Mariana Mazzucato has a plan to fix capitalism. And despite her radical views, she is winning fans from Washington to Wellington. By Danyl McLauchlan
Mariana Mazzucato is the world's scariest economist, at least according to a 2017 Times profile that describes – with reluctant admiration – her talent for tearing orthodox economists to shreds on live TV panel discussions. When I talk to her, she's cooking dinner, so there's a scraping of knives punctuated by blasts of water down the phone line.
"My husband is on a film shoot for a month," she says, "and I have four children to feed." So the professor in the economics of innovation and public value at University College London slashes and ribbons her vegetables as she tells me how to fix capitalism.
It's not unusual for high-profile economists to become political influencers, but what's interesting about Mazzucato is that she has emerged as an important international thinker despite her left-wing views. The author of three acclaimed books, she is unafraid to stir the pot, challenging long-held beliefs about the roles of the state and private sector in creating dynamic economies.
In the US, her message that governments should use their power to lead innovation for the public good has influenced an array of politicians from Democrat Congresswoman Alexandria Ocasio-Cortez to Republican Senator Marco Rubio. She was an adviser to former UK Labour leader Jeremy Corbyn, and her ideas are studied and discussed not only in New Zealand's Labour Government, but also in the British Conservative Party.
Dominic Cummings, architect of the Brexit campaign and Boris Johnson's former senior adviser, became obsessed with her breakthrough book The Entrepreneurial State, which inspired the development of the UK's new multibillion-dollar Advanced Research and Invention Agency. ("He was … excited about it," she says, diplomatically.)
She also advises the South African government and the European Commission; a day after our interview, US President Joe Biden unveiled his new "cancer moonshot", a deeply Mazzucatian policy move.
This cross-party appeal may suggest Mazzucato is a moderate: some kind of centrist technocrat, but part of what makes her scary, at least to some commentators, is her withering critique of the political and economic status quo, and her call for the radical transformation of the state and the market – beginning with the relationship between them.
Mazzucato — who will appear online at the Aotearoa New Zealand Festival of the Arts next month — was born in Rome but grew up in the US, at the heart of the respectable academic establishment, after her physicist father took a job at the Princeton Plasma Physics Laboratory.
"I didn't want to be an academic," she says. "The other day I looked back over my old diaries, after I finished university. I wrote a list of things I wanted to do. Documentary film-maker was at the top. Lecturer wasn't on there." But then she did a master's degree, and a PhD, in unorthodox economics at the New School, a progressive research university in New York City.
"It was almost the only place in the world where I could study a form of economics that questioned whether there were different forms of economic organisation to capitalism," she says. "Or that there were many different forms that capitalism could take."
She taught in US universities before moving to the UK, where she studied entrepreneurship and risk – the central themes of modern capitalism – and built her critique of conventional economic thinking. This held that innovation was the exclusive domain of the private sector. Entrepreneurs created new products, investors funded them, and companies tested them in the free market.
The government could intervene in cases of market failure, but it certainly couldn't innovate. Nor could it be caught "picking winners" – supporting certain sectors or companies over others. The orthodoxy warned that this would distort markets; it could lead only to cronyism and corruption. It was bad for capitalism.
Mazzucato concluded that the conventional wisdom was catastrophically wrong. The state could innovate, she argued. It could also create enormous value, not merely by intervening in the market but by shaping it.
The key was to determine what benefits there were for society, rather than self-interested individuals. By doing this, the state could direct the market towards delivering for the greater good. It could even solve grand problems, such as poverty and climate change, but this would require a radical transformation of both the public and private sector, from a parasitic relationship to one of symbiosis and growth.
Take the Moon. Mazzucato's latest book is Mission Economy: A Moonshot Guide to Changing Capitalism, and her argument begins with the space race.
In 1961, US President John F Kennedy announced a national goal of "landing a man on the Moon and returning him safely to the Earth" by the end of the decade. In July 1969, the Apollo 11 lunar lander touched down in the Sea of Tranquillity, and for the first time our species walked on a new celestial body.
Mazzucato wants us to understand three important things about the Moon shot. The first is the astonishing ambition behind it and the scale of the accomplishment. Very little of the technology existed when Kennedy made his announcement. It required breakthroughs in rocketry, computation, software, materials technology, medicine, management and manufacturing.
The second is that all this innovation had major spillover effects: the creation of multitrillion-dollar industries. The spacecraft needed an onboard computer, but in the early 1960s, computers were gigantic – so the Apollo mission miniaturised them. The software needed to be more complex, so the lead programmer invented a new discipline called "software engineering". Instead of mechanical controls, the spacecraft needed electronics, which also needed to be miniaturised.
The descendant of that space technology controls all our cars and most of our kitchen appliances. The logistical innovations needed to manage such a vast and complex project were also adopted by Boeing for its passenger jet planes.
