Public investment crowds in private investment
Mariana Mazzucato, 2021 - Professor in the Economics of Innovation and Public Value at University College London where she is the founding director of the UCL Institute for Innovation and Public Purpose. MISSION ECONOMY: A Moonshot Guide to Changing Capitalism, chapter 3 //DH
In reality, the whole idea of governments crowding out the private sector is usually false. Government investment often has the opposite effect. When structured strategically it can crowd in private investment, stimulating funding that might not have happened otherwise and expanding national output, which benefits public and private investors alike. Public investment in Apollo inspired rapid advances in computing and digital technology through contracts with the private sector. Relatively small government stakes in Airbus have helped build the world’s biggest aircraft company, with operations and suppliers across Europe. The history of technological breakthroughs shows that public investment, particularly when made early in the innovation process, absorbs major uncertainties and long-term risks that private investors can be reluctant to take on. Indeed, public investment in the early, high-risk stage of areas like nanotechnology, biotechnology and green technology were critical to the later proliferation of small start-ups, some of which later scaled up. An alternative theory must thus be based on market shaping and market co-creation, a concept we return to in Chapter 6.