 Good evening. My name is Alfredo Saad. I'll be chairing this session. This is a seminar in the Seminar series of the saws department of development studies jointly organized with the Bloomsbury doctoral training Center for the social sciences and this particular session co-organized with the saws department of economics were Very very happy very honored thrilled to have with us Professor Mariana Mazzucato Who will be leading this session? Professor Mazzucato is RM Phillips a professor of the Economics of innovation at sprue at the University of Sussex she's the author of a number of academic pieces in particular I'm going to mention the recent book the entrepreneurial State debunking public versus private sector myths this book was on the 2013 books of the year list of the financial time of the financial times and it focuses on the need to develop new frameworks to understand the role of the state in economic growth Professor Mazzucato is the winner of the 2014 new statesman sperry prize in political economy and in 2013 the new republic called her one of the three most important thinkers in the world in the field of innovation she's a member of the Council of economic advisors of the Scottish government She's a member of the world economic forums Council on economics of innovation Permanent member of the European Commission's expert group on innovation for growth and Very important to me at least a member of the UK Labour's party economic economic advisory committee so working very closely with The party leadership. She's held Academic positions at University of Denver at London Business School at the Open University and at Bocconi University in Milan and Bariana's research focuses primarily on the relationship between financial markets innovation and economic growth This will be a fantastic opportunity for us to hear one of the world's greatest specialist in industrial policy and in the economics of innovation Just to Advertise this if you want to tweet and I if you do tweet which I don't but if you do please Use hashtag so as dev studies or Hashtag esrc To tweet about this session next week next Tuesday on the 26th of January will have professor Umma Kothari From the University of Manchester and the topic of her talk would be popular representations of development creating Global alliances or reproducing inequalities five o'clock five o'clock in room g3 in the main building So thanks very much Mariano So thank you Alfredo, and thank you for everyone for coming Apparently there is a another event which was hoping to have many of you there at the Greenwich up political economy launch So they told me that they thought this was a conspiracy To get you to come here instead of there, and I hope that's not true Anyway, so I'm really happy actually that this has been co-hosted by economics and development studies because in fact innovation is of course a key aspect of Development, but unfortunately the economics of innovation and some of the policy areas around it have actually not Impacted as much as they could have I think not just economic theory But the challenge is to economic theory and how we think about economic policy and so many of the insights that I'm going to be Trying to convey really come from thinking about innovation seriously So how firms differentiate themselves through that process why they require patient long-term committed capital What do we actually know about where this patient finance comes from but really what this all this mean for economic policy? And I think this is a great time to be talking about what we'll be talking about because after of course the financial crisis The need for growth this desperate thirst for growth in so many countries actually became a bit more of a Sensible conversation so it wasn't growth for growth's sake if you want but a particular type of growth Because we know how the growth that we had for example in the 1990s was problematic because amongst other things that increased Inequality instead of decreasing it but this need for and they sound like really trendy words right for smart growth So more innovation led more sustainable growth Which doesn't only mean green but for now let's just pretend that means green growth and inclusive growth so you know less inequality really requires all sorts of thinking new thinking about policy making in the economy and And this is really a great opportunity having said that it's also very depressing time I think we live in and I really want to be addressing this depression. In fact, I'm often I often say that I walk in To policy making venues and different ministries around the world as an economist and I come out as a life coach Because of this depression that I think does characterize Policy makers around the world where the way we talk about the role of public policy and of government is extremely problematic It's always been problematic, but it's particularly problematic I think in the era we're living in and at best we hear the need for Policy to if you want level the playing field or in my particular area Which is innovation policy to create these fantastic framework conditions You know the conditions for innovation and that's in a bit of infrastructure here and there Science here and there the skills gap and of course that requires all sorts of training programs But then get the hell out of the way So the really cool things can happen and of course where do the cool dynamic creative things happen in business, right? So this portrayal of government is yes needed But at best simply to fix different problems and create these background conditions and then get the You know get out of the way and of course in economics. We have particular ways We talk about this and so this need to fix different types of market failures Which I won't go into all of these but the most classic one again in my domain Which is innovation is of course the whole problem around Basic research and blue sky research that of course few firms will invest in it Because it's so hard to appropriate the returns from an area like basic research that has such high Spillovers and so you have under investment and so you need government to come in with the bandage And fix that problem and invest in some science and of course many countries don't invest enough in science But if you want if you actually look at all these different areas and different types of market failures one of the key things that I want to Convince you about is that even if we did fix all these failures It would be very hard to describe What has actually happened historically in places that have really tried to actively strategically Courageously in a mission oriented way if you want even tackle any of these problems, whether it be innovation led growth inclusive growth or Green growth and really the key problem Sorry, this is hard because this needs to be out in order for me to click But if it's out, I'm not close to the microphone. So I need to find a balance So the key problem is that actually what has happened in places like silicon valley But I would argue china today and there's obviously lots of very interesting things happening in china For sure in the parts of germany that everyone always brags about as being so interesting for industrial policy Or brazil up until a year ago before the whole stalemate what actually was required and what we also witnessed by different types of Policy making and when I use the state by the way, don't think of this as top-down I'm literally going to be using the word the state or government or public sector in a pretty sloppy way You know define it a bit better in a minute But literally think of any sort of strategic public sector agency Whether it be the department of education DARPA or the BBC and I'll come back to that later Anyway, what that has actually entailed Is active market shaping market making which in economics, unfortunately We have very little vocabulary to talk about So I'm sure most of you know the work of Carl Polanyi The great transformation and the reason I think this work is so powerful And yet hasn't really had any impact in the sort of mainstream way that policymakers think about Their role is that you know, he was very explicit about even the market itself as having been actively If you want an outcome of this kind of market shaping Process from policy making so the market the capitalist market, which is the national market Right to be differentiated from say the local or international market Is a recent phenomena 300 years emerges with capitalism and it was forced into existence This is you know, one of the great insights from his book And that that understanding of markets as outcomes of interactions between different types of agents Different types of public sector different types of private sector agents as well as say pressure from civil society Really requires also a very different framework than for policy because markets as outcomes means we need to be thinking of What kind of outcomes we want versus having the market here and thinking of policy is just sort of You know different types of interventions, whether it's regulating or or fixing different types of market failures I think in Keynes himself There was actually lots of really interesting things that he wrote that also allude to this The role of policy is doing really big things and not just tinkering on the edges I think what has also happened and hopefully we'll have maybe some time to talk about this in modern day If if you want to bastardize Keynesianism is that unfortunately, it's also been interpreted It's simply different types of stimulus to get us out of difficult periods So recessions with very little understanding of some sort of role of the state even in the boom And I hope again that we can Come back to this later Because many of the different types of investments and policies that I'll be talking about actually happened in the good times Uh, so the need to really have a theory of public policy Even independent of the business cycle because we all know of course what should be happening in the bust right counter cyclical government But that's not enough And so sorry for this completely self promotional slide, but I have to say one I've never had my work translated in different languages before the first time it ever happened was with this book So I like to brag about it But the main thing is when your book is translated into german as das kapital. It's actually quite cool to see it I mean, it's never going to happen again. It'll never happen again. Anyway, so what I tried to do in this book that Alfredo mentioned in which Uh is listed here in his different translations was in fact to really take Polanyi's understanding of this market shaping process and really use it to describe modern day If you want areas that that we talk about as somehow have you know really coming have come out of entrepreneurial dynamism and and market making processes And really try to understand them better historically and then to reflect on what does that actually mean then? For our inability today to even think seriously about public policy And really the core point also comes back to this economist quote that I put at the beginning this notion that somehow the Revolutionary interesting things are in business And government is simply needed to present these to create these framework background conditions and to Correct these different types of market failures What I tried to do is really debunk that by showing how actually what we have always required In order to achieve any sort of interesting growth has been to have revolutionary crazy thinking out of the box Kinds of government so the kind of kafka guy is more interesting and dynamic than the say Zuckerberg guy, of course the point will not be a verses But in order to build the kinds of public private partnerships that everyone likes to talk about Or these cool ecosystems that you know, it's trendy words in government We actually need a theory of the public sector and it's very hard even for the private sector To engage with new challenges of the future unless it has that If you want strategic, uh, what i'll be calling mission oriented public counterpart Um, so both lose out. I'm going to be coming to this slide at the end I just want to put it here so you know it's coming I think sometimes it's useful to know what the hell is she building up towards Because I you know, I did pitch this as rethinking economic policy And I want to sort of arrive to this which is that I hope that what I'll be talking about will enable us to really Think about uh directionality in the public sector So, you know growth itself doesn't have just a rate it has a direction And I know you recently had here andy sterling who's really one of the most interesting people also thinking about this So multiple pathways within particular areas um How do we evaluate uh public policy when it's not just fixing market failures How do we build organizations in the public sector whether it be again the bbc or a particular agency in the department of