Summary Mariana Mazzucato: The value of everything: rediscovering purpose in the economy (Youtube) www.youtube.com
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Narre The dean of the school and delighted to welcome you all into the school for this very special event. The event is 1 which 3 of Oxford Schools are joining forces not just to convene as an event, but because the themes that are going to be put before us tonight are themes which are close to all of our hearts and which we want to continue to converse across Oxford about. So I'd like to introduce you all to Professor Sir Charles Godfrey who is director of the Oxford Martin School, and perhaps Charles you'll come and just say a word about the Martin School.
Charles Thanks very much, Narre. And I will just say something very brief that the Oxford Martin School, we exist because of the generosity of the Martin family and what we aim to do is to facilitate interdisciplinary work across the whole university. Now I'm particularly delighted that in this event, as Nairi we're linking with the Blavatnik School and with INET, which has had a long relationship with both of us. And I'm particularly, glad to welcome Mariana here whose work spans Economics and many other fields as well. So let me hand immediately back to Mary.
Narre Thanks. Thanks, Charles. And you'll get to meet Eric Beinhocker, director of the Institute For New Economic Thinking, after Marianna has spoken. Here at the Blavatnik School, we are conducting research, education, engagement, and inspiration with the view to improving government around the world. And it's very much, I think, in the inspiration category that Mariana Mazzucato falls into all those categories but has a particularly inspiring vein in her work for everybody who wants to improve government or believes in the good that government can do.
Narre In Marianna's first book, the entrepreneurial state, debunking public versus private sector myths, she highlights in an extraordinarily original way the role that public organizations have played in the success of the tech sector, particularly in the United States. It's an argument which has found favor interestingly both with the tech sector perhaps because they'd like more of that public money and of course for all those officials and leaders in the public sector who are committed to trying to improve both the economy and well-being of their of their citizens and are sometimes in the firing line for that. For this fantastic book and fantastic contribution, Marianne was awarded a number of different prizes, the New Statesman Sperry Prize, the Hans Matofa Prize, the 2018 Leontief Prize for advance Advancing the Frontiers of Economic Thought. I could go on, but you haven't come here to hear tonight to hear a list of prizes. You've come come because you know you're gonna hear some prize winning work presented.
Narre Mariana's new book about which you've all come to hear is The Value of Everything, Making and Taking in the Global Economy. Marianna, we're thrilled to have you here with us this evening. On behalf of the Martin School, INET and the Blavatnik School thank you so much. Marianna will will present for just over half an hour, We'll have a brief comment by the head of INET and Professor Karthik Romana, the director of the MPP here in the Blavatnik School, and then we will open to your questions, so start thinking of what it is that you want to ask Professor Mazzucato right now. Arianna.
Marianna Wow. I didn't realize there was these other people in the So hello. Thank you so much for coming. I am actually quite ill. So I was gonna cancel, and I said, no.
Marianna I can't cancel because they told me that you'd all be here. But forgive me if I start, how do you say, getting out of balance. And I also did the stupidest possible thing you can do when you're ill, which is last minute changed all my slides around because I decided that I wanted to approach the question in reverse, which only makes sense if you're fully strong and have your head completely there, which I don't, but it'll be fun. Anyway, so first of all, I should really thank Nairi for something, which is I can't remember when it was. I think it was 2 years ago.
Marianna We sat in a cafe near here, and I told her I was writing this book, and I told her that the title that I wanted to give it, came from Oscar Wilde's famous quote. So I was gonna call it The Value of Nothing. She said, no. You can't do that. Your other book, The Entrepreneurial State, was positive.
Marianna It was full of energy. Keep it, you know, strong and positive. So I said, fine. I'll call it the value of everything. I don't know if you remember that.
Marianna Do you remember that? And I think that's a really important point because what I'd like to do is focus quite a bit on the problems that we have in the current economy. And just in case YouTube forgotten, I'm gonna name 4 huge problems that we have, That's kind of the rip reverse order point. I usually come to the problems at the end. And then basically argue that they are tied to our inability today to actually put value in the value debate and make value contested at the heart of economic thinking.
Marianna And at the end, I wanna go to the sort of much more positive, agenda. Well, what do we do? Do we just sit there and complain and call a bunch of activities value extractive or predatory capitalism, or can we fundamentally change the current system? And I'm gonna take that view. And so again, thanks, Nairi, for forcing me to do that also in the title.
Marianna Where are the slides? Here we go. Yes. They're the same. Good.
Marianna And I've also changed the title last minute as well on the taxi over here. I decided to make it very clear from the beginning that what I'm talking about is that we really need a new narrative, new storytelling about value. And the reason I really wanna put this head on, even on the front slide, is so much of the progressive agenda around the world. Forget the word kind of right wing, left wing. Just think of the, you know, progressive agenda in terms of actually making the world a better place and being able to, you know, really tackle for real the sustainable development goals needs to be accompanied by simple but not simplistic messaging.
Marianna And I would argue actually that lots of the populist agenda that we've seen take hold around the world, unfortunately, has also partly at least been related to, certain groups of the political sphere being much better at telling simplistic stories, which then gather the imagination. And I do think that how we talk, the vocabulary we use, the discourses, and literally the stories about the economy, because we shouldn't forget that, you know, economics is not a natural science with atoms and molecules, but it's a social science. The stories that we tell fundamentally also affect how the economy is structured and how the different actors in the economy, and both the public sector, private sector, and civil society, understand the world that they live in. So I do think that, the storytelling bit for me is extremely important. And unfortunately, recently, in, the heading of a Times Magazine, they called me, the scariest economist ever.
Marianna So I wanted to first just relax in case any of you had been scared from that, but I'm absolutely not scared. I'm a nice Italian woman with 4 kids that I gotta feed every night, but I do wanna scare you in the first kinda 10 minutes of the talk, which is that there's serious dysfunctions in the economy right now. And I wanna sort of just remind us what they are, because I think that's the context of why we actually need different structures, different relationships, not just a new deal as some are arguing for, myself included, but literally new relationships. So new contracts, new social contracts. And that is because there's serious problems out there.
Marianna So I wanna sort of tackle these in 4 broad dimensions. I'm gonna go through them very quickly just to make sure we're on the same page in terms of how we view that outside world out there, and why we actually need to revisit this value question, which is at the heart of the book. So the first is, let's just call it the big finance problem, which is really about the financial sector itself. And there's some great data if you're interested in this particular issue by people like Andy Haldane, the chief economist at the Bank of England, and others, like Stephanie Kelton in the US, who've really shown also empirically in different countries just how little the financial sector has actually been doing its job. To put it really simply, because I'm gonna make this a quite a quick whirlwind tour of the 4 problems, quite simply, finance has been financing finance.
Marianna So other parts of the financial sector. So finance, insurance, and real estate, which nicely comes to the acronym FIRE, to make you a bit scared there. So this just shows you that in in the sense of looking at the degree to which financial intermediation as a percentage of gross value added has completely out paced the growth of the rest of the economy. So think of, you know, all the different parts of manufacturing, but also a a a big part of the service sector that's not related to finance. And this is sort of 1 face, if you want, of the mirror, problem with what we sometimes call financialization.
Marianna So instead of actually fueling growth in the real economy, instead of providing that kind of patient strategic finance, whether it's to SMEs or new sectors that really wanna transform themselves, really being kind of obsessed with itself. But the other side, which is much less talked about, which I've written about quite a bit with people like Bill Ozanich and others, is the the degree to which industry itself, so the real economy itself, has become overly financialized. And this you can look at in different ways. And 1 of the ways that people have looked at in terms of the data that's available is just the degree to which things like share buybacks, buying back your own shares to boost stock prices, stock options, and surprise, surprise, executive pay, have really grown kind of exponentially over the last 20 years. And obviously, driven by this, mantra, if you want, of maximizing shareholder value, which I'll come back to later because the word value is in that.
Marianna But this is this is a huge problem in the sense that, you know, the numbers, by the way, are are even worse than what it says here. So in the last decade, from 2,000 8 to 2018, over $3,000,000,000,000 worth from the Fortune 500 company's net income has been used for share buybacks, and many companies there's some here that you might see. If you can see, this is way too small. Oh, I should have made a bigger screen. That's not your problem.
Marianna Many of these companies have actually spent over a 100% of their net income on the combination of share buybacks and dividend payouts. So, you know, some of that is fine, but when it's over a 100% of your net income or at the levels that you'll see here, the real question is, well, what are we then foregoing? What could happen in the economy if those profits, which I'll argue in a minute, have actually been collectively generated, of course, by companies themselves, but also by the systems around them. What happens when those profits actually stop being reinvested in the economy? What happens to skills, to jobs, and the future Innovation potential of the economy.
Marianna Just 1 quick thing. David Ricardo, by the way, was very interested in this question of, you know, machinery and what's gonna happen when we increase mechanization, which he was living through in the industrial Innovation, to jobs and wages. And so he was actually asking the same thing that many people are asking today around, you know, the robots, jobs, skills, and wages. And but what he did and this was a book he wrote in 18/21. It was called Principles of Political Economy.
