Can government be the catalyst for breakthrough innovation?

0:01Government can change law. government can put a lot of money at stuff, even more than any rich individual could do. Government is actually required to scale businesses. There's always those kind of theories where we are arguing that governments are the problem. I would really love to see governments change that view and really be innovative drivers. The big questions of our time are global. And it doesn't really matter all that much who solves them as long as they get solved. When the first breakthrough innovation of us is us, we've invented a government agency that acts very differently from others.

0:37Across the world, it's not just the private sector seeing an opportunity for innovative growth. Governments are also stepping into the fold, helping to accelerate big ideas across industries, fostering new kinds of partnerships and improving lives. So could the world's next big breakthrough innovation be driven by government? And what does that mean for the way the public and private sector work together? I'm Femi Oke, a broadcaster and journalist. And I'm Lizzie O 'Leary, a podcaster and journalist. And this is a special series of Take On Tomorrow, the podcast from PwC's management publication, Strategy and Business.

1:20Today, we ask, what's the role of government in driving innovation? As we look at how we govern and serve.

1:33To help us understand how the relationship between business and government works today and could work in the future, we're delighted to be joined by Friedrich Blachetta, public sector data and AI leader from PwC Germany. Friedrich, welcome to the show. Nice to be here. So we talk a lot on this podcast about the role of businesses in driving innovation, But why should we be paying attention to what governments do in this space? If we look into this history, all kinds of groundbreaking innovations that have come to us in the past, be it the smartphone with the haptic touch on the front or some other inventions, wouldn't have been possible without funding and also the risk-taking of governments in that state.

2:19I mean, we have tremendous examples of that. I think some things, especially if they're in early stage, are really complicated to figure out risk-wise. I think to close this kind of gap is also something where governments could really help us through. Frederick, before you came to PwC, you actually worked in government at the German Federal Chancellery. So you've experienced government from within. How has government worked alongside businesses traditionally? And do you think we're seeing a shift in how those relationships come together right now? Well, I think first and foremost, it's very important to reiterate.

2:56Everyone is always trying to say like governments are very slow and it's on governments that things are not happening at this point of time. I think you can also easily say that about some big corporations, which are sometimes also full of politics and full of that kind of stuff. So governments are not that slow as some might think. And furthermore, I think governments, especially the people that work at governments, really have a kind of mission. So they really want to change something for the best of societies. I think if you look into what governments are doing and how they are working with privates, I think we really see a trend in changing of doing everything on their own to changing to a more capability-driven ecosystem approach in which the kind of borders are thinner.

3:44sometimes even making it possible to change back and forth, just as I did or others. But of course, also to really work together and work in a very cooperative way. We have to see, like, what can we take from privates? What can we easily adapt upon? Where can we use the capabilities that they are having to really make government work better? And this is what governments are doing at this moment. And I think this is not possible with our private sector. Frederik, thank you so much. We're going to come back to you in just a bit to hear more about the role government plays alongside businesses. But first, Femi, you have been hearing all about how the German government is focusing on innovation.

4:22Exactly. Back in 2019, the government set up an agency called Sprint to create new breakthrough innovations that help solve social and economic challenges. To find out more, I spoke to Rafael Laguna de la Vera, the agency's director. He began by talking to me about what led to Sprint's formation.

4:47We found that we do pretty good basic research in Germany, but we're not translating it into new industries all that much anymore. We were doing well in the 1870s or so, and since then we've been incrementally improving our industries, but all the new stuff really came from the US or from China. Although we invented a lot of things, we never turned it into some economic value in the region. So back in 2017, the German government decided it might be a good idea to change that. And this is how Sprint got incepted. So it's finding innovation that can then be translated into viable business. That's the sweet spot, correct?

5:26Exactly. And it's sort of this valley of death that you have after basic research, especially for deep tech. You still need a lot of money until you have a product in the market. The private financing sector, it's first of all smaller and doesn't have all that scale-up capital available. But also they can only invest if they see their return on investment coming in in a couple of years. Let's say you build a fusion power plant. That might take 15, 20 years. If we ever manage to do it, we believe we will, but it takes that time. And somebody has to bridge that gap. What is the formula that you are using to work with businesses?

