Predistribution Strategies: Innovation, Finance and Inclusive Growth

The risk-reward nexus in the innovation-inequality relationship

Policy Network would like to invite you to a debate on “pre-distribution” strategies, which will focus on improving the links between finance, innovation and inclusive growth. It will take place on Monday 3rd of December, 2012 (17.00-18.15, Committee Room 3, House of Lords).
 
Presentation: The Risk-Reward Nexus in the Innovation-Inequality Relationship (paper authored by William Lazonick and Mariana Mazzucato).

Speaker:
Mariana Mazzucato, RM Phillips Professor in Science and Technology Policy at the University of Sussex (SPRU)

Responses:
Chuka Umunna, Labour Member of Parliament for Streatham and Shadow Business Secretary
Dan Corry, former head of the Number 10 Policy Unit and senior adviser to the prime minister on the economy
Robin Murray, industrial economist and visiting research fellow at the London School of Economics (LSE)

Chair:
Roger Liddle, chair of Policy Network and Labour member of the House of Lords

Please RSVP to Katherine Roberts at kroberts@policy-network.net

Context
Instead of focusing exclusively on redistribution – government taxes and transfers that take from some and give to others – progressives should also look at “predistribution”, which relates to how the market distributes rewards in the first place even before government collects taxes or pays out benefits.  Central to this policy debate is an understanding of the tension between how value is created and how value is extracted in modern day capitalism. That is, who takes the risks and who gets the rewards?
 
This event will mark the launch of a new paper by William Lazonick and Mariana Mazzucato which offers a new perspective on why 'smart' innovation-led growth has not led to 'inclusive growth'. It argues that there is a disproportionate balance between the 'collective' distribution of risk taking in the innovation process (e.g. 'open innovation'), and the increasingly narrow distribution of the rewards. Importantly, the framework uses the characteristics of innovation (uncertain, collective, and cumulative) to understand the relationship between innovation and inequality.

When, across the collective actors (tax payers, business, shareholders), the distribution of financial rewards from the innovation process reflects the distribution of contributions to the innovation process, innovation tends to reduce inequality. When, however, some actors are able to reap shares of financial rewards from the innovation process that are disproportionate to their contributions to the process, innovation increases inequality.

The latter outcome occurs when certain actors are able to position themselves at the point where the innovative enterprise generates financial returns; that is, close to the final product market or, in some cases, close to a financial market such as the stock market. Ultimately, precisely because innovation is a collective and cumulative process, the imbalance only results in greater inequality but also undermines the innovation process itself.

The paper by Lazonick and Mazzucato sets out a “Risk-Reward Nexus” framework for understanding the innovation-inequality relationship, and concludes with key policy implications. 

Press contact: Michael McTernan, mmcternan@policy-network.net (020 73402215)

• PAPER -The Risk-Reward Nexus.pdf
• PRESS SUMMARY - The Risk-Reward Nexus.pdf