Mariana Mazzucato, professor in the economics of innovation at Sussex University.
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Public risks, private rewards: how an innovative state can tackle inequality

The winner of the inaugural New Statesman/Speri Prize in political economy on how an innovative state can tackle inequality.

This autumn, the inaugural NS/­Speri Prize was awarded to Mariana Mazzucato of the Science Policy Research Unit at the University of Sussex. It rewards “the scholar who has succeeded most effectively over the preceding two or three years in disseminating original and critical ideas in political economy to a wider public audience” and includes the invitation to deliver a lecture. This is an edited extract from that speech.

What makes the iPhone so smart? Was it only the genius of Steve Jobs and his team and the visionary finance supplied from risk-loving venture capitalists? No. In my book The Entrepreneurial State: Debunking Public v Private Sector Myths, I tell the missing part of that story by analysing the public funds that allowed the smartphone to be created. The research programmes that made the internet, touch-screen displays, GPS and the Siri voice control possible all had government backing.

The point is not to belittle the work of Jobs and his team, which was both essential and transformational. But we must be more balanced in the historiography of Apple and its founders, where not a word is mentioned of the collective effort behind Silicon Valley. The question is this: who benefits from such a narrow description of the wealth-creation process in the hi-tech sector today?

Over the past year, inequality has risen up the political agenda, with the Organisation for Economic Co-operation and Development documenting just how bad inequality is for growth. But the current debate is often focused only on redistribution. If policymakers want to get serious about tackling inequality, they need to rethink not only areas such as the wealth tax that Thomas Piketty is calling for but the received wisdom on how to generate value and wealth creation in the first place. When we have a narrow theory of who creates value and wealth, we allow a greater share of that value to be captured by a small group of actors who call themselves wealth creators. This is our current predicament and the reason why progressive parties on both sides of the Atlantic are struggling to provide a clear story of what has gone wrong in recent decades and what to do about it.

Let’s start with some definitions. First, the market. The path-breaking work of the historian Karl Polanyi teaches us that talk of “state intervention” in “free markets” is a historical fallacy. In his 1944 book The Great Transformation, Polanyi argued: “The road to the free market was opened and kept open by an enormous increase in continuous, centrally organised and controlled interventionism . . . Administrators had to be constantly on the watch to ensure the free working of the system.”

The public sector’s active role in shaping and creating markets is even more relevant in today’s “knowledge economy”. Traditional economic theory, which guides policymaking worldwide, justifies state intervention only to solve market failures. But what the state has done in the few countries that have succeeded in producing innovation-led growth has been to create new markets. Sectors such as the internet, biotechnology, nanotechnology and the emerging green economy have depended on direct, “mission-oriented” public investments, creating a new technological landscape – not only facilitating existing ones – with business following only after returns were clearly in sight. So why have we accepted such a biased story of the state’s role when, as the story of Apple shows, it has done so much more than “fix” market failures? What is the relationship between this false narrative of who the real risk-takers are and increasing inequality? Here are three areas we need to look at.


Socialising risks and rewards

The pretence that government only spends, regulates, administers and, at best, “de-risks” or “fixes” market failures prevents us from seeing that it has been a lead risk-taker and investor. As a result, government has socialised the risks but not the rewards. Some economists argue that the reward for the state comes through taxation. This, in theory, is right. Innovation-led growth should lead to an increase in tax revenue – but not if the companies that benefit the most from innovations don’t pay much tax compared to the income they generate, not only as a result of loopholes but also because of their continual lobbying for tax incentives and tax cuts that they say they need to foster innovation. It’s not a coincidence that groups such as the National Venture Capital Association helped convince the US government to reduce capital gains tax by 50 per cent in only five years in the late 1970s – an “innovation policy” later copied by Tony Blair’s government. (A policy that even Warren Buffett has admitted has had no effect on investment but lots on inequality.)

