Forward thinking public spending is critical for a prosperous society
Mariana Mazzucato, the author, a professor at University College, London, in her latest challenging book reveals who creates value, who extracts value and who destroys value and explains the need to change course in the wake of soaring inequality and declining growth. According to Mazzucato we need to re-think relationships between governments and markets, make a clear distinction between creators of wealth and those who merely extract it and embrace bolder collective ambitions instead of embracing counterproductive austerity.
However, the government has already played a powerfully innovative role in the modern economy, but it is far too easy for those operating in the market economy to get rich by extracting economic value from those who add it, not by adding themselves.
The financial sector generated a huge increase in a household in the years leading to the financial crisis of 2007-09. This funded Zero-sum compensation to buy the existing housing stock at soaring prices including a debt overhang, weak growth and political disenchantment. Yet those who created, manipulated and sold this debt, was a gold mine which represents value extraction and destruction. In asset management excessive trading, huge fees, lack of transparency, conflicts of interest. Mazzucato explains how the shareholder value maximisation promoted by economists has a malign effect on the corporate sector by encouraging excessive pay and also manipulation of stock prices in preference to long-term investment.
Today several western economies are burdened by high levels of private debt, high inequality and low rate of productivity growth.
Mazzucato also attacks the Information technology and pharmaceutical sectors, as the award of overly generous or simply unjustifiable rights to intellectual property, such as patenting of things found in nature or of trivial business processes and emergence of monopoly power in a small number of hug online internet companies such as Google and Facebook, whose presence makes them the only rational choice for potential users.
Mazzucato notes that Government not only enforce justice and provide security but also builds infrastructure, educates the young, maintains the population’ s health, finances research and promote economic development directly.
The US Government, not private businesses, created Internet and the global positioning system.
The economists’ focus on what is produced and distributed in the market, but the government is by assumption unproductive even parasitic and household labour disappears from sight.
What is not measured does not count, but what is measured does. Mazzucato offers readers the value attributed to the activities of banking. Its added economic value is currently measured by the cost of “financial intermediation services indirectly measured”- that is by spreading the cost of borrowing and the rate of interest on lending. The bigger that spread, the more value banks are creating,
Mazzucato’s views are the failure of our economies are a consequence of our inability to distinguish among activities that create, redistribute and destroy value.
The Value of Everything: Making and Taking in the Global Economy Mariana Mazzucato, Allen Lane, RRP £20, 384 pages