Marianna He had a chapter of 31 called On Machinery. He very much looked at the degree to which that mechanization was affecting employment and wages. But what actually happened for the 200 years after his analysis, which was very much based on his labor theory of value which Marx and others shared. What actually happened in in the economy was that those profits that were generated from implementing particular type of machinery were then reinvested back into the economy. And in some ways, I would argue that this kind of overemphasis today on what's gonna happen with the robots is sort of misplacing tech problem.
Marianna Right? So as long as profits are generated, you would expect, in fact, to see creative destruction, not just in the technology, but also in terms of where jobs appear and the different types of skills that are generated. When you have this level of financialization, which again, apologies if you can't see it, just remember that 3,000,000,000,000 number, that itself becomes a problem for jobs and skills, but also for other parts of the production structure, which need that sort of a level of reinvestment. And in fact, what we see, at the macroeconomic level, you'll remember that GDP can be broken down into different components of which 1 is business. Investment is a falling degree of business investment globally, which is not untied to this lack of reinvestment of of, profits into the economy.
Marianna 3rd, we don't just have a finance problem and a business kinda real economy problem. We have a mega kind of planet problem. I assume all of you have read, hopefully, the IPCC report that came out, some months ago, which basically warn us that we've got, you know, 12 years left, and the kind of lack of real investment, not just in renewable energy. And there's some data here also from the IEA saying that we're only investing about 20% of what we should be in renewable energy, but also a real kind of transformation of old industries which are required to have a green transition. It's not happening at the speed that it needs to happen, and it's definitely not happening at the level of sort of inspiration using Nairi's words that are required to have a real green transition.
Marianna It's quite interesting by the way to see what's happening in Germany where their energy vende policy, which sometimes has been criticized in terms of the renewal renewable energy aspect. What is really interesting with that policy is what it has done to rewarding those sectors even in old economy areas like steel to transform themselves. So steel in Germany has lowered its material content to repurpose, reuse, recycle through this ambitious, energy, vendetta policy. But we simply don't have enough of that happening around the world. Anyway, this planet problem, I think, you know enough of.
Marianna I don't have to go into it. But the last 1 0, sorry. And this is, of course, related because it's not just about sustainability. It's about inclusive growth. It's about all sorts of issues around, inequality that, people like Piketty have reminded us just how bad it is.
Marianna And the real question is, are we getting any closer to solving these 169 targets that are underneath those SDGs. And I would argue, we are not doing what we need to be doing in terms of the actual road mapping. So 4th big problem before I get into the book, is the state. Right? So all these different government organizations that we have surrounding us, the degree to which, in fact I don't wanna put it too strongly, but the fact that we have sort of given up on really thinking about structural transformations at the level of the kind of organizational DNA of government as being really kind of a collective value creator alongside these different actors.
Marianna Because we shouldn't forget that markets themselves are outcomes. Right? A public, private, third sector institutions. Paul Polanyi's work was really important in, talking to us about that in books like The Great Transformation. The degree to which state structures have become potentially not only too inertial, but also kind of lacking confidence.
Marianna Right? So the equivalent of what we have here in the UK of the Circos, the g 4 s's increasingly taking on also functions that really are at the heart of government, like providing, universal and accessible, well, funded, but especially well structured health care, running prison systems, which are really important in terms of making sure that people don't reoffend when they come out, when they're just seen in terms of their bottom line, but where government itself almost lacks the confidence to really see itself in a, what I'll call later, a mission oriented way, what actually then happens to our ability to revive the government, to keep it alive, to keep its diverse types of public organizations as different as the BBC to a Department of Education being a real kind of dynamic partner alongside, the private sector. And so part of what I've argued in the past, also my book, The Entrepreneurial Estate, was that part of the state problem. Right? We don't just have the finance, the business problem, and the planet problem.
Marianna But the state problem is also partly the framework that we've had to understand the role of the state in confronting these big challenges as at best fixing some sort of market failure. So whether it's because we have positive externalities like basic research, go fund some science, negative externalities like pollution, go introduce some sort of carbon tax, asymmetric information, lend some money to SMEs. This is just a very kind of narrow way. It's useful, by the way. It's a very useful framework.
Marianna I wouldn't throw it out, but narrow way to confront the big issue of what should the state do when it's confronted with these huge challenges around sustainability, inclusive growth, but also fundamentally structuring the economy in ways that actually provides opportunities and capabilities for the people. And what I did in the entrepreneurial state was really quickly, and I just put this up because I love the actually that, framework doesn't help us understand history. It doesn't help us understand these big changes that occurred in the past, which in in some ways been the hearts of capitalism. As Schumpeter reminds us, innovation is a key way that capitalist firms interact. It's very hard to understand the public part of the public private kind of third sector partnerships as having just been there to kind of facilitate, derisk, enable, and fix different types of failures, whether you call them market failures or if you're a bit more interesting, call them system failures.
Marianna It simply wasn't that. There was a much more active, what I call the entrepreneurial state, market Innovation, market shaping role. And when we don't have the ability to actually frame that also in ways that can be I don't wanna say quantified, but measured. Why not measure them in dynamic ways that we also have problem evaluating these public investments It's It's fine to make documentaries about giraffes in Africa. It's fine to do high quality news, but don't do soap operas and talk shows.
Marianna That's for business. So this idea that the market is somehow static and, you know, business is allowed to operate in the bits that are more for commercial interests and the government just comes in and fixes a little slice of the pizza. I'm Italian, so I think in terms of pizzas as opposed to actually seeing that when you have that ambition, like the learning program of the in the 19 eighties that the BBC had, which actually ended up scaling up Arm and Acorn, that actually expands the pie. When you have ambitious policies also around the welfare state, that expands the pie. When you have a real green transition, policy in a country that can expand the pie.
Marianna So that whole even the word crowding in, which is supposed to be the opposite of crowding out, doesn't actually capture that really dynamic, structure. Sorry. The structural policies that that the state has had in the past when, big when, when structured in particular ways, when also literally the HR, human resource structure was also done in such a way to welcome the risk taking, the experimentation, and Innovation. Anyway, so, you know, it's not surprising that we don't that we have the state problem when we can't even talk about even just historically how everything that's in your smart products that make it smart and not stupid was government funded. And then the big future question should be, well, where could we actually find and how to structure an equal ambition that the state had in really leading the IT revolution for hopefully what will become, you know, the green and, much more sustainable revolution.
Marianna And so it's not surprising if you want that we have this state problem and we end up, having a a kind of boring masters in public administration except in places like the Blavatnik and, of course, the institute that I've just set up at ECL, where we try to actually welcome kind of the risk taking, being foolish, be hungry also within civil servants precisely to ask these more difficult questions of what should we be cocreating and where is that level of ambition that we had in the past going to the moon and back again or setting up the welfare state. What's the equivalent of that today? Where has that gone? Let me just jump ahead a bit. So, to the book.
Marianna What I tried to do in the book was to bring these problems back to some fundamental debates that occurred in Economics, which weren't just lost, over time, but kind of moved over thinking, oh, that's just kind of old style. You know, it's just a classical economist who talked about value. Now let's actually just kind of confront more interesting questions. But literally, the word value kind of lit went missing from economics departments. You don't have textbooks as we used to have, even in the mainstream, economics tradition that even had that word kind of value.
Marianna What is value? And then big debates about that. What I argue is that when we, kind of allowed this concept of value to leave economics departments and simply to go to business schools where the where the word is everywhere. Think of it, shareholder value, shared value. Michael Porter's very important work.
Marianna Value chains. When that concept left Economics departments and went to business schools, it I don't know how many business school people are here. It kind of became more flaky and fuzzy, and and and let me just say that in a kind of facetious way. But also in the process, made it less contested, less debated within sort of the heart of economic reasoning and economic debates. And in the process, made it much easier to extract value in the name of value creation because what is value?
Marianna Right? So when you're taught micro 101 and you're taught, you know, things around the production function and marginal productivity and marginal utility, you're not told this is 1 particular theory of value and then we'll learn other ones. It's just taught as kind of micro 101. So when it's not contested, it becomes much harder to do things which in the past were done like debating, well, what's the difference between profits and rents? What is the difference between value extraction and value creation?
Marianna What happens when we reward value extraction over value creation? Do we get value destruction? But even just really simply, what is the difference between profits and rents? And I thought it was very interesting. And going back in the literature is also to be reminded that Plato himself, smart guy, kinda often said in different ways that storytellers rule the world.
Marianna And what I wanna argue is that many of those 4 problems that I talked about in the beginning have in some ways been, how do you say, nurtured by the fact that the stories that are being told about where wealth creation comes from and where value creation comes from has been, if you want, captured. Because it is not, again, in the active discourse of how we think about the economy. And these stories are all over the place. I mean, you might remember, if you were shocked as I was in 2009, just 1 year after the financial crisis when the, head of Goldman Sachs, without trying to make people laugh, so it wasn't like an after dinner joke kind of meeting said, you know, Goldman Sachs workers are the most productive in the world. They create lots of value under what sort of metrics of value, under what sort of accounting of productivity could that be said?
