Interviewee: Mariana Mazzucato
Background: Professor of Economics and Founding Director of the UCL Institute for Innovation and Public Purpose, Author of Mission Economy, The Entrepreneurial State, and The Value of Everything
Topic: How to create value
Listen: On the web, Apple, Spotify, RSS

“I think of it like a fight, like guerrilla warfare. You build up your adrenaline to do it. Even though it might be easier to do research and say, ‘Here's the policy implications of my research’ in the typical academic way, which is what I used to do, you’re on the front line repeating your message.” — Mariana Mazzucato

Few people living today have as much influence on how the world runs as the author, economist, and professor Mariana Mazzucato.

Ever since her first book, The Entrepreneurial State, Mazzucato has carved out a distinct path in economics and public service. The Entrepreneurial State is one of those rare books that changes how you see the world — after reading it, you won’t look at an iPhone or prescription drug the same way again (more on why below). Her second book, The Value of Everything, methodically pokes holes in our assumption that financial value is the one form of value for everything (a theme my book This Could Be Our Future explores as well).

Mariana’s new book, Mission Economy, explores how to create value and innovation by closely examining the Apollo moon landing mission in the 1960s as a case study in what happens when governments set bold, ambitious policies that require widespread collaboration to achieve them. Missions like these, she argues, can transform society and produce enormous amounts of “spillover value” that everyone shares. In addition to landing on the moon, Apollo ultimately produced the internet, software development, camera phones, tennis shoes, and a dozen-plus other key inventions as unexpected side effects of the larger mission.

Today Mariana is one of the busiest people in the world. In addition to founding and leading the Institute for Innovation and Public Purpose at University College London, Mariana has advised everyone from AOC to the Mayor of London to the Prime Ministers of Italy and South Africa on how to reinvigorate government and create value and innovation.

Few people have influenced my thinking as much as Mariana, which is why I’m so excited to welcome her to the Ideaspace to discuss her work, theories of value, and how it feels to push so hard against the grain. Listen to our conversation on the web, Apple, or Spotify. Read a complete transcript, which includes discussion of COVID, climate change, and fiscal policy, here. An edited and condensed transcript is below.

YANCEY: I think of you as one of the most influential people in the world. You’re on the UN High-Level Advisory Board on Economic and Social Affairs. You're the co-chair of a World Health Organization board on health and economics. You advise heads of state and national and local governments. The Pope got indie cred for name dropping you in his book. Why are the most powerful people in the world coming to you, and how closely does Mission Economy track with the conversations you're having?

MARIANA: I'll start with the reason I wrote the book. There was a real thirst over the last ten years for the ideas in The Entrepreneurial State and The Value of Everything. The “how'“ of what this actually means for the nitty-gritty of procurement design, or the redesign of industrial strategy towards something purpose-driven, is the reason I wrote this book. But also hope — especially in a world now with so much polarization and distrust at every level — that we can do better. We got humans on the moon and back again when we treated it as an urgent problem. What if we actually treat as urgent — as a security risk, even — our social problems? Treat it with the same level of boldness, creativity, and inspiration that we had when we went to the moon.

YANCEY: The thirst from people in government is for what?

MARIANA: The thirst is to put yourself in the driver's seat. Feeling miserable when at best you’re a cheerleader. I used to joke that I would walk into meetings with civil servants as an economist and I'd walk out as a life coach. This idea that actually the point of policy is not just about fixing markets, but actively co-creating and co-shaping them. You can be purpose- and mission-driven. That requires taking risks, being an investor of first resort and not a lender of last resort. All that is a new narrative. It's a new story. Whereas we have business schools talking and thinking about how to create value, we don't use value creation, wealth creation, or wealth creators in the context of the public service and the state. There's a thirst for that after being depressed with the opposite narrative. The way to really dismantle the state is not to defund it, but to demolish its sense of confidence and organizational structure. That’s what's happened over the last half-century.

YANCEY: In The Entrepreneurial State you showed how much of Silicon Valley began through publicly funded research. You demonstrate how every part of the iPhone originated through public funding and the same is true of a lot of pharmaceuticals. That was published a decade ago. The first time I read it, I was shocked. The idea that not only did the iPhone originate through public research projects, but that Apple had gotten a federal loan early on in their life, was completely unknown to me. And I was someone working in tech. What led you to write The Entrepreneurial State? How did that start?

