Professor Satya Narayan Misra in Bhubaneswar, May 16, 2025: Hayek in his book “Road to Serfdom” debunked the role of the state as a central planner, as in the Stalinist USSR. For him, any such planning from the top is a negation of an individual’s economic freedom. For him, the role of the state should be limited to ensuring a legal framework and facilitating a free and competitive market, an idea germane to Adam Smith’s invisible hand of the market forces.

While Keynes liked Hayek’s masterpiece, debunking communism, he reiterated his central theme of active government intervention to resuscitate an economy from the recession. Post the collapse of the USSR in 1991, the state has taken the backstage, except in emergencies like the pandemic, where every country practiced Keynesian prescription of fiscal stimulus. Hayek & Keynes remain presiding deities of economic policy.

The Economist in 2012 observed: Governments should stick to the basics: better schools for a skilled workforce, clear rules and a level playing field for all enterprises of all kinds. Leave the rest to the “revolutionaries” (private sector). In a brilliant book,” The Entrepreneurial State,” Mariana Mazzucato debunks the myth that the state is lumbering, heavy-handed, and bureaucratic while the private sector is risk-loving, pioneering, and drives innovation and growth.

This biased storyline, describing some actors in the economy as innovators, wealth creators, and risk takers, and the others, like the State, as wealth extractors or just distributors, Mariana believes, is hurting the possibility of building dynamic public-private partnerships. She brings out how countries that owe their growth to innovation, examples as the Silicon Valley, the State has not served as an administrator and wealth regulator, but are willing to take risks that businesses won’t. Such investments have proved transformative, creating the internet, nanotechnology, biotechnology, and clean energy.

Every technology that makes iPhones smart owes its funding to both basic and applied research funded by the State. That of course, does not mean that Steve Jobs and his team were not crucial to Apple’s success, but that ignoring the ‘public’ side of that story will prevent future Apples from being born.

The path-dependent direction that the economy follows under ‘free market’ conditions is problematic, particularly when the world is confronted with great societal changes like climate change, youth unemployment, and rising inequality, when the fruits are prosperity are purloined by the super-rich. In addressing these challenges, the state must lead, not by simply fixing market failures but by actively creating and shaping markets, while regulating existing ones.

Indeed, nearly all the technological revolutions in the past – from the Internet to today’s green tech revolution – required a massive push by the state. The iPhone depends on the Internet; the progenitor of the Internet was ARPANET, a program funded in the 1960s by the DARPA (Defense Advanced Research Projects Agency). The Global Positioning System began as a 1970s US military program called NAVSTAR.

And this is not just about the military-industrial complex. It is just as true in health & energy. Many of the most promising new drugs trace their origins to research done by the National Institutes of Health. The shale gas boom is being driven by heavy Federal government investment. in technologies that unleashed it. The story of state-funded energy innovation is being repeated not just in renewable energy but in the green companies themselves. Tesla Motors, Solar City, and SpaceX, all led by Elon Musk, are currently surfing a new wave of state technology. Together, these high-tech ventures have benefited from $4.9 billion in state, local, and federal government support, such as grants, tax breaks, and subsidized loans.

To understand the fundamental role of the state in taking on the risks present in modern capitalism, it is important to understand the collective character of innovation. innovation is not just a result of R&D spending, but about the set of institutions that allow new knowledge to diffuse throughout the economy. What distinguishes the state is not only its mission but also the different tools and means that it has to deploy the mission.

In Karl Polanyi’s epic book The Great Transformation, he argued that the state created the most capitalist of markets. The capitalist economy will always be subordinate to the State and subject to its changes. Thus, rather than relying on the false dream that markets will run the world optimally for us, policymakers must better learn how to efficiently use the tools and means to shape and create markets, making things happen that otherwise would not. Increasingly, this requires growth to be not only smart but also inclusive and sustainable.

We live in an era in which the state is being cut back. Public services are being outsourced. State budgets are being cut or inadequately provided in the merit goods sector, like education, health care, and skills. Much of the change is being done in the name of rendering markets more competitive, more dynamic. Mariana’s book is a fervent call to change the way we talk about the state, its role in the economy in terms of fostering innovation, diffusion of knowledge, and promoting inclusion.

The Nobel laureate Stiglitz bats for shared prosperity in a free-market economy and greater regulation of climate change and the financial market, Sen relentlessly pleads for higher allocation in education and access to equal opportunity, and Piketty frames a policy discourse to promote a less unequal society. The USA spends 3% of its GDP on R&D.

The public investments in DARPA have helped in chip fabrication, quantum computing, 5G architecture. China invests 2.4% of its GDP on R&D, with a mission to be self-reliant on critical technology, a leader in AI & EV technology. Though China became market-driven from the 80s, it has not abdicated the role of the state in promoting innovation.

Sadly, India, which has embraced the free market philosophy from the 90s, invests only .8% of its GDP on R&D and is increasingly veering towards outsourcing and increasing privatization in the merit goods sector. Mariana’s book is a useful reminder to policy makers of India that growth that ensues from public investment is not only smart but also truly inclusive.