Oxford Review of Economic Policy, Volume 33, Number 1, 2017, pp.

24–48

Public financing of innovation: new

questions

Mariana Mazzucato* and Gregor Semieniuk**

Abstract: Economic theory justifies policy when there are concrete market failures. The article shows
how in the case of innovation, successful policies that have led to radical innovations have been more
about market shaping and creating through direct and pervasive public financing, rather than market
fixing. The paper reviews and discusses evidence for this in three key areas: (i) the presence of finance
from public sources across the entire innovation chain; (ii) the concept of ‘mission-oriented’ policies
that have created new technological and industrial landscapes; and (iii) the entrepreneurial and lead
investor role of public actors, willing and able to take on extreme risks, independent of the business
cycle. We further illustrate these three characteristics for the case of clean technology, and discuss how
a market-creating and -shaping perspective may be useful for understanding the financing of trans-
formative innovation needed for confronting contemporary societal challenges.
Keywords: financing innovation, innovation policy, market failure theory, renewable energy finance,
direction of innovation
JEL classification: G20, H81, O33, O38, Q48

I. Introduction
Schumpeter’s focus on innovation and inter-firm competition made him place finance
at the centre of his analysis. He called the banker the ‘ephor’ of the exchange economy
(Schumpeter, 2002 [1912], p. 74). He did not, however, look at the problem of what
kind of finance is the best to serve the purposes of innovation. The works of other
prominent economists such as Veblen, Keynes, and Minsky have focused instead pre-
cisely on the problem of the quality of finance. Unlike the Modigliani–Miller theorem
which assumes that financial structures are inconsequential to the workings of the real
economy (Modigliani and Miller, 1958), they saw the quality of finance as central to

* SPRU, University of Sussex, and University College London, e-mail: [email protected]

** Department of Economics, SOAS, University of London, e-mail: [email protected]
We have received many very useful comments from the following: the referees for this volume; the par-
ticipants in a seminar at the Science Policy Research Unit (SPRU); the participants at the ESRC Workshop
on Financing Innovation that we personally organized at the Bloomberg New Energy Finance (BNEF) head-
quarters; and the editors of this special issue and the participants at the Oxford Review’s editorial seminar. In
particular, thanks go to Simone Gasperin for his excellent research assistance. This research is supported by
two EU Horizon 2020 grants: DOLFINS Nr. 640772 and ISIGrowth Nr. 649186.
doi:10.1093/oxrep/grw036
© The Authors 2017. Published by Oxford University Press.
This is an Open Access article distributed under the terms of the Creative Commons Attribution
License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted reuse, distribution,
and reproduction in any medium, provided the original work is properly cited.
Public financing of innovation: new questions 25

understanding the workings of capitalism. Veblen (1904), for instance, distinguished

between industrial and pecuniary motives, and emphasized how the pursuit of pecuni-
ary gains by business managers and investment bankers is often in stark opposition to
technological industrial advances (Wray, 2012). Keynes, too, highlighted how ‘specula-
tive’ finance is a threat to the workings of industrial enterprises, when ‘the capital devel-
opment of a country becomes the by-product of the activities of a casino’ (Keynes,
1936, pp. 142–3). Moreover, as Minsky succinctly put it, the ‘dichotomy between enter-
prise and speculation draws attention to the financial structure as an essential element
in the capital development process’ (Minsky, 1992, p. 11).
So what do we know about the relationship between finance and innovation?
Financial institutions are indeed central to any system of innovation because they
provide access to high-risk capital for firms interested in engaging with new technolo-
gies: from IT to nanotech and the emerging green-tech industry. Innovation is highly
uncertain, has long lead times, is collective and cumulative (Lazonick and Mazzucato,
2013). These four characteristics reveal much about the kind of finance that is needed.
The uncertainty means that finance must be willing to bear high risks; the long-run
nature of innovation and its cumulativeness imply that the kind of finance must be
patient; and the collective nature means that there is not only one type of finance that
is involved—but rather different forms, from a variety of public and private sources.
Thus, it can be expected that the type of finance received will affect the nature of invest-
ments made (O’Sullivan, 2004; Mazzucato, 2013b). In turn, the type of finance that is
provided depends heavily on its source, whether it is the private or the public sector and
the multitude of different types of public and private financial actors.
In this respect, recent literature has highlighted how private finance has increasingly
retreated from financing productive activities (Turner, 2015) and the real economy itself
has become increasingly financialized, with spending on areas such as share buybacks
exceeding spending on long-run investments like human capital formation and R&D
(Lazonick, 2013). Why is this happening? One of the reasons the private sector has been
disinvesting in the difficult R side of R&D is its increasing short-termism. This has been
caused both by corporate governance structures that prioritize quarterly returns (Kay,
2012), as well as macroeconomic conditions, such as low interest rates, that make share
buybacks more profitable. The pressure to maximize shareholder value (Jensen and
Meckling, 1976) differs across countries depending on their ‘variety of capitalism’ (for
example, Japan vs the US, see Hall and Soskice (2001)), and firms within sectors often
respond differently to shareholder pressures depending on their corporate governance. In
telecoms, for example, Huawei and Ericsson reinvest their profits back into production,
while Cisco has become increasingly financialized (Lazonick, 2015). Davies et al. (2014)
and Haldane (2016) provide firm-level evidence, showing that in recent decades capital
markets have become excessively focused on short-term profits, with a negative impact
on the investment rate of publicly quoted firms. Other authors have concentrated on the
problems associated with short-term finance in science-based industries, which are better
served by long-term finance (Pisano, 2006; Mirowski, 2011). When companies receive
long-term finance, they can learn more and dare to invest in areas that will require much
trial and error (Janeway, 2012). For all these reasons, the type of finance that innovators
receive is not neutral and can affect both the rate and the direction of innovation.
This debate about what sort of finance is relevant for innovation is particularly sig-
nificant given the importance that policy-makers are attributing to innovation policy
26 Mariana Mazzucato and Gregor Semieniuk

