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The Myth of the Entrepreneurial State
A common narrative of the post-World War II economists was that the State is indispensable for guiding investment and fostering innovation. They claimed that the wealth of the modern world is the result of past State guidance and that what is needed for future economic growth is more State guidance. This position has recently been rejuvenated in reaction to the Great Recession of 2008.
The truth is that the enriched modern economy was not a product of State coercion. It was a product of a change in political and social rhetoric in northwestern Europe from 1517 to 1789. The Great Enrichment, that is, came from human ingenuity emancipated from the bottom up, not human ingenuity directed from the top down.
The true question is what on balance is the best way to organize innovation—by the “wise State” or by commercially tested betterment?
About the Authors
Deirdre Nansen McCloskey is Distinguished Professor Emerita of Economics and of History, and Professor Emerita of English and of Communication, adjunct in classics and philosophy, at the University of Illinois at Chicago. In 2014, she was awarded the Hayek Lifetime Achievement Award by the Austrian Economics Center and is the recipient of 11 honorary degrees. Her main research interests include the origins of the modern world, the misuse of statistical significance in economics and other sciences, and the study of capitalism, among many others. She is well known for her massive economic, historical, and literary trilogy The Bourgeois Era (2006, 2010, 2016).
Alberto Mingardi is Director General of the Italian free-market think tank, Istituto Bruno Leoni. He is also Associate Professor of the history of political thought at IULM University in Milan and a Presidential Scholar in Political Theory at Chapman University. He is an adjunct fellow at the Cato Institute. He blogs at EconLog.
He holds a PhD in Political Science from University of Pavia and edited critical editions of Thomas Hodgskin, Herbert Spencer and Vilfredo Pareto. His last book is Classical Liberalism and the Industrial Working The Economic Thought of Thomas Hodgskin (Routledge, 2020).
The American Institute for Economic Research in Great Barrington, Massachusetts, was founded in 1933 as the first independent voice for sound economics in the United States. Today it publishes ongoing research, hosts educational programs, publishes books, sponsors interns and scholars, and is home to the world-renowned Bastiat Society and the highly respected Sound Money Project. The American Institute for Economic Research is a 501c3 public charity.
The Adam Smith Institute is one of the world's leading think tanks, recognised as the best domestic and international economic policy think-tank in the UK and ranked 2nd in the world among Independent Think Tanks by the University of Pennsylvania.
Independent, non-profit and non-partisan, we work to promote free market, neoliberal ideas through research, publishing, media outreach, and education. The Institute is today at the forefront of making the case for free markets and a free society in the United Kingdom.
The Institute was founded in the 1970s, as post-war socialism reached its high-watermark. Then, as now, its purpose was to educate the public about free markets and economic policy, and to inject sound ideas into the public debate.
The truth is that the enriched modern economy was not a product of State coercion. It was a product of a change in political and social rhetoric in northwestern Europe from 1517 to 1789. The Great Enrichment, that is, came from human ingenuity emancipated from the bottom up, not human ingenuity directed from the top down.
The true question is what on balance is the best way to organize innovation—by the “wise State” or by commercially tested betterment?
About the Authors
Deirdre Nansen McCloskey is Distinguished Professor Emerita of Economics and of History, and Professor Emerita of English and of Communication, adjunct in classics and philosophy, at the University of Illinois at Chicago. In 2014, she was awarded the Hayek Lifetime Achievement Award by the Austrian Economics Center and is the recipient of 11 honorary degrees. Her main research interests include the origins of the modern world, the misuse of statistical significance in economics and other sciences, and the study of capitalism, among many others. She is well known for her massive economic, historical, and literary trilogy The Bourgeois Era (2006, 2010, 2016).
Alberto Mingardi is Director General of the Italian free-market think tank, Istituto Bruno Leoni. He is also Associate Professor of the history of political thought at IULM University in Milan and a Presidential Scholar in Political Theory at Chapman University. He is an adjunct fellow at the Cato Institute. He blogs at EconLog.
