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Entrepreneurial State versus Libertarianism in Latin America

Javier Milei’s speech before businesspersons and government leaders at the World Economic Forum in Davos in 2024 seemed a somewhat caricatured synthesis of the intellectual impoverishment of contemporary libertarianism. It would not be worth the lines of this commentary if it were not for this ideology’s dangers to the modern democratic order. The argumentation of libertarian ideology could be summarized in one line: “The cause of the welfare of nations is the sacred private property over all resources and its worst enemy is the state”. Because libertarianism is gaining more and more strength in the continent, let us contrast this ideology with some of the most recent advances in economic theory, with emphasis on the contributions of the Italian-American economist Mariana Mazzucato, who was among the main guests at this year’s Davos Forum.

Libertarianism and its notion of the State

To begin with, let us take two relevant concepts of political economy, State and Market, which seem to be at the core of the libertarian paradigm. Speaking in economic terms, the Market as a concept or notion seems to be in continuous movement, not only linear but even pendular. For practical purposes, let’s take the definition of Gregory Mankiw, author of the book “Principles of Economics”. “A market is a group of buyers and sellers of a particular good or service. The buyers jointly determine the demand for the product, and the sellers jointly determine the supply”. The other definitions of this concept would be some specific variations according to the area of action of the subject that represents it: marketer, bitcoin speculator, property broker, or academic.

On the other hand, the definition of State seems to have had many more controversies in the history of mankind. Most of them are concerned with the relationship of the State to power or violence, whether legitimate or legal. Historically, the notion with which our “sensory certainty” perceives the State certainly depends on its concrete historical context. The inhabitants of a despotic regime such as North Korea do not have the same perception of the state as the citizens of a democratic state such as Germany or France. The so-called rule of law, the definition of which we learn in high school, is divided into three mutually independent branches: the executive, the legislature, and the judiciary. While the perception and consequent definition of the State as a concept is a process of constant change in the course of history, its relationship with other aspects of human life such as the economy seems to acquire greater relevance depending on the conjuncture and the context.

The libertarian interpretation of economics seems to have discovered that the State-Market relationship is like the relationship between water and fire: antagonistic, one presupposes the destruction of the other. Ever since Adam Smith formulated his famous metaphor, a sort of misinterpretation has arisen, ascribing to the Scottish philosopher the intention, in itself non-existent, that the wealth of nations arose as a result of a market “driven by an invisible hand” and not by the state. And although countless investigations have come to show that this metaphor refers more to the republican moral, political, and economic system as opposed to the ancien régime, it appears that it is no longer possible to expel it from the economic lexicon. It is used by orthodox Marxists to vilify poor Adam Smith. It is also used by recalcitrant neoliberals and libertarians to try to bless their esoteric visions of an alleged “human nature” in which there is neither the collective nor society, but only individuals, and in which the value of things is not the result of work but of exchange among capitalist owners, to express it in the caustic language so typical of recalcitrant libertarians.

In our opinion, seeing the relationship between the State and the Market as an antagonistic contradiction is, in fact, a distortion of reality, which corresponds to a positivist approach to economic sciences. The relationship between the State and the Market arises in the very cradle of both concepts. For exchanges between market agents to take place, there must be rules that allow these relations to culminate in results. The emergence of rules (State) is, to some extent, the result of the need for exchange (Market). The need for exchange, for its part, depends on the nature of the goods that are not always distributed according to a determined will, be it individual or collective. There are scarce goods and there are also abundant goods, to mention only two of the many types. 

It is precisely this logic that allows us to define the concept of Freedom (in capital letters) as “the truth of necessity” and not as something abstractly understood, according to libertarians, as “the absence of coercion”, with no connection to its concrete realization. To paraphrase Hannah Arendt, violence as a form of coercion is nothing more than an expression of the lack of power and not the opposite. That is why the most profound contradiction of libertarian ideology is the call to repress any action aimed at demanding the right of ownership over labor as the creator of value. The State-Market relation, as a relation of continuous negation, not antagonistic, is a dialectical relation. 

In this sense, analyzing it from a purely positivist perspective (either one or the other), leads us to aspire to extremes that are unattainable in practice. It is partially paradoxical that both Marx and Von Mises aspire to the elimination of the state. It was Marx’s mistake to turn around Hegel in his interpretation of the state, and it is the mistake of Menger and Von Mises to turn around the labor theory of value as defined by Smith and Ricardo. Furthermore, it is here that libertarians fall into a conceptual trap that leads them to a dead end. Thus, they end up rejecting not only Plato and Hegel but also Adam Smith, David Ricardo, and even Robert Solow. 

Mariana Mazzucato’s mission and the entrepreneurial state

Mariana Mazzucato has been, for some years now, one of the most prominent representatives of modern economic theory. Her academic production makes her, along with Thomas Piketty and Dani Rodrick, among many others, one of the most serious intellectual pillars of the political economy of transformation. Among her vast intellectual production, two controversial works stand out from my perspective: “The Entrepreneurial State” and “The Value of Things”. “Keep an eye on Mazzucato, the world’s most fearsome economist,” headlined Helen Rumbelow in a review of this brilliant professor of the Economics of Innovation and Public Value and director of the Institute for Innovation and Public Purpose at University College London (UCL). Bob Simison called her “The economics agitator” in a profile published in the International Monetary Fund’s Finance and Development magazine. With these credentials, the furious attacks of libertarian and neoliberal economists against her proposals for transformation are not surprising.

