Saadia Zahidi: Good afternoon, everyone and welcome to this exciting discussion about Investors of First Resort: Government Inc, and I think that's a question that we'll be asking of the panel. Does that exist? Are we in a world of Government Inc? What does that look like? What's good about it? What's bad about it? And how that should connect with the private sector.

I'm absolutely thrilled to announce an amazing panel. We have with us President Tharman of Singapore, a country that's home to some of the textbook cases of innovative government investment. We also have with us Minister Faisal Alibrahim of the Kingdom of Saudi Arabia, which is currently undergoing a lot of profound advancements with the backing of state investment. We have Kai-Fu Lee, founder of Sinovation Ventures and the AI startup 01.Ai, which reached unicorn status in only eight months. We also have with us Professor Mariana Mazzucato of the University College of London (UCL) known for her work on how to structure impactful public-private arrangements to ensure government investment is effective and author of The Entrepreneurial State. And finally, we have Scott Sandell, who is the CEO of New Enterprise Associates, a venture capital firm at the leading edge of investment into emerging technologies and their applications.

Welcome to all of you and welcome to our audience here in the room as well as those that are watching online. I'd look to kick off with just a few data points. The forum surveys every year, business leaders from around the world so last year survey reached 11,000 business leaders globally. And we asked a few questions around their views around government investment and government capabilities. And the first of those questions was around the capability of the public sector. And you can see some of that data up there and we won't get into detail and hopefully our online audience can see a lot more of that. But overall, advanced economies show higher dynamism and capability in the public sector, particularly in terms of the attractiveness of the public sector as an employer. But even in advanced economies they perform poorly when it comes to the incentives for public officers towards risk-taking and learning by doing when it comes to investing.

The second set of data is when we asked about what forms of support are needed to foster innovation and transformation within industries, there's a huge amount of divergence from around the world, and lots of detail that we could get into, but mostly to say that there's extremely mixed views about what the role of government should be, and how much you should be co-investing and partnering with the private sector, versus how much they should be leading some of these investments themselves. So that's one of the questions that we're going to try to tackle but first, just to level set. Are we in an era of bigger and bolder government? And in your view, how is active government investment changing the economic landscape and President Tharman if I could go to you first.

President Tharman: I think we are in an era of bolder government, and it comes about not so much because of a change in philosophy, as much as a change in the nature of the problem we face. The largest problem that we face around the world - developed and developing, small and large countries - lies in the global commons, the accelerated deterioration of the global commons.

It's not a global problem that’s separate from what we face locally. It's a problem everywhere, a problem of the commons. And the speed and scale with which we need to invest to address the problem requires all pools of capital to be mobilised - public, private, philanthropic, all pools of capital. There is no conceivable way to solve this problem by relying only on the public sector because it's far too expensive for the public sector alone. It can't rely only on the private sector alone because markets won’t respond with the speed and scale required. So, it requires all pools of capital.

And if we don't address this with the speed and scale necessary, there's going to be a very sharp tradeoff between, on the one hand, growth and development and on the other, solving the world’s ecological challenges - the triple crisis of climate, water, biodiversity. In other words, you have to choose between one or the other.

But we cannot afford to choose between one or the other. We can't afford a tradeoff between a lost decade of growth and a lost decade of climate mitigation. We can avoid both, but it requires a higher level of investment for a long period of time and starting soon.

And that critically requires the public sector to be part of the act, because the markets will not respond with the speed and scale necessary. I wouldn't call governments the investor of first recourse as such. I would call it the way in which the public sector can join forces with the private sector, and draw on philanthropy capital where it's able to absorb risk. We can only address this challenge jointly between the public and private sectors globally.

Saadia Zahidi: Thank you. Minister Alibrahim, your views on the same question, are we really seeing a trend towards bigger government?

Minister Faisal Alibrahim: Absolutely, and I think the main reason is twofold. One, I think some countries and economies are realising that they need to do more to unlock their potential. And two, as a response to the multiple crises we've seen, recently. I think these crises happened at a time where the maturity in terms of globalization, interconnectedness, integration is at its highest, which meant it's more complex, and it touches everyone. And I believe that pushed some governments to say, you know, we have assets, we have capabilities, let's put them to good use. And let's, you know, work together with the private sector to mobilise these assets towards our national objectives.

