Beyond market failure: entrepreneurship policy in the entrepreneurial state

Governments worldwide promote entrepreneurship because it is an important driver of prosperity. While government intervention is typically justified by ‘market failures’, we increasingly observe policies that cannot be explained by this dominant perspective, such as governments adopting a more interventionist stance to pursue societal or geopolitical objectives through entrepreneurship policy. This aligns with the idea of the ‘entrepreneurial state’, in which governments do not merely correct markets but actively shape their direction. Although this idea has gained traction, the entrepreneurial state remains contested. Three gaps in the existing academic literature stand out. First, the entrepreneurial state lacks a clear and widely accepted conceptualization. Second, we know relatively little about what this more interventionist government role implies for entrepreneurship policy and venture capital policy in particular. Third, the relationship between high-growth firms – often the primary targets of entrepreneurship policy – and the entrepreneurial state remains underexplored. This dissertation deepens our understanding of the expanding role of governments in fostering entrepreneurship, particularly through venture capital policy. It answers the question: What are the implications of the entrepreneurial state for entrepreneurship policy in general and venture capital policy in particular? Based on five empirical studies, the dissertation identifies three overarching implications of the entrepreneurial state for entrepreneurship policy. First, the policy goals are different. Conventional entrepreneurship policies typically adopt an agnostic stance toward the direction of economic development, focusing on promoting high-growth firms in general. Entrepreneurial entrepreneurship policies, in contrast, take a more selective approach by supporting firms that align with the strategic ambitions of the entrepreneurial state, such as accelerating the energy transition or strengthening technological sovereignty. Second, entrepreneurial entrepreneurship policies are legitimized through different rationales. Beyond market failure, these policies draw on transformative failures and concerns about losing technological sovereignty. Finally, the nature of policy interventions differs. The entrepreneurial state implies that governments make entrepreneurial choices themselves, actively shaping investments rather than leaving them entirely to the market. The dissertation has five implications for future research. First, it encourages scholars to move beyond the dominant market failure perspective when analyzing the role of government in entrepreneurship. It shows that market failure alone cannot account for current policy practice: other considerations can also justify government intervention in entrepreneurship and venture capital. Second, it challenges the emphasis on high-growth firms in current entrepreneurship research by showing that these firms have ‘dark sides’, not equally borne by all stakeholders. Third, it calls for greater attention to the diversity of venture capital, recognizing that it can originate from government or private sources and be deployed through government, hybrid, or private funds, each with distinct objectives and practices. Fourth, the dissertation develops an explicit conceptualization of the entrepreneurial state that provides a foundation for more rigorous empirical research, potentially contributing to a more constructive and less ideologically driven debate. Finally, this dissertation encourages entrepreneurship scholars to engage more constructively with emerging interventionist government roles. The current literature still tends to portray ‘the state’ as a monolithic entity, overlooking the variety of public organizations involved in fostering entrepreneurship.