defense or An education agency that actually welcomes the trial and error explorative process And how do we and this perhaps is one of the most important points if we want to more just society make sure that um This necessary risk taking which i'll be talking about ends up not just sharing the risks But also the rewards and I hope this also helps us rethink what we mean by if you want the redistribution issue which is I know that people like hacker have talked about pre-distribution, but this is sort of going Beyond that which is when we have a completely different theory of the role of the public sector in the wealth creation process itself As opposed to just redistributing wealth Then it really should help us make sure that we also reach More inclusive growth because the distribution of the rewards should be proportional to this collective if you want risk taking which occurs Anyway, so let me uh Try not to take too much time. I'm going to speed through some of this and actually go through in quite more detail other bits um And so the first thing is you know the whole kind of smart innovation led growth agenda Which is really central because I think many different types of economists agree That innovation itself has been a A key feature if you want of what has allowed capitalism over the last 100 150 years Or more but really as a result of public policy more recently Achieve if you want the productivity enhance enhancements and rising living standards of On average even though since the 80s we know also what's been happening there which again Hopefully we'll be able to talk about But innovation obviously is a central motor of development structural change transformational change In capitalism, so we really have to understand that process and again understand the role of the public and the private sector in that Um, and of course the key point here is that you know, not all technological changes Are equivalent and we have this notion of general purpose technologies as being really important ones which actually have affected Production and distribution across many different sectors. Well, what do we know? about what actually allowed these major radical revolutionary changes to occur and the first thing is that the kind of Public intervention absolutely went beyond the market failure narrative of fixing the public good science problem Okay, so the kind of intervention that happened and forgive me if I focus a lot on the u.s. But this is because unfortunately places like silicon valley continue to Be tried to copy if you want by different parts of the world and because they don't understand it They end up creating all sorts of problems. So under so I'll be focusing quite a bit on the u.s. Model But I want to go beyond that towards the end. So anyway, so in the u.s You would not have had silicon valley had the public intervention just been upstream and basic research There was all sorts of different agencies of which some I've put here in orange which had which intervened In the applied research process, but even in the financing of the early stage high risk A company formation process through agencies like the small business innovation research program So these there's many more a great book by fred block and matthew keller also looks at I think something like 17 different agencies That have been quite important But these are the national science foundation darpa, which of course was very important for the internet the national institutes of health Arpa e which today in the department of energy is trying to be the sister of darpa in the department of defense NASA etc etc But what's very important here is understanding that this intervention absolutely went across that entire Chain and also If you just even look at any of the websites of these organizations, they're quite explicit That they were that their function their their very existence is meant to actively create new Landscapes rather than just to fix different types of problems in existing areas So whether it's nasa or pa e or the nih or even I put at the end there the german public bank kfw because it's having a very important role today in the green emergence of the green If you want to green technology You know, it's it's they're very explicit that they're not there just to incentivize Facilitate regulate administer it's very much investing in new areas And even coming up with the idea so the national nanotech initiative for example Actually partly was responsible for the very word nanotechnology And the business sector came in later So I'll just show you some some numbers here This actually comes from the work of block and keller where what's interesting here Of course is that this kind of intervention downstream that I mentioned which is harder to justify um In terms of actually providing the money itself to companies that are chosen. They're picked right think of the whole picking winners Debate so companies like compact and intel apple itself But through an sbic not sbir program receive some early stage Patient long-term committed capital through this particular program sbir in the same way that say in israel Many of the high tech companies have gotten money from yasma, which is a public venture capital fund And if anything over time this this graph here shows you the difference between private Venture capital funding funding which should be supplying that early stage risk along with say the business angels And this public sector money if anything that difference has increased why if you know anything about venture capital You'll know it's very exit driven They want that exit to happen in three or five years through a buyout or an ipo when actually What this innovation process requires? Even the death famous death valley phase is you know patients even in 10 to 15 years so Long-term patient finance and this is actually quite important because still today We keep hearing that there's not enough finance out there for for companies that want to do Interesting things and actually that's not true. There's plenty of finance There's not enough of this patient long-term committed finance and because innovation requires that it shouldn't be that surprising You end up having these public if you want agencies around the world having to provide it In the book and I think this is the only reason it was translated in so many languages I kind of unpacked the whole iphone issue, which is that you know, this is the symbolic product of You know silicon valley and actually You know what makes a smartphone smart is What's inside it and what allows you to do smart things with it and not stupid things So whether it's surfing the internet, which is publicly funded knowing where you are with gps, which is publicly funded Using touchscreen display publicly funded and even the seri voice activated system They were all publicly financed and of course this does not mean that you know the steve jobs phenomena apple Etc. It weren't important. Of course they were and there's that great movie out there On that but we don't actually have a way to describe Uh, you know what actually happened there because what happened was that you had existing technology Which had been financed directly from different types of public sector institutions Which were then put together in really cool ways by in this particular case steve jobs But the fact that an 800 book on him doesn't have one page one paragraph one sentence One little word on any of this public money is really sort of the thing that i'm after and asking What does that mean, you know in terms of our inability to describe The role of the public sector in this wealth creation process in this emblematic, you know Product like the iphone. What does that mean for our future ability to even produce those kinds of technologies? Which the future steve jobs is of this world will require And i'll be getting to that more towards the end When you look at the actual organizations that look scary and most people say oh, yeah fine You're just talking about the military industrial complex and that's all the cold war stuff blah blah blah That's partly true and in fact in this particular case it is true Right, just look at the names there and it should start scaring you if it doesn't so the cia was absolutely important for the touch screen display The cia by the way has one of the biggest venture capital funds in the world called incutel Which very few people know about but anyway, so what's interesting really about the story though is how it was then Emulated in different sectors, so it's simply not true that this is just a military industrial complex So in the health sector the national institutes of health Which have been absolutely fundamental for even allowing the biotechnology sector to emerge Was very much a product of this very obvious types of public investment Which literally looks like a wave and it's a wave that the whole biotech industry in fact surfed or more particularly The venture capital industry surfed because they came in about In the 80s if you want after decades of this kind of public finance And all these types of investments are direct. Okay, they're not indirect These are not about incentivizing or de-risking or just leveraging the private sector So what's interesting is you can compare different countries Not just in terms of the kind of public support that say innovation or any area receives but also whether it's direct or indirect And there's many countries Including I'd say increasingly in some ways the uk which think that it's enough simply to create things like rnd tax credits And so the gray lines here are indirect support the blue line is direct support And in fact, what we know is that those countries like canada for example that rely too much on just the blue So indirect measures through things like rnd tax credits have a problem because what actually What actually motivates investors or literally entrepreneurs to invest is not something like tax Or just making something cheaper Right, it's it's actually the perception of where the future growth opportunities are And in fact, this was I think canes's point when he was talking about animal spirits Which unfortunately as a concept ended up getting hijacked by behavioral finance or behavioral economics What canes's point there with animal spirits wasn't just the herd effects the bandwagon effects and the whole beauty contest stuff He talks about but actually that what drives Investment in anything in some ways the long run business investment is really this perception A future opportunities, which yes then are subject to all sorts of expectations And within that you might start copying what other people are doing But it's very important policy wise if you want to understand that if you want something like the green economy Or you know the the tech city kind of thing that they're trying to Form here in the uk You actually have to first directly if you want form these new opportunities Which the business sector can see and then on top of that you might apply a really smart tax incentive And by the way, there's some really stupid tax incentives It doesn't make any sense in the r&d tax credit example to focus on the income generated from the r&d You really should be focusing on the if you want labor that that produces that r&d And so some tax credits do focus on that but regardless of whether we're talking about smart or stupid ones Tax credits the point is that tax credits or tax incentives or facilitation measures of this sort on their own Have almost no evidence of producing Any net investment over time And in fact, it's interesting to compare countries that have high business r&d spending with ones that have low business r&d spending Statistic we call bird business r&d spending over gdp And it turns out that those countries that have the highest levels are ones that also are characterized by the most Direct public investments which create if you want those animal spirits, which then can be facilitated on the marginal decisions with some sort of the incentive Okay And and I always put up this quote because I just think it's so good and probably not well known enough and I think again This is what kane's Also was getting at when he was talking to roosevelt Franklin Roosevelt in this particular private letter at the end of the 1930s where he's like, you know what? We actually have a greater problem than we then we've admitted because you know This word animal spirits makes you think about lions wolves and tigers But actually what we often have in the business community are domesticated animals So not tigers wolves or lions, but gerbils and hamsters and little pussycats And hence the pussycat and the tiger that I put on My book which actually just requires a completely different type of policymaking and again This is an area that I think has been ignored. It's a quote that's been ignored because it really Presents us with two different if you want policy scenarios One is a cage with a lion in it And the role of the policymaker as just taking away all the different impediments