Editorial: Governments' towering role in innovation

"It is important to create subdivisions that will work closely with startups and small innovative companies, as well as venture funds."

Potentially one of the most exciting periods for innovation and the global markets is coming from a perhaps unexpected source – governments.

A wave of privatisations from the 1980s in the US and UK sparked others in Europe and beyond, but more recently the focus has been on entrepreneurial startups and scale-ups and helping incumbent corporations deal with disruption and growth opportunities.

However, with US President Donald Trump mooting the idea of privatising US air traffic control, while UK leaders look to exit their final stakes in banks taken over during the last global financial crisis, the issue is on the agenda more broadly as a way of trying to add greater dynamism to the global economy. But venture is a tool others are exploring.

Russian President Vladimir Putin’s speech at the St Petersburg Economic Forum this month said: “I am calling for the management of our major companies – Rostec, the Federal Space Agency, the United Aircraft Corporation, the United Shipbuilding Corporation, Rosatom and other domestic high-tech companies – to actively use the opportunities opening up.

“It is important to create subdivisions that will work closely with startups and small innovative companies, as well as venture funds, to finance such projects. I am asking you to make sure that this does not remain empty rhetoric.”

In India, news provider Economist’s headline this month was: “Most of India’s state-owned firms are ripe for sale or closure.”

In China, the government has tried to find a halfway house. Chinese tech giants Alibaba and Tencent are expected be among new investors pouring a total of around $10bn into mobile carrier China Unicom, sources told newswire Reuters, part of efforts by Beijing to rejuvenate state behemoths with private cash.

China Unicom plans to raise around RMB70bn ($10.3bn) through the Shanghai-based unit, the sources said.

The State-owned Assets Supervision and Administration Commission, which oversees state-owned enterprises (SOEs) is trying to use mixed-ownership reforms to revive the sector with private capital, creating stronger conglomerates capable of competing on the global stage.

The central government issued guidelines in 2015 aimed at overhauling its SOEs, saying it would close down the most uncompetitive firms and modernise the ownership structure of those that remained.

Earlier this week, the official China Securities Journal said China had completed 48 deals by June 20 to allow private capital to invest in government-run enterprises – up ninefold compared with the same period last year, Reuters said. And that would accelerate, it said.

China Eastern Air earlier this week sold almost half its freight unit to four firms, including Legend and Global Logistic Properties, in the Chinese aviation sector’s first mixed-ownership reform deal.

And there is no shortage of excitement as other governments try to push the levers for more innovation. This was the Financial Times headline after the recent French election: “Emmanuel Macron inspires entrepreneurs with startup nation vision.”

The French president revealed measures to lure foreign staff to France with a French tech visa and foster tech innovation, including the creation of a €10bn ($11bn) fund, the FT said. “I want France to be a startup nation. A nation that thinks and moves like a startup,” Macron said.

Similar plans have been seen from Canada’s prime minister, Justin Trudeau, since his election, as well as in other countries, such as Japan, Finland, Brazil, Singapore and the UK.

Topics at the annual UK-based tech transfer organisation PraxisUnico’s annual conference included the Industrial Strategy Challenge Fund, international benchmarking in university venturing funds and challenging universities to collaborate with industry.

But while much of the direction of travel is towards greater openness, competition and connecting startups and larger corporations, there are still some headwinds. The US is looking into regulating Chinese investment to protect domestic innovation in the artificial intelligence sector.

See more from this Government Report: France, People's Republic of China, Russia

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