People used to look at let's say, the asset manager of government sovereign wealth funds as a source of patient capital, thinking long term, but today, I think we're seeing that sovereign wealth funds are becoming a source of impatient capital, really, you know, finding paths to address challenges through upgrading or creating sectors and providing a long term view where, you know, even President Tharman talked about this earlier in Davos, where short-termism is becoming very ubiquitous, even in the markets. Today, there's this momentum to think long-term to solve our, let's say climate action challenges, our innovation challenges or technology disruption opportunities, which is an opportunity for both public sector and private sector to work together but that definitely means we should be okay with the private sector profiting and using that profit to good use. And we should be okay with governments becoming a stronger partner with the private sector.

Saadia Zahidi: Mr Lee, your views on the potential of that partnership?

Kai-Fu Lee: Right, having worked in China since 1998, we saw a lot of this in action. I think China is known as a very bold investor, but maybe not as well known is that it actually makes bets they're not always right. And when they're wrong, as long as eventually happens, the investment that you make in that key important area creates the brain trusts. And I'm talking about the new energy sector. Around 2005, China made a major national initiative to invest across New Energy, so new types of batteries, solar panels and so on. And as you know, now this has become the most important, but from 2005 to today is 18 years, much too long for the company to be founded and go public. And many of the companies funded actually did not succeed. But that created a brain trust so that when the timing became right, they came back and build some of the best solar panel of companies.

China has now 80% of the world's solar panel market share, as well as some as many of the largest, including the largest battery company CATL. And they're actually all at Davos now, but I think the key point I wanted to make was having the boldness that, you know, one day, new energy would be important. You don't really know if it's going to be five or 10 years, but you make the bet, even if you don't get the returns from the investment, you build the brain trust.  But I think that is a very challenging proposition for some governments that turnover quite a bit, waiting 10-15 years may end up getting some criticism and cause cost challenges. So, I'm not saying one approach is right or wrong. But I think the combination of betting on the right technological trends and having a long-term view and having the patience to wait it out. I think that's an interesting thing that the government can do and can lead to big success, in particular, because the private sector cannot do that. I'm a private sector investor. And if I invested that way, the fund will be out of business very quickly. But I think that's an interesting view to look at Sovereign funds that they do need to look at returns, obviously. But how do they take that long -term view and potentially look at some investments that are less successful near term, but eventually, I think it leads to unbelievable returns.

Saadia Zahidi: Thank you. Marianna, in many parts of the world there is skepticism about the ability of governments to be that investor, whether it's short or long-term, and a sense of the risk if governments crowd out the private sector, your view on that?

Mariana Mazzucato: Well, I think that the title of this panel was super interesting because it goes against the narrative and the current narrative, which is that government at best can correct market failures, at best can be a lender of last resort, not an investor first resort. At best can facilitate the private sector, enable the private sector and de risk the private sector, you kind of wonder why anyone would bother even wanting to be a civil servant. So you know, they do it, notwithstanding the propaganda and the narrative that you're kind of, in some ways an impediment. And so, the reason I wrote The Entrepreneurial State is that in those 10 years ago, we would have never had any of the smart technology in your smartphones, if that's what government did. So the internet, GPS, touchscreen, Siri, not only did it come out of public investment, but it was purpose oriented organizations of the DARPA type, but globally Yozma in Israel, which is a public venture capital fund, you were just talking about venture capital, you know, why do we admit that just in the venture capital industry for every success, there's many failures, but as soon as a civil servant makes a mistake, they're in the front page of, in the UK, the Daily Mail. So, this idea that actually you can be an investor first resort, and we have had investors of first resort again, we wouldn't have smartphones. Without that the real question is, what can we learn from that experience? What does it mean to have problem-oriented organisations? What does it mean to have the NASA kind of moonshot which was a really clear goal it was to get to the moon and back in a short amount of time. It happened with 400,000 people most in the private sector. Government led the way but didn't micromanage. There were so many different sectors involved nutrition, materials, electronics, software, because there are all these homework problems to be solved along the way of which many failed the successes got us camera phones, foil, blankets, baby formula, so on and so forth.

