Why does Apple have such high profit? Why do banking systems have a tendency to fail? These seemingly unrelated questions have the same answer – taxpayers take a lot of the risk out of business activity.
The ideas of two unconventional economists, Mariana Mazzucato and Elinor Ostrom, can help improve policy. Mazzucato is a professor of the Economics of Innovation. Her 2013 book, “The Entrepreneurial State: Debunking Private vs. Public Sector Myths” does just what it says. It provides persuasive evidence that governments deserve more credit than private companies for the development of most important modern technologies.
Apple’s iPhone is her star example. She demonstrates that government programmes developed all the key technologies, from the internet to voice recognition. Her argument is that Apple’s profit margins are unjustly high – over 20 percent after tax – because the company’s financial flows are not accurate reflections of its genuine contribution. Taxpayers have done the heavy technological lifting; the company only adds a little engineering pizzazz and a lot of business acumen, but shareholders get rewarded for the whole piece.
Mazzucato is most interested in refuting the accusation that the “dead hand of the state” inevitably slows down economic growth. Rather, the relationship is mutually beneficial. If political leaders and voters accepted her analysis, governments would fund more imaginative research, and Apple’s profit would be more heavily taxed.
However, her analysis could have gone further and questioned why economists create the strict division of public and private. In modern economies, organisations deemed private are almost always heavily influenced by government rules while those counted as governmental almost always work closely with business and finance.