Keywords

1 Introduction

History has shown that mature economies with entrenched incumbents and fixed regulated conditions can change. Karlson (2018) claims that a “central zone” of relatively few but powerful, well-organized, and integrated actors from politics, business, academia, and interest groups are crucial for fundamental system changes to occur. Discussions in both organization studies and business history have also emphasized entrepreneurs leveraging technology to help push such successful policy change (Alvarez et al., 2015; Garud et al., 2018; Mokyr, 1998). Together with a successful technological shift and a favorable zeitgeist,Footnote 1 this forms the fundamental enabling conditions for regulatory change (Stigler, 1942).

In this chapter, we explore the successful deregulation process of telecommunications and finance in Sweden during the late twentieth century and describe how the institutional entrepreneur (cf. Battilana et al., 2009) engaged in several corporate political activities (cf. Hadani et al., 2017). We explore how successful entrepreneurs managed to overcome resistance to changes in policies and help enact new regulatory regimes in their respective markets. In addition, we juxtapose the success stories of these entrepreneurs with a failed example in the same national context—an example in which institutional change and deregulation have not occurred and where the public sector is steering, and the private sector is performing—namely the case of Sweden’s planning and building sector. In this case, we apply a legal history approach to examine how a sector deeply characterized by public funding and public–private cooperation has, in contrast to the deregulated sectors, fallen into severe inertia and destructive outcomes. Using these cases, we contrast what went on with the ideas advanced by Mariana Mazzucato (2013, 2020, 2021). In doing so, we show how public steering and private performing create vested interests and information problems that hinder investments or steer investments in the wrong direction—something that could have catastrophic consequences. Using our cases, we also question the relationship between correlation and causation in Mazzucato’s analysis. Apart from contrasting these examples to those Mazzucato uses, the aim of this chapter is also to explore what distinguishes these two cases, in which deregulation happened, from the cases where—to date—it has not, given the fact that they all shared the same general political zeitgeist and had similar technological influences.

The rest of the chapter evolves as follows. We start by introducing and comparing the two successful cases of deregulation and the unsuccessful case of the planning and building sector. Then we proceed to a discussion with a focus on the role of entrepreneurship in further policy change, before concluding.

1.1 Reforms in Sweden in the 1980s: Success and Failure

During the middle of the twentieth century, Sweden’s economic policy was sometimes referred to as a middle way between socialism and capitalism. Even though the concepts of compromise and negotiation are highly valued within Swedish culture, one can also describe Sweden as a land of extremes in terms of economic and innovation policy. Relative to other Western democracies, Sweden went further than most other countries in the centralization of welfare capitalism between 1932 and 1976, a period which, from a Western perspective, marked a uniquely long period of government power for one political party, the Social Democrats. The active state policies, which are often associated with the ideas of John Maynard Keynes, were already well represented in mainstream Swedish economic thinking from the early 1930s through the influential Stockholm School economists like Gunnar Myrdal, Bertil Ohlin, and Erik Lundberg. The centralized state and business relations dominated the labor market and housing policy during this period. At the same time, old monopolies in telecommunications and finance were seldom questioned. Housing and city development was (and still are) regulated by a municipal planning monopoly, housing costs and rents were (and largely still are) regulated for dwellers, and the salaries of workers were (and largely still are) regulated by unions and employer organizations. The monopolies and oligopolies were mostly government supported and this caused a decline in competition. Although Sweden was more state-interventionist than many other Western countries, this trend of government-supported monopolies was present all over the Western world. In 1942, the famous monopoly expert and later Nobel laureate George Stigler noted that “the major factor in the decline of competition has been governmental support of monopoly” (Stigler, 1942, p. 20).

However, the Swedish neoliberal policy in the 1980s, which leaned toward decentralization and market policies, was also considered extreme from a Western perspective. Much of the deregulation across the world was pioneered by Swedish sectors that were often more far-reaching than other Western democracies. One striking example is the deregulation of the stock exchange monopoly. In 1980, the de facto monopoly of the Stockholm Stock Exchange over financial equity was also granted de jure. In the wake of digitalization, institutional entrepreneurship and neoliberal ideas swept across society. This monopoly was soon supplemented by a digital-born options exchange—a successful institutional entrepreneur who managed to outgrow and overturn the monopolist in just 10 years (Blomé, 1990).

