11Transparency means that policymakers should operate in such a way that it is easy for others to see what actions are performed and what consequences they will entail. As such, transparency implies openness, communication, and accountability. Ensuring more transparency about the criteria that determine how labor, knowledge, and financial resources are made available or regulated in society reduces the source of institutional uncertainty inherent in innovative endeavors and facilitates innovative actors to focus on the type of uncertainty they seek to engage in—technological, organizational, or market uncertainty (Fleming, 2001; Schumpeter, 1934). As one successful Unicorn Entrepreneur told us when asked in an open panel whether high K. Wennberg and C. Sandström

12taxes were a problem, “Well, taxes are like rain. It often rains a lot in this country. That’s ok, as long as we can plan for it. We focus on other things, like hiring the best people wherever in the world we can find them; seeking to produce something new and better for our customers. As long as taxes and regulations are fair and transparent, and apply to everyone, that’s not a problem for us.”

Moderation is commonly defined as the avoidance of excess or extremes or the process of eliminating or lessening extremes (Elert et al., 2019). This means that if regulations or taxes are changed, or subsidies of some sort are deemed necessary, policymakers should be modest in extracting and allocating resources lest such measures become costly to reverse. Uncertainty is all around us and the future is unknowable; thus, altering course in policymaking may also be needed. When this is done, moderate, gradual reforms are usually more wise than large, hard-to-change reforms. Contestability means that not only markets should be contestable, but also policymaking. When followed, this principle entails that all vested positions, opinions, and truths should be open to challenge and debate (Popper, 1945/2020). If institutions, policies, and markets cease to be contestable, they risk becoming outdated and obsolete in an ever-changing environment. Contestability is thus the cure for societal sclerosis and rigidity.

Legality refers to the idea that de jure and de facto institutions need to coincide, such that legality ensures the rule of law is both upheld and aligned with the institutional framework. This principle is a fundamental precondition in all modern economies and underpins any liberal democratic political order—to the point that it is occasionally taken for granted in much of the European Union. Nevertheless, it is important to realize that formally enacting the appropriate laws does not automatically ensure the legality of institutions that support innovation if policy practice accepts de facto institutions that break with what is formally legalized. When this is done, it is seen as institutional hypocrisy, and it gradually breaks down legitimacy and acceptance of the law. Justifiability refers to the appropriate balancing of public and private interests that is needed to justify policy interventions beyond a simple laissez-faire attitude. It is not only active policies and institutions that need to be justified but also passive institutions, such as (intellectual) property rights, if they are to be effectively implemented and respected. Common-pool resources like our natural environment need to be taken seriously in institutional governance and policymaking, as do incumbent, new, and potential entrant organizations alike.

When considering commonly heralded institutions theorized to foster socially beneficial innovations like those above, it is clear that the entrepreneurial state violates many of these criteria. Large, top-down innovation schemes and moonshot projects are not compatible with neutrality in terms of a level playing field between entrepreneurs and incumbent firms. They are also less incompatible with moderation as most of the ongoing efforts are large and directed toward certain predefined tasks. When increasingly large swathes of common resources are pooled in very specific missions, these efforts and the institutional backing that they receive become less Introduction

13and less contestable, and how they are evaluated and governed is often not very transparent (Janssen et al., 2021). It is indeed true, as Mazzucato and others have noted, that successful products and industries often follow military projects, publicly subsidized R&D, and similar programs. It does not follow, however, that governments are better than market participants (entrepreneurs, managers, and those who fund entrepreneurial and innovative projects) at anticipating these successes ex ante. For these reasons we are confident that independent markets actors, not public decision-makers, should be the key actors in innovation policy. Specific policy interventions may have a sizeable effect on innovation. However, those that turn out to have a significant impact on innovation are usually those that had nothing to do with innovation when they were enacted. For example, migration waves after the collapse of the Soviet Union pushed large numbers of skilled engineers and mathematicians to Israel and the United States, which granted them generous residency and citizenship rights. These migrants made a substantial positive contribution to innovation in those countries. In countries such as the United