What would it look like to actually treat the sustainable development goals as seriously as war time scenarios or in that case, a military industrial complex project turning all the SDGs are 17 of them not just into those 169 targets, but into bold missions that sit somewhere between challenges, which is what the sustainable development goals are, and all these different sectors that must, you know, be catalyzed in order to create a serious multiplier effect. That doesn't happen just with bigger government, right? You need bold government that's what your question so important, capable government in its strategic government, working dynamically, symbiotically with the private sector. Another thing that NASA did was to put into the contracts with the private sector, no excess profits. They didn't say no profits, because you don't get to the moon through charity or philanthropy. Philanthropy is important. But as icing on the cake, it's not the cake. We need good government, good business working together. But just the fact that NASA took the time to design that into the contracts is super interesting. The other thing they did was to change how they did procurement. They moved away from cost plus procurement, which wasn't really getting much innovation towards outcomes oriented fixed price procurement with incentives for innovation and quality improvement. So that idea that Bold Berman is about taking time to structure grants, loans, sovereign wealth funds procurement to catalyze as much economy wide innovation will only happen with a confident government, that's not de risking the private sector but truly welcoming the underlying uncertainty. Remember, Kennedy's point, we're doing it because it's hard, not because it's easy, but also to really also share not just the risks, but also the rewards.

And I have more to say about that, but I feel like I'm talking too much. But how do you share the rewards that also doesn't happen just by talking about purpose orientation that happens through contracts, intellectual property rights, equity stakes, prices of drugs that are publicly financed? How can it be that we don't think about getting the prices right ex ante that happens through sharing knowledge like we should have done during COVID. Some companies did, AstraZeneca because Oxford forced them to share the knowledge whereas some of the other vaccines didn't. That's bold government.

Saadia Zahidi: Thank you, Scott, your view on the same question that risk of crowding out the private sector.

Scott Sandell: I'm less worried about that. You know, I look at things from the ground view level, we hear about 560 portfolio companies around the globe, big concentration, the US, Europe, China, primarily, but in other places. And so, we see as the impact of government on our companies, and in some cases, it's very positive and in a few cases, it's really frankly killed companies.

And it's often through, I was thinking very much about a company, Fisker Automotive, which had a loan from the government, which was pulled immediately when there was a story about another start-up which had failed and had government money. It was a political decision. It killed a company that I think would have otherwise been quite successful.

And that was a bit of a tragedy since $800 million had gone into the company. So yes, governments can get it wrong. But on the other hand, you know, I don't have anywhere near the experience that Kai-Fu Lee has in China, but I started investing in China in 2003. And he was nice enough to remind me before the conference, about a guy that I met the first time I went to speak at a national conference of venture capitalists in China. It is a fellow name Cheng Siwei and I was so deeply impressed because I was one of the five non-Chinese guest speakers. And I expected in 2003 to have the national convention of venture capitalists be composed to fewer than the number of people in this room, but instead there were 800 and, you know, much to my surprise, this fellow Cheng Siwei who was the number two person in the Chinese Congress at the time and probably about 70. I had a chance because I was a speaker to talk to him. First thing I noticed he spoke fluent English. And then he went on to give a speech about venture capital and the best practices which would match anybody I knew could give. And it turns out it was because he had gotten his PhD in 1986, or something at UCLA. And his thesis was venture capital or about venture capital. Why was that? It was because the government was so far-sighted as to identify that as something of interest to the development of China and sent, you know, people to do that. And so what I saw then from 2003, for the next 25 years, is you know, as Kai-Fu Lee said, you know, there were things that in retrospect look like maybe mistakes or they were certainly losses but they set the foundations, and they spurred the rate of development of the venture capital ecosystem to as we all know, now roughly the size of the US venture capital system and 25 years.

I think there was a year was even bigger. So, I think it's, you know, when I when I sit here and think of what the government leaders in this panel are thinking, I think you're absolutely right, that if you want to, if you if you do it the right way, and you're trying to solve problems and accelerate solutions, there are ways to do it.