6:03Actually, it's a whole set of parameters that we've defined to identify potential for breakthrough innovation. So the first step is to say, okay, what's the team like? You call them hypos. Are there any high potentials, people with grit and a vision where they want to move and where are they? So we sort of pull them out all the way until we can hit the industry, the private financing sector, and show them what we have. So every year we do something called Venture Sprint where 300, 400 investors, family offices, industry investors come along and we have 50 of our teams pitching to show them what innovative potential we have and then hopefully they come together and actually they do.

6:46And this is when the industry kicks in And actually, we pull out as soon as this thing flies by itself. How do you know when you get to that moment? How do you know it's, okay, time to walk away. They're doing great. It's very simple. We look into their purses most of the time. And if there's enough cash, then we're off. You know, you don't need to spend tax money if there is enough interest in the private sector, obviously. So that's the defining moment when we can leave them alone because we can feel and see and see in their purses that they have enough cash to pull this through. So this sounds like what Sprint is doing is a catalyst for the private sector, giving it that nudge, giving it a little bit of a push up to make sure it reaches its full potential.

7:31We're sort of in a more dry way of saying this, you would say we de-risk these projects until it matches their risk appetite. So in a way, we're their innovation department. I think you're touching on it, but I wondered if you could just unpack it a little bit more about what the German government is able to do that's unique to the government's ability that industry left by itself would not be able to achieve? Government can change law, for example. Government can put a lot of money at stuff, even more than any rich individual could do. Government is actually required to scale businesses, but we have to make them work sort of in an orchestrated way.

8:13We're probably not that great at doing this. We should be getting better in it. Raphael, Sprint is finding ways to support the private sector, innovation, new businesses. But what are the limitations to what you can do? Well, we're a government agency and we've given ourselves some really crazy rules on how government agencies can operate, which I had to overcome. There's actually a thing called Sprint Liberty Law, which we got into law at the end of 23 for us to be able to work the way I described before. Second limitation is budget, always. Do we have enough money to fund the projects to where the private sector takes over or not?

8:55Currently, we don't. We cannot do all the projects that we find viable, which is very sad because you cannot have enough of them, right? Because it will be a payback. It's a portfolio approach. Three is international collaboration. Tell me about the ideas that have gotten off the ground and are hugely successful. Well, there are so many, it's unbelievable. I mean, we've now supported more than 250 projects. So, for example, we're building the world's tallest wind generator, which is 300 meters high, so that's almost 1 ,000 feet, plus the propeller. And it generates energy over more time, more of it, So it becomes more stable and all these things.

9:35That's real because we're building it. So you can see it. You can see that some of these things will have a huge impact, like you're curing Alzheimer's or many, many versions of cancer, cleaning water for microplastics with little micro bubbles, pulling CO2 out of the air with algae that we're planting on the ocean. Our life, if you look back 300 years, has improved significantly. And it still does, even though there are some sort of local disruptions sometimes. But you can say that science has created all the wealth and our well-being in the past. And there's no reason to believe that science is over.

10:12There is no end of history and there is no end of science. So we will continue to science our way up. But the only way to do this is to take those results and put them to work in reality. The examples that you gave of promising innovations that are underway, that are under the Sprint umbrella, They all sound like they are innovations that will make the world a better place. Is that part of the reason why you are funding and helping them? Because the innovations have to do good. We're spending tax money. So it comes from the people. So there are innovations that are not good for the people. There are innovations that are only good for very few people.

10:55You know, all the monopolies that we see now. So some get super rich and all the rest, you know, has a problem. That is not things that we should finance with tax money. And also, it doesn't resonate very well with my humanistic foundations. I want to really sort of drill down into how you work with the private sector. Do you approach the private sector? Does the private sector approach you? It's almost like we're starting to touch private sector with our projects as they grow. So in a way, in all these phases of their maturity, you have different people to talk to. So it might be, early on, it might actually be charities, because there is no economic value yet, or the risk is too high.

