We Europeans generally feel superior to Americans, particularly on policies in healthcare, welfare, and the organisation of society. But perhaps there are some aspects of public policy – industrial policy - where we might learn from the US.
The US is the world leader in information, communications and technology. The biggest firms are American – Microsoft, Apple, Facebook, Amazon and the notorious Facebook, and many other. Some think that these garage-originated firms epitomise the spirit of the free market. Not so. The state has played a major role in the development of some of the most innovative of them but they adapted and monetised public innovation.
Marianna Mazzucato, (who wrote the Forward to TASC’s book, “Nuts and Bolts of Innovation” on industrial policy), pointed out in her wonderful book, “The Entrepreneurial State” that one US military outfit has been behind some of the best inventions around the iPhone. She demonstrated that it was not the hugely profitable and tax-avoiding tech firms which were the key innovators of some key technology. These firms were good at marketising the publicly funded innovations and improving them too.
She points out that the Defence Advanced Research Projects Agency, DARPA, is a publicly funded multibillion dollar programme, which has been operating for over 50 years, which provided key research for the internet, Microsoft Windows, Stealth Fighters and GPS.
Mazzacato says that the “one radical idea behind DARPA is that it both expects and tolerates failure.” She says “DARPA is not about government ‘picking winners and losers’, it is about the government taking the lead in R & D which is not taken by the risk-averse business sector.” She points out that “DARPA operates under the banner of ‘national security’ rather than ‘economic performance’” which gives it leeway to be innovative and risk-taking.
Big Passive Subsidies
In Ireland, our Government passively gives numerous tax breaks to firms for innovation for patents, business schemes, etc. Our low corporation tax, supposedly the “cornerstone of our industrial policy” is also a passive policy. It is led by firms, not by government policy. We also give help in many ways, loans and grants to indigenous firms, but when these firms are successful, they are bought out by US MNCs which ship the intellectual property to the US. Our government, its agenicies stand idly by; “we can’t interfere in the market” is the dominant thinking, so we do not intervene. But we do.
Irish taxpayers spend hundreds of millions on passive industrial policy, supported by many state bodies and lots of subsidies. We encourage competitive but not collaborative research, nor is it directed by coherent policy.
Mazzacato points out “that not a single key technology behind the iPhone has not been state funded.” She says that the necessary technology underpinning the iPhone and iPad were publicly invented. These were “the internet, GPS, touch screen displays and communication technologies.” Apple does not invest in new technologies but it is brilliant at “integrating them into an innovative architecture” especially in design, she says in her book.
When the Russians beat the Americans into space with the launch of Sputnik in 1957, the US thought it would lose the Cold War. So it accelerated investment, public investment, into space exploration and much more. DARPA itself says “The ultimate results have included not only game-changing military capabilities such as precision weapons and stealth technology, but also such icons of modern civilian society as the Internet, automated voice recognition and language translation, and Global Positioning System receivers small enough to embed in myriad consumer devices.”
Mazzacato points out that “it is important to recognise the collective character of innovation.” DARPA harnesses not just military and government innovators but academics. It says it “does not perform its engineering alchemy in isolation,” but “works within an innovation ecosystem that includes academic, corporate and governmental partners, with a constant focus on the nation’s military services, which work with DARPA to create new strategic opportunities and novel tactical options.” While its focus is mainly military, its inventions have benefited us all from the GPS to weather satellites.
A new DARPA program, Preventing Emerging Pathogenic Threats, (PREEMPT), attempt to find new viral infectious diseases at the source, animal reservoirs—the species in which a pathogen lives, multiplies, and potentially evolves into a strain that can threaten humans. “It hopes to advance understanding of viruses and their interaction with animals, insects, and humans, and deliver new, proactive interventions to reduce the risk from emerging and reemerging pathogens.” It is trying to check viruses before they can jump across species, to anticipate how they can mutate and spread and how to diminish viral outbreaks.
It is also helping to develop drones and other unmanned aircraft. Because GPS can be blocked by buildings, leaves or underwater, it has invented Adaptable Navigation Systems (ANS) which seek to provide GPS-quality for positioning, navigation, and timing (PNT).
DARPA put the world’s first weather satellite into space in 1960, followed by its Corona reconnassance satellite spy programme, with the CIA. It also helped to establish labs in a several universities which created the new field of materials science and engineering.
Europe Led but now lags the US
Much of the internet’s origins was invented in Europe which now lags the US in technology, perhaps due to the lack of such a focused state funded agency like DARPA. In the 1980s research at CERN, the publically funded European organisation for Nuclear Research (CERN is from the French name) led by Tim Berners Lee and Robert Cailliau, led to the creation of the World Wide Web which has had such a dramatic impact on our culture, on commerce, on communications and much more. CERN has 22 European members plus Israel, but Ireland is not a member.
Ten years ago Finland’s Nokia led the world with its mobile phones. Europe did set one standard for mobile phones while the US let the market decide and it resulted in high costs, slow growth and networks that did not conncect. Since then we have fallen behind the US.
Today the Europe Union is spending €80bn in public money in the 7 years to 2020 in research and development under its Horizon programme. ‘The goal is to ensure Europe produces world-class science, removes barriers to innovation and makes it easier for the public and private sectors to work together in delivering innovation.” It is the 8th such a progamme. It will be seen that Macron thinks we need to take a new approach from a passive one.
Macron has a Programme for Europe
In his very interesting speech (unusally for a political leader, he set out a vision) in the Sorbonne, Macron said “I propose that, over the next two years, we create a European agency for disruptive innovation in the same vein as the Defense Advanced Research Projects Agency (DARPA). Such an agency would make Europe an innovator and not a follower.”
Macron continued, arguing that we should stop moaning that Europe is behind the US and China in digital technology but “we must create European champions, we must invent in this global upheaval fair securities and efficient regulations.” He wants greater EU state intervention.
He concluded that “It is Europe’s responsibility to define its regulatory framework so as not to effectively be subject to the survival of the fittest here.” He also said “we need a European financial transaction tax.”
Macron issued a challenge - “because I fully believe in this innovation economy, I fully believe in an open world, but an open world is only worth having if there is fair competition! And we cannot accept having European actors who must pay tax, while their international counterparts do not, and digital actors who pay no tax competing with traditional economy actors who do pay tax!”
In conclusion, Macron is pushing for greater cooperation in Europe on innovation, and for policy-led leadership rather than market-led or firm-led leadership.
Paul Sweeney is former Chief Economist of the Irish Congress of Trade Unions. He is a member of the Economic Committee of the ETUC and chair of TASC’s Economists’ Network. He was a President of the Statistical and Social Enquiry Society of Ireland, a member of the National Competitiveness Council of Ireland, the National Statistics Board, the ESB, TUAC, (advisor to OECD) and several other bodies. He has written three books on the Irish economy and two on public enterprise, including The Celtic Tiger; Ireland’s Economic Miracle Explained and Selling Out: Privatisation in Ireland, chapters in other books and many articles on economics.