Patient finance, state investment banks and public finance

IIPP鈥檚 research focuses on new forms of public finance to promote long-term investment in the real economy and to finance mission-oriented policy.

Mariana Mazzucato talks to the European Investment Bank

鈥淭he important thing for Government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all鈥� -听John Maynard Keynes

听

IIPP鈥檚 work on patient finance looks at how different types of finance have been distributed between different types of public institutions, in different sectors and in different countries;听how state investment banks are opening up new technological frontiers and economic opportunities;听and where the opportunities lie for new forms of public finance to promote long-term investment and mission-orientated policy around the world.

How do we finance mission-oriented growth?

Many countries are now developing smart, innovation-led growth agendas framed around 鈥榞rand challenges鈥�, such as those related to climate change. These 鈥渕ission-oriented鈥� projects are all about creating new technological landscapes and innovative solutions to grand societal challenges.

But how do we find the money to finance these long-term strategies when industry is dominated by short-term thinking, companies are and private finance is retreating from funding the real economy?

Mission-orientated policy requires not just any type of finance but patient, long-term, committed finance. This has taken different forms in different countries, including public R&D agencies such as the USA鈥檚 Defense Advanced Research Projects Agency (DARPA), Finland鈥檚 SITRA and ISRAEL鈥檚 Yozma public venture capital fund.

State Investment Banks

In countries like China, Germany and Brazil, active mission-oriented public funding is increasingly coming from state investment banks. By developing new financial tools that also help to reform the financial system from within, state investment banks are important not only for 鈥榗ountercyclical鈥� lending or funding catching-up strategies (though both are still crucial), but also for providing long-term patient capital to finance smart, innovation-led growth.

One example is green energy tech, where state investment banks are now the largest funders of the deployment and diffusion phase of renewable energy, outpacing investment from the private sector. The four most active banks are the Chinese Development Bank, the German KfW, the European Investment Bank (EIB), and the Brazilian BNDES.听

In Germany the KfW has played a key role supporting the Energiewende policy to attain energy security and mitigate climate change through the greening and modernisation of German industries and infrastructures. In Brazil the BNDES has helped fulfil Brazil鈥檚 constitutional mission of securing universal and free access to its public health system through its sectoral programme in support of the development of the pharmaceutical sector, Profarma, which has focused on promoting pharmaceutical innovations.

Current Projects

Scottish National Investment Bank听

In September 2017 the First Minister of Scotland Nicola Sturgeon听听plans to establish a new Scottish National Investment Bank to support the Scottish Government's vision for delivering smart and inclusive growth. The announcement was informed in part by advice from IIPP Director听Professor Mariana Mazzucato, who has been part of the Scottish Government's听听since 2016.听

Following the announcement, IIPP was听appointed to a听small Advisory Group听that was convened to lead the work听developing an evidence-based implementation plan. The听plan听sets听out a roadmap for creating a new mission-oriented Scottish National Investment Bank that will听steer the path of innovation towards overcoming key challenges such as transitioning to a low carbon economy and addressing emerging demographic issues.听.

The design of the bank has been听informed by IIPP's path-breaking research on state investment banks and patient finance, including two new听working听papers co-authored by Professor Mazzucato and IIPP Research Fellow Laurie Macfarlane which examine how state investment banks are driving economic growth and innovation in different countries around the world.听Read more about the collaboration here.

Distributed Global Financial Systems for Society (Dolfins)
IIPP is a partner in the Distributed Global Financial Systems for Society (Dolfins) project, led by听the University of Zurich听and funded by the European Union's Horizon 2020 programme.听 It focuses on听how to reduce systemic risk, achieve financial stability and facilitate a more sustainable, innovative, fair and green EU economy.听Read more.

Research publications

A dynamic theory of public banks (and why it matters)
Working Paper
Ref: IIPP WP 2021/06

Patient Finance for Innovation-Driven Growth
Policy Brief
Ref: IIPP PB 01

Patient strategic finance: opportunities for state investment banks in the UK
Working Paper
Ref: IIPP WP 2017-05

State investment banks and patient finance: An international comparison
Working Paper
Ref: IIPP WP 2017-05

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