that might be red tape You know leveling the playing field by you know, reforming the taxism, etc Etc versus a cage with a little pussycat in there a domesticated animal Where the policymaking process is to actually to first get that little kitten to grow up into a big lion And even want to roar Okay So in italy where i'm from to well i'm not from italy today, but i'm from italy And today the center left government is focusing focusing all its energies just on the impediment problem As though the italian problem were just one of bureaucracy red tape nepotism mafia and taxes You know, obviously there's huge problems in the italian bureaucracy But those policies will have no effect on italian growth unless they're complemented by This if you want building up of what i'll be talking about in terms of a strategic mission oriented public capacity Because it's not just about taking away It's not just about facilitating I probably didn't say before something that I mentioned I would say Which is that when I talk about the role of the state, it's a decentralized If you want a a decentralized network developmental state But this issue of having lots of different agencies involved in this process is something that has been quite interesting So when you have countries for example, like china, which i'll mention later today have For example, the china development bank, which is one big agency doing a lot of this financing across many different sectors Potentially, you know that that's a very different model from this one that i've been describing in silicone valley Where you have lots of different agencies distributed throughout the entire innovation chain each and every one of them being quite mission oriented And also because they're so mission oriented being able to attract very high level talent Okay, so this is a very key point, which is that there's a self-fulfilling prophecy Where when you talk about the role of some of these public institutions as just fixing market failures Or lots of also this public bashing that we often hear, which is too much bureaucracy. Let's cut these different agencies Let's reduce their ambitions. So why is the bbc making soap operas and doing, you know, uh, all these things beyond documentaries on giraffes That's restrained their uh, their area This has an effect on the kind of talent that these agencies Over time are able to attract So one of the interesting things at least in this us example is that Precisely because they have been mission oriented. They've been able to attract literally noble prize winners And i'm not exaggerating. So for example the department of energy up until About six months ago or a little bit more nine months ago was run by steve chou a noble prize winner in physics Who in 2009 with the whole aura stimulus in the us 800 billion stimulus The department of energy set up arpa e Um, which was then directed by arun majumdad who later ended up directing google's energy program It's not a coincidence that these, you know bold uh, uh thinking Agencies like arpa e or the darpas are able to attract that kind of talent And it's not a coincidence of the opposite that when you have these agencies in countries that To be honest like the uk that are constantly being Also told to step back if you go to the business innovation and skills department in this country outside it says, uh Britain is open for business lowest tax lowest regulation, you know That's not necessarily going to you know motivate if you want very high level scientists to go direct those kinds of agencies Because it's simply not that interesting as a as a motivating mission Anyway, so sustainable growth I'm going to be brief here just to say that what we're seeing today happen in green Is not that different from what we've seen happen in biotech and it and nanotech In other words Most of the capital intensive areas that are also characterized by very high risk and uncertainty And it's really the uncertainty word that matters the most right so both knight and canes Constantly talked about the difference between risk and uncertainty with innovation really being a perfect example of uncertainty Which you cannot build a probability distribution around Or devoid if you want a private capital at least in the in particular phases where there is so much risk And so it's not a coincidence that you have for example the role of public banks Playing a very important role also in the deployment diffusion process because when I talk about innovation You shouldn't think just of the again r&d process This is that whole chain I mentioned but including the deployment and diffusion And what we see in the climate finance landscape if you want is basically for public banks Absolutely playing a leading role Way beyond what any private equity venture capital stock market or corporate money or even private utilities are Paying and that's basically the the chinese bank that I mentioned the china development bank The kfw in germany the brazilian development bank up until recently when I had to basically stop Much of what it was doing because of the political crisis and the european investment bank And we simply don't have ways to talk about this why? Because just look at this funding here of the kfw, which is the german public bank What this bank does which we do know how to talk about is that it's very counter cyclical Right, so after the crisis after 2007 it did exactly the opposite of what the entire Private financial sector did which is it increased as opposed to decreased its disbursements Um So counter cyclical but on top of that it absolutely chose it picked if you want a direction Um, it picked this energy vent direction Which the government basically set for it and and many other public agencies Where green was seen not just in terms of renewable energy But also but also as a complete new direction for the entire economy And the kfw was part of that this kind of uh investment which is again not just counter cyclical But choosing a particular area and really kind of you know Tilting the playing field not leveling the playing field in that area across the board Is something that we often in the policymaking world and definitely in the economic theory world feel uncomfortable with right Because this is the class of kind of picking winners problem. No, no, no All you should do is level the playing field create those conditions lend to sms You know Spray finance everywhere and somehow the market will decide where it goes This is absolutely not what what we see with these public banks which are choosing Even more so if you look at the chinese numbers, which are absolutely astounding This is from this great book, uh, which I really recommend people read if they're interested in, uh The role of finance in the development process on the china development bank The book called changing the rules of finance the cdb By two bloomberg journalists and the numbers, you know, literally to particular companies in you know, close to 10 billion Dollars going to individual companies which looks crazy Until you again go back to the silicon valley figures and just start adding up the numbers across agencies for particular companies Or even for particular individuals So elan musk the new hero in silicon valley after uh, steve jobs died We love to see him and talk about him and tesla Uh tesla and a space x combined which are his two main companies Received five billion Billion dollars from the u.s. Government in different ways Um through different types of direct support Including you know like these guaranteed loans which energy companies have been receiving in the u.s Most of you probably know the cylindra loan because it went bust right 500 billion dollars lent to a solar company called cylindra Which went bust which everyone said ah, this is exact, you know, this is the concord A modern version of the concord which is government should not pick companies Just spread that support step back don't give individual company support This is how cylindra has been talked about and the u.s. Taxpayer really pissed off that they had to bail out cylindra But tesla received very similar amount of money just a bit less Well, actually it's a lot of money when you actually look at the numbers, but anyway 465 million guaranteed loan It was very successful And so, uh, you know, this is actually one of the issues which which absolutely requires thinking about which is that Just like with private venture capital any of these direct investments that i'm talking about again Forget the subsidies and the incentives these direct investments like a guaranteed loan to one company Tesla of course is hugely risky most will fail However, we you know have then a hard time if you want following that logic because precisely because we admit That the venture capitalists are investing. We don't talk about the government as investing We talk about the government as spending again de-risking Regulating and playing this important, you know role of fixing different market failures But we don't think of the government as investor Then we don't you know sort of follow through and what would be the normal thing To follow through is well fine. Think of it like a portfolio Right just like any investor would so you're going to do your teslas your cylindras You'll have some really high risk areas Some lower risk areas and just make sure unless you want to be completely foolish That you get some of the upside from the successes to cover your inevitable Downside losses Okay, so I'll come back to this when I talk about inclusive growth But all the reason I mentioned it here is because you see this actually with the china development bank You see it with the kfw you see it with bnds a public bank But precisely because they are public investment banks They actually have thought through this process in terms of the portfolio But this would be very interesting to think also across non-public bank Public institutions precisely because they too including again, literally the bbc if you look at all the investments It's made from the iPlayer to the bbc micro The big question is is the tax system itself or even the spillovers themselves that are created Enough in terms of bringing bringing back a reward to these agencies to be able to do it again Which is what a venture capitalist wants to do right? You don't just get the it's not a one-time shot You want to be able to get a revolving fund in order to repeat that investment process Anyway, some illuminated businessmen absolutely understand this and admit that the government has to lead the way Whereas others like peter teal set up secessionist movements in silicon valley in order to you know If you want to release the poor companies from this burdensome presence of the government but what's quite interesting is even people like bill gates who very clearly have Recognized the role of government, especially during the cops agreement in paris who's very clear Government must lead the way as it always has done in the it Revolution have been more hesitant to talk about some of the serious dysfunctions in the business community including his own company And this is where I come to the whole inclusive growth issue And I really want to kind of argue that these are all absolutely connected And if we start treating them separately as innovation policy here inclusive growth policy here We absolutely miss the opportunity to bring them all together under if you want the umbrella of What's a new way to think about sort of wealth creation and how to? Reg how do you say think about that process? Okay, so if we have a different way of thinking about who the risk takers are and I've basically been arguing that The taxpayer has actually been one of the lead risk takers Having said that all my minsky and friends always say no Marianas don't talk about tax because none of this stuff happened through tax It happened through printing money, but anyway, let's not get into that too much now because it brings all sorts of complications You know it should then result in a different way to talk about also the distribution of the profits if you want that That result from this So what's interesting if you look at the Piketty, you know data and this is just the data itself it's not the return of return on capital return on growth, but Is that you know from the 70s on absolutely inequality starts to go back to the levels it was Before world war two and he obviously talks about things like oh, we need a wealth tax and all sorts of tax reform What has been missed in that if you want critique the Piketty and critique is really thinking well Why did those taxes fall or why do we have such a dysfunctional Taxes in which he then rightly wants to correct and it has been absolutely Connected to this problematic way that we have talked about the innovation process and the wealth creation process in fact in the us In the us the capital gains tax for example, which Piketty actually focuses quite a bit on in one of his chapters Fell by 50 percent in just five years between 76 and 81 So