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Public v private sector investment in innovation

by AprilSix Proof

In the week that the government launched its new Industrial Strategy I attended an event run by the Rainbow Seed Fund and the Catapult Network on the opportunities from research and technology in the UK. The presenters all gave interesting opinions and examples of the type of research and funding opportunities thriving across the country. This was particularly so with the headline speaker Mariana Mazzucato, an author and Professor in the Economics of Innovation and Public Value at UCL.

Prof Mazzucato advises policy makers around the world on innovation-led growth and her book, The Entrepreneurial State: Debunking Public vs. Private Sector Myths, argues that it is public funding from government, rather than private capital or “wealth generators” in tech that have fuelled recent innovations. Given that the UK government has just unveiled a wave of new investments to stimulate our economy, I wanted to look more at Prof Mazzucato’s talk and the points it raised.

Her presentation used data more from the US than the UK, but the arguments were no less compelling. For example, rather than just a legacy to the genius of the late Steve Jobs, the iPhone is reliant on a series of innovations developed by the publicly-funded research at organisations such as Department of Defense, CERN and ARPA-E (see image). Without these organisations, and the investments made in them by governments across the globe, the iPhone’s click wheel, touch screens, batteries, even Siri would not work. Not so smart then, eh? Similarly the National Institutes of Health in the US have invested almost $1 trillion dollars since they were set up and in the process helped to establish and accelerate the pharma and biotech markets. Alarmingly, President Trump is the first in decades to consider cutting this funding.

Prof Mazzucato outlined how huge missions or challenges like putting a man on the moon needed the state to play the role of high-risk entrepreneur to be successful. She claims that a narrative has been widely accepted that the role of the public sector is largely in the background, correcting market failure and providing the funding to establish the right conditions and environment for innovation to flourish through skills, infrastructure and fundamental research. However, in reality the process requires the state to play the role of risk taker across the entire innovation chain: from basic science to applied research and even the early stage financing of companies.

Much recent public policy, from both sides of the political spectrum, has focused on tax breaks to aid innovation, such as through cutting capital gains tax for investors, something the Blair government first instigated. But what if governments looked to take a stake in the innovations and disruptive businesses they help to create? Finland and Israel already take this approach and imagine what the US could have made if the $500,000 grant it gave to a young business called Apple saw it receive some equity in return? It might even make up for all that lost tax revenue….

If you have any questions about this blog please contact joe.meaney@aprilsixproof.com