If we want growth today to be more innovation-driven, more inclusive and more sustainable, then we need a more active state, not a less active one. Yet we still hear the dogma that we should just fix market failure by focusing on science and infrastructure, and to "level the playing field."
We should be investing where the public returns are greatest - that is in innovation.
What is needed is both a New Deal in terms of mission-oriented investments but also a new deal in terms of a modern social compact - one that allows the state to socialize not only risks but also rewards. Maybe then innovation-led growth will also become growth that includes all of us.
Once we admit that the public sector takes an immense amount of risk along the entire innovation chain, it becomes crucial to find ways to share both risks and rewards.
The globalized nature of production and innovation means that the benefits don't necessarily stay in the country where the investments are made.
If we look at Germany's infrastructure policy, it has been driven by its mission-oriented focus on green infrastructure. This affects both innovation and infrastructure, old industries and new. The German steel industry, for example, has adapted to the policy by lowering its material content through a 'repurpose, reuse and recycle' strategy.
Most venture capital funds are too short-termist and exit-driven to deal with the highly uncertain and lengthy innovation process.
Germany is using its Energiewende policy as a way of envisioning a green transformation and innovation across many sectors.