Her third point is: a government did this. A bunch of politicians and bureaucrats landed humans on the Moon and brought them back. The US government took risks, it picked winners and shaped the market and created phenomenal value.
But that triumph was half a century ago. Despite the recent exploits of billionaires such as Richard Branson, Jeff Bezos and Elon Musk, it has been five decades since any human travelled further than low-earth orbit. And, despite some advances in the tech industry, the developed economies of the early 21st century have been stuck in a trough of low growth, technological stagnation and increasing inequality.
As US tech entrepreneur Peter Thiel memorably noted in 2013, we were promised flying cars, but instead we got Twitter. So what went wrong? And why do the current crises facing us seem so insurmountable?
Part of the answer, Mazzucato believes, is that we've moved away from the concept of the state as the driver and shaper of the economy; something that gives it purpose and momentum, and helps define what the market should value. Instead, contemporary free markets focus on maximising shareholder value and satisfying the desires of individual consumers.
Companies buy back their own shares and grant their executives massive bonuses instead of developing new products. Because governments have no legitimate role other than preventing market failure, the public sector becomes risk averse, sclerotic, infantilised. It gets hollowed out, with most of its core functions privatised or outsourced to the private sector, which is seen as more efficient and inherently superior.
"And then the inefficiency of big government becomes a self-fulfilling prophecy," Mazzucato tells the Listener. "If there's no purpose to either the state or the economy – if there's no drive, no values, no goal – then you get a public sector that is very expensive but very inefficient. It's captured by the industries it's supposed to regulate. And that becomes proof that government can't do anything, so you get more outsourcing, more privatisation and you're trapped in a vicious cycle.
"But we can look at things like the Apollo mission, or Arpa [the US Defence Department's Advanced Research Projects Agency] inventing the internet, or all the innovation that comes from National Institutes of Health funding, countless other examples, and it's proof that government doesn't have to be like that."
It's not hard to see Mazzucato's influence on many of this country's current government projects. Her books and papers are read by our MPs and their advisers and operatives. One of her fans is Finance Minister and Deputy Prime Minister Grant Robertson.
"One of the things that Mazzucato has contributed," he says, "is a more positive way to talk about the role of the state. We are all aware of some of the negative connotations that 'bureaucratic government' has become associated with, and I don't want to gloss over some of the legitimate issues that are behind that.
"But what we often saw during our response to Covid-19 was government agencies showing that they were able to be dynamic and innovative in responding to a very complex and constantly changing challenge.
"I think there are lessons in that experience for how we want the state to work in future, and lessons more generally in terms of how we think about the positive role the government can have in people's lives."
The National Party's finance spokesman, Simon Bridges, can also see things to admire in Mazzucato's argument. He cites the Key Government's rollout of ultra-fast broadband as an example of a successful mission.
Bridges thinks that the global interest in Mazzucato's ideas is due to "a globe with bigger problems than we've seen in a long while and a seeming dearth of solutions".
'There is definitely something in her basic thesis around innovation requiring partnerships between government and the private sector. In fields that require big scientific breakthroughs, such as space, climate change or the environment, this is especially so.
"Rocket Lab needed big assistance from government at the beginning in terms of removing regulatory barriers, providing capital and setting up a space agency. In climate change, I think of the little-known Global Research Alliance on Agricultural Greenhouse Gases, which saw government, universities and the private sector collaborating to find a solution on methane in agriculture. It's precisely the sort of initiative government should set a mission on, then go for it."
Going for it doesn't always work out, however. In 1980, the New Zealand economist Brian Easton attended a National Party conference. One of the speakers talked about the importance of the need to "think big", and Easton slapped the term on the Muldoon Government's plan – one might even call it a "mission" – to transform New Zealand into an energy exporter.
Think Big was a response to the energy crisis of the 1970s; a time when the price of oil surged and the government responded by banning weekend sales of petrol and introducing the infamous "carless days" policy, hitting motorists with fines if they were caught out in their vehicles on the wrong days.
The Muldoon-led Government borrowed billions of dollars and invested in massive industrial and manufacturing projects: the Clyde dam, synthetic petrol plants, electricity generation for the Tiwai Point aluminium smelter, the expansion of the oil refinery at Marsden Point. The plan was to achieve energy independence and reverse our trade imbalance by cashing in on the high price of energy on the global market.
Unfortunately, the plan failed. The massive increase in government spending drove up inflation. The Think Big projects were crippled by industrial trouble as workers went on strike, demanding wage increases to meet the surge in prices. This, in turn, meant the projects missed completion deadlines. Then the price of oil plummeted. Many of these projects are still running, and they have their defenders, but New Zealand remains an energy importer.
For those who advocated neoliberal reforms, the perceived failure of Think Big and the economic instability it caused became a rallying cry: it was proof that government was the problem, not the solution.
