Mariana Mazzucato – How your iPhone got smart and public sector innovation, 2018 Summit

right so I want to argue that the circular economy actually requires a green revolution almost a green industrial revolution a green consumption revolution a green distribution revolution and so it's quite useful to look back in history and to really understand what led to previous technological revolutions and I think everyone would more or less agree that we required different types of actors you know public actors private actors and also civil society we shouldn't forget by the way that we all enjoy weekends and eight hour workdays because trade unions fought for them and that itself has been part of this market creation process under capitalism but what I want to argue is that the way we talk about and frame especially but not only in economics the role of the state hence the public actor in these public-private partnerships is incredibly problematic it's also quite boring it's limited to let me see if these slides are coming up they're not I'm pressing the green there you go it's limited to this idea that you're fixing things right so we economist also make these really fancy cool models very mathematical and we talk about is fixing market failures and these failures do exist right so you have when you have positive externalities you might have public goods where the spillovers of that public good are so great that no private firm can appropriate the benefits from that so you have for example two little private investment and basic research so we all agree that the government has to come in and fix that problem and fund a bit of science here and there that's by the way why I sound American but I promise I'm Italian my dad does nuclear fusion and the US government has funded his research since I was five when we moved there in New Jersey anyway then you might have negative externalities which I think we've also been talking a lot about today so pollution is one of those where firms don't consider in their costs the cost of pollution so they do the opposite of the basic research problem they produce too much of it so the state has to come in with another bandage and do a carbon tax or it should but it doesn't but anyway that's one form advantage right then you might have another market failure like around asymmetric information so cute little SMEs don't get enough finance so you need some sort of SME policy by government again another fixing and so this idea that you're amending and you're fixing and you're also picking up the mess the mess by the way which we also had with the financial crisis or that we often have with recessions which can themselves be seen as a market failure because you have too much investment in the boom too little in the bus so again the state comes in and does the counter cyclical fixing this creates an incredibly difficult framework for when we actually really want a transformation it was not sorry that's one of my earrings that you know it was not government just fixing coming in and mending things that got us the IT revolution the internet revolution within that the biotech the nanotech the current AI revolution and so but the problem really is that this fixing framework depicts this kind of cartoon image of all the cool guys and girls here right on your well on my right and your left and the kind of boring bureaucrats there who are best pushing around papers regulating creating what in the European Commission they call framework conditions horizontal conditions de-risking de-risking who D risking the risk takers so if you're coming out of college you're really bright young thing where would you want to work with the risk takers the value creators or the D risk errs who are at best again enabling and D risking these really cool guys let alone the fact that task I think is very good-looking compared to Zuckerberg but that's not the point right the point is that these guys here that black and white image they're boring right so you also get this self-fulfilling prophecy the more we talk about the bureaucrats as bureaucrats that's a bit of nurse'll a bit of a dinosaur and again at best enabling the more you kind of get that in the public sector right now the problem is is that it's just simply historically false so ask yourself any smart product you have forget whether it's an iPhone or something else what makes it smart and not stupid right I'm gonna talk on my stupid phone the internet GPS touchscreen display in Siri they all these are all technologies that actually came out of organization that were willing to play a role that was not the lender of last resort again another really boring word that we've also how come to believe and use without thinking twice about it but an investor a first resort role okay and this is you know one could call it taxpayer money it's not always taxpayer money by the way we can also create money as we do when we go to war we don't wait for tax revenue when we go to war we go and we grant money but that's a whole other conversation about where money comes from but it's a very important one because it would if you think about it carefully debunk a lot of what we think happens at how government does it spending but in general just think of it it's public money that was put out there before the private sector was even willing to engage in a particular area you didn't have firms wanting to do internet stuff and saying oh can you give me a tax credit and I'll do it you had a bold and ambitious agency in that case DARPA that was willing to take risks to explore to do trial and error and error because for every internet there's also many mistakes right that you might not know about and we know very little about how these organizations are formed or think of yozma in Israel a public venture capital fund but again the internet GPS touchscreen display in Siri all the kind of things that make your smart product smart all actually came from particular types of investments in particular types of institutions that were willing to take those risks now how many of you know about the Solyndra story was Solyndra a success or a failure just yell it out come on in traction you guys all sleeping a failure right everyone knows about it and it was considered to be a government failure so the taxpayer in the u.s. kind of got very mad because they had spent five hundred million in a guaranteed loan for Solyndra which went bust now I can tell you that most US citizens don't know that almost the same amount of money went to Tesla four hundred and sixty-five million guaranteed loan from the do e in fact Elon Musk just for his three companies SpaceX Solar City and Tesla has actually received five billion that's nine zeros just in case I want to know him forgot right that's a lot of money and by the way I'm not sure he's ever said thank you I'm a mother of four children I owe it tell them to say thank you so this is another issue right the the stories if he had said thank you that would be sort of in the common discourse a narrative of what also allowed Ilan must to do what he did anyway what's fascinating about that Tesla investment is what Obama told Elon Musk he said if you don't pay back the loan we get three million shares in your company why would you want three million shares in a crappy company that does not pay back its loan had he said if you pay back the loan and you're successful we get three million shares in your company the price for share went from nine to ninety between 2009 and 2013 that would have more than paid back the cylinder a loss which is inevitable ask any venture capitalist I'm sure many of you are in the room free success you'll have some failures and the next round of investment literally a circular economy in the sense of