It’s time for the ‘entrepreneurial state’ to step in
To recover from COVID-19, governments need to lead the innovations that will remake the economy
A s governments start to ease lockdowns and scale back emergency measures for COVID-19, many people are wondering: Is a return to “normal” right around the corner?
In reality, normalcy isn’t feasible for the foreseeable future. Until we find a COVID-19 vaccine, life cannot return to what it was pre-crisis without risking a public-health emergency. And, even if we pour billions into scientific research and development, it will take years — not months — to develop a viable vaccine and administer it to 8 billion people worldwide.
But, putting that point to the side, a return to normal isn’t the right objective to strive for, as this “normal” perpetuated social and economic inequality for years. We have a moral obligation to work towards a different type of normal — one characterised by an economy that works for everyone.
To achieve this ideal, we must turn to an unexpected source of renewal: the state. As my colleague Mariana Mazzucato writes in The Entrepreneurial State, governments have a remarkable ability to drive innovation that grows economies and solves societal challenges. Moreover, the “entrepreneurial state” is capable of creating new sources of wealth that can lead to a more equitable society after COVID-19.
What the entrepreneurial state could accomplish
To achieve a new normal, governments have to rethink economic and social structures, systems and policies. Potentially, this work could target four goals.
1. Develop new financial instruments to support businesses
At the onset of COVID-19, governments moved quickly to push out emergency relief to businesses — and rightly so. But while credit support for businesses is useful in the short term, it has adverse effects in the long term if business demand remains low. In effect, it turns companies into Ponzi schemes that continually borrow to survive — leading to a debt vortex that compromises economic stability.
To avoid this outcome, governments need to create entirely new financial instruments and institutions that keep businesses healthy while protecting public interests. For example, the government might acquire stakes in companies, as planned by the UK government. Or the government might turn loans into grants that stipulate specific conditions for firms, such as retaining workers. Or, when dealing with massive waves of bankruptcies, governments might look at forms of business ownership that have public benefits, such as cooperatives.
2. Overcome the “digital divide”
COVID-19 has created a new “digital divide” in societies. Schools are often not equipped to provide online-only education, and students do not always have access to the technology they need to learn. Many people do not have the luxury of performing their jobs at home on a computer. While some companies are using technology to rethink the nature of work, the vast majority are not — inviting big platform companies to gobble up start-ups and reshape the marketplace.
To address the digital divide, governments need to make sure digital access and new forms of work are available across the board. This requires rethinking the digital architecture of societies, global rules (e.g., global taxes on multinational companies) and the digital sovereignty of places and people. There are no one-size-fits-all solutions, so governments should actively encourage and support experimentation.
3. Restructure the tourism sector
COVID-19 has pummelled the tourism sector, and it is unlikely to bounce back to its pre-crisis levels for years. To cope, many tourism-heavy economies are providing financial support to people who have lost their jobs, but this intervention is not sustainable for the long term — especially in countries that already have high levels of debt, such as Italy, Spain and Greece.
Governments have to step in and restructure the tourism sector on a massive scale, working towards new modes of sustainable tourism. For example, cities such as Venice and Amsterdam are looking at ways to develop “slow” tourism. Sustainable tourism will require new regulations, investment in new business models and the upskilling of employees. Such initiatives could be coupled with job guarantee programs, whereby the government hires and trains everybody willing to work.
4. Invest heavily in public services
The welfare state is one of the greatest inventions of the 20th century, as it builds and sustains the resiliency of economies and societies. As my colleagues Carlota Perez and Hilary Cottam have shown, the welfare state was a brilliant solution for mass-production capitalism. However, the resilience of public services cannot rest only in their scale, as this means we manage services for efficiency (i.e., greatest number at lowest cost) but not for quality.
To strengthen the welfare state in a post-crisis world, governments need to lead the way on innovating these services — how they’re designed, funded and delivered. Currently, our transport systems are large, unsustainable and built for long commutes; healthcare treats symptoms on mass scale rather than focusing on prevention; and education is measured in global rankings that are biased towards quantity (e.g., graduates, citations). Transforming these services will require experimentation and investment, as well as regulation and new partnerships with private and civic actors.
If we don’t renew our commitment to the entrepreneurial state, the future looks bleak indeed. Adopting old practices will diminish new sources of growth and wealth, and we will sleepwalk into a lost decade of climate emergency and human suffering. We can anticipate that social and economic inequalities will widen; economies will mutate into poorer versions of themselves; those who have the least will be hit the hardest due to cuts to public service; and countries will postpone climate-emergency investments.
In this time of crisis, the “entrepreneurial state” has a chance to step in. Let’s hope that it does.
During this difficult time at the UCL Institute for Innovation and Public Purpose (IIPP), we are trying to keep our staff and students safe while offering our thinking and methods on how to steer the economy towards meeting societal goals. Learn more.
