Obama is Back

After months of political circus, the US government seems to be remembering the important role that the State can play in actively creating economic growth, and setting off a new technological revolution in the process. Today’s announcement of Obama’s $447 billion stimulus package goes in the right direction for economic growth. Not only is the spending needed to boost demand and hence GDP, but also to allow the US to retain its competitiveness in what might be the next big thing after the internet: the green technology revolution.

Already in 2009, before the recent Tea Party debacle, the US stimulus package included 11.5 per cent of the budget devoted to green investment (in the UK the figure is only 6.9 per cent; in China it is 34.3 per cent, in France 21 per cent, and in South Korea 80.5 per cent). Today’s announcement means that the US is hoping to move beyond political infighting and secure a piece of the next technological revolution, and create jobs and prosperity on the way. Especially important given that the private sector is not showing any willingness to go it alone--venture capital, for example, has barely touched the high risk capital intensive green technologies that are needed to kick start the green growth engine.

Instead, in the UK, the State is being cut back to make space for 'entrepreneurship and private sector innovation'. The 2010-11 budget, for example, saw £85 million cut from the UK's Department of Energy and Climate Change budget. With most of the bets being placed around a Green Investment Bank which is meant to 'nudge' the private sector into investing. But if the UK wants a share of the green tech boom, it must play a much more active role--and learn from Obama.

It must especially learn from the importance of public sector spending leadership in previous technological revolutions, from biotech to dot.com. Google’s algorithm was funded by a public sector National Science Foundation grant. Molecular antibodies, which provided the foundation for biotechnology before venture capital moved into the sector, were discovered in public Medical Research Council (MRC) labs in the UK. The most innovative new medicines in the last decade were invented not by private pharma but by public National Institute of Health laboratories. And many of the most innovative young companies in the USA, including Apple, Intel and Compaq, were funded not by private venture capital but by public funds including the Small Business Innovation Research (SBIR) programme.

Lessons from these experiences are important. They force the debate to go beyond the role of the state in only ‘regulating’ or ‘stimulating’ the economy. Instead, as I argue in The Entrepreneurial State (Demos, July 2011) it is a case for a targeted, proactive, entrepreneurial state, able to take risks when the private sector is still to scared, creating a highly networked system of actors harnessing the best of the private sector for the national good over a medium- to long-term horizon. It is the state as catalyst, and lead investor, sparking the initial reaction in a network that will then cause knowledge to spread. The state as creator of the knowledge economy. China has learned this lesson quickly. Today's stimulus package shows that the US is remembering it again. Why has the UK forgotten it?