Marianna Question mark. Similarly, the value of financial services has often been discussed also in the Brexit debate, but also before, Brexit when we were looking at all the ramifications of the financial crisis. So Gordon Brown himself saying we have to protect financial services. They are a large value creating part of the economy. Silicon Valley loves to use the word wealth creation and value creation in Google's own kind of acronym of we don't do evil, kind of implies what we do good.
Marianna What does it mean to do good? What does it mean to create value? An area that I'm very wedded to recently in terms of policy discussions, with particular sectors is around this issue of drug prices, and it's quite interesting. I'll come back to this later. The degree to which they themselves are justified even when a price of an antibiotic goes up by 400% overnight in terms of value based pricing.
Marianna And the states, you don't hear I mean, almost the opposite problem. You you don't hear civil servants say, I'm a value creator. I'm a wealth creator. At best, we hear the need for civil servants and different types of policies in order to enable or derisk the value creators. So I'm just putting this up here just to remind us that on the 1 hand, we have almost a schizophrenic situation.
Marianna On the 1 hand, value has almost left economic reasoning. It's not out there as an explicit debate. And on the other hand, it's everywhere. Everyone's easily calling themselves a wealth creator and a value creator. And and the 2 things, in my opinion, are not unrelated.
Marianna So when, again, value becomes a lazy, flaky, fuzzy term, this becomes more easy just to call yourself a value creator. And so the big question of, well, who does create value? Who doesn't? And what's interesting is that in the history of economic thought, this was huge. This was actually the way, again, from the mercantilist to the physiocrats, the classical economy, this question was very much at the core of their reasoning.
Marianna But also, like almost every single time that there's been a massive crisis in the economy, literally a depression, this note this question comes up again. And we had it recently when, Ed Miliband, you might remember, talked about the need to rethink what kind of capitalism we want, predatory or productive. Larry Fink himself, the head of BlackRock, wrote that letter to 500 CEOs saying, we have to rediscover our purpose. We are not creating value anymore. We're just so obsessed with the short term and our quarterly returns.
Marianna And so we need to rethink what our purpose is. But also, I I found it quite interesting. Literally, if you go back depression to depression to depression, where this concept of, we've messed up because we've been rewarding value extraction instead of value creation. So this great quote by 1 of the first industrial trade unionists, Big Bill Haywood. He says the barbarous gold barons had just replaced gold barons by finance, and you'll hear what people have been saying in the media.
Marianna They did not find the gold, did they not mine it, They did not mill it. But by some weird magic, alchemy, all the gold belongs to them. Right? So actually, this concept then comes back. It often comes back when economies experience, big problems.
Marianna And so this is your kind of 60 Economics, history tour of how value has been talked about in Economics. And I just wanna go through it just to kind of emphasize how much it really was at the center. And I already mentioned, the mercantilists and the physiocrats. So basically, what was interesting was that in a period where, you know, international trade was, really taking off, the mercantilist put a lot of emphasis on value as having been, as if you want, being at the center of how trade occurs. So terms of trade, exchange rates.
Marianna Think Trump today, who's basically bringing us back 400 years. This was very much at the core of how they understood value itself being generated, not just circulated. So the 1651 Innovation acts and all sorts of different, policies that came out in that era were reflecting, in fact, the fact that they really believed that exchange itself created value. It didn't just distribute it. The physiocrats and the classical economists kind of changed that to really look at how things were produced.
Marianna The physiocrats who were writing the 1700, this was an agricultural time. It's not surprising they thought that farm labor, was at the center of how value was created. They even did the first, spreadsheet ever with the Tableau Economics. Francois Canet kind of dividing up, the the, economy in terms of productive class, the farmers producing the real stuff, the proprietors who are basically the merchants just kind of move moving it around, and the sterile class, the landlords who owned the land, and they were very interested in the degree to which the profits being generated by the core value Professor. Sorry, the the resources being generated were then funneled back into the system to make it more productive.
Marianna And they were very worried about reproduction problems if there was too much siphoning off, from, for example, the landlords or also the merchant class itself did that. But they were very interested in the degree to which value in the economy was created and then how it was being circulated and the degree to which it was or not being plugged back in. Coming back if you want to that slide I showed you with financialization. Now the classicals, it's, not surprising that they put a lot of emphasis on industrial labor because this was, in fact, the period of the industrial revolution. And both Adam Smith, David Ricardo, Karl Marx put much emphasis on industrial labor in different ways.
Marianna Adam Smith, I think, actually was the least interesting. He had really interesting insights on other things, like the division of labor. His whole book basically is about how we can increase the productive, output of factories by really taking seriously the division of labor, its impact on productivity, the impact on then growth and the wealth of the whole nation. But he was a bit more deterministic than his College, Ricardo and Marks, who came after in terms of kinda he drew lists, literally lists of who he thought was productive and unproductive. And basically, all of you in this room, including myself, let's call ourselves women and men of letters, were unproductive.
Marianna Churchmen, lawyers, doctors, professors, buffoons, musicians, and he hated the opera. Opera singers and opera dancers, you know, 2 whole categories for the unproductive. Who who knows what he had done the night before. And that was quite interesting because what they did and, again, I'm not gonna go into the differences between Marx, Ricardo, and Smith, which would take a long time. But what was interesting that they all had in common was a real focus on the objective conditions of production.
Marianna I already mentioned Ricardo's book on principles of political economy, his focus on mechanization, asking what it would do to distribution. But they really were looking at the organization of work, the relationship between capital and labor, technological change in a dynamic way. To be honest, most of what Schumpeter wrote on, innovation was already in Marx. What Schumpeter really did fantastically, which I don't think has given enough attention, was to argue why that then required an alternative understanding of competition and how neoclassical competition theory kinda dismisses the heart of capitalist economies, which is innovation. But again, we won't go into that.
Marianna But Marx, again, focused a lot on how technological change itself, how it occurred within industries, what it did to between industry, profit circulation. But what was interesting was it was very much a focus again on the objective conditions. And so that also allowed them to do what the physiocrats did, which is to try again in different ways between them, characterize where was value being created, where was it being extracted. Think of Karl Marx's theory of surplus value, But also what would happen if then that value was not replugged into the system. And in in there, how do you say Innovation of rents versus Professor, what was interesting was that rents were This is very different if you think about it.
Marianna How rent is talked about today. Effect in inequality where rent is actually seen more as a transient state towards some sort of equilibrium price that exists due to some sort of monopoly power, which, you know, for whatever reason exists, but the idea that you can actually potentially get rid of it in some sort of way, that's different from talking about unearned income, which also comes very much from having this much, you know, more focus on value itself in terms of value created Professor versus rents. Go on. Yeah. So the implications of the classicals, which is very interesting, which sometimes we forget, because it's it's not the focus today of neoclassical Economics, is the relationship between value prices and income.
Marianna We're again tied to objective not subjective conditions of production. So not preferences but very much a focus on production structures and how they changed over time. The relationship between production and income were mediated through power issues as well. So, you know, wages were not just tied to choices between leisure, and work, but to also who owns the means of production and the bargaining power depending on the institutional relationships and the strength of unions or other forms of, bargaining relationships. Reproduction of the system was absolutely the focus as it was also in the physiocrats.
Marianna So the degree to which funds are actually being siphoned out of the system, which may hurt the ability of the capitalist system to reproduce itself, and again, rent being tied to unearned income. I'm not gonna do a whirlwind, tour of neo classical economics because I'm running out of time already. This is terrible. But, basically, huge change, and it's incredible how much people who study Economics, so students in undergraduate and graduate schools around the world don't even know, and I don't wanna sound condescending, but let me just say that there was this huge revolution from an objective approach to value. And don't think deterministic.
Marianna Objective can also be quite dynamic and focus on innovation to a subjective 1 tied to individual decisions, maximizing utility, maximizing Professor, and also as workers maximizing their decisions of leisure versus work. So this focus on preferences really kind of changed the the the lens from being 1 from an objective understanding of who's doing what to fundamental focus on, these individual decisions. And quick implication is, well, first of all, class struggle disappeared overnight in terms of a focus within economic theory. I'm not talking about what's actually happening out there in terms of rebellions. Price reveals value as opposed to value revealing price.
Marianna This was the huge change, which again, it's it's amazing how few kind of appreciate instead of having theories of value, whatever they may be, that turn into a theory of price, the logic went reverse. A theory of price, supply and demand curves, exchange preferences, turning into a theory of value. Literally, so you know, like my brother always says to me, if you're so smart, why aren't you rich or really rich? But this is exactly the blank theme quote, right? We get tautological when we start confusing price with value and it's not a coincidence that, this, if you want, can so easily be said.
