation of missions. Clearly, for the entrepreneurial state to be democratic it would need to engage the public in the decision-making process. Perhaps the best possible form of democratic entrepreneurial state we can hope for, in order to achieve an even minimally socially just post-Covid-19 era, is the welfare state form that decides missions through public deliberation.

This article first appeared in the RSA Journal Issue 1 2021.