fell from 40 percent to 20 percent. Why was it the tobacco lobbyists? Was it the oil guys the big rich, you know fat net guys? No, it was the national venture capital association that had just formed and basically made it its mission To get capital gains tax to fall with this narrative, you know, we're the wealth creators We're the innovators you want the knowledge economy you want the information society Well, then reduce our tax and then you need a communist like Warren Buffett to tell us uh, yeah, right? You know, I can even look at capital gains I invest where there's an opportunity and in fact if you look at where the VC industry invested they absolutely Completely monotonically invested always where there was huge amounts of public money being spent it You know taxes had almost no effect on where they invested Of course they had a massive effect on the profits they earned from those investments But obviously the role of a policymaker is not to increase profits, but to stimulate growth um Now it's very important and and bill is on it and I wrote an article where is it here? Does the risk reward nexus and innovation inequality relationship where we we begin with the characteristics of innovation Which we say are not just collective and extremely uncertain, but also cumulative Now if innovation was not cumulative in some ways these dynamics i'm talking about would it matter But because they you know innovation is cumulative path dependent persistent Then actually the returns from any of these investments take a long time And unless you have a way of talking about who actually produced the integral under this curve of returns What we have ended up allowing is for some agents, especially financial agents to come in sort of halfway through And reap that you know a big chunk of that integral versus just their mar, you know Versus a return which is proportionate to their marginal contribution to that process And I definitely would put the VC sector there Um, but also all sorts of other agents including the largest shareholders and this is uh An area obviously the bill is on it coin. Oh spoke here recently has contributed massively to especially his most recent article In the harvard business review where he argues not just that these you know Very high levels of share buybacks, which are a proxy for financialization They've gone out of whack You know a three trillion over the last decade and the fortune 500 companies, but the proportion With uh compared to r&d spending so actual investments in Long-run growth has increased quite a bit. So this is the black line here, which is repurchases So share buybacks which boost stock prices which boost stock options which boosts executive pay over r&d is particularly problematic Um But also the whole justification for why this is fine So shareholder value is actually built on this notion of that the big the shareholders as the risk takers Right. So the residual claimant theory so that everyone but the shareholders has a guaranteed rate of return And when there's anything left over from this process the residual, it's you know, the right that the shareholder Uh, can take it the booty because they in fact risk the most of course That's completely false and all the investments have been talking about for example The public sector of course risk massively and in the article we also talk about how workers of course are risking constantly For example by accepting jobs for lower Salaries in the beginning thinking they have a lifetime career in a place when actually in most cases they don't um Now it it is important to say that uh that steve jobs Not soon job. Sorry bill gates figure I had up before is is quite interesting because on the one hand bill gates has been Very proactive in arguing for more strategic government for example in he leads the american energy industry council And has argued that the government in the us should be spending more on things like arpa e So an additional billion he argued when actually this council which is made up of these seven companies led by microsoft If anything have been increasing their share buybacks and in just in um That 10 year period which was the period When they were arguing more should be spent Um, you know, they spent 237 billion on those areas and when you ask these companies why They're doing that. Why aren't they spending on you know On human capital rnd blah blah blah and why so much if you want to share buybacks often? The answer is because there's no opportunities for investment. It's so this is the right thing to do And really the issue is and through this If you want depiction that i've been portraying is you have huge amounts of public money being spent On these future opportunities and really what we don't have today is a proper deal a healthy deal A healthy public private partnership a symbiotic mutualistic partnership versus a parasitic one that can actually engage in what you know What should this deal be? Because we shouldn't forget that even though i've been talking about the state the state the public sector the government You know this blah blah blah of course the private sector has always been important But we know that that's why you don't need me to come up here and tell you that But it's been most important when these deals were struck So one of the issues is today we don't have in the green area The kind of xerox park bell labs kind of private big laboratories that we had for it And why is that so where did bell labs actually come from was it just at and t that one day woke up and said I want to do innovation right big stuff no the government forced at and t to do that at and t was a massive monopoly And in exchange for this government granted monopoly rights Think of google google today is a big monopoly and it's allowed to remain a big monopoly AT&T was forced to Reinvest its profits not just in the real economy not just in innovation in its little area But big innovation that could really affect the entire economy And that's where bill labs came from which was out of a provocation Or if you want a healthy deal and I think this is one of the Issues and so how do we build such deals where there's all sorts of ways The first thing is to admit that tax is no longer playing the role that it used to Because another communist or not communist was eisenhower, of course, right? He was a republican not even a democrat general military general and when nasa was founded The upper marginal taxation rate was 91 percent in the us in that era This thinking about this whole risk return and also deal making between public and private was still relevant But not as relevant as today Again, we all know what's happened to capital gains. We know what's happened to corporate income tax We know what's happened to the top marginal rate again 91 percent. We're debating here 50 percent under a republican president So the real issue is how might we if we admit that the role of the public sector has absolutely been to lead This entrepreneurial risk-taking investment process structure up a more healthy deal It could of course be done through equity, which is in fact what happens in some countries like in finland They have citra which invested in okia retained equity yasma in israel retains equity or royalties We could use income contingent loans and just instead of these sort of giveaway loans which are independent of the profits that are generated later from these uh Companies don't forget that google's algorithm was publicly financed through the national science foundation So even with the grants it could just be giveaway grant Here's money google go do your thing larry brinn or whoever, but you know what if you make x billion From this then maybe you know something will come back to whether it's an innovation fund or something else Um, we could of course cap prices which in fact is in the law in the united states The bay dole act allowed publicly funded research to be patented in 1982 In order to facilitate commercialization and in that act it actually said that the exchange the deal Is that well obviously the government has the right to cap the prices of those drugs Medicines that are publicly financed never exercise that right so even when it's in the law Where they foresee this problem that the taxpayer is paying twice both for the research Which i showed you before is about 32 billion a year And for these really high prices it's not an act of because government is scared to be seen as you know Too active in the market making process prices. No, that's that's that's the market We at best can facilitate the emergence of these different Drugs and don't forget that in the uk where where you have the NHS the prices are still even though they're they're somewhat negotiated But they're still to a large extent If you want set by the pharmaceutical prices with the welfare state than having to come in to subsidize that Anyway, there's all sorts of other ways that this could occur in the article with bill We argue we should also limit share buybacks Which is hey if you Pfizer or amgen or sysco are benefiting so much From public investment that you have to then promise to reinvest at least a certain percentage of your profits back into the production process itself Instead of into these financialized measures and let's not forget that today we have record level hoarding rates in both Europe and the u.s So a lack of this kind of reinvestment And it's not enough to say there's no opportunity is what we really have is not a deal We no longer have this healthy deal So i'll end just by saying that in order to get this kind of inclusive Growth we really need to really literally think of it as a revolving fund in the big sense that i've just been mentioning But more in particular coming back to these big four questions i put up in the beginning We absolutely need a way to think about the policymaking process is absolutely setting the direction for change It you know get away from this whole picking winners, you know question, which is an irrelevant question Everything i've shown you today has been picked whether it was uh, uh, you know the internet gps But also shale gas shale gas was absolutely picked by the u.s department of energy for 40 years and this massive Effect is having today on commodity prices Is an outcome of those choices having been made and so really the question is what can we learn From how these choices were made in the past and how they can be mission oriented So instead of focusing on particular sectors or just technologies when you think of a big problem Like going to the moon what was interesting of going to the moon is that about 14 different sectors got involved And there was about 400 different homework problems underneath that So if you want, you know thinking of all these societal challenges, whether it's the aging crisis climate change, etc thinking about directionality in terms of you know, Honing in on these homework problems is quite important. Um Evaluating these investments is fundamental because even when you have these agencies that make these strategic investments, they're immediately accused of crowding out And even when we talk about crowding in at best that's sort of at the macroeconomic level So fine you get the whole Keynesian stimulus you get a multiplier effect that increases the pie of gdp Which increases the pot of savings which increases the amount of money that private investors blah blah blah But that's not what i've been talking about I've been talking about absolutely pushing the market frontier creating a completely new landscape Which absolutely did not exist And so what we should have but we do not have is concrete indicators Through which we assess and value that if you want pushing of the market process So you actually look at the distance that If you want the the pushing of the market frontier so in an area like health We should not actually have the nih the national institutes of health or in this country if the nih If the nhs was actually investing in innovation, which it doesn't really do but of course the medical research council does It shouldn't just be for example financing most of the revolutionary drugs, which pharma doesn't which they do But why just drugs? Why not really push that market frontier into areas like lifestyle? Which the pharmaceutical industry doesn't invest in but instead of seeing it as fixing a market problem absolutely shaping New markets and making sure that the way we value these Agencies is precisely whether they've achieved that instead. We do the opposite When an agency like the bbc organization goes out of its little remit of fixing the public good Which is like documentaries and quality news etc as soon as they start doing the voice or soap operas or Or or or whatever we we see that as having gone out of their remit Potentially taking the the space that should be for the private sector versus actually seeing these activities if you want as As activities that they're doing to produce for example different types of public value messages The concept of social