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6 June 2018updated 04 Aug 2021 12:59pm

Mariana Mazzucato’s bold mission to reform the global economy

In The Value of Everything, Mazzucato points out our flawed economic measures. But solutions are in short supply.

By Adam Tooze

Mariana Mazzucato has made a name for herself as a vigorous opponent of laissez-faire ideology. In 2013, The Entrepreneurial State caught the mood of the moment with its call to recognise the role that government had played in the tech revolution. With The Value of Everything, her ambitions have widened further. Now Mazzucato calls for nothing less than a complete reconsideration of our system of economic values. Financialisation, corporate short-termism, the denigration of the public sector and the gigantic profits earned by tech monopolists all point to a warped system of valuation.

Mazzucato draws inspiration for her activism from two sources: on the one hand the heterodox economics of Karl Polanyi and on the other hand the democratic ambition of John F Kennedy. JFK inspires Mazzucato to call for the economy to be given a “new mission”. Polanyi’s analysis of the economy as a constructed social artefact makes this seem possible. If the market was made by the state then it can presumably be remade. The question, of course, is how. Unfortunately, the boldness of Mazzucato’s vision and the brashness of her rhetoric are not matched by the depth or coherence of her answer to this basic question.

The inspirations she cites are telltale. For a techno-optimist JFK is a natural hero. He did, after all, send America to the moon. But what Kennedy did not do was to remake America’s political economy. His successor, Johnson, did have a go at introducing an American welfare state. We know how limited that achievement turned out to be.

If Mazzucato wanted to find historical examples for more comprehensive socio-economic reorganisation she might have looked to 1970s social democracy or the Scandinavian welfare states. But that would have involved trade unions and the ugly business of industrial struggle, neither of which feature prominently in her book. Rather than addressing the glaring power imbalances in the modern economy head on, Mazzucato insists that first we need to have a debate about the stories we tell about the economy and the systems of measurement and valuation they are based on.

Only a crude reductionist would argue that political narratives and systems of valuation do not matter. But it would be no less reductive to imagine that they matter on their own and not in combination with various other types of forces. No one will deny, for instance, that accounting rules and incentive schemes designed to force managers to maximise shareholder returns have had a dramatic effect on modern economic life. Likewise, if a cost of living index is used to adjust the level of pensions then the composition of that index warrants our closest attention. But Mazzucato’s claim is both more general and more vague than this. She asserts that our entire system of values is out of whack, and to remedy this she thinks we need to review not the nitty-gritty of social and economic history, but the intellectual history of economics back to the 18th century. 

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The first part of Mazzucato’s whistle-stop tour of value theories passes muster at a basic level. But when we get to the 20th century things get messier. Only hasty writing and poor editing can account for her mangled treatment of Keynes and the basics of value-added accounting. Nevertheless, if we ignore the howlers, the gist of the story is clear enough. Classical economics had a notion of production and value that drew a distinction between earned and unearned income. As Karl Marx and others showed, this could easily be turned into a fundamental critique of inequality and exploitation. It was not by accident, therefore, that classical value theory was displaced in the late 19th century. So-called subjective value theory conflated value with price as derived from the balance of demand and supply. The unearned rents of landlords and monopolists were shuffled safely off stage. Meanwhile, any activity that was not marketed was disqualified from having economic worth. For the last 150 years we have lived under the sway of this one-eyed regime.

One might wonder whether technical economic theory could really have had that kind of impact. But Mazzucato, flourishing the magic wand of “performativity”, waves such doubt aside. Performativity claims that theories make economic reality, not the other way around. Though this is counterintuitive, in some cases it may be true. Finance theory did help to construct complex markets for derivatives. Normalised notions of employment shaped standard labour contracts that drew a sharp line between those with jobs and those without. But identifying where and how such effects operate requires painstaking analysis that Mazzucato never delivers. Instead she hurries on to regale us with a familiar litany of criticisms of gross domestic product (GDP) statistics as our main measure of economic activity.

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It is hardly news that GDP statistics are problematic. In fact the numbers are underpinned by no coherent theory of value. They are an ad hoc assemblage, taking market measures in some cases, imputing incomes in others, valuing public services at cost. The politics behind this weird hybrid are complex. But for Mazzucato it is clear that they embolden the wrong bits of the economy, discourage those who are devalued and ignored and mislead well-intentioned policymakers.

Again, many will agree that it is high time to reconsider the construction of GDP statistics. The most important issue is clearly the failure to account for environmental costs. But Mazzucato has virtually nothing to say about that. For her it is not the side effects of economic activity – pollution – that matter, it is production itself. On your definition of production hinges your definition of value, in the widest sense of the word.

But here the logic really becomes tangled. As Mazzucato points out, it was not until 1993 that the standard system of GDP statistics gave full weight to financial services as a productive sector. Prior to that they were counted as costs of production. That is interesting. But should it not give Mazzucato pause for thought? After all, it means that the City of London and Wall Street experienced their breakthrough growth in the 1970s and 1980s when they were among the sectors excluded from GDP. It was their increasing scale and prominence that led national accountants to reconsider how they were counted. Economic heft forced a re-evaluation, not the other way around. If that were reversed, would we really expect bank bonuses to be smaller or regulators any less compliant if finance disappeared once more into the bowels of the statistical system?

Conversely, imagine that housework or public service were positively revalued. How much difference would that make? Including housework would certainly increase the share of GDP attributable to women. Treating public services more generously would make the state seem even larger. And then what? Would men do more housework if they felt it was contributing to GDP? Politicising the data remains at the level of gesture unless it is linked to a broader campaign of change.

What is missing from Mazzucato’s analysis is an in-depth consideration of what numbers are actually used for. If the aim is to curb finance, GDP is an irrelevance. What matters are the details of balance sheets – data that will only be yielded up under threat of regulatory action or sanction by the market. Mazzucato points out the surprising fact that it was only in 2013 that research and development (R&D) was counted as final output in US GDP.

But what she does not ask is why we did not notice. Shifting R&D from one side to the other of the “production boundary” caused barely a ripple not only because it was small, but because it moved in line with the rest of investment. But the environmental factor  is so crucial because it moves in the opposite direction to investment. It is huge and  the detrimental effects get ever bigger as GDP increases.

No one will disagree that stories and statistics shape the way we think about the economy and thus influence the distribution of power and resources. But after reading Mazzucato’s book one is, unfortunately, little the wiser about how those relationships work and, given how powerful they are, how they might be changed.

Adam Tooze’s “Crashed: How a Decade of Financial Crises Changed the World” will be published in August by Allen Lane

The Value of Everything: Making and Taking in the Global Economy
Mariana Mazzucato
Allen Lane, 384pp, £20

This article appears in the 06 Jun 2018 issue of the New Statesman, The Nuclear Family