as a way to address the so-called grand societal challenges such as climate change,
natural resource scarcity, ageing, and improved healthcare (European Commission,
2011). As these challenges require ‘transformative’ innovation (Mazzucato, 2016), it
is crucial to understand the source and type of finance that might be able to initi-
ate and sustain such a transformation. Is there enough patient finance to fund long-
term investments in the real economy and in particular for such high-risk societal
challenges?
To answer this question we can learn from the lessons of previous technological
revolutions (e.g. IT, biotech, nanotech), where different forms of public funds had
been essential in providing the high-risk and early funding (Block and Keller, 2011;
Mazzucato, 2013a). Most often, such investments had a ‘mission-oriented’ nature,
actively creating new industrial landscapes that served a need (man on moon, or agri-
cultural needs) that did not exist before (Mowery, 2010; Foray et al. 2012). The green
technological revolution today is witnessing a similar dynamic whereby it is mission-
oriented public funds that are investing in the most capital-intensive and high-risk areas
(Mazzucato and Semieniuk, 2016). Such investment is provided not only for the supply
side (research and development) but also for the demand side: deployment and diffu-
sion (Climate Policy Initiative, 2013).
And yet the classic market failure perspective on public investment in innovation
does not justify the breadth and depth of public investments that we observed across
the entire innovation chain, from basic research to applied research, early-stage financ-
ing of companies, and demand-side procurement policies (Mazzucato, 2013a). At best
it can justify investments where there are clear market failures, such as the presence of
positive externalities (e.g. public goods such as basic research requiring public invest-
ment in basic science) and negative externalities (e.g. pollution requiring carbon taxes).
But as the history of innovation shows, the great extent of public commitment that is
required entails more of a market-making and market-shaping approach than a simple
market-fixing one (Mazzucato, 2016). Furthermore, the systems-of-innovation litera-
ture has also not adequately addressed the issue of the quantity and quality of public
investment needed to address the market-creating process.
In this paper we review evidence of market-shaping public financing of innova-
tion, and discuss views of the state that are helpful for understanding it. Section
II confronts market-failure arguments with the recent history of financing innova-
tion, especially in the IT and pharmaceutical sectors in the US. It is argued that the
quantity and quality of public finance for innovation cannot be explained through a
standard market-fixing framework. Section III argues that better understanding the
‘mission-oriented’ role of the state, and the ‘entrepreneurial state’ activities across
the whole innovation chain, can provide key insights for understanding the type of
finance needed for transformative innovation that addresses challenges such as climate
change. Here we focus on the need to understand the market-making and market-
shaping, not only market-fixing role of public finance. In section IV we substantiate
this with evidence of ‘market-making’ activity of public funds in the renewable energy
sector. We conclude that without a market-making agenda, climate change targets
and the required technological revolution in energy will not take off. In section V we
discuss future research questions related to the use of a market-making and -shaping
framework to guide innovation policy, and address caveats regarding the possibility
also of ‘government failure’.
Public financing of innovation: new questions 27

II. Beyond fixing markets

The idea that the state is at best a fixer of markets has its roots in neoclassical economic
theory, which sees competitive markets as bringing about optimal outcomes if left to
themselves. This theory justifies government ‘intervention’ in the economy only if there
are explicit market failures, which might arise from the presence of positive externalities
(e.g. public goods such as basic research, which require public-sector spending on science),
negative externalities (e.g. pollution, which require public-sector taxation), and incomplete
information (where the public sector may provide incubators or loan guarantees).1 Thus,
apart from financing R&D, there is little active role for public financing of innovation. On
top of this, the literature on systems of innovation has also highlighted the presence of
system failures—for example, the lack of linkages between science and industry—requir-
ing the creation of new institutions enabling those linkages (Lundvall, 1992).
And yet the recent history of capitalism depicts a different story—one in which it is
the state that has often been responsible for actively shaping and creating markets and
systems, not just fixing them; and for creating wealth, not just redistributing it. Indeed,
markets themselves are outcomes of the interactions between both public and private
actors, as well as actors from the third sector and from civil society. More thinking is
required to understand the role of the public sector in the market creation process itself.
This is what the work on mission-oriented innovation has argued (Mowery, 2010), but
only indirectly. Missions are about the creation of new markets, not the fixing of new
ones—and yet this framework has not debunked the market-fixing policy framework.
Indeed, even the systems of innovation literature (Lundvall, 1992) has not fully divorced
itself from a ‘fixing’ perspective, as the way it is often interpreted is in terms of fixing
system failures (e.g. formulating the missing links between science and industry). In her
book The Entrepreneurial State (2013a), Mazzucato has attempted to use this work to
consider the lead investment role of public agencies, taking on extreme risk in the face
of uncertainty, which then generates animal spirits and investment in the private sector.
Before considering what a new framework for thinking about financing innovation
might look like, we first consider key evidence to show the degree to which the market
failure framework is limited in its ability to justify the depth and breadth of public
activity. We focus on three key areas: (i) public investments spread across the entire
innovation chain, not only key areas where positive externalities or incomplete informa-
tion are present; (ii) the mission-oriented, hence market-making, nature of the organi-
zations involved in the investing activity; (iii) the high level of risk taking and portfolio
management that an entrepreneurial state perspective entails that results in a counter-
and pro-cyclical nature of public investments.

(i) Investment along the entire innovation chain

Market failure theory justifies intervention when there are clear market failures, such
as when there are positive externalities generated from ‘public goods’ such as basic

1 Excellent reviews of the impact of positive externalities and incomplete information on innovation

financing is provided in Hall (2002) and Hall and Lerner (2009), and more recent evidence is reviewed in Kerr
and Nanda (2015). The role for government in the face of negative externalities (climate change) is laid out
in Jaffe et al. (2005).
28 Mariana Mazzucato and Gregor Semieniuk

research. Yet while technological revolutions have always required publicly funded sci-
ence, what is often ignored by the market-failure framework are the complementary
public funds that were spent by a network of different institutions further on in the
innovation process as well. In other words, the public sector has been crucial for basic
research as well as for applied research, and for providing early-stage high-risk finance
to innovative companies willing to invest. It was also important for the direct creation
of markets through procurement policy (Edler and Georghiou, 2007) and bold demand
policies that have allowed new technologies to diffuse (Perez, 2013). Thus, Perez argues
that without the policies for suburbanization, mass production would not have had the
effect it did across the economy.
Figure 1 indicates (at its bottom) some of the key public agencies in the US innova-
tion landscape, including the National Institutes of Health (NIH), NASA, DARPA,
Small Business Innovation Research Program, National Science Foundation (NSF),
etc. that were active across the entire innovation chain. Such organizations have been
‘mission driven’, that is, have directed their actions based on the need to solve big prob-
lems and in the process actively created new technological landscapes, rather than just
fixing existing ones (Foray et al., 2012). Downstream investments included the use of
procurement policy to help create markets for small companies, through the public
Small Business Innovation Research (SBIR) scheme, which historically has provided
more early-stage high-risk finance to small and medium-sized companies than private
venture capital (Keller and Block, 2012), as Figure 3 shows. And guaranteed govern-
ment loans are regularly used to pump prime companies, such as the $465m guaranteed
government (Department of Energy) loan received by Tesla to produce the ‘Tesla S’ car.
Likewise, Compaq and Intel benefited from early-stage funding to set up the compa-
nies, not from venture capital but from the SBIR programme. While it is a common
perception that it is private venture capital that funds start-ups, evidence shows that
most high-growth innovative companies receive their early-stage high-risk finance from
public sources, such as Yozma in Israel (Breznitz and Ornston, 2013); venture funds
in public banks (Mazzucato and Penna, 2016); and the SBIR programme funds in the
US (Keller and Block, 2012). Venture capital entered the biotech industry mainly in
the late 1980s and early 1990s, meanwhile the state had already made most large-scale

Figure 1: Mission Oriented Finance along entire innovation chain

Source: Authors’ adaptation of Auerswald and Branscomb (2003).

