mazzucato10_PhotoAltoEric Audras_meeting

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.

We hope you're enjoying Project Syndicate.

To continue reading, subscribe now.

Already have an account? Log in

Support High-Quality Commentary

For more than 25 years, Project Syndicate has been guided by a simple credo: All people deserve access to a broad range of views by the world's foremost leaders and thinkers on the issues, events, and forces shaping their lives. At a time of unprecedented uncertainty, that mission is more important than ever – and we remain committed to fulfilling it.

But there is no doubt that we, like so many other media organizations nowadays, are under growing strain. If you are in a position to support us, please subscribe now.

As a subscriber, you will enjoy unlimited access to our On Point suite of long reads and book reviews, Say More contributor interviews, The Year Ahead magazine, the full PS archive, and much more. You will also directly support our mission of delivering the highest-quality commentary on the world's most pressing issues to as wide an audience as possible.

By helping us to build a truly open world of ideas, every PS subscriber makes a real difference. Thank you.

Subscribe Now

Mariana Mazzucato

Writing for PS since 2015
19 Commentaries

Mariana Mazzucato, Professor in the Economics of Innovation and Public Value at University College London and Founding Director of the UCL Institute for Innovation and Public Purpose, is the author of The Value of Everything: Making and Taking in the Global Economy and The Entrepreneurial State: Debunking Public vs. Private Sector Myths.

Laurie Macfarlane

Writing for PS since 2019
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.

new comment has been posted. new comments have been posted.

0 Comments on this paragraph, 3 in all 3 Comments on this article

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?
A new reply to this comment has been posted.
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.
A new reply to this comment has been posted.
Godfree Roberts Mar 28, 2019

Well said! The experience of China's development banks illustrates these points well.
A new reply to this comment has been posted.