3121 K. Wennberg, C. Sandström (eds.), Questioning the Entrepreneurial State, International Studies in Entrepreneurship 53, https://doi.org/10.1007/978-3-030-94273-1_2 S. Davidson and J. Potts

22President Obama, however, was scoring a political point, not making an economic argument. He would have been entirely correct if he had stated, “Somebody else helped make that happen.” The fact remains that the notion of individuals cooperating under the division of labor is not controversial in economics. What Adam Smith had argued is that individuals cooperated even in the absence of conscious control and intentional planning: “he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.” This latter notion, however, is somewhat controversial. It is widely believed that in the absence of planning and some conscious control, market economies will underprovide some goods and services such as education and roads: the very things President Obama was referring to. There is a large, unresolved, empirical, and theoretical literature that addresses the issue of so-called public goods.

This chapter addresses a special case of the public goods literature that extends beyond the state having to provide basic education and roads, and generally accepted public goods such as courts of law and enabling regulation and standards. Even economists such as Friedrich Hayek had argued these goods and services were appropriately within the power of the state (Hayek, 1960, ch. 15). An argument promoted by Mariana Mazzucato (2013), however, suggests a far greater role for government in the market economy. We do not intend to provide a critique of her original contribution (see McCloskey & Mingardi, 2020) but rather to provide a critique of an extension to the notion of the entrepreneurial state theory. That is to address a question posed by Mazzucato (and others) in a 2021 essay: how should the entrepreneurial state regulate the platform economy?

Innovation policy has always operated at the intersection of both industrial and growth policy (i.e., in the Schumpeterian tradition, which emphasizes the value or necessity of monopoly to create incentives to private investment in innovation) and antitrust or competition policy, which by construction seeks to resolve the economic problems caused by monopoly or imperfect competition. Joseph Schumpeter (1942, p. 91) was himself particularly clear about the nature of this trade-off:

There is no general case for indiscriminate ‘trust-busting’ or for the prosecution of every-

thing that qualifies as a restraint of trade. Rational as distinguished from vindictive regula-

tion by public authority turns out to be an extremely delicate problem which not every

government agency, particularly when in full cry against big business, can be trusted to

solve. But the platform economy—and platform economics—which is an innovation that we mostly owe to the digital economy, brings a new angle to this trade-off. Platforms (Rochet & Tirole, 2003) are in almost all cases firms, and when successful they are very large firms. For instance, in early 2021, of the ten largest firms in the world, seven are platforms (Apple, Microsoft, Amazon, Alibaba, Alphabet, Facebook, Tencent). This represents a relatively recent structural shift. Just two decades ago, most of the world’s largest companies were industrials, with only a handful of platforms (e.g., Visa). The central reason for this transformation is that digitalization lowers transaction costs (Goldfarb & Tucker, 2019). Following Coasean’s The Entrepreneurial State and the Platform Economy

23reasoning, this lowers levels of vertical scope, resulting in vertical disintermediation as those wanting things, for instance, can be matched by the platform directly with those supplying things, where the platform is able to be sufficiently attractive to both sets of economic agents, often by engineering side payments or creating the institutional conditions to incentivize all the relevant parties to turn up. A platform, in this