Public financing of innovation: new questions 29

investments in the 1950s and 1960s (Lazonick and Tulum, 2011; Vallas et al., 2011).
In all these cases, government intervention was far from ‘neutral’, as the market fail-
ure framework would recommend. Instead, it deliberately targeted industries and even
enterprises with a massive amount of public venture capital assistance (Figure 2).

(ii) Decentralized mission-oriented agencies

Crucial to this public funding was the nature of the organizations themselves: a decen-
tralized network of strategic mission-oriented agencies (Mazzucato, 2016). The vision
behind these agencies is something that is not foreseen in the market failure perspec-
tive: they do not see their job as fixing markets but as actively creating them. Mission
statements can help direct public funds in ways that are more targeted than, say, simply
helping all small and medium-sized enterprises (SMEs). Examples of mission state-
ments are below:

NASA’s mission is to ‘Drive advances in science, technology, aeronautics, and

space exploration to enhance knowledge, education, innovation, economic vitality,
and stewardship of Earth’ (NASA 2014 Strategic Plan);
‘Creating breakthrough technologies for national security is the mission of the
Defense Advanced Research Projects Agency (DARPA)’;
‘NIH’s mission is to seek fundamental knowledge about the nature and behav-
ior of living systems and the application of that knowledge to enhance health,
lengthen life, and reduce illness and disability’.

In the case of IT, as Figure 3 illustrates, all of the technologies that have made Apple’s
i-products (iPhone, iPad, etc.) ‘smart’ were initially funded by different mission-ori-
ented public-sector institutions: the Internet by the Defense Activated Research Projects
Agency (DARPA); global positioning system (GPS) by the US Navy; touchscreen dis-
play by the Central Intelligence Agency (CIA); and the voice-activated personal assis-
tant Siri by DARPA again (Mazzucato, 2013a). These ‘mission-oriented’ institutions
(Mowery, 2010; Foray et al., 2012) actively created new industrial and technological

Figure 2: Number of SBIR and Small Business Technology Transfer (STTR) grants compared to
private venture capital

Source: Reproduced with permission from Keller and Block (2012).

30 Mariana Mazzucato and Gregor Semieniuk

Figure 3: Publicly funded technology in ‘smart’ phones

DRAM cache Click-wheel Multi-touch screen NA VSTAR-GPS

DARPA RRE, CERN, DoE, CIA/NSF DoD DoD/NAVY

Lithium-ion batteries
SIRI
DoE
DARPA

Signal Compression
Army Research Office First generation iPod iPod Touch and iPhone (2007)
(2001) iPad (2010)

Liquid-crystal display HTTP/

NIH, NSF, DoD HTML
CERN

Micro hard drive Microprocessor Cellular technology Internet

DoD/DARPA DARPA US military DARPA

Source: Mazzucato (2013a, p. 109, Figure 13).

landscapes. Missions are problem specific, using innovations in multiple sectors to

achieve concrete problems—whether for military purposes, or for achieving targets in
areas such as energy (e.g. zero carbon emission) or health (e.g. eradicating cancer).
Mission-oriented agencies are potentially better able to attract top talent as it is an
‘honour’ to work for them. By actively creating new areas of growth, they are also
potentially able to ‘crowd in’ business investment by increasing business expectations
about where future growth opportunities might lie (Mazzucato and Penna, 2015a).

(iii) Risk-taking across the business cycle

Market-failure theory foresees the need to also fix ‘coordination failures’, such as pro-
cyclical spending in the business sector. Yet evidence shows that the mission-oriented
agencies have been critical across the business cycle, not only to stimulate investment
during recesssions. Among those agencies mentioned above, the National Institutes of
Health (NIH) have spent billions on health R&D, stimulating what later became the
biotechnology revolution in both periods of boom and bust. Their budget has been
increased during periods of sustained economic expansion (i.e. from the mid-1980s and
throughout the 1990s).
From 1936 to 2016, cumulative R&D expenditure by NIH has amounted to more than
$900 billion (in 2015 dollars), and was annually above $30 billion since 2004 (Figure 4).
Concomitantly, research shows that around 75 per cent of the most innovative drugs on
the market today (the so-called ‘new molecular’ entities with priority rating) owe much
of their funding to the NIH (Angell, 2004). Moreover, the share of R&D expenditure
of NIH in total US federal outlays in R&D have constantly increased over the past 40
to 50 years. This suggests that the surge in absolute NIH-related R&D expenditure can-
not simply be conceived as resulting from a generalized and proportional increase in
total R&D expenditure by the government during downturns, or to simply levelling the
playing field. Instead, it appears as a deliberate and targeted choice on where to direct
public R&D funding.
Public financing of innovation: new questions 31

Figure 4: R&D budget of National Institutes of Health (1953–2016, in 2015 dollars)

Source: http://officeofbudget.od.nih.gov/approp_hist.html

Innovation is highly uncertain: for every success (e.g. the Internet) there are many fail-
ures. High failure rates are just as common upstream (in R&D projects) as downstream in
public financing of firms. It is thus essential to better understand how portfolios are man-
aged in mission-oriented agencies—such as Yozma in Israel, Sitra in Finland, or SBIR in
the USA. This requires a lead investor understanding of public funds that goes beyond
the need to correct for asymmetric information. It is not a matter of lacking information,
but rather the willingness to engage in big thinking, and its underlying uncertainty.
In other words, public investments in innovation have been critical for sustaining high
levels of risk-taking and innovation across different stages of the business cycle. More
generally, this section has supplied evidence for continual, widespread, and directed public
financing of innovation—across the entire innovation chain—that a market failure frame-
work has difficulty justifying. The market itself—in different sectors—has been an out-
come of this investment (Polanyi, 1944; Evans, 1995; Mazzucato, 2016). Hence rather than
accusing public actors of crowding out market actors, more research needs to be applied to
building an alternative theory that acknowledges the large influence of public actors, and
shines a better light on how public finance of innovation impacts the evolution of markets.

