Pop quiz: What’s the connection between Steve Jobs, Elon Musk, fracking, big pharma and Neil Armstrong?

Answer: They can all trace their major successes back to government.

Through direct investment, initial research, tax breaks and other measures, governments around the world have long been catalysts of innovation.

But the state’s role in groundbreaking advancements – from GPS to space travel to biotechnology – remains largely unknown, its success stories untold. And that, says leading economist Mariana Mazzucato, will wind up hurting us all.

Mazzucato’s book The Entrepreneurial State details 50 groundbreaking innovations rooted in state-sponsored research or funding, including the most revolutionary technological gains of the past century.

By failing to recognize the full role of the state in bringing about these breakthroughs, Mazzucato warns we open the door to funding cuts that could devastate the innovation chain, and threaten to further deepen inequality.

Wealth comes from a much more collective group of actors than we’ve admitted,” says Mazzucato, a professor in the Economics of Innovation at the University of Sussex, who will speak at the Waterloo Innovation Summit on Sept. 17.

“Because we haven’t admitted that the state plays this role, we don’t let the state get any of the upside . . . We shouldn’t just share the risks with all these public monies, but also share the rewards.”

The state’s key position as a link in the innovation chain receives little air-time in discussions of the economy. That is as much by design as by ignorance.

“There are huge financial interests, profits being made, by telling a very different story. You’re used to seeing the boring, tough-skinned bureaucrats versus the exciting Zuckerbergs. Sometimes we get stuck in our visual imagery,” Mazzucato says.

This neglect is partly an image problem (entrepreneurs are seen as daring, while bureaucrats are seen as dull), partly a communication issue (the public hears of state investments that fail, not successful ones), and entirely wrapped up in profits and politics.

Don’t misread her critique as socialism, though. For this world-leading economist, capitalism works fine when all participants are honest about where and how wealth is generated.

Reaching that understanding can give governments the latitude to guarantee funds for future investment, and also make sure public money isn’t wasted on “stupid things like tax incentives,” which she decries as a failed tool that redistributes income, rather than boosts investment.

Acknowledging the state as a player in the innovation economy can also ease the pain when some government investments inevitably fail.

Two recent examples paint this in stark detail. Elon Musk was given $465 million by the U.S. government in guaranteed loans (which he later repaid) for the Tesla S car. Solar-cell manufacturer Solyndra was given a similar amount.

Musk’s success is widely seen as a win for independent innovation. Solyndra’s spectacular collapse has made its name synonymous with wasteful government spending.

When a government investment works, the entrepreneur gets the credit. When it fails, blame for wasted dollars lands squarely with the government.

“Had the U.S government got some of the profits from Tesla – not a huge amount, but their share, given what they’ve put in as early-stage financing – then they could have used that to cover some of the loss from Solyndra, which would have helped the public digest the loss, as opposed to go up in arms,” Mazzucato says.

Examples of successful state investments are everywhere, from smartphones, which harness government-developed GPS and touch-screen technology, to life-saving drugs used around the world.

“I’m not talking about the bureaucrat inside the state doing the innovation themselves,” Mazzucato says.

“It’s not like a cut-and-paste solution of how to do it. It’s kind of bottom-up, through the public and private sectors interacting in really cool ways.”

The first step to forging an entrepreneurial state is to acknowledge and discuss the role governments already play. The state does more than just fix ailing markets, Mazzucato says. It has a presence along the entire innovation chain.

Once society understands that – and the power such involvement provides – then we can all work towards ensuring the risks, and returns, are wielded and shared more wisely.

Five examples of government support for innovation that made a big impact

• Elon Musk

It was huge news earlier this year when the Los Angeles Times reported that inventor Elon Musk got almost $5 billion in subsidies from the U.S. Department of Energy for his projects, including Tesla and SpaceX. Mazzucato says the outrage is vastly misplaced: this is a great example of what government should be doing. “The Tesla S car, which is a very innovative product, didn’t get venture capital money. It got state money.” This is a prime example of mission-oriented, direct investment through which the government can actively promote and push innovation.

• Big pharma

Developing new drugs is a pricey endeavour. The pharmaceutical industry uses that reasoning to justify high prices for new drugs. “You know what? There’s someone else who spends a lot on R&D, and that’s the public who then has to pay for the medicine,” Mazzucato counters. “In the U.S., the National Institutes of Health spend close to $32 billion a year on applied and basic research behind most of the blockbuster drugs that end up coming out.” Private industry, meanwhile, increasingly spends its money on the development part of R&D, capitalizing on state-funded work to seed new pharmaceuticals.

• Fracking

Fracking, or hydraulic fracturing, is an invasive form of gas extraction. Rigs drill down into the earth and a high-pressure water mixture is pushed into the shale, fracturing it and releasing the gas. Fracking and shale gas technology was heavily financed by the U.S. Department of Energy for years before the private sector entered. Today, the fracking industry is highly profitable, and hugely controversial due to environmental concerns.

• AT&T / Bell Labs

Bell Labs, also known as AT&T Bell Labs, is an astoundingly successful private laboratory that has made groundbreaking discoveries in everything from communications to fundamental physics. But Mazzucato says most people don’t realize the facility was created under direction from the U.S. government. “AT&T was a monopoly, and government was very clear that AT&T had to reinvest its money back into the economy, back into innovation, not just innovation that was useful to AT&T but big innovation, in order to retain its monopoly status,” she says. “We don’t have those kinds of deals today.”

• Smartphones

The Internet was created by the Defence Advanced Research Projects Agency (DARPA), an agency of the U.S Department of Defense. The algorithm behind Google was funded by the National Science Foundation. Touchscreen display came from the CIA. “What makes the iPhone smart was state-funded. The iPhone would be a stupid, idiotic phone if you couldn’t surf the web, know where you are with GPS, etc.”