The challenge of life between the State and the financial market

 Tra Stato e mercato  DCM-005
30 April 2021

Mariana Mazzucato: we need to rethink capitalism

Mariana Mazzucato has given herself a mission. No, it is not just due to the title of her latest book, Mission Economy. A Moonshot Guide to Changing Capitalism (Penguin Books), published in Italian by Laterza. Mariana’s mission commenced many years ago, probably when she was a young student in the United States. The daughter of Italians who had moved to New Jersey for work, her father Ernesto was a physicist at Princeton University’s Plasma Physics Laboratory. It was there that she began to take an interest in the impact of technology on less professional workers, which she recalls as, “I think it was very important for me, while I was attending college, to be close to the trade union activity in the US in those years, at the end of the 1980s. I had left Italy in 1973. The 70s were the decade in which the leftwing American youth were mainly interested in what was happening beyond their home fences, and trying to build a better world after Vietnam. At that time, the principal concern was the civil war in Nicaragua and the situation in El Salvador, while few people, especially young people, were looking at the deep fractures that were being created in the social fabric of the United States. There were many strikes, not only over working hours, but also over living conditions in general. I recall, for example, the many Hispanics employed in the Boston hotels”. After graduating from Tufts University with a degree in History and International Relations, Mariana studied for an MA, and began a doctorate in Economics at the New School for Social Research.  At this stage, “I continued to study trade union activity during that period, now we’re in 1990. And I was wondering about the early impact of technology on employment”. In short, something was changing in an economic system that had probably lost its innovative charge, and was no longer able to find a balance between the state and the market. From then on, it would generate serious inequalities, pollute cities, marginalise large swathes of the population and, in many developed countries, cause slow and unsustainable growth, if not stagnation.

From that moment on, the rethinking of capitalism in a radical way probably became Mariana Mazzucato’s mission. To rediscover whom really generates “value” in a modern economy, by going to the theoretical roots of the concept, while keeping research and work in the field together. She continues,  “The pandemic is teaching us how important it is to rethink, for example, the relationship between public and private, between the state and the market, which must have a symbiotic dimension, certainly not one of opposition. But, not even of mere substitution by the state where the private sector fails to generate profits or there is a so-called “market failure”. As Karl Polanyi wrote, markets are deeply embedded in political and social institutions. They are the results of complex processes, of interactions between different actors in the economy, including the state. This is not a normative issue but a structural one, i.e. how new socio-economic orders oriented towards social development are created. In other words, the public good is concretely constructed through co-design, in the recovery of the role of governments in the creation of economic and social value. This is exactly the opposite of what is happening with Big Pharma, the expression of a parasitic economic system that extracts social value while producing economic profit”. The Entrepreneurial State: debunking public vs. private sector myths was her first and best known book, though it is sometimes harshly criticised for a distorted reading in a statist key but this is a misrepresented reading. Today, Mazzucato continues to combine theoretical and empirical dimensions, and she is considered one of the most influential economists at an international level, and is a consultant to various governments and public organisations. In Mondragón, Spain, she supervises one of the largest European cooperatives with its 87,000 workers, which she explains, “Cooperation is a model that should be studied in depth for its capacity to generate common good, and in Italy there is an important tradition of this”, she notes.

Back in Europe, a mother of four children, Mariana became a University College London Professor in the Economics of Innovation and Public Value in 2017, and founded and directs there the Institute for Innovation and Public Purpose. In 2019, she was awarded the Madame de Staël Prize for Cultural Values by All European Academies, and the following year she won the John Von Neumann Award. In early April, the President of the Republic, Sergio Mattarella, conferred on her the honour of Grand Officer Order of Merit of the Italian Republic.