III. An alternative theoretical framework for financing

innovation
Given the historical evidence above, it is important to build a framework that can both
describe past public investments that transcended fixing markets, as well as justifying
32 Mariana Mazzucato and Gregor Semieniuk

and evaluating future investments. Such a framework can benefit from insights from
the work of Karl Polanyi, who in his seminal work, The Great Transformation (1944),
describes the role of the state in forcing the so-called free market into existence: ‘the
road to the free market was opened and kept open by an enormous increase in continu-
ous, centrally organized and controlled interventionism’ (p. 144). Polanyi’s perspective
debunks the notion of state actions as ‘interventions’. It is rather one in which mar-
kets are deeply embedded in social and political institutions (Evans, 1995), and where
markets themselves are outcomes of social and political processes. Indeed, even Adam
Smith’s notion of the free market is amenable to this interpretation. His free market
was not a naturally occurring state of nature, ‘free’ from government interference. For
Smith the ‘free market’ meant a market ‘free from rent’, which requires much policy-
making (Smith, 1776).
Polanyi analyses not only how markets form over the course of economic develop-
ment. His thinking can also be applied to understanding the most modern forms of
markets, and in particular those driven by innovation. As discussed above, market fail-
ure theory provides little guidance for the more ambitious role that the state has histori-
cally played in shaping and creating markets, and not just fixing them. This requires
what Schumpeter (2002 [1912], p. 97) calls dynamic not static economics. A dynamic
economic framework that could be useful for justifying public policies must account for
the role of the state in directing investments, creating markets, and taking on risks and
uncertainties as investor of first resort, not only lender of last resort.
To develop a transformational market-creating/-shaping policy approach, it is nec-
essary to rethink the role of the state in fostering innovation-led growth. Two useful
frameworks are here presented: the ‘mission-oriented’ innovation policy framework
(Mowery, 2010; Foray et al., 2012) policies and the work of Mazzucato (2013a) on the
‘entrepreneurial state’ in its leading risk-taking role.

(i) Mission-oriented innovation policy

The history of innovation policy, studied through Freeman’s systems of innovation
(1995), provides key insights into the limits of market failure theory in justifying the
depth and breadth of investments necessary for radical technological change to emerge.
This approach emphasizes system—rather than market—failures and the need to build
horizontal institutions that allow new knowledge to diffuse across the entire economy
(Lundvall, 1992). Innovation policy, in this historical framework, takes the shape of
measures that support basic research; aim to develop and diffuse general-purpose tech-
nologies; expand certain economic sectors that are crucial for innovation; and promote
infrastructural development (Freeman and Soete, 1997).
This type of broad-based innovation policy has been called ‘mission-oriented’ for
its aim to achieve specific objectives (Ergas, 1987; Freeman, 1996). It does not merely
facilitate innovation through playing-field-levelling horizontal policies that prescribe
no direction. On the contrary, such policies by definition give explicit technological and
sectoral directions to achieve the ‘mission’.
Examples of such direction-setting policies abound, including different technol-
ogy policy initiatives in the US (Chiang, 1991; Mowery et al., 2010), France (Foray,
2003), the UK (Mowery et al., 2010), and Germany (Cantner and Pyka, 2001).
Public financing of innovation: new questions 33

These policies were implemented by mission-oriented agencies and policy pro-

grammes: military R&D programmes (Mowery, 2010); the National Institutes of
Health (NIH) (Sampat, 2012); grand missions of agricultural innovation (Wright,
2012); and energy (Anadón, 2012). In such cases, it was the organization that had
to make choices on what to fund: tilting the playing field rather than ‘levelling it’
(Mazzucato and Perez, 2015). Thus the ‘picking winner’ problem, which continues to
dominate the industrial policy debate, is a static one that creates a false dichotomy:
what is crucial is not whether choices must be made, but how ‘intelligently’ can the
picking of ‘directions’ be performed.
However, the literature has not integrated empirical insights to provide a fully fledged
theory. Consequently, studies have resulted in ad-hoc theoretical understandings and
policy advice on how to manage mission-oriented initiatives, without tackling the key
justifications for mission-oriented finance that contrast with those of market failure.
In a market failure framework, ex-ante analysis aims to estimate benefits and costs
(including those associated with government failures), while ex-post analysis seeks to
verify whether the estimates were correct and the market failure successfully addressed.
Instead, a mission-oriented framework requires continuous and dynamic monitoring
and evaluation throughout the innovation policy process. In its most general form,
the mission-oriented framework differentiates between public policies that target the
development of specific technologies in line with state-defined goals (‘missions’) and
those that aim at the institutional development of a system of innovation (Ergas, 1987;
Cantner and Pyka, 2001). The state must therefore be able to learn from past experi-
ences in mission-oriented innovation policy.
Systemic mission-oriented policies must be based on a sound and clear diagnosis
and prognosis (foresight). This not only requires the identification of missing links,
failures, and bottlenecks—the weaknesses or challenges of a national system of inno-
vation—but also the recognition of the system’s strengths. Foresight is necessary in
order to scrutinize future opportunities and also identify how strengths may be used
to overcome weaknesses. This diagnosis should be used in devising concrete strategies,
new institutions, and new linkages in the innovation system (Mazzucato, 2016). It may
also be necessary to ‘tilt’ the playing field in the direction of the mission being pur-
sued, rather than ‘levelling’ it through such means as technologically neutral policies
(Mazzucato and Perez, 2015).
Mission-oriented policies can therefore be defined as systemic public policies that
draw on frontier knowledge to attain specific goals or ‘big science deployed to meet
big problems’ (Ergas, 1987, p. 53). The archetypical historical mission is NASA’s put-
ting man on the moon. Contemporary missions aim to address broader challenges that
require long-term commitment to the development of many technological solutions
(Foray et al., 2012) and ‘a continuing high rate of technical change and a set of insti-
tutional changes’ (Freeman, 1996, p. 34). The current active role of the public sector in
tackling renewable energy investments can be seen as a new mission in relation to the
green economy (Mazzucato and Penna, 2015b). Other new missions include addressing
such ‘grand societal challenges’ as the ageing/demographic crisis, inequality, and youth
unemployment (European Commission, 2011). In fact, these challenges—which can
be environmental, demographic, economic, or social—have entered innovation policy
agendas as key justifications for action, providing strategic direction for funding poli-
cies and innovation efforts.
34 Mariana Mazzucato and Gregor Semieniuk

