Socialising the risks and rewards of public investment

UCL Institute for Innovation and Public Purpose (IIPP) Working Paper

Ref: IIPP WP 2019-09
Socialising the risks and rewards of public investments: Economic, policy and legal issues (PDF)  

Andrea Laplane
Honorary Research Fellow,
UCL Institute for Innovation and Public Purpose

Mariana Mazzucato 
Professor in the Economics of Innovation and Public Value
Director, UCL Institute for Innovation and Public Purpose 

Abstract
This paper develops a framework for analysing the role of public agencies in making high- risk investments along the innovation chain, and asks how both the risks of innovation and the rewards can be shared between public and private actors. We build on a new approach to innovation policy, which we call market co-creating and shaping, in which the state is not only fixing markets but actively co-creating them. We also look at the legal institutions that determine (and are determined by) the relationship between public and private actors. Policy measures to institutionalise rewards in a way that promotes more equitable public-private partnerships can be understood as attempts to mediate asymmetric power relations, tensions and conflicting views among multiple stakeholders, as well as building a shared notion of the value and legitimacy of the role of the state. We conclude by outlining analytical and policy implications and identifying avenues for future research.