Policy with a Purpose

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Temperatures set to rise at least 1.5 degrees Celsius above preindustrial levels this century.
Climate finance shortfall: at least $5.4 trillion a year by 2030 needed to stave off the worst effects of a hotter planet.
The crisis is framed as the result of economic and institutional design—public and private institutions and their relationships—implying agency to redesign systems to put planet and people first.
Key findings:
- Current incentives perpetuate fossil-fuel dependence: the world spent $7 trillion subsidizing fossil fuels in 2022.
- The 20 biggest fossil-fuel firms are expected to invest $932 billion developing new oil and gas fields by the end of 2030.
- Corporate distribution of income undermines productive investment and labor share:
- S&P 500 companies transferred $795.2 billion to shareholders last year through stock buybacks.
- About half of that figure came from the 20 biggest firms.
- Five of the world’s largest listed energy companies transferred $104 billion through buybacks and dividends in 2023.
- The share of total income going to workers has declined by 6 percentage points since 1980.

Core principle: shape markets through clear missions rather than merely fixing market failures or “leveling the playing field.”
Missions should “pick the willing” (actors committed to mission goals) rather than “pick winners” (specific sectors/technologies).
All sectors must transform—example analogy: NASA’s moon mission involved diverse investments (nutrition, materials), illustrating cross-sectoral innovation needs.
Growth should be seen as a result of well-designed missions, not the mission itself.
Public investment can catalyze innovation and crowd in private investment, especially where private R&D is low.
Policy design must maintain openness in how missions are achieved to preserve innovation (examples: multiple technological pathways to net-zero building requirements).

Governments should make access to public funds and benefits conditional on firms aligning behavior with mission goals.
Conditionalities can cover:
- Net-zero emissions commitments.
- Affordable access to resulting products and services.
- Profit sharing or reinvestment of profits in R&D rather than shareholder buybacks.
Examples of conditionality in practice:
- France’s COVID-19 bailout of Air France required curbing emissions per passenger and reducing domestic flights.
- Germany’s KfW energy-efficient refurbishment program links low-interest loans to decarbonization and provides debt relief of up to 25 percent for buildings meeting energy standards.
- The US CHIPS and Science Act requires climate and workforce development plans, accessible childcare, prevailing wages for certain workers, community investment in consultation with local stakeholders, profit-sharing above agreed thresholds for funding of $150 million or more, excludes stock buybacks from CHIPS funding, and discourages buybacks for five years.
Design caveats:
- Conditionalities must be carefully calibrated to maximize public value without stifling innovation.
- Flexibility and transparency in negotiation are concerns; labor unions have pushed for stronger labor-standard conditionalities.

Public procurement and public finance are powerful levers for mission-oriented industrial strategy.
Key statistics:
- Global public procurement budgets total about $13 trillion a year.
- Procurement accounts for 20–40 percent of national public spending in Organisation for Economic Co-operation and Development countries.
- National development banks (NDBs) have $20.2 trillion under management and multilateral development banks (MDBs) a further $2.2 trillion.
- Together this amounts to about 10–12 percent of global financing.
Policy roles and recommendations:
- Procurement can be redesigned to emphasize outcomes, innovation, social value, or local production (examples: Brazil’s procurement redesign; US Buy Clean Initiative).
- Public financial institutions should act as lenders of first not last resort, provide countercyclical financing, fund capital development projects, and act as venture capitalists to catalyze mission-directed investments.
- NDBs and MDBs can condition loans to require private-sector transformations (example: KfW loans to the German steel sector conditioned on lowering material content, contributing to Germany’s green steel).
- Coordinated public-bank action could realize a Sustainable Development Goal multiplier.

Mission success depends on a stable, connected national innovation ecosystem with public institutions funding and shaping innovation at all stages: research, commercialization, and scaling.
Industrial strategy should align:
- Vertical component: missions (outcome-oriented) rather than traditional sectoral focus.
- Horizontal component: investment in the broader innovation ecosystem.
Government capabilities required:
- Investment in public-sector teams and institutions responsible for industrial policy at all government levels.
- A competent, confident, entrepreneurial, and dynamic public sector able to take risks, experiment, and collaborate across ministries.
- New institutional forms and safe experimentation spaces (example: Chile’s Laboratorio de Gobierno).
Measurement and accountability:
- Move beyond static cost-benefit and GDP measures; use dashboards of economic, social, and environmental indicators.
- Include spillover and multiplier benefits along with job creation and patent filing.
- Indicators should be learning and accountability tools, not missions themselves.
- Some ministries (e.g., UK Treasury) are updating public spending guidance to set clear cross-departmental objectives.

National mission-oriented strategies should avoid sliding into green protectionism that prioritizes domestic decarbonization at the expense of global cooperation and equity.
Example concern: the US Inflation Reduction Act has prompted Europe to prioritize its own industrial decarbonization but is draining financing from emerging economies.
Policy imperative: design national industrial strategies that consider implications for international development, trade, and supply chains to coordinate global responses to climate and inclusion goals.

Reorient industrial policy from fixing markets to shaping markets with clear, outcome-oriented missions.
Make public funding conditional on alignment with mission goals, including environmental, labor, and social provisions, while preserving flexibility for innovation.
Reconfigure procurement to incentivize innovation, social value, and low-carbon local production.
Mobilize patient, mission-focused public finance: deploy NDBs and MDBs as proactive, risk-taking financiers and leverage $20.2 trillion (NDBs) + $2.2 trillion (MDBs) under management.
Invest in public-sector capabilities, institutional design, and experimental “govlabs” to implement mission-oriented strategies.
Measure industrial policy impacts using dashboards that capture spillovers, multipliers, social, and environmental outcomes.
Coordinate internationally to avoid green protectionism and ensure equity for emerging economies.

Source: F&D Magazine — "Policy with a Purpose", Mariana Mazzucato, September 2024.

Policy with a Purpose
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