Other examples of relatively extreme or pioneering deregulation processes in Sweden include school choice and public transport. These processes constituted the Swedish neoliberal period of the 1980s and 1990s, alongside more mainstream deregulation—from an international perspective—in television, radio, telecommunications, credit, and currency restrictions.Footnote 2 However, a sector that has remained largely intact from the era of welfare capitalism in 1947 to today is the planning and building sector of Swedish cities, for which the municipal planning monopoly is a central characteristic. Hence, whereas large portions of the economy have been deregulated, this sector has remained at the opposite extreme of Swedish policy. There are problematic consequences to this combination of monopoly sectors and deregulated markets, which we will address. These coexisting extremes make Sweden an interesting case study for the processes and outcomes of different policies. Sweden was characterized by public–private cooperation in both innovation and technological developments during the era of welfare capitalism, but also earlier; one example is the cooperation between state agency Televerket and private company Ericsson in developing telecommunications throughout the twentieth century. This example largely supports the arguments of Mazzucato (2013) regarding the public sector’s role in innovation and risk-taking. However, this came to an end with the deregulation and abolishment of Televerket and its monopoly in the early 1990s. An expansion of innovation in telecommunications followed this policy change. In Sweden’s city planning and building sector, similar public–private innovation and risk-taking have occurred throughout most of the twentieth century and all of the twenty-first century so far. No fundamental policy change has taken place since the era of welfare capitalism and municipalities still hold monopolies over city planning procedures. A great deal of problems in city planning and housing are associated with this policy, for instance:

  1. 1.

    Inertia in the planning and building process—probably an important reason for housing shortages.

  2. 2.

    A centrality of decision-making regarding city development. This may account for the many malinvestments in city development that lead to urban and housing environments that consumers and the public do not value (Hayek, 1945, 1978, pp. 340–58; Lindbeck, 2012, pp. 121–131).

In our comparative case, in which an old monopolistic system was kept in place, striking negative effects on innovation, entrepreneurship, and the economy followed. In fact, the planning and building monopoly is often viewed as ineffective, causing higher prices for land, real estate, and housing, as well as inertia in the sector that may benefit a few actors but is detrimental for society. Telecommunications and finance, on the contrary, have arguably been among the Swedish economy’s more innovative and dynamic sectors since deregulation. A clear picture emerging from our comparison is that besides new technology and a positive zeitgeist, strong institutional entrepreneurs within the sector are needed for deregulation to happen. Rather than being a process pushed purely from the policy sphere, the deregulation of the telecommunications and stock exchange monopolies showcases the importance of specific conditions and interest-group dynamics, coupled with strong institutional entrepreneurs from the sector itself. While many of the necessary conditions for such changes were the same, institutional entrepreneurs were not present in the planning and building sector that remained highly regulated and partly monopolized. The actual opening of old monopolized markets still happens in the policy sphere, so this kind of interaction is necessary for a smooth transition, overcoming vested interests, to reforms in mature economies. Among these cases, power coupled with strong entrepreneurs driving the change from the corporate sphere were present in both the telecommunications and the finance sectors. We explore these cases in more detail below.

2 The Three Cases

In this section, we describe the three cases in accordance with different activities and structures affecting outcomes of renewal or conservation of regulatory frameworks. Given the general zeitgeist in the mid-1980s, the overhaul of the old policies and—in the two successful cases—the implementation of new policies for these markets meant a general deregulation and opening up. The explanations of the two successful cases build on data previously collected as part of a large collaborative project that has been digitized and structured in a relational database. The failed example of the planning and housing market builds on data from all the planning and building legal documents from 1874 to 2020. This data is to be used in a future dissertation (Eriksson, 2022).

2.1 The Case of Televerket Versus Comvik

In the 1980s, several enabling conditions for the deregulation of numerous sectors—including telecommunications and finance—were present (Eriksson et al., 2019; Geissinger et al., 2019). Formerly state-supported monopoly markets or otherwise highly regulated markets now began to legally open up for competition. New technology in the form of digitalization was transforming the sectors; strong and gritty institutional entrepreneurs within the sector were working hard on deregulation through proactive strategies and pressure toward key institutional actors; and a zeitgeist favoring market solutions accompanied a negative perspective on bureaucracy in general and toward Televerket’s lack of customer service in particular. The key actors in this deregulation process were the incumbent government monopoly on telecommunications, Televerket, and the entrant, the private for-profit firm Comvik, which was part of the Kinnevik Group, a large and resourceful family enterprise.