He holds a PhD in Political Science from University of Pavia and edited critical editions of Thomas Hodgskin, Herbert Spencer and Vilfredo Pareto. His last book is Classical Liberalism and the Industrial Working The Economic Thought of Thomas Hodgskin (Routledge, 2020).
The American Institute for Economic Research in Great Barrington, Massachusetts, was founded in 1933 as the first independent voice for sound economics in the United States. Today it publishes ongoing research, hosts educational programs, publishes books, sponsors interns and scholars, and is home to the world-renowned Bastiat Society and the highly respected Sound Money Project. The American Institute for Economic Research is a 501c3 public charity.
The Adam Smith Institute is one of the world's leading think tanks, recognised as the best domestic and international economic policy think-tank in the UK and ranked 2nd in the world among Independent Think Tanks by the University of Pennsylvania.
Independent, non-profit and non-partisan, we work to promote free market, neoliberal ideas through research, publishing, media outreach, and education. The Institute is today at the forefront of making the case for free markets and a free society in the United Kingdom.
The Institute was founded in the 1970s, as post-war socialism reached its high-watermark. Then, as now, its purpose was to educate the public about free markets and economic policy, and to inject sound ideas into the public debate.
245 pages, Kindle Edition
First published January 1, 2020
47 people are currently reading
246 people want to read
About the author
Deirdre Nansen McCloskey
60 books312 followersDeirdre Nansen McCloskey has been distinguished professor of economics and history and professor of English and communications at the University of Illinois at Chicago. She is the author of numerous books, including Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World.
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Displaying 1 - 12 of 12 reviews
April 3, 2021
I put 3 stars because it is a thorough debunking of Mazucatti but it is more like a series of blog posts than a book. I would not recommend this to anybody who hasn't actually read the Entrepreneurial state as it is too focused. It also seems too focused on countering the book with an alternative vision versus simply focusing the errors and poor argumentation of the book on its own.
Read
April 4, 2025The derisive comments and jokes were wholly unnecessary
December 6, 2020
This is a wonderful book that takes down the “entrepreneurial state,” or more widely known as industrial policy. The idea that only the government can do the big “moon shot” innovation that the market—due to its imperfections—fails at investing in adequately. In other words, the state is the creative element in the economy. The authors marshal their arguments and point their guns, especially, on the most fervent partisan of statism and the entrepreneurial state, Mariana Mazzucato (I would not want to be her! She has a lot to answer for if she wants to attempt to refute the arguments against her world view). The authors also describe what McCloskey calls “The Great Enrichment,” a literal increase of 3,000 percent—more like 10,000 percent if you account for quality and variety. This is what cured poverty, the only know antidote to it that we know—wealth creation. The state cannot, through legislation, unions, or any other public investment, cause this type of increase in living standards.
Here are some of the more salient arguments I found compelling:
• The moderate statists never make clear why partial ownership by way of taxation and regulation and innovation policy and socialized investment differs from direct if partial ownership of the means of production (France spends 57 percent of its GDP, not clear why it’s not 57 percent socialist).
• Behavioral economists have identified 257 cognitive biases. It’s a miracle that such little children can cross the room without killing themselves. And that the State is perfectly free of these biases and can nudge the little children in the correct and wise direction.
• Donald Boudreaux: “The assumption seems to be that the economy is no more complex than are the words, graphs, and columns of data that are commonly used to describe it. This assumption is wildly mistaken.
• “Government” is from Latin guberno, Greek kubernao, I steer.
• Massive university funding of science and research does not produce innovism, despite the examples usually cited: The moon landing, the internet, computers, jet planes, nuclear energy, lasers, biotechnologies, etc. I love the “Tang fallacy” to describe the false belief that the space program led to life-changing innovation.
• The authors are not arguing that every private investment is wise—the failure rate is too massive. But that at least the investment is voluntary, and correctable by failure, which the State can always avoid with additional taxation. When government fails, it gets bigger (Amtrak, USPS, Concorde, and many other examples).
