Alternative to current economic policies – if it can work politically, that is
Review of Mission Economy: A Moonshot Guide to Changing Capitalism by Mariana Mazzucato
The reigning political-economic models appear spent. On the one hand, there is neo-liberalism, according to which government should refrain from intervening in the economy because it can only distort the otherwise efficient operation of the “free” market. On the other hand, there are the New Dealers, who believe that government must actively correct the flaws inherent in the operation of said market. Neither one of these now seems capable of maintaining economic growth, producing equitable distribution, or providing a positive strategic direction for economic development.
I have long been looking for a practical alternative to these ideological poles. What might come next? What might be more impactful and yet not socialist, that is, respecting the indisputable virtues of the market? Mazzucato’s Mission Economy offers a compelling argument in this direction, though I remain skeptical regarding how realistic her vision is.
Mazzucato believes that we must rid ourselves of 4 neo-liberal myths.
First, that it is businesses that take the “real risks” and hence they alone create value. The role of government, in this scheme, is only to facilitate this process or lessen risks. This ignores, she argues, how crucial the role of government is, and historically had been, in value creation. For example, DARPA (of the Dept. of Defense) created the internet and scores of other innovations that have defused through the private economy.
Second, that government should intervene only to fix market failures. According to market failure theory, markets are optimally efficient as allocators of resources when certain conditions are fulfilled: a) a complete set of inter-related markets exists; b) consumers and producers behave competitively; c) an equilibrium between supply and demand can be reached. If not, the government must ensure that these conditions are operating. In public choice theory, even this minimal role has been repudiated – any government action corrupts the economy, i.e. special interests capture value, investments are “crowded out” by fumbling shifts in resources, etc. While Mazzucato acknowledges such outcomes are possible, she argues that government can also create entirely new markets, a kind of strategic development policy that can be as wide-ranging as we can conceive.
Third, that government needs to be “run like a business” via privatization, outsourcing, contracting private-sector actors to provide services, etc. By definition, government is portrayed as utterly incapable of running its own programs, let alone properly conceiving them. This too is demonstrably untrue, she says. Outsourcing consistently fails to save taxpayer money or lower risk, indeed it often leads to waste and the enrichment of consultants, virtually identical to so-called “special interests”. She provides a number of examples that convincingly prove this, in my humble opinion. Anyone who has taken a train in the UK can attest to this: once Thatcher privatized them, prices went up, service declined, and coordination between “competing” train companies is a disastrous failure.
Fourth, that governments cannot, and should not, “pick winners”. In other words, the government cannot “steer” the economy or stimulate it to embark on new strategic directions, but should leave such tasks to business. Once again, Mazzucato argues convincingly that the historical record proves otherwise. While government can certainly fail, she observes, it has influenced the development of virtually every modern industry, indeed many of its interventions were indispensable and decisive. Unfortunately, due to ideological bias and propagandistic tactics, the failures (e.g., Solyndra) are emphasized to the exclusion of its successes, such as Tesla, which was government funded at the same time. Why, she asks, does the government get no credit for its accomplishments? Answer: politics.
Mazzucato’s principal counter-example is the Apollo Moonshot, a classic mission-oriented approach. It had: 1) visionary purpose; 2) an acceptance of the risks involved in innovation; 3) a decentralized, dynamic and open organizational style that encouraged learning from mistakes as a matter of course; 4) collaboration across sectors usually rigidly separated (e.g., public/private, university/business); 5) a budget that focused on a) the long term and b) on outcomes.
Not only did Apollo accomplish its mission on time, she explains, but it led to innumerable spillovers in the wider economy (in materials, communications, computer miniaturization and software, to name a few). Even more important, the project had invaluable political and psychological impacts, proving that a capitalist democracy was superior to the communist regimes in terms of technological development and science. Indeed, it went a long way to restoring national confidence after the shock of Sputnik. Moreover, it proved that business and government could cooperate to great effect not via top-down government control, but by delegation and degrees of freedom in collaboration and approach, much of that from the bottom up.
We could, Mazzucato argues, apply the same programmatic logic to our current problems, i.e. sustainable development, climate change, the challenges of an aging society – whatever is deemed needed and politically feasible. In the second half of the book, Mazzucato outlines a methodology for pursuing mission-oriented projects.
The mission should, she says, be “bold and inspirational”, with as wide a societal impact as possible, yet realistic in scope. To do so, Mazzucato supplies ideas of maps that look at what institutions and sectors are needed in order to cooperate under the umbrella of government. Implementing this, of course, brings its own challenges, involving procurement contracts, grants and loans, prizing contests, and other reward structures. By choosing problems that the private sector alone cannot solve, such initiatives would crowd in investments instead of crowding them out, creating synergies and spill-overs that the government should not attempt to control. Furthermore, while “keeping its eye on the prize”, government must be careful not to enable corruption by special interests. Finally, private citizens should be engaged from the beginning, ensuring their input and hence, their political support.
This could, Mazzucato believes, fundamentally remake capitalism, inspiring cathedral thinking, to use Greta Thrunberg’s reference to the centuries-long construction projects of the Gothic era. Business, government and civil society would create value together as stakeholders, balancing cooperation and competition in novel ways. Financial considerations would no longer be dominated by quarterly-profit considerations, but would target long-term goals and visions. Growth must be inclusive, with a fairer distribution.
This would represent a major step in the conception of economic science, which tends to maintain the status quo, however dynamic it might be with free markets. Instead, she advocates, missions would stimulate the creation of entirely new socio-economic directions.
If anything, this is an arresting and attractive vision. It builds on many of the ideas that Keynes attempted to advance towards the end of his career. My problem is that I don’t see how we can get there without some kind of fundamental crisis, something that mobilizes humanity to take a new direction. Look at the US today: it is obvious that climate change is accelerating, yet only the tiniest and most tentative steps can be taken in the current political atmosphere; there are perhaps 2 big gun massacres per week, so often that Americans are numbed to them and still our politicians cannot pass even the most modest regulations to curb access to AK-47s. We cannot even pass modest, local tax increases to finance librarians to better serve our children’s educations.
Economists are essentially Enlightenment creatures: what makes logical sense to them is what they argue can and should be done – a cool appeal to reason and evidence. It is important that someone systematically formulates the positions and indeed it can indicate a way forward under the right conditions. Unfortunately, at this point I am extremely skeptical regarding whether we can take the suggested steps, if only because today, it seems, many politicians seek to exploit the irrational.
That being said, this book is a valuable thought experiment with plenty of solid evidence to make her case. I strongly and enthusiastically agree with Mazzucato in theory. We just need to get our politicians to do it, a task for which academic economists might not be the best proponents.
As a reading experience, the book is a bit of a slog, often abstruse while listing methods, considerations and complex caveats. However, it is eminently worth the effort and should be read by students, activists, politicians and business people.