“As long as your investing through the public sector in really ambitious areas that are solving social and technological goals alongside private sector entities, you’re expanding your productive capacity… That won’t cause inflation because you’re expanding the pie.”
Mariana Mazzucato (PhD) is Professor in the Economics of Innovation and Public Value at University College London (UCL), where she is Founding Director of the UCL Institute for Innovation & Public Purpose (IIPP). She is winner of international prizes including the 2020 John von Neumann Award, the 2019 All European Academies Madame de Staël Prize for Cultural Values, and 2018 Leontief Prize for Advancing the Frontiers of Economic Thought. She was named as one of the '3 most important thinkers about innovation' by The New Republic, one of the 50 most creative people in business in 2020 by Fast Company, and one of the 25 leaders shaping the future of capitalism by WIRED. She is the author of three highly-acclaimed books: The Entrepreneurial State: Debunking Public vs. Private Sector Myths (2013), The Value of Everything: Making and Taking in the Global Economy (2018) and the newly released, Mission Economy: A Moonshot Guide to Changing Capitalism (2021).
Mariana Mazzucato explains how Keynesian economics and counter-cyclical government spending is foundational to her perspective, but is only one part of her approach. Mazzucato gives her thoughts on debates around deficits and inflation, and how political polarization stands in the way of progress. She explains the importance of structuring a mission-oriented economy that requires a fundamental restructuring of public-private partnerships- creating conditionality around big, ambitious goals. This requires government to be creative and bold in solving the most urgent social and technological challenges, particularly around sustainability and the climate.
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MODERATOR
SPEAKER
Mariana Mazzucato
Professor
University College London
Anthony Scaramucci
Founder & Managing Partner
SkyBridge
TIMESTAMPS
0:00 - Intro
7:30 - Background
6:32 - Economic perspective
14:44 - Deficits, polarization and political action
26:58 - Structuring a mission-oriented economy
35:41 - Mission-oriented policy from the Biden administration
42:22 - Vision, innovation and conditionality around infrastructure
EPISODE TRANSCRIPT
John Darsie: (00:07)
Hello, everyone, and welcome back to SALT Talks. My name is John Darsie. I'm the Managing Director of SALT, which is a global thought leadership forum and networking platform at the intersection of finance, technology and public policy. SALT Talks are a digital interview series with leading investors, creators and thinkers that we started in 2020. Our goal with these talks is the same as our goal at our SALT conferences, which we're excited to resume in September of 2021. That's to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future.
John Darsie: (00:44)
Today's guest I think has a better grasp on what those ideas need to be for us to sort of fix a lot of the ills that are plaguing the world and capitalism than anybody that we've had here on SALT Talks. We're very excited to have her. That's Mariana Mazzucato, PhD. She's a Professor in the Economics of Innovation and Public Value at the University College London, where she is the Founding Director of the UCL Institute for Innovation & Public Purpose. She received her Bachelor's degree, like Anthony, from Tufts University, and her Master's and PhD in Economics from the Graduate Faculty of the New School for Social Research.
John Darsie: (01:22)
Her previous posts include the RM Phillips Professorial Chair at the Science Policy Research Unit at Sussex University. She is a selected fellow of the UK’s Academy of Social Sciences and of the Italian National Science Academy. She's a winner of international prizes including the 2020 John von Neumann Award, the 2019 All European Academies Madame de Staël Prize for Cultural Values, and the 2018 Leontief Prize for Advancing the Frontiers of Economic Thought.
John Darsie: (01:55)
She was named one of the three most important thinkers about innovation by The New Republic, one of the 50 most creative people in business in 2020 by Fast Company, and one of the 25 leaders shaping the future of capitalism by WIRED. She's the author of three fantastic and highly-acclaimed books. The first one, The Entrepreneurial State: Debunking Public vs. Private Sector Myths, which came out in 2013; The Value of Everything: Making and Taking in the Global Economy, which was released in 2018; and her newly released book, Mission Economy: A Moonshot Guide to Changing Capitalism. We highly recommend all those books. Today, we'll be focusing on the third and most recent book, Mission Economy, but we again highly recommend all three.
John Darsie: (02:37)
Mariana advises policy makers around the world on innovation led inclusive and sustainable growth, including the World Health Organization, OECD, the UN, and policy makers in Scotland, South Africa, Argentina, Sweden and Norway. She's a citizen of the world too. She was telling us before we went live that she was born in Italy, raised largely in the United States. I think her father taught at Princeton. Then now resides in the beautiful city of London. Hosting today's talk is Anthony Scaramucci, who is the Founder and Managing Partner at SkyBridge Capital, which is a global alternative investment firm. With that, I'll turn it over to Anthony for the interview.
