Economy-wide innovation directed towards a green transition

Worker at milling machine in workshop.

The post was first published on Business Green

By Mariana Mazzucato, Professor in the Economics of Innovation & Public Value at University College London and the Founding Director of the UCL Institute for Innovation & Public Purpose. This blog post was first published on Business Green.

Once again, governments are meeting at the UN COP 25 summit in Madrid to discuss the global response to climate change. What is clear is that the action needed requires an economy-wide, cross-sectoral shift, one of the largest ever attempted. According to the IPCC, we have only an 11 year window of opportunity to keep global temperatures within the 1.5oC increase agreed in the Paris Accord. So the clock is ticking.

But fear does not get us a green transition. Only by turning climate change into positive opportunities for investment and innovation will it come about, affecting production, distribution and consumption across the economy. The UCL Institute for Innovation and Public Purpose (IIPP) works with organisations around the world to develop new, innovation-led approaches to economic growth. We are reimagining conceptions of public value, and how it should be practiced and evaluated, to get us to a greener way of life that is also more sustainable, and more inclusive.

Policy as picking the willing
Moving to a greener world means re-directing all sectors, and all actors – public, private and civil society – towards economic growth in a sustainable, inclusive direction. Planning for such a shift must acknowledge the complexity inherent in re-orienting a global economic system, particularly one which has been shaped for many decades by the boxing up of environmental, social and governance issues into concepts like ‘market failures’ and ‘negative externalities’, to be dealt with by regulation and public sector intervention. The recently launched Green Innovation Policy Commission, also run by UCL and due to report in 2020, is bringing together businesses and academics to propose public policy solutions to support this economic transformation. Its underlying premise is that, instead of ‘picking winners’, policy should ‘pick the willing’ by supporting those organisations that are willing to invest and innovate to solve societal goals. Current economic orthodoxy is insufficient for capturing the dynamic characteristics and innovation needs of a green growth transition. Such a restricted understanding of the interplay between private and public sector actors limits the innovative achievements, and unexpected spillovers, inherent in a more mutualistic approach.

What is required instead is a mission-oriented approach, which sets a clear direction for change, and uses the full range of government instruments (from procurement to guaranteed loans, grants and prize schemes) to crowd in bottom-up investments and innovation across the entire economy. By redesigning policies in a mission-oriented way it can increase business expectations of opportunities for future growth in new areas. In this way ambitious public investment can crowd-in investment from the private sector. You can read more about the mission-oriented approach in Mission-oriented research & innovation in the European Union (2018) and Governing missions (2019). Our institute set the agenda of the UK’s mission-led Industrial Strategy via our Commission on Mission Oriented Innovation and Industrial Strategy (MOIIS) and also host a Mission-Oriented Innovation Network (MOIN) of semi-public sector organisations, including the European Space Agency, and the OECD, who are collectively developing ways in which organisations can support and deliver missions.

The spread of IT is an example of rapid transformation
We have experienced economic revolutions and transitions before, albeit in not quite such a directed way. The rapid spread of information technology over the past 30 years has been one of the most rapid invention-innovation-diffusion processes in any technological revolution. But, in its infancy, it was not clear that IT would take off: it took early stage risk taking by the public sector to make the ‘business case’ clear for investment. Top tech firms are developing large R&D investments in cutting edge technology like AI, satellites and drones. A key question is how to create positive connections between these actors.

The starting gun was fired on IT innovation investment by directed public sector actions. Between the 1970s and 1990s, a collaboration made up of the US’s Defense Advanced Research Projects Agency, or DARPA, and the UK’s Post Office, which conceptualised, invested in and delivered networking stations, operating systems and email programmes of the first high-speed digital networks in the US. These publicly funded agencies did not initially intend to go it alone: both AT&T and IBM were approached to co-lead the project, but they declined, concerned that it would threaten their existing work. Commercial and social applications became quickly evident, as well as intra-organisational efficiency gains which spurred further innovation opportunities.

The IT revolution was not invested in as a ‘computer business’, and would not have gone anywhere if investment opportunities had been limited to monitors and mice. Instead, investment spanned the chain, from hardware to software, and from basic research – the manifesto behind the World Wide Web – to diffusion and deployment – including cable and wireless infrastructure. This culture of evolution-led investment led to the innovations in data, digital governance and artificial intelligence that we see today. The role of institutional innovation hubs, such as the Fraunhofer Institutes in Germany, and the UK’s Catapults, can promote such approaches. Fundamentally, this kind of mutualistic, challenge driven innovation will require both public and private investment and influence every stage of the innovation ecosystem, from early R&D to patient finance for business.

Co-design and co-governance of the green transition
What is vital is that the green transition is decided, designed, agreed, and directed by multiple participants. Mutualistic governance and innovation partnerships must be struck between public, private and third party actors, with a market-shaping, mission-oriented approach geared towards a green direction. Just as with the IT revolution, both social and technological directions of innovation must be addressed. The job security fears that have accompanied the development of automation can be avoided in the shift from ‘brown’ to ‘green’ economies through co-governance and co-design of the public and private sectors, and through inclusion of stakeholder groups like trade unions, workers’ co-operatives and consumers who are eager to shift to greener lifestyles. There is momentum from all sides to co-design a new way of life. We should take this opportunity to design one that is sustainable and inclusive.

Together, these UCL initiatives: the Green Innovation Policy Commission and the Mission-Oriented Innovation and Industrial Strategy (MOIIS) Commission, aim to support a sustainable and inclusive green transition by re-imagining how the public and private sectors can build a new collaborative relationship to direct innovation towards the complex challenge of climate change.

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