• Tinkerers and ordinary people who come up with ideas do more than science. Science comes along afterwards, explains the innovation, and improves it.
• One century ago, European households spent 70% of their income on food and shelter.
• Industrial policy advocates argue that the free market is too “short term” orientated. I’ve never bought this, just look at Uber, Amazon, drug development. The private sector places many long-term bets. Besides, “short termism” compared to what? The next political election? Give us a break about which is more effective at investing in the future.
• Planning is not the ultimate creative act, because by definition planning is an attempt to avoid surprises—the very act of creativity. Famed DARPA never envisioned anything like the internet, there was no directionality. How could there be with something new and unknown?
• And look at where the State has stifled innovation in its crib, as Thomas W. Hazlett documents so well in his book, Political Spectrum (FM radio, cable TV, wireless technology, all were delayed for decades or more due the wise visionaries at the FCC).
• What about the Chinese Model? “Tyranny is good for you. If planning is a such a fine thing, then pre-1978 Communism would have been an economic paradise,” the authors retort. Same for India.
• None of the Great Enrichment—not Britain’s, Sweden’s, Japan’s, Hong Kong’s, Ireland’s, China’s, nor India’s—has occurred until economic liberalism took hold. Russia great faster in the 1890s economically than in the time of five-year plans in the 1930s.
• “How could the crooked timber of humanity yield anything but a certain ‘imperfection,” if the word ‘perfection’ means ‘utter rationality according to a theorist’s second-guessing utopia.” The question is how much imperfection there is in markets, and how much in the proposed statist alternative. “Markets are pretty good. That is all.”
• If the State spends one-third to one-half of national income, and regulates much of the rest, the opportunities for cherry-picked examples of Good State Action are going to be ample (there should be some, right?). The question is how much, and how much impact have they had on the economy. Not much when compared to private innovation the authors argue.
• Only people innovate—not the bureau, the office, the factory, the corporation, the market, the private sector, the public sector. The State and the market are simply settings. The question is which setting is best for people to innovate.
• That consumers are irrational does not imply that markets are. If advertising had magical powers and could turn us all into slaves, it would not constitute merely 2 percent of national income.
• Chapter 17 is one of the best take downs of “Stakeholder Theory” I have ever read! The theory is defective, and the authors prove why no matter how well executed, there’s no good way to implement a bad idea. Is any idiot who objects to a new restaurant, hospital, or other service in their neighborhood a stakeholder? Should they have an equal say along with entrepreneurs and investors, especially since they won’t pay a price for their mistakes? Shareholder value is stakeholder value! We know who shareholders are, we have no clue who stakeholders are.
• And remind ourselves that shareholders are last in line for payment! They put their money where their mouths are.
• Liberty in English means an absence of human tyranny, but freedom has started to mean “positive rights” (such as FDR’s Four Freedoms speech).
• There’s are excellent chapters on the flaws of Keynesian economics, the labor theory of value (and advocates of industrial policy are implicit believers in this ridiculous theory). And other technical fallacies in the Industrial Policy advocates arguments. There’s also no understanding of marginalism, price theory and other elementary concepts in economics. “It’s a fault not to know the elements of one’s field.” Imagine a doctor or engineer ignorant of important theories and ideas. Like Thomas Piketty ignoring human capital in his inequality calculations, 80 percent of the world’s wealth according to the World Bank.
• The Supply-Chain Fallacy: One looks down the supply chain of any innovation for any instance of State action, then ones assigns “cause” to the instance. Like saying that the road outside of Google’s office caused the search engine.
• Many functions of government are necessary, but not sufficient, to explain or cause the Great Enrichment. After all, many of these functions were effectively carried out prior to the 1800s but didn’t result in the same Enrichment.
This is a fantastic book. I don’t know how Professor McCloskey keeps putting out such thought-provoking and erudite books, but I’m glad she does, and I will read every one.