The seeds of deregulation in telecommunications had already been planted in the 1970s. On one hand, this was due to new investments in mobile technology; on the other, it was due to new pro-markets ideas. Such ideas gradually entered mainstream thought, not least through the 1974 and 1976 Nobel Prizes in Economic Sciences, awarded Friedrich Hayek and Milton Friedman, respectively. These two economists helped the neoliberal avantgarde of the 1970s find mainstream acceptance for its ideas during the 1980s (Offer & Söderberg, 2016; Westerberg, 2020). In the 1970s, the future head of the Kinnevik group, Jan Stenbäck, was working in the United States and inspired by neoliberal ideas. One of Kinnevik’s enterprises was the telecommunications company Comvik, which despite a de facto monopoly over telecommunications by Televerket, had been given permission to deliver telephone services to private companies in the 1950s. The company was then named Företagstelefon. In the early 1980s, Comvik launched its first automatic net for mobile telephony 3 months before Televerket launched its own. This led to the first of three battles between Comvik and Televerket regarding equal rights to compete on the market for mobile telephone communication. This subsequently resulted in the opening up of the Swedish telecommunications market.

Battle 1: Automatic Versus Manual Switches

Televerket had a de facto monopoly over the telecommunications market. The launching of Företagstelefon in the 1950s had been an exception to monopoly policy. At that time, Företagstelefon (later Comvik) was given permission to use the kind of manual switches that were available at the time. In the 1980s, Televerket claimed that Comvik could only use the manual switches of the 1950s since the deal had been about using those switches. Comvik, which wanted to use the new and more effective automatic switches that Televerket also used, claimed this was a way of ostracizing Comvik from a market Televerket wanted for itself. Comvik solved the problem temporarily by using an automatic switch but with a person manually pushing a button every time a switch was to be made. Televerket, however, was not happy with this solution and claimed Comvik should use purely manual switches or it would be stripped of permission to use the telephone net. Comvik now began a proactive institutional campaign at many levels of society—including politicians, state officials, and media—to lobby for its right to use automatic switches. Articles were written in media; letters were sent to politicians and officials, and a request to resolve the case through court was also made. In late 1981, after an intense and proactive nonmarket activity at many levels, the government granted Comvik permission to use automatic switches. Televerket had been relatively inactive in terms of nonmarket activity during the battle, mostly evolving in defensive activity toward Comvik’s proactive attacks.

Battle 2: More Frequencies

In the mid-1980s, Comvik requested more frequencies in the public telephone net to expand its service. At the time, it had 36 frequencies and wanted 60. The request was sent to Televerket since it was the official market regulator. However, Televerket, which itself had 180 frequencies, considered itself biased and thus delegated the decision to the government. Televerket did, however, recommend that the government not give Comvik more frequencies since it claimed the public net would not be able to handle more frequencies. Comvik disagreed and claimed that Televerket’s advice to the government was just another way of restricting Comvik’s ability to compete in the telecommunications market. After another round of Comvik initiating nonmarket activity toward key institutional actors at all levels of society including media, politicians, public officials, academics, and the legal profession, it was granted 14 more frequencies in 1987 and hence ended up with 50 frequencies in total. Televerket remained passive and defensive in its nonmarket activity because it was content with the status quo and therefore did not have as much incentive as Comvik to be proactive, or even present, in this debate.

Battle 3: AIX-Switches

In the early 1990s, Comvik wanted to buy the new advanced AIX switches from Televerket’s long-time collaborator Ericsson. Ericsson was a pioneer in telecommunications technology and had closely collaborated with Televerket since the early twentieth century. Since Ericsson was a private company operating on the market, Comvik was surprised that it denied its request to buy AIX switches and immediately suspected Televerket of pressuring Ericsson not to sell to its competitor Comvik. Again, intense and proactive nonmarket activity at all levels of society was initiated by Comvik, eventually leading to a court decision that obligated Ericsson to sell its product to Comvik.

