Questioning the Entrepreneurial State: Status-quo, Pitfalls, and the Need for Credible Innovation Policy (International Studies in Entrepreneurship Book 53)

The 2008 financial crisis and the COVID-19 pandemic have made the authorities to increasingly turn inward and use ethnocentrism, protectionism, and top-down approaches to guide policy on trade, competition, and industrial development. The continuing aftereffects of such policies range from the rise and seeming success of authoritarian states, rise of populist and protectionist trends, and evolving academic agendas inspiring the reemergence of top-down industrial policies across the world. This open access edited volume contains contributions from over 30 scholars with expertise in economics, innovation, management, and economic history. The chapters offer unique theoretical and empirical contributions discussing topics such as how industrial policies affect risk, incentives, and information for investments. They also address the policy perspectives on new technologies such as AI and its implications for market entry, the role for independent entrepreneurship in increasingly regulated markets, and whether governments should focus on market interventions or institutional capacity-building. Questioning the Entrepreneurial State initiates a much sought-after debate on the notion of an Entrepreneurial State. It discusses the dangers of top-down approaches to industrial policy, examines lessons from such approaches for future policy design, and calls attention to the progress of open and contestable markets in a sound economy and society. "Creative destruction, innovation and entrepreneurship are at the core of economic growth. The government has a clear role, to provide the basic fabric of a dynamic society, but industrial policy and state-owned companies are the boulevard of broken dreams and unrealized visions. This important message is convincingly stated in Questioning the Entrepreneurial State ." Anders Borg, former Minister of Finance, Sweden "Misreading the dynamism of American entrepreneurship, European intellectuals and policy makers have embraced a dangerous fantasy: catching up requires constructing an entrepreneurial state. This book provides a vital antidote: The entrepreneur comes first: The state may support. It cannot lead." Amar Bhidé, Thomas Schmidheiny Professor of International Business, Tufts University "This important new book subjects the emergence of the entrepreneurial state, which reflects a shift in the locus of entrepreneurship from the individual to the public sector, to the scrutiny of rigorous analysis. The resulting concerns, flaws and biases inherent in the entrepreneurial state exposed are both alarming and sobering. The skill and scholarly craftsmanship brought to bear in this crucial analysis is evident throughout the book, along with the even, but ultimately consequential thinking of the authors. A must read for researchers and thought leaders in business and policy." David Audtretsch, Distinguished Professor, Ameritech Chair of Economic Development, Indiana University Questioning the Entrepreneurial State Contents Contributors Part I: Introductory Chapter Introduction 1 The Contributions to the Present Volume 2 Why Is the Entrepreneurial State so Popular? 3 Innovation Policy, Inverted 4 What Should Governments Do? 5 Lessons from Sweden 6 Swedish Failures Are Failures of the Entrepreneurial State 7 Toward Credible Innovation Policy References Part II: The Entrepreneurial State: Theoretical Perspectives The Entrepreneurial State and the Platform Economy 1 Introduction 1.1 The Entrepreneurial State as a Regulator 2 Rent Is a Classical Fallacy 3 Modern Fallacies 4 The Techlash and the Hipster Takeover 5 Conclusion References An Effectual Analysis of Markets and States 1 Introduction 1.1 Overview of Effectuation 2 Three Dimensions of the Effectual Problem Space 2.1 Problem Dimension One: Knightian Uncertainty 2.2 Problem Dimension Two: Goal Ambiguity 2.3 Problem Dimension Three: Isotropy 3 Markets in Effectuation 4 States in Effectuation 5 Two Frameworks for Tackling Isotropy and Fostering Innovation 5.1 Applying the Framework to Innovation Policy 6 Markets and States as Outcomes of the Effectual Process 7 The Ultimate Innovation: Goals Worth Pursuing References The Entrepreneurial State: An Ownership Competence Perspective 1 Introduction 2 The Myth of the Entrepreneurial State 2.1 The Entrepreneurial State 2.2 Policy Ineffectiveness 2.3 The Effects of Government Ownership 3 Ownership Competence 4 Government Incompetence in Markets and Firms 5 Concluding Remarks References Innovation Without Entrepreneurship: The Pipe Dream of Mission-Oriented Innovation Policy 1 Introduction 2 Innovation and Entrepreneurship: