The Value of Everything (UK)

by Mariana Mazzucato

  Beyond the financial sector, patent law and regulation should encourage big pharma to foster research into needed essential drugs rather than, as is currently so often the case, block competition and innovation through the use of strong and wide patents used to block competitors. One possibility is to grant fewer patents upstream, leaving the tools for research open-access. And the prices of the drugs should reflect the overall ‘deal’ between public and private actors, not force the taxpayer to pay twice. Furthermore, the high level of share buybacks in the sector should be questioned before government handouts are provided. In general, government support should be made conditional on an increase in committed investment by business – reducing the trends of hoarding and financialization.

  In the ICT and digital sectors, more thinking is required about the appropriate tax system for companies like Uber and Airbnb, which would never have existed without publicly funded technology such as GPS and the Internet and which exploited network effects to create their potentially highly profitable first-mover advantages. It should be clear that many people – not just company employees – have contributed to their competitive advantage. How we govern technology affects who shares in the benefits. The digital revolution requires participatory democracy, keeping the citizen, not big business or big government, at the centre of technological change. Take smart meters, for example; Morozov argues that if they are closed boxes transferring information, ‘what we are doing is essentially introducing more and more closed systems which simply seek to capture rent from infrastructure that has been funded by us, without letting us the citizens take advantage of the same infrastructure for our own purposes and our own monitoring of the government, whether it is the city, or the national government’.7

  With this in mind, we can move beyond the idea of public goods as ‘corrections’, that is being limited to areas that need fixing (due to positive externalities that they generate), to being ‘objectives’. This requires a new understanding of policy as actively ‘shaping’ and ‘creating’ markets that achieve public value, benefitting society more widely.

  Making public value better justified, appreciated and evaluated would potentially open up a new vocabulary for policy makers. Rather than being mere ‘regulators’ of health care or the digital agenda, as co-creators of that care and digital transformation policymakers would have a more justifiable right to make sure that the benefits are accessible to all. A different vocabulary, and a new policymaking framework, would also reduce the timidity which has kept politicians from funding much-needed infrastructure investments for decades, and which led to a bare-minimum fiscal and legislative response to the 2008 financial crisis and subsequent recession. Once the potential of the executive and legislative branches to promote the good of society is fully recognized, then elected officials can start to live up to higher, but still realistic, expectations. Young, ambitious people might start choose electoral politics, or careers in the civil service, over jobs in the City or business – but only if they see that such choices are valuable and valued.

  TAKING THE ECONOMY ON A MISSION

  The question remains: what direction should the economy take if it is to benefit the greatest number of people? Maximum GDP growth, one standard answer these days, is far too crude to be helpful: it sweeps away all the serious questions about value. Another common answer is fiscal probity, governments running balanced budgets or even, as in Germany, a surplus. This, however, is not only crude but wrong-headed. The drive to reduce government deficits after the 2009 recession continues to impede a proper European economic recovery. A low fiscal deficit is a misplaced target. The real question is how government spending and investment can create long-term growth. And while such investments might require short-term deficits to increase, in the long term by raising GDP, the debt–GDP ratio will be kept in check by the effects of such value-creating investments. This is indeed why so many countries that continue to have modest deficits might also have a high debt–GDP ratio.

  The question of growth must thus focus less on the rate of growth and more on its direction. A more open discussion of economic value could, I believe, also help shape discussions about directionality. Progressive arguments against fiscal austerity too often default to a cry for investing in infrastructure (or ‘shovel ready’ projects) as though that were a panacea. That is a very modest demand. The discussion of the kind of infrastructure, and its relationship to greater social goals, has been puerile. Just roads and bridges? Public investment that is driven by ambition and a vision cannot be limited to a laundry list of traditional physical infrastructure projects. The first step should be to think seriously about the problem in question. A green transformation requires not only green infrastructure but a clear vision of what living a green life means. It means transforming all sectors, including traditional ones like steel to lower its material content.

  Indeed, a key way to tackle some of society’s most pressing problems today is to learn lessons from historical periods in which bold ambitions were set to tackle difficult technological problems. Consider two lessons from the man on moon mission. First, the agencies involved, from NASA to DARPA, built up their own capacity and competences. They did not outsource their tasks, or the resulting knowledge, to the private sector. This practice should be borne in mind when considering the currently fashionable public–private partnership arrangements. They will only succeed as dynamic knowledge-intensive collaborations, with both sides equally committed to investing in in-house competencies and capabilities.