Great Quotes
Will Rogers: “I don’t make jokes. I just watch the government and report the facts.”
Edward O. Wilson, American biologist, when asked about the top-down idea for governing humans like little children, or like ants, replied, “Karl Marx was right, socialism works, it is just that he had the wrong species.”
In 1783 in France Benjamin Franklin was present at the first manned ascent in a hot-air balloon. A companion snorted, “What is the use of that?!” Franklin replied, “What is the use of a newborn child?”
To listen to our two interviews with Professor McCloskey on The Soul of Enterprise, visit:
https://www.thesoulofenterprise.com/t...
https://www.thesoulofenterprise.com/t...
Here are some of the more salient arguments I found compelling:
• The moderate statists never make clear why partial ownership by way of taxation and regulation and innovation policy and socialized investment differs from direct if partial ownership of the means of production (France spends 57 percent of its GDP, not clear why it’s not 57 percent socialist).
• Behavioral economists have identified 257 cognitive biases. It’s a miracle that such little children can cross the room without killing themselves. And that the State is perfectly free of these biases and can nudge the little children in the correct and wise direction.
• Donald Boudreaux: “The assumption seems to be that the economy is no more complex than are the words, graphs, and columns of data that are commonly used to describe it. This assumption is wildly mistaken.
• “Government” is from Latin guberno, Greek kubernao, I steer.
• Massive university funding of science and research does not produce innovism, despite the examples usually cited: The moon landing, the internet, computers, jet planes, nuclear energy, lasers, biotechnologies, etc. I love the “Tang fallacy” to describe the false belief that the space program led to life-changing innovation.
• The authors are not arguing that every private investment is wise—the failure rate is too massive. But that at least the investment is voluntary, and correctable by failure, which the State can always avoid with additional taxation. When government fails, it gets bigger (Amtrak, USPS, Concorde, and many other examples).
• Tinkerers and ordinary people who come up with ideas do more than science. Science comes along afterwards, explains the innovation, and improves it.
• One century ago, European households spent 70% of their income on food and shelter.
• Industrial policy advocates argue that the free market is too “short term” orientated. I’ve never bought this, just look at Uber, Amazon, drug development. The private sector places many long-term bets. Besides, “short termism” compared to what? The next political election? Give us a break about which is more effective at investing in the future.
• Planning is not the ultimate creative act, because by definition planning is an attempt to avoid surprises—the very act of creativity. Famed DARPA never envisioned anything like the internet, there was no directionality. How could there be with something new and unknown?
• And look at where the State has stifled innovation in its crib, as Thomas W. Hazlett documents so well in his book, Political Spectrum (FM radio, cable TV, wireless technology, all were delayed for decades or more due the wise visionaries at the FCC).
• What about the Chinese Model? “Tyranny is good for you. If planning is a such a fine thing, then pre-1978 Communism would have been an economic paradise,” the authors retort. Same for India.
• None of the Great Enrichment—not Britain’s, Sweden’s, Japan’s, Hong Kong’s, Ireland’s, China’s, nor India’s—has occurred until economic liberalism took hold. Russia great faster in the 1890s economically than in the time of five-year plans in the 1930s.
• “How could the crooked timber of humanity yield anything but a certain ‘imperfection,” if the word ‘perfection’ means ‘utter rationality according to a theorist’s second-guessing utopia.” The question is how much imperfection there is in markets, and how much in the proposed statist alternative. “Markets are pretty good. That is all.”
• If the State spends one-third to one-half of national income, and regulates much of the rest, the opportunities for cherry-picked examples of Good State Action are going to be ample (there should be some, right?). The question is how much, and how much impact have they had on the economy. Not much when compared to private innovation the authors argue.
• Only people innovate—not the bureau, the office, the factory, the corporation, the market, the private sector, the public sector. The State and the market are simply settings. The question is which setting is best for people to innovate.
