In this episode, I speak with Mac Zellem – a former budget director of the State of New Hampshire - about financing innovation. We explore how public finance can shape the future, why regulations can be both a hurdle and a help, and what Germany might need to get right in its planned fiscal stimulus. It turned out to be a longer conversation, mainly because I found it to become more and more interesting as we went along.

My favorite takeaways from the conversation were:

1. Government as Both Catalyst and Constraint: We talked about the delicate balance governments must strike between enabling innovation and overregulating it. Public procurement, R&D, and credit guarantees can be powerful tools—but only if used with a clear strategy and technical competence.
2. The idea of carried interest dates back to the merchants of Venice: They rewarded risk-taking by not taxing the profits from risky maritime trade. When there is a public interest to have investors take risks, this is a politically charged but functionally interesting policy tool next to subsidies or guarantees.
3. Culture and expertise are important pieces of the puzzle: Mac describes how it’s important to get the right skills in place for good decisions. And that there are vast differences in cultural attitudes to risk and failure, across public and private institutions, but also between the US and Switzerland.
4. Regulations Need a Spring Cleaning: I liked the idea that a “spring cleaning” of outdated or overly complex regulations could unlock new energy in the manufacturing sector, especially for startups trying to enter the space.
5. Germany’s Moment to Lead: Finally, we discussed how Germany’s fiscal stimulus could become a real driver of innovation—if the government provides clarity, consistency, and a long-term plan that builds trust among investors and innovators alike.

For anyone interested in how policy can support innovation while managing risk, this episode is full of practical insights and experiences.

Further Notes:

• I said on the podcast that the Swiss Procurement Budget is around 50 billion CHF. That was overstated; it is around 35-40 billion CHF.
• The story about carried interest in Venice is covered in a fascinating Paper by Diego Puga and Daniel Trefler.
• I mentioned Jean Tirole’s recommendations for innovation in Europe based on this report.