Similarly, in the name of promoting innovation, different types of tax “incentives” are constantly introduced – such as the “patent box” system, which allows companies to pay virtually no tax on profits generated from patented goods and services. By targeting the income generated from patents (which are, in effect, state-granted monopolies for 20 years), rather than the research that leads to them, such measures have little to no effect on innovation.


More symbiotic innovation ecosystems

Sharing risks and rewards also requires making sure that private-sector commitment on innovation increases. Of course businesses invest in research and development (R&D) but the emphasis is increasingly on the D, building on earlier public-sector investment in R.

As Bill Lazonick and I have argued in our recent work, in areas as different as pharma, IT and energy, large companies are spending an increasing proportion of profits on share buy-backs, to boost stock options and executive pay. Fortune 500 companies have spent a record $3trn in the past decade on share buy-backs – greatly outpacing R&D. Thus, a serious “life-sciences” strategy should not only be about government increasing its financing of pharma’s knowledge base but should involve government being confident enough to ask Big Pharma to invest more of its profits in research and human resources to address skills shortages.

When countries ask Google, Apple and Amazon to pay more tax, this should not only be because they use public roads and infrastructure but also because a significant part of the technologies that drive their record profits was publicly funded.

We hear a lot about how new technology hurts those without the skills required by the modern economy and that this is the key link between innovation and inequality. But where do skills come from? They are the result of investment – and today we have a massive crisis of investment.


A New Deal . . . and a more serious deal

What we need to kick-start investment is not only a new Keynesian deal, investing in areas such as infrastructure, but also more serious “deals” between business and government that benefit both sides. For example, how could the patent system better reflect the collective public-private contribution to innovations? In the US in 1980, the Bayh-Dole Act aimed to increase the commercialisation of science by allowing publicly funded research to be patented. Lawmakers were rightly wary that this could lead to taxpayers stumping up twice: first for the research (the US National Institutes of Health spends $32bn a year) and then for high prices of drugs. So they suggested that government put a cap on the prices of drugs that were publicly funded. Yet the US government has never exercised this right.

We should also reform the tax system to reward long-run value creation over value extraction, opening up the debate about risks and rewards: are there other tools that might offer a better deal for publicly funded investments and innovations? This might come in the form of keeping a “golden share” of the patents, or retaining some equity in companies that receive early-stage financing from government, or giving businesses loans with income-contingent repayments just as we do to students.

My point is not to argue for or against any one of these mechanisms but to start a broader discussion that begins with the view of the state as a market-maker, not only a fixer. There should be a recognition of the huge risks that this involves: for every successful government investment in areas such as the internet, there are failures in areas such as Concorde.

Some, including the think tank Nesta in the UK, have argued that any direct non-tax-based mechanisms for the state to reap back rewards for its risk-taking are “problematic” and suggest that corporate taxes are sufficient. This defence of the status quo, particularly in these times of austerity, seems unsustainable when what is at stake is the ability of business to capture a disproportionate share of value that was created collectively. In a world of big data – so celebrated by the innovation enthusiasts – surely we can create better “contracts” and deals between the public and private sectors, even if this means putting a dent in the profit-wage ratio that is rising at record levels (no, profits are not related to managerial performance).

So how can we change the narrative of the left from one of “redistribution” to one that champions value creation, in which both risks and rewards are shared more equally? Let’s first agree that the market is not a bogeyman forcing short-termism but a result of interactions and choices made by different types of public and private actors. We need to stop talking about the public sector “de-risking” and facilitating “partnerships” and talk more about the kind of public risk-taking that led to all the general-purpose technologies and great transformations of the past, a change of language from general “partnerships” to more detailed commitment about the kinds of partnerships that will lead to greater, not lower, private investment in long-run areas such as research and development and human capital formation.

Changing our understanding of how wealth is created, not only distributed, is the first step in building a more confident mission-oriented government – one that both fuels innovation, and builds the right kind of “deal” with business that gives the word “partnership” real meaning again. 