(ii) The entrepreneurial state: the state as lead risk-taker and

investor in the economy
Alternative approaches to innovation policy, such as those described above, have ques-
tioned particular aspects of the economic dynamics embodied in neoclassical theory.
However, they have not disputed the underlying assumption of business being the only
risk-taker. The entrepreneurial state agenda has sought to challenge the notion of the
entrepreneur being embodied in private business, and policy-making being an activity out-
side of the entrepreneurial process (Mazzucato, 2013a). This perspective builds on studies
in industry dynamics that have documented a weak relationship between entry of new
firms into industries and the current levels of profits in those industries (Vivarelli, 2013).
Firm entry appears to be driven by expectations about future growth opportunities, even
when such expectations are overly optimistic (Dosi and Lovallo, 1998). Business tends to
enter new sectors only after the high risk and uncertainty has been absorbed by the public
sector, especially in areas of high capital intensity. As described in the previous section, this
has been the case with the IT revolution (Block and Keller, 2011), the biotechnology indus-
try (Lazonick and Tulum, 2011), nanotechnology (Motoyama et al., 2011), and for the
emerging clean-tech sector (Mazzucato and Penna, 2016). Moreover, private venture capi-
tal funds have focused on financing firms mid-stage, which had previously received early-
stage financing by public programmes, such as the SBIR programmes (Keller and Block,
2012). While the literature has described such dynamics simply in terms of ‘crowding in’,
this ignores the direct risk-taking that such public activity entails, and hence the occasional
failures that will inevitably result. In innovation policy the state not only ‘crowds in’ busi-
ness investment but also ‘dynamizes it in’, creating the vision, the mission, and the plan.
An entrepreneurial state does not only ‘de-risk’, but envisages the risk space and oper-
ates boldly and effectively within it (Mazzucato, 2013a). Unlike in the theory of technol-
ogy adoption of a developing economy, where the technology already exists elsewhere,
an entrepreneurial state does not foresee what the details of the innovation are, but it
knows a general area that is ripe for development, or where pushing the boundaries of
knowledge are desirable. The state welcomes and engages with Knightian uncertainty
for the exploration and production of new products which lead to economic growth.
The state has been ‘entrepreneurial’ when it has taken the lead by formulating a vision
of a new area (for example the Internet or the genetic sequence). Then public financing
of innovation comprises investing in the earliest-stage research and development; creat-
ing and funding networks that bring together business, academia, and finance; funding
high-risk ventures; and investing in high-risk demonstration and deployment.
In sum, a theoretical framework of public financing of innovation starting from
these preconceptions would emphasize the influence that public institutions take on the
course of transformative innovation and their risky active involvement in financing of
that innovation along the innovation chain. We next illustrate this with reference to a
current societal challenge.

IV. The green challenge

The insights about the market-shaping and -creating role of public actors take on a
new importance for meeting today’s societal challenges (European Commission, 2011).
Public financing of innovation: new questions 35

We consider the climate change challenge which is widely seen as requiring not only a
transformation of the energy system but also on a short time scale, and on which lead-
ing climate scientists and economists are currently reaffirming that not enough is done
and not fast enough (Guardian, 2016a, b). Not enough progress is made in replacing
the greenhouse gas emitting fossil fuels with a renewable power supply, and one bot-
tleneck is the finance for renewable energy innovation.
Innovation in renewable energy has been especially difficult to finance for private
actors because of the competition from incumbent fossil fuels. Profits have been depend-
ent on public subsidies that ensure temporary competitiveness. With those subsidies in
the form of feed-in tariffs, tax credits, and power purchase agreements, investment in
the renewable energy sector, along the innovation chain from R&D over piloting and
demonstration to deployment, stood at US$ 285 billion in 2015 and has been rising by
less than 1 per cent annually since 2011 (UNEP, 2016, p.12). In contrast with this slow
growth, the International Renewable Energy Agency (IRENA) estimates that 9 per cent
compound annual growth rate in investment over the next 15 years is required to keep
global warming to a 2°C temperature rise (IRENA, 2016, p. 121).2
IRENA, like others, does not specify the sources of the historical or future finance
for the renewable energy sector. However, the report suggests that policy-makers should
play an ‘enabling’ role and ‘correct for market distortions to create a level playing field’
(IRENA, 2016, p. 20), which reflects the report’s market failure lens. In fact, from the
market failure perspective, the damages from climate change are a negative externality
of energy production, hence require a corrective tax, while innovation requires correct-
ing the positive externality of knowledge-spillovers. Hence, carbon taxes and public
R&D spending are recommended (Newell, 2010; Fisher et al., 2013). But existing pub-
lic-sector policies fail to tax carbon, not least due to the difficulty of agreeing on one tax
internationally, and subsidies have been employed instead. Hence, the main conclusion
that a market failure perspective can draw is that existing policies—besides R&D sup-
port—are inefficient, and should instead focus on a carbon tax and small interventions
to start the ‘private innovation machine’ (Veugelers, 2012).
This approach, however, overlooks what the public sector in fact does, besides giving
subsidies in the market for electricity producers. The public sector is much more active
in directly financing renewable energy innovation, creating markets, and, in the process,
taking on high risks. We go through the same set of three areas of public activity as in
section III, and highlight how in each of these, some public actors’ behaviour is charac-
teristic of a market-shaping role of the public sector.

