A critique of the economist who wants government to return to a Think Big model of expansion
Mariana Mazzucato, widely recognised as one of the world’s most important economic thinkers, believes we need a new kind of missionary. She will discuss her ideas on a panel led by Shamubeel Eaqub at an online event this week staged by the 2022 Aotearoa New Zealand Festival of the Arts.
Her best-selling book Mission Economy: A Moonshot Guide to Changing Capitalism argues that governments need to “think big” - a phrase with deep resonance in New Zealand’s economic and political history – in order to "build a more inclusive and sustainable capitalism: green production and consumption, less inequality, greater personal fulfilment, resilient health care and healthy aging, sustainable mobility and digital access for all.” She takes her inspiration from the NASA moonshot programmes (getting man to the Moon) which successfully coordinated public and private sectors on a massive scale.
Mazzucato is Professor in the Economics of Innovation and Public Value at University College London. Her economics are Institutionalist with an Austrian twist. Mainstream economics starts with supply and demand, individual consumers and businesses, and lots and lots of maths. What makes Mazzucato different from other institutionalists is that she thinks mainstream economists have not even got the supply and demand bit right. This is the view of the “Austrian” school, who argued that the maths in mainstream economists makes markets seem far more static and predictable than they really are. It's from one of these Austrian economists, Joseph Schumpeter, that Mazzucato gets her interest in innovation and change.
Mazzucato worked out a compelling case for her argument in her previous books, particularly The Entrepreneurial State. If markets work best when left alone to innovate, how is it that real innovation seems to need the state? The power of her case was in the detail. She provided waves of examples from the last half century. Space technology, the Apple smartphone, the Google algorithm, medicines, and the internet - all were either created by the state or had state support at some point.
If “neo-liberalism” is the scepticism about government that emerged after the failure of policies like Muldoon’s “Think Big”, then Mazzucato is a leading proponent of a “neo-statism”. Its key themes include: a claim the contribution of government to the economy and society is undervalued; that the main limits to government come from a failure to use new approaches that make government effective; and that a corporate state, actively molding the economy, is the only way to create a better society.
According to Mazzucato, governments have listened too much to mainstream economists and lost confidence
In New Zealand the most articulate exposition of neo-statism is Max Rashbrooke's book Government for the Public Good. It's also a widely shared view among New Zealand policy academics and is the de facto approach of Victoria University’s public policy journal.
But believing government could have such a role is very different from making it happen.
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A good example is Tesla and Solyndra. In 2009, both were promising start-ups that received eyewateringly large (US$535m and US$465m respectively) loans from the US government. You have heard of Tesla but not Solyndra because the latter went bankrupt in 2011, taking its government loan to wherever loans go when companies die insolvent. Tesla repaid their loan in 2013 and was worth a little under $1 trillion by 2018.
The problem, according to Mazzucato, is that governments have listened too much to mainstream economists and lost confidence as a result. When making risky investments, some you lose, some you win. A private investor would have lost on Solyndra but made enough on Tesla to cover those losses and owned shares whose profits might fund a small country. (A trillion US dollars is about 10 times the New Zealand government's annual budget). The US Government lost on Solyndra, but economic ideology meant that when its investment in Tesla was a success, Tesla only had to repay the loan. Some you lose, some you are no better off.
For Mazzucato, the real losers from this caution are you and me. Not just in the obvious sense that government could gain more income from successful investments, but their failure to create public value by making markets.
According to Mazzucato, this is where the moonshot comes in.
After the US and Soviet Union developed atomic bombs in the 1940s, they needed ways to deliver them. The US mostly invested in the big bomber planes you see in Stanley Kubrick’s Dr Strangelove because that worked in World War II. The Soviet Union took a punt that rockets would be a cheap alternative. They were right. Until the early 1960s the Soviet Union had better rocket technology, hence the first satellite and first person in space were both from the Soviet Union. The US turned this round in less than a decade. Neil Armstrong’s “small step” in 1969 was the result.
She reprints a NASA graphic of “20 things we wouldn’t have without space travel” to make her point. NASA overeggs it - would the dustbuster hoover really not exist without space travel?
This is the level of ambition Mazzucato wants us to have towards social and environmental problems. In Chapter 4 of Mission Economy she details features of the moonshot mission she believes could be applied more widely. Some of her themes, like risk-taking innovations, are the same as they were with Tesla. The moonshot took it further. According to Mazzucato, JFK (the president at the time) “was effectively saying that missions should be judged by outcomes, not costs in a normal budgetary sense”. Kennedy “thought that achieving the aim, and the spillovers from the endeavour, would be more than worth the budget”.
Those spillover benefits - technologies with wider uses than envisaged by the mission - are important to Mazzucato. She reprints a NASA graphic of “20 things we wouldn’t have without space travel” to make her point. NASA overeggs it - would the dustbuster hoover really not exist without space travel? - but there's little doubt one driver for the development of portable computers was space research.
These spillovers have another role for Mazzucato’s case. In 1966, Martin Luther King correctly predicted, “In a few years we can be assured that we will set a man on the Moon and with an adequate telescope he will be able to see the slums on earth”. As he put it, “On what scale of values is this a program of progress?”
Mazzucato’s answer is to quote one of the rocket scientists, Ernst Stuhlinger, who responded to an actual missionary, a nun devoting her life to helping those in absolute poverty, with the claim “so many crucial advances that have targeted poverty - advances in nutrition, hygiene, energy and medicine - have resulted from similar scientific studies, whose benefits might initially seem too remote given other immediate urgencies.”