value and public value Regardless of the actual activity documentary or soap opera actually doesn't exist By focusing just on the public good As as defined by economists we have we're increasingly limiting the space within which the public sector is even allowed to act And so this also then affects things like I mentioned before the ability to attract talent Because of course even the iPlayer would seem like out of the remit of the bbc instead by constantly Investing in-house in its own capabilities and competencies Rather than outsourcing all the interesting things to the private sector This is actually enabled it at least historically to attract very high level talent. This is related to the whole issue of how do you Build capacity in public organizations. So they welcome this trial and error process, which inevitably will include failure Hirschman talked about policy as process. This is extremely important in terms of allowing public sector organizations to build these Dynamic versus static partnerships and of course this whole issue of how do we distribute not just the risks? But also the rewards through these different mechanisms, which you don't even ask You don't even get to this question unless you begin with saying that we absolutely require a different narrative and theory And hence also valuation mechanisms, which introduce this investment risk-taking process and lastly It took such a long time to make this graph and I did the TED talk So I would have to put it into to make sure that it made sense to spend that time But anyway, this is the prezzie stuff, which I've never done again But you know Rethinking this whole stupid cartoon image, which we are fed every single day has to be the beginning Otherwise We just end up at the at the starting point of just set the conditions and get the hell out of the way And I've gone over time sorry I'm done Thank you so much. Mariana. This has been absolutely wonderful. Absolutely wonderful very very insightful and a real privilege to be here I will ask professor ben fine from the science department of economics to make some comments about the talk and perhaps Leave some questions for us for discussion later on and then I will open for our questions from the From the floor, so you might want to think about your questions, but Ben, please Okay, well Can you hear me? Yeah, thank you very much for this excellent talk As far as I'm concerned, I find there's very little to disagree with and I don't understand how either any gerbil or tiger could disagree with you either Um I prepared a portfolio of responses in advance of the lecture And I will go over some of those but I will have to think on my feet I think in general I would as I've said this is food and drink for tigers and gerbils and My own approach would be to involve some shift possibly in emphasis in framing and in priorities Um, I want to begin though by observing something of attention which I think is addressed in in the presentation Which is to argue that state intervention has been and remains extensive and decisive in innovation But then that raises the question why has there been a failure? Why have we had the global financial crisis? Why has there been this interruption in the success of the innovating capitalist economy? And Mariana and our task is to lift the veil on this um In order to as I understand it to ensure that we get more of this uh state Intervention to promote an innovation But one of the issues I want to raise is well, why is that veil there in the first place and what effect does it have? two of my portfolio of responses was to deal with that first of all in the area of scholarship Why is it that economists are incapable of recognizing the nature of the sources of innovation? But I haven't got time for that so I'll put that on one side and the other one is Why economists who ain't engaging in Arguing for a renewal of industrial policy remain incapable of understanding What is involved here? All of that I'll put on on one side because I haven't got time for that either what I do want to say is that To use a vernacular we've had 30 years or more of neoliberalism. This has witnessed unprecedented realization of technical change and innovation through the state and the private promotion Which in the context of other global conditions, which I could run through or to have underpinned continuing expansion of The global economy on an equally unprecedented scale despite what was a slowdown in the period after the Stagflation of the 1970s I mean the way I like to put this is that capitalists have had everything their own way not just innovation But almost everything else as well, but still they fucked it up and The proximate cause of this and I think mariana does raise that Not not just in passing is financialization and of course there's been a huge set of innovations within the financial sector itself quite apart from weaponry as well as other areas That that mariana correctly put to the put to the fore One of the I think striking an absolutely Appropriate thing to say about neoliberalism despite its ideology is to bring out just howly how highly Interventionists it has been including in the area of industrial policy, even if it As I said puts a veil over that But what strikes me here is that in many ways if the canesian post-war boom Had continued from the 1960s onwards much of what Mariana's asking for would have been realized What we were witnessing throughout the post-war boom was a socialization of economic and social life as an ongoing trend Delivering the sorts of outcomes that she is seeking In a sense the only debate was between the social reformists and the social revolutionists How do we keep this going is will it be by continuing social democracy or by A social revolution which will be essential in fact both of them proved to be wrong And what I would argue is the processes of socialization and again This is more a matter of emphasis and disagreement as far as can see the processes of socialization Not just of industrial policy, but almost every area of economic and social life have been undertaken by the financial sector That leads me to two points then of bordering on the disagreement perhaps The first is and I put this very provocatively If I had the choice I would stop all innovation now And make best use of what we have already Do we really want to discover well you did the moon, but I was going to do water on Mars So we really want to discover whether there has or is water on Mars When large numbers of our population don't even have water and sewage And then we do not need innovation in technology to deliver these Quite apart from don't we have the technologies? Yes by all means let's make them better and so on Don't we have the technologies for clean Renewal sustainable delivery of energy and so on So that's that's one issue to raise Really should innovation of the sort you've been talking about be at our forefront rather than Dealing with the problems that you raise again of inequality In the context of the technologies that we have already it may not necessarily be a matter of either or But that itself leads me to my last point, which is your presentation very much rests within the Framework of the agenda of the state versus market, which was Promoted by the Washington consensus this itself morphed into the state in support of the market with the post-Washington consensus And this gives In my view considerable leverage in terms of progressive thinking but analytically Underpinning the state and market and interventionism is what I've called P times two and the c time two We have to have a look at the politics and we have to have a look at power And we have to have a look at conflict and we have to have a look at class and For me really to go back to a point. I've raised already The major obstacle in all of these respects is not just the financialization of innovation But also the financialization of economic and social life To deal with we have to put on the agenda before we can even start talking about alternatives to the Limited development of innovation and delivery that you have so ably Pointed to Thanks very much, Ben. I'll Invite yeah, I'll invite Mariana for a quick response to Ben and then we'll go to two questions from the floor Mariana, okay. Yeah max some on five minutes. He said I just can't for some reason. I can't get this Here we go. We start there five minutes max. Okay, this works So first or first of all, thank you. I agree with everything you said except I'll just give a different taint to it It's you began by saying I don't see why any tiger or gerbil would disagree. Well, I'll I'll tell you why there's disagreement There's huge profits to be made by telling a very very different story So the mega profits that are made in the pharmaceutical industry Which remains the most profitable sector in the entire world are obviously highly correlated with the prices that are being charged And as soon as we talk about again where these Wonderful products whether they're innovative or not have come from then, you know That price that pricing should not be allowed not because it's just unfair and not just because people are dying because they can't buy The drugs but because it absolutely does not represent The contribution that those particular private actors made in that process Of course, they were important, but they weren't the only ones The capital gains example I gave you billions were made when capital gains fell by 50 percent and it fell not just because some stupid Person decided to allow it to fall But because of this lobbying through this narrative of this whole wealth creation process So it's absolutely fundamental to recognize that money is being made at least in the short run And I'll get and this brings me to your long run question actually but in the short run Massive profits are made by telling a very different story from the one I've been telling Now the long run story is very problematic for the companies themselves And this is why the short the gerbils and the tiger should be worrying even though they might not worry in the short run in the long run Because you know, where do Profits actually come from will from these investments and let's not get into the whole sort of marxian view of how we would define the profits but When you end up having extreme financialization Which has also been enabled by this lack of deal making that I've been mentioning because again the share buybacks Of course could be limited if there was a deal between what the public sector has actually Provided not just in subsidies, but in terms of direct investments for these companies Including cisco that spends more than 100 percent of its net income on share buybacks As well as the level of austerity that we're experiencing today But actually the more structural austerity that we've experienced since the 1970s Which is again part and parcel of this whole process because it's really been the whole public choice theory revolution of bucane and etc in the 1980s Which which very directly went after this notion of you know, public value or social value is doing anything more The public sector doing anything more than say the public goods are really abolishing any notion of this grander project that one might have Um including very specifically the market making market shaping process This hurts future Right investments of the kind I've been talking about So actually the u.s. System today is under immense threat These same agencies I've been talking about for the first time in their history This is very interesting for the first time in their history or facing cuts Under reagan the the investments in most of these programs actually doubled Or or increased in most cases in some cases doubled So this is the first time and this is why I mentioned in the beginning that we are living across the world Not just in the u.s. In fact in europe it's much worse than the u.s A real crisis of imagination of the public sector. This is why tony jut talked about it as a discursive crisis that we have with the public sector Then also this whole thing about industrial policy I have a real problem with it because industrial policy which obviously I support because you know everything I've been talking about has been a result of industrial policy But the revival of industrial policy is very problematic because it sees Sorry, then this is coming to your your point about industrial policy It kind of sets up the problem as big bad finance versus great industry and we need to rebalance the economy This is how the uk at least talks about it, you know from finance towards the makers from the takers towards the makers Ignoring completely this issue about financialization, which is that one of the biggest sicknesses we have today is the financialization Of the real economy and this is why absolutely innovation policy unless accompanied by An extreme de-financialization of the real economy is just literally going to make this ecosystem even more parasitic Why should we have just more and more money coming