Anthony Scaramucci: (03:16)
Are you going to mention I got fired from the White House, John?
John Darsie: (03:20)
I'm not going to mention that one today.
Anthony Scaramucci: (03:21)
I know you tried to throw that in there. I mean, every SALT Talk-
John Darsie: (03:23)
Mariana is sort of adjacent to [crosstalk 00:03:26]-
Anthony Scaramucci: (03:26)
Mariana, he tries to throw that into every SALT Talk, Mariana. I didn't want him to spare you. All right, you're a brilliant person. Let's just get to the facts. You're an absolutely brilliant person. Congratulations on the book. Why go into being an economist? Did you study economics at Tufts, just out of curiosity?
Mariana Mazzucato: (03:47)
Well, it's so interesting how different the US educational system is, the whole kind of liberal arts degrees. Here in the UK, unfortunately people start specializing way too early. If I think back at Tufts, no, I was much broader than just the economics. I was a double major in history and international relations. They have the Fletcher School there, that you'll know. And a minor in Latin American studies. What actually got me interested in economics was both some economics courses that I was taking as part of that, because I later went on as, you kindly talked about in the introduction, into economics for my Master's and PhD.
Mariana Mazzucato: (04:21)
Especially what I learned in those economics classes was what a debate there was within the economic field, and yet how much the existing theory, the one's that taught around the world in Econ 101 classes, is just one theory. We don't actually talk about all the different types of theories that exist. When we do, it's more like in a history of economic thought kind of perspective. Like, "Once upon a time Marx said that. Then Keynes said this. There's some other thinkers, but real economics is neoclassical economics." The fact that there's actually different tools out there, and yet we're only using mainly tools from one particular theory.
Mariana Mazzucato: (04:56)
That even the mathematics that's used in economic theory tends to be just from one branch of economics, basically Newtonian physics, all wed to a center of gravity, a unique equilibria and so on, I was very interested in widening that out. Also because I felt that the economy, and all the pressures that countries have in trying to show that their economically sound, required a much broader more open discussion that wasn't siloed within one particular theory that presented itself as the universal wisdom.
Anthony Scaramucci: (05:28)
For those that are not economists, or for people like me who studied economics in college but probably don't remember most of it, tell us about economics for a second. There are different sleeves of economics. Just for our young viewers, we have a Keynesian sleeve, which is about stimulating the economy. Some could call it deficit spending. I don't want to oversimplify it, of course. Then you have the Austrian sleeve, which is sort of wedded to free economic principles and capitalism.
Anthony Scaramucci: (06:00)
Then you have the Chicago School, which was Milton Friedman and his ideas around the free economy, and market based economics. Sort of keeping true to the principle of monetary stability, as opposed to debasement of anything related to our currency. Where do you fit in those categories? When I read your book, I don't see you fitting in any of those categories, frankly. I see you as a solutions based economist, irrespective of these theories.
Mariana Mazzucato: (06:32)
Right. Well it's really interesting you say that. I was very much informed and learned from those different theories. In the spirit of what I was saying before, I think it's really important for one to use the bits of the theories that one thinks are actually useful. Not necessarily taking the whole, everything that's in the bucket. For example, with Keynesian economics, I think in some ways Keynes was misunderstood. He wasn't just about counter cyclical spending. First, what did Keynes say? He said that when government acts as a private individual, so spends or invests too much in the boom and too little in the bust, that's why we actually get recessions that turn into depressions.
Mariana Mazzucato: (07:15)
You get this vicious cycle of the whole economy kind of unwinding. He really was one of the first people that talked about counter cyclical government, which is why by the way since World War II, shortly after that is when he had a lot of influence, we actually haven't had so many depressions. If you just look at the data in terms of global output, there was constant depressions before World War II. Since then, we have recessions, part of the business cycle, but more or less we've avoided big crashes like the great crash of 1929. Yet before 1945, they were constant. Government coming in and being a counter cyclical force was very important. By the way, minor inflation between say two and 4%, is actually an outcome of stabilizing the economy.
Mariana Mazzucato: (08:02)
Another thing you see in the data, if you look at before 1945, is often deflation. Something actually that we've currently experienced with this massive pandemic and economic activity coming to a halt. The bit of Keynes that I think has been misunderstood, and that's why I sort of pick up his theory and push it forwards in a new way, is that it's not just about counter cyclical government. It's about actually doing what's not being done. There's no point for government investment or spending to do what someone else could, and you're sort of just filling a gap. In fact, the fact that in economics, and even some misinterpreted Keynes is understood as government fixing market failures.