Marianna Goldman Sachs workers are the most productive in the world precisely because if the emphasis is on price, which then reveals value, I earn a lot. I must be productive. And this point here that I already mentioned, rents no longer about unearned income, but about asymmetries towards some sort of competitive price, which might or might not depending on how strong those imperfections are be competed away. So the real question then is who cares? Why did I just spend all this time first scaring you about those 4 big problems and then telling you there's, you know, all this change that has occurred in how we thought about value.
Marianna Well, I think the 2 things are linked, and they're linked in the sense that when we stop both debating it, but also when we move it too far away from an attention on the concrete ways that production is changing, distribution is changing, mechanization is happening, and how value is created by different types of actors in the economy, including the workforce as value creators, including public entities, not just the DARPA type that came up with the Internet, but the BBC type as well who've really transformed how we think of public broadcasting in this economy, what then happens? What happens to our ability to actually talk about some of the biggest questions that we all, care about? And especially what happens when the logic goes from price to value. And so what I do in the book, and don't worry, I'm not gonna do it now in the last, 8 minutes I have, is I kinda say, well, first of all, it kinda messes up how we think about GDP. Why?
Marianna Not only because of the areas that, have been told to us by feminist economy and environmental economists, which is that, you know, when you don't price something, then it actually doesn't enter GDP. So, you know, care work is not, priced, especially when it's done for free. So if you marry your cleaner, GDP goes down. When we pollute, GDP goes up because we don't actually value the problems that Innovation, creates. We just value fixing it up.
Marianna So it has to be paid for so GDP will go up. That's the common understanding that we all love to tell our students when we teach macro. But what has been less appreciated is how actually that financialization stuff that I showed you in the beginning, that first graph that Andy Haldane made for us is, you know, actually created problems for GDP because in fact, finance was not even included, believe it or not. Again, something that I'm always shocked that many of my fellow economists don't remember. Finance, most of finance was not included in GDP until 1970.
Marianna When it started to increase at the level it did, and I kind of go through it slowly in the book and and how that happened and why it happened, the SNA, the people who were in the UN actually things like net interest payments that banks were earning wasn't included. We were only including those areas of the financial sector which actually had a fee. So if you had a mortgage, you went to get a mortgage, you have to pay someone to help you. That went into GDP, right, because there was a price behind it, but net interest payments weren't. And what happened kind of, I don't wanna say overnight, but they just simply gave a name to it.
Marianna There wasn't an attention objectively. Oh, well, let's actually look at what's happening. What's happening to this financial sector? What is it actually doing? As Minsky, taught, is it actually adding to the capital development of the economy or is it just financing itself?
Marianna The point I made in the beginning, they simply gave it a name. They said commercial banks do financial intermediation. Investment banks are risk taking, So we put those activities into national income and product accounts, which is what they call in the US, the NEPA accounts, and all of a sudden by magic, it it was increased. So this lack of attention to what's actually happening, where you know, what is finance actually doing? Is it siphoning value off?
Marianna Or is it actually, creating value? The lack of attention to that made it much easier for this, if you want, problem to occur. Sorry. Similarly, corporate governance, this issue of financialization in the real economy and that maximization of shareholder value. What's really interesting to me is that even though there's been lots of critique of that, of short termism, people like John Kaye and others have talked about the problems that occur in the economy when we just focus on the quarterly returns.
Marianna The critique then wasn't actually linked to, an if you want, an attack or a criticism of the underlying value theory. So shareholder value, if you actually read the textbooks that came out in the 19 eighties by people like Michael Jensen at Harvard Business School, it's actually predicated on an understanding of who's creating value in the economy, which is kind of just a story that a lot of people bought into. And then it was then what was critiqued was just the outcomes of that. So shareholder value, if you read again the text, is all about shareholders being the biggest risk takers, the only ones without a guaranteed rate of return, which Jensen called residual claimants. So once everyone else has been paid their, share, so workers or salaries, banks or interest rates, etcetera, if there's something left over, the residual, then shareholders sort of have the right to have that because they risked getting nothing, which if you sort of break it down and ask yourself, is that true?
Marianna They're the only ones without a guaranteed rate of return. Of course not. There's all sorts of risk taking in the economy and the entrepreneurial state. I talked about the public risk taking, but there's lots of worker risk taking. But surely, you'll agree that for every Internet that the government financed, there was many, failures that itself is risk taking.
Marianna For every Tesla that got a 500,000,000 guaranteed loan from the US government, there's many Solyndra's. But when we dismiss and no longer put our attention on who's actually doing what, objectively understanding or looking at, again, the lens on where this collective value creation is happening across different actors as opposed to thinking values created only in business with, for example, the public sector facilitating or correcting that market failure, it becomes much easier to put forth a story like that and for it to be believed. Prices of drugs are quite extraordinary. I'm not going to go into value based pricing, but it's literally, the point about, you know, the the prices, what the market will bear. So, when that price of Nostrum Pharmaceutical antibiotics went up by 400%, I think it was 6 months ago, the head said, we have a moral imperative not only to, you know, our shareholders, but we have a moral imperative for the company to allow prices to rise what the market will bear.
Marianna And value based pricing, which is how we currently around the world set pharmaceutical prices, coming back to the SDGs around health, or or, based on that. And then you require the welfare state to come in in this country through NICE or other organizations to bring it down, even though those drugs themselves have again been collectively Professor. Just in the US, the NIH spends, I think, 32,000,000,000 a year on health research, which ends up with these drugs. But this lack of attention on what actually allowed these drugs to come about, who the different actors were, how were those relationships structured, and just allowing this if you want price theory of value to take hold, that has been very much part of that particular problem. Let me just move ahead.
Marianna And lastly, the government problem, the state problem is quite extraordinary because literally a civil servant this isn't about ideologies. It's an accounting issue. Civil servants, governments cannot say that they are productive. Why? Because we don't actually for most of things that government produces, which are free from, publicly funded education, publicly funded health care, and all sorts of other public goods that we benefit from, We don't value the output.
Marianna We just value the input. So the salaries of teachers go into GDP, but not the output. So productivity is measured output per input. We haven't got a way to to to measure that output, so we just look at the input. And so literally just in terms of the storytelling, in terms of I am so productive they can't do it.
Marianna But even worse, if we then don't have a framework to understand the role of different types of public actors as co creating the value in that kind of Polanian sense, it also becomes much easier if you want for public choice theory, new public management to really take hold and to basically Economics, you know, civil servants that at best they can facilitate and enable these cool guys who are instead allowed in the private sector to invest in capabilities. Just think of the courses being taught in business school, strategic management, decision sciences, organizational behavior. Whereas, you know, increasingly what was then taught to civil servants was, yes, you must do interesting things in terms of regulating and administering, facilitating, derisking, but don't take up too much space because then you will crowd out. And God forbid, don't pick winners. Don't actually make strategic decisions And in the area, the market will decide where the economy goes.
Marianna What you then do is just make sure that, you know, we have leveled the playing field, set the rules of the game, and funded some basic things that the private sector won't fund. And so the public good itself is just seen as a correction, Right? The public goods being those things that the private sector want to invest in because maybe they can't appropriate the profits because of the strong spillovers as opposed to a real objective. So something like public value. Public value itself, the word doesn't exist in economics.
Marianna It does exist in business schools, but it's been a bit it's not tied if you want to how we understand the economy. And so public servants instead are again, I've already mentioned all these kind of boring lame words. And we have the economy literally every week reminding us, you know, let the value creators do their thing. Just push around the papers, then get the hell out of the way, so the revolutionaries can create value. This is in a particular, addition of the economy dedicated to nanotech and the emerging green tech sector.
Marianna So, what I want to do now is just literally spend the last oh, God, negative 1 minute, but I Professor you to 1 minute on what to do. And I know that, Eric is gonna is gonna provoke me more in this area. But, you know, so what does this mean? So first of all, in terms of rethinking the economics curriculum, which there's a lot of movement out there in the rethinking economics movement, this really should not be about just making economics more user friendly, like, you know, saying there's too much math. If you look at the math that's actually used in economics, it came from Newtonian physics.
Marianna It could have come from all sorts of other parts of, the, natural sciences like College, and Newtonian physics basically then allowed economic theory to prove what it wanted to prove in terms of, you know, Pareto optimality, unique equilibria, representative agents. So I do think we should be careful. Let's not just bash economics for being too mathematical, but actually ask much deeper questions. What kind of math is being used, but especially what are the different types of value theories that in the past were, if you want, discussed and contested, and why is it that we have actually allowed ourselves to really just have 1 theory of value as good or bad as it might be? I almost don't wanna make a judgment onto on it.
Marianna In fact, I was criticized for some people saying you should have just gone after that 1 particular value theory. For me, it's where is the debate? We literally don't talk about value anymore in economics and then have facilitated these value extraction practices to be presented as value creation. We can, in fact, steer activities into the production boundary. This is where I think I didn't finish my sentence.