A Knowledge-Based View 3 Market Failure and the Entrepreneurial State 3.1 Bottom-Up, Top-Down, and the Role of the (Entrepreneurial) State 3.2 The Evaluation of a Mission 4 External Validity and Scalability: The Problem with Arguing from Anecdote 5 Concluding Remarks: Can Missions Work? References Part III: The Entrepreneurial State, Entrepreneurial Universities, and Startups Building Local Innovation Support Systems: Theory and Practice 1 Introduction 2 The Umeå Region Innovation System: Organizing Entrepreneurial Judgment 2.1 Academic Innovation Support in Practice 3 Incubator Support Action in Practice: A Conceptual Discussion 3.1 Information and Nudging for Utilization 3.2 Direct Support in Solving Problems 3.3 Coaching Along the Startup Process 3.4 Networking and Providing Creative Arenas 4 Conceptual Rationales Behind Public Support Systems for Innovation 4.1 Direct Interventions May Run the Risk of Causing Market Distortions 4.2 Focus on Favorable Conditions 5 Discussion and Conclusions 5.1 Direct Support with Limits References Reducing Higher Education Bureaucracy and Reclaiming the Entrepreneurial University 1 Introduction 2 Regulation and Bureaucratization in Higher Education 2.1 Regulations and Bureaucracy Specific to Business Schools 3 Reclaiming the Entrepreneurial University: Leading Anti-Bureaucracy Policies and Practices across Levels in Higher Education 3.1 Federal Level 3.2 State Level 3.3 University Level 3.4 Business School Level 3.5 Business Unit Level 3.6 Individual Level 3.7 Non-University Level 4 Toward Best Practices in Higher Education 4.1 Calculate Bureaucratic Mass 4.2 Calculate the Time Burden for Stakeholders 4.3 Implement Technology Solutions 4.4 Lead Change Management Efforts across all Levels 4.5 Make Better Decisions 4.6 Reduce Bureaucracy by Staying Close to Customers and Pursuing Open Innovation 5 Conclusion and Future Research Directions References Cultural Ideals in the Entrepreneurship Industry 1 Introduction 2 Theoretical Background 2.1 The Entrepreneurship Industry from a Cultural Perspective 2.2 Cultural Ideals 3 Methods 4 Findings: Production of Entrepreneurship Culture in the Entrepreneurship Industry 4.1 The Entrepreneurship Industry in Sweden 4.2 Entrepreneurship as a Positive Cultural Ideal 4.3 Emergence of Entrepreneurship as a Cultural Ideal 4.4 Language and Looks as Visual Attributes of the Entrepreneurship Ideal 4.5 Consequences of the Entrepreneurship Ideal 5 Discussion 5.1 Alternative Investments if the Outcome Is Culture Not Profit 5.2 Problems of Discrimination and the Need for Evidence-Based Advice 6 Conclusion References Evaluating Evaluations of Innovation Policy: Exploring Reliability, Methods, and Conflicts of Interest 1 Introduction 2 Background: Evaluation as a Practice 2.1 Different Evaluators 3 Empirical Setting: Innovation Policy in Sweden 4 Results 4.1 Evaluators of Innovation Policy 4.2 Evaluation Methods and Data Sources 4.3 Evaluating Actors and Employed Methods 5 Discussion 5.1 What May Underlie Differences in Evaluations of Innovation Policy? 5.2 Future Research 5.3 Policy Recommendations 6 Conclusion Appendices Fischer ́s Exact Test, Evaluating Actor and Evaluations of Public Innovation Policies Logistic Regression, Outcome Variable: Positive Policy Judgment References Do Targeted RandD Grants toward SMEs Increase Employment and Demand for High Human Capital Workers? 1 Background 2 Effects of Targeted RandD Grant Programs on Labor Demand 3 Data and Programs Analyzed 4 Empirical Method 4.1 Matching 4.2 A Difference-in-Difference Analysis 5 Results 5.1 Effects of Targeted RandD Grants on Number of Employees 5.2 Effects of Targeted RandD Grants on Employees with Higher Education 5.3 Post-Treatment Effects 6 Discussion and Conclusions References Part IV: The Entrepreneurial State and Sustainability Transitions Third-Generation Innovation Policy: System Transformation or Reinforcing Business as Usual? 1 Introduction 2 Background 3 System Transformation 3.1 Technology Transitions as Creative Destruction 3.2 Institutions and the Role of Embedded Agency 3.3 Resistance and Regulatory Capture 4 The Role of Policy in Technology Transitions: Empirical Illustrations 4.1 The Strategic Innovation Programs (SIP) in Sweden 4.2 Strategic Centers for Science, Technology, and Innovation (SHOK) in Finland 4.3 Top Sectors in the Netherlands 4.4 Competence Centers for Excellent Technologies in Austria 4.5 Networks of Centers of Excellence (NCE) in Canada 5 Discussion 6 Conclusions References Less from More: China Built Wind Power, but Gained Little Electricity 1 . Introduction 2 The Context: China ́s Historical Wind Power Development 3 Two Cases: Powerplants Without Output, and Low Technological Development 3.1 Technological Development: Patents at Home but Not Abroad 3.2 Wind Curtailment: When a Power Plant Is Not Working or Unconnected 4 Discussion 5 Conclusion References The Failures of the Entrepreneurial State: Subsidies to Renewable Energies in Europe 1 Introduction 2 The Growth of Renewable Energy Sources of Electricity in the European Union 3 Are Green Subsidies an Efficient Environmental Policy? 