Finance, the state, and innovation

Diane Coyle 25 June 2018



First posted on: 

The Englightened Economist, 30 May 2018.

A new and revised edition of Doing Capitalism in the Innovation Economy by William Janeway was launched on 29 May 2018. Anybody who read the first (2012) edition will recall the theme of the ‘three player game’ —market innovators, speculators, and the state —informed by Keynes and Minsky, as well as by Janeway’s own experience combining an economics PhD with his experience shaping the world of venture capital investment.

The term refers to how the complicated interactions between government, providers of finance, and capitalists drive technological innovation and economic growth. The overlapping institutions create an inherently fragile system, the book argues —and also a contingent one. Things can easily turn out differently.

The book starts with a descriptive first half, including Janeway’s ‘Cash and Control’ approach to investing in new technologies, and also an account of how the three players in the US shaped the computer revolution. This is an admirably clear but nuanced history, emphasising the important role of the state —through defence spending in particular —but also the equally vital private sector involvement. I find this sense of the complicated and path-dependent interplay far more persuasive than simplistic accounts emphasising either the government or the market.

The second half of the book takes an analytical turn, covering financial instability, and the role of state action. It’s fair to say Janeway is not a fan of much of mainstream economic theory (at least macro and financial economics). He includes a good deal of economic history, and Carlota Perez features alongside Minsky in this account.

The years between the two editions of the book — characterised by sluggish growth, flatlining productivity, and also extraordinary changes in the economy and society brought about by technology—perhaps underline the reasons for this lack of esteem. After all, there do seem to be some intractable ‘puzzles’, and meanwhile, just in time for publication, Italy looks like it might be kicking off the euro/banking crisis again. The experience of the past few years also helps explain the rationale for a second edition. That’s quite a lot of economic history and structural change packed into half a decade.

Although I read the first edition, I’m enjoying the second as well. And for those who didn’t read the book first time around, there’s a treat in store.



Topics:  Economic history

Tags:  book review, capitalism, innovation, economic history

Bennett Professor of Public Policy, University of Cambridge

CEPR Policy Research