70public financing through more efficient termination decisions for bad projects, resolving soft budget constraint problems.” Indeed, government ownership may be characterized by more red tape than private ownership. Second, the difference in compensation between public and private VCs is huge. While private VCs “typically are structured with a 2% fixed fee (based on committed capital) and a 20% performance fee, with hurdle rates and clawbacks in the event of poor performance” (Cumming et al., 2017, p. 441), public VCs receive a fixed wage. Third, because of these compensation issues, more talented people self-select into the private sector, or leave public VC funds in favor of private funds. This difference in talent between private VCs and public VCs is also due to the impossibility of public VCs taking independent decisions once owning a company. Indeed, most managerial or administrative decisions of public VCs as owners depend on the government’s goals and need to operate in a framework of politics.

A further reason that government ownership typically lacks competence in the selection of competent managers is provided by the incomplete contracts approach to privatizations (Schmidt, 1996a). As suggested by Dixit (1997, p. 378), “Government agencies and public enterprises are generally thought to perform poorly because their managers and workers lack the high-powered incentives that are believed to prevail in private firms. This belief motivates many attempts to privatize public services.”

In sum, while there may be heterogeneity across and within countries, the incompetence of politicians and bureaucrats as effective owners, taken together with their pursuit of noneconomic goals to meet their constituencies’ preferences so that they themselves can remain in office, is likely to orient government owners toward inefficient projects, select less competent managers for such projects, and generally play the role of venture capitalists with taxpayers’ money in ways that are not in the long-run interest of those taxpayers.

5

Concluding Remarks

Mazzucato (2011) deserves credit for reinvigorating the discussion of the role of the state in the innovation process. As she correctly points out, innovation is a complex and messy process, with many fits and starts along the way, and historically state agencies and state funding have played important roles in promoting technological progress. Moreover, some of the most successful recent commercial innovations, The Entrepreneurial State: An Ownership Competence Perspective

71particularly in information technology, relied on discoveries and developments from state-funded projects. However, we think this evidence does not suggest a stronger role for the state in promoting entrepreneurship and innovation, much less a fundamental rethinking of the cumbersome, bureaucratic, politicized governmental apparatus as a praiseworthy entrepreneurial state. States fund a lot of R&D projects and, inevitably, some will end up being commercially (and socially) beneficial. But this is simply the law of large numbers! The relevant question is whether heavy state involvement gives us better innovations than we otherwise would have had, and here both theory and evidence are less persuasive. Specifically, we have argued here that the case for the entrepreneurial state rests on an undertheorized and superficial view of the state itself, one that discounts what we know from property-rights economics, public administration, technology strategy, and public finance about how state funding and intervention can harm market performance. In particular, we have pointed to the ownership competence perspective as a missing element in these discussions. When considering the relative competence of private and public owners, the case for government intervention in markets for technology becomes even weaker. Private ownership and competition tend to direct ownership titles into the hands of those with the highest levels of ownership competence (Foss et al., 2021), and these are likely to be private entrepreneurs and firms, not state bureaucrats. Entrepreneurship, not state action, is the