In other words, the new technologies developed make the mission approach ethically justifiable - even when the objective of the mission cannot be ethically justified.
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Like Rashbrooke, there are times when Mazzucato’s neo-statist faith in officials makes her guilty of “sentimentality [that is] … robbing us of judgement and moral acuity”. Her account of the moonshot is romanticised even compared to such gung-ho chroniclers such as Tom Wolfe in The Right Stuff. There's also an unfortunate tendency for her talks, even one she did through the London School of Economics, to turn into little more than fanbait.
Public value is created when missions stop and whatever has been created does its routine day job
It's worth stepping back from the excitement her lively writing and enthusiasm for technical innovation generate to think a bit more about moonshot type missions. Mazzucato’s formal definition of a mission is: “(1) vision infused with a strong sense of purpose; (2) risk-taking and innovation; (3) organizational dynamism; (4) collaboration and spillovers across multiple sectors; (5) long term horizons and budgeting that focused on outcomes; and (6) a dynamic partnership between the public and private sectors.”
But a broad range of activities could fit this criteria, from sponsoring a coffee morning at a community centre, to starting a war. There's nothing in this definition that looks like thinking big.
We might have missions, such as the setting up or expansion of services, or building infrastructure like schools. We probably want to cultivate a personal sense of mission in public services. But the mission in Mazzucato’s sense fails to deliver the “public value”. The public value is created when missions stop and whatever has been created does its routine day job. As George W Bush discovered with the war in Iraq in 2005, looking for "mission accomplished" is a terrible way to do policy.
It highlights a deep problem with the neo-statist project. Mazzucato wants an “entrepreneurial state”, for everything government does. To do this she believes government needs to be transformed through retraining civil servants, changing budgetary practises, and reducing risk aversion. She wants to change the profound difference between our attitudes to public and private organisations: "What's striking is if you look at any business school, the private sector get to do the coolest courses…They're all trained to think outside the box. When governments are a bit too mature and large we just say, 'Oh that's because they're bureaucratic', as though there's something in the DNA of the public sector which by definition [is] slow, inertial and not very flexible."
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If all that sounds like trying to make government adopt what she believes are superior private sector practices, this is Schumpeter’s Austrian influence. The most famous Austrian economist is Frederick Hayek, Margaret Thatcher’s favourite economist. Joseph Schumpeter had a complicated relationship with other Austrian economists, and Mazzucato is certainly no supporter of Margaret Thatcher, but does retain the Austrian sense that traditional public services are not really up to the job.
This is an example of the “neo” bit of neo-statism. Rashbrooke’s “liquid government” is also not old-style “government at its traditional worst: remote, unaccountable, expert-controlled rather than expert-informed, doing things to citizens rather than with them” (emphasis in the original). He confines Mazzucato’s missions to industrial policy but believes embedding tools like ‘mini-publics’ will transform it to have “ten habits of highly successful governments”.
Neo-statists are very clear about they want, but have little sense of whether real government institutions can be fashioned to deliver it
This emphasis on flexibility, on the changes they want to see, means neither asks an important question: If slow and inflexible is not “in the DNA” of government, then what is? Their books are replete with examples of endemic private sector failures and both are highly critical of the public choice approach, an attempt by economists to explain the limits of government. But they offer no alternative. For the neo-statists, government appears to be infinitely plastic. It can be anything and everything they want it to be.
Ironically, this is exactly the opposite of how the scientists who engineered the moonshot operated. Their creativity was expressed by knowing and then using the physical limits to achieve what they judged ought to be. In economics jargon, their positive theory of the physical world meant they could achieve normative objectives.
This leaves a huge gap in the neo-statist agenda. They are very clear about they want, but have little sense of whether real government institutions can be fashioned to deliver it. The real government has been as different from neo-statist objectives, as real innovation was from the abstract economic models that Mazzucato criticises.
In New Zealand, this problem is increasingly apparent in the large scale state sector reforms currently underway. Work and Income is the one organisation that both the left and right in New Zealand politics agree is “government at its traditional worst: remote, unaccountable, … doing things to citizens rather than with them”, as Rashbrooke writes. It’s a highly centralised organisation with regional offices under a command and control structure, and a culture deferring to hierarchy.
So have the proposed reforms generated anything remotely like liquid government? The Hague Review of education identifies problems with the capability of school boards, so removes the power of parents to control their school and hands it to unelected officials. This makes the education system more like Work and Income. The Simpson Review notes public health failures in the current system, so abolishes elected District Health Boards and hands more power to unelected officials. This makes the health system more like Work and Income. The Randerson Review identifies problems with the Resource Management Act, so moves environmental planning powers from local elected councils to unelected, centrally appointed officials. This, as you may have guessed, makes the planning system more like Work and Income.
It would have been a shock if the review of the security system had not recommended more power for unelected officials. Sure enough, it did.
Shamubeel Eaqub chairs Mariana Mazzucato in a recorded discussion on Thursday; questions from the public can be put to her by tweeting @aotearoanzfest. Their conversation will be available to watch online as an Aotearoa New Zealand Festival of the Arts event between March 10-April 3..
Tomorrow in ReadingRoom: we go live at 5am with the announcement of the shortlist of the 2022 Ockham New Zealand national book awards, with expert commentary.