Mariana Mazzucato: (08:42)
It means you're always too little too late. You're always kind of patching the system up, as opposed to having real ambition and vision for what needs to be done. Which doesn't mean that government should do it all, some sort of centrally planned, micro managed top-down system. No, I don't believe in that. I do believe that the point of public policy, and the reason I set up the whole institution around pubic purpose, is that what we should expect from government, at least those that are democratically elected, is really setting a vision. For example, today surely for fighting global warming, but then how that can be done of course needs to be crowding in a many different types of actors in the business community and so on. But if you don't have a vision, it doesn't happen.
Mariana Mazzucato: (09:25)
Kind of mixing Keynesian economics, and that notion of counter cyclical government, but also with a vision of actually dreaming up a better world. Using creativity and our full imagination, and really getting discussions and debates happening across different stakeholders in the economy. I think that is the role of government. To do that, you need to be innovative. I've also borrowed a lot from Schumpeter. Schumpeter being a very important economist who also showed how traditional economics almost couldn't deal with innovation, because it's so wed to showing unique equilibria, representative agents. That all firms are more or less alike and any differences get winnowed away in the long run, and we get to these average actors.
Mariana Mazzucato: (10:08)
He said innovation is constantly disrupting that. We get multiple equilibria, dis-equilibria, constant differences between companies that are trying to differentiate themselves to increase their market share. Yet all those properties aren't within our kind of traditional understanding of the economy. Even to introduce innovation in traditional economic thought, you need to introduce it through what's called imperfect competition. You need to introduce, in the theory, patents for example that will incentivize a company to innovate, but that's a sign of imperfect information and then assymetry. Anyway, I don't want bore your audience.
Mariana Mazzucato: (10:43)
The point is, borrowing from Schumpeter, who said we need a new theory if we really want to understand innovation, creativity, the dynamic potential of the economy, and actually to use dynamic tools. That's why I also went to the Santa Fe Institute for Complexity Thinking in New Mexico during my PhD. That idea that we also need, for example, perhaps more mathematics from biology and not Newtonian physics, so that we can actually map these distance for mean dynamics, these replicator dynamics which biologists have looked at for a long time. What I think we lack today, and the reason I wrote my recent book, Mission Economy, is precisely that first question. What's the mission? What's the vision? If we don't have that, there's no point in having government. We didn't get to the moon and back by fixing market failures.
Mariana Mazzucato: (11:31)
You had a really ambitious plan by government. You had Kennedy saying, "We're going to do it because it's hard, not because it's easy." All the language we have today of the government not only just fixing markets, but de-risking the cool risk takers and business of at best leveling the playing field. Studying the rules of the game, facilitating those who are going to take on the difficulties. You'll appreciate this. The word facile in Italian, Anthony, means easy. The idea that government is there just to make things easier for others, which is the traditional way to think of things, just makes no sense if you look back at that kind of Kennedy speech.
Mariana Mazzucato: (12:08)
He said, "We're going to do this because it's hard. We're going to take on these difficulties together. We might fail along the way, but that's fine, because it's worth it." What is worth it today to us? I think we need to go to the sustainable development goals that every country has signed up to. Break them down into different types of moon shots that require both public and private, also sometimes third sector kind of philanthropy institutions. To really invest and create partnerships that are truly symbiotic and mutualistic, but focused on goals as opposed to just handouts to these random categories that we often get.
Anthony Scaramucci: (12:44)
I mean it's beautifully well said. You delve into a lot of this in the book. I've got so many questions, but I'm going to start with my top three. They're a little disjointed, but I want you to stay with me. Do deficits matter? That's my number one question. That's sort of a Stephanie Kelton question. We've had Professor Kelton on with us to talk about her book The Deficit Myth. Number two-
Mariana Mazzucato: (13:11)
I was just on the phone with her 10 minutes ago.
Anthony Scaramucci: (13:13)
Okay. Yeah, so we're big fans of Professor Kelton. She's opened my eyes to a lot of this. I would like your opinion on that, do deficits matter? The second question is, your ideas are fantastic but there seems to be a lack of Kennedyesque boldness in the political system globally, particularly in the West where the West seems to be fighting with each other. That could be frankly something that... I mean who knows? We've certainly looked into the active measures of the Russian government. We recognize that there's a lot of robotic technology out there that's helping to polarize our countries, but we're doing it to ourselves. I want to get the reaction to that. Then the third thing is, if I'm right about the second thing, how do we fix it? Deficit's number one. Number two, what about the political will to do the things that require the boldness of thinking that you're writing about. Can we fix it?
Mariana Mazzucato: (14:16)
Great. An amazing set of questions. Let me start with the first one.
Anthony Scaramucci: (14:18)
Let me stop you right there. Darsie, did you hear that? An amazing set of questions. I get very jealous Professor, because no one ever says that to me. They always say to Darsie, "Oh, John. What a great question. What a great question." Which is horrifying. Okay, we're going to end the SALT Talk right there. Professor, it was a pleasure to have you on. Thank you. No come back, I'm sorry.