Mariana Mazzucato is RM Phillips Professor in the Economics of Innovation at SPRU, The University of Sussex, and author of The Entrepreneurial State: debunking public vs. private sector myths. You can watch the full 2014 New Statesman SPERI Prize Lecture here.

This article first appeared in the 19 December 2014 issue of the New Statesman, Christmas Issue 2014

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Brothers in blood: how Putin has helped Assad tear Syria apart

The Syrian catastrophe has created the worst humanitarian crisis since the end of the Second World War. And the world watches helplessly as Putin and Assad commit war crimes.

Sometimes we know the names. We know Omran Daqneesh, the five-year-old boy who, covered in mud and dust, was pictured on the back seat of an ambulance in the aftermath of an air attack. We know his name because pictures and a video of him were released on social media and travelled around the world. The outrage that followed was widespread and sincere, the image of the dazed little boy seeming to symbolise the greater plight of the beleaguered residents of Aleppo. But then the moment passed. Few will know that a few days later doctors announced that Omran’s elder brother Ali, who was injured in the same air strike, had died from his injuries. He was ten.

Sometimes we know the names of the babies pulled from the rubble of collapsed buildings – occasionally alive, but often dead; or the names of the children weeping over lost parents; or the women grieving over lost husbands and children; or the elderly simply waiting (and sometimes wanting) to die.

We know Bana Alabed, the seven-year-old girl trapped inside Aleppo whose Twitter account has gone viral in recent weeks. “Hi I’m Bana I’m 7 years old girl in Aleppo [sic],” reads the on-page description. “I & my mom want to tell about the bombing here. Thank you.”

A series of pictures depicts Alabed and her mother, Fatemah, struggling to live as normal a life as possible, one showing the little girl sitting at an MDF desk with a book. Behind her, in the corner, is a doll. “Good afternoon from #Aleppo,” says the caption in English. “I’m reading to forget the war.”

The conflict, however, is never far away. Alabed, whose mother taught her English, has repeatedly tweeted her own fears about dying, followed by stoic messages of defiance whenever the immediate threat of an impending air strike passes. On the morning of 3 October, her words were simply: “Hello world we are still alive.” On 17 October, Fatemah tweeted: “The airstrikes ended in the morning, all the last night was raining bombs.”

But in most cases we never know the names of the victims of air assaults led by Presidents Bashar al-Assad and Vladimir Putin. One of the most haunting images to emerge in recent weeks was that of a mother and child, killed while sleeping in the same bed. The scene had an eerily preserved-in-amber feel to it: a snapshot of snatched lives, frozen in the act of dying. Pictures of ruined buildings and distraught civilians have become routine now, holding our attention briefly – if at all.

As many as 500,000 people are believed to have been killed since the beginning of the Syrian uprising in early 2011. According to a report released in February this year by the Syrian Centre for Policy Research, a further 1.9 million have been wounded. Taken together, those figures alone account for 11.5 per cent of Syria’s pre-revolutionary population. Combine that with the number of Syrians who have been displaced – more than ten million (almost 50 per cent of the population) – and the sheer scale of the disaster becomes apparent.

The conflict has become the worst humanitarian crisis since the Second World War. Today it centres on Aleppo, in north-west Syria, one of the oldest continuously inhabited cities in the world, and a cradle of human civilisation. Various conquerors from the Mongols to the French have fought battles there but none, so it would seem, has been quite as ruthless or committed to the city’s annihilation as Bashar al-Assad.

Aleppo remains the most significant urban centre to have been captured by the anti-Assad rebels, most of whom will (by now) be strongly influenced by an Islamist world-view. Indeed, the most prominent fighting groups on the rebel side are overwhelmingly Islamist in their troop composition and beliefs, a sad marker of Western failures to support secular forces that led the anti-regime resistance in the incipient phases of the uprising.

