ONE of the world’s leading economists has said the new Scottish National Investment Bank must know when to “turn the tap off” as well as on after presenting a central framework document for the planned bank to the First Minister.
Professor Mariana Mazzucato, director of the UCL Institute for Innovation and Public Purpose and Scottish Government adviser, also said the new bank should ensure unspent cash earmarked for investment is not clawed back into government coffers, and encourage experimentation and exploration, after the latest talks with Nicola Sturgeon in Edinburgh on Thursday.
Ms Mazzucato was presenting the major policy report that sets out the framework for guiding the bank’s investments towards tackling key societal challenges, and promoting significant change across Scotland’s economy, to the Scottish Government as the bank edges towards its 2020 launch, funded by £2 billion of public money over its first 10 years.
The academic said in an interview with The Herald that the bank should be mission-oriented, in areas already identified such as creating a low carbon economy, broaching the age demographic and public health issues, and include “patient”, longer term financial backing of projects while also being wary of “parasitic” relationships and bail-outs.
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Ms Mazzucato said: “We (the bank planners) have been talking about the need to create more patient finance and the opportunities that a public bank would provide Scotland, but at the same as making that argument I always stress ‘be careful’, you also need to learn when the stuff doesn’t work, you don’t just throw public money at something and expect miracles.”
Above: Ms Mazzucato and Ms Sturgeon on Thursday
The bank should “make sure that it isn’t sector-focused, or firm-focused, or help a particular sector that’s dying to rejuvenate it, that’s when things go wrong.
“You end up just picking a siloed area which also is very easily open to being captured by a particular firm or sector asking for a hand-out as opposed to creating challenging conditions for that sector transform.”
She added that once up and running it will be essential to ensure the bank “is moving in the right direction and knows when to stop”.
Ms Mazzucato said: “Knowing when to turn the tap off is just as important as knowing when to turn it on.
“Those kinds of issues are very important further down the road.”
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The University College London professor said: “Something that will have to be resolved quite quickly is that, with the £2bn that they are being given, it is very important that they be able to bring it over into the next round if it is not all spent, so you can actually do some long-term planning.
“Currently I think they are calling it the ability to have dispensation which means that the money doesn’t disappear back to the government.
“That needs to be ironed out.”
She said further key elements include “framing missions that are concrete so you can answer yes or no did you achieve it”, and involving people “across the public, private and third sectors who are willing to engage”.
READ MORE: Scottish National Investment Bank chief pledges pay caps and no bail-outs
Ms Sturgeon said after the meeting: “I am always delighted to meet with Professor Mazzucato, one of the world’s leading economists, to discuss her thoughts on the economy and how it can be improved and in particular the Scottish National Investment Bank and how the bank has the potential to transform Scotland’s economy - providing capital for business at all stages in the investment life cycle.
“As a member of the Council of Economic Advisers Professor Mazzucato has made an invaluable contribution to our work in developing a mission-orientated approach for the bank, which will help create and shape future markets, spark innovation and tackle socio-economic challenges.”
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