11:38It might be other government institutions from other countries or within the country. And as you progress, you know what the industries are that you need to talk to. So if you're, for example, Alzheimer's, if you want to cure Alzheimer's, you have to go through a very expensive process to get approval for this medication, also proof that it works. We're financing sort of the middle part, phase two. It's expensive enough. It costs 90 million to do that. But of course, we're already talking to big pharma because if that is successful, we will need a billion or so to go to phase three and actually make it available to the people.

12:17and that kind of money must come from the industry. So this is an example where two years before the fact, we start talking to these people and see what the appetite is and when they want to get engaged and how, and then we start building it so that eventually, when phase two is over and it is successful, that money is available, the partner is clear, and this thing can fly on and maybe we're not necessary anymore. The podcast series that you are guest on at the moment is looking at some of the fundamental ways in which businesses are helping us develop in the future. So we've looked at in past episodes, how we move mobility, how we care for each other, health, how we build things, so construction, how we feed each other, so agriculture and food production, solving some of the big problems that we have now, hopefully for the future.

13:11Do you have any examples that might fit into these basic human needs that we have, some of the challenges that we have that will be solved because the innovation and the companies that you are supporting are looking at those basic human needs? Let's take energy. Energy, I always call it the father of breakthrough innovation, because if we would have abundant energy, green, available everywhere, cheap, we could solve a lot of problems aside from having cheap energy, which is great, of course, and we would all love it. But for example, you would solve the water problem everywhere because you can produce clean water out of energy, either out of the air, out of the oceans, from wherever.

13:55But what you need is energy and it needs to be cheap and it needs to be available where you need the water. This is why we have a whole energy program. This is why we're doing nuclear fusion, but we're also building these huge wind generators. This is why we had a challenge which called for people developing long-term energy storage that is fully recyclable and cheap. And again, available everywhere. Because if you're using renewable energies, they're not available all the time. So you need to store it somewhere. So it all boils down to energy. That's why I say science can solve all these issues that we have by just applying it and scaling it.

14:32As I'm talking to you, I can hear and I understand the need for Sprint or something like that in every country. Can other countries look at what you're doing in Germany? and do exactly the same thing for their citizens? I call ourselves an open source agency. But of course, no, the big questions of our time are global. And it doesn't really matter all that much who solves them, as long as they get solved. So it's not a German power play or so that you're listening to, but instead it's leading by example, by just doing this, doing it differently, also showing how differently government can operate, which is also very new.

15:15When the first breakthrough innovation of us is us, we've invented a government agency that acts very differently from others. That would be sort of my fulfillment if there's plenty of sprints around solving all that stuff. If we improved on the way that we were able to work together as innovators across the world, so every country has their version of sprint, what could be possible for society at large? So let's talk about longevity, for example. Everybody wants to live a good, healthy life for as long as possible, right? If we get much, much older, we're also creating some societal challenges that also need to be solved in an orchestrated way.

15:55Also, we need to talk about wealth creation and distribution because the more, let's say AI, we're putting hundreds of billions or even tens of trillions into developing this technology. That's the money side. It's very competitive, so it's not always collaborative. And will this result in one big monopoly that reaps all the benefits? Or will it be something that's to the benefit of all people? This is sort of the battlefield that we're talking about. Now, if government agencies like Sprint exist everywhere and we work in an orchestrated way, if we had this orchestrated innovation agencies that make sure that the benefit is to the people and not to very few, You would also solve the wealth distribution issue.

16:40I think we would live a much freer life. We can decide what we do. We don't need to do it to make money anymore because there's wealth in abundance because we're producing food out of abundant energy, water, all these things will become incredibly cheap. Of course, we have to develop as a society in a significant way for this to happen. And maybe such agencies are a good start to take these steps. Raphael, it has been such a pleasure speaking to you. Thank you for bringing your optimism and your innovation to this conversation. It was a great pleasure, Femi. Thank you for having me.

17:19Frederick, Raphael told us all about the SPRINT model, but that is not the only way that businesses and government work together. I wonder if you have examples of really effective partnerships between government and business and how they might be different to what has come before? I think if we're really looking for examples on those, I think we have to find ways where both are really having an advantage out of it. There is, for example, so-called innovation partnerships in the European Union by now, which are enabling to really tackle a problem where you really don't know what the solution will be at the very end.

