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Changing Capitalism

April 14, 2021 by Twan van de Kerkhof

Mariana Mazzucato has written an impressive new book. I wonder if fifty years from now people will regard her as an economist who has had a similar impact on economic thinking as Smith, Keynes, Friedman or Schumpeter by changing the prevailing views on the relationship between governments and business. Her mission is not a small one: changing capitalism. “There are a variety of different forms of capitalism, and we have the wrong one.” Mazzucato is a professor in the Economics of Innovation and Public Value at University College London, an award-winning author and an advisor to the governments of South Africa, Scotland, Italy and to the EU and the OECD.

The time to act is now, she writes. “A time of crisis is exactly the right moment to reimagine what type of society we want to build, and the capabilities and capacities we need to get us there. (…) It is clear that we can’t wait any longer to do things differently and find a common purpose. The status quo is failing too many people and changing the planet in ways that will also fail future generations. (…) Capitalism had – and has – no answers to a host of problems. The Covid-19 crisis revealed just how fragile capitalism really is.”

Mazzucato advocates a “mission-oriented approach” similar to putting a man on the moon. “Moonshot thinking is about setting targets that are ambitious but also inspirational, able to catalyse innnovation across multiple sectors and actors in the economy. It is about imagining a better future and organizing public and private investments to achieve that future.” Referring to what Mario Draghi said to save the euro, she writes: “There is no reason why a ‘whatever it takes’ mentality cannot be used for social problems”.

Governments have to take the lead, because the private sector won’t. She argues “that tackling grand challenges will only happen if we reimagine government as a prerequisite for restructuring capitalism in a way that is inclusive, sustainable and driven by innovation. (…) Only government has the capacity to steer the transformation on the scale needed – to recast the way in which economic organizations are governed, how their relationships are structured and how economic actors and civil society relate to each other.” Public purpose should be restored in policies “so that they are aimed at creating tangible benefits for citizens and setting goals that matter to people – driven by public-interest considerations rather than profit. (…) Public purpose must lie at the centre of how wealth is created collectively to bring stronger alignment between value creation and value distribution.”

A revaluation of governments is necessary to change societies for the better, according to Mazzucato. It is not true that only business creates value and takes risks, nor is it the purpose of government to fix market failures. “Governments can play a critical role in co-ordinating industrial efforts and setting standards that create markets”, like the South Korean government has done for HD-technology. “Picking winners in the sense of backing what are deemed to be the innovations, sectors and businesses of the future is quite different from trying to keep ailing industries and companies alive. Without the government making bets, we would not have the internet or Tesla.” Societies need governments that are “investing in internal capacity and working in a dynamic, proactive way, providing a directional shift to the economy and society”.

But governments can’t do it on their own, she adds. They need business, but that must be corporates with a broader mindset than today’s. “Government alone, no matter how ambitious and mission-oriented, cannot pursue a better path if it does not have a more productive relationship with business – and if business itself is not more long-term minded and purposeful.” Companies will have to put their purpose central in how they are organized and governed, she writes, and work for all stakeholders instead of the “remorseless pursuit of shareholder value”. Current changes in that direction are not going “beyond the feel-good factor”, she adds. I don’t agree with her on that point, seeing that companies like Unilever and DSM are making a real difference in sustainability.

She sees the Apollo project as a source of inspiration. In 1962 the mission was established to put a man on the moon before the end of the decade, without having any clue how this could be realized. “Going to the moon and back required public and private actors to invest, to innovate and to collaborate night and day for a common purpose. Imagine if that collaborative purpose today was to build a more inclusive and sustainable capitalism: green production and consumption, less inequality, greater personal fulfilment, resilient health care and healthy ageing, sustainable mobility and digital access for all. (…) These wicked problems require not just technological, but also social, organizational and political innovations. (…) The wrong question is: how much money is there and what can we do with it? The right question is: what needs doing and how can we structure budgets to meet these goals?”

Mariana Mazzucato. Mission Economy. A Moonshot Guide to Changing Capitalism. HarperCollins, 2021