4 Are Green Subsidies an Effective Industrial Policy? 5 Are Green Subsidies an Effective Social Policy? 6 From the Entrepreneurial State to the Entrepreneurial Central Bank 7 Conclusion References Directionality in Innovation Policy and the Ongoing Failure of Green Deals: Evidence from Biogas, Bio-ethanol, and Fossil-Free Steel 1 Introduction 2 Theoretical Background 3 Two Historical Cases of Policy Failure: Biogas and Ethanol 3.1 Investments in Biogas 3.2 Ethanol from Cellulose 4 The European Union, Hydrogen Gas, and Fossil-Free Steel 4.1 Hybrit and Green Steel 4.2 Hydrogen Production 4.3 Hydrogen Steel and Electricity Consumption 5 Analysis and Discussion 5.1 Public Funds and the Economics of Incentive Distortion 5.2 Indirect and Hidden Costs 5.3 Public Sector Inefficiencies and the Risk of Corruption 5.4 Hydrogen Steel: A Risk for Both the Environment and the Economy 5.5 A Threat to the Economy and Free Competition? 5.6 Repeating the Mistakes of Biogas and Ethanol 5.7 EU Funds Result in Environmental Nationalism 6 Conclusion References Part V: From the Entrepreneurial State Towards Evidence-Based Innovation Policy Policy Instruments for High-Growth Enterprises 1 Introduction 2 HGE Policy Instruments 2.1 Stylized Facts on HGEs 2.2 Rationales for Policy Intervention 2.3 Key Issues Regarding HGE Policy Instruments 2.4 An Overview of Areas Relating to HGE Policy Instruments 3 Best Practices and Areas for Improvement 3.1 HGE Policy Instruments that Have Been Successful 3.2 HGE Policy Instruments: Areas for Improvement 4 Conclusion 4.1 Critical Listening 4.2 Identify the Decision Points 4.3 Up or Out: Get the Incentives Right 4.4 The Need for Coordinated Policy References Public-Steering and Private-Performing Sectors: Success and Failures in the Swedish Finance, Telecoms, and City Planning Sectors 1 Introduction 1.1 Reforms in Sweden in the 1980s: Success and Failure 2 The Three Cases 2.1 The Case of Televerket Versus Comvik 2.2 Overcoming Vested Interests in Finance: Optionsmäklarna and the Stockholm Stock Exchange 2.3 The Case of the Municipal Planning Monopoly 3 Discussion 4 Conclusion References The Digital Platform Economy and the Entrepreneurial State: A European Dilemma 1 Introduction 2 Background 3 The Platform Economy 3.1 Europe vs the World 3.2 European Countries 3.3 The United Kingdom and Germany 4 Discussion 5 Conclusion References Collaborative Innovation Blocs and Mission-Oriented Innovation Policy: An Ecosystem Perspective 1 Introduction 2 How Does Innovation Come About in the CIB? 3 How Do ``Modest ́ ́ Interventions Affect CIBs? 4 How Does Mission-Driven Innovation Policy Affect CIBs? 4.1 From Picking Winners to Picking the Willing 4.2 From Fixing Markets to Actively Co-Shaping them 4.3 From Fearing Failure to Welcoming Experimentation 4.4 From a Focus on Quantity of Finance to a Focus on Quality 4.5 Engagement 4.6 From De-risking to Sharing Both Risks and Rewards 5 Conclusion References The 2008 financial crisis and the COVID-19 pandemic have made the authorities to increasingly turn inward and use ethnocentrism, protectionism, and top-down approaches to guide policy on trade, competition, and industrial development. The continuing aftereffects of such policies range from the rise and seeming success of authoritarian states, rise of populist and protectionist trends, and evolving academic agendas inspiring the reemergence of top-down industrial policies across the world. This open access edited volume contains contributions from 40 scholars with expertise in economics, innovation, management, and economic history. The chapters offer unique theoretical and empirical contributions discussing topics such as how industrial policies affect risk, incentives, and information for investments. They also address the policy perspectives on new technologies such as AI and its implications for market entry, the role for independent entrepreneurship in increasingly regulated markets, and whether governments should focus on market interventions or institutional capacity-building. Questioning the Entrepreneurial State initiates a much sought-after debate on the notion of an Entrepreneurial State. It discusses the dangers of top-down approaches to industrial policy, examines lessons from such approaches for future policy design, and calls attention to the progress of open and contestable markets in a sound economy and society.