Book Tip No. 48 (2021): Mariana Mazzucato: Mission Economy. A Moonshot Guide to Changing Capitalism.

Dublin 2021

By Hans-Christian Riekhof

Mazzucato: “Changing Capitalism”

Mariana Mazzucato is considered one of the most influential economists worldwide according to “Wired”. This makes one curious, the title of her new book perhaps less so, one has to delve deeper into content and intended associations. Perhaps the last two words of the subtitle are the most revealing: “Changing Capitalism”. Mariana Mazzucato does not shy away from pinpointing deeper problems of capitalism. She points out that

– the banking and financial sector is very short-term oriented, and it is increasingly financing itself. She points out that today 60 % of all loans go back into the “Fire” sector, i.e. Finance, Insurance, Real Estate.

– the economy as a whole is very strongly or too strongly oriented towards quarterly results. Share buybacks and dividend payments in more and more companies exceed 100 % of the company’s results. Long-term investments are not positively evaluated by the markets.

– there are no satisfactory answers to ecological challenges. According to her calculations, fossil fuels are subsidized with $20 billion in the USA and €55 billion in the EU per year.

– governments do not see themselves in the role (and have not developed the ability) to set strategic directions. They see it at most as their task to solve short-term problems and, if necessary, to “repair” non-functioning markets (Market Failure Theory).

Mazzucato: government activities also create value

Mariana Mazzucato wants to dispel various misconceptions or myths, as she calls them. This includes the central (and in her view erroneous) assumption that companies create value in their economic activity, but the state does not. Mazzucato provides many historical examples of value-creating government programs, starting with NASA and the first moon landing of the Americans (hence the moonshot approach) to the industrial policy strategies of MITI in Japan and corresponding authorities in Singapore, Israel, Taiwan and Korea. The example of Airbus Industries in Europe should also be mentioned here.

Mazzucato: Governments must create markets, not just intervene in case of market failure

Mazzucato’s proposals aim to fundamentally change the capitalist system and redefine the role of governments. This also outlines a new perspective for economic theory: Governments should not see themselves as repair shops in case of market failure, but should put the big societal issues on their own agenda in the sense of a moonshot approach. Governments should develop a self-understanding that they create societal value with their activities. They should actively invest in future topics and accept that individual initiatives can fail.

Mazzucato: Governments must build competencies

This would require building appropriate competencies on the government side. It would also be worth considering who should benefit from the future profits of these programs. A strategy of privatizing profits and socializing losses would not be appropriate. By the way, Mazzucato mentions that Elon Musk has received almost $5 billion in government subsidies and grants for his three companies – a considerable start-up financing.

Mazzucato: Governments must design missions

Mazzucato’s writing is primarily addressed to the governments of this world: they should develop a new self-understanding, they should design a mission, they should create and actively shape new markets in a well-considered and future-oriented manner, and they should actively build the necessary strategic competencies.

Mazzucato’s message is crystal clear – but can the people in charge in the governments actually be convinced? Because one thing remains unconsidered in her considerations: the incentive mechanisms in politics, governments and administrations obey other laws than those on markets. So one will have to look in detail at how the outlined program can ultimately be implemented.