Marianna This is a sickness factor. With Adam Smith, when I said he just made these really static lists. What's interesting is not to say finance, hedge funds, credit default swaps, bad, industry, good, but to really actually look at, again, how these different actors in the economy are interacting and ask what can we do to actually bring the financial sector or parts of it that have become increasingly problematic into the production boundary in terms of that, boundary that I mentioned in the beginning of where is value created, where is it just being distributed or extracted. And to do that, though, we have to be talking about value. So what kind of value do we actually want the financial sector to be creating, and how can it interact in different ways with these different, actors?
Marianna We simply haven't done that. If if you think about the financial crisis and the opportunity it gave us, we could have introduced a financial transaction tax. We could have in countries like the UK where the government found itself owning a bank, you know, turned it into a bank that actually really did provide more capital for the capital development of the economy, providing patient long term finance for interesting things to happen. We we didn't do that, but those kinds of policies would have in fact steered and, financed back into a debate at least about where we think value is being created. We could definancial the real economy.
Marianna We currently are rewarding in many ways in terms of how tax structures are set up and capital gains tax is too low. We are actually rewarding those kinds of practices like share buybacks. But the really interesting thing is actually there is a discussion, just think of the SDGs and broader, about a better form of economy. Right? So we again have this a bit of a schizophrenia, lack of action on the structures, big action on the talk, the SDGs, the grand challenges.
Marianna So what would it actually look like to form new types of relationships to get us a caring economy, a green economy, a circular economy. But in each 1 of those, really also think about literally the collective value creation. So we don't think of, you know, this is gonna happen by some actors and others are just gonna facilitate along the way. And for this, 1 of the things that I've been doing recently, kind of on a practical level, is bringing back this concept of missions to the heart of economic policy. So getting a moon sorry.
Marianna Getting a man to the moon and back again in 1 generation required lots of different actors. It was not just NASA. It required about 12 different sectors in nutrition and textiles. And what government did brilliantly is it used its tools like procurement and price schemes to really crowd in the bottom up experimentation, innovation, and exploration from lots of different actors. Something like 300 homework problems got us to the moon.
Marianna And that really does if you break down what that means for, again, value creation, the different types of actors that might be required, for example, to get the plastic out of the ocean, this great challenge that David Attenborough gave us at the end of Blue Planet, what would that mean for how we structure the economy? This is actually a new book that I'm writing on. Kind of breaking down what the moonshot would mean for the economy and all the different levels, like how we set up procurement. But this would also require a different type of deal. There's so much of what government does, which are really just handouts to industry, whether it's through industrial policy or SME policy, having much more strong conditionality.
Marianna So we're not just sharing risk, but also rewards. And I won't bore you with the details, but what that means for the governance of IPR, so patent policy. What it means for that Tesla kind of investment that the government made should it have retained some equity. What it means for pricing. What it literally means for how we share the benefits of an economy that is in fact collectively produced, which at the heart of it for me, it's about coming back to this concept of value as being a concept that is collectively created.
Marianna And if we can't do that, then kind of the rest of the stuff that sounds really good, like fighting climate change and inequality, will remain just talk.
Narre Well, what a what a terrific beginning to tonight's conversation. Marianne has put a lot of food for thought out there, And now we have 2 responses to the ideas that she's put in front of you. Marianne talked about the need for humans to create and co create markets. And the first response is from Professor Karthik Ramana, Professor of Business and Public Policy here at the Blavatnik School of Government. Karthik's work has has paid great attention to the way in which governments regulate or failed to regulate different aspects of the economy.
Narre You'll have read him on the failures of auditing and accounting in Britain and across the world. So we'll start with a comment by Karthik, a brief set of comments, and then we'll move to my 1 of my co hosts tonight, Eric Beinhocker, who's director of the Institute For New Economic Thinking. And Eric comes at this as somebody who used to lead thinking in the McKinsey practice on sustainability and climate change, and is engaged not just in thinking about how we get a new kind of economic thinking, but also in working with politicians to think about what kind of agenda that, that shapes for them. So Karthik, if I can ask you to come up, I will wave my hands or tap you on the shoulder when your time is up. And then in quick succession, Eric, and this gives you time and food for thought to prepare some questions quick fire for Mariana after their comments.
Narre Thanks.
Speaker 3 So thank you, Mariana, for that really, really interesting tour of the book and and very powerful set of ideas. I've been asked to be brief. So I'm not going to talk about all the wonderful things about the book that I like and instead, focus on, some areas where, in hearing what you had to say, I had some concerns and that would be my role in this session. So I don't think, as someone who comes to it very much from the center of, of of the political spectrum, I don't think we're that far apart in terms of identifying the most salient problems or even that far apart in thinking about proposed solutions. I'm just a little concerned that we get perhaps in this, age of, populist hysteria, a little sensationalist in in framing, the diagnosis and the Innovation.
Speaker 3 And I worry that in doing that, we risk throwing the baby out with the bath water. Because as much as and I am just as responsible for, talking about areas where the free markets have failed us, I think that free markets remain, the most productive engine of prosperity that we have known, through history. And so we have to be careful about that. And and I'll take 1 particular, Innovation for instance to what you've said, as a way to illustrate this concern. I agree with you that CEO pay is a huge issue, or excess pay or pay without performance is a huge issue, but you sort of lump that in with the issue of, share buybacks.
Speaker 3 And I think those are very, very different problems. And let me quickly illustrate. So implied in what you were saying is that, you know, rents are due to imperfect competition, which is sort of the standard neoclassical view of looking at it. And and of course that imperfect competition could be driven by Innovation, but just as easily it could be driven by, regulatory capture, which is an area that, you know, many of us here at the school study. And and CEO pay by many accounts is in fact due to regulatory capture or capture of the institutional environment, largely because boards and auditors, are not doing their job.
Speaker 3 The general corporate ecosystem, corporate governance ecosystem is not doing its job. And so indeed, markets can be captured and driven away from conditions that generate perfect competition due to asymmetries in power. And in fact, 1 of the reasons why this school exists is to empower governments to have the capabilities to resist the the forces of capture, to resist that, to address that capture. So there's a very powerful argument there. But I think importantly, markets work.
Speaker 3 And in fact, many of the issues we see with markets today, in the populous spectrum are because markets are working far too well. So issues associated with wage stagnation in this country or in the United States, have been associated with increased global competition for instance. And so, what that would really imply from a public policy perspective is the need to upscale people to be able to meet the, the the the changing conditions or the changing market conditions introduced by, low wage, competition overseas. Returning to the issue of, shareholder buybacks or or or share buybacks, a shareholder, payback in itself is not bad, as long as that is indeed earned income. So, you know, in other work I've talked about how a lot of reported profits are generated from accounting chickenery.
Speaker 3 So I wanna set aside that issue and say, you know, if you leave aside those accounting issues and say, if this is indeed earned income, then in a well functioning market, a shareholder payback suggests that the firm has no investment opportunities and is returning back to markets, and returning back to the productive economy, the resources that are needed to see the next generation of innovation. So I'd like to see more of those arguments teased out in a discussion like this. There's indeed a problem with CEO pay, but it's a very distinct problem from shareholder buybacks. And I was a little concerned to see those things lumped in together, particularly in a popular setting like this because that I worry contributes to this populist, unease we're experiencing with free markets. So the overall message is agree with you, but let's be careful and not throw the baby out with the bathwater.
Speaker 3 Thank you.
Speaker 4 Thank you. And, thank you, Mariana, for, despite being under the weather. And thanks for writing this book and taking what was a rather dusty subject in economics and, reinvigorating it and and and fostering an important debate around it. And, like Karthik, I'm not gonna talk about all the things I agree with because, I actually, largely agree with your critique of the marginalist new classical theory of value. But, 1 thing that I think, didn't go far enough was in, well, what's the alternative?
Speaker 4 Is there another way to think about, value that could be helpful to us in these issues? And in 5 minutes, I'm not gonna be able to sketch out a complete theory new theory of value, but, I I'm just gonna try and convey the messages. The good news is I think there is the potential, for such a set of ideas. Now, in my view, a new theory of value would actually mix some very old ideas with some some newer ideas. And the old idea is that, humans like to create order in their lives.
Speaker 4 We're not the only species that creates order. Lots of other species do it, but we're actually pretty good at it. You know? Our world is full of order, physical order and all the artifacts we we have around us and social order in the institutions and structures we create. And, Max Weber, you know, noted, wrote quite a lot about order creation and when he founded sociology.
Speaker 4 The economist Friedrich Hayek made order a central theme in his work and actually described the economy as a self organizing order creating system. And another economy, less well known, but 1 of the founders of ecological economics, Nikolai, Georgesko Rozin, wrote that in fact, this is the most fundamental way to understand the economy as a system that takes low ordered inputs and applies energy to transform them into higher ordered things that are useful for us. So think of the chair that you're sitting on right now. Somebody mined metal out of the ground, and took some petroleum out and applied energy and knowledge to order those atoms and molecules in a way that's useful for you, that's fit for your purposes, that's comfortable, to sit on. That is value creation.