revolving fund in order to fund the cool things of the future so this is important not because we want to necessarily think about equity stakes or anything else but how we think about where value comes from where wealth comes from also then determines how we think about how that wealth should be shared so Piketty another besides me great economist who had a great book where the last chapter was about how you know what we might do about inequality he talked about the need to tax wealth and there's lots of very interesting discussion out there about how to tax wealth how to do it in ways also that incentivize further investments but also don't create the kind of rents that we see today but my point is that's not enough we have to absolutely tell different stories about where wealth comes from in order to actually drive a type of capitalism which will also be more progressive and be both about sharing risks as all these examples I just gave were but also sharing the rewards and I want to use my last six and a half minutes to also talk about the really interesting lessons for the circular economy that we can learn from in when we consider again this history because I've mentioned the internet and the internet was not funded because it was sort of the cool thing to fund in and of itself right so lots of talk today about ai and quantum computers we heard in the previous session it was funded as the solution to a problem right in fact many of the examples I just gave of things inside your iPhones which were publicly funded were funded as a solutions to a problem so they were in fact spill overs from the attempts to solve a bigger problem so I recently had the honor if you want to be asked by Carlos Mo – who's the Commissioner for research science and innovation in the European Commission to sort of reflect on what might be the lessons for climate change for the big challenges that we have around healthcare of the kind of things that I talked about in my book called the entrepreneurial state in which actually my new book the value of everything I kind of go in also more deeply and so I wrote a report which is free on the web you can download it it's called chem where it's called missions a problem-solving approach to investment led growth in the EU and by the way investment led growth that's a radical word don't just say whatever this country is growing through consumption led growth so private debt – disposable income is back at record levels as it was just before the crisis just to make sure you're not too comfortable in your seats today that's bad anyway investment led growth you know also requires not just a rate but also a direction how can we actually use innovation and investment lead growth to solve really important problems right again the internet was a solution of a problem that actually was related to that whole kind of space race and sort of war area era but but the big challenge was kind of Sputnik in the space race the man on moon mission was the mission to get to the moon they required 12 different sectors to invest I say 12 it just means a lot including clothing you could not go to the moon and jeans and a t-shirt I'm sure you knew that and lots of bottom-up experimentation of which lots of that experimentation again led to failures but lots of the successes are in your smart products today so how can we use this mission approach to think about the sustainable development goals or all the different challenges at a particular country might be thinking about in fact in this country there is now the UK an industrial strategy which has set out for challenges around clean growth future of mobility the aging society and the data economy AI and the data economy how do we transform those challenges which risk just becoming sort of a blahblah yeah we all worry about climate change but then nothing happens right how do we transform those challenges into missions that are that then really catalyze cross-sectoral investment and then bottom-up solutions so I was only allowed four slides so I had a lot of other really cool ones that would have given you examples that's why you've been staring at this one for a while but it's um it's great right because you start with climate change you turned it into something as challenging as a hundred carbon neutral cities by 2030 a very concrete mission that you can actually say yes or no did you reach it or not and then really catalyze investment so instead of thinking of it as a sectoral policy industrial strategy that hands out money to land sector investment in innovation across many different sectors and then bottom up projects and one of the other three examples that I given the report is in fact getting the plastic out of the ocean right clean oceans is the challenge getting the plastic out of the oceans is the mission with a very concrete target of how much and what time period yes or no did you get to the moon yes or no did you get the plastic out of the ocean did you turn a hundred cities in Europe to be carbon neutral and then you use government instruments to really fuel this experimentation and exploration process because we know top-down processes don't work that's why the Soviet system even though it's spent a lot on R&D for example compared to Japan grew less it was a very top-down it didn't actually fuel innovation across the whole economy but the other thing is you can also use particular instruments that we have not just prizes which we know are very useful for catalyzing multiple solutions to a problem but also things like public banks right using public banks which actually provide the kind of finance innovation often requires patient long-term committed finance but to have that lending process not again fueling a particular sector which very easily captures right because we know policies can be captured captures a particular priority of a bank you tell the bank itself to be a mission oriented bank you're lending to those organizations that are willing to engage with a bold societally relevant mission so instead of picking winners you're picking the willing right and it's not just about SMEs in Germany what's been fascinating is that the energy vendor mission which has really transformed production distribution and consumption ended up being lending to the steel sector this is not a sexy sort of you know future green economy sector the steel sector to transform itself it didn't just give out money to coal or steel as Trump talks about it gave money to steel to transform itself through repurpose reuse and recycle so steel in Germany has lowered its material content and it required patient strategic long-term finance to do that and so this is I think the really exciting bit right how can we use missions to first of all bring back the ability to dream just think of Kennedy's speech going up to the moon and back again in a generation being willing to have a vision within the policy-making process but it's also you know not so much a one-man one team moment of let's go to the moon and back again but how do you really engage society civil society to even come up with those missions and they're by the way the energy event is a more interesting example because it was the fruit of decades of the green movement in Germany fighting for both denuclearization but also green transformation so the ability of governments to listen to civil society to listen to social movements to come up with these bold missions and then really engage lots of different sectors to drive investment lead growth with the direction to solve a problem and using concrete instruments to fuel that exploration experimentation process I think this is a really positive story and I hope you do too thank you [Applause]

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