Innovation often involves the creation of new technologies, sometimes arising as an outcome of state funded research projects, and then taking them to market. For readers who work as researchers or who run research programs, this may be what innovation means to you.
From an end-user point of view an innovation can be new to the world, new to a sector, or new to a place. It does not have to come from original research or have the backing of a patent. Any of these kinds of newness may be enough to create market demand. In this sense the end-user or market perspective and the research view of innovation is quite different.
Finance for Innovation
Finance is often needed to make innovation happen. The exception is where start-ups manage to boot-strap or support the creation of a new line of business by investing reserves accumulated over time or using cash flow from existing businesses. In most cases, new money is needed via access to start-up grants, the 3Fs of Family, Friends and Fools, networks of business angels or exposure to venture capitalists. These are all part of a healthy innovation eco-system.
Skills for Innovation
The skillset required to make innovation happen is very different from that required to grow a mature business or manage a diversified company operating in many markets. And so the education, coaching and guidance of entrepreneurs who will ‘make innovation happen’ requires a dedicated effort.
Innovation is all of this and much more. It is easy to see the need for co-location of services relating to education and training, research, finance and buyers, to create an environment that is conducive to innovation, and the new jobs and growth that this can provide.
Innovation Blind Spots
Nevertheless, gaps or blind spots remain and need to be addressed if we are to succeed in the transition to a sustainable way of living.
Even in regions that are otherwise well served by a well-funded, highly diverse eco-system of innovation related services, these blind spots exist.
For example, the world of venture capital tends to look for high returns from new businesses with global growth potential. But not all businesses intend to become global players. Many of those have the potential to grow, providing jobs and creating value for the economy. But they may only intend to grow to a certain size, thriving locally or in a limited region. Many such businesses can provide good returns to investors. But not on the scale of another Facebook, WeWork or Open AI. Yes, they are often underserved by finance. Let’s call them the “missing middle.” Investment techniques exist to serve this group. Appropriate structures and models exist.
This group is not the only neglected group. Other often overlooked groups include agricultural and energy cooperatives. These play a very important role in modern sustainable economies. They too tend to be under-served in terms of financial services.
Enabling the Circular Bioeconomy
One group of great interest to CKA, is made up of the producers of feedstock for the circular bioeconomy. This includes small-holder farmers, that produce agricultural waste, and towns that produce sewage, waste food, UCO (Used Cooking Oil) and other forms of organic waste. All of these can be transformed, among other things, into biogas and bioethanol, biodiesel and glycerol, bio-fertilizers and composts, and SAF (Sustainable Aviation Fuel). One of the reasons why this is not happening on the scale needed to decarbonize entire sectors such as aviation and maritime transport, is the lack of appropriate financial services to support this transformation.
We will never create a post-petroleum, post-fossil economy, unless we learn how to manage the collection of waste and its transformation into the commodities we get today from fossil fuels. We may also need other systems. For example systems based on the capture of carbon from the air and from the oceans. But the transformation of sustainable biomass into energy and biocommodities is an essential part of the transition to sustainability.
Innovation in Finance, the Economy and Governance
The financial crash of 2008 caused great misery in both the US and Europe. Millions of people lost their homes. Movies and documentaries were made in the immediate aftermath and continue to be made, to dramatize the collapse of the global financial system, the personal misery this caused and the ensuing bailouts.
This led many to question the neo-liberal model of economic growth and development. Many said that ‘democracy is broken’ or that ‘capitalism is broken.’ Although many economists and people in finance were of the view, that the collapse was impossible to foresee, the reality is that many did see this coming, most famously Michael Burry of the Big Short. But he was not alone. Many others had seen the cracks in the financial system and its inevitable failure. The big issue of course is to understand what could have been done differently, and how to put in place a better system that will enable the transition to a post-fossil era of prosperity.
A lot of insight and wisdom already exists indicating what such a system should look like. Relevant ideas worthy of consideration abound, based on an understanding of…
- The real economy, going beyond the toy model based on ‘rational’ man, supply-demand equilibria, ignoring the role of finance and using GDP as a measure of prosperity.
- The difference between public and private debt and the history of debt through the ages.
- The role of central banks and the international monetary system.
- The difference between international, national and household accounts.
- Where money comes from. How it is created and its role in society.
- The role of local complementary currencies and local monetary systems.
It looks as though we need a hybrid economy to provide prosperity and need our immediate and urgent needs, such as financing the transition to net zero.
By ‘hybrid economy’ we mean one that mixes profit-led and purpose-led enterprise. These include energy communities, cooperatives and social enterprise in all sectors of the economy. A hybrid economy also mixes traditional Wall Street style finance with sustainable, transition and impact finance. It provides for a range of currencies that complement national fiat currencies. For example with a new standard for international trade, with functional local community currencies backed by unused assets, such as peoples’ free time.
For those who may have forgotten already. Here is a list of movies inspired by the 2008 crash that you may like to see.
- 2009 The Last Days of Lehman Brothers: As the name suggests a film about a too-big-to-fail bank, the first domino to fall, starting the collapse
- 2009 Capitalism A Love Story: A documentary by Michael Moore which looks at the success and failure of American style capitalism.
- 2010 Inside Job: A film by Charles Ferguson starring Maztt Damon which looks at the systemic corruption and other factors that lead to the crash of 2008.
- 2011 Margin Call: A financial drama looking at events over 24 hours leading to the crash of 2008 staring Jeremy Irons, Kevin Spacy and Demi Moore.
- 2011 Too Big to Fail: Based on a book of the same name it focuses on the collapse of Lehman Brothers and the roles of Treasury Secretary Henry Paulson and Federal Reserve Chair Ben Bernanke, in trying to stall the collapse.
- 2012 The Queen of Versailles: A documentary on the impact of the 2008 crash on the fortune of billionaire real estate moguls Jackie and David Siegel.
- 2015 The Big Short: Based on the book by Michael Lzewis, starring Brad Pitt, Christian Bale and Ryan Gosling, it dramatizes the role of real-life characters such as Michael Burry and Steve Eisman, as well as the use of Collateralized Debt Obligations and Credit Default Swaps, leading up the 2008 Crash.