In 1993, shortly after the third battle between Televerket and Comvik, the telecommunications monopoly was dismantled. Televerket was transformed from a monopoly and state agency into a state enterprise, with the new name Telia, operating in competition with private actors on an open telecommunications market. Even though many factors contributed to this result, it is likely that Comvik’s successful nonmarket activity over the course of these three battles contributed to the abolishment of the monopoly.

2.2 Overcoming Vested Interests in Finance: Optionsmäklarna and the Stockholm Stock Exchange

Financial exchanges provide an example of an industry in which vested interests have blocked progress on a large scale. Despite evidence piling up in favor of fully digitalizing the exchanges, not least from within the brokerage firms already active on the exchanges in the late 1960s (Wells, 2000), years passed between the emergence of the first digital trading system and the full digitalization of the New York Stock Exchange (Gorham & Singh, 2009). Surprisingly, it was in Sweden and the Nordic context that change first came to financial exchanges and then spread across the world. This was the case in terms of both technological adoptions leading to the removal of the trading floors, and the emergence of the for-profit organizational form as the primary way of organizing such operations (Cheung et al., 2021). For both the technological and organizational innovations to happen, the regulation that gave the Stockholm Stock Exchange a monopoly needed to be overturned, despite strong interest groups and political forces being in favor of the status quo. A key player in this process was the entrant-born-digital-options-exchange Optionsmäklarna (OM), which began operations in 1985.

Aspect 1, Despite a Regulated Monopoly: The Emergence of an Entrant Options Exchange

OM could only be created due to a contingency in the regulatory process leading to the Stock Exchange law of 1980, which regulated the incumbent Stockholm Stock Exchange. As it came to pass, the law not only gave the Stockholm Stock Exchange a monopoly on equity trading, but it also created a list of financial instruments that could be traded at the exchange. Stock options were not included on this list, which meant that with help from the head lawyer of the Wallenberg group, OM was able to launch in 1985 (Blomé, 1990).

The entrepreneur responsible for creating OM, Olof Stenhammar, was initially driven by the business opportunity and was certain that an options market was necessary in Sweden. As he continued to work with the idea, however, circumstances forced him and his company into a position in which their business activity was supplemented by a rich array of proactive nonmarket activities (Ernkvist, 2015). Stenhammar had a background as an options trader in the United States and would gather information about how regulation worked at the Chicago Board Options Exchange (CBOE) and then influence the regulators with this information to gain the first option to act. He would also garner support for his venture—both financial and political—from one of the main Swedish industrial groups, run by the Wallenberg family.

Following these initial activities, OM would be the main agent to influence the inquiry into the Swedish financial markets that subsequently led to the opening of the financial exchanges market. Its successful business model and technological solutions played an important role in the passing of this regulation. In terms of the organization of the market, technological change, and the lack of activity from the incumbent Stockholm Stock Exchange were also important factors.

Aspect 2, A Lack of Response From the Incumbent Stock Exchange

As with the telecommunications industry, the monopolist played an integral role in facilitating the policy changes. This was the case in both technological development and efforts to deregulate the financial markets. Testimonies from interviews with members from the board and management highlighted how the organization went through a big change as a new CEO was appointed in 1985. With a background of working with politicians and business leaders alike as the old CEO of SNS, a research-based organization with the goal of facilitating discussion between Swedish industry and politicians, Bengt Rydén moved the exchange away from being old gentlemen’s club to being a more modern organization striving for efficiency for its members and with core goal of creating benefit for society. While part of the stock exchange organization was strongly against reforming financial exchange regulation and allowing new entrants, Bengt Rydén did not have a clear position on the issue. This was partly due to his background as an economist and view of the financial markets as a societal good but also because the Stock Exchange board would not give him the mandate to interfere in the regulatory process. This in turn was because the board was split over whether or not it would act in favor of OM as a separate organization from the Stock Exchange. As this split manifested in an inconclusive inquiry into how the options market should be organized, the hands of the CEO were tied until the new regulation was put in place.

