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The Entrepreneurial State and the Risk-Reward Nexus: Implications for Innovation and Inequality
16th April 2013 @ 1:00 pm - 2:30 pm
Mariana Mazzucato, Professor of Economics and RM Phillips Chair in Science and Technology Policy, SPRU Science and Technology Policy Research, University of Sussex
Mariana presents a new framework, called the Risk-Reward Nexus, to study the relationship between innovation and inequality. She asks: What types of economic actors (workers, taxpayers, shareholders) make contributions of effort and money to the innovation process for the sake of future, inherently uncertain, returns? Are these the same types of economic actors who are able to appropriate returns from the innovation process if and when they appear? Who takes the risks and who gets the rewards? She argues that it is the collective, cumulative, and uncertain characteristics of the innovation process that make this disconnect between risks and rewards possible. When, across these different types of actors, the distribution of financial rewards from the innovation process reflects the distribution of contributions to the innovation process, innovation tends to reduce inequality. When, however, some actors are able to reap shares of financial rewards from the innovation process that are disproportionate to their contributions to the process, innovation increases inequality. The latter outcome occurs when certain actors are able to position themselves at the point where the innovative enterprise generates financial returns; that is, close to the final product market or, in some cases, close to a financial market such as the stock market. These favored actors then propound ideological arguments, with intellectual roots in the efficiency propositions of neoclassical economics, that justify the disproportionate shares of the gains from innovation that they have been able to appropriate. These ideological arguments invariably favor shareholder contributions to the innovation process over both worker contributions and taxpayer contributions.
- The Risk-Reward Nexus in the Innovation-Inequality Relationship Mariana Mazzucato and William Lazonick, forthcoming in (Summer 2013) Industrial and Corporate Change, special issue on: Finance, Innovation and Growth (ed. M. Mazzucato)
- Innovation: let the good risk-takers get their reward, blogpost by Mariana Mazzucato and William Lazonick for the Guardian’s Comment Is Free site
- The Entrepreneurial State by Mariana Mazzucato, Demos (2011) ISBN 978-1-906693-73-2