Legislation going through the Scottish Parliament specifies the main objective of the bank is to give financial assistance to commercial activities for the purpose of promoting or sustaining economic development or employment in Scotland.
But Mariana Mazzucato, director of the UCL Institute for Innovation & Public Purpose and member of the Scottish Government’s council of economic advisers, said there was “no reason” why the bank should be restricted to lending to the private sector.
“It really narrows the scope to use the word commercial,” she told the parliament’s economy, energy and fair work committee.
The new bank should also be open to investing in social enterprises and other third sector organisations that are committed to achieving the socioeconomic missions set out by government, said Mazzucato, who also sat on the advisory group for the bank’s implementation.
“Many of the problems that are out there…globally are being invested in by philanthropies, by public and private institutions, by civil society organisations, so that’s what you want to be doing,” she said.
“The role of the bank is to fuel that patient finance towards those organisations that are willing to engage in that mission. You pick the willing – you don’t pick the winners.”
Concerns had been raised in a consultation on the new body that the proposed £2bn of long-term capitalisation in the bank would be inadequate to deliver the transformative impact envisaged by the Scottish Government.
But Mazzucato said the size of the bank’s capitalisation was less important than the flexibility it had to invest.
“The whole point of having a patient long-term bank is that it can actually plan in a long-term way,” she said.
“If every year you’re fearful that the unspent funds disappear and go back to the Treasury, it’s going to be impossible for the bank to do its job.”
On remuneration, she said the honour of working for the new bank meant it could recruit talented people without having to match the “absurd” salaries of the banking sector.
“If you really are a mission-orientated bank, I believe you will attract people who want to make a difference in the world – having said that, if you pay them peanuts, you won’t,” she said.
Scotland was well-placed to have a mission-orientated bank as it had a performance framework in place to make sure the new body was adding value to the existing investment landscape instead of just being a “hand-out machine”, she said.
“You need metrics that are about additionality, making sure that it’s making things happen that otherwise would not have happened, as opposed to just taking the place of the private sector when it’s not doing its job,” she said.
