UCL Institute for Innovation and Public Purpose


Patient finance, state investment banks and public finance

IIPP’s 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
“The 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” - John Maynard Keynes


IIPP’s 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; how state investment banks are opening up new technological frontiers and economic opportunities; 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 ‘grand challenges’, such as those related to climate change. These “mission-oriented” 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 increasingly financialized 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’s Defense Advanced Research Projects Agency (DARPA), Finland’s SITRA and ISRAEL’s 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 ‘countercyclical’ 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. 

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’s 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 

In September 2017 the First Minister of Scotland Nicola Sturgeon announced 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 Professor Mariana Mazzucato, who has been part of the Scottish Government's Council of Economic Advisors since 2016. 

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

The design of the bank has been informed by IIPP's path-breaking research on state investment banks and patient finance, including two new working 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. 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 the University of Zurich and funded by the European Union's Horizon 2020 programme.  It focuses on how to reduce systemic risk, achieve financial stability and facilitate a more sustainable, innovative, fair and green EU economy. 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

Further reading

Mariana Mazzucato and Gregor Semieniuk (2017) “Public financing of innovation: new questions”, Oxford Review of Economic Policy.

Mariana Mazzucato and Caetano Penna (2015) “The Rise of Mission-Oriented State Investment Banks: The Cases of Germany's KfW and Brazil's BNDES”, ISIGrowth working paper, 1.

Mariana Mazzucato and Caetano Penna (2016) “Beyond market failures: the market creating and shaping roles of state investment banks”, Journal of Economic Policy Reform, 19(4): 305-326, SPRU working paper version

Mariana Mazzucato (2016) "From Market Fixing to Market-Creating: A new framework for innovation policy",  Special Issue of Industry and Innovation: “Innovation Policy – can it make a difference?”, 23 (2)

Laurie Macfarlane (2016) "Blueprint for a Scottish National Investment Bank", New Economics Foundation.

Laurie Macfarlane (2016) "Taking Control of RBS: People Powered Banking Which Puts Communities First", New Economics Foundation.

Laurie Macfarlane (2017) "Making Money from Making Money: Seigniorage in the Modern Economy".

Laurie Macfarlane (2017), "Why we need a new mission for a zero-carbon future."