out of the government going to uh, you know The fisers of this world when they then spend most of their profits just on these share buybacks. Um I was going to say something about that you remember um, what else uh, yeah So this thing about innovation. Do we actually need innovation? I think you're I partly agree with you, but I also you know don't and in other words, uh But let me just focus on the easy part because other one would just bring us too much into uh, you know What actually into productivity issues, but anyway, what what I mean by mission oriented innovation is precisely that It's not for me to say what the mission should be or what the you know or us even it should absolutely be Also part of a democratic debate, but what's interesting about the going to the moon experiment You know it was just a dream. It was kind of crazy But first of all it was crazy It's when government was still able to be a bit crazy crazy nasa's mission today is commercialization Right, uh, this is you know like sex like when you can't get it up or whatever you just start focusing on it It ain't going to happen Right, so they're focusing on commercialization You have you know all these innovation policies focusing on innovation Disenabling sorry these public agencies. I'm glad the woman said that I mean No, but so what green could be but this is very important So what green could be is a completely new direction for the entire economy, which is what the energy innovation Uh plan is in germany the energy event policies a new direction for the entire economy And it's also on the demand pull side, right? So green becomes a direction even for it in the same way that suburbanization Became a direction for mass production Because this is what I meant when I kept saying this is not just about rnd It's not just about high tech. It's about first of all thinking of that whole innovation process But also on the demand side that's where you have to have bold public policy Steering these revolutions. So, you know Robert solo or Robert Gordon's whole thing about computers or everywhere But in the productivity statistics or the whole toilet thing versus the internet which had more of an effect Right, so when you have to go outside to pee in the middle of the night And then all of a sudden you could do it inside you can bet that was much You know that changed people's lives much more potentially than having the internet. This is one of the debates out there, but the point is um, do have we actually had for it a direction In the way again that suburbanization supplied for mass production And could that perhaps be one of the reasons why the it revolution has not been fully deployed And diffused and that is part of what we should be talking about when we talk about innovation policy And that's why I focus so much on this word the directionality Again, this whole other point of innovation. I mean You know, we would have unemployment unless you have investment in these areas that increase productivity over But I don't want to get into the whole technological unemployment thing because I think that's been misguided by the whole skills issue Skills are outcomes of investments when you have financialization You have a crisis also of that investment process. And so the skill Bias technological change completely misses the skills as an endogenous result of the investment process. And so I would just want to make sure that any discussion about technological unemployment actually took that into account But again, that just would open up a whole can of worms So should we open it up to the floor? Wonderful. Thanks very much. This is getting better and better. Yes We've got two microphones. So, um, what we're going to do because we want to capture this Discussion on video you raise your hand. I call you there will be a microphone coming your way And then you ask a question. Yes. So first one here. Yes Hi, thanks for the fascinating talk Going back to my name is race. Kelly. I work with action aid and we've done a lot on tax One of the things that we think about sometimes is that even if corporate tax avoidance was cancelled still tax receipts of a lot of Countries would not be that high. So I was wondering do you have any Comment on what lessons your discussion have for countries that are Resource poor don't have a lot of revenue don't have a lot of money to invest in these kind of new sectors You've talked a lot about us china big big countries with lots of resources But what about a much smaller low-income country that may not have as many resources at their disposal? Okay Do you mind if we collect a few questions just because of the time constraint? Uh, yes Yes Hello, thank you very much for an interesting talk I'm coming at this from I do research about ICT hubs in Africa and I get very frustrated with the myth of silicon valley within African tech hubs and I have two questions. The first is To what extent do researchers looking at this in the u.s Kind of avoid the dangers of crony capitalism Or to what extent do we have to be pragmatic that that's part and parcel of this process because when we move to places like African countries that's used as a huge justification against industrial policy that crony capitalism is a thing Um, and then the second question Is to what extent, you know, I get very cynical with these startup competitions That in a sense it's it's pr for google and microsoft and whoever else to justify Certain things in african countries and i'm wondering to what extent it's that government lacks a pr or a corporate social Responsibility department to make their message And to what extent is it about these companies having money to spend on their image and their mission? Thank you. Yes In addition to what ben said What we have observed this situation where it's not just the financial crisis, but also the greatest worsening of income distribution For so many years at the very same time That all of this excellent and very impressive things are happening by the state And one wonders if we could link these things or we should link these things And I find fascinating that at the moment there is a debate between With what I would call the neo left That is totally mainstream economy. Some of them got a Nobel prize in economics Promoting neoliberalism or neoclassical economics in the past That now take a view which read it if I read it in the light of the 70s I might say it's actually very much in line with what we used to call the Instrumental theory of the state That is the idea that the state in effect is the executive committee of the bourgeoisie And I wonder if these theoretical ideas can actually Make some link because all of these things happening together That is the state being so bloody good so to speak and then at the same time To have the crisis to have the worsening distribution of income all of these things It seems to me like some winners are picking losers and we are the losers And those who are picking the losers us is by picking the The mechanism that supports them to be winners, which is the public sector So all of this love of the left with the public sector Needs to be seen in a slightly more cynical way today Just just one more yes And then we close this round Brief because we have a time. Yeah, really brief question You presented data on on inequality and talked about inclusive growth What I just the question on more global inequality uneven development And especially argument that you said With the direction argument and excluding picking winners So when we look at less developed countries, would that not be detrimental for their developmental outcome given sort of what Ben also talked about the near liberal Return to the static low productive comparative advantage. That's Apparently naturally given For for these less developed countries and would that not be Then as a result them being stuck on the on the on the lower end of the value chain or do we need to include Again the picking winners in in your direction arguments when we talk about less developed countries So, um Right the first question Let me just break down the first question because there's two different parts of that question One is a big country. Sorry, where are you so I can look at you there Sorry, a big country small country and then sort of develop versus developing and the first part is it's kind of irrelevant I mean, there's plenty of massive big countries that are completely clueless in this area and small ones that are actually quite innovative and and vice versa So Denmark, I always take as an example Denmark's tiny It is the number one provider of high tech services To china's green economy and china spending 1.7 trillion dollars So, you know, they did something right and if you start looking at and I can tell you the story of what actually happened in Denmark, which I don't have time now, but definitely the small large thing It's not the issue in terms of the relevance for developing I mean obviously there and I'm not an expert in low income countries But in terms of the middle income countries, I mean, I always wonder how did the bricks word even get going? It actually means nothing. I mean Looking at, you know, brazil russia in india and just how different they are what's been interesting for me In in looking at brazil specifically at the organizational level Um is is precisely that that the interest in things again happen at the organizational level So the particular things that bnds has done at how it structured its investments and how it's been able to recruit talent Was absolutely fundamental for least a period or particular spaces. I don't want to make a macroeconomic argument But for its success Which doesn't mean, you know, so so the category public bank even doesn't necessarily mean much So in italy, we have a public bank as crap It absolutely does the opposite of what i've been saying, which at best is counter cyclical and and its investments are all about Just leveraging de-risking the private part not really taking any courageous Role in anything so for me really the lesson is organizational lessons What can we actually learn from looking at the bbc versus say a public broadcast or even like at i again Sorry to keep coming back to italy as the as the lame country But the organizational lessons are massive and I do think at least for high income and middle income countries It's been ignored Now again, the challenges for a very low income country are different and it's simply not my expertise So I don't think I shouldn't even say anything Um crony capitalism is everywhere again. And this is really where I can say italy Sorry But what's interesting is it's the opposite in other words, you you know even more crony capitalism when you don't have Actually a theory of what the public sector should be doing. It's especially when the public sector sees its role Sorry, who asked the crony capitalism question? There you are. Um, when when the public sector sees its role is just facilitating You know getting the right, you know being business friendly, you know, that is like and I'm gonna I was about to say something really vulgar that Oscar Wilde said but I won't um, so yeah, it opens you up to being you know Beep beep beep And so in this country, for example, sorry, I keep being very improper. Um, this is my new york side So in in the uk which at least recently in its recent history has been very uh Damning about the role of the state just think of cameron's famous quote in 2010 civil servants are the enemies of enterprise This is the government that did one of the most crony things possible Which is to allow one company glaxo smith kline to lobby through the most idiotic innovation policy ever Which is the patent box the patent box makes no sense anyone who knows anything about innovation has argued it makes no sense Patents are already monopolies Right for 20 years You don't target the income that's generated from the patent Which is what this massive tax reduction does for uh In the patent box policy you target the income that's generated just in the uk that's gonna reduce Tax revenue by something like four to five billion pounds, which of course then it's going to require, you know cutting Whether it's education spending social services or whatever this particular problematic Tax policy was absolutely lobbied through in a very crony capitalistic way And it's you know this and I would argue I mean just kind of jumping to christos is kind of a question about also the left and labor Labor has actually been one of the worst in this area So it was actually the labor government that got lobbied and reduced the time that cap that private equity has to be invested From 10 years to two years in order to get to be eligible for this massive tax reduction policy And it's not a coincidence. Sorry for for just capital gains tax reduction It's not a coincidence that when labor lost the last election in may What did tony blair say? What did even my good friend chuko moona say? And uh, what was her name who then didn't even make it? Kendall this