Mariana Mazzucato: (14:43)
Well, it's a great set of questions because they're all three of them. If you just asked does the deficit matter, which unfortunately that is what the media tends to focus on, without getting to the point of, if actually we would worry less about the deficit, what should we worry about? That's the boldness bit. Then how can we actually fix the problems which are about all this siloed ways of thinking about both deficits and what the role of government is, and so on? Anyway, deficits. You and I both at least... Let me say historically come from Italy. Italy is a perfect place to answer that question. We have actually had a low deficit in the last 20 years in Italy in terms of the difference between what government spends and invests, and the tax revenue, and yet a very high debt to GDP.
Mariana Mazzucato: (15:27)
Unfortunately, we don't talk about that enough. Countries that are not investing enough in both the public sector and the private sector don't grow. They don't actually have long run growth potential. Their productivity, for example, remains stagnant, as Italy's productivity has remained stagnant over the last 20 years. The denominator of debt to GDP doesn't grow. Even with a mildly rising deficit, or the size of a deficit, whether it's two, 5%, 10%, whatever it may be, if you are not actually investing in key areas that increase your productivity, that might be publicly and privately funded research and development, a solid education system, training of workers, dynamic sustainable infrastructure and so on, then your rate of growth lags.
Mariana Mazzucato: (16:17)
You can have a very high debt to GDP, because the denominator is not growing. In fact in theory, the debt to GDP can go to infinity if the denominator is not growing. You'll remember when a ratio has zero in the denominator, no matter what's in the numerator it goes to infinity. That's a first point which I don't think is made enough even by the MMT folks, Stephanie Kelton and others. I really appreciate Stephanie's work. I think just that point needs to be made more.
Mariana Mazzucato: (16:43)
Otherwise, what we end up with is countries that obsess about the deficit, make all sorts of cuts to the public sector. Yet not only are they damaging society in terms of the cuts that are made often to really important social structures like public education, public health and so on, then they don't even solve the debt problem. Their debt to GDP rises even more so than it would have to, because government also has to come in and fix all those different problems that come about by a badly performing economy.
Mariana Mazzucato: (17:12)
The other point there with deficits is that as long as what government is investing in, and I again in the book argue for moon shots around all sorts of different targets that have to do with sustainability, combating inequality, for example. Imagine a mission that was to reduce to almost zero the digital divide so that our kids, when they are in lockdown, globally all have equal access to their human right to education because of the zero digital divide. That itself could foster all sorts of investment in innovation in both the public and private sectors. As long as you're actually investing through the public sector in really ambitious areas that are again solving social and technological goals alongside private sector entities, you're actually then expanding your productive capacity in the country.
Mariana Mazzucato: (18:01)
As long as you're doing that, your productive capacity, but also the social capacity and making that economy more resilient, but also expanding the opportunities for investment by others. As long as you're doing that, and not just kind of flying in helicopter money. Just kind of digging ditches and filling them up again. That was actually a quote by Keynes, which had to do with something else which I won't go into. As long as you're really being ambitious and strategic and mission oriented, then also that will not cause inflation because you're expanding the pie. The reason you would get inflation is if you just put in a lot of money.
Mariana Mazzucato: (18:37)
For example, expand people's aggregate demand, let's say, the Keynesian point of view. If you're not also expanding the productive capacity, that could potentially lead to higher prices. Which in and of itself, by the way, is not a huge problem. I already mentioned before that mild inflation is usually also a symptom of a growing economy. The fact that we don't have these continual depressions as we did before World War II, which caused constant deflation. Inflation getting out of hand can occur when this huge increase in the money supply occurs without that expansion of the productive capacity itself. That's why what you're investing in matters. It's not just handing out a lot of money to people and to businesses.
Mariana Mazzucato: (19:21)
It is about doing that in an intelligent way, for example around a strategy. For example around the Green New Deal, why not? We can go into more what that might look like. That brings us back to the issue about vision and mission. That it's not just about flooding the system with liquidity. We did, by the way, after the financial crisis. We flooded the system with liquidity in order to save basically the capitalist system. Most of that money ended up back inside the financial sector. That's another issue, which is how do we make sure that this money when it's created is directed towards productive capacity in the real economy, and also help transform that real economy so that it is more inclusive, more sustainable and so on?
Mariana Mazzucato: (20:01)
That brings us to your second question. Well to do that, surely you need creative thinking. We need collective intelligence in our political process. We need all sorts of really dynamic collaborations also between different actors in the economy, government, business, civil society and so on. That boldness in the political system that you talked about, I think that we have a vicious cycle. I come back to that phrase I used before. The more you think that government at best is there to fix the system, to fix what economists call market failures, there's no real reason for boldness, is there? There's also no real reason to be investing within your organization in the public sector, in what call the dynamic capabilities of the state and of the public sector.