We are talking on the phone in early March, when London is in full lockdown. Mariana occasionally posts snapshots of the deserted city on social networks. The health and social crisis fueled by Covid-19 has also generated a renewed commitment to rethink our model of development in which, all too often, “risks are socialised and gains privatised. By the time of the global financial crisis that began in 2008”, she says, it “had unleashed a myriad of criticisms of the modern capitalist system: it is too ‘speculative’; it rewards ‘revenue seekers’ rather than ‘wealth creators’. And it has allowed the rapid growth of finance, allowing speculative trades in financial assets to be rewarded more than investments that lead to new real assets and job creation”. Debates about unsustainable growth have become increasingly frequent in recent years, with concerns not only about the rate of growth, but also about its direction. Serious reform of this “dysfunctional” system, Mazzucato believes, already includes a variety of remedies: making the financial sector more focused on long-term investments, changing the governance structure of corporations so that they are less concerned with share prices and quarterly results, or taxing fast speculative transactions more heavily and limiting excesses in senior executive pay. Mariana continues, “But these important findings and proposals will not bring about real reform of the economic system until they are firmly embedded in a debate on the processes through which economic value is created. We need to go to the foundations of the value model, standardise the entire value chain, right down to the analysis of how large companies distribute or extract value. A colossus such as Pfizer is a good case study in this sense: Pfizer has managed to produce an excellent vaccine in a short time, thus distributing value, but upstream, with buyback operations or corporate geography to pay less tax, it extracts it financially from the economic system”. Put another way, “For real change we need to go beyond individual problems and develop a scenario that will allow us to shape a new type of economy, one that will work for the common good”. That is, it is not enough to measure and include in what we call growth the implicit value of unpaid work for the care of others, education, free communication via the internet. Nor is it enough to tax wealth or measure well-being: “The biggest challenge is to define and quantify the collective contribution to wealth creation, so that it is less easy for value extraction to pass for value creation”.

If, in this way, the Italian-American economist has so far contributed to rehabilitating the role of the State as capable of generating value, the next step is to link welfare systems and technological acceleration.  “I would like to dedicate the next book”, she says, “to uniting the theme of care with that of innovation. I would like to devote it to combining the theme of care with that of innovation, in order to put innovation at the heart of the Welfare State, to move from the Welfare State to the Innovation State. To unite these two concepts on a cultural level, given that for example there is no declination of the common good in the digital field. To do that we have to go back to looking at production, at who does what, in the world of health, in the world of energy, in the world of education, and even in the space economy”.

A challenge for a female mind, which is capable of holding together different dimensions. In the post-war period, such radical thinking in the philosophical field was the domain of women thinkers, such as Hannah Arendt, cited not by chance in her latest book, Simone Weil or Maria Zambrano, women protagonists of the twentieth century, which was as fertile from a cultural point of view as it was characterised by the horror of history. Mariana’s economists of reference include, primarily, the classics, from Ricardo to Adam Smith, from Schumpeter - above all - to Marx, these were “economists who thought about both the creation of value and its redistribution, together, unlike what happens with the neo-classical paradigm where value is reduced to the subjective dimension of price”. In her library, an important shelf is also occupied by female economists, for example, Elinor Ostrom - Nobel Prize winner together with Oliver Williamson for her analysis of governance and, in particular, of common resources such as water or land – or the one closest to Mariana, Carlota Perzez. The names of Jane Austen and Rosa Luxemburg are found in her books and public lectures too. She continues, “In order to have a female perspective on the economy”, she points out, “it is not enough, and of course not necessary, just to be a woman. Rather, it is a question of extending, in terms of analysis and theoretical proposals, those typical capacities of caring for children, the elderly and the family to the need to care for the community, work and the Earth itself”. These are the themes developed on an anthropological and theological level by Pope Francis in his last two encyclicals Laudato si’ and Fratelli Tutti. “A prophetic reference”, Mazzucato argues, “to understand the difference between public good and common good. And for the necessary change of economic paradigm”, or of narrative, as another Nobel Prize winner for Economics, Robert Shiller, would say.

The economy is also made up of stories. Or rather, there are stories that can influence the economy. Of course, it takes courage to recognise them, the good stories, and to tell them clearly. “President John F. Kennedy, who hoped to send the first American astronaut to the moon”, Mariana Mazzucato often repeats, “used courageous language when he spoke of the need for the state to have a mission. At Rice University in 1962 he declared, “We have chosen to go to the moon in this decade and to do other things, not because they are easy, but because they are difficult, because that goal will serve to organise our energies and our capacities in the best possible way, because it is a challenge that we are willing to accept, that we do not want to postpone, that we intend to win, together with the others”. It is probably more difficult to solve the social problems we face today than to go to the moon, but there is nothing to stop us from trying. We can only begin to find answers to try to restructure capitalism and make it more inclusive and innovation-driven, so that it addresses real problems. For governments, the goals should already be very clear, the 17 Goals of the 2030 Agenda of the United Nations for truly sustainable development”.

By Marco Girardo
Journalist of the Italian national newspaper, Avvenire.