Speaker 4 Another way to intuitively see the connection between order creation and value, little example from Cesar Hidalgo at MIT, who notes that the Bugatti Veyron is the most expensive car in the world, costs about $3,000,000 And he imagines take 1 and drive it at 60 miles an hour into a wall and crash it. Now collect all the bits of plastic and metal and put them in a neat pile. It's the same Bugatti Veyron. All the bits are there, but it is clearly worth less than before you crashed it. Why?
Speaker 4 The order of the Bugatti Veyron has now been disrupted. What we value is, again, the way it was arranged in a specific order that was fit for some purpose and maybe even see as beautiful. So this idea is that now how did that Bugatti Veyron get ordered that way or the chair you're sitting on? Knowledge. That our knowledge is our ability to order our environment in ways that are fit for us.
Speaker 4 And so knowledge is really the wellspring of value creation. Now this is something most economists would agree on. Bob Solow pointed this out in his theory of growth in the 19 fifties, but economists have never really known what to do, with this idea. But there's other folks who have a lot to say about, order creation. Notably physicists, information theorists, and evolutionary theorists.
Speaker 4 And they have a lot of interesting tools for thinking about things like order and, complexity and diversity in in in systems. And I would argue that, value actually literally evolves in the economy. Evolution is a process for order Innovation. It's essentially an algorithm for taking low order things and turning them into high order things. That's how life on earth went from know, single molecule amoebas to the huge complexity of the ecosystem.
Speaker 4 And a similar process has been at work in the economy going from the, you know, stone tools of our ancient ancestors and simple organizational forms to all the complexity of of the modern economy. And as the process of that evolution, we have created what we think of as value. And the reason why value creation has to be an evolutionary process is because and this was another insight that Hayek had, that we can never have enough knowledge to know what's going to be fit for people in the future. Any entrepreneur knows that you you can't know if your product or service is gonna work until you actually try it out in the marketplace. So you need a process of variety creation of experimentation with different designs, different forms of order to see what's going to be fit and what works.
Speaker 4 And then the genius of markets is the ability to take the stuff that works, scale it up, and take the stuff that doesn't work, and, weed it out. So in this conception, you know, value comes from the evolution of order, in the economy. Now, just to close, I don't have time to get into the full implications of what such a conception might look like, but I'll give you a few ideas. 1st, we can then think of price as something different. Prices is simply what people are willing to exchange in monetary terms at a moment in time, for something that they they want or need.
Speaker 4 In this conception, value is something more fundamental, and price, you know, may relate to that in some important ways, but it also may also deviate, from it. But markets play 2 critical roles in this conception. 1 is, of course, discovering price to facilitate exchange. But I would argue the more important role of markets and, the economy again existed before formal markets did, is to provide mechanisms to drive evolution of value and to discover new forms of of of fit order. Markets are a wonderful, evolutionary mechanism for sifting through lots of variety and figuring out what works and and what doesn't.
Speaker 4 The last point I'd like to make is that we can also conceptualize this idea of fit ordering the economy in slightly different language. My co author and I like to call it solutions to human problems. That when we create fit order, we are solving a problem. So it takes about 10,000 people to build a a a Boeing airplane. They are organizing in a very complex way using a lot of knowledge, an artifact that solves a problem for you.
Speaker 4 You know, how to get you from, you know, here to your you know, holiday in Florida or or wherever. And so value creation is inherently true value creation is inherently about solving human problems. So 1 way I propose we can differentiate between rent seeking and true value creation is asking, is it solving a real problem, for real people? And just to to close, if you follow this logic, to its kind of conclusion, you can start to think about the purpose of corporations is not about maximizing shareholder value, but actually helping people cooperate to solve human problems. So that's essentially what firms and businesses are supposed to do and the economy is supposed to do.
Speaker 4 You can follow this logic, and the genius of capitalism is not about efficiently allocating resources, but rather creating incentives and mechanisms and new and better solutions to human problems. Follow this logic again. And pollution and climate change are not externalities to the economic system, rather they're internalities to the process of order creation. I know there's a few physicists in the room, and they know all about this, that when you create order and use energy, you create waste products and heat. It's an it's an integral part of the system.
Speaker 4 So solving the problem then of how do we create order for human purposes sustainably is not a threat to the economy, but actually a historic opportunity to solve a major human problem. And thereby, in this conception, create a lot of value. So to close, a new theory of value is possible, and its outlines are beginning to emerge. And some of my colleagues sitting here are wrestling with a lot of these issues, as we speak. And there also may be interesting ways to put mathematics and models and data around this.
Speaker 4 But I think it could cause us to think very differently about markets and firms and capitalism. And just as Mariana compellingly told us that the changes in the way that we thought about these things in the neoclassical revolution had big impacts in the world. I think changes in a new direction could also have a very big impact. Thank you.
Narre A big a big thanks to both Karthik Romana and Eric Beinhocker. Now I'm very aware that tonight we're not, as a public sport, having a purely economic theory debate. Many of you who've come here, they're not necessarily economic theorists. And I don't want this to be too much of an Anglo transatlantic American European debate either, and many of you are from other parts of the world. So can I encourage you now to contribute?
Narre You don't have to be, you know, 1 of, the, those particular groups, but I'm going to take just a flurry of reactions and questions, Mariana, so you can get a feel for the variety of concerns and questions in the audience. Just keep your questions short if you could, but do introduce yourself and very briefly to tell us where you're from. Great. If we can start back there. Yes.
Speaker 5 Hi. Niels from INET, PhD student. I have a question. You you, and both the commentators as well spoke, on this new theory of value as something that maybe scientists should figure out and, you know, economists, public policy makers. But isn't this also something we would really need a democratic debate upon and, yeah, to figure this out as a society collectively?
Narre Great. Thank you very much. Up here to the front, please.
Speaker 6 Thank you very much. My name is Tara Van Dyke, and I'm a Marie Curie research fellow, based at Global Narrative Studies. But my research has always been on the capitalization or the urbanization of capital in, in Indian cities. I I applaud your book, and I just wanna maybe make it a bit scarier for people in this room and ask you that while I agree very much with the idea that value should be front and center, and I'm surprised that it's not. I'm wondering if we put our if we think ahead and think that what if we did start valuing or paying the takers or the makers more than the takers?
Speaker 6 What of the contradictions and problems of capitalism would that leave unsolved? And that brings me to the second question. When you talked about the stories that we tell each tell ourselves about the economy, isn't the economy also dominated by a capitalist realism? Yeah. So we a capitalist realism.
Speaker 6 So we can choose between capitalisms, but we don't have the choice to choose capitalism or not. And it makes me think of the thing about the market. Well, why does the market get to decide? And if the market's so wonderful, why do we have all these problems is is, 1 question. So I'm just wondering
Narre Great. Thanks.
Speaker 6 That's those are my 2 questions. Thank you.
Narre Terrific questions. Moving across to this middle block. So up there. Yep. Yep.
Narre Was there 1 in there?
Speaker 7 Hi. Yeah. Dan Glaesberg, local school teacher and journalist. I was wondering if underlying those 4 problems that you started off with is actually another problem that they're perhaps symptoms of, at least the first 2 are symptoms of, of a demand problem. In in many ways, the, the problems you outlined, sort of finance, finance financing finance, the real economy moving into finance rather than real productive investment, is surely part is is a result of there not being a real incentive, to invest in in productive, capital in in the case where, you know, markets are already glatted and there's there's not the demand for existing, products.
Speaker 7 So I was I was wondering what you make of that and then if that then leads to, you know, if if there's a a kind of solution of which it seemed to me in the last few slides where you're kind of proposing the kind of investments, presumably state investments in cleaning the oceans and so on, then that needs, you know, higher taxes to to actually collectivize some of this collectively produced wealth? And then doesn't that get you back to the old chestnut of, you know, well, how how do how does 1 national economy tax without risking losing losing its, investing class and so on and so forth.
Narre Big comment there. Thanks, Dan. And if the microphone can then move, there was 1 other hand behind there. Nope. Then coming up to the front, please.
Narre That's right. Just pass it on up. That's for you, sir.
Speaker 8 Hi. Dawn Farmer, Institute For New Economic Thinking. I might agree with you about value and productivity, but suppose we talk to Lloyd Blankfein and said, Lloyd, we don't think your people at Goldman are as productive as you do. How could we convince him we're right? What objective basis could we use to say that they're not actually producing value?
Speaker 8 Eric may have given us a hint, but I think key question.
Marianna Great. And
Narre then over here, yeah, to yes. Could could you pass in oh.
Speaker 5 Thank you. I'm Jose Maria here from doctoral student here at the school. So I would like to, know from your perspective whether this is a sort of a North Atlantic story or a global story. And if it's if it's if there's a relevant differences within regions or countries that might give us hope of, some countries, some regions performing better from your perspective that might create some international competition in the right direction rather than in the wrong 1?
Narre So, Mariana, that's a that's a taste of some of the reactions in the room.
Marianna Okay. So is there gonna be another taste or is this the taste? No. No. How how If how much can I eat?