As the new regulation was decided, the former monopoly needed to decide what its role in a free market would be. Following long internal discussions involving the board and management of the stock exchange, the result—as the new regulation came into effect on January 1, 1993—was that the Stockholm Stock Exchange became the first for-profit, publicly traded national exchange in the world. The technological developments and market structure of both OM and the Stockholm Stock Exchange became integral to the subsequent emergence of the internationally successful Swedish fintech sector.

2.3 The Case of the Municipal Planning Monopoly

The Swedish Planning and Building Law, with its municipal planning monopoly, is another example of Sweden’s relatively far-reaching—from a Western perspective—politicization, centralization, and monopolization during the welfare capitalism era. We argue that this sector went further than the other centralized sectors in Sweden during this era. There are several reasons for this long-lasting centralization, but the core goes back to the very identity of welfare capitalism in general and the social-democratic movement in particular. Sweden was a very poor and unequal society during the nineteenth century and early twentieth century. Stockholm was known as one of the dirtiest cities in Europe with small, damp, and unhygienic homes for most of its expanding working class and their families. Ten people living in one room was common. Tuberculosis, cholera, and alcoholism spread rapidly in these environments. From the early twentieth century, a gradual shift toward more public involvement in city-building and housing emerged with relatively strong consensus across the political spectrum. In 1907, the first municipal city planning monopoly was launched. It was very limited compared to today’s far-reaching authority but with the gradual growth of the Social Democrat party, this planning monopoly expanded to almost every part of building activity and city development. Many of the central early Social Democrats had grown up in the slums of Stockholm and had a strong political drive to literally build a new society with centralized public means and authority standing above private property (Blücher, 2006). This drive was formulated in Social Democrat leader and later Prime Minister Per Albin Hansson’s famous Home of the people speech in 1928.

  • On solemn and, incidentally, sometimes even on everyday occasions, we like to talk about society—the state, the municipality—as the common home for all of us, the people’s home, the citizens’ home. After the last great constitutional reform this reflection has perhaps been used more frequently than before, but even during the time of oligarchy it was used by those in power, especially when it came to imprinting on the masses the feeling of obligation to the public, the obligation to bear burdens and make sacrifices. (… .)

  • Per Albin Hansson, Home of the People speech; Swedish parliament January 18, 1928.

From 1932 to 1976—when the Social Democrats held near-uninterrupted government power—Hansson’s vision was realized through large-scale government-initiated, governments-funded, and government-planned, urban and housing projects in coalition with selected material suppliers, building contractors, and building developers from the private sphere. Instead of renovating and modernizing the old historical housing districts of the city-center Klara neighborhood in Stockholm, large-scale demolition of the area was launched. These projects—which were grounded in the home of the people ideology and identity—had to be realized through a strong and centralized municipal planning and building monopoly. In 1947, this system was largely formed through the Planning and Building Law, the fundamental structure, aim, and scope of which is largely intact today.Footnote 3 Over the next three decades, private land and real estate were harshly regulated or expropriated to serve the purposes of large-scale city developments like the Norrmalm regulation,Footnote 4 and the Million program.Footnote 5 Twenty-four hectares of Stockholm’s historical inner city was demolished and rebuilt according to modern architectural and city planning ideals. The city aimed to demolish 54 hectares but ran out of money before completion (Lundevall, 2021). Critics of the city transformation used to say that Sweden, which was not bombed during World War Two, bombed itself through this large-scale city demolition. The new modern city structure resulted in very harsh criticism and many of its city districts have been unpopular and characterized by social problems.

This large, activist municipal planning monopoly and state-funded housing and city development politics has resulted in a strong, centralized coalition between the public sector, selected private companies, including public-private cooperatives,Footnote 6 and special interest groups. Meyerson et al. (1990) called this coalition the iron triangle. These are large, powerful organizations that receive rents through this centralized system and hence have an interest in its survival.Footnote 7 A relatively small number of large private companies, public–private cooperatives, and special interest groups have managed to become business partners with the public sector and thus take enormous market shares and avoid competition from other actors. This is probably a key reason why this monopoly sector was not deregulated during the liberalizing reforms of the 1980s. Despite technology and the political zeitgeist, there were no powerful insiders who engaged in corporate political activity to fundamentally transform the institutional settings of the sector from a centralized monopoly into a system of free competition. A small group aiming for deregulation—which Karlson (2018) calls the “central zone”—with members from different influential spheres in a society aiming for the same institutional change was lacking members from the sector itself. The favoring of the status quo by the iron triangle still dominates to the extent that reform is impossible. The planning and building sector in Sweden is an example of public steering and private performing policy that Mazzucato would embrace for innovation policy.