Mariana Mazzucato: (20:45)
I actually think we've had the opposite of that. This is actually the key point of a new book I'm starting to write, we've had a massive outsourcing of government capacity to the private sector. The problem is not the private sector, it's the outsourcing of government's brain to the private sector. You see this also with consulting companies, KPMG, McKinsey, PWC. They are increasingly actually doing for a government what government should be investing within its own civil service to do. When you don't have that, government potentially also becomes stupid. It's not just a lack of boldness. It's a lack of learning by doing, if you're no longer doing and governing and managing.
Mariana Mazzucato: (21:23)
Again, it doesn't mean the government has to do everything. It's always about partnership, but when you stop investing in your own capabilities, this is something that NASA during the moon landing, during the Apollo program was very aware of. They knew they had to collaborate with lots of private companies. They did. They worked with companies as different as Motorola, Honeywell, General Electric and so on. They actually knew that in order to partner properly, in order to partner with a common purpose, they themselves needed capabilities. There was this really interesting quote I found in doing the research by someone called Ernest Brackett, who was the head for procurement for NASA. He said, if we stop investing in our own brain, we will be captured by what he called brochuremanship.
Mariana Mazzucato: (22:08)
In other words, private companies just coming in with a nice little shiny brochure saying, "I'll work with you." With NASA not really knowing if they were serious or not, did they have any real skills? They wouldn't even know how to write the terms of reference with the private sector if they themselves weren't investing in-house. I think that, to be honest, is just as much of a problem as the lack of boldness, but they actually go hand-in-hand. When you're bold, when you are mission oriented, you're also a really great place to come and work. If we continue to portray the public sector and build the public sector, that at best is about de-risking the cool risk takers in business, of course a young bright graduate will prefer to go work in business.
Mariana Mazzucato: (22:48)
That's why I wrote The Entrepreneurial State back in 2013, which was also to say, we use the word entrepreneurship to talk about businesses and places like Silicon Valley. Yet basically every real risk that was taken in the underlying technology, so in the early stage high risk phase of the internet, GPS, touch screen, Siri, you name it, everything that makes our smart products smart and not stupid came out of public funding. Yet we know so little about those public investments. It wasn't just, again, helicopter money into the economy. These were mission oriented organizations like DARPA, an innovation agency inside the Department of Defense. As economists, since we know innovation matters, it's again a key driver of long-term growth.
Mariana Mazzucato: (23:32)
You would think that we would have studied how do you set up dynamic mission oriented public organizations in all sorts of areas, health, energy, defense, to do that kind of DARPA thing? Yet there's very little understanding. Again, that's why I set up this institution, which is a full fledged department at University College London. We believe that we also need a new curriculum for civil servants globally that is less from Chicago's school ramifications into the civil service, which is basically new public management and a public choice theory, and more about a new curriculum which is truly about collective value creation, challenge led thinking, building creative bureaucracies, not boring bureaucracies. Also things like design thinking, and really governing digital platforms for the common good that require specific types of capabilities within the state, which we don't have.
Mariana Mazzucato: (24:24)
That's your third question, how do you fix it? Well that's I think the answer. We can't fix it just by saying, "Oh, that policy's stupid. Let's do that policy." It has to actually go to the core of how we think, how we've been trained, how we think about the role of the state. How we think about value creation as truly collective so that it's not just the production function. This is a concept within traditional economics. There's the production function, which is basically how value is created in the company. At best, government is to redistribute that value, or to somehow enable it from the sidelines. What does it need to fix the system using these ideas of the common good? Also collective value creation at the core so we also begin from the beginning with issues around capacity and capabilities within both public and private.
Anthony Scaramucci: (25:13)
So it's fixable.
Mariana Mazzucato: (25:15)
It is. I mean there's nothing inevitable in something like the concept of secular stagnation. That's an outcome of the lack of ambitious investment. In fact, maybe that's a good point. I'm just letting you get like one word in, then I keep going off and rap.
Anthony Scaramucci: (25:29)
I think it's good, by the way-
Mariana Mazzucato: (25:31)
But just on the private sector. Yeah?
Anthony Scaramucci: (25:34)
By the way, the only person that has ever been accused of boring people on the SALT Talk is me. That's not Darsie telling me that. I think you're doing great.
Mariana Mazzucato: (25:41)
Poor John. He's getting a lot of grief from you. No, it's just-
Anthony Scaramucci: (25:46)
Yeah. That's part of our schtick, Mariana. Otherwise I can't get my... I mean he's running the company. He's sitting in my office. The last time I checked, I think he stole my W-2. I don't know. It's a little bit of generational jealousy that I like to display on our-
John Darsie: (26:02)
By the way, I already filed an HR complaint while this talk was ongoing.