• That consumers are irrational does not imply that markets are. If advertising had magical powers and could turn us all into slaves, it would not constitute merely 2 percent of national income.
• Chapter 17 is one of the best take downs of “Stakeholder Theory” I have ever read! The theory is defective, and the authors prove why no matter how well executed, there’s no good way to implement a bad idea. Is any idiot who objects to a new restaurant, hospital, or other service in their neighborhood a stakeholder? Should they have an equal say along with entrepreneurs and investors, especially since they won’t pay a price for their mistakes? Shareholder value is stakeholder value! We know who shareholders are, we have no clue who stakeholders are.
• And remind ourselves that shareholders are last in line for payment! They put their money where their mouths are.
• Liberty in English means an absence of human tyranny, but freedom has started to mean “positive rights” (such as FDR’s Four Freedoms speech).
• There’s are excellent chapters on the flaws of Keynesian economics, the labor theory of value (and advocates of industrial policy are implicit believers in this ridiculous theory). And other technical fallacies in the Industrial Policy advocates arguments. There’s also no understanding of marginalism, price theory and other elementary concepts in economics. “It’s a fault not to know the elements of one’s field.” Imagine a doctor or engineer ignorant of important theories and ideas. Like Thomas Piketty ignoring human capital in his inequality calculations, 80 percent of the world’s wealth according to the World Bank.
• The Supply-Chain Fallacy: One looks down the supply chain of any innovation for any instance of State action, then ones assigns “cause” to the instance. Like saying that the road outside of Google’s office caused the search engine.
• Many functions of government are necessary, but not sufficient, to explain or cause the Great Enrichment. After all, many of these functions were effectively carried out prior to the 1800s but didn’t result in the same Enrichment.
This is a fantastic book. I don’t know how Professor McCloskey keeps putting out such thought-provoking and erudite books, but I’m glad she does, and I will read every one.
Great Quotes
Will Rogers: “I don’t make jokes. I just watch the government and report the facts.”
Edward O. Wilson, American biologist, when asked about the top-down idea for governing humans like little children, or like ants, replied, “Karl Marx was right, socialism works, it is just that he had the wrong species.”
In 1783 in France Benjamin Franklin was present at the first manned ascent in a hot-air balloon. A companion snorted, “What is the use of that?!” Franklin replied, “What is the use of a newborn child?”
To listen to our two interviews with Professor McCloskey on The Soul of Enterprise, visit:
https://www.thesoulofenterprise.com/t...
https://www.thesoulofenterprise.com/t...
January 2, 2021
Leggendo questo libro ho avuto due sentimenti contrastanti.
Condivido le critiche all'impostazione proposta da Mazzucato dello Stato Imprenditore/Innovatore.
Tuttavia ci sono due aspetti sui quali non concordo. In primo luogo, mettere insieme le tesi di Mazzucato a tutto il pensiero keynesiano mi pare proprio eccessivo. In secondo luogo, nel criticare a ragion veduta le tesi di Mazzucato mi pare si finisca per diventare estremisti in senso opposto.
My two cents.
Condivido le critiche all'impostazione proposta da Mazzucato dello Stato Imprenditore/Innovatore.
Tuttavia ci sono due aspetti sui quali non concordo. In primo luogo, mettere insieme le tesi di Mazzucato a tutto il pensiero keynesiano mi pare proprio eccessivo. In secondo luogo, nel criticare a ragion veduta le tesi di Mazzucato mi pare si finisca per diventare estremisti in senso opposto.
My two cents.
January 6, 2022
[Imported automatically from my blog. Some formatting there may not have translated here.]
Anyone keeping track of my reading (but I assume that's precisely nobody) knows I'm a Deirdre McCloskey fan. See here, here, here, here, and here. So this book, available on Kindle for a mere $5, was a no-brainer. It is co-written by Alberto Mingardi, but it seems to me to be 100% McCloskey's "voice" throughout: idiosyncratic, cranky, sarcastic, hilarious. The book seems to be (more or less) a response to the works of Mariana Mazzucato, mostly (sensibly enough) The Entrepreneurial State.
