UCL Institute for Innovation and Public Purpose


Ownership and inclusive growth: sharing both risks and rewards

IIPP will look at the distribution of risks and rewards throughout the value creation process to explore how innovation led-growth can also be more inclusive growth.

  • How are risks and rewards distributed throughout the value creation process?
  • How can innovation led-growth be more inclusive?
  • How can the State’s contribution to innovation and value creation be better rewarded, so that everybody benefits?

The role that the State can play in innovation and growth has been too often underplayed. Early-stage, high-risk State funding and support for both basic and applied research has been the driving force behind some of the most significant technological breakthroughs of our times. Most of the life-changing innovations in ICT, biotech, health and green technology would not exist without significant levels of risk taking and risk sharing by State-owned enterprises, State-owned banks and public funding organizations.

IIPP is currently mapping empirical examples of policy instruments for sharing both risks and rewards, including:

  • State retention of shares of financial returns on equity, royalties, IPR, etc.
  • Compulsory reinvestment in the real economy for private sector businesses (an approach that led to the creation of the Bell Labs in the United States).
  • Calibration of the tax system, corporate governance rules, or sectoral regulations to encourage more equitable sharing of the rewards of publicly funded innovations with society more broadly (inclusive growth).

The State as ‘Market Maker’

In “Wealth Creation and the Entrepreneurial State (2016)”, Mariana Mazzucato redefines the State as a “market-maker” – taking on the huge uncertainty and high risks involved in the creation of new sectors in the early stages, when private investors have little interest (only coming on board much later on, when many of the uncertainties have been removed).

Once the State’s “entrepreneurial” contribution is acknowledged, some key questions arise:

  • How do we ensure that both the risks AND the rewards of innovation and wealth creation are socialized?
  • What kind of rewards should a “market-creator” State pursue?
  • What policy instruments do we need to enable a more equitable sharing of rewards, so that public-private partnerships can become more symbiotic and less vulnerable to rent-seeking, while also contributing to inclusive growth?
  • How do we enable symbiotic public-private partnerships to scale-up and diffuse to give rise to symbiotic innovation eco-systems?
  • And, how do we develop strategic capacity in the public sector for more equitable sharing of risks and rewards?

Further reading

Mazzucato, M. and Laplane, A. (2017): “Risks, rewards and law: towards a new framework for the distribution of returns of public-private partnerships for innovation”, IIPP Working Paper (Work in progress).  

Mazzucato, M. (2016) “Wealth Creation and the Entrepreneurial State” in National Wealth: What is Missing and Why it Matters, Chapter 9. Eds. Hepburn, C. and Hamilton, K, Oxford University Press, Oxford, UK, forthcoming.

Lazonick, W. and Mazzucato, M. (2013), “The risk-reward nexus in the innovation-inequality relationship: Who takes the risks? Who gets the rewards?,” in special issue of Industrial and Corporate Change, M. Mazzucato (ed.), 22(4):1093-1128.