Mariana Mazzucato’s The Value of Everything

Diane Coyle has minor quibbles about Mariana Mazzucato’s latest book;

The second stage is a summary of the history of the development of GDP as the measure of economic progress, including the treatment of finance in the national accounts. This is all well-known to me for obvious reasons, but I think also to others, given there have been a dozen or so books about economic measurement/GDP in the past few years (including mine, and most recently David Pilling with The Growth Delusion (2018)). Mazzucato makes great play of the way the definition of the financial sector has become ever more expansive to make finance look increasingly important to the economy; the authoritative work on this, including the now-notorious ‘FISIM’ definition, is Banking Across Boundaries (2013) by Brett Christophers. Mazzucato then segues into a section on the financialisation of the economy, including the pernicious effects of the ‘shareholder value’ doctrine and stock option schemes for executives.

Finally, she reprises her arguments in The Entrepreneurial State about the role of the state in innovation, the need for taxpayers to get a bigger share in the returns, and a wider riff about the growth of monopoly rents due to excessive intellectual property protection (Exhibit A is the pharmaceutical industry) and market power (the digital giants). In these contexts, she argues, more state intervention would make markets work better. In an echo of the wider debate about economic institutions, she argues that the Anglo-Saxon structures have become extractive or exploitative, rather than value-creating. I was briefly excited by her use of the term ‘public value’, with the BBC as an example; but she does not reference the political science literature on public value or that the BBC actually implemented formal public value processes. The book instead links the term to Elinor Ostrom’s work on collective decisions (wonderful as it is).

I have a few quibbles. For example, Mazzucato several times refers to GDP as a measure of legal marketed activities; the formal definition now includes illegal marketed activities. It would have reinforced her argument had she pointed out the absurdity of GDP including prostitution while excluding childcare in the home. I found aspects of her description of the production boundary confusing (and it features prominently through the book as an expository device), no doubt because my mind is shaped by the current formal definition in the SNA. This is GDP-nerd territory.

For Discussion: Review the following quote from her previous book (Mazzucato, Mariana. The Entrepreneurial State: Debunking Public vs. Private Myths in Risk and Innovation ) and discuss the policy implications. The kindle edition of her new book “The Value of Everything: Who Makes and Who Takes from the Real Economy” is being released in September 2018.

To rely solely and strictly on Keynes is to accept that the role of the State, in balancing accounts, might as well fund a useless search for banknotes in an abandoned coal mine. Following the wisdom of Steve Jobs, mentioned earlier, it is the State that should ‘stay foolish’ in its pursuit of technological development and social problem solving. Whether the State is making an investment in the Internet or clean energy in the name of national security (having imagined a new ‘threat’) or in the name of climate change (or just as often ‘energy independence’), it can do so on a scale and with tools not available to businesses (i.e. taxation, regulation). If a central hurdle to business investment in new technology is that it will not make investments that can create benefits for the ‘public good’ (since it then can’t capture the majority of the value created), then it is essential the State do so — and worry about how to transform those investments into new economic growth later. ‘Foolish’ businesses will not survive, as they all must take calculated risks related to product development and entry into new markets. Apple’s success did not hinge on its ability to create novel technologies, it hinged on its organizational capabilities in integrating, marketing and selling those low-hanging technologies. In contrast, the flexibility of the State is an important asset, which should be allowed to make its ‘foolish’ investments in technology in a targeted and purposeful manner. Who would ever have guessed that technology created to preserve communication abilities during a nuclear war would become the world’s go-to platform for knowledge, communication and commerce? How many back then thought the Internet was a ‘foolish’ way to invest millions in taxpayer dollars?

Related:

Lunch with the FT: Mariana Mazzucato

Mazzucato studied history and international relations at Tufts University in Massachusetts but was increasingly drawn to economic history and theory, which she pursued at the New School for Social Research in New York, home to generations of radical intellectuals. Her doctorate was on technological change, with particular reference to the US car industry. She was later a research fellow at London Business School and taught at Bocconi University in Milan before taking up her current chair at Sussex in 2011.

Her research on innovation was given added urgency by the financial crash of 2008, which triggered an initial flurry of emergency government spending followed by sharp cutbacks in the public sector across Europe. This was often styled ideologically as a good thing: cuts in government spending would produce stronger, more competitive, more innovative economies — a conclusion at odds with much of her research.

“So my mission was to change that debate. If we want to have more sustainable, long-run growth, rather than finance-driven, speculative growth, then we had better understand where growth comes from,” she says. “If we actually look at the few countries that have achieved smart, innovation-led growth, you’ve had this massive government involvement. How can we square that with the whole austerity discourse?”

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Ismail Ali Manik

Ismail Ali Manik

Uni. of Adelaide & Columbia Uni NY alum; World Bank, PFM, Global Development, Public Policy, Education, Economics, book-reviews, MindMaps, @iamaniku