Saadia Zahidi: Thank you. Let's pick up on that - doing it the right way and the skills and capabilities that exist in governments, as you saw, there's a very mixed picture and many people even in advanced economies don't feel that their governments have those skills and capabilities may not be in the right position to make those long-term big bets. And even if it's oriented towards public, big public good challenges, may or may not have the capabilities and skills. So perhaps President Tharman over to you first, Singapore, obviously known very well for both the public sector skills and the private sector skills, but maybe getting a bit more specific about those long-term bets. How do you build up the kind of human capital and other capabilities that are needed to do that?

President Tharman: Well, I will make two points there. First, learning from past experience across a range of countries, including my own, and several other countries in East Asia. For industrial policy to succeed, it has to be accompanied with social policies on an industrial scale. In other words, a systematic approach to developing human capital. And that requires first and foremost, a high-quality education for everyone. But very importantly, in today's new environment, it requires a constant replenishing of skills. And that’s very hard to get it right. You can't actually bet on specific skills that are going to be relevant five or 10 years from now. But you do know the broad picture. We know that digitisation is critically important, AI is going to be important, robotisation is important, and there is a whole set of green energies that are going to be important. And you know what the cluster of skills required in each of these areas will be. You might not get it precisely right, but you can get it roughly right.

We have to do that with some gusto. And that too requires the public sector to participate in the game. It requires mobilising employers, and motivating individuals.

A new generation of social policies, extremely important, is the replenishing of skills through life - or what you'd call human capital replenishments. It's especially about investing in the skills of ordinary citizens.

The countries that do pure industrial policy, encouraging an investor to plonk a factory plant in a particular town, will find over time that it's going to cost more and more because you don't have the skills ecosystem to sustain it.

Saadia Zahidi: Thank you. Minister Alibrahim, how are you building up those capabilities in Saudi Arabia, specifically within the government?

Minister Faisal Alibrahim: So maybe I'll just take step back and say, vision 2030, which is our plan to diversify our economy also hinges on two other key areas. Which is empowering the youth or unlocking the potential of the youth through improving human capital development outcomes and continuing to do that we're very young nation, but also continuing to build social capabilities. We have a legacy of strong institutions, but under vision 2030, stronger institutions are taking shape. And you don't have to choose, do I build capabilities first or to do. I think you should do both. We decided to implement vision 2030 And build capabilities at the same time. And if you truly think long-term, and you want to build capabilities, you will start with people because that's the best thing you can do. Like, I think what President Tharman was talking about and in terms of building capabilities, either through actually improving the work conditions, continuing to improve education and health care offerings, but also our ambition leads to more pressure on certain terms of what we want to achieve, but also partnerships. We're partnering with institutions from all around the world. We're partnering with governments as well. We have a partnership with Singapore on strengthening the capabilities of the public sector that we're very proud of. We acknowledged the success story there and we want to learn from it and also contribute to its evolution.

I want to comment on the link between that and the question about crowding in, crowing out the private sector and in Saudi, we looked at the vast assets that are available, that are idle, and we started thinking about how we mobilise these for the betterment and for the contribution towards our national objectives. PIF was one great example of how that happened. PIF today is not just only investing for returns, but and you know, contrary to the belief that you can't really achieve double bottom line, PIF is also creating the environment in which returns can achieve through a developmental lens. So not just returns driven, but also developmentally driven and in that regard, PIF has built in parallel to its mobilisation of these assets and resources and organic capability that today's working with the best and attracting the best talent from around the world.

It jumps into sectors either leads them or mobilises them or invest in them for strategic or returns purposes. And crowding in the private sector is not a byproduct, that is a good to have. It's something that we must do. Today, it's part of the evaluation process. PIF has a dedicated department for national sector development, and on top of that it has created partnership models, co investment platforms, such as Asfar, tourism investment company that invests 50-50 with the private sector. Funds of funds such as JADA, which is investing in fund managers and also looks at exits, it leads, it transforms and then it receives itself so down some of its assets. And it's also IPO with a lot of its assets. And also, in the evaluation process today, maybe it wasn't in the beginning, but today we look at how this investment opportunity that was presented by a certain investment team, how is it going to crowd in and increase the participation private sector from the get-go, not just at the end of the investment horizon.  

Saadia Zahidi: Thank you. Mariana you've been working with many governments around the world who's doing this well, who's building up their talent and capabilities for investment well?