Marianna If we have time, if you keep
Narre some give some some some flavors back, then we'll have a 1 1 1 more scoop around.
Marianna So I will take them in the order they came, and I'd love to look at the person who asked them, but that requires a level of memory that I don't remember, I don't have. So the first 1 I actually do remember it was there. The whole issue of the democratic debate, it's so key, key, and that was gonna be 1 of the things I was gonna, respond to Eric's comments on. Because this notion of the problems, you know, we can solve problems. Well, who decides?
Marianna Who decides what the problems are? Is it a dictator that says, you know, going to the moon is the biggest problem we have or cleaning up the plastic from the oceans or and this is what I tried to do at least in this, thing that's actually become law. It's nice to write books and, you know, publish them, do book talks. But when you do something that's law so this this thing on missions now was actually voted on by the European Parliament in terms of transforming the talk about challenges to a road map on the missions. The first question is, who decides what the missions are?
Marianna Who decides what these big global challenges are? And here, I think there's a really interesting contrast between the moonshot, which literally was a bunch of guys who decided, you know, as great and inspirational as that was, and I'm the first to talk about all the spillovers that happened along the way, to the other example I quickly gave around the Energiewende, which on the 1 hand came from Merkel kind of deciding that Germany was gonna go through this transformation, but she would have never been able to do it without the legitimacy that came to her in her to her era from about 50 years of the green movement fighting for a green transition and really bringing the issue sustainability to the fore. So I really think that a key thing on the public side, and this is something that I think Nari and I running institutions, that are thinking about the role of government need to think about, what is the level of empathy literally? Like, is there an empathy 101 course that, you know, politicians and civil servants take in terms of their ability to listen, to respond to, to interact with all the different stakeholders and movements that are out there fighting for change.
Marianna So in the UK government, we're trying to help them through a commission that I co chair with David Willett's health industrial strategy, which currently has these 4 challenges around clean growth, future mobility, aging, etcetera to turn them into missions. But think of the aging 1, Who's gonna decide what the aging kind of missions are? Of course, in the front line have been nurses and care workers talking about the problems of the aged population, the lack of funding, or the lack of imagination around that funding. It's not always just a quantity issue. Where are their voices informing the way that we confront the problems, but even more so the way we define them?
Marianna I'm sorry. That was way too long. I won't do that for each 1. But definitely this whole issue of stakeholder engagement, we've talked about stakeholders sometimes when we look at governance issues, so stakeholder governance versus shareholder maximization governance, there hasn't been enough discussion of what it actually means for how we then collaborate across the side in creating value and listening to all these voices and forming the problems. The second 1 on the, urbanization.
Marianna Yes. India. Yes. I was just wanting to remember what I was gonna say about that. It was you.
Marianna Right? Yes. It's interesting because how you framed it again was gonna be how I was gonna respond to the to Kartik, which is that how we define what the market is. We need to be careful. And I felt that, sorry if I'm putting this too strongly, but in some ways, it sounded that that how you framed it almost accepted the term the market.
Marianna You know, we shouldn't let the market decide. My whole thing is markets, and I've learned this from Polanyi and the Polanyi are outcomes. We shouldn't I mean, there's never been a free market. I at least I've never seen 1. Every single market Karl Polanyi said, you know, we we've had markets for 1000 of years, but the capitalist market, which is the 1 you're talking about, was forced into existence through administrators.
Marianna The international markets, people trading worldwide, which have been around for 1000 of years, and local markets where you buy fruit and vegetables at the corner of your shop, that's kind of been around and that's pre capitalist. But the national free market that you're talking about was forced into existence. And I think this should be the center, which is instead of talking about how do we reward makers over takers, how do we actually form markets as outcomes of decisions and debates and conflict. I mean, the markets that I've seen in our history or if that we we've seen not I've seen. Sorry.
Marianna In capitalism, we're deeply formed through also conflict. Blood was shed. Right? I mean, trade unions fighting for an 8 hour workday and a weekend formed the capitalist market. The fact that people work 8 hours a day is part of the rules and regulations in a capitalist market.
Marianna And so, you know and this was my point also of, the Adam Smith thing. Instead of saying these are the makers, these are the takers, how can we fundamentally transform the taking? That's, by the way, also in terms of titles of the book why I didn't say makers versus takers, making versus taking. What would it look like not only to pay the makers more, your point, but to transform the taking into an activity that's more productive. And that requires much more bold policy making than just a redistributive policy.
Marianna The third 1 on the issue of demand, remember you were there you are. Sorry. The teacher. It's really important question, and you are absolutely right to mention Keynes. You know, the data shows us today, if you just look at some basic macro data that people sometimes forget to do, private debt, private.
Marianna We obsessed about public debt. Private debt to disposable income is back at record levels to what it was just before the crisis, and that caused the crisis. Now there's different ways to look at that. 1 could, as people did right after the financial crisis, also blame consumers. God, all these irresponsible people taking out all this debt.
Marianna But if you look at real wages since the 19 eighties, which you were kind of getting at in terms of also incomes, they haven't moved that much. Many people across the globe especially though in I mean the US and the UK in terms of the private debt side of it had to take out huge amount of private debt just to retain existing living standards. And the degree to which the financial sector then benefits from that, and that becomes part of the logic of finance financing. Finance is key, but it's also wrong just to blame finance. Why weren't real wages growing since 19 eighties?
Marianna There's lots of other things to look at there. And, you said oh, sorry. And but the dish 1 tax is, I think, an issue, which is I mean, a lot of my work has just actually been looking at what do we actually know affects business investment. Because by having a bold ambitious public policy, 1 of the key goals is to crowd in the business sector to enter a space. Business investment of the level that we like to look at around innovation is almost insensitive to tax.
Marianna Businesses business business leaders or businesses invest when they see an opportunity, when their expectations of future opportunities are growing in terms of both market potential and technological potential. And it's precisely those opportunities which have been highly correlated with this much more collective value creation where the public side was doing much more than just fixing market failures. So they might talk about tax, but they often walk where there's more ambition. Tax is often good for kind of marginal increases in investments on r and d tax credit might affect a bit more how much you spend, but it doesn't make you invest in r and d that you wouldn't have invested anyway. So that additionality issue is a big 1.
Marianna The 4th question, Bowen. Fine.
Narre Have you tried persuading Lloyd Blankfein of your view?
Marianna Well, this comes yeah. I mean, well, the funny thing is I would I think I told you on Monday, I was in Hong Kong giving a talk to Goldman Sachs and they is this being is this Yes. Oh, no. I was gonna say well, anyway, they forced me to take out certain slides, which was funny because you'd think a really confident, you know, financial institution wouldn't care. Because I often feel like I should dress as, like, in a black leather with a whip when I go speak to the financial sector because they love it.
Marianna They're like, yes. Tell us more how terrible we are. We love it because they actually don't change. Right? So the degree to which they're open to actually listening, the degree to which they then change because, you you know, of what you said are 2 different issues.
Marianna But it's a really important question because a lot of what I've tried to do at least by putting attention on this collective value creation has not been to just bash the blank themes of the financial sector, but to ask who actually took what risk. Right? That was my whole point about the shareholder maximization of shareholder value theory, which pretends, because it's just a story, and I say pretends, but
Speaker 3 it's subjective. We can all have different agreements on this
Marianna disagreements, that the shareholder value theory but they're not doing everything, and they're not the ones the only ones taking on this big risk. Similarly, with venture capital, for example, my big critique of the VC industry has been first of all that it actually didn't get us what they pretend it got us. They waited for years before entering biotech. You know? Again, that NIH kind of money that I talked about, National Institutes of Health, over 30,000,000,000 a year for decades got us biotech, and then the VC guys come in, which is fine.
Marianna We shouldn't bash them for it. It's not about making versus taking, but then why do you get 20% given the actual risk you took? So by having this more kind of lens of, okay, let's look at the different actors all collectively creating value. It's not just created in business. You know, NIH also creates value.
Marianna It's not just facilitating and correcting market failures or taking risks. Then what do we know about how the rewards from that collective value creation have actually been distributed? And my point would simply be that VC is getting way too much compared to what it actually did. You know, they're very exit driven, wanna exit in 3 years or an IPO or a buyout that didn't get us nanotech. It didn't get us Internet.
Marianna It sure as hell won't get us the clean tech boom. And there is a big boom and bubble there right now. And that actually comes to my last 0, sorry. The the the last question around the kind of global sorry. Can you raise your hand again if you remind me?
Marianna You're there you are. Actually, read Marx volume 1, 2, and 3 in Mexico for the first time because I got lost and I ended up in the economics department. I was supposed to be in the history department during my junior year abroad in the Unang. But anyway, sorry, slight parenthesis there. It's really interesting because the big issue I think around the world is this issue of finance, things needing to be financed especially in countries which are undergoing development.