In the academic architectural and city planning discipline, ideas and policy proposals for deregulation and the abolishment of the monopoly have been made, although they are very rare, even in the academic literature. An exception is the so-called libertarian planning theory that proposes that state municipalities and real-estate owners develop plans within a judicial system framework and then have them approved or denied by an independent legal authority; hence an abolishment of the municipal monopoly (Strömgren, 2007). However, ideas like these have had little practical influence. New versions of the Planning and Building Law were launched in 1987 and 2010 which largely build on the same structure as the 1947 version,Footnote 8 even though problems of inertia, information, and corruption have been linked to this system. Problems that relate to the current planning system include:

  • A housing shortage in 80% of Swedish municipalities.

  • Incentives from municipalities to plan very small parts of land in order to retain its value.

  • An average of 7 years from idea to practical building activity in Stockholm.

  • Rent control (which is arguably a necessary evil during a housing shortage) creates welfare losses of 10 billion SEK (about US$ 1.2 billion) a year (Boverket, 2013).

  • Public discontent with architecture has been palpable for more than half a century.

However, there are slow but significant signs of eventual change in the Planning and Building Law. Even though changes have been marginal since 1947, there has been a tendency to slowly diminish centralization in the sector. This is seen with the planning monopoly, through the power of citizen involvement, but also with its subsectors, like the diminished subsidies to housing and attempts to deregulate the first and secondhand market for rental apartments. These slow, step-by-step policy changes also characterized telecommunications and the stock exchange.

A way forward for deregulation could be if a large actor primarily active in other sectors wanted to engage in these issues and work toward deregulation and competition in the housing and real estate sector with a relatively small real-estate business that could afford to make losses over several years. Together with academics, politicians, and pro-market organizations, this actor could be a key figure in what Karlson (2018) calls the “central zone” of influential people changing an old and inefficient system. This was essentially what happened in the Televerket case.

3 Discussion

In this section, we will provide a general understanding and comparison of the three cases. We discuss the commonalities and look into what was lacking in the failed case; see the list of points in Table 1.

Table 1 Outline of the three processes
Full size table

In this chapter, we have showcased some of the key characteristics of three cases in which change was imminent in Sweden in the late 1980s. While the technological changes, a general zeitgeist of the time, and the industrial dynamics in the respective cases were all highly complicated matters, we were able to distinguish key similarities in the successful cases that set them apart from the failed reform of the Swedish city planning monopoly. Theoretically, the centrality of powerful actors as key drivers of organizational and industrial change resonates with previous literature on institutional entrepreneurship that states that successful change is often dependent on such actors being able to leverage their sociopolitical environment, including both technologies and interest groups (Fligstein & McAdam, 2011).

In both the telecommunications and the financial exchange examples, entrant actors managed to change institutions and regulatory frameworks and launch immensely successful ventures. Historically speaking, these examples have been the anomaly rather than the rule. Perhaps what is more informative is the failed example of the city planning monopoly as a representation of all the other sectors in the Swedish economy where driven, skillful entrepreneurial change agents (Battilana et al., 2009; DiMaggio, 1988) with the financial backing of old industrial groups and capital were not present. In both successful cases, the factors that needed to be in place for the change agents to succeed can be likened to a perfect storm, with the key factor being their “political skill” (Fligstein, 2001) in evading concurrent regulatory conditions (Elert & Henrekson, 2016) through nonmarket strategies rather than only their ability to run a successful business (Hadani et al., 2017). Based on the cases, reducing the sheer amount of nonmarket strategies needed from actors who are supposed to be focused on creating value through entrepreneurial efforts is certainly something that should be a key focus of a successful innovation policy for mature economies.