Mariana Mazzucato: So, I mean, I think it's interesting not necessarily to look at countries but examples within countries where there was an investment in what I call the dynamic capabilities of the public sector. And that means actually taking care to as I mentioned before, redesign or rethink of everything. So you know for example, in Germany, because they have this very high level vision mission, that required them to then change how their own public bank the KfW was giving out loans precisely in order not to crowd out but too crowd in, but the point was not to crowd in, crowding in is not the objective, working together with lots of different actors is the objective if those problems require collective intelligence. So, the loan in Germany, given to the steel sector, for example, was conditional on the steel sector, lowering the material content of production. How they did it was up to them - had the German government through the KfW told them exactly what to do that would stifle innovation, but that capability for example, thinking about again, directionality we want a green transition. This means changing those tools, catalyzing bottom-up innovation in the private sector, but that does mean not just giving out subsidies, guarantees, loan with no conditions attached. So that's an interesting example. The US, for example, recently did have big government, right, lots of money between two and four trillion, if you depend on what you count, but that's not the interesting bit. The interesting bit is when they actually took time as they did with the CHIPS Act, to build in a different relationship with a semiconductor company. So again, there are these conditions attached to make sure that semiconductor companies are truly innovating, that there's real additionality. So, conditions about not using, I mean it is not kind of not rocket science. It's incredible. It has to actually be said, but if you're getting 400 billion from government, you're not going to then use the profits that come from that just for share buybacks, that was put in in the context of $7 trillion having been used for share buybacks in the last 10 years by the global S&P 500. They put in conditions to make sure that energy efficient supply chains in semiconductors were used, better working conditions, so on and so forth. In Denmark, they have for many years actually been investing within their public service. So, they had an organisation called Mind lab, and it was within the civil service precisely to kind of stimulate and encourage risk-taking and finding crazy solutions that can be tested. Countries that have gov labs, In Chile, they have El Laboratorio de Gobierno, everything sounds better in Spanish, which is a safe place within the government to experiment, precisely on these things like outcomes-oriented procurement that I mentioned before, which again, without that we wouldn't have gotten to the moon. Without that we wouldn't have gotten vaccines, even personal protection equipment during COVID.

But so, all these things like portfolio thinking which you kind of give an example of that. I'll say something quickly about it because it also goes really wrong. Outcomes oriented procurement, digital government, right, because even with the health pandemic, there was an infodemic side of it. Countries that had actually invested within their civil service to be able to deal with digital platforms did do better. Just one quick thing on portfolio thinking which I think is important precisely, so governments don't put all their eggs in one basket, but really do catalyze that economy wide, change with additionality crowding in. It's really interesting what happened in the US after the financial crisis. First of all, they didn't do austerity. In the UK where I live, we just kind of blamed the public sector for what was actually a massive amount of private debt. So, they had an 800 billion stimulus program, while Europe in general was cutting so small government, big government, but they didn't just do big government. They said we're going to try to have it directed towards green. That's what got them able to actually bring in really good people into government. So, Steven Chu, a Chinese American Nobel Prize winning physicist on the back of that announcement, that there was going to be a large fiscal stimulus around green, said, I'm happy to come into government. He wouldn't have come in had they just said we need you to set up a carbon tax or derisk Elon Musk. He ended up being the head of the DOE. He set up ARPA-E, which was modeled around DARPA, which got us the internet, hired Arun Majumdar, who later ended up running Google's energy program, but they also in the DOE ended up having these guaranteed loans to companies. Everyone knows about the Solyndra one, because they went bust, about 500 million guaranteed loans by government. Almost no one knows that the same amount of money just a bit less went to Tesla. Right. So first of all, again, that propaganda bit they said at the beginning, when government fails, everyone knows when government succeeds somehow, we say that was entrepreneurship, but how they set it up made very little sense. They said to Tesla, if you don't pay back the loan, we get 3 million shares in your company. Why would you want 3 million shares in a crappy company that doesn't pay back the loan is beyond me. Had they said if you pay back the loan, which they did, because they are a good company, they paid it back in 2013. We get 3 million shares in your company. The price per share went from nine to 90, multiplied by 3 million would have more than paid back that Solyndra loss in the next round of investment. That's an investor first resort mentality. That's a cultural shift. So even in a country that is actually investing in the technologies in your iPhone, or having that bold idea about greening an economy actually requires also that savviness on the investor side, and also making sure that the taxpayer is not just bailing out the failures, but also getting some of the upside, not in terms of nationalisation, but in terms of smart governance.

