Wanted: A New Capitalism

MARIANA MAZZUCATO has written a few stellar books since the economic meltdown of 2008, such as The Entrepreneurial State: Debunking Public vs. Private Sector (2013) and The Value of Everything: Making and Taking in the Global Economy (2018). This innovation-focused economist has busted notions of cutting-edge technology emerging from the mind of an entrepreneurial genius who then builds a private enterprise and attains glory. She has dug deep to establish that most innovations and technological breakthroughs are funded by the government or through collaborations between the public and private sectors.

An authority on the high-tech industry, Mazzucato has disclosed to us—and those under the false impression of governments being de-riskers and the private entities being risk-takers—that most technologies that we now credit the latter for were developed thanks to taxpayers’ money, mostly by public institutions. This includes the internet, touchscreen technology, search algorithms, microchips, LCD display, GPS, memory disks, Siri and most advances in aviation, nuclear energy, biotechnology and so on. Her readers are well-acquainted with how big companies made it big from being small: thanks to public investment. The list of beneficiaries includes Google and Tesla. Yet, the irony is that the narrative about innovation and high tech often omits the role of the state. Which, laughably, strengthens corporations’ claim to lobby for lax regulation and low taxation.

The 52-year-old’s latest book, Mission Economy: A Moonshot Guide to Changing Capitalism, is a manifesto or policymakers’ manual in the post-Covid world, which calls for the government to recover its public purpose and its creative and entrepreneurial streak. Rather than being mere facilitators for the private sector, the public sector must co-create and shape the future to face the new challenges that the world has seen since 2008: financial crisis, economic downturn, sluggish investment, a pandemic, climate change and the race to meet social development goals.

Mazzucato is not a mere theorist. She also practises what she preachs, at least in her work towards upholding stakeholder capitalism as opposed to shareholder capitalism where price is often treated as value and exclusion is the norm. Her aim is to revive capitalism, which she avers is at stake, amidst the failure to acknowledge the state as a creator of value. As Professor of Economics and Innovation and Public Value at University College of London (UCL) where she is also the founding director of the Institute for Innovation and Public Purpose (IIPP), she works closely with governments and institutions to drive change. Notably, her work in this regard has been mentioned by numerous statesmen as well as by Pope Francis. At IIPP, she notes, they are ‘writing a curriculum based on the premise that civil servants are not just market fixers but value creators and shapers’. ‘Doing capitalism differently’ and ‘step backwards for better’ seem to be her slogans, suggesting that we must learn from history and our mistakes of letting governments be mere market fixers and businesses as so-called value creators. That mistake of perception cannot be allowed to repeat, she insists. Only then can we build a ‘purpose-oriented economy’, meaning a sustainable growth path as opposed to economies that inflate speculative bubbles and enrich the already immensely wealthy, she writes. Capitalism as a result of its flawed priorities is destroying the planet, Mazzucato points out.

Some of the proposals in this book reflect a 2020 paper she co-wrote with University of Sussex’s Andrea Laplane, ‘Socializing the risks and rewards of public investments: Economic, policy, and legal issues’, in which the authors focus on how public funding agencies can share not only the risks in innovation but also the rewards. But Covid-19 and its experience have demanded a greater emphasis on this subject of creation of quality jobs.

Mazzucato argues in the book that value creation has to be treated as different from value extraction, characterised by relentless share buybacks and financial firms reinvesting in finance, insurance and real estate (FIRE) sectors. The Italian-American economist contends that the Thatcher-Reagan model of the economy and society have pushed the world into a historically severe depression. ‘The balance of power has shifted away from workers and towards employers,’ she writes, giving examples of how it has, especially in gig economies, led to a record high ratio of profits to wage, signalling massive exploitation. It is this failure of capitalism that Mazzucato—who migrated to the US from Italy aged four along with her father, a Princeton nuclear physicist, and mother, an Italian teacher—wants to see reversed by reimagining the ties between the government and the private sector.

According to Mazzucato, the sources of the current dysfunctional form of capitalism are: the short-termism of the financial sector, the financialisation of business, the climate emergency and slow or absent governments. ‘In each, the way the organisations are structured and how they relate to each other are part of the problem. Their restructuring must, therefore, be part of the solution,’ she writes, poking fun at the fact that ‘FIRE profits are private; FIRE losses are public’. Among the many myths she debunks are that businesses create value and take risks; that governments only de-risk and facilitate; that the purpose of the government is to fix market failures (she discusses at length the market failure theory); that governments need to run like a business; and that governments should not pick the winners and promote viable technologies and sectors it thinks will see marked growth. The last one, certainly, is as good as saying ‘government has no business to be in business’, a corny aphorism that has little empirical standing, as evident from numerous technologies that were built with taxpayers’ money and are now commercialised to great acclaim by the private sector. Mazuccato, therefore, wants governments also to shape and co-create markets as well as reap the rewards. ‘Without governments making bets, we would not have had the Internet or Tesla,’ she reminds readers and appeals to governments to regain their lost role.

The second part of the book describes in detail one of the boldest decisions that had a spillover effect in sectors far and wide, and at times unrelated to the one under study here: the Apollo moon mission of the 1960s, which was a public-private partnership and where the government did most of the risk taking. The outcome of this mega effort was phenomenal. Without public investment in space travel, we would not have camera phones, CAT scans, LEDs, land-mine removal systems, ear thermometers, wireless headsets, freeze-dried food, portable computers, the computer mouse, kidney dialysis technology, automatic heart defibrillators, solar panels, liquid methane fuel, earthquake simulators and so on.

The author then talks about the revival of such robust public-private partnerships to meet urgent goals—that include narrowing the digital divide and meeting climate change targets—to make this world a better place.

Part six of the book calls for a closer reading as it deals with political economy and for reimagining the economy and our future. ‘Government alone, no matter how ambitious and mission-oriented, cannot pursue a better path if it does not have a more productive relationship with business—and if business itself is not more long-term-minded and purposeful,’ the author says.

This book is especially timely. As Mazzucato writes, ‘I am finishing this book during a defining moment in human history. The global population is grappling with one of the worst health epidemics in modern times, protests over racial inequality are erupting across the world, and climate change is ever larger. It is clear that we can’t wait any longer to do things differently and find a common purpose.’

Many mainstream economists might find this book to be an experience in unlearning, but it is worth one’s time and consideration.

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