Mariana Mazzucato - The Value of Everything - Making and Taking in the Global Economy

Price-equals-value thinking encourages companies to put financial markets and shareholders first, and to offer as little as possible to other stakeholders. This ignores the reality of value creation – as a collective process. In truth, everything concerning a company’s business – especially the underlying innovation and technological development – is intimately interwoven with decisions made by elected governments, investments made by schools, universities, public agencies and even movements by not-for-profit institutions. Corporate leaders are not telling the whole truth when they say that shareholders are the only real risk takers and hence deserve the lion’s share of the gains from doing business.

Second, the conventional discourse devalues and frightens actual and would-be value creators outside the private business sector. It’s not easy to feel good about yourself when you are constantly being told you’re rubbish and/or part of the problem. That’s often the situation for people working in the public sector, whether these be nurses, civil servants or teachers. The static metrics used to measure the contribution of the public sector, and the influence of Public Choice theory on making governments more ‘efficient’, has convinced many civil-sector workers they are second-best. It’s enough to depress any bureaucrat and induce him or her to get up, leave and join the private sector, where there is often more money to be made.

So public actors are forced to emulate private ones, with their almost exclusive interest in projects with fast paybacks. After all, price determines value. You, the civil servant, won’t dare to propose that your agency could take charge, bring a helpful long-term perspective to a problem, consider all sides of an issue (not just profitability), spend the necessary funds (borrow if required) and – whisper it softly – add public value . You leave the big ideas to the private sector which you are told to simply ‘facilitate’ and enable. And when Apple or whichever private company makes billions of dollars for shareholders and many millions for top executives, you probably won’t think that these gains actually come largely from leveraging the work done by others – whether these be government agencies, not-for-profit institutions, or achievements fought for by civil society organizations including trade unions that have been critical for fighting for workers’ training programmes.

Third, this market story confuses policymakers. By and large, policymakers of all stripes want to help their communities and their country, and they think the way to do so is to put more trust in market mechanisms, with policy just a matter of tinkering at the edges. The crucial thing is to be seen as progressive while also ‘business-friendly’. But with a very limited understanding of where value comes from, politicians and all too many government employees are like putty in the hands of those who claim to be value creators. Regulators end up being lobbied by businesses and induced to endorse policies which make incumbents even richer – increasing profits but with little effect on investment. Examples include ways in which governments across much of the Western world have been persuaded to reduce capital gains tax, even though there is no reason to do so if the aim is to promote long-term investments rather than short-term ones. And lobbyists with their innovation stories have pushed through the Patent Box policy, which reduces tax on the profits generated from 20-year patent-based monopolies – even though the policy’s main impact has been merely to reduce government revenue, rather than increasing the types of investments that led to the patents in the first place. 5All of which serves only to subtract value from the economy and make for a less attractive future for almost everyone. Not having a clear view of the collective value creation process, the public sector is thus ‘captured’ – entranced by stories about wealth creation which have led to regressive tax policies that increase inequality.

Fourth, and last, the confusion between profits and rents appears in the ways we measure growth itself: GDP. Indeed, it is here that the production boundary comes back to haunt us: if anything that fetches a price is value, then the way national accounting is done wont be able to distinguish value creation from value extraction and thus policies aimed that the former might simply lead to the latter. This is not only true for the environment where picking up the mess of pollution will definitely increase GDP (due to the cleaning services paid for) while a cleaner environment won’t necessarily (indeed if it leads to less ‘things’ produced it could decrease GDP), but also as we saw to the world of finance where the distinction between financial services that feed industry’s need for long-term credit versus those financial services that simply feed other parts of the financial sector are not distinguished.

Only with a clear debate about value can rent-extracting activities in every sector, including the public one, be better identified and deprived of political and ideological strength.

MARKETS AS OUTCOMES

Redefining value must start with a deeper interrogation of the concepts on which much of today’s policy is based. First and most fundamental, what are markets? They are not things-in-themselves. They are shaped by society, and are outcomes of multi-agent processes in a specific context. If we regard markets this way, our view of government policy changes too. Rather than a series of intrusive ‘interventions’ in an otherwise free-standing market economy, government policy can be seen for what it is: part of the social process which co-shapes and co-creates competitive markets. Second, what are private–public partnerships? Or, more precisely, what kinds of private–public partnerships will provide society with its desired outcomes? To answer that question economists should abandon their desire to think like physicists and turn instead to biology, and consider how functional partnerships are those that emulate a mutualistic eco-system rather than a parasitic or predator–prey one.

As Karl Polanyi wrote, markets are deeply embedded in social and political institutions. 6They are outcomes of complex processes, of interactions between different actors in the economy, including government. This is not a normative point but a structural one: how new socio-economic arrangements come about. The very fact that the market is co-shaped by different actors – including, crucially, policymakers – offers hope that a better future can be constructed. We can fashion markets in ways that produce desirable outcomes such as ‘green growth’ or a more ‘caring’ society with care influencing the type of social and physical infrastructure that is built. By the same token, we can allow speculative short-term finance to triumph over long-term investment. As we have already seen, even Adam Smith was of the opinion that markets needed to be shaped. Contrary to the modern interpretation of his work as ‘laissez-faire’ (leave the market alone), he believed that the right kind of freedom is not the absence of government policy, but freedom from rent extraction. Smith would have been baffled by the current understanding of economic freedom as a minimum of non-private activity. His Wealth of Nations is a huge book, largely because even in that simpler economic world there were so many varieties of rent-seeking to discuss. He devoted many pages to productive and unproductive activities, often simplistically putting some inside the production boundary and some outside. Karl Marx was subtler: it was not the sector itself that mattered, but how exactly it interacted with the creation of value and the important concept in his analysis of surplus value .