Saadia Zahidi: Thank you. So, speaking a bit about those capabilities, that savviness. Mr Lee, do you see any government being able to do what you did getting to unicorn status in less than eight months’ time? I mean, do you think the same kind of dynamism, incentives, skills exist to be able to get that done?

Kai-Fu Lee: Well, I think sovereign funds and governments have to be cautious because on the one hand, they need to understand and see the big trends and make sure that in that country, these trends get to emerge the way they deserve to be and accelerate their growth. Secondly, I think every country should want to have a good private sector, venture capital private equity firms. So there needs to be sort of a division of labor, a win-win proposition, which implies that the government might start I see many successful sovereign funds, start by essentially being a fund to funds so that simultaneously trains the VCPs and feeds back later for the sovereign fund to gain knowledge of the industries and then it can take on things like as mentioned earlier, co-investments, these are things that are very much alignment of interest, which is very important in investment. Basically, the model could be the sovereign fund says this area is important, VCs aren't doing it. I'm going to give the VCs money, be an LP be an anchor LP to make their fundraising easier. Then as they go in and invest in private companies. The good ones or the appropriate ones that later rounds, the government comes in as a co-investment. So that's an example in the ecosystem setting.

But now the other questions and the other thing is, I think the government's ought to pick things that are not naturally areas that would happen organically, things that have a good cash flow that can make money quickly. Private sectors will figure those out. They don't need national nudging, where this nudging is needed, I gave an example earlier about New Energy. Another example is early-stage startups. So, this I think, began in Israel. I think Singapore, build on that. And then China learnt from Israel and Singapore. Basically, these governments at local level as central level basically says well early-stage investment is really tough, high likelihood of failure. VCs don't get the same kinds of returns, they invest very little money and then they have a big loss ratio. So, the government might make some incentive to help to provide even more upside to the VCs and angels and that has worked very well for a number of countries, including China, Singapore, and Israel.

The last point I would make is that sometimes the government might spot a really important not only technological trend, but a need to provide self-sufficiency. So, I'll give the example of the company I'm building now. My company builds large language models, but we believe that unlike previous operating systems like Windows and Android, which are just technology, Large Language Models (LLMs) actually represent each country's culture needs, cultural norm, and biases and values. And those do differ country to country. So, a model built in the US will not work in China or won't work well in Saudi Arabia and China probably won't work in Singapore and vice versa. Of course, the foundational technologies are the same. OpenAI and Google have no intention of pushing Americanism, but the data they collect is largely American, and the alignment process trains it to American values, which is great for America and probably good for countries closely aligned with us, like many English-speaking European countries etc. But I think every country needs its own model and for that to happen, no VC, no entrepreneur is going to stand up and say, well we're a country of 10 million people. I can make a business case of buying, you know, $100 million of GPUs, and then build a language model and make money in the next three or five or even 10 years. So that is where I think the sovereign fund or a national priority, might step in and say hey, this technology will change the world. And we can't for now use technologies built by another country, yet the entrepreneurs aren't going to naturally get funded by VCPs, so I think we're gonna go make this work.

I mean, fortunately, why I build 01.Ai in China where there is large enough population to make an easy business case. So normally investors, private investors invested in me, but I kind of take what I do and projected to other countries is going to be much harder to make that business case. So, I think I would encourage more countries and sovereign funds. So think about what are the big technological trends? What are things that they can't depend on other countries, because the national needs are different or the usage cases are different, and how to encourage what might initially look like a not the great investment, but it will lead to a big ecosystem, as well as building a brain trust that really makes all the difference in the long-term.

Saadia Zahidi: And Scott your view on that division of labor between public investors and private investors, what are some of those big areas where public investment should go versus private and particularly in the American context?

