Reinventing Risk and Reward with Mariana Mazzucato

Next Thursday, will host our first official video TechTable via the Reinventors Network. This discussion will be focused on “Reinventing Risk and Reward” and hosted by Mariana Mazzucato, Professor at the University of Sussex and author of the new book The Entrepreneurial State.  Other participants include Aneesh Chopra, former CTO of the United States and co-founder of Hunch Analytics, and Banning Garrett, Strategic Foresight Senior Fellow for Innovation and Global Trends at the Atlantic Council.

To get everyone ready for this table, I wanted to use this week’s blog post to introduce Prof. Mazzucato’s idea and talk a little bit about both sides of the argument. The table will be focused on a theory suggested in Mazzucato’s book around government sponsored R&D in the United States. In our current system, government assumes all of the risk for their R&D loans or grants yet they receive no monetary return. In a nutshell, Mazzucato asks “What if we treated the government like venture capitalists? What if they not only took all of the risk but were able to share in some of the rewards?” The idea is that, like traditional investors or VCs, the government would get some type of equity stake in the companies that use taxpayer dollars.

There are a lot benefits to this suggestion. First, it creates an extra revenue stream for the government. This could alleviate some burden on the public as the government wouldn’t need to rely so heavily on tax revenue to fund projects. This would also allow the government to invest even more money in R&D and therefore significantly advance technology in the U.S. This means we could see potentially faster developments in areas such as medicine, healthcare, and government efficiency that could maintain the U.S.’s status as a top innovator. Mazzucato argues that allowing government to receive a return on these investments will give them a monetary cushion so that they can, in fact, take even more risks. Essentially, this model would create a self-replenishing fund which the government could use to further research and development.

However, there are also potential negatives to this proposal. As a public entity, should the government be able to earn a profit? Does this create a slippery slope in which the government may become too focused on maximizing profit and stop serving the needs of the public? This also raises the question of potential corruption. For example, because the government now has a stake in particular companies, will it use legislative powers to benefit these groups? Will they abstain from regulating a particular industry because it could result in the failure of a company in which they invested?

Clearly, this is a divisive issue. In fact, two of the top results of a quick Google search of “government as a venture capitalist” brings up 1) a Wall Street Journal article titled “Government is a Good Venture Capitalist” and 2) a Forbes article on “5 Reasons the Government Fails at Venture Capital.” Our discussion hopes to bring a variety of innovators, academics, and thought leaders together to ponder the true impacts of such a proposal. Needless to say, it will be a very interesting roundtable and we urge you to join! Sign up to participate here.