Yet Aleppo remains too important to fail. Although rebel forces succeeded in capturing only half of the city – the western side remained firmly in the control of the regime – the symbolism of anti-Assad forces holding ground in Syria’s second city (which also served as the country’s economic hub) has buoyed the rebel movement.

Assad is more brazen and bullish than at any other point since eastern Aleppo fell into rebel hands in July 2012. That optimism is born of a strategy that has already worked in other parts of the country where the regime’s troops have slowly encircled rebel-held areas and then sealed them off. Nothing can leave, and nothing can enter. Once the ground forces seal off an area, an aerial campaign of barrel bombs and missile attacks from both Syrian and Russian fighter jets inevitably follows.

To get a sense of just how terrible the aerial campaign has been, consider that the United States accused the Russian air force of potential war crimes when a UN aid convoy was bombed just west of Aleppo last month. It was carrying food and medicines when it was hit. Since then, the UK and France have said that Russia’s bombardment of Aleppo amounts to a war crime.

Putin’s support has come as a boon to Assad ever since Russia formally entered the conflict in September 2015. Despite his administration already using Iranian forces and aligned groups such as the Lebanese Shia militia Hezbollah, rebels had continued to make significant gains throughout the early months of 2015. The most important of these was the capture of Idlib city, 40 miles from Aleppo, which presented Assad with two problems. The first was that it dented the official narrative of revanchist military successes by his forces. The ­second was that it handed the rebels power in a province adjoining Latakia Governorate in the west, where Syria’s Alawites are largely concentrated (Russia has an airbase in an area south-east of the city of Latakia). The Alawites are a heterodox Shia sect to which the Assad family belongs, and which forms the core of their support base.

Keen to reverse these gains – and others made elsewhere – Assad enlisted Putin, given Russia’s long-standing interests in, and ties to, Syria. The Kremlin has long regarded Syria as an important ally, and has served as the country’s main arms supplier for the past decade. There are important assets to preserve, too, such as the Russian naval base in the port city of Tartus on the Mediterranean, which was first established during the Soviet era.

For his part, Putin has felt emboldened by events. The world is changing – not just in the Middle East and North Africa, where the
contours of power continue to be recast, but also closer to home in Ukraine, where the pro-Russian president Viktor Yanukovych was overthrown in 2014.

The West is still haunted by the 2003 invasion of Iraq and has been reluctant to be drawn too deeply into the Syrian War. In 2013, the Assad regime used chemical weapons against its own people. This was a violation of President Barack Obama’s so-called red line against the use of chemical weapons, but no retaliatory action came and there was nothing to prevent the Kremlin from using force to shape events in Syria – as it had done in Ukraine.

All of this has marked a new phase of brutality in a conflict already noted for its barbarism. Civilians who avoid death from combined Russo-Syrian air assaults suffer under Assad’s strategy of “starve or submit”, in which supplies are withheld from besieged areas, slowly choking off those ­inside. It has been used to devastating effect against civilians in towns such as Madaya and in Daraya, on the outskirts of Damascus, both of which fell to government control after being sealed off from the outside world for several years. Such a strategy is not designed to deliver quick victories, however. Consider how the residents of Daraya defied Assad’s forces for four years before capitulating in August 2016.

Assad and his allies (Putin, Iran, Hezbollah) have decided to punish and brutalise, deliberately, civilian populations in rebel-held areas. To invert the famous aphorism attributed to Chairman Mao, they hope to dredge the sea in which the revolutionaries swim. And so, it is the 300,000 residents of eastern Aleppo who must suffer now.




It’s easy to lose track of precisely what is happening in the Syrian War as parcels of land swap hands between rebels and the regime. Assad’s forces first began encircling Aleppo at the start of July this year and succeeded in imposing a siege by the middle of that month, after cutting off the last of two rebel-controlled supply routes into the city. The first was the Castello Road, which leads from the town of Handarat into the north-western part of ­rebel-controlled territory. The second route, via the Ramouseh district (which led into the south-western end of the city), had already been sealed off.