Scott Sandell: Well, it's notable in the US context, I think most of the pension funds are relatively passive investors in private equity, but as Kai-Fu Lee said there are countries where that has progressed from fund to funds to fund to funds plus direct investment. You know, if you're trying to jumpstart a new ecosystem, you're gonna have to be much more aggressive. That's what I described China having done but even a country like Australia has set up the Future Fund, I don't know 20 years ago. They invested in NEA, started making direct investments in our company. And, you know, you can look at the results. I think it's public record, they've done incredibly well for the citizens of that country, without necessarily having the goal of, you know, supporting an ecosystem. So, to me, it really depends what you're trying to do. And I think it's fascinating to hear what the models are that have been tried around the world, but it seems like there's a lot to learn from.

Mariana Mazzucato: Can I just add something about venture capital because it keeps coming up as this like, good thing? It depends. And I mean, I think venture capitalist had a hugely dysfunctional role in many parts of the world, including the US that we should learn from in order to create functional venture capital. So the fact that it's so exit driven, and sometimes that exit is kind of three to say seven year cycles. That's not patient finance. So that's fine for gadgets, but it doesn't get you the kind of revolutionary change that we need in different sectors like the ones that you were talking about. So in the biotech sector, for example, exit driven VC got us a lot of product list IPOs. The venture capital sector in the US also played a hugely dysfunctional role in terms of tax policy. They were the ones that lobbied initially at least for capital gains tax to fall by 40% in five years, and a lot of the capital gains tax reductions globally don't differentiate long-term investments from short-term investments. So I think, especially in a panel on innovation, let's learn from the mistakes that have been applied or how do you say designed into the way that venture capitalist structured and also in terms of sharing, you know, risks and rewards, the whole 220 model itself could be, you know, questioned on whether, you know, it's fair.

And if you look at the health sector, I mean, I just know this because it's sort of obsessive about looking at sectors properly over there kind of 50 to 100 year cycles. In the US, for example, it was the National Institutes of Health, that recently are spending about 40 billion a year that have invested in the early stage, high-risk drug innovation with VC almost always coming in later. That's fine. Not a problem. But then let's admit that that's the division of innovative labor and ask what does that mean for the division of the rewards and that's gonna get a smarter policy.

Saadia Zahidi: Thank you. And President Tharman if I can come to you with both that question around division of labor, but also, is this really about crowding in, crowding out long-term short-term, or is this about partnership?

President Tharman: Well, I think, with today's new industrial policies, particularly the largest industrial policy experiments underway today, the risk is not so much about crowding out private capital. The risk is of crowding out other countries.

And in fact, the motivation for these industrial policies has been twofold. Part of it is good, which is the driving down of costs of low carbon or zero carbon technologies. But the other motivation, which is not disguised, is geopolitical – it’s about achieving a lead over someone else and it goes together with other policies. It is in effect protectionist.

So it's a complicated game. Countries with the deepest pockets, or the ability to borrow the largest amounts of money without suffering a credit rating loss, are at an advantage over the rest.

The reason is because this generation of industrial policies works by offering subsidies, and the deeper your pockets the larger subsidies you're able to offer.

Compare this with countries with carbon taxes or carbon pricing. That’s adopting what economists would call first best policies - you use carbon prices to incentivise low-carbon or zero carbon technologies. The country that offers subsidies rather than carbon prices is at an advantage because it's not just slanting subsidies towards low carbon, it's also lowering the cost of energy. Whereas the country that goes for pricing is not only encouraging low-carbon options, but also raising the cost of energy and encouraging energy conservation.

That's really what's happening globally today. The countries with the deepest pockets are crowding out other countries.

The jury's out on how well these strategies of subsidising low-carbon technologies will succeed in the long-term, especially when they are mixed up with protectionist strategies. Second, that's also likely to be a path in which the rate of innovation globally slows down. You slow down the rate of investment and innovation globally.

If you look at ASML, for instance. ASML advanced lithography machines are produced through a complicated global network, with everyone investing at the frontier within that network. Once we start restricting which nations or firms can be part of the process, it’s likely that the rate of innovation goes down.

Realistically, countries do want to be ahead of others. But at least 80% of their efforts has to be in developing their capabilities rather than in making sure someone else doesn't catch up.

Saadia Zahidi: Thank you. Unfortunately, 45 minutes goes by really fast with such an incredible panel. And so, I'd like to just do one final round. And I'll start with you, Scott. Your outlook for innovation, public or private sector led, do you think there is that risk of a global slowdown in innovation? And that will be the final round, final question that I’ll love to ask the full group starting with you, Scott.