Anthony Scaramucci: (26:06)
By the way, Mariana, you'll be pleased to know that the head of HR at SkyBridge is me.
Mariana Mazzucato: (26:10)
Okay.
Anthony Scaramucci: (26:11)
There's a paper shredder right next to that complaint area. Just letting you know that.
Mariana Mazzucato: (26:17)
That's awesome.
Anthony Scaramucci: (26:18)
This is the point that I think you're making, that I want you to emphasize. It is totally fixable. One of the things that Kennedy also said at American University in June of 1963, he said that these problems that we have are... Forgive me, it's not sex. At the time, it really was.
Mariana Mazzucato: (26:35)
Yeah.
Anthony Scaramucci: (26:35)
These problems were mostly man made.
Mariana Mazzucato: (26:38)
Yeah.
Anthony Scaramucci: (26:38)
As a result, definitionally women and men can fix these problems. I'd like you to delve into that a little bit.
Mariana Mazzucato: (26:44)
Sure.
Anthony Scaramucci: (26:45)
This is solvable for us. We don't have to sit here in a crisis of stagnation and pessimism. This is one of the beautiful things about your book. This is solvable. Just elaborate a little more, if you don't mind.
Mariana Mazzucato: (26:57)
Sure. I mean I've talked enough about why I think government can be structured in a different way, and have much more ambition, and building both on kind of the Keynes and the Schumpeterian tradition. Also that kind of intra-organizational issue, which by the way, a wonderful woman economist used to write about in the 1920s, Edith Penrose. She talked about in terms of the private sector. She's responsible for a huge change within economic theory around the dynamic capabilities of the firm, of the company. That has led to all sorts of advances in management theory. I'm kind of calling for the same equivalent rethinking of capabilities and capacity within the government sector, precisely so it can be ambitious and bold. Your kind of that second question. It's not going to happen on its own by just calling out for boldness.
Mariana Mazzucato: (27:42)
One of the main things that needs to be fixed, and why I think we can do it... In fact, let me backtrack a bit. Where is the problem? The problem is that we've come to believe that the economy is kind of this deterministic system that is going in particular ways. Every now and then, we have to fix it, including the pandemic. "Oh, dear. Fix that one." Climate change, "Oh, no. Fix that one." Given that we don't fix it. Whereas if you start with the idea that the economy is an outcome, and markets themselves, the market economy. That's what we have, is an outcome of how we govern all the different actors in the economy. From the state actors, and I've already talked about the problems around a pure market fixing idea of the state in terms of how it's governed. In the private sector, this idea that it's just kind of maximizing its profits, and the right thing to do is just to maximize shareholder value as a consequence of that.
Mariana Mazzucato: (28:34)
That's a choice. There's all sorts of different ways to actually set up companies. Those decisions will also determine what kind of market outcome we get, but also the decisions of how public and private interrelate one to another. This idea that it's just about partnership and ecosystems of innovation... That's the trendy word that people use in my world. Really? What kind of ecosystem? What kind of partnership? I don't know if you're married. I have I think a nice marriage, but we know there's many abusive marriages. Any sort of partnership has to be dissected in what kind of partnership it is. I think we have problems on all those three levels. We have a misgoverned public sector, a misgoverned private sector that should be governed much more around notions of stakeholder value, not maximizing just shareholder value, and we have a very problematic relationship between the two.
Mariana Mazzucato: (29:21)
If we want to use the ecosystem terminology, we should learn from biologists who are a bit more concrete when they use that word. They will actually distinguish an ecosystem which is predator prey, parasitic, symbiotic or mutualistic. How do we build a truly mutualistic public private partnership? How do we govern business to be stakeholder and purpose driven? How do we govern the state to be mission oriented in that kind of Kennedy way, but around social issues, which of course are not just technological? These are wicked problems we have today that also require regulatory change, political change, organizational, technological. The reason we have problems is that all three of those are currently problematic.
Mariana Mazzucato: (30:05)
I think just the fact that we have such a financialized business sector, so over $4 trillion have been spent by the Fortune 500 companies in the last 10 years in buying back their own shares. Buy back your shares, increase your share price, increase stock options. Surprise, surprise, increase executive pay, which is often paid via stock options. You can undo that. In fact, it used to be undone. It used to actually be illegal. If you look at the history of share buybacks, the excessive use... Some share buybacks are fine. The excessive use of share buybacks is something that was then allowed during the whole period of deregulation. If you look at what the SEC did around that, that can be undone, but there was huge lobbying for that.