(i) Entire innovation chain

First of all, public actors in renewable energy innovation are active along the inno-
vation chain. Government agencies are involved in R&D with around 50 per cent of
renewable energy sector R&D spending originating in the public sector, according to
the Bloomberg New Energy Finance (BNEF) estimates (UNEP, 2016), including such
institutions as the recently created 32 Energy Frontier Research Centers (EFRCs) in

2 IRENA’s and UNEP’s numbers are slightly different as the former includes investment in large hydro

(dams above 50 MW capacity) and industry and building efficiency, which the latter excludes.
36 Mariana Mazzucato and Gregor Semieniuk

the US that are charged to deliver ‘use-inspired’ basic research for renewable energy
(DoE, 2016, see also Anadón, 2012). But public actors are distributed and highly active
further along the chain: more applied research and development takes place in such
diverse settings as the German Fraunhofer Institutes (e.g. on Solar Energy Systems),
or the state-owned company development funded by the Chinese Ministry of Science
and Technology’s ‘863’ program (Kempener et al., 2010, p. 37). Moreover, several pub-
licly owned agencies are engaged in financing the commercialization of technologies
through providing venture capital: the Sustainable Development Technology Canada
alone spent US$100m (at current exchange rates) in venture funding (SDTC, 2016),
which represents some 7 per cent of global private venture capital funding in 2015
(which stood at US$1.3 billion). In 2014, the US Advanced Research Project Agency-
Energy (ARPA-E) single-handedly funded commercialization-oriented projects to the
tune of US$188m, or almost 20 per cent of that year’s private venture capital spending
(ARPA-E, 2015). The Chinese State Council’s Innovation fund supported one thousand
energy efficiency and renewable energy ventures with RMB 1 billion already between
1999 and 2002 (Cherni and Kentish, 2007, p. 3619) and the Global Energy Efficiency
and Renewable Energy Fund (GEEREF) is a publicly run fund-of-funds with €112m in
Norwegian and German government funds, and advised by the European Investment
Bank, that leverages additional private funds and invests in renewable energy private
equity (GEREEF, 2016). Government activity is also widespread at the demonstration
level of new technologies; a recent study of demonstration projects (first of a kind) in
concentrating solar power, wind power, and biofuels finds that the median public share
of funds financing those projects is above 50 per cent (Nemet et al., 2016).
At the subsequent market-creation and deployment stage, another variety of pub-
lic actors are active, ranging from government agencies and investment funds, through
tremendous amounts invested by state banks, to state-owned utilities, which have pio-
neered European offshore wind farm deployment (Mazzucato and Semieniuk, 2016).
State-owned utilities are also behind China’s rise to by far the biggest national capacity
of wind energy installed, as much as the whole of Europe at the end of 2015 (GWEC,
2016). In fact, at the deployment stage, publicly controlled organizations (where the pub-
lic has at least a 51 per cent share for stock-market listed organizations), are now respon-
sible for almost half of global asset finance for utility scale power plants (Mazzucato and
Semieniuk, 2016). For smaller capacity, public actors provide important demand-side
finance, such as subsidies for rooftop photovoltaic cells and individual wind turbines in
Germany by the German development bank, KfW (KfW, 2015), and also larger-scale
solar and hydro power plants in China by its Ministry of Finance (Lo, 2014).
Finally, this public activity along the chain is completed with finance from the world’s
31 export credit agencies (OECD, 2016), that guarantee payment for national champions,
when they develop risky renewable energy projects abroad, financed by foreign capital.
For instance, the Danish export credit agency has sponsored wind farm development to
the tune of circa US$1.5 billion, by insuring developers against risk with a repayment
guarantee. One of the firms so supported is the Danish national champion Vestas, one
of the world’s leading wind turbine manufacturers and developers (EKF, 2016). Figure 5
summarizes the discussion, by replacing the public actors from other sectors, shown
above in Figure 1, with those specific to renewable energy innovation finance.
The data also show that this variety of public actors is not neutral, but gives directions
to innovation. Public actors invest in portfolios that favour one or another technology.
Public financing of innovation: new questions 37

Figure 5: Mission-oriented finance along entire innovation chain in the renewable energy sector

Figure 6 shows the portfolios of asset finance for deployment invested by four differ-
ent types of public actors, aggregated over individual organizations within each type.3
The portfolios are constructed by finding the share of each actor type’s total renewable
energy finance that it invests in a particular technology. The shares are calculated sepa-
rately for two periods: 2004–8, and 2009–14. Clearly, the different types of actors held
widely differing portfolios. In the aggregate, government agencies invested in a relatively
balanced portfolio across technologies—governments have not picked one winner tech-
nology, but supported innovation across a suite of alternatives within renewable energy.4
State banks, on the other hand, concentrated more than half of their investments in
only two technologies in both periods. However, state banks were in turn more diversi-
fied than publicly owned utilities, which, outside China, targeted the financing of wind
energy, and especially offshore wind investments after 2008. This distinguished them
not only from other public actors but also from privately owned utilities whose share of
investments in offshore was lower than that for state banks (they invested heavily in less
risky onshore wind). We have separated out Chinese state-owned utilities, which are the
main vehicle for Chinese renewable energy investment and were the main driver behind
China’s rapid rise to the number one in terms of installed wind capacity. While the
review of organizations was selective, it emerges that in countries with a strong renew-
able energy sector, public organizations were active along the innovation chain, which is
typical of the market-shaping behaviour of the public actors we discussed above.

(ii) Decentralized network of mission-oriented agencies

Many of the reviewed public actors are also mission oriented. Innovation in the energy
sector has historically been driven by missions. In the 1970s, the mission was to boost

3 The data are based on our research in a companion piece (Mazzucato and Semieniuk, 2016), where we

merge a deal-by-deal asset finance dataset from BNEF for the period 2004–14 with organization indicators
to identify which organizations invest in which deals. For corporations, we labelled those as public where the
public sector owned at least 51 per cent of the shares. Based on the organization identifiers, we distinguished
whether the public organization is a government agency or research institute, a public financial institution, a
publicly owned utility, or another state-owned company.
4 Of course, government agencies also heavily fund nuclear power and the US Department of Energy

was funding and carrying out the innovations leading to the shale-gas technology (Trembath et al., 2012).
38 Mariana Mazzucato and Gregor Semieniuk

Figure 6: Portfolios of four types of public actor

Notes: The share of the portfolio invested in each of 11 technologies is on the y-axis. The dark bars show the
share of investment in the period 2004–8, the light bars the share of investment in the period 2009–14 that go
to a particular technology. CSP stands for concentrating solar power, PV stands for photovoltaics. Marine refers
to energy gained from the ocean, whether through wave or tidal energy.
Source: Authors’ calculations based on Bloomberg New Energy Finance data. Data sources are explained in
Mazzucato and Semieniuk (2016).

