Mazzucato, Mariana; Li, Henry Lishi; (2020) The Entrepreneurial State and public options: Socialising risks and rewards. (Working Paper Series 2020—20). UCL Institute for Innovation and Public Purpose: London, UK.

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Abstract

This paper reflects on recent policy thinking on public options by looking at the role of the state – and economic policy – in modern capitalism. In traditional economic theory, the state is limited to ‘fixing markets’ and ‘enabling’ or de-risking the private sector. These assumptions are based on a limited understanding of value creation as something that only happens within the private sector. Value is understood as being enabled or redistributed by the state, but not co-created by it. And yet the state has often actively co-shaped markets, investing, innovating and taking high risks before the private sector is willing or able to. Understanding the market shaping and co-creating role of the state – beyond the fixing role – requires looking at how both risks and rewards can be shared between public and private actors. Public options, among other approaches such as equity stakes and conditionalities on reinvestment, are a powerful way to enable the state to govern public-private relationships to make sure that public investment delivers for the public interest.

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