Kendall say the day after uh, they lost we lost because we didn't embrace the wealth creators Right business and so that immediately got labor think oh, we have to show we're business friendly We're business friendly This is the worst possible pressure that a party can feel especially when in power to be business friendly Because though it's it's precisely when you know, because that's not the point of government to be business friendly It's to do what kane said in that great quote I put up before to really you know to be doing big things not just tinkering on the edges making things a little bit better A little bit worse but be doing the big things That the that that the private sector is not doing and the fact We don't have a way to talk about these big things that the private sector is not doing unless we resort to this kind of Lame market failure framework, which of course is important But it simply doesn't describe probably anything more than 30% of what government actually needs to do to get us the kind of growth We want then this really opens up government absolutely for this kind of crony capitalist Scenario um the whole pr thing is is very interesting You mentioned that because I'm constantly arguing that government needs a marketing agency and you see this Even you know For social policy. So, you know the whole obama care thing, which was huge, right? I mean so many presidents or first ladies in the case of clinton It was hillary clinton that tried to get this Health policy through When obama did it which was a great achievement you can almost see that as a mission, right? I mean huge achievement what he at least was trying to do obviously then got, you know watered down immensely He had no way to talk about it, you know, so when he was accused of Meddling in people's healthcare, right? And that's where the whole thing starts sort of falling apart He should have said sorry meddling what you know, we created your healthcare system, right? 75 percent of new molecular entities with priority rating in the u.s. Are financed from the national institutes of health he didn't say that so by completely changing the narrative And we are not just fixing the market. We're not just regulating We're not just redistributing to make things more fair, but we have absolutely co-created this space You're calling the healthcare system. We're not just meddling intervening and making it more socially just is absolutely fundamental For their ability also then to talk about their rights to you know, whether it's capping the prices of drugs or Forming a national health service, which the u.s. As well as many third world countries don't have Anyway, the whole value extraction thing that cristo said I mean I'm actually writing a new book just on that on how so much value extraction occurs in the name of value creation And this is what the left has completely not gotten And so I'm not going to say more of that otherwise you won't invite me back in a year to talk to you about that But the whole public choice, you know Again think that I mentioned before which basically it's kind of sets up government to just look like an inefficient private sector And then thinking of different efficiency reforms that we can enact has been one of the most Disenabling Things that have happened. I think in the last 30 years I actually didn't understand the last question So uh, so global inequality and I didn't get the connection to picking winners I got the question, but I didn't understand how you were using the picking winners problem as could you maybe just Yeah, because you mentioned the the winners have been picked. So if we oh, but so have the losers I mean everything's been. Yeah, so if we if we take that as as sort of If we accept that also for less developed countries have they not been sort of Picked to be stuck on a low value Value creation chain. That's why I'm sort of on a global catching up level How can we think about industry policy in less developed countries given the fact that they have Been pushed towards this acceptance of the neoliberal Dictat of comparative advantage And then and then in that sort of scenario that we need to rethink The direction argument that we do need to pick winners in these less developed countries Okay, so the way I was talking about picking winners was within a country Being able to set a broadly defined direction. The last thing you want to do is pick three sectors, right? We're only going to be great at automotive. We're only going to be good at textiles and You know even rice or whatever right the point of the mission was to have a broadly defined problem Underneath which you can do lots of different things within any of those things you have portfolios of different areas You're going to pick particular firms that you're going to support over other firms Which by the way is very important in developing countries because it's This whole small firm thing And I shouldn't I know people hate me when I say this but most small companies are crap right, I mean it would be fine to Especially in the in in the uk But in italy as well So, you know, you don't just you don't have policies like let's help small companies because they're important to the economy Most small companies are small precisely because they're actually not very good So the whole kind of scaling up issue requires this patient finance Which especially in developing countries has been absolutely fundamental But that requires picking some companies over other companies now that doesn't mean saying So this then brings us back to the crony capitalist thing like some companies getting more support than others Whether it's for nepotistic reasons or whatever There's an issue of can we define certain characteristics that companies must have in order to receive support And if we start looking at what those characteristics are they start producing policies that are very different from This kind of catching up and you know helping small firms or infant industry kind of arguments But also to be honest, it's just as true in developed in developed countries We have not actually been courageous to say we're only going to have Industrial policy or finance policy for particular types of firms for example those that are reinvesting their profits in areas like x y and z But you're using it in a different way. You're almost using it. I mean again development development in terms of the development countries Underdeveloped countries is not my area of expertise But a great book I read was how europe underdeveloped africa and it almost sounds like you're saying, you know The the development process itself is an outcome Or the lack of development process of certain policies very strategic policies having allowed Certain countries to develop in certain countries not to develop and should we Talk about the picking winners or or not allowing certain countries to succeed Within this kind of picking winners debate, but you know, that's fine, but that kind of stretches the way that we use Picking winners. I'm only using it to say it's a non problem You have to pick. How do we pick? How can we define? Missions and then the question is what are the kinds of missions that are more relevant for a low income medium income? More developed country But in all of those cases what you're trying to do is also enable bottom-up processes that engage With this more you could call it planning or top-down process But this is where I really think the work of Hirschman or even Danny Roderick and some of his latest work is extremely important For exploration and emergence of you know policy as emergence even though I don't think That work actually explains some of the most important sectors that Have come out so the examples of you know footballs in Malaysia Don't do it for me Sorry Thank you. Let's have a second round of questions Thank you for a very insightful talk This is probably not so much a question as a reflection and then you may want to comment on it I saw Polanyi referenced on the abstract for this talk and that's one of the reasons I came And so with reference to Polanyi and the Polanian insight about the role of the state In forming and sustaining the market You mentioned that but Polanyi also spoke at length about the the priorities of the human race in terms of habitation versus improvement Um and he spoke about the focus on man and his life in society and and living in harmony with nature Um, I think ben and some of the others spoke about the financialization or the commodification of finance aspect Um to me, maybe I'm wrong But to me some of some of what was said here doesn't really address any of the fictitious commodification problems from any aspect Green so the three aspects of smart sustainable and inclusive briefly, please Yeah, I mean fictitious commodification of nature fictitious commodification of land now these are really addressed in terms of the approach It seems to me that the role of the state now in the next race is to be an agent for the improvement agenda Though though we may call it habitation some of the some of this can be interpreted as being an agent in the improvement agenda And it somehow ignores the political economy aspect So one last point was why would we expect different consequences with respect to sustainability? For example From from from health public health in the united states Where americans come to india for medical tourism because they can't afford medical costs anymore in the united states So why would we expect different results when the social when the organization of production is going to remain the same? Thank you Let's ask again. Let's try and be brief because we have a time constraint. Sure thing. I'll make this one brief as well Thank you for the talk This question relates to the insight you provided into the sustainable technologies field I'm a student here, but I'm also working with a small group Also defined as a small company actually Relating to community-led investments into putting solar panels not only on this roof, but also on other universities in london Um, and I was wondering what your thoughts were about whether there's room for community-led Technologies and groups and whether they are or aren't conducive to good growth in a national or local level Thank you. Thank you. Any additional questions? Any questions? Yes However, mariana, thank you for your talk I have a question about the political economy of the situation You mentioned that we are in a discursive crisis that we don't have enough ideas and arguments about what the public sector could do I can imagine that now a company like apple Would have a great lobbying voice not least because of its Economic might but of course such a company has moved beyond its need for small company seed funding In in and has become a giant and by that means has become disconnected from being part of that contingency that would Want politically to lobby the government for the kinds of policies that you're talking about so what kinds of sectors and and constituencies of businesses or of people or of communities can we identify that will build the right kind of pressure to bring about this change in discourse Thank you. Any final questions? Yes The point you made Small big I think we have to be very careful in avoiding that type of dichotomy right because Because there is an inconsistency right in the narrative because if we want to understand value creation we need to understand production system and if when you start thinking about how a production system really works There is no big small there are different functions and there are certain companies that perform critical funds I mean I work a lot in packaging medical device, and you know, you know, it worked like my best or Chris was referring to and so on if we don't understand how these values generated at that level We are basically creating again another fast dichotomy that Generate again another problem and this is paradoxical right because in a sense This is the way in which the no classical economists would talk about the small big the company that emerged and the other They disappear companies don't disappear. They are there. They try to transform They go through phases where they're being then becomes small and so on and so forth So I think that's something really that has to be understood. I give you just a figure Roll Royce, which is clearly one of the last big manufacturers here Account in terms of employment less than the Cambridge cluster Which is one of the biggest cluster and in the Cambridge cluster A part very few companies that don't produce there are actually employing more than the Royce altogether So and they are generating problem in terms of innovation Much more than at the moment of Royce is doing especially when he's threatening the government in terms of going to Move there are in the departments to Singapore as you know This was the main reason why the last government put together 456 billion what was the the big plan for the aerospace industrial policy and they created a nati which is the