ECONOMICS
MARIANA MAZZUCATO
Mariana Mazzucato, Professor of the Economics
of Innovation at the Science Policy Research Unit of the University of Sussex,
is the author of The Entrepreneurial State: Debunking Public vs. Private Sector
Myths.
SEP 29, 2015
BRIGHTON – Seven economists (including Joseph Stiglitz, Thomas Piketty, and me) have
agreed to become economic advisers to Jeremy Corbyn,
the new leader of the British Labour Party. I hope we will have a shared goal
to help Labour shape an economic policy that is investment-led, inclusive, and
sustainable. We will bring different ideas to the table, but these are my
thoughts on the kind of progressive agenda the United Kingdom – and the rest of
the world – now needs.
When the Labour Party lost the election last May,
it received considerable criticism – even from its own frontbenchers – for
failing to embrace the business community as “wealth creators.” But while
businesses clearly create wealth, so do workers, public institutions, and
civil-society organizations, which, through dynamic partnerships, drive
long-term growth and productivity. Indeed, a progressive economic agenda must
begin with the recognition that wealth creation is a collective
process and that market outcomes are the product of how these
various “wealth creators” interact.
We must drop the false dichotomy of governments
versus markets and begin to think more clearly about the market outcomes we
want. There is plenty to learn from public investments that were mission-oriented, instead
of focused on “facilitating” or “incentivizing” business. Policy should
actively shape and create markets,
not just fix them when they go wrong.
Indeed, policies traditionally considered “business
friendly,” such as tax credits and lower tax rates, can be bad for business in
the long run if they limit governments’ future ability to invest in areas that
increase innovation-led growth. Likewise, it is time to move on from the debate
over austerity to a new conversation about how to build smart, mutually
beneficial public-private partnerships to fuel decades of growth.
For starters, we must invest in education, human
capital, technology, and research. Massive technological and organizational
advances have raised productivity in many sectors. Many (if not most) of these
breakthroughs have their origins in publicly funded research. Ensuring future
advances will require direct policy interventions and investments in innovation
across the entire innovation chain: basic research, applied research, and early-stage
company financing.
Moreover, we need more patient, long-term finance.
Most existing finance is too speculative and too focused on short-term
outcomes. Exit-driven venture capital might be appropriate for gadgets; but
technological revolutions have historically required patient, committed public
financing. In some countries, like Germany and China, public banks take on this
role. In others, the job is done by strategic public agencies.
This also means de-financializing the real economy,
which has been overly focused on short-term concerns, so that profits are
reinvested into production and research and development, rather than hoarded or spent on share buybacks. Over the last
decade, Fortune 500 companies in areas like information technology,
pharmaceuticals, and energy have spent more than $3 trillion buying back shares
in order to boost stock prices, stock options, and executive pay. Meanwhile, in
the United States and Europe alone, companies have hoarded nearly $4 trillion.
Companies should be rewarded for reinvesting their profits in production,
innovation, and human-capital formation.
Next, we must increase wages and standards of
living. Until the 1980s, productivity increases were accompanied by wage
increases and rising living standards. This link was broken by a drop in
labor’s negotiating power and companies’ increased financial orientation.
Unions are key to effective corporate governance and hence should be more
involved in innovation policy, pressing for investments in education and
training – the long-run drivers of wages.
Public institutions must also be strengthened. Bold
policy choices require public agencies and institutions that are able to take
risks and learn from doing so. Outsourcing government services that lie within
the government’s own competency hinders this process as it reduces the public
sector’s “absorptive capacity.” Creating a network of well-funded,
decentralized agencies and institutions that work in partnership with business
would make government both more effective and more strategically focused.
The tax system must be made more progressive as
well, with tax credits for businesses designed to encourage inclusive outcomes.
We must end the current practice of blindly lowering taxes, creating loopholes
that allow legal tax avoidance, and offering tax credits that have little
effect on investment and job creation.
When the public sector takes key risks along the
innovation chain – such as providing guaranteed loans to companies like Tesla –
we should think more creatively about the kinds of
contracts that enable the public to share not only the risks, but also some of
the rewards.
We must also shape a new narrative on debt. Rather
than focus on budget deficits, we should concentrate on the denominator of
debt-to-GDP ratios. As long as public investment increases long-term
productivity, the ratio will remain in check. In the OECD, many of the
countries with the highest debt-to-GDP ratios – including Italy, Portugal, and
Spain – ran relatively modest deficits, but failed to invest effectively in
education, research, training, or well-designed welfare programs that
facilitate economic adjustment.
Fiscal and monetary policy will be important, but
only if coupled with the creation of opportunities in the real economy. Money
creation, through quantitative easing, will not fuel the real economy if the
new money ends up in banks that do not lend. And when businesses do not see
opportunities, interest rates stop affecting investment.
Finally, we must not shy away from guiding the
direction of development toward a green economy. Beyond “shovel-ready” infrastructure
projects, fiscal stimulus should support transformational projects, such as
those that led to advances in information and communication technology,
biotech, and nanotech that were “chosen” by public policy working alongside
businesses. Green development can be about much more than renewable energy; it
can become a new direction for the entire economy.
The British Labour Party, along with other
progressive parties around the world, has a responsibility to change the
discussion on economic policy. By doing so, it has the opportunity to shape the
future.
https://www.project-syndicate.org/commentary/corbyn-labour-progressive-economic-agenda-by-mariana-mazzucato-2015-09
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