national security by reducing dependence on the then expensive crude oil from OPEC
countries. Contemporary innovation is justified by multiple missions (Anadón, 2012),
but the most visible issue is that of climate change, with the mission being to limit
global warming to 2°C or preferably 1.5°C (United Nations, 2015, p. 2). Befittingly,
at the Paris Conference of the Parties on climate change in 2015, twenty governments
unveiled ‘Mission Innovation’, and set themselves the goal to double their national
R&D spending on clean energy over the next 5 years. As with previous missions, these
investments are not justified by correcting a market failure but by achieving a goal. In
Public financing of innovation: new questions 39

this specific case: the halting of global warming. As with previous missions, the pub-
lic sector here also seeks to draw in private-sector investments, and a simultaneously
launched ‘Breakthrough Coalition’ has 28 investor members that represent private-sec-
tor leadership in key economic sectors (Mission Innovation, 2016).
But crucially, the mission orientation goes beyond R&D agencies. Thus the
ARPA-E mission is to catalyse the development of transformational, high-impact
energy technologies. The mission of the German KfW Group is to support change
and encourage forward-looking ideas—in Germany, Europe, and throughout the
world. And the German Fraunhofer Institutes put it succinctly: ‘We are creative.
We shape technology. We design products. We improve methods and techniques. We
open up new vistas. In short, we forge the future’ (Fraunhofer Institutes, 2016). In
Germany, moreover, the ‘Energiewende’, the project to base the German energy sup-
ply largely on renewable energy sources, has seen the government introducing legis-
lation favouring the mission of an energy transformation since 1990s (Hake et al.,
2015). The Renewable Energy Law (EEG) states in its 2017 version that its aim is to
develop a sustainable energy supply to protect climate and environment, and stipu-
lates an 80 per cent share of electricity from renewable energy by 2050, and 40–45 per
cent in 2025 (EEG, 2016, §1). Clearly, the organizations setting out these missions are
active beyond the R&D ambit.
Agencies in the energy sector have also been able to attract top talent. The US
Department of Energy was led by Nobel Prize winning physicist, Stephen Chu (2009–
13), now replaced by another MIT physicist, Ernest Moniz, and ARPA-E founding
director, Arun Majumdar (2009–12) is a leading engineer in thermoelectric materials.
In sum, a slate of the most influential public institutions funding renewable energy
research do not understand themselves as fixing market or system failures—they see
themselves as pushing new and exciting horizons.

(iii) Risk-taking and portfolio management

Lastly, there is also evidence in the renewable energy sector, and clean tech more gener-
ally, for public actors leading in risk-taking across the business cycle. The technologies
listed in Figure 6 above are ordered according to an increasing degree of technology
and market riskiness from left to right. Thus, publicly owned utilities take on consider-
able risk by investing a large share of their portfolio in offshore wind. In a companion
piece (Mazzucato and Semieniuk, 2016), we have not only justified this risk ordering,
which is ordinal and suggests that onshore wind is no more risky than any other tech-
nology investment on average, but does not attempt to quantify the amount of risk
taken; we have also shown that according to this measure public actors hold on average
a much riskier portfolio than private actors in asset finance, at least when excluding the
Chinese utilities charged with onshore wind diffusion. Here, we push this research one
step further and analyse how high risk-taking by private actors is correlated with co-
investment by public actors. We single out investments into high-risk areas only.5

5 High-risk technologies are marine energy, concentrating solar power, offshore wind, concentrator PV,

second-generation biofuels, thin film PV before 2011, and c-si PV before 2008. Financing of all other tech-
nologies shown on the x-axis of Figure 6 is excluded.
40 Mariana Mazzucato and Gregor Semieniuk

Figure 7 correlates the private investment into high-risk assets with the participation
of public actors in private high-risk finance. It plots the share of total private funds
invested in high-risk assets in any single year against the share of these high-risk funds
that are invested into an asset in which at least one public actor is also investing. In
2004, only about 1 per cent of private funds went into high-risk projects and, of these,
only 18 per cent had a public co-investor. Both shares increased over time, so much so
that a decade later, in 2014, around 10 per cent of private funds went towards high-risk
investments, while the share of these high-risk projects co-funded by a public organiza-
tion stood at above 50 per cent. The correlation is high (indicated by the grey linear fit),
when one excludes three exceptional years—2009 through 2011—during which mas-
sive Keynesian stabilization programmes kicked in, inundating markets with grants and
loan guarantees. That coincided with private actors financing more risky projects with
private funds only (but backed by public guarantees). From this time hails, for instance,
the Ivanpah powerplant, the largest concentrating solar power plant in the US, which

Figure 7: Scatter of annual share of high-risk private renewable energy investments involving a public
financing partner (x axis) vs the annual share of private funds invested into high-risk assets (y axis).
The inset shows a time series of the share of finance that public actors provide in the joint deals with
private actors

Notes: Edges connect subsequent years. The dotted lines indicate years with significant grant and loan guaran-
tee support as part of post-crisis government stimuli that imply indirect public support to high-risk deals carried
out exclusively with private funds.
Public financing of innovation: new questions 41

was financed by private investors, but backed by a US$1.6 billion loan guarantee from
the US Department of Energy. The inset shows, moreover, that when public actors
have participated in high-risk deals, they have tended to finance on average between 30
and 50 per cent of the deal’s volume. These statistics show that as more public actors
were stepping forward to finance assets, the private side became more willing to invest
in the higher-risk deployment. While causality cannot be attributed, the strong posi-
tive correlation between public participation and private risk-taking suggests that the
public sector’s appetite for high-risk investments was important for a significant share
of deployment of those technologies that have farthest to go in terms of innovation
through learning by doing.
The exceptional measures taken in 2009–11 by governments indicate that in the
energy sector, over the last business cycle, public financing was significantly driven
by a coordination failure logic. Figure 8 shows clearly how the grants for renewable
energy research, development, and demonstration given out by the US Department
of Energy (DoE) and all other grant-giving organizations spiked in those 3 years
and dropped back almost to pre-crisis levels. A similar, albeit less pronounced pat-
tern can be detected in investment behaviour of the big development banks—China
Development Bank, KfW, and European Investment Bank. However, while declining,
these banks have kept their investment at a much higher level than pre-financial crisis.
Similarly, while US institutions such as the EFRCs and ARPA-E were initially funded
with stimulus money (Anadón, 2012), their annual funds have to date been maintained
and the EFRCs even expanded in their numbers. At the same time, of course, the world
economy is widely seen to remain in ‘secular stagnation’ (Summers, 2016). It remains
to be seen how public funding for renewables will be impacted if and when a business
cycle boom occurs.
In sum, the patterns we see in public financing for innovation in renewable energy,
and clean tech more generally, are very far removed from the indirect policies recom-
mended by a market failure approach. A market-shaping perspective that sees the state
as entrepreneurial and risk-taking, and distinguishes public actors with missions, high-
lights these patterns. In spite of these massive interventions, the grand challenge to keep
temperature rises to a modest level suggests that even the existing activities have been

Figure 8: Annual total of grants given for clean energy research, development, and demonstration,
split into US Department of Energy (DoE) and other grant givers

Source: Authors’ calculations based on Bloomberg New Energy Finance data.

