Opinion Pieces

Private-public sector co-operation can tackle major challenges

January 08, 2019

A decade ago, a solar and battery system that relies on machine learning to make intelligent decisions to optimise energy use in people’s homes might have seemed like something straight out of science fiction.


But, as unlikely as it might have seemed, the mass-scale fusion of renewable energy and smart software is now a reality.


Responsible co-investment fosters inclusive growth and job creation in a way that doesn’t require huge outlays and generates returns at a time of significant fiscal constraints.


Redback Technologies, the small start-up out of Brisbane responsible for the project, last year attracted $6 million in investment through the Clean Energy Finance Corporation created by the federal Labor government in 2012.


The start-up is relying on the investment, as well as funding from private backers, to expand its R&D capabilities, accelerate development of its smart software and grow its workforce.


It’s just one of more than 100 transactions worth a total $6.6 billion the CEFC has committed to in its first five years, leveraging $19 billion in new clean energy investment and helping Australia transition to a clean energy economy.


The CEFC has become the poster child for the concept of co-investment.


That is, a form of public-private agreement to direct economic growth to an intelligent, sustainable and inclusive model.


Responsible co-investment fosters inclusive growth and job creation in a way that doesn’t require huge outlays and generates returns at a time of significant fiscal constraints.


And, perhaps most importantly, it allows us to invest in the things we value, such as clean and renewable energy and green jobs.


The CEFC model, for instance, has generated a portfolio rate of return of 4.4 per cent.


Its expert board facilitates new investment in clean energy businesses and products that the private sector has initially shied away from, providing the capital they need to grow and ultimately attract private investment.


And for every dollar the CEFC invested last financial year, the private sector added $1.80.


Co-investment might still be an underused concept, but it isn’t a new one.


Eminent economist Mariana Mazzucato, who is visiting Australia for the first time this month for a series of meetings and talks hosted by the Centre for Policy Development, is arguably the highest-profile advocate for co-investment and a better understanding of the role of governments in markets.


Mazzucato has made headlines around the world this year for her thought-provoking book, The Value of Everything, a scathing yet considered indictment of how economic value is incorrectly determined in modern economies.


But it was in 2013’s The Entrepreneurial State where she gave weight to the concept of co-investment by dismantling the common view of a “boring, lethargic state versus a dynamic private sector”.


Mazzucato points out that private enterprise in many instances dares not tread into new terrain that is untested, or comes with greater risk.


The example she often cites is that of the iPhone. Every key piece of technology that goes into the iPhone – GPS, touch-screen technology, voice activation and even the internet – was developed by Government.


Mazzucato doesn’t dismiss the power of markets to drive economic growth, innovation and foster creation – and nor do I.


But what she does do well is highlight that the market is not always the be-all and end-all. We need to obsess over the mission, not the model.


In Mazzucato’s words it isn’t about picking winners but picking the willing – those prepared to invest in overcoming big national challenges.


Often the main argument for detractors is that the bureaucracy doesn’t have the expertise to assess entrepreneurial risk or capital allocation to maximise returns like private enterprise does.


We need to take that criticism seriously. We need to build the capacity of the public sector, and make smart decisions about boards and executives.


The success of the CEFC is a story of accomplished people making great decisions.


Labor’s new $1 billion Australian Manufacturing Future Fund will adopt a similar model to the CEFC, to drive innovation, grow businesses and create jobs.


There is opportunity afforded to us for targeted co-investment too by the funds that already exist; not just the CEFC, but others such as an improved NAIF and the Export Finance and Insurance Corporation as well.


Given the immense opportunities and proven success, co-investment will be a guiding principle in a future Labor government, particularly in the finance portfolio, which will play a more progressive and activist role than it does now.


This opinion piece first appeared in The Canberra Times on Tuesday, 8 January 2019.