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Public financing of innovation: new questions

Author

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  • Mariana Mazzucato
  • 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 transformative innovation needed for confronting contemporary societal challenges.

Suggested Citation

  • Mariana Mazzucato & Gregor Semieniuk, 2017. "Public financing of innovation: new questions," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 33(1), pages 24-48.
    • Handle: RePEc:oup:oxford:v:33:y:2017:i:1:p:24-48.
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    References listed on IDEAS

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    More about this item

    Keywords

    financing innovation; innovation policy; market failure theory; renewable energy finance; direction of innovation;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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