Mission Economy - Mariana Mazzucato

Intro

• COVID → litmus test for countries around the world
• Gov’t intervention is only effective if state has corresponding capability to act
• Meeting challenges of our time— climate, poverty, human rights, health care— will require massive rethink of what govt is for, what it’s abilities should be AND redefining what sort of capitalism we want to build, how to govern public-private relationships, etc.

Part I: A Mission Grounded— What stands in the way of the next moonshot

1: The Mission and Purpose

In order to tackle wicked problems of the day, we need to fundamentally rethink capitalism and government to have a mission-oriented approach; they should be viewed as tools to accomplish our goals rather than confines within which we operate.

• Wicked problems require not just tech, but social, organizational, & political innovations
• Essential need for ‘mission-oriented’ approach: public-private partnerships aimed at solving key societal problems
  • Restoring public purpose in policies → aimed at helping people > profit
  • Placing purpose at the core of corporations (work to serve all stakeholders, not just shareholders)

The wrong question is: how much money is there and what can we do with it? The right question is: what needs doing and how can we structure budgets to meet those goals?

2: Capitalism in Crisis

The current forms of capitalism are failing, worldwide, as effective economic systems: governments and companies are vulnerable due to extreme outsourcing (of private companies overseas, of public sector → private), income inequality, etc… vulnerabilities revealed by pandemic.

• Four key forces driving these problems, stemming from structure of orgs (→ restructuring must be part of solution)

  1) Short-termism of financial sector: finance financing FIRE (finance, insurance real estate) rather than productive economy; FIRE profits are private but losses are public (‘too big to fail’)

  2) Financialization of business: corporations maximize returns to shareholders, not all stakeholders → buyback own shares to boost stock prices, benefiting executives (while employees pile up debt to maintain standard of living); at the expense of investing in innovtaion

  3) Climate emergency: the usual… also resulting from other problems in finance and business (→ fossil-fuel driven economy, subsidies to fossil fuel companies, funding to projects)

  4) Slow/absent gov’t: gov’ts assuming their role is simply to fix problems, not achieve bold objectives

The problem is not ‘big government’ or ‘small government’. The problem is the type of government: what it does and how.

3: Bad Theory, Bad Practice: Five Myths that Impede Progress

1) Businesses create value and take risks; governments only de-risk and facilitate

• Ignores role of government in creating value & risk-taking: ex. DARPA, NASA
• Globally, actions by public agencies = crucial to innovation chain
  • Without public investment in areas requiring large, long-term, and uncertain funding, private sector → unwilling to invest,

2) The purpose of government is to fix market failures

• Market failure theory (MFT) → the best public policy can do is to fix market failures → gov’t has no role in creating value
  • MFT and public choice theory = theoretical: assume politicians rationally seek to maximize utility
  • This whole idea is false; strategic public investment actually stimulates more private funding that otherwise wouldn’t have happened

3) Government needs to run like a business

• Ambitious projects like going to the moon, setting up welfare state → involve fundamental uncertainty, feedback loops that are hard to measure with conventional static metrics like cost-benefit analysis → doesn’t make sense to rely on these

4) Outsourcing saves taxpayer money and lowers risk

• Esp. in US & UK, many public services (trash collection, prisons, maintenance, etc.) being outsourced to private providers, sometimes even foreign ones
• Does not save taxpayer money!
• Reliance on big consulting agencies → sacrifice of public value in the name of “efficiency,” lack of accountability, conflicts of interest
• More reliance on private actors reduces gov’t accountability, bc less capabilities and harder to change poor policies → self-fulfilling prophecy of less risk, less capacity, less effective

5) Governments shouldn’t pick winners

• Difference between trying to keep ailing industries alive and backing innovations/sectors of the future, which is needed (and often too risky to be attractive to private actors)
• Real problem = socializing risks & privatizing rewards— gov’t never gets the credit for the successes (ex. investing in Tesla), but blamed for failures
• When gov’t and civil servants are too restricted → become cautious, unambitious → little ethos or creativity

Value emerges from the intersection of the public and private sectors and civil society… the market and economy itself can be regarded as outcomes of the interactions between these sectors.