Bridges sees Muldoon's ambitions as a cautionary tale of what can go wrong when a nation's economic moonshot crashes back to Earth. "The risk of misallocation of taxpayers' resources from picking winners who turn out to be losers has real economic downsides, not to mention political ones," he says. "There is something in what [Mazzucato] says, but let's tread with humility and care when we decide how to apply it."
When I mention this to Mazzucato, her voice gets noticeably faster and louder, and the sound of chopping intensifies. "It's not a mission when the government just picks a sector and dumps a ton of money into it," she says. "Especially not the energy sector. I mean, good grief. Politicians do that all the time – they just give all this money away to whoever lobbies the hardest, and it's the opposite of what I'm talking about."
One of her favourite sayings is, "If the government doesn't pick winners, losers will pick the government." State support is pointless if you end up with state institutions or energy companies relying on monopoly pricing or subsidies or handouts, and they then don't want to be taxed for their pollution, she says.
"The whole point is to shape the market so that it crowds in private investment, creates new companies, new products, new ideas, new sectors, not to prop up a bunch of old, failing ones."
What about Solyndra, then? In 2009, the Obama Administration was trying to reboot the economy after the global financial crisis, and one of its initiatives was the American Recovery and Reinvestment Act. The law guaranteed loans to private sector companies researching energy efficiency and renewable energy.
The first company to receive such a loan – US$535 million – was Californian solar-power manufacturer Solyndra. In 2011, the company filed for bankruptcy, and Solyndra became a potent symbol of everything that was wrong with the interventionist state. The government had meddled in the market; it tried to pick winners and failed. And it cost the US taxpayer a fortune.
In answer to that criticism, Mazzucato notes that the US government also gave huge support to another plucky start-up: electric car manufacturer Tesla. But whereas Solyndra is regarded as a public-sector failure, Tesla is widely perceived as a private-sector triumph, a product of Elon Musk's unique entrepreneurial genius.
"Government shouldn't be risk-averse," she says. "It shouldn't be afraid to fail. Instead, it should take a venture capital approach to investment. You build a portfolio and spread the risk. The VC companies take chances all the time, and some of them fail because that's what risk means. But the failures are priced into the business model. What matters is that some of their risks pay off, and that more than covers the failures."
Back in 2009, she notes, the Obama Administration warned Tesla that if it didn't pay back its loan, the government would take three million shares in the company. So Tesla paid back the loan.
The value of those Tesla shares has since increased more than a hundredfold. "What they should have said was, 'If you're successful, we get three million shares.' That way, they would have covered the loss from Solyndra, and funded the next round of start-ups."
Mazzucato's definition of a mission is very specific. Declaring a climate emergency is not a mission; neither was Prime Minister Jacinda Ardern's public pledge to end child poverty. "Poverty and climate change are challenges," she says.
"If you focus on a challenge, politicians and public servants will land on vague, aspirational statements. What you need is a specific problem. When Arpa invented the internet, it didn't say, 'Let's find new ways to communicate.' It said, 'How can we get our satellites to talk to each other?' That's a mission. There's a specific problem and you're going to solve it. So, you might say, 'There's too much plastic in the ocean. We're going to get it down to this level by this date.' That's a mission."
The government should describe the problem, give the private sector a clear, targeted concrete mission, then make money available for investment, she says. The hard part is creating a culture of entrepreneurship, vision and risk within the public sector.
Mazzucato believes passionately in the potential of the state, but she's also an unflinching critic of the public sector as it exists in most Western democracies. Although she talks about fixing capitalism, a lot of the time she's really talking about fixing government.
The public sector in most free-market democracies has been hollowed out, she says, by decades of institutional neglect. Bureaucracy isn't necessarily a bad thing, she notes: Nasa is a bureaucratic organisation. But if government bureaucracy is slow-moving, risk-averse, operates in silos, has outsourced its core services to consultancies and law firms, or is heavily politicised and obsessed with secrecy and brand management, then politicians can promise all the visionary missions they like but they'll never be able to deliver them.
Last May, Robertson announced the establishment of an "implementation unit" in the Department of the Prime Minister and Cabinet, the purpose of which is to drive policy delivery. In other words, the aim of the unit is to get the public sector to actually do the things the government wants it to do on critical projects.
The initiative comes after the Labour Government's notorious Year of Delivery in 2019, in which very little was delivered, and ambitious missions, such as the KiwiBuild policy to build 100,000 new homes, were abandoned.
It's a gesture towards the grand, cosmic vision Mazzucato has for government in the 21st century, but only a modest one. If you want to do incredible things, she argues, you need incredible institutions and people to do them. Otherwise you might as well ask for the Moon.
• Mariana Mazzucato will speak to economist Shamubeel Eaqub about “The Future of the World” at the Aotearoa New Zealand Festival of the Arts. The conversation will be online on the festival website from March 10.