Given the modest space, we would like to refer, on this occasion, briefly to two of his works: “The Entrepreneurial State” and “Transformational Change in Latin America and the Caribbean”. Under the slogan of “thinking big again”, Mazzucato picks up the gauntlet thrown down by both libertarian and neoclassical economists to enter fully into the battle of the discourse on the role of the public sector in economic development, without falling into the interventionist temptations of orthodox Marxism. It is not a matter of reducing the state to a minimum, turning it into a mere regulator of market distortions. Thinking big means for Mazzucato “empowering governments to develop a direction for technological change and investing in this direction, creating markets rather than simply fixing them”.

Secondly, thinking big is related to fiscal policy. It is about freeing public spending from short-term pressures to drive long-term investments that allow the creation of new markets rather than adapting to existing ones. No one here is limiting the “human action” of the private sector. On the contrary, it is about stimulating the freedom of actors who want to develop their new ideas in hitherto unknown territories. In her book, the author demonstrates with convincing information that the success of companies such as Apple and Google or even the discovery of the Internet and the landing on the Moon would not have been possible without the enormous sums mobilized by the American entrepreneurial state through public spending.

Thirdly, she emphasizes the fact that while it is true that successful companies once benefited from state investment, they have always been reluctant to return these benefits in the form of taxes to promote a more equitable distribution of profits. With the evolution of modern capitalist development, the socialization of risk has been accentuated, while profits have been increasingly privatized. This is why Mazzucato proposes to replace the parasitic relationship of the company concerning the state in public-private partnerships with a symbiotic public-private innovation of mutual benefit. This inevitably implies preventing companies such as Apple from continuing to file their taxes in tax havens such as the Virgin Islands or Luxembourg and not in the state of California, where they were created with state resources. 

Mission and energy transition

Paraphrasing Polanyi in his legendary book “The Great Transformation: A Critique of Economic Liberalism” (1944), Mazzucato claims that the state was the creator of the most “capitalist” market of all, the “national market.” This is the essence of one of the basic categories of Mazzucato’s approach: “the Missions”. These represent well-defined objectives, focused on solving important economic, social, and environmental challenges, which can only be undertaken as part of a national or regional strategy. With the help of the Missions, state policymakers have the opportunity to determine the direction of growth by making strategic investments in different sectors and fostering new industrial environments that the private sector can further develop. An environment and not a particular sector is the strategic objective of a Mission.

Perhaps maintaining this line of “thinking big,” Mazzucato proposes, in the Report of the Economic Commission for Latin America and the Caribbean (ECLAC), to take up the forgotten agenda of industrialization already under a new perspective. Neither the old story of “industrialization via import substitution”, promoted in the 1960s, nor the liberalization promoted by the Washington Consensus in the so-called “lost decade” of the 1990s can be a viable path for Latin America. Instead of sectors, for example, the exploitation of certain mineral resources, such as lithium, or agricultural resources, such as soybeans, public investment in environments is recommended. One of these could be climate change.

Assuming the struggle against climate change as a “mission”, a strategy could be developed to “invest and innovate in the areas of new materials, new digital services, new forms of mobility and the new role of natural resources”. Other possible environments include digital divides or health challenges. We are going to dwell a little on the challenges of climate change, especially if we consider that Mazzucato had already developed the topic in chapters 7 and 8 of her  “The Entrepreneurial State”.

The positive aspect of this report is that it attempts to formulate this innovative strategy of the Missions for a region, Latin America and the Caribbean, a victim of a series of structural challenges, among which the most outstanding are low productivity, weak institutions, and enormous inequality. The fact of reformulating the role of the state, after having experienced the failure of the neoliberal model and the extractivist model, represents, in itself, a step forward to be considered.

The study seems to be stuck, however, at a very general level, even if we ponder the initiatives or “cases” described in Chapter IV. In the case of Central America, we take as an example the Sustainable Energy Strategy 2030, a strategy developed by ECLAC in collaboration with the Central American Integration Secretariat (SICA). One of the three objectives of this strategy is to increase the use of renewable energies, whose enormous potential in the region is well known. While acknowledgment is given to the fact that the intended objectives have not been attained, this section provides limited insight into the potentials and weaknesses of the strategy, thereby not sufficiently justifying a Mission-based approach.

On the other hand, the question of relevance, among others, arises. In the case of the Central American region, it would be interesting, for example, to know the strategic relevance of the possible Missions to be contemplated. It cannot be denied that access to energy and its efficiency are of vital importance. However, given the chronic shortage of capital and the reduced fiscal space of countries as poor as those of Central America, it would have been important to know, at least in the introduction, the challenges linked to mitigation (“dry corridor”) or adaptation (“tropical storms”) that could affect in one way or another the other aspects of climate change. It would also have been interesting to know how the overburdened bureaucratic structures and lack of qualified personnel, mentioned in Chapter V, have hurt the climate change environment in Central America. To avoid falling into the well-known commonplaces of the general, this strategy will need to surpass the normative discourse of “what should be done”, typical of institutional discourses, to the phase of concrete implementations. Only through experience will it be possible to verify the robustness of the theory, which at first glance seems very promising.

*Translated by Janaína Ruviaro da Silva from the original in Spanish


Otros artículos del autor

Doctor en Economía e investigador del Instituto SUEDWIND (Alemania). Fue investigador jefe del Depto. de Políticas de Desarrollo de dicho instituto y representante de Alemania ante la red europea no estatal para el desarrollo CONCORD.


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