Mariana Mazzucato: (30:50)
Or if you look at capital gains tax, which at the end of the 1970s, early '80s, it went down by something like 50% in just four years. That's not only wrong, and I can tell you more about why I think that's a problem. It basically just increases short-termism in our financial sector. It didn't just happen. It wasn't just like, "Oh, whoops. We made a mistake." There was a huge amount of lobbying that occurred from the financial sector, interestingly mainly from the venture capital community at the time that was just starting up. To do that with the idea that, oh, we're going to invest in innovation as long as our capital gains is low. The National Venture Capital Association actually was responsible for that lobbying. That was believed, as opposed to just looking at the data.
Mariana Mazzucato: (31:33)
Also, today we could look at the data, where you see that venture capital has been the most successful when it has been on the back of public forms of venture capital. Whether it's the kind of Yozma funding in Israel, which is a public venture capital fund. Whether it's the SBIR in DARPA type funding in the US, with VC coming in almost always about 10 years or 15 years after the public sector. Made the big investments in biotech, nanotech, internet and so on. Which would be fine if we just admitted it. There's nothing wrong with coming in later. What's wrong is the kind of narrative, the storytelling, the lies... I guess we could also use that word, which then determines the kind of tax policy we have.
Mariana Mazzucato: (32:15)
This idea that only the Silicon Valley type companies, the venture capitalists, or in the health sector big pharma, or the big innovation machines, without admitting that collective risk taking, collective value creation has been used to then inform very problematic tax policies. In terms of fixing, you can't just reverse that. Say, "Oh, no. Don't do that tax. Do that tax." You need to uncover the assumptions and the stories and the lobbying that was made in order to get us that kind of regressive taxation. Otherwise, even if you undo it, someone else is going to redo it because you actually haven't created a new story. I'll just say one more thing, because I do need to let you get in a word every now and then.
Mariana Mazzucato: (33:01)
I believe that a progressive story has to be just as much about how to create wealth in a different way as also redistributing that wealth. If we're interested in inclusive growth, not just sustainable growth... I do think sustainability is key. Just look at what's happening to our planet today, the fires in BC and so on, Germany the floods this week. That kind of inclusive economy, not the 1% 99% economy, can't just be fixed with redistributive policies, as important as they are. I really believe in progressive taxation, not regressive taxation, and so on. We need to fundamentally create different relationships, different structures in the first place in a pre-distributive mode.
Anthony Scaramucci: (33:44)
All right, well listen. The reason I let you go is that I think what you're saying is absolutely brilliant. I think more people need to get their arms around the notion that we can fix this. You said something I think very insightful that's worth repeating. The media is often focused on the problem, or the near-term problem, or the scary term deficit. People look at that from a household perspective, and you and people like Professor Kelton don't look at that as a household. You look at it more from a macro economic perspective, where you can see that the money's still in the system, and it's not as scary as it may sound to a household oriented person. I'm going to turn it over to the millennial, John Darsie, who has some questions for you, Professor. If you say, "Good question, John," I may leave the screen temporarily as I take different medications here. Go ahead, John.
John Darsie: (34:40)
Yeah. I think Anthony took all the great questions. I'm going to struggle to get a good question here.
Anthony Scaramucci: (34:45)
Get the hell out of here.
John Darsie: (34:46)
You've also poisoned the well. You've also poisoned the well. Even if I do deliver a great question, she's going to be hesitant to [crosstalk 00:34:53]-
Anthony Scaramucci: (34:52)
I definitely did that. That was the definite goal, was to do that.
Mariana Mazzucato: (34:57)
You guys should set up a radio station like Car Talk.
John Darsie: (35:02)
I guess that's sort of halfway what we have here.
Anthony Scaramucci: (35:04)
Yeah it is. There's no doubt there's a little bit of that going on.
John Darsie: (35:09)
Yeah, huge fans of your thinking, your way of thinking, and your book of course, Mariana. You're a big proponent of mission oriented thinking. We've talked with various guests on this program about the way we need to should rethink our society in the United States. This is also a global issue around. The more mission oriented thinking. On a practical basis, in the United States if we said, "We're going to recommit ourselves to more mission oriented thinking." What would that look like in practice? What recommendations would you have for our government?
Mariana Mazzucato: (35:41)
Well first of all, it's a really good question, but especially... And I haven't said this to Anthony, to ask it now. Why? Because Biden's team is actually investing not only in this big infrastructure bill, but in some ways they're highlighting again, after four years of kind of mercantilistic policy, where all the focus was on terms of trade, and foreigners and so on. By focusing on industrial and innovation policy, instead of just terms of trade and building walls, the first thing is, "Well, what do we need from an innovation policy? What do we need from an industrial strategy?" Which you'll know has actually received some bipartisan support, which initially was through the National Frontier Act, that now is with this new innovation and competitiveness bill that being passed through. I haven't checked yet whether it's completely out there.