MARIANA: It's very odd, actually. I wrote it as a pamphlet first in 2011. I teamed up with Demos, a think tank here in London. I felt I needed to write it urgently. The book is a much more expanded version, which I ended up later writing in 2013. The reason I wrote that 2011 version in a rush — that time was quite tragic, my mother died during the period I was writing. It was really hard to write. But I wrote it in a rush because Britain and much of Europe was experiencing all this austerity after the financial crisis to reduce public budgets. The narrative wasn't just, “We need to pay back all this money that we spent,” it was, “This is going to be good for innovation, it’s good for competitiveness.” Especially in Europe where they were asking the age-old question why does the US have Google and Amazon and Apple and we don’t? Their answer was always, “We have great science at Oxford and Cambridge, we just don't have enough venture capital.” I was like, all right, let's unpick this a bit. You're cutting the public budget in the name of innovation, saying you're going to do that in order to be competitive, to have the Googles. Well, guess who funded Google's algorithm? Uncle Sam. Guess who funded Tesla's early investments? Uncle Sam. Guess who funded everything that makes our smart products smarter—internet, GPS, touchscreen, Siri, and so on? The taxpayer.

If we really want to have that innovation-led growth that so many countries starve for, you need to better understand where innovation comes from. Of course it’s critical to talk about the private sector, but we know that. That story is out there. I don't have to help tell that story. But the role of the public sector at best is talked about as fixing markets, or people like Bill Gates sensibly saying things like, “We need more publicly-funded research,” because he admits that he and Steve Jobs and others completely depended on that. I wrote the book both to tell that innovation story, which I still think is just not known enough, but also to combat what at the time was really foolish austerity, which simply got countries into even worse of a mess. The kind of knife-crime epidemic that we're witnessing now in London is very much on the back of a very long austerity period we've had here, where youth centers have been cut, mental health support has been cut, the police have been cut. It's brought misery in the name of innovation.

YANCEY: As you were putting out the pamphlet and then the book you were saying the opposite of what everyone else was saying. Did you feel confident doing that? Were you nervous?

MARIANA: I have lots of faults and my kids will tell you many [laughs], but insecurity and lack of confidence isn't one of them. Not because I’m arrogant or something. I just don't think of what other people are going to think. I just think, “This is going to be important.” And it is important. And it's important, also, to realize you're not alone. You need to work with others in order to get the message across. I think of it like a fight, like guerrilla warfare. You build up your adrenaline to do it. Even though it might be easier to do research and say, “Here's the policy implications of my research” in the typical academic way, which is what I used to do, you’re on the front line repeating your message.

YANCEY: In Mission Economy you return several times to the idea of collective value creation. You write:

“The dominant economic framework rests on the assumption that people maximize their own preferences. Collective effort is missed, because only individual decisions matter, with firms maximizing profits and consumers maximizing utility (a proxy for happiness). In this context, the concept of social value is limited to the aggregation of individuals making decisions to maximize their own economic welfare.”

What do we miss when we only see value as being created or held at the individual level?

MARIANA: That's the key point that I made in The Value of Everything, where I unpick different value theories. In today's value theory taught in every economics class globally, Econ 101, we only look at business as a value creator and value as an outcome of different individuals making their decisions. They're maximizing their individual preferences. We aggregate those behaviors and draw our fancy supply and demand curves and there's an equilibrium price, which in economics we learn reveals value.

When we get confused between value and prices we get ourselves in a huge mess. Value extraction and value creation aren't the same thing even though they both have a fee or price attached to it. But because that's all we're looking at, we’ve confused price with value. It’s very hard to redesign or re-steer a financial system when we're confusing what's valuable. In the United Kingdom, where I live, we don't pay a penny for health care as long as you're a citizen here. We know how to value the costs of that — costs of nurses, costs of doctors, costs of the hospital. That goes into GDP. But we still haven't managed to include into GDP the value that's actually created from all the good stuff that comes about from having a well-functioning public health system when it's free.

If we only know the price of the input, not the price of the output, it's going to be hard to even talk about things like productivity of the health service. You have Lloyd Blankfein, the head of Goldman Sachs, one year after the financial crisis saying that Goldman Sachs workers are the most productive in the world. You could laugh, but he's right in terms of how we measure value. They're earning a hell of a lot of money, and if we're confusing incomes, prices, and value, they’re the most productive in the world. If we want to re-steer an economy to be more inclusive, sustainable, less financialized, and more investment-driven, it has to go down to first principles of this sort.

YANCEY: What are your instincts for addressing this? There's one project you see in climate: “Let's put prices on everything. Let's convert forests to dollars, so that we can account for the whole world. It all goes on the ledger.” There's another potential response, which is creating new forms of value that price must compete with, or that add to how we think about price. How do you think about trying to square the gap between price and value?

MARIANA: There's a micro, a mezzo, and a macro level. At the macro level there's been lots of discussion about how we need alternative measures to GDP, precisely because of the reasons I was mentioning. If we only include things with prices, when you marry your babysitter, GDP will go down; when we pollute, GDP will go up. I'm joking, but not really. When we’re confusing price with value, all these weird things happen, which feminist economists have been talking about for a long time, as well as environmental economists.