The closure lasted for roughly four to five weeks before the rebels re-established access. Aleppo is too important for them, and the siege has forced various groups to work together in breaking it. The effort was led by Jaish al-Fateh (JaF, the “Army of Conquest”), an umbrella group and command structure for several of the most prominent jihadist and Islamist groups operating in northern Syria. JaF also co-ordinated the Idlib military campaigns. One of its key members is Jabhat Fateh al-Sham (JFS, “the Syrian Conquest Front”), which was previously known as Jabhat al-Nusra (JaN or “the Supporters’ Front”) and was recognised as al-Qaeda’s official chapter in Syria.

Several months before the regime began its assault on Aleppo, rebel groups in the north recognised the deteriorating situation there, stemming principally from Russian air strikes. As a result, al-Qaeda urged the various factions to merge and work together to counteract not just Assad, but also Putin. Even the global leader of al-Qaeda, Ayman al-Zawahiri, issued a speech last May titled “Go Forth to Syria”, in which he called on all fighting groups to unite in order to consolidate their control across the north. This opened the way at the end of July for Jabhat al-Nusra to declare that it was formally severing its links with al-Qaeda. It “rebranded” as Jabhat Fateh al-Sham.

There are two reasons for doing this. The first is to erode partisanship among the Islamist groups, forcing them to set aside differences and narrow their ambitions in favour of the greater goal – in this case, the breaking of the siege of Aleppo, while also deepening rebel control across the north. The second aim of rebranding is to win popular support by portraying themselves as fighting in the service of ordinary civilians.

Groups such as JFS and others are succeeding in both of these goals. Responding to the abandoned and assaulted residents of Aleppo, they have repeatedly demonstrated their commitment to alleviating the humanitarian crisis. Much of their messaging echoes this theme. The group’s English-language spokesman is Mostafa Mahamed, an Egyptian who previously lived in Australia. “[JFS] is deeply embedded in society, made up from the average Syrian people,” he explained on Twitter, after the group decoupled from al-Qaeda. “We will gladly lay down our lives before being forced into a situation that does not serve the people we are fighting for . . . jihad today is bigger than us, bigger than our differences.”

It is indisputable that this ethos of “fighting for the people” has endeared the group to civilians living in besieged areas – even when those civilians don’t necessarily agree with the full spectrum of its religious beliefs or political positions. That goodwill was only reinforced when the group helped break the siege of Aleppo (in which approximately 500 rebels were killed) in August, if only for a few days. Assad reasserted control within a week, and entrapped the residents again in the middle of that month. The rebels are now planning how to break the siege decisively, but have not yet launched a major counteroffensive.




A freelance American journalist and film-maker, Bilal Abdul Kareem, who has reported on rebel movements inside Syria more intimately than most, has found himself among those trapped inside eastern Aleppo since the siege was restored seven weeks ago. “We came here expecting a two- or three-day trip,” he told me during an interview over Skype.

Life inside is becoming insufferable for civilians, Abdul Kareem said; every building is potted and scarred by shrapnel damage. Those whose homes remain standing are the lucky ones. “Your day consists of nothing,” he said. “There’s no work, there’s no fuel, no industrial zone, no food to sell. ­People sit around and chit-chat, drink tea, and that’s all they do.”

Food supplies are already running low, with most people limiting themselves to basics of chickpeas and groats – crushed grains such as oats or wheat. Sealed off from the rest of the world, those inside preoccupy themselves with survival and wait for the next wave of attacks.

It is tempting to ask why the inhabitants of Aleppo did not flee when they had the chance. Indeed, the Assad regime routinely accuses the rebels of preventing civilians from leaving besieged areas, though there is no evidence to support this view. On 17 October Russia and the Syrian regime said they would halt their bombardment for eight hours on 20 October to allow rebels and civilians to evacuate the city.