Marianna But this lack of attention to well what kind of finance, finance is not neutral. Again, I just mentioned in biotech, the short exit driven VC model actually got us a lot of PLIPOs, productless IPOs because they were so rushed. We're starting to see the same thing in the clean tech sector, which is a worldwide area where renewable energy, you know, in Africa and Ethiopia and many different countries in Africa today, renewable energy some ways is actually taking off more than in other countries in terms of their full deployment and diffusion. But the kind of financing that enables that to happen isn't neutral. It it.
Marianna Right? So when we just ask ourselves, you know, oh, we need more money or there's a credit crunch or we need finance, we need to finance the SDGs without giving proper attention to what kind of finance and what is the patient more long term problem focused kind of finance and what does that mean for the relationships for sharing the rewards that is even more central, I think, in a economy, which is not, if you want, at the frontier of the technology, but also still needs potentially to, I don't like the word, but catch up. Patience allows you to learn. And when you have lots of Innovation capital, you not only don't get stuff done like the the Filippo problem, but it also doesn't give you time to learn. What's currently happening around knowledge governance, which is a huge issue, IPR is really hurting developing countries.
Marianna So we are currently patenting upstream increasingly upstream. So the tools for research are being patented. They're increasingly wide and strong when people like Dick Nelson have taught us that what you need for patents to encourage innovation or for them to be weak and narrow. And, again, that especially hurts countries that are still, you know, sometimes maybe need to imitate before they actually innovate, because you're actually privatizing the tools for research ironically in the era of open innovation. So how do you actually govern the system in ways that actually is is informing the kind of market outcomes we want rather than giving into this dichotomy of free market versus, you know, stay capture, is really, really relevant in in countries that need to dynamize in order to achieve the kind of big challenges they have.
Narre Thank you, Mariana. Could I could I ask you, Mariana, in before we close, to step back? You're a student an a voracious student, not just of economics, but of history. And you depict where we've got to as a result in your eloquent words of blood, sweat, tears, fighting, wrestling, different movements through history. So I guess I'd like you to share with us, where are we?
Narre What is this moment that we're at? Are we on the brink of seeing capitalism reformed? You know, we were watching political unrest across the most successful established economies in the world, whether it's the or the different elections you you know, from the physiocrats to the to the classicals and the neoclassicals. Are we at this pivot point? You know, your work is is getting a reception it would not have had probably 20 years ago.
Narre So could could you tell us how that looks to you? Is it is it are we at a moment of where you're you're whistling in the wind, or are we at a moment where you're actually part of a movement which in our lifetimes times is going to reshape capitalism and markets as we know it? Mhmm.
Marianna So very deep and good question. So on the 1 hand, I think even though there's all these problems, you know, the 4 plus many more that I mentioned, it's a unique moment in terms of, you know, again, come back to the SDGs. Almost every economy, you know, hundreds of countries have signed up to them. That's new. We didn't have that explicit discussion about the direction of growth because SDGs are about directed growth.
Marianna It's not just going to happen. Right? You need to steer things. You don't level the playing field toward to getting those 17 goals met. So on the 1 hand, this issue of directed growth.
Marianna It's not growth for growth's sake, but a particular type of growth that's needed, inclusive growth, sustainable growth, innovation led growth, not consumption, private debt led growth even just at that level. So on the 1 hand, they're they're so out there right now. On the up so that's the positive thing. So I think this is the moment. This is a great moment to be having these discussions.
Marianna On the other hand, the capture, not the kind of regulatory capture, which I agree, but I think I have a disagreement on when it happens. But, anyway, not just the regulatory capture, but the story capture of where wealth comes from is stronger than ever. I mean, just take the digital, sorry, platform economy debate out there on the Ubers and the Amazon. It's striking just how backwards the debate is. So the data is of the citizens.
Marianna You know, every time you click, every time you use city mapper data is generated, Amazon apparently is using the weather data to make the labor contracts. You know, these, what do you call them? In Italy, they call them the short, what do they call them?
Speaker 8 The the
Marianna 0 hour. 0 hour contracts. Thank you. Even more 0 hour, right, because they know how much people actually use Amazon when it rains. So they use this publicly generated data actually to refine even more these 0 hour contracts.
Marianna All this data that's generated is generated from the citizens. The data is retrieved basically from publicly formed technology, both the weather models, but also the GPS by the Navy, Internet by the DARPA, etcetera. And yet we've gotten ourselves into this way of thinking that at best we need to talk about taxing. We need to tax Google. We need to tax Uber.
Marianna Or worrying about issues like privacy after they happen. Right? As opposed to completely switching the logic. Right? So instead of just ex post worrying about, oh, god.
Marianna All these bad things are happening. We now need to prevent them. Again, this fixing approach. What would it look like if you actually scaled up what's happening in the city of Barcelona where the mayor, Ada Colau, started saying, hold on a second. Every time you're moving around the city and using things like city map or data is generated, what would it look like?
Marianna What kind of institution should we form that would, if you want, capture in a dynamic way that data in some sort of public repository, which then is used to improve public services, you know, the welfare state. So the welfare state is not in opposition to the dynamic kind of Silicon Valley value creation. It itself generates data and benefits from the data, but that requires institutional structures, which we don't necessarily have. Ian Hogarth, who we've just brought into the institute department that I run at UCL, his whole thing is why don't we actually think about the new kinds of institutions that we learned from Wikipedia, learned from CERN, learned from the UN to govern this data problem in an active Economics way as opposed to just, again, worrying about problems when they arise. And I think that's gonna be the solution.
Marianna So we have all these great challenges we have ahead, but the social, organizational, institutional kind of structures to really confront them maybe don't actually exist. And until we set them up, like that public repository of data in the city of Barcelona, our ability to confront them will always be kind of out of breath. We got to tax them. Privacy GDPR as important as taxation and GDPR are by the way. But getting this kind of predistribution agenda, which that word was out there, but then it kind of got lost.
Marianna How do we get it right from the beginning versus just picking up the mess afterwards? That's really about looking at the value chain, not just of the companies, but how we create that value like the platform capitalism, which has been generated collectively, but we end up just worrying about it.
Narre Great. So is it is it too much of a simplification to say that you see a bigger, more a bigger government that's a more powerful engine to the whole economy?
Marianna I don't I mean, I have my opinions about big and small government because to be honest I don't think it means anything. Italy has a very high debt to GDP, but very low deficit. I mean, we could go into this as a whole other conversation. So it's not necessarily about big, it's about the structures. We currently don't have this I mean, this was Obama's, you know, the little slide if you could see it.
Marianna I don't know how small the words were. We don't have the structure of government that actually necessarily matches the ambition that we currently have around things like, you know, the digital economy and what it's doing. So but that doesn't just happen. We don't just say, oh, let's set up a cool new dynamic structure unless and and this is sort of the point of the book. Unless you fundamentally believe that the public sector is equally, not more, I really believe, almost equally creating value alongside the private sector.
Marianna And we shouldn't forget it's not just public private, it's also a third sector. How do you structure a new form of contract? How do you structure new forms of organizations to to confront the challenges? I mean, to date, Novartis is working for free on the International Space Station and patenting. I mean, that is a stupid contract.
Marianna Right? And it's not just about charging. No. Let's go charge Novartis for working in a public infrastructure. But that relationship is passive.
Marianna It's lame. It's potentially predatory. Every time I talk to my biologist friends, they're like, yeah. Why do you guys always talk about ecosystems? Define it.
Marianna You know? Is it is it, you know, parasitic? Is it mutualistic? Is it symbiotic? So the real question is how do we form symbiotic, but really symbiotic partnerships, deals, not just the new deal, the contracts literally between public, private, and third sector.
Marianna And and what I'm currently seeing, for example, in the science space, it's incredibly problematic. You know, you have large philanthropies or, you know, high worth individuals, funding science with money that has been a large extent created problematically, we might differ, but also avoiding a massive amount of tax. We set up a peer reviewed scientific, you know, structure since the middle ages precisely so the king and the queen would adjust because they had pet projects decide where to fund art and science. And what we're currently seeing in terms of the science base is, and there's a great article on this in the New York Times called the privatization of science, is actually in that direction. And it shouldn't just be to blame it and say that's bad.
Marianna It's what are you know, what's the problem there with the structure through which and again, I just mentioned science because it's a little bit less sexy than these bigger challenges that we might, worry about. But the current structures we have, I think, are are outmoded, but also wed to particular ways of thinking about value. Mhmm. And that's why value has come to the center to confront that.
Narre I'm very aware that we have not talked about China and and the way China resolves some of the issues you've raised. I suspect that would open us up into a whole another hour of conversation which, alas, we don't have. I I want personally to say, Mariana, thank you. Thank you for forcing us into a really powerful deep debate. But I want to turn the final word of thanks over to my co host this evening.
Narre You've heard from Eric Beinhocker from INET, and I'd like to turn the final word over to Charles Godfrey, director of the Oxford Martin School. Charles.
Speaker 3 Thanks very much, Mary,
Charles and thanks to all the participants, this evening, but a special thanks to Marianna who has dragged herself out of her sick bed and has come up to give on the most stimulating talks you could imagine. Thank you very much, Marianna.