In the 1980s, the Swedish economy went through a phase of increasing alignment with the British and American models of free-market capitalism at the expense of its traditional Nordic capitalism (Sjögren, 2008). In both successful cases, the background of the entrepreneurs allowed them to create a strong connection between this general liberal zeitgeist and their particular business models, something which affected the respective policy processes. It was the translations of these ideas that came to affect how the new market conditions would be outlined and pave the way for the privatization of the (then former) state monopolies in both industries. Common in these two cases was also the support garnered from resourceful actors within the sector, which helped in both the market and the nonmarket arenas. At the same time, free-market ideas had begun to take hold in both incumbent monopolies, leading to a passivity in terms of corporate political activities, but also a gradual adaption by the organizations in order to survive in a potentially deregulated market. In terms of positive impact for the industries as a whole, this gradual adaption and lack of resistance toward subsequent reforms were very important. Perhaps most illuminating of this fact was how the background of the CEO of the stock exchange helped him realign the incumbent monopoly as a hybrid organization talking to both the political sphere and the common good of society as well as its actual stakeholders trading at the exchange.

In both the telecommunications and the financial sectors, these actors were present and very proactive in changing the institutional system toward more free competition. Together with new technology and a favorable political zeitgeist during the 1980s and 1990s, a few resourceful actors played a key role in making the deregulation of these monopolies happen. In the planning and building sector, both technology and the zeitgeist had the potential to abolish the municipal planning monopoly. However, the lack of resourceful actors within the sectors made the change impossible. Nevertheless, many small steps were taken toward a more competitive environment in terms of both policy and industrial renewal and adoption. This highlights the fact that for iterative incumbent change to result in an overhaul of policies within a field, resourceful entrants such as those existing in the two successful cases can help spur change. Fundamentally, the change of a centralized, politized, and ineffective monopoly sector is possible.

Our examples show the power of vested interest in public-steering, private-performing sectors, and how private entrepreneurs can change these sectors to a system that does not involve public steering. Policy changes correlate with innovation and market expansion in these sectors (telecommunications and finance). However, in the sector where the status quo of public steering, private performing prevailed, namely the city planning and development sector, vested interests are still a dominating force and malinvestment, housing shortages, corruption, and inertia are still legion. Successful innovations are relatively rare in this sector. Through these examples, we want to emphasize that the flaws in Mazzucato’s analysis—for instance, biased examples and the confusion of correlation and causation—are common. When Mazzucato uses the Apollo project as an example, she should also show the public-steering, private-performing project that had a destructive public (and private) utility. There are many more examples than those emphasized in this paper. Examples that had destructive outcomes include the Manhattan Project and the public support of eugenics. This discussion is important because the possibility of private innovation is one of the few areas in which the West can compete with China, since China has more public-steering/private-performing policies. A private innovation sector free of political and public steering is worth defending for economic reasons, but maybe even more so for the sake of human freedom and ethics.

4 Conclusion

In this chapter, we have provided three cases that partly counteract Mazzucato’s claim that public-steering and private-performing policy are advantageous for the creation of successful innovation and solving future societal challenges. Even though the system of public steering and private performing has created valuable innovation, the opposite is also common. Furthermore, there is a correlation between de-monopolization and innovation in the cases of telecommunications and finance; as well as a correlation between malinvestment, stagnation, and inertia in the planning and building sector, which has long been characterized by the public-steering and private-performing system that Mazzucato embraces.

We have also shown how processes of deregulation and de-monopolization have taken place in telecommunications and finance and what has distinguished these processes from the status quo of the planning and building sector. Our conclusion is that strong actors from within the sector are often needed for deregulation and de-monopolization. In the cases we selected, this led to positive outcomes for innovation within the sectors and thus for the economy as a whole. In telecommunications and finance, the policy has gone from public steering and private performing, in line with the Mazzucato ideal, to a relatively free market structure in which the public sets up the rules of the game but does not generally steer innovation or business operations on the whole. In contrast, in a sector in which public steering and private performing have prevailed, associated problems include malinvestment, destructive and costly projects that create social and economic problems, as well as inertia in the process.

In a summary, this chapter showcases something missing in Mazzucato’s analysis; namely the dubious drivers of and sometimes destructive consequences of the public-steering and private-performing framework. We argue that recognizing this is an important part of the policy discussion on the future role of the state in entrepreneurial activities, as this will have consequences for important economic, environmental, and political issues.