42 Mariana Mazzucato and Gregor Semieniuk

insufficient to mobilize the finance that is forecast as needed for achieving the mission
of limiting global warming. The market-creating and -shaping perspective leads to the
conclusion that even more active public-sector involvement in financing innovation is
needed to realize the 9 per cent compound annual growth rate in clean energy invest-
ment that IRENA estimates is needed over the next 15 years.
It is, of course, possible to argue that the public financing stymied overall financ-
ing as opposed to boosting it, and we return to this caveat in our concluding discus-
sion. Yet the evidence also from earlier transformative innovations, the problem that
markets first have to be created before they can be corrected, and the seriousness of
this and other grand challenges should caution against foregone conclusions. It seems
risky not to explore the possibility that public actors that help direct innovation to cer-
tain mission-determined outcomes through massive financing of innovation may be an
important driver of the transformation of how we produce energy.

V. Conclusion
In this article we have focused on the strategic role of public financing of innovation
and the way it can shape and create markets. We have looked at three key features
of this process: (i) investing along the entire innovation chain, not only in classic
public-good areas; (ii) the mission-oriented nature of the agencies involved; and (iii)
their lead risk-taking role, independent of the business cycle. We have argued that
looking at these three features of the system help to see the limits of the traditional
market-failure framework. We then applied this perspective to the emerging clean
technology sector, as an example of transformative innovation needed to confront a
societal challenge.
The market-shaping approach suggests that public financing must be proactive
and bold, creating directions, and transcending the role envisaged by market- or also
system-fixing approaches. This is even more important for contemporary ‘societal
challenges’, where the need for transformative innovation is particularly pressing.
For the challenge to mitigate climate change, if the recent international agreements
to fight climate change are to have effect, it is important for public organizations
financing innovation to be mission-oriented and entrepreneurial. We have shown
that public actors are active; yet given the estimated need for investment in this sec-
tor, this is not enough. To experience a full blown clean energy revolution, the les-
sons from the IT revolution are clear: the visible public hand is required; it must be
distributed across the whole innovation chain through different actors; and justifica-
tions for the investments cannot be limited to periods with low interest rates. Even
if the world was experiencing high growth, it would not be enough for tax breaks to
incentivize green investments. They would need to be crowded in by public funding,
simply because there is as yet no market that can work efficiently with private actors
at its centre.
Two caveats to these statements are in order. First, there is no automatism whereby
public involvement in financing innovation leads to superior outcomes; what we have
argued against here is the assumption that public-sector financing is systematically infe-
rior to that by private actors. While the examples above focus on public investments that
Public financing of innovation: new questions 43

have led to important successes (e.g. the Internet, GPS, shale gas, blockbuster drugs),
there are also government investments that end in failure. These include products like
the Concorde aircraft, which ultimately failed commercially; the discovery of new
drugs (of which most attempts fail); or the provision of guaranteed loans to companies
which then might go bankrupt. A recent example of the last includes the guaranteed
loan of $528m provided by the US Department of Energy to the company Solyndra for
the production of solar cells. This was followed by the company’s bankruptcy when the
price of silicon chips fell dramatically, leaving the taxpayer to pick up the bill (Wood,
2012). As stressed above, however, any venture capitalist will argue that attempts to
innovate require exploring new and difficult paths, and that occasional failure is part of
that journey. Innovation is intrinsically uncertain (Dosi and Edigi, 1991) and results in
failures from time to time. This trial-and-error process, in which tolerance of failure is
also the road to success, is accepted in the private sector. Failure of government invest-
ments, on the contrary, is regarded as a sign of incompetence (The Economist, 2010). If
the government acts as lead risk-taker, then it should be accepted that there are failures,
as long as there are successes. It is important then, not to categorically dismiss public
financing because some of the projects fail, but to ask what are well-designed policies
for public financing of innovation. Part of the problem is that the focus on market fail-
ure has led to relatively little research and insight on ‘good practice’, and we see here an
important area of research to be advanced.
A second caveat regards the motivations behind public-sector financing. Public choice
theory and related new public management theory have highlighted the problems asso-
ciated with government failure arising from rent-seeking, whereby public officials are
captured by vested private interests (Tullock et al., 2002). Rents arise when value is
extracted through special privileges (Krueger, 1974), and when a company or individ-
ual grabs a large share of wealth that would have been produced without their input
(Stiglitz, 2012 p. 32). Then financing for innovation could go to those special interests
that are not the best innovators but those with the best connections to the public fund-
ing agencies. Our lens, far from denying this problem, sheds a different light on it. The
question is whether rent-seeking is more problematic with a weak, passive state than
with a strong one. It could be that rent-seeking is even more damaging when the public
sector only attempts to facilitate rather than create additionality through mission-ori-
ented policies that crowd in the private sector, making private investments happen that
would not have anyway, a problem discussed in the economic development literature
(Khan and Kwame, 2000). Or whether it is more problematic when theory tells a wrong
story about who the innovators are (e.g. the ‘entrepreneurs’ or the venture capitalists),
excluding the risk-taking role of the public sector. Thus if the state is described as sim-
ply fixing markets, not actively shaping and creating them, it may over time also become
less confident, and more easily corruptible by different actors who call themselves the
‘wealth creators’. It is these actors who can then convince policy-makers to hand out
favours in order to increase their ‘private’ wealth. In the US, capital gains tax fell by
50 per cent in 5 years at the end of the 1970s as a result of pressure from the National
Venture Capital Association (Lazonick and Mazzucato, 2013). More recently, instead,
big tech corporations have been lobbying the US government substantially more than
Wall Street’s biggest financial companies (Bloomberg, 2016). In fact, some rent-seeking
may be encouraged precisely by the problematic assumptions regarding the role and
value of public investment.
44 Mariana Mazzucato and Gregor Semieniuk

The article has emphasized the need of innovation for patient strategic capital that is
lacking in the private sector, due to both the short-termism of the private financial sys-
tem, but also the properties of innovation: highly uncertain, cumulative, collective, and
with very long lead times. This leads to a depth and breadth of public investment that
is broader than traditional perspectives admit. In particular we emphasized how the
impact of ‘mission oriented’ public investment along the entire innovation chain, and
across the phases of the business cycle, is something that the green tech industry can
learn from the experiences in sectors such as biotech and ICT. The theoretical contri-
bution of such evidence is that economic policy should be more about market-shaping
and -creating than just market or system ‘fixing’.

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