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

A BETTER FUTURE FOR ALL

The concept of value must once again find its rightful place at the centre of economic thinking. More fulfilling jobs, less pollution, better care, more equal pay – what sort of economy do we want? When that question is answered, we can decide how to shape our economic activities, thereby moving activities that fulfill these goals inside the production boundary so they are rewarded for steering growth in the ways we deem desirable. And in the meantime we can also make a much better job of reducing activities that are purely about rent-seeking and calibrating rewards more closely with truly productive activity.

I began the book stating that the goal was not to argue that one value theory is better than another. My aim is for the book to stir a new debate, putting value back at the centre of economic reasoning. This is not about drawing firm and static fences around the production boundary, arguing that some actors are parasitic or takers, while others are glorious producers and makers. Rather we should have a more dynamic understanding of what making and taking are in the context of the societal objectives we have. Both objective and subjective factors will no doubt come into play, but the subjective ones should not reduce everything to an individual choice, stripped from the social, political and economic context in which decisions are made. It is those very contexts that are affected by the (objective) dynamics of technological change and corporate governance structures. The latter will affect the way that income distribution is determined, as will the strength of workers to bargain their share. These structural forces are results of decision-making inside organizations. There is nothing inevitable or deterministic about it.

I have tried to open the new dialogue by showing that the creation of value is collective, that policy can be more active around co-shaping and co-creating markets, and that real progress requires a dynamic division of labour focused on the problems that twenty-first-century societies are facing. If I have been critical, it’s because such criticism is badly needed; it is, moreover, a necessary preliminary to the creation of a new economics: an economics of hope. After all, if we cannot dream of a better future and try to make it happen, there is no real reason why we should care about value. And this perhaps is the greatest lesson of all.

Notes

PREFACE

1. ‘I often hear references to higher compensation at Goldman,’ said Mr Blankfein. ‘What people fail to mention is that net income generated per head is a multiple of our peer average. The people of Goldman Sachs are among the most productive in the world.’ http://www.businessinsider.com/henry-blodget-blankfeins-new-defense-of-goldman-bonuses-goldman-employees-are-better-than-you-2009-11?IR=T

2. Goldman Sachs Annual Report, 2010.

3. http://www.forbes.com/sites/mikecollins/2015/07/14/the-big-bank-bailout/#66d600ee3723

4. Goldman Sachs Annual Report, 2016.

5. Goldman Sachs Annual Report, 2010.

6. GDP (Gross domestic product) superseded GNP as the standard measure of output in the 1980s. The difference is not relevant to value creation.

7. See for example B. E. Hilner and T. J. Smith, ‘Efficacy Does not Necessarily Translate to Cost Effectiveness: A Case Study in the Challenges Associated with 21st-Century Cancer Drug Prices’, Journal of Clinical Oncology , 27(13) (2009).

8. Peter Bach’s interactive calculator can be accessed at www.drugabacus.org

9. http://nymag.com/daily/intelligencer/2013/10/silicon-valleys-secessionists.html

10. Plato, The Republic , translated and with an Introduction by H. D. P. Lee (London: Penguin Books, 1955), p. 115.

11. http://www.multpl.com/us-gdp-inflation-adjusted/table.

12. http://www.epi.org/publication/stagnant-wages-in-2014/

13. http://www.forbes.com/sites/katiasavchuk/2016/05/25/mark-zuckerberg-makes-18-billion-in-a-year-now-richest-person-in-california-facebook-billionaire/#490a62e5479c

14. Forbes , 2017.

INTRODUCTION: MAKING VERSUS TAKING

1. Bill Haywood, Bill Haywood’s Book: The Autobiography of Big Bill Haywood (New York: International Publishers, 1929).

2. https://www.theguardian.com/business/2016/apr/25/bhs-philip-green-family-millions-administration-arcadia

3. https://www.ft.com/content/cc58c190-6ec3-11e6-a0c9-1365ce54b926

4. https://www.ft.com/content/3e0172a0-6e1b-11e6-9ac1-1055824ca907

5. http://databank.worldbank.org/data/download/GDP.pdf

6. M. Mazzucato, The Entrepreneurial State: Debunking Public vs. Private Sector Myths (London: Anthem Press, 2013).

7. W. Lazonick, M. Mazzucato and Ö. Tulum, ‘Apple’s changing business model: What should the world’s richest company do with its profits?’, Accounting Forum 37 (2103), pp. 249–67.

8. Oxfam, An Economy for the 99% , Oxfam Briefing Paper, January 2017: https://www.oxfam.org/sites/www.oxfam.org/files/file_attachments/bp-economy-for-99-percent-160117-en.pdf

9. And even conservative forces have liked to play with the takers versus makers analogy, with Mitt Romney calling his private equity firm the locus of ‘wealth creation’, while also making many remarks about those parasitic elements of society that extract wealth through the welfare state. G. Monbiot, ‘Mitt Romney and the myth of self-created millionaires’, the Guardian , 24 September 2012: https://www.theguardian.com/commentisfree/2012/sep/24/mitt-romney-self-creation-myth

10. J. Stiglitz, The Price of Inequality: How Today’s Divided Society Endangers our Future (London: Allen Lane, 2012).

11. A recent excellent book by the journalist Rana Foroohar, called Makers and Takers , looks at the way in which productive industry has been undermined by the growth of a financial sector that serves itself and managers in industry that serve the objectives of finance rather than long-term growth. R. Foroohar, Makers and Takers: The Rise of Finance and the Fall of American Business (New York: Crown Business, 2016).

12. While I was writing this book, Michael Hudson wrote a stinging critique of modern finance, also building on this concept of unearned income: M. Hudson, Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy (Dresden: ISLET Verlag, 2015).

13. M. C. Jensen and W. H. Meckling, ‘Theory of the firm: Managerial behavior, agency costs and ownership structure’, Journal of Financial Economics 3(4) (1976), p. 308.

14. M. E. Porter and M. R. Kramer, ‘Creating shared value’, Harvard Business Review , 89 (2011), pp. 62–77.

15. M. E. Porter, Competitive Advantage (New York: Free Press, 1985).

16. SNA 2008 (New York: United Nations, 2009), p. 6. Also discussion of production boundary in D. Coyle, GDP: A Brief but Affectionate History (Princeton: University Press, 2014), pp. 37–9. And a discussion of the production boundary in H. H. Boss, Theories of Surplus and Transfer: Parasites and Producers in Economic Thought (Boston: Unwin Hyman, 1990).

17. It is fundamental not to interpret this statement as meaning that other forms of discussion of value in economics are not crucial. (See B. Bozeman, Public Values and Public Interest: Counterbalancing Economic Individualism (Washington DC: Georgetown University Press, 2007) for an excellent discussion about ‘public value’ in economics; J. E. Stiglitz, A. Sen and J-P. Fitoussi, Mismeasuring Our Lives: Why GDP Doesn’t Add Up (New York: The New Press, 2010) for implications on GDP; and G. F. Gaus, Value and Justification: The Foundations of Liberal Theory (New York: Cambridge University Press, 1990) for issues of morality and ethics in liberal thought. But the thesis of this present book is specific to the way that economic measurements of value in production have fundamentally changed the ability to differentiate value creators from value extractors, and consequently the distinction between rents and profits which, as we will see in Chapter 2, affects GDP in a different way from the problems identified in Stiglitz.