• Because of these myths, we focus more on debating the size and spending of government, and less on how government can create value or skills/non-financial resources like training, networks, expertise, knowledge

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Part II: A Mission Possible— What it takes to achieve our boldest ambitions

4: Lessons from Apollo: A Moonshot Guide to Change

→ What we can learn from the Apollo program as an example of gov’t acting in a market-shaping role

1) Leadership: vision and purpose

• Direction must be part of social consensus → justifies policies and missions

2) Innovation: risk-taking and experimentation

• Exploration & failure were welcomed/stimulated; combining basic research + existing tech → new approaches to achieving a task

3) Organizational change: agility and flexibility

• Question = how to turn bureaucracy into dynamic org fuelled by creativity & experimentation
• Ability to develop more nimble structure: both top-down direction of defining goals and decentralized project execution, risk-taking (level of autonomy)
  • Clear chain of command, increase in both horizontal and vertical comms
• Solutions found by orgs ad people willing to participate + experiment, not by picking good solutions and trying to make them work → supports idea of experimenting with portfolio of ideas

4) Spillovers: serendipity and collaboration

• Innovation → unpredictable spillovers, unexpected discoveries & tech benefits of R&D → wider managerial, social, econ benefits, and esp those involving people (trained in space program → brought talent to business)
• Setting clear goals + allowing bottom-up experimentation → creativity, innovation, success

5) Finance: outcomes-based budgeting

• Missions = long-term, budgeting usually = short-term, dependent on political whims… to be successful, missions must be judged by outcomes, not costs as in normal budgetary sense
• Multiplier effect: overall effect a dollar of gov’t investment might have beyond that dollar (like the effect of R&D investment?)

6) Business and the state: partnership with a common purpose

• Use of flexible procurement contracts → direct relationship with innovative businesses (not mediators/consultant agencies)
• Role of gov’t agency like NASA = define mission, plan program, set guidelines and parameters, then enable as much innovation as possible → requires staff having expertise in science & tech
• More recently, priority for commercialization → govt research funding goals now have to argue for economic value, very limiting
• Ultimately, following these lessons → gov’t transformed into goal-oriented stimulator of new ideas from the ground up; use of tools like public loans, costs/budgeting, research grants all to fulfill public purposes

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Part III: Missions in Action— What grand challenges we should tackle today

5: Aiming Higher: Mission-oriented Policies on Earth

• Today’s moonshots need to be bold society goals, nested on top of resilient systems, social/physical infrastructure— ex. UN’s SDGs
  • Applying mission-oriented thinking will require adaptation & innovation of institutions to create new markets, reshape existing ones; requires citizen participation
  • Whose vision should determine a mission & its vision?
  • How to deal with the fact that purely tech missions are more popular, while those involving social issues (ex. climate change) face resistance?
• SDGs = good starting point bc involve diverse stakeholders, broadly agreed-upon challenges, complex/cross-sector problems, broken down into 169 different target tasks!
  • Requires gov’t to work across silos, truly engage citizens to spur behavior change
  • Use as example to go through key considerations in taking mission-oriented approach

Selecting a mission

• Must be bold/inspirational, have wide social relevance, clear intention to develop ambitious solutions that will directly improve people’s lives, be measurable/time-bound, have ambitious but realistic goals for investment & innovation
  • Required tech should attract R&D that would not be undertaken otherwise
  • Needs to encourage multiple solutions— goal should encompass several projects to achieve overall mission

Implementing a mission

• Utilize policy instruments focusing on outcomes, fostering experimentation: ex. procurement contracts, grants, loans, prizes to motivate innovators to take risks → solve public problems
• Less emphasis on specific kinds of firms, technologies, and sectors; more emphasis on big problems & how orgs can work together to solve them
• New governing approaches— financing operations prioritizing public finance; new public institutions, less risk-averse & open to portfolio of projects
• Must provide patient, long-term finance to orgs willing to work towards meeting challenges; avoid short-term budget pressures
• Appropriate indicators & monitoring to track progress
• Set intermediate milestones → decide whether to stop funding failing projects— transparency of data → sense of urgency, motivate progress & reward achievement
• Transformation in public-private relationships → co-investments, sharing risks and rewards

