Friday, April 17, 2020

Book Review: The Value of Everything by Mariana Mazzucato

A few weeks ago I received an email from Stewart Fast. Stewart is a fellow public servant and wanted to share his review Mariana Mazzucato's The Value of Everything.

He can be found on Twitter @S_Fast_ and on LinkedIn, his review is below (Thanks Stewart!)

The Review

Mariana Mazzucato’s “The Value of Everything” provides a compelling critique of economic assumptions of value-creating activities, innovation policy and the role of the public sector. At this moment of extraordinary government investment and intervention in the Canadian economy to withstand the COVID-19 pandemic, Mazzucato’s arguments for more recognition of the role that government plays in not only regulating markets, but in creating them are timely.

The book’s main argument is that many activities regarded as value-creating are in fact value-extracting with some nefarious consequences for societies. In a highly accessible fashion, Mazzucato documents a change in economic norms to narrowly regard value as anything that can be priced. As a result, many activities (e.g., financial services, specialty drug sales, Uber) that would be seen by classical economists as creating no new wealth and engaging in unproductive rent-seeking behaviour are instead immensely profitable activities aided by government policy. She uses this distinction to good effect throughout the book showing perverse examples such as huge increases in the price of drugs not invented by the companies that are enjoying the profits.

Mazzucato dedicates a sizeable portion of the book to “financialization”, or the spread of financial practices and attitudes into the “real” economy. She notes that until the 1960’s national accounts considered financial activity as outside of the production sphere and adding no value to GDP. In current assessments banks make a positive contribution to GDP calculated in part by the difference between lending and borrowing rates. While recognizing that financial services are important to the functioning of the economy, Mazzucato questions whether the intermediary function of financial institutions can truly be thought of as creating value.  After all, the mortgage backed security market that led to the 2008 financial crisis was generating substantial interest payments and thus was tracking as GDP growth before being ultimately revealed as deeply problematic.

As a public servant working in research funding and science / innovation policy, I found Mazzucato’s extended assessment of financialization particularly provocative as it relates to corporate investment behaviour. She critiques the practice of maximizing shareholder value of publicly traded companies through share buy-backs which have the effect of increasing earnings per share. Earnings per share has become a measure of corporate success but chasing earnings per share in this fashion may be occuring at the expense of investment in plant and equipment and R&D. She cites evidence that investment rates for publicly traded companies under pressure to maximize earnings per share are substantially less than privately owned companies.

The challenge of how to increase business investment (expenditures) in research and development (BERD) has long been a priority for Canadian science and innovation policy-makers. The Superclusters initiative and a wide range of R&D support programs all aim to address this, yet Canada continues to rank lower than the OECD average in BERD. The Council of Canadian Academies 2018 report on the state of R&D in Canada comprehensively documents low BERD and suggests part of the reason is a high proportion of low-tech sectors in Canada. Mazzucato’s observations point to another possible factor at play. Perhaps Canadian industry is maximizing shareholder value through short-term financial strategies rather than long term investment in R&D.

The final chapters of the book advocate for a reorientation of the current innovation narrative to recognize, celebrate and advance the role the public sector plays in risk-taking and developing new technologies. This message will be familiar to readers of her 2013 book “The Enterpreneurial Statereviewed previously. Mazzucato returns to those arguments stressing that it was government, not private-sector, investment that led to key technologies including GPS and touch-screens at the foundation of whole new sectors. She advocates for the state to reap some return from successful investments and for state investment in infrastructure, R&D and in risky technologies especially in times of austerity.

My only real criticism with Mazzucato’s book is that it is light on analysis of her proposed solutions. We are told for example that policy-makers should broker deals that generate symbiotic private-public partnerships through state investment banks focussed on long-term finance to support risky endeavours, or that the price of drugs should be made to reflect the overall input from state supported research and not force the taxpayer to pay twice. Yet, there are real-life instances of government action for both of these examples. What can we learn from those efforts?

In “The Value of Everything”, Mariana Mazzucato has once again thrown down a challenge for readers to see government in a different light. While some may quibble with her assumptions, the overall call to look deeply at what value means in our economy is compelling. In this time of unprecedented public investment to face the challenge of COVID-19, the importance of government as a lender of last resort, a funder of life-saving discoveries and an economic stimulator is clear. Even skeptics may begin to look more seriously at Mazzucato’s invitation to recognize, celebrate and advance government as a risk-taking innovative co-creator of markets.

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