Public Procurement as Development Finance

Rainer Kattel Ragnar Nurkse School of Innovation and Governance, University of Technology,

Preparatory Process for the third International Conference on Financing for Development Substantive informal session on domestic public finance 11 November 2014, Trusteeship Council Chamber, United Nations, New York What can public funding do for development via innovation?

Source: Mazzucato 2013 Governments make daily huge markets

USA UK Swden South Korea Hong Kong Greece Estonia Denmark China Brazil Australia

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Procurements per day Exports per day

Rainer Kattel Source: World Bank; calculations by the author What and how should governments procure: half a century of diverging views

Today and near future? Logic of *Sweden, electric lorries Logic of Efficiency *Korea, greet tech procurement Technology *China, energy efficient products, *cheapest added points for indigenous *solving socio‐ solutions innovations economic *transparency *Brazil, Petrobras supply‐chain challenges *rectifying *infant industry market failures creation 1990s, esp while avoiding *diffusion of new WTO GPA government technology, failures upgrading Post WWII, e.g.US, Australia military procurement

Rainer Kattel Types of procuring innovations

• Type A: Create new technological solutions and markets for these solutions: – Procuring mission critical technological solutions (often related to military in the past, to ecological solutions today, with civil spillovers; examples: internet, GPS semiconductors, fighter jets) – Procuring R&D intensive solutions (often in pre‐commercial phase; policy examples: SBIR program in the US; Key‐technology catalogues in China) • Type B: Diffuse new/existing technological solutions: enhance markets and competitiveness – All procurement has innovation as formal evaluation criteria (country examples: China, the EU moving towards such practice)

Rainer Kattel Types of innovative procurements and their impact on the economy

Mission critical technology platforms All procurement has capabilities

Procuring wide range to have innovation as of R&D solutions formal evaluations criteria Technological

Efficiency oriented procurement (new buildings, information systems)

Market size and complexity

Rainer Kattel Public Procurement and Innovation

Rainer Kattel Ragnar Nurkse School of Innovation and Governance, Tallinn University of Technology, Estonia