As with other McCloskey works, you can "get" much of the argument by following the chapter titles. And, since I'm a lazy reporter, they are: Introducing Mazzucato; Statism and its allies; Statist intervention is not innocent; The Great Enrichment came not from the State but from liberty; "Driving" from the top is not its explanation; Bottom-up does work; Economic history rejects Mazzucato's hypothesis; There is no "linear model"; The Internet, for example, was not invented by the State; Bottom-up, then, is pretty good; One must measure the State with a sample of the economy; The State should have a role, but should not be the director; For understandable reasons, the State is bad at innovation; Most governments, after all, are demonstrably incompetent; State foresightedness is implausible; The hypothesis of significantly imperfect markets has never been tested; Stakeholder theory is defective; Mazzucato distrusts ordinary people; Keynesian mastery takes away dignity; The market accords dignity; The economic errors of lawyers and pre-1870s economists; The top-down and legacy-payment of statism are illiberal; The supply-chain fallacy underlies Mazzucato's method; The enchaining of human action reverts to a labor theory of value; What sort of economy do people want?
To me, the book's arguments are sound, and even though I've had Mazzucato's books on my get-at-library list for a while, McCloskey/Mingardi lessened my priority for them.
I highlighted the following, where the authors eloquently debunk the economy-as-machine metaphor:
To the contrary, we repeat, the economy is composed of people, and is not a machine. It is like the English language, not like an English steam engine. The people are motivated in varying proportions by prudence, temperance, courage, justice, faith, hope, and love, with the corresponding vices. By way of such principles of motion, they pursue their endlessly diverse projects, knitting and model railroading, a Beckerian "world." Let them do it, laissez faire. Such an arrangement takes people to be liberated and equal and increasingly competent adults, as against the stolid peasants or helpless proletarians of conservative or progressive theorizing since 1848.
If you like that as much as I do, I think I can recommend the book to you. It's a worthy updating and restating of the classic arguments from Hayek, Sowell, and Friedman.
January 10, 2023
“Two libertarians walk into a state-run bar...”
This is best understood as a reaction to the recent up-welling of both left- and right-wing interest in industrial policy, specifically Mariana Mazzucato’s The Entrepreneurial State. The substance of the book is fine. Although, to be fair this is partly because it preaches to the choir of my prior assumptions.
While it’s persuasive and informative it’s just not very much fun to actually, you know, read. The writing is turgid and the arguments repetitive with almost a ad hominem sheen in places. Too bad, because I think McCloskey and co-author Alberto Mingardi’s arguments are fundamentally right -- this is just terrible advertising for them. Abandoned reading half-way through.
October 10, 2022
En algunos capítulos la redacción es un poco confusa, quizá porque los párrafos o las oraciones son demasiado largas. Por su contenido, como una crítica al libro de Mazzucato titulado el Estado Emprendedor, es bastante acertado. Es uno de los libros que toda persona en la senda del liberalismo debería leer, aunque no lo pondría en el top 10.
December 27, 2020
I understand this is a response to some specific points/arguments, so I guess this has its place. But if you have the time I recommend going straight to Why Liberalism Works to get a better read on why liberalism works.
September 16, 2021
I would give this book five stars for its argument, which is incontestably correct, but am docking it two stars for needless length and repetition. It would be a much more powerful work at one third the length.
August 15, 2022
A point by point refutation of Marianna Mazzucato's "The Entrepreneurial State." McCloskey and Mingardi are among-if not THE- very best defenders of markets and democracy against statists today- in no small part because they admit to their imperfections in contrast to the idolatry of the statist.
February 14, 2021
Healthy reminder of the limitation of governments
November 24, 2023
A very easy to read book, and gives very interesting facts. I liked it very much, but sometimes seems a little repetitive and uncoordinated.
Displaying 1 - 12 of 12 reviews