I Have Seen the Next Big Thing, and it is Mariana Mazzucato

By Dan Kervick

I take time out from our latest national celebration of curmudgeonly misery and political decadence, which features an intense bipartisan struggle over whether to cling to liberal or conservative forms of long-term economic stagnation, in order call the reader’s attention to an economist whose innovative ideas are so insightful, so well-informed and so right that they stand in terrifying contrast to almost everything that most Americans in 2013 hold dear.

The economist is Mariana Mazzucato of the University of Sussex, who recently presented several of the leading ideas from her new book, The Entrepreneurial State, to an audience at the London School of Economics. Mazzucato ties a vast number of themes together in a sparkling, rapid-fire talk followed by a stimulating round of Q&A. Among the economists who come in for discussion along the way are Polanyi, Keynes, Schumpeter, Stiglitz and Krugman. Mazzucato pulls no punches on the inadequacies of bastard Keynesianism with its limited emphasis on economic pump-priming, and on the dead-enders of neoliberal thought represented, for example, by the editorial staff of The Economist magazine. Here is the link to the presentation:

Mazzucato at the LSE

Mazzucato’s central message is that standard accounts of the economic role of the state are incomplete. These accounts focus on the provision of public goods and the state’s role in compensating for negative externalities and other market failures. But Mazzucato believes economists and the public need a better understanding of the role of states in driving economic innovation. She argues that government spending has been most effective when that spending is directed towards large missions, and that missions such as putting a man on the moon or tackling climate change require strong government intervention. Mazzucato builds on her account of mission-oriented investment to explain how to develop public-private partnerships that are symbiotic rather than parasitic.

Mazzucato also discusses the problems of predation and value extraction, but resists the idea that the problem consists entirely in a contrast between a bloated and extractive financial sector, on the one hand, and a productive real economy on the other. Private sector firms in the real economy can be just as extractive as financial sector firms, if the former use earnings to overpay management and send large profits to shareholders instead of investing them in long-term, research driven projects. Mazzucato argues that if we don’t have a good story about value creation, we can’t understand the processes of rent extraction and predatory behavior, and that the full story of value creation in the modern world requires more attention to the high-risk, long-term investment missions that have been carried out by governments.

Among other things, Mazzacato tells us that:

– Banks have no clue about how to differentiate between risks that derive from long-term, research driven innovation and risks that come from financial mismanagement.

– Innovation economists have overemphasized the role of private venture capital.

– Private sector entrepreneurs like Steve Jobs surfed on the massive technological wave created by state-driven, mission-oriented investment.

– In successful modern economies, states have been responsible for taking the largest and most important risks.

– The mission-oriented investments that have driven innovation are not just military, but are seen sector-by-sector, department-by-department.

– States currently receive a grossly inadequate reward for their investments, with far too high a proportion of the rewards going to the firms, executives and shareholders who have benefited from the heavy-lifting and risk-taking carried out by states.

My only reservation on this last point is that I think Mazzucato slightly over-emphasizes the need for rewards to go to states in the form of tax revenues. I would propose that the focus should be on rewards going to the publics which are the democratic foundation of these states. Governments do not necessarily need to recoup rewards in the form of tax revenues, so long as fiscal mechanisms of some kind exist for the provision of public services and the broad distribution of the rewards of state investment throughout the economy. The necessary mechanisms can include persistent public sector deficits, as is emphasized by MMT, especially if the deficits are coupled with monetary reforms that eschew debt-issuance to extractive holders of large financial surpluses. People can then keep more of their incomes and pay less in taxes, and governments can judiciously exploit their inherent monetary powers to inject monetary assets directly into the economy in amounts that exceed the amounts accumulated by taxes or borrowing. However, I agree wholeheartedly that progressive taxation in the pursuit of greater socioeconomic equality is called for so long as the fiscal starting point is a grossly unequal society.