In truth, what choice do the civilians have? Most do not trust Assad and they are therefore unwilling to move into regime-administered areas. The alternative is to become refugees, with all the uncertainties and trials associated with that. For instance, refugees have found themselves subject to sectarian violence in Lebanon, and they have few opportunities to find employment in Lebanon, Turkey or Jordan, the three countries where most of the fleeing Syrians have found shelter.

For them, merely to exist in rebel territory is an act of defiance, which is precisely why Assad’s forces make no effort to distinguish between combatants and civilians in rebel areas. To be present is a crime.

The effects of this have been devastating. A spokesman for the Syrian American Medical Society told Middle East Eye, an online news portal, that in July, Syrian and Russian jets had hit medical facilities in rebel-held territory every 17 hours.

Only a few hospitals and medical staff remain. The physical conditions are primitive and perilous. Doctors work in makeshift facilities – a former flat, a commercial garage – which makes them unable to provide anything beyond basic emergency care. In-patient facilities are non-existent, not just because of high demand from those newly injured in fresh attacks, but also from fear that the facility itself will be targeted. “People are literally shuffled out of the hospital with IV [intravenous drips] in their arms,” Abdul Kareem says.

The West’s indifference to all this – coupled with its occasional pious pronouncements and diplomatic dithering – has squandered any goodwill Washington might once have had among Syria’s beleaguered civilians. When Sergey Lavrov, Russia’s foreign minister, and John Kerry, the US secretary of state, agreed a ceasefire in September it lasted barely two days because they overlooked the fears of those trapped inside eastern Aleppo.

The deal had stated that no party would try to capture any new territory. That might seem reasonable enough but given that the ceasefire came into effect just days after Assad re-established the siege of Aleppo, those on the inside were being asked, in effect, to acquiesce to their own starvation.

Deprived of food and medication, no one trusted Assad to negotiate access in good faith, especially after he thwarted UN efforts to deliver aid. “People saw it as a conspiracy,” Abdul Kareem told me. Moreover, there were no significant groups inside eastern Aleppo that claimed to have accepted the terms of the ceasefire in the first place. Kerry had negotiated on their behalf without approval and without securing any humanitarian concessions.

“What planet are these people on?” Abdul Kareem asked. “[Do] they think people will turn on their protectors, for people who didn’t do them any good? They look to JFS and Ahrar [Ahrar al-Sham is one of the Islamist groups fighting in JAF]. Western intervention is pie in the sky.”

The rise of these reactionary rebels is a direct result of liberal elements not being strongly supported at any stage in the conflict. Left to fend for themselves, many have deserted their cause. Those who have persisted not only risk the constant threat of being killed by Russo-Syrian bombs, but are also at threat from jihadist elements operating in rebel areas. That much was clear when remnants of the secular opposition protested against the leader of JFS, Abu Mohammed al-Golani, in the southern Idlib town of Maarat al-Nouman earlier this year. Many of those who did were arrested by jihadists and intimidated into silence.

Whereas liberals are fragmented and frayed, the Islamist rebels continue to coalesce into an ever more coherent unit. The overwhelming might of Russian airpower has convinced them of the need to form a united front in order to pool their resources and co-ordinate their efforts. That is one of the reasons why a jihadist group called Jund al-Aqsa (“Soldiers of al-Aqsa”) announced early this month that it was disbanding and being absorbed into JFS.

Herein lies the real story of how Aleppo – and, indeed, Syria itself – has been delivered to the jihadists. A conspiracy of all the external parties has forged a menacing millenarian movement that is embedded in civil society and communities across the north. Whether Aleppo falls or not, the jihadists will endure.

Shiraz Maher is a contributing writer for the New Statesman and a member of the war studies department at King’s College London

Shiraz Maher is a contributing writer for the New Statesman and a senior research fellow at King’s College London’s International Centre for the Study of Radicalisation.

This article first appeared in the 20 October 2016 issue of the New Statesman, Brothers in blood