Thursday, April 9, 2009

US capitalism and government involvement

The US was a developmental state with numerous cases of successful government investment to stimulate entrepreneurship , writes William Lazonick.

In all the advanced economies over the past century, first and foremost the United States where the ideology of ’free market’ entrepreneurialism is most virulent, successful entrepreneurship  has depended heavily upon government investment in the knowledge base, state sponsored protection of markets and intellectual property rights, as well as state subsidies to support business investment strategies.  Scholars of the developmental state have tended to see it as a Japanese, and by extension East Asian, phenomenon, while neglecting the role of the developmental state in the United States, the world’s largest and arguably the most entrepreneurial of the advanced economies. Yet, during the twentieth century, the US state has been far more developmental than the Japanese state. Scholarly works have been written on the evolution of particular US industries – for example, agriculture, airliners, aircraft engines, computers, the Internet, biotechnology- that support this proposition. Biopharmaceuticals provide a case in point.

As a precondition for absorptive capacity and hence indigenous innovation, a nation has to have already made the most strategic and most expensive investment of them all: investment in a public system of primary, secondary and tertiary education.

It is a mistake, therefore, to associate growth enhancing entrepreneurship with free market individualism. There is no shortage of entrepreneurial individualism in American-style capitalism, but its transformation into higher standards of living has depended critically on investments, protections and subsidies provided by the developmental state… The state must be regulatory, but it also must be developmental. At the same time, the instability and inequity that accompanies economic growth under American-style capitalism should lead policymakers in developing countries to seek to identify those varieties of capitalism in the advanced nations that can serve as superior models for generating stable and equitable economic growth.