I have touched on some of the same themes Mazzucato is developing in several of my earlier pieces on public enterprise. In these doleful and pessimistic times in the United States, where fear and loathing of  government is endemic across so much of the political spectrum, and where various anti-state ideas favoring localism, privatization, voluntarism, self-reliance, deregulation and desupervision remain so popular on the right and the left, it might seem impossible for Mazzucato’s call for an economically activist, mission-oriented government to get a foothold. But I am convinced the ideas Mazzucato is advancing are indeed the Next Big Thing. Americans will ultimately reject failure and stagnation, as they always have in the past; and as awareness grows that our current failures are due to insufficient ambition for mission-oriented state investment, and unequal distribution of the fruits of that investment, the tide will turn back toward public enterprise and ambitious government.

Cross-posted from Rugged Egalitarianism

Follow @DanMKervick

23 Responses to I Have Seen the Next Big Thing, and it is Mariana Mazzucato

  1. There are several other, earlier examples of state initiated enterprises from American history that deserve mention. Canal building, railroad construction, river navigation enhancement, and land grant universities come immediately to mind. Add public health laws, disease prevention research, and even the Manhattan Project to the list. I am sure readers have other candidates.

    • Land grant universities is something that Mazzucato implicitly alludes to, because she says that a strength of the US research system is the distribution of strong universities across the entire country.

  2. I do like her style.

    She makes her arguments that for the pedestrian, cannot be at the very least, thought about.

  3. I too was thrilled and heartened by the fundamentally positive message Mazzucato was offering, primarily by seeking to correct the “storytelling” of the economics of innovation. But, I think you pull your punch, Dan, by saying she “slightly” mischaracterizes taxation in the story she spins.

    Without the underpinnings of the MMT axiom of the monetary flexibility of sovereign states, her story remains vulnerable to those that whine “where is that R&D money to come from?” By making a point of seeking tax money from those that profit, she feeds the myth of limited resources that she is trying to overcome. (BTW, many of the gov’ts grants have substantial claw-backs).

    Can’t some one of our ilk take her aside while she is in Washington, and let her in on a way to talk about taxes that doesn’t create this cognitive dissonance with her message? Who is assigned ?

      • Superb. Just the one for the job! A promising pairing, well expressed in this introductory interview

        Though I expressed discomfort with Ms Mazzucato’s seeming appeal to recapture value from the “Apples” that have benefitted from gov’t sponsored innovation (value creation), she didn’t actually recommend that. Perhaps she inserts passages to highlight how much of such value, and profit, has depended on the public sector. But her discussion of taxes in this way does lead us to fear being “checkmated” in her arguments, as another commenter has expressed.

        All this said, Dan, I agree there seems to be excellent and original research, synthesis and direction coming from Muzzucato’s work — that, for me, provides important animation (in microeconomic policy) to bridge from the macro framework that MMT reveals. I very much like her style and look forward to hearing Mr. Wray’s words from her mouth, and vice-versa : – )

        Though the US is still seen as a model … the engine is beginning to run on fumes of prior good decisions. Example: 5-7% of NIH grant applications are funded and the arrow is still going down, tho they overwhelmingly come from highly qualified individuals and institutions and a strong majority are graded as “very promising” or of “important scientific interest”. We need Ms Muzzacato’s voice.

    • Mark Robertson

      @ Jerry Miller, I second your observation.

      Among her other errors, Ms. Mazzucato (in her writings) thinks that taxes pay for the federal government’s operations. As long as she promotes this lie, she will checkmate her recommendations.

      In any case, the USA is already quite innovative. It’s just that all the ingenuity occurs in the financial sector, where greedy psychopaths think up new ways to perpetrate fraud and theft, and to widen the gap between the rich and the rest. Until the financial economy ceases to be a deadly parasite on the real economy, the 99% will remain doomed to ever-worsening poverty, and Ms. Mazzucato’s recommendations will have no chance.

      Ultimately I consider her book “The Entrepreneurial State” to be naively utopian, and limited by errors. Ms. Mazzucato published it three years ago. Now Randy Wray is working with her, under a grant from the Institute for New Economic Thinking (a New York City-based nonprofit think tank).

      Perhaps Randy can enlighten her.

  4. BBC World Service did an interview, podcast –
    http://downloads.bbc.co.uk/podcasts/radio/worldbiz/worldbiz_20131005-0050a.mp3 .