Engaging citizens in a mission

• Possibility to create civic excitement around collective innovation
• Establish estates, streets as places where missions can take root → enable long-term citizen governance & stewardship, accumulation of public value over time
• Must represent different people and perspectives, not just those of the elite (white, male, old)

Case study: Green New Deal

• Current slow transition pace = result of gov’t leaving market to sort out problems, vs rapid pace of IT revolution
  • Gov’t must provide guiding force to help markets shift → ensure regulation and innovation on green trajectory
  • Focus on direction of innovation, not just rate
• Must consider equitable distribution of costs of transformation

Case study: Innovating for accessible health

• Mission-oriented approach is interesting bc will affect how public & private sectors produce together(moving beyond just policy → production)— must both monitor objective and govern value chain to reach it
• Currently: health innovation - expensive & inefficient, pharma putting profits > people
• New proposals → link upstream investment in research to downstream access (ex. NIH-funded research leading to drug discovery should be accounted for in distribution of that drug)
• Can create missions expliclty tackling inequality: ex. eliminate gap in healthcare outcomes along NYC subway

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Part IV: The Next Mission— Reimagining the economy and our future

What is the bold new political economy that can provide the framework for a mission-oriented economy?

6: Good Theory, Good Practice: Seven Principles for a New Political Economy

• A purpose-driven government and public-private relationship (ex. capitalism) require a new political economy founded on co-creation and shaping of markets

1) Value: collectively-created

• Public purpose → guide direction of value creation, informs how value is owned and shared
• In contrast with today: assumption that people maximize their own preferences

2) Markets: shaping, not fixing

• Use of taxation to reward value creation > extraction, steer value creation → building more inclusive and sustainable economy
• Vs today, MFT (which has major flaws as a theory) as guide to public policy
• Begin with question: what sort of markets do we want?
• Attn → quantity and quality of investments needed, underlying governance mechanisms
  • Ex. patents: should deliver in public interest → should be weak, narrow, not too far upstream (to ensure research tools stay public)

3) Organizations: dynamic capabilities

• Cooperation > competition → shared risk-taking and experimentation; learning under uncertainty; use finance to serve long-term objectives, not just itself
• Ability to evaluate past experiences accounting for spillovers (pos and neg)→ learning by doing
• Foster knowledge creation, learning, and creativity inside civil service rather than outsourcing of government capabilities!
• Five key capabilities for modern bureaucracies = leadership/engagement, coordination, administration, risk-taking/experimentation, dynamic evaluation

4) Finance: outcomes-based budgeting

• Long-term focus: get economy to work for society, not vice versa
• Always begin by asking “What needs to be done?”, then “How do we create the resources required to realize the mission?”
• Alan Greenspan: nothing to prevent gov’t from creating as much money as it wants, as long as we ensure the economy has the productive capacity to make good use of that money

5) Distribution: sharing risks and rewards

• Inclusive growth: emphasis on good jobs, collective ownership of key resources like data
• To ensure economic fairness and resilience: once we accept that value creation is collective, requires shared risk-taking and experimentation, and well-structured finance, distribution must reflect this—
  • Reward entire set of value creators
  • Enable recreation of value by investing in sources of creativity
  • Financial sources must be replenished, not extracted
• Ensure proper public return for public investment: strong conditions on investment that foster inclusive/sustainable growth, or more directly, have public hold a stake in company

6) Partnership: purpose and stakeholder value

• Symbiotic rather than parasitic partnerships
• Long-term thinking about all sources of wealth creation that need to be financed, considering the diff voices that should contribute to decisions
• How to structure the commons (Elinor Ostrom)
• Prioritize regenerative potential of economy → think of circular economy, which minimizes waste and nurtures new collab between organizations & individuals, reduces resource dependency, supports planetary health and human flourishing

7) Participation: open systems to co-design our future

• Foster new forms of participation: revival of debate, discussion, consensus-building
• Both sides open to feedback

7: Conclusion: Changing Capitalism

• Antoine de Saint-Exupéry:

  If you want to build a ship, don’t drum up people to collect wood and don’t assign them tasks and work, but rather teach them to long for the endless immensity of the sea.