  Second, the Apollo mission required different types of actors and sectors to collaborate, from aerospace to innovations in textiles. The focus was not on subsidising a sector (aeronautics) but on solving problems together, which required many sectors and different types of public and private actors to collaborate – even those in low-tech sectors like textiles. Similarly, today’s challenge to reverse human damage to the environment is not something that can be solved solely by increased investment in renewable energy – although that is already a daunting technological challenge – but requires a societal commitment to new, less physically materialist approaches to the way we live. Concrete missions that involve different types of collaboration are required to drive the fight against climate change or the fight to eradicate cancer – with clear targets, a multitude of sectors and actors, co-investing and exploring new landscapes, but also patience in achieving long-term goals. Past periods of technological upheaval have been associated with changes in lifestyle, such as the connection between mass-production and suburbanization.8 A green revolution will require deliberate and conscious changes in social values: a redirection of the entire economy, transforming production, distribution and consumption in all sectors.

  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 whi
ch 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.

  18. https://www.usatoday.com/story/news/2017/08/22/breakthrough-cancer-drug-astronomical-price/589442001/

  19. European Commission Horizon 2020 agenda; OECD, UN.

  20. W. J. Baumol, ‘Entrepreneurship: Productive, unproductive, and destructive’, Journal of Political Economy 98(5) (1990), pp. 893–921.

  1. A BRIEF HISTORY OF VALUE

  1. De Republica and Nicomachean Ethics.

  2. Matthew 19:24.

  3. E. S. Reinert, How Rich Countries Got Rich and Why Poor Countries Stay Poor (London: Constable, 2008).

  4. T. Mun, England’s Treasure by Forraign Trade (1664; London: Macmillan, 1865), p. 7.

  5. P. Studenski, Income of Nations (New York: University Press, 1958), p. 27.

  6. Ibid.

  7. W. Petty, A Treatise of Taxes and Contributions, in C. H. Hull (ed.), The Economic Writings of Sir William Petty (Cambridge: University Press, 1899), vol. 1, p. 306: ‘Where a People thrive, there the income is greater than the expence, and consequently the tenth part of the expence is not a tenth part of the income.’

  8. Petty, Verbum Sapienti, ibid., p. 105.

  9. Petty, Several Essays in Political Arithmetick, ibid., p. 177.

  10. Ibid., p. 267.

  11. Ibid., p. 256.

  12. Boss, Theories of Surplus and Transfer, p. 21.

  13. A. Smith, The Wealth of Nations, Books I–III, ed. A. Skinner (London: Penguin Classics, 1999), Book I, p. 180: ‘In 1688, Mr Gregory King, whose skill in political ari
thmetic is much extolled by Doctor Davenant, computed the ordinary income of labourers and out-servants to be fifteen pounds a year to a family, which he supposed to consist, one with another, of three and a half persons.’

  14. King’s table redrawn in Boss, Theories of Surplus and Transfer, p. 20.

  15. Ibid., p. 32.

  16. In Quesnay’s own words: ‘Productive expenditure [which] is employed in agriculture, grasslands, pastures, forests, mines, fishing etc., in order to perpetuate wealth in the form of grain, beverages, wood, live-stock raw materials for manufactured goods, etc.’ Quesnay in R. L. Meek, The Economics of Physiocracy: Essays and Translations (London: George Allen & Unwin, 1962), p. 128. The sterile class is outside the production boundary; that is, the value production boundary. They work but they do not increase the wealth. ‘Sterile expenditure [which] is on manufactured commodities, house-room, clothing, interest on money, servants, commercial costs, foreign produce, etc.’ Ibid., p. 128.

  17. Notice also that the money for circulation is 2 billion and suffices to exchange products worth 5 billion. The ‘velocity of money’ is 2.5; money changes hands two and a half times per production period.

  18. I. I. Rubin, A History of Economic Thought (1929; London: Pluto Press, 1989), p. 135 and Meek, The Economics of Physiocracy, p. 158.

  19. Turgot also distinguished between ‘necessary’ reproduction and luxury production, a theme prominent in Ricardo and later the Italian-born economist Piero Sraffa (1898–1983).

  20. Smith, The Wealth of Nations, Book I, p. 110.