    Would anyone like to start a new political party in the UK with this lady as Prime Minister?

  5. She spoke at the London School of Economics which has a long, good tradition since its founding by Beatrice and Sidney Webb. Back in 1905 Beatrice said ‘the cause of poverty is poverty. Inequality and therefore poverty in the sense of having less than others is inevitable, but destitution, the condition of being without one or other of the necessaries of live, in such a way that health and strength, and even vitality, is so impaired as to eventually imperil life itself is not. Eliminating destitution would prevent the poverty of one generation from passing automatically to the next. ‘

  6. Next big thing? I’m sorry, but no. I’m interested in this stuff and I can’t absorb this the way that she talks, and really, what has she said? Well, you summarized this in six bullets quite well, but I’ll add one more:

    – The state has allowed private entities to extract the value it has created, leading to growing inequality.

    Is any of the revolutionary? I don’t think so. Perhaps people aren’t talking about this, but it’s not new. To make it worse, it assumes that all of these “innovations” are good. It is really talking about using the state to keep things going as is, but to boost equality by sharing created value.

    • What would you prefer to see instead?

      • Not sure what you are asking, but as far as the talk goes, part of it is simply presentation style. She rambles, talks too fast and uses economic terms that get in the way of the thesis (yes, I understand she was talking to economists in this case). I’m not always a Malcolm Gladwell fan, but that guy knows how to tell a story. She could, for example, tell the story of “someone” creating the technology for the iPhone and then reveal that it was the government, not Apple, that was the creator. The talk is also simply too long.

        The bit about taxes and who’s paying get in the way. Perhaps it could be addressed in a separate talk?

        If you were asking what I’d like to see in the way of economic development, I don’t think there’s anything wrong with iPhones and Google as such, but I’d also be happy if people were spending their time creating art, relaxing on the beach, caring for family, helping in the schools, planting trees, etc. Not everything that we do needs to be productive and not every productive thing we do needs to be innovative (or even efficient).

        • Mark Robertson

          I agree with you, Andrew. And thank you for your candor.

          Persuasiveness and plain speaking are not Ms. Mazzucato’s forte. In her video interviews, I have no idea what she’s talking about. Her writings are slightly better, but they too scream to be edited for clarity and succinctness.

          Evidently economists fear that by speaking clearly and honestly, they will be out of a job. (The UMKC folks are an exception.)

          A few economists are succinct, but dishonest, e.g. Paul Krugman, who wants more austerity, just not right now.

          Hence, outside the UMKC, you have a choice between [1] blather and [2] balderdash.

  7. Here is the free download precursor to Professor Mazzucato’s book “The Entrepreneurial State”.

    http://www.demos.co.uk/files/Entrepreneurial_State_-_web.pdf?1310116014

    The precis? Sometimes the risk gets too big for the private sector especially when pure science appears to offer no return on investment but collectively we can “afford” to spare the money to think big and forget about risk.

  8. I haven’t seen the lecture yet but from the newsnight feature from her site I’m not sure she gets SFC accounting and she doesn’t get the non-significance of the debt ratio. Still she makes much more sense than most economists on the telly.

  9. i got as far as her 4 main points. Sorry Dan. She’s not the one.

  10. Steven Greenberg

    Having worked in companies that have received support from DARPA and the NSF and other government agencies, I can attest to how important that support is. I doubt that many people who live in the neighborhoods of these companies, but have not worked for them, have any clue as to how important the government support is to the inventions that they see coming from these companies.

    • Steven Greenberg

      Even people who work for these companies, but not in R&D, may have little if any appreciation for where some of the support is coming from.

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  13. How exactly is Mazzucato’s “Entrepreneurial State” differentiated from the tried-and-failed command economies of the communist state? Is it simply that it’s more “innovative”? It seems to me there needs to be a more structural differentiation, and it’s not clear from her presentation what that is. Also, what’s wrong with “domestic animals”, so long as they are producing good and useful stuff–and not being starved to death by a state apparatus that believes it’s running short of feed-grain?

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