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How to Build a Patient Investment Bank

Mar 28, 2019 Mariana Mazzucato , Laurie Macfarlane

If they are well structured and governed, public investment banks can be powerful catalysts for investment-led growth. But governments that establish such institutions should adhere to four guidelines.

LONDON – The global financial crisis showed that plentiful finance can generate growth that is not necessarily sustainable or socially useful. Since then, the assets of the global banking sector have increased by some $40 trillion, and yet there is still not enough sustainable growth. Why?

The short answer is that finance is not “neutral.” There is a big difference between financing investment in the real economy and speculative finance that prioritizes short-term capital gains from trading existing assets. We need more of the former, and less of the latter.

With countries around the world facing major challenges, from climate change to aging populations, we urgently need new ways to finance smart, inclusive, and sustainable investment. Well-designed public investment banks are one such solution.

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Mariana Mazzucato

Writing for PS since 2015
9 Commentaries

Mariana Mazzucato is Professor of the Economics of Innovation and Public Value and Director of the UCL Institute for Innovation & Public Purpose(IIPP). She is the author of The Value of Everything: Making and Taking in the Global Economy, which was shortlisted for the Financial Times-McKinsey Business Book of the Year Award.

Laurie Macfarlane

1 Commentary

Laurie Macfarlane is Head of Patient Finance at the Institute for Innovation and Public Purpose at University College London and a co-author of Rethinking the Economics of Land and Housing.

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Ralph Musgrave Mar 29, 2019

That’s a really great display of fashionable and near meaningless verbiage: “smart, inclusive, sustainable” etc etc.

“Investing in new and innovative areas is risky, and the private sector will often not commit until future returns become more certain. As a result, public institutions have traditionally played an important role in providing patient, long-term finance. From technological breakthroughs…”. Er – yes – everyone with half a brain knew that seventy years ago. That’s why governments have funded basic research at dozens of university and similar labs for DECADES and still do so. Yawn.

As for “inclusive growth” the phrase is basically meaningless. I set out my reasons here:

http://ralphanomics.blogspot.com/2019/03/inclusive-growth-near-meaningless-phrase.html

As for “sustainable” houses are not sustainable in that they eventually become so decrepit that they have to be demolished and replaced. And office blocks tend to be demolished and replaced even quicker Does that mean we shouldn’t erect buildings?
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vivek iyer Mar 29, 2019

There was already a Scottish Investment Bank set up by Labor. Must every new administration set up its own Investment Bank and hire its own consultants and brand consultants to recycle the same tired old rhetoric?

Why title this 'how to build a patient investment bank'? Everybody knew how to do it long before I was born. What nobody can do is devise mechanisms to keep such ventures on the straight and narrow.
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Godfree Roberts Mar 28, 2019

Well said! The experience of China's development banks illustrates these points well.
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