Mazzucato: Government is the Solution, Not the Problem

By Shlomo Maital

Mariana Mazzucato

   Private sector entrepreneurs foster innovation and wealth.  Governments then try to redistribute that wealth – but fail.

    This is the prevailing conventional wisdom. But it’s wrong, according to Economist Mariana Mazzucato. She wants liberals to talk less about the redistribution of wealth and more about its creation.  Politicians around the world are listening, according to Kay Lederer, who wrote about Mazzucato in the New York Times in 2019.

    Lederer noted:  “In two books of modern political economic theory — “The Entrepreneurial State” (2013) and “The Value of Everything” (2018) — Dr. Mazzucato argues against the long-accepted binary of an agile private sector and a lumbering, inefficient state. Citing markets and technologies like the internet, the iPhone and clean energy — all of which were funded at crucial stages by public dollars — she says the state has been an underappreciated driver of growth and innovation.

    “Personally, I think the left is losing around the world,” she said in an interview, “because they focus too much on redistribution and not enough on the creation of wealth.”

     Consider Elon Musk’s government subsidies.  According to an analysis by Grid, a tech website, “Tesla and SpaceX have received more than $7 billion in government contracts alone and billions more in tax breaks, loans and other subsidies.   … In recent years, Tesla has sold at least $6 billion worth of government-backed electric vehicle credits, Grid found. These sales have twice in recent years made the difference between the company posting a profit instead of a loss, according to an analysis by Trefis, a financial data firm”
    According to Lederer,  “Dr. Mazzucato takes issue with many of the tenets of the neoclassical economic theory taught in most academic departments: its assumption that the forces of supply and demand lead to market equilibrium, its equation of price with value and — perhaps most of all — its relegation of the state to the investor of last resort, tasked with fixing market failure. She has originated and popularized the description of the state as an “investor of first resort,” envisioning new markets and providing long-term, or “patient,” capital at early stages of development.

    “She has written that governments and state-backed investment entities should “socialize both the risks and rewards.” She has suggested the state obtain a return on public investments through royalties or equity stakes, or by including conditions on reinvestment — for example, a mandate to limit share buybacks.” 

    Had the State of California asked Musk and Tesla for shares instead of loan payback, the state coffers would have swelled with billions of dollars, for example.

    Israel is an example.  Israel formed a government VC company, Yozma, to attract foreign VC money.  It helped foster a large VC industry in Israel, largely with foreign VC money.   

    Her latest book is Mission Economy: A moonshot guide to changing capitalism. (2022).  “Taking her inspiration from the ‘moonshot’ programs which successfully coordinated public and private sectors on a massive scale, Mariana Mazzucato calls for the same level of boldness and experimentation to be applied to the biggest problems of our time.”

    “Mission Economy looks at the grand challenges facing us in a radically new way, arguing that we must rethink the capacities and role of government within the economy and society, and above all recover a sense of public purpose.   To solve the massive crises facing us, we must be innovative — we must use collaborative, mission-oriented thinking”.

    In the US,  fanatical Republicans hold President Biden hostage, refusing to raise the debt ceiling unless he cuts spending (but they refuse to say WHAT spending – social security? Medicare? Infrastructure?).  With crumbling bridges, a mental health crisis, unproductive industry – the US needs more spending to boost innovation, not less.  If Mazzucato is right, and she is, it was government spending that led to the COVID mRNA vaccine, electric cars, Internet, and Space X rockets, among others.   Do you wonder about politicians mouthing patriotism, who are trying to burn down their own house?