The problem is if we focus too much on the price bit, you get into policies which at best try to correct for price dysfunctions. For example you might have people argue that we need carbon taxes which make companies actually cost the pollution they're creating. As important as that is, the over-focus on incentives, thinking that you can correct the system into getting the prices right, creates another dysfunction: we forget that there's a huge portfolio of different policies we need. Of which one surely should be “let's make sure we actually get the prices right,” but that's definitely not going to be enough. We would have never gotten the internet revolution, the nanotech revolution, the green revolution, the whole space tech revolution, had it just been about incentives and getting the prices right. It required vision, a mission, and so on.

At the micro level, it’s how companies behave. We need different types of corporate governance away from just focusing on another type of price, which is share price, towards a broader notion of stakeholder value. The Business Roundtable wrote that letter two years ago in the New York Times about it. Larry Fink the year before from BlackRock saying, “We’ve screwed up, we need to be maximizing this broader notion of value.” And then nothing changes. The problem is we try to change things just within one of the actors in the system because we continue to pretend they're the only value creators. Stakeholder value has to be at the center of the system, not just the corporate governance discussion.

These are all parts of the answer to your question. You're not going to fix the system just getting the prices right. We need a host of different types of policies, but also different relationships that recognize value is being collectively created.

YANCEY: Over the last ten years the economic conversation on the left has focused on redistribution, but you mention something very different, which is pre-distribution. Can you talk about what that is?

MARIANA: Pre-distribution is the argument that in order to tackle inequality you can't just pick up the mess afterwards through redistributive policies like progressive taxation. We need progressive taxation, but it's going to be really hard to fight inequality if you're always doing it through tax because that assumes you allow things to operate as they do and then you fix it afterwards. In pre-distribution the “pre” bit means before. That means we need to get the relationships right in the first place. Things like how they are sharing the rewards — that no excess profits clause that NASA had, but also potentially with equity stakes of governments in the companies that they fund. The US government funded both Tesla and Solyndra almost the same amount of money. It had to bail out the Solyndra loss but didn't get any of the upside from the Tesla investment. Pre-distribution is how you think about not just the public investment, but also the sharing of the rewards. You don't just have to redistribute afterwards.

YANCEY: Say there's some basic research happening now that's being funded through a grant and it goes on to produce a new web platform or new pharmaceutical drug. How would you argue for that being structured differently? Is it about realizing a financial return? Is it about realizing the value of this in general so that we're not starving ourselves of these investments?

MARIANA: It requires different things. Thinking of it just as a financial return brings us back to the initial problem, which is we become very short-sighted and think just about the money that's going to be created. Thinking about that too much doesn't get us those moonshots. Had we had a cost-benefit analysis or net present value calculation of the Apollo program it would have never begun.

Coming to your concrete question, you could argue that with grants, for example, coming back to Google's algorithm funded by the National Science Foundation, maybe — I don't know, I'm not a lawyer — you could put into the contract, “Here's some money, Sergey Brin or whoever. It's yours. If it fails, don't worry. It’s a grant. That’s why we're funding you. We want to stimulate innovation, experimentation, so on. But a clause: if this algorithm ends up allowing you in a company built on a patent from this to make x billion in a certain amount of years, a percentage of those profits will go back into a public innovation fund.” I'm just putting this out there. Surely it can be framed in a more intelligent way, but why not?

YANCEY: There was a great tweet triptych of you and Doughnut Economics author Kate Raworth and The Deficit Myth author Stephanie Kelton holding each other's books.

The three of you have pushed the consensus on economics, the purpose of the state, and our assumptions about money in huge ways. I'd add Carlota Perez and Elizabeth Anderson to that list as well. Why are your ideas connecting to this moment?

MARIANA: Stephanie [Kelton] and I once joked around about how the Financial Times has this magazine called “How to Spend It.” We said, “We should write that. Stephanie will tell you where money comes from, and Mariana will tell you what missions and purpose to spend it on.” [Laughs] And of course Kate's work has been really important for making this notion of the circular economy something very visual, that wonderful Doughnut she has, and how we think about the regenerative potential of the economy, and humans needing to regenerate their own ability to prosper.

They're important, these three ideas, and they’re in some ways three different ways of saying similar things. What I liked about our photo was we weren't holding our own book, we’re holding each other’s. Because unfortunately, definitely in academia, that's not how it goes. Everyone’s worried about their own citation. So I thought there was something really special there. Women supporting women and showing each other's work. To create the change we need, the battle has to be a triptych one.

Read the full transcript of my conversation with Mariana, or listen on the web, Apple, or Spotify.