aerospace technology institute because They had basically to respond to this big request So I think that's that should be part of this type of narrative because otherwise we we really miss one of the fundamental story Thank you. And final question. Yes Hi, um, you discussed inclusive growth um, and I was just wondering because you made the Comment about small firms But I was just wondering if you could kind of elaborate on how if we don't encourage small firms that may not have global empire And huge profits at their core as soon as this remains at the core. So like ttip Coming through being pushed through the monopolies How can we ever have inclusive growth if this is all that you want to actually promote? Yeah, so maybe I'll start with that because I obviously I said it wrong all they meant was Um, I was not trying to say the small firms don't matter Of course they matter but they matter in particular context We have to look at what kind of small firms what kind of relationships with large firms. So for example um, you know the whole buyout Mania that has occurred in many sectors including it and pharma That in itself is not necessarily a problem when you are a small firm being bought up by a super financialized firm That's the problem, right? So what so fiat even in italy which had a whole network of small firms around it Those small firms were actually benefit, you know Benefiting by interacting when fiat when fiat was a functional company that was actually investing in human capital formation and long-run investments As fiat in italy became overly financialized that network of small firms didn't benefit So all I'm trying to say is let's focus on the ecosystem of public and private Actors different types of public and the main thing I've been focusing there is a mission oriented public sector is very different From one that sees its role is simply facilitating the private sector and the relationships between large and small firms Rather than focusing on the small firm problem. By the way the whole financial This is actually more of an answer to you Antonio The whole you know one of the reforms that were being proposed and is sort of still being enacted around the world after the financial crisis Which was to separate the commercial arm from the investment arm of banks Completely didn't get the small firm problem because small firms regardless of just you know the ones who want to innovate or not Small firms require investment. They require patient investment You don't expect a small firm to go to a commercial bank So, you know how we have tried and completely failed to reform the financial sector with these very piecemeal reforms versus kind of asking the minsky in question What kind of finance do we need a financial system? Do we need for real capital development of the economy and what is the role within the capital development of the economy? Of small firms and their relationship with large firms and what kind of finance Do they need but also in terms of mushta khan's work patient finance Allowing small firms for example to learn to even have the time to learn and this is especially true in developing countries Those questions simply have not been asked. So a huge loss Uh, had lost opportunity has I think happened The whole power question, which actually was also one of your questions, which I didn't answer Which was the one you were asking. Yeah, you're right. I don't talk about that. I can't talk about everything However Because I agree and obviously polanya has affected me in all sorts of ways not just this kind of market shaping stuff but also the importance of power and politics and These sort of anti kind of movement that he talks about the role of civil society The kind of dynamics I've been talking about have absolutely Reduced the negotiation Negotiating power if you want of at least public sector institutions don't think of big state because otherwise We'll think of crony capitalist state. I'm literally thinking of local regional national organizations institutions agencies Many of which or at least in theory dedicated to social programs, whether it be social housing Social education social health programs their ability to negotiate because it's all about power relationships There's a there's a war out there Has been massively reduced through this wrong narrative of who the wealth creators are Right and the fact that again the let me just say the bastardized Keynesians because I don't think that Keynes himself necessarily You know was guilty of this but the fact that we haven't in the left had the words or Literally the theoretical framework to talk about the value creation process itself As a result of these kinds of different types of policies has been part of the problem So it's not just about public choice theory having reduced the power of the public sector to negotiate in these power relationships Sorry, okay, alternative forms of finance That was you right? No, who did who asked me about community investment? Yeah, it was you so um One was so you know even the new forms of finance which I think have especially uh been How do you say emerging especially after the financial crisis because of the dissolution with the status quo and the existing types of finance And also the movements around that Currently just numbers wise are irrelevant. So crowd financing a little drop in the ocean Now, does that mean it's irrelevant? No, I mean quantity wise absolutely relevant So in the whole green stuff that I've been looking at I have the data for every single form of green finance around the world every single country Currently it still tends to be the kind of classic types of finance in both the private and public. However as as an alternative Symbolically form of finance that could potentially over time be scaled up And then the kind of questions that are required and kind of organizations that are required to allow that kind of scaling up process And what that effect would be that's a very interesting question And and a really interesting person to read on this is roberto anger Who was the strategic policy guy for lula? He's also a lawyer and a political scientist at harvard. He has a very interesting Theory about all this which he talks about in terms of social innovations So he would actually talk about some of these community investment programs that you're talking about a social innovations By the way, minsky and canes talked about socialization of investment Which is very interesting, I think for community investment programs But anyway, he talks about them as current, you know that there's a maximalist and a minimalist strategy with these social innovations And currently unfortunately, he says many of these social innovations are living in these little minimalist kind of experiment Scenarios Where we're not even asking what what would it be like to actually You know turn these experiments into systems into the way actually that countries, you know across different types of these experiments In some ways, I don't want to say are run But you know allowed them to be run by maximalist strategies And I think this is at least the current problem they observe is that they remain Experiments and they're not even being allowed to be even observed as potential Ways to really completely change the way that we think about finance, but again numbers wise if you look at them, you wouldn't even Necessarily study them if you were interested in seeing what kind of finance is really making a wave in Some of these areas at the community level, obviously they allow different. Anyway, um last question. Sorry. What was it? Did I answer them all oh the four oh the the the other part of your question in terms of the forum. Sorry Okay, let me just say one thing in terms of how can we actually organize to challenge the apples and the googles One issue is it's not enough to have someone like bill gates say, you know The government mostly the way in green we actually don't have at least in the business community And I know this is not the only solution, but this is absolutely fundamental We don't have a business forum that talks about what is required for future Opportunities to actually arise so given that I'm saying investment is driven by the perception of where the future opportunities are Where is the voice whether it's in the cbi the chambers of commerce the confine booster of this world That are focusing their dialogue with government in terms of the kinds of public private interactions the kind of public investments Private investments and relationships between them that will allow These future opportunities to even arise There is literally no business forum And so This I hope it doesn't sound like I'm name dropping but bill gates recently invited me to spend a whole day with him in Seattle And he thought I was going to go there saying oh, yes We need more government spending an arpa e and I said, do you know what the best thing you could do is? Actually set up a form of this nature because actually it's not enough to have your AEC when then your own company is so super financialized And so the discussion with government should also be about changing the relationship between the public and the private sector Which is incredibly parasitic today Remind me what you're I don't know why I'm sure I wrote it down. Where did I write it? Can can you just quickly say what your question was? I mean, I'll remember once you say it Yeah, it was basically just along those lines given that By by merit of becoming a large large company A company like apple moves beyond the need for small business investment Funding or small business research funding then it seems that from a political economy point of view Um, where where can we find the kinds of constituencies that will lobby for these policies or that will vote for these policies? Okay, so that's sort of where I was beginning. I guess I guess I merged the two SME Antonio Seniors. Um So there's plenty of constituencies and lobbying for Uh, the role of if you want different types of finance to be available To companies that are in their seed stage, you'll never know that they're the future apple But you never know right because you know small innovative companies don't have any equity They don't have any history So where are they going to get money in a current financial system? Which is requiring you to prove other existing assets or equity, whatever So I wouldn't say there's the lack up lack of that. I think what we lack is what I was mentioning So, you know, again, I give examples of whether it's israel which really does have sort of public VC funds or even finland or definitely in silicon valley that itself Is is not what's lacking. What's lacking is this discussion about what is then the proper deal for some of these companies when they do become the apples or you know Whatever the olivetes of this world and To you know, what should their then relationship be with the public system which enabled that Growing up right so this role of patient long-term committed finance Which is the kind of finance we need is extremely risky. Why because most of what will be financed will fail Right, so this is why I ended up with that Which is that what we then need is not just a different discussion of what actually was required for the facebook's of this world to exist But also a different type of deal Literally with the profits. So I think there was actually an article this weekend in the new york times by Dean Baker who argues that government should just have stalking and all these companies instead of charging tax I mean, you know, I think he was building on some of the discussions behind the past But I think that kind of misses the point the point is You know, there's not just one system. The point is we need, you know, first of all, does the tax system itself Provide that sort of return or do we need a different types of ownership structures? This isn't about nationalism or, you know, nationalizing companies versus allowing them in the market, but an absolutely different type of relationship with Repeating myself. Anyway, this whole wealth creation process. So what actually allowed the apples To arise. So I think that's a different question from let's set up a bunch of funds which allow seed Money to go to small companies. There's It's not that I don't think that's important, but there's plenty of discussion on that That's not what we lack today So I'm not saying it's not an important question. It's luckily a question that is being asked, but it's being asked completely outside Of this value creation process Thank you very much. My analysis has been a very very exciting event And thank you so much for making sure such an exciting place Um, thanks ben for your comments and thanks everyone for coming Tonight the next seminar series next seminar in the development study seminar series is next tuesday professor umma kothari Popular representations of development creating global alliances or reproducing inequalities 5 p.m. In room g3. I know more than welcome to come. Thank you very much