337mathematized and was left to political economists, who restricted themselves to case studies and qualitative theories. This branch of economic theory was open to scholars from different persuasions, as the literature on National Systems of Innovation and Clusters, among others, demonstrates.13
How did the political economy approach gain a foothold in Europe? The short answer is that neoclassical economics never had a very strong footing in Europe. The longer answer lies in the Science Policy Research Unit (SPRU) at the University of Sussex. Here, some of the best minds in economics and innovation policy created a program with National Systems of Innovation and the role of the entrepreneurial state at its heart. This was built around the work of Richard Nelson and Sydney Winter in the 1980s on an evolutionary theory of economic growth. The theory
12I would like to thank Mathew Boyer for these insights into Tesla. 13See Root (2020).
338Z. J. Acs
assumed that innovation would take place in existing firms. At SPRU, a group of brilliant scholars including Richard Nelson, Christopher Freeman, Luc Soute, Giovani Dosi, Roy Rothwell, and David Rosenberg, among others, propagated a strong line of argument on the knowledge and firm question. There was no other group in Europe that had the intellectual firepower to counter this argument. Muzzucato, educated at the New School for Social Research in New York City, was a product of a European intellectual tradition that stressed the role of the state over the role of the individual. Systems thinking always put the system ahead of the individual. Where among U.S. scholarly work do we find a larger emphasis on markets and entrepreneurship? The alternative set of arguments that developed in the United States came out of the old industrial organization literature and stressed the role of entry, startups, young firms, and new firms in bringing technology to market (Evans, 1989; Evans & Jovanovic, 1989). The literature on patents, technology, innovation, and productivity and the literature on finance—venture capital and angel investing— revolved around resource allocation. Here the key players were Michael Jensen, Eugene Fama, Josh Lerner, and Paul Gompers, among others. The ITR of the 1970s ushered in a wave of political, regulatory, and organizational change in the 1980s as countries around the world responded to the digital revolution (Jensen, 1993).
Why did the ITR favor new firms? The technology breakthroughs favored new firms for three reasons: awareness and skills; vintage capital; and vested interests (Hobijn & Jovanovic, 2001). First, managers of old firms may not have known what the new technologies offered or may have been unable to implement it. When IBM entered the PC market, it lacked the ability to quickly develop an operating system so it turned to Intel for its microprocessor and Microsoft for its operating system.
Second, the human and physical capital of old firms were tied to their current practices, so may not have easily converted to new technologies. Abandoning investment in old technologies may not have made sense. When the Berlin Wall fell, countries in Central Europe were reluctant to give up their vintage capital even in the face of far superior Western methods.14 Unencumbered by the past, new firms had more incentive to invest in new technologies. When the biotechnology revolution took off in the 1970s, it was startups that introduced the new technologies. The human capital of existing pharmaceutical companies was in chemistry, while the biotechnology breakthroughs were in biology.
Third, workers and management in older firms, especially if they belonged to a union, may have resisted new technologies because they devalued their skills. In doing so, they may have harmed the interests of the firm and shareholders by reducing the firm’s value. It appears this is exactly what happened in the European Union. The European Union protected traditional industries and hoped that existing firms would introduce new technologies. This was a policy designed to fail (Acs et al. 2021a, b).
14See Der Spiegel (2005).
339The Digital Platform Economy and the Entrepreneurial State: A European Dilemma
As we have shown, the major theoretical underpinning of European economic policy postulated that existing firms would introduce the new technologies. How have these propositions influenced economic performance in the European Union as a whole and in the separate countries of the European Union? In one of the largest studies on the subject of Europe’s entrepreneurial future (FIRES) Elert et al. (2019), p. 6) concluded the following: Overall, the data suggests that contemporary Europe has a comparatively less fertile ‘eco-
system’ for Schumpeterian/high-impact entrepreneurship than the USA, and in some
respects even relative to China and East Asia. In Eastern Europe, much of the self-
employment is marginal necessity-driven entrepreneurship, whereas in Western Europe
the base of self-employment may be broad, but opportunities to grow into the global
competitors of the future, in particular, seem limited.15