–The private sector myth busted, then, oh no, the public sector myth repeated.

Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

Mitchell’s laws:
●The more federal budgets are cut and taxes increased, the weaker an economy becomes.
●Austerity is the government’s method for widening the gap between rich and poor,
which ultimately leads to civil disorder.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
●The penalty for ignorance is slavery.
●Everything in economics devolves to motive.


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Mariana Mazzucato is an economist and professor of science and technology policy at the University of Sussex, UK. Her latest book is The Entrepreneurial State: Debunking public vs. private sector myths. She tweets on @MazzucatoM The University is an exempt charity under the Charities Act 2006.
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Professor Mazzucato’s book was summarized in the 24 August 2013 issue of NewScientist Magazine. Her book debunks the myth that the private sector is better at creativity and innovation than is the public sector — a myth often repeated by debt hawks to support federal deficit reduction.

But alas, after her excellent research and insight, she goes off the tracks. Here are a few excerpts from the article:

State of innovation: Busting the private-sector myth
by Mariana Mazzucato

Images of tech entrepreneurs such as Mark Zuckerberg and Steve Jobs are continually thrown at us by politicians, economists and the media. The message is that innovation is best left in the hands of these individuals and the wider private sector, and that the state – bureaucratic and sluggish – should keep out.

Consider the source. What group — the upper 1% income group or the lower 99% — would be more likely to claim that the private sector has all the brains and so, should be less regulated and more supported, financially?

It is ideology, not evidence, that fuels this image. A quick look at the pioneering technologies of the past century points to the state, not the private sector, as the most decisive player in the game.

In countries such as the US, China, Singapore and Denmark the state has provided the kind of patient and long-term finance new technologies need to get off the ground. Investments of this kind have often been driven by big missions, from putting a human on the moon, to solving climate change.

In its early stages Apple received government cash support via a $500,000 small business investment company grant. And every technology that makes the iPhone, a smartphone, owes its vision and funding to the state: the internet, GPS, touchscreen displays and even the voice-activated smartphone assistant Siri all received state cash.

The US Defence Advanced Research Projects Agency (DARPA) bankrolled the internet, and the CIA and the military funded GPS.

The US National Institutes of Health spends around $30 billion every year on pharmaceutical and biotechnology research and is responsible for 75 per cent of the most innovative new drugs annually. Even the algorithm behind Google benefited from US National Science Foundation (NSF) funding.

The fundamental reason: Innovation requires money, and private money is less willing and less able to take big risks and wait long times for uncertain results.

In this era of obsession with reducing public debt – and the size of the state more generally – it is vital to dispel the myth that the public sector will be less innovative than the private sector.

At this point, one may be excused for believing professor Mazzucato understands the need for national deficit spending. Not so fast.

Stories about how progress is led by entrepreneurs and venture capitalists have aided lobbyists for the US venture capital industry in negotiating lower capital gains and corporate income taxes – hurting the ability of the state to refill its innovation fund.

And there is where one myth is replaced by another myth — the myth that a Monetarily Sovereign government like that of the UK or the U.S., needs or even uses tax dollars to support its spending.

As readers of this and several other blogs know, Monetarily Sovereign governments destroy tax dollars upon receipt. Those tax dollars you send to the national government disappear from the nation’s money supply. (Contrast this with tax dollars you send to your city government, which remain a part of the money supply.)

The fact that companies like Apple and Google pay hardly any tax – relative to their massive profits – is all the more problematic, given the significant contributions they have had from the government. Thus, the “real” economy (made up of goods and services) has experienced a shift similar to that of the “financial” economy: the risk has been increasingly moved to the public sector while the private sector keeps the rewards.

What a shame. An economics professor writes an excellent article about government creativity, then spoils it with a demonstration that she doesn’t know the difference between Monetary Sovereignty and monetary non-sovereignty.

Indeed, one of the most perverse trends in recent years is that while the state has increased its funding of R&D and innovation, the private sector is apparently de-committing itself.

In the name of “open innovation” big pharma is closing down its R&D labs, relying more on small biotech companies and public funds to do the hard stuff. Is this a symbiotic public-private partnership or a parasitic one?

Someone please contact the good Professor and tell her the national government is supposed to support the private sector, as a parent supports a child. (Or does she consider her children, if she has any, to be parasites?)

It is time for the state to get something back for its investments. How? First, this requires an admission that the state does more than just fix market failures – the usual way economists justify state spending. The state has shaped and created markets and, in doing so, took on great risks.