17:58We have to look into user centricity to really find out what are the solutions that we are looking for, especially in the digital and AI space. In this series, we've been talking a lot about capital and new partnerships that are needed to drive change and innovation over the next 10 years. And thinking about the role that government needs to play in being part of that. Can it be done without government? That's a tough one. I mean, there's always those kind of theories where we are arguing that governments are the problem. I would really love to see governments change that view and really be innovative drivers.

18:36And I think we need to do several things for that. I think, first of all, governments have to open up about the problems that they're having, the things that are there that they want to change upon. And I think that was also one of the very critical success factors of the data and AI labs in the federal government that I was being able to co-found was we had 150 data scientists and AI developers that were working together across all the different federal ministries. But of course, also that you have some kind of top management watching them. For us, it was a minister. For other ministries, it was other layers or other personnel.

19:16But you have to make it the top of your agenda. to use the advantages of technology to the good of society. In each of the use cases, very specifically, what is happening here? And we have to pilot and we have to fail and we have to accept that we fail. But I think we have to be rigid in the approach in which we see those failures as an advantage and change upon those. And I think for that, we need approaches like Sprint and others, which are really changing the cultural way of how governments are approaching those. You mentioned technology there, though, and being a part of the technology lab.

19:52How important is new technology and disruptive technology going to be in creating the innovation that we need? Well, if you look, for example, into governments and where I was, the reality, especially in Western democracies, the reality of how is your government technology experience is in many ways not closing at the moment the gap. Instead, it's enlarging to your private experience. And I think we really have to change this. We have to take the advantages of disruptive technologies at this very moment. And yes, this will include failures, but if we just do it in a portfolio approach at some point of time, we will find the right manners, we will find the disruptions, and with those we will be able to tackle even bigger problems.

20:39So thinking about how governments can really take advantage of disruptive technology to help support the innovation that we need to see globally. But if a government is in the developing world that has fewer resources, what can they do? I think this is exactly why it is also important to talk about this kind of usage and invention or innovation of disruptive technologies and to make them accessible also for medium low income countries. For example, the United Nations is working a lot around open source artificial intelligence, which I think is a very, very important matter to make artificial intelligence not being a new divider in how technology can help us, but being an enabler for everyone on this planet.

21:24And I think this is really something we have to work upon. Okay, so what's your vision of the world in 10 years' time? If we get this right, if we have managed to strike the perfect kind of balance in every domain between government support and private sector innovation, how will that affect society over the next 10 years? Well, it would be striking and that really people are trusting what governments are doing at this very moment and also trusting of what governments are doing with technology and with privates. I think that would already be thrilling from my point of view. Maybe that's more of a realistic standpoint.

22:03if you ask me for the real moonshot, I think it would be great if both sides of the aisle would agree that they are both helpful and that they would agree upon a multi-stakeholder approach and really find ways of more collaborating together. If we look at Europe, I think public-private partnerships were a little bit on the decrease in the last decades. I think this would be, again, like a blueprint case for many stuff. That would be very helpful and that would tremendously help us in improving of how we are living together. Frédéric Blachetta, thank you so much for joining us. Thank you so much.

22:40Lizzie, my big takeaway from this episode is that I don't always think as governments of being instigators for innovation. But in the right place, with the right mindset, they can really kickstart businesses, ideas that would never have got off the ground if they weren't able to be there right at the beginning. be risk adverse and bold. And those are not always things that you think of connecting to a government. And I loved learning that on this episode. Well, and I think what comes across is this idea of partnership, of leveraging the strengths of government and private enterprise together in those ways you're talking about that maybe wouldn't seem intuitive, but really managed to draw upon the strengths of different types of enterprises and bring them together for society.

23:38That's it for this episode. If we inspired you to think about your business in a new way, please follow Take On Tomorrow wherever you listen to podcasts. For more, visit pwc.com forward slash Take On Tomorrow. Take On Tomorrow is brought to you by PwC's Strategy in Business. PwC refers to the PwC network and or one or more of its member firms, each of which is a separate legal entity.