Scott Sandell: Well, I think there's an enormous amount of innovation underway probably more than any time in my 30-year career doing this. There's also, you know, a huge aversion to risk and capital going into the startup ecosystem went from 700 billion to 300 last year, in a span of two years, but I actually think that's healthy. And I think the right kinds of innovations will largely survive and the kinds of technology that is coming along today, most notably, Artificial Intelligence will create unbelievably good thing so I'm not that worried about it, although I think there will be a lot of casualties.

Saadia Zahidi: Thank you. Marianna.

Mariana Mazzucato: So the opportunities are there, but they won't bear fruit unless we make massive changes to how we do capitalism. So the first thing would be to de-financialised our corporate sectors, I already mentioned 7 trillion, that's huge in terms of share buybacks. That's the same financial gap, by the way that people argue is around the SDGs.

Second, we need proper purpose-oriented partnerships. I've been arguing for mission-oriented government working with purpose-oriented business together in big problems, but again, designing those partnerships contractually right ex ante, so we don't pick up the mess, ex post and third, sorry, I keep selling my books, but my latest book, The Big Con was how the consulting sector so the McKinseys and PwCs,  it's not even their fault, but governments have outsourced a lot of their capacity to the consultants. So, we need to insource that capacity. There's definitely a role for consultancy, but not instead of investing and training the civil service and also making them happy again, and calling them at best lenders of last resort or market fixers or facilitators, is not a good way to insource top talent and then to also train the civil service to help create value not just to redistribute, regulate, administer and you want to kind of fall asleep by the end of that paragraph.

Saadia Zahidi: Thank you. Kai-Fu Lee.

Kai-Fu Lee: Oh yeah, I’ll follow suit and sell my book too. My book, AI 2041 talks about all the technologies in the future from AI to biotech, to quantum computing, to drug discovery, and I think the opportunities are just so large, and I predict actually that we will reach at it within the next 20 years, the age of plenitude when AI and technologies do work for us and we will be able to liberate ourselves from having to do routine work, and do what we as humans really want to do. So with that it shows a huge amount of optimism. We face some challenges in the capital market. A lot of VCs and investors want to see cash flow and make money and that's not the way you invest in early stage. But I have faith in the entrepreneurs in the world that we will make these technologies happen.

Saadia Zahidi: Thank you. And Minister.

Minister Faisal Alibrahim: Saudi has this playbook that everybody is looking into. It is all about bold movement like Mariana said and learning by doing, it's about global collaboration partnership. I don't think it's always competition, although competition is good. I think the state of innovation, if we really put our heads together, and if we say it's not either or I mean every country wants to be resilient especially today. And it wants to be a co-author of the future of many of these sectors and technologies. And it's not only fair that it wants to take a lead but that doesn't mean it can't collaborate and kind of put forces together. The green and each transition won't succeed without true collaboration investing in accelerating innovation and technology. And I really think, you know, impatient capital doesn't go against thinking long-term. In Saudi. We wanted to accelerate our diversification fast. We went in, we created the environment in several sectors, we prioritise their team that created the conditions for profitability, private sector. PIF has the largest fresh capital deployed in 2023, 35+ billion dollars - that's not patient capital. At the same time PIF in 2022 crowded in $60 billion of private sector investment. So these two things can work together. And I believe truly that this is the time where collaboration can lead to acceleration innovation.

Saadia Zahidi: Thank you. President Tharman, you’ve got three optimists about the future of innovation and one it depends. What's your view, give us the final word.

President Tharman: Keep in mind that we are way behind in the race against climate change and the broader crisis in biodiversity. And the way to tackle this is to rely on superior technologies and innovations, wherever they come from, and scale them up globally. Guard against unfair competition - unfair subsidies and the like, which many countries are guilty of - but choose the most superior technologies and scale them up, regardless of which country they came from. That's going to give us the best chances of tackling the problem.

Saadia Zahidi: Thank you, President Tharman. Thank you, Minister Faisal Alibrahim. Thank you, Kai-Fu Lee. Thank you, Mariana Mazzucato And thank you, Scott Sandell. A big round of applause.