Yes, the state does much more than “just fix market failures.” It creates market successes, which in of themselves, strengthen the state. The only “risk” the state takes, is to risk the money it creates freely, at will and in unlimited amounts — in short, no risk at all.

Second, we must ask where the reward is for such risk-taking and admit that it is no longer coming from the tax systems.

Taxes do not reward the government, which destroys tax money on receipt. The reward national government receives for its investment, is economic growth.

And here is where we go from merely bad to downright awful:

Third, we must think creatively about how that reward can come back.

There are many ways for this to happen. The repayment of some loans for students depends on income, so why not do this for companies? When Google’s future owners received a grant from the NSF, the contract should have said: if/when the beneficiaries of the grant make $X billion, a contribution will be made back to the NSF.

Other ways include giving the state bank or agency that invested a stake in the company. A good example is Finland, where the government-backed innovation fund SITRA retained equity when it invested in Nokia.

There is also the possibility of keeping a share of the intellectual property rights, which are almost totally given away in the current system.

OMG, as the kids would say. She doesn’t understand that Finland has no sovereign currency. Because it uses the euro, Finland is monetarily non-sovereign, so is on a par with you and me. It cannot create money at will as the UK and US governments can.

Recognising the state as a lead risk-taker, and enabling it to reap a reward, will not only make the innovation system stronger, it will also spread the profits of growth more fairly.

To Professor Mazzucato, it isn’t “fair” that the private economy reaps profits. One wonders whether she also thinks it’s “fair” that the national government has the exclusive and unlimited ability to create money — unlimited amounts of money — whenever and however it wishes.

And now for the biggest laugh of all:

This will ensure that education, health and transport can benefit from state investments in innovation, instead of just the small number of people who see themselves as wealth creators, while relying increasingly on the courageous, entrepreneurial state.

Oh, that courageous government, sacrificing exactly nothing to build the economy. What daring! What heroism!

My opinion: I do not think Professor Mazzucato really is ignorant of Monetary Sovereignty. I suspect, that as a salaried employee of an exempt charity, she is beholden to the wishes of wealthy contributors, whose primary goal is to widen the gap between the rich and the rest.

This requires deficit limitation, i.e. less support for the 99%.

She is a paid part of the economics establishment, which is responsible for such idiocy in America as deficit reduction, the sequester the federal debt limit and those truly ridiculous “debt clocks.”

But she is right about the myth of the private sector having exclusivity in innovation and creativity.

Rodger Malcolm Mitchell
Monetary Sovereignty

Nine Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Medicare — parts A, B & D plus long term nursing care — for everyone (Click here)
3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita (Click here)
4. Free education (including post-grad) for everyone. Click here
5. Salary for attending school (Click here)
6. Eliminate corporate taxes (Click here)
7. Increase the standard income tax deduction annually
8. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)
9. Federal ownership of all banks (Click here)

10 Steps to Economic Misery: (Click here:)
1. Maintain or increase the FICA tax..
2. Spread the myth Social Security, Medicare and the U.S. government are insolvent.
3. Cut federal employment in the military, post office, other federal agencies.
4. Broaden the income tax base so more lower income people will pay.
5. Cut financial assistance to the states.
6. Spread the myth federal taxes pay for federal spending.
7. Allow banks to trade for their own accounts; save them when their investments go sour.
8. Never prosecute any banker for criminal activity.
9. Nominate arch conservatives to the Supreme Court.
10. Reduce the federal deficit and debt

No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia.
Two key equations in economics:
1. Federal Deficits – Net Imports = Net Private Savings
2. Gross Domestic Product = Federal Spending + Private Investment and Consumption – Net Imports

Monetary Sovereignty Monetary Sovereignty

As the lines drop, we approach recession, which will be cured only when the lines rise.


3 thoughts on “–The private sector myth busted, then, oh no, the public sector myth repeated.

  1. Thats interesting Rodger. Given that the quotes are from a 2003 article, I wonder if her understanding (or at least, willingness to admit publicly) of monetary sovereignty has evolved over the last decade. She just recently joined INET as an economist and seems to be working with Prof Randall Wray per this interview:


  2. Even sadder yet are stories of how disease research foundations, such as the American Cancer Society, American Heart Association, etc. are short of funding. Qualified researchers are unemployed. What better use of dollars could there be than funding disease research that will ultimately benefit everyone, rich and poor? But alas, Obama says the US is broke.


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