Mariana Mazzucato: (36:28)
Anyway, what's really important is to first of all remember where the source of competitiveness in the US has come from. Again, I've already talked about it a bit, but those kind of big bold investments by agencies like SBIR, NIH, national institutes of health, which is public financed, funding something like 75% of our blockbuster drugs. The new molecular entities with priority rating almost all trace their initial high risk research to publicly financed national institutes of health. Again, DARPA, ARPA-E and so on. The first thing is, I really believe that in any kind of thinking about missions and mission oriented thinking, we also have to go to the organizations in question to make sure we understand them enough.
Mariana Mazzucato: (37:11)
We understand how they think about their portfolios of investment, so they're not putting all their eggs in one basket and so on. Also kind of really galvanizing that intra-organizational culture of risk taking within the civil service, which unfortunately we all think don't have. I've just done a whole study for the BBC, by the way, on notions of public value that they've had as a public broadcaster. How interesting it is that by having that, they've been able to really again crowd in lots of private sector investment in new areas that they wouldn't have if they just saw their role like PBS does in the United States.
Mariana Mazzucato: (37:44)
Which I love PBS, but it really just does what kind of a market fixing public institution does. Whereas the BBC kind of reframes soap operas, talk shows. Basically changing the Dallas and Dynasty soap operas... You're too young. You probably don't know what I'm talking about. EastEnders, a soap opera about the working class, that was all done through really interesting intra-organizational issues. Very different from DARPA, but still very kind of public purpose oriented.
Mariana Mazzucato: (38:11)
The second is, what are we even trying to do? One is this organizational element, which I think we don't have enough ambitious public organizations because they've bought into this idea that they're there just to facilitate, DARPA being an exception. Again, lots of these organizations I talk to in some ways being exceptions. The next thing is, what do we mean by mission oriented policy framing? What would it look like in the US? What I do in the book, I guess as Anthony was saying, I try to make it more of a recipe book. All right, let's get our hands dirty and see what this might look like. I give examples which I think are very relevant to the US.
Mariana Mazzucato: (38:43)
If we had, for example, a mission to have all large US cities all carbon neutral by say 2030, imagine the massive amount of innovation that would require in areas as different as construction materials, real estate, mobility systems, food, the social sector. And all the different kind of projects that you would want to be crowding in through very well designed procurement grants and loans, which would be less just about handouts, guarantees and subsidies to the private sector, as they often are. Much more with conditions attached, to make sure that kind of investment is leading to something that is purposeful. That would include buildings with carbon neutral components, a lean urban electric mobility system, citizen carbon ID cards, carbon neutral urban food industry and so on.
Mariana Mazzucato: (39:30)
Starting with the challenge, turning it into a mission, like having carbon neutral cities everywhere. Having that intersectoral approach, just like the moon landing was, where there was investment in nutrition, electronics, materials, software and so on. That next phase of redesigning the tools from bottom up so they really galvanize that experimentation across the economy, that's what we don't have. That's, by the way, the first thing that NASA did for the moon landing was to rewrite the contracts. They changed it from what they had at the time, which were these cost plus contracts, where basically they were just getting billed for high amounts from the business sector, to fixed price contracts, which were almost treated like price schemes with however constant incentives for innovation and quality improvement.
Mariana Mazzucato: (40:19)
They also, and this is so cool, they had no excess profits clauses in the contracts with the business sector. In other words, profits are fine. It's not about charity and philanthropy. This is about a business model, co-creating, getting to the moon together, but you're not going to turn this into a gambling casino. Which is what I think we have in space today, with the likes of Richard Branson and Elon Must, but we can go into that later. A common purpose, investing together, but taking care... This is what I think the challenge will be for the Biden team if they're really interested in building back better, unpacking, undoing problematic contracts. In the end, every public private relationship has a contract in it. Making it much more ambitious, purpose oriented, but also distributing the gains in a fair way instead of just socializing risks and privatizing rewards, which unfortunately is the current model in the US.
John Darsie: (41:09)
Right. You talked about mobility, but I wanted to dig into that more, and also housing. I think housing is going to be one of the greatest challenges of our generation, my generation especially. You have young people around the country, and this is anecdotally. There's also data that supports it as well. People around my age that are starting to want to buy houses, or buy apartments, whatever it may be. There's a massive scarcity of housing. Part of that has to do with the way our cities and our society is built. In terms of mobility, we rely heavily on automobiles. In and around New York, people like Robert Moses designed these interstate systems and highway systems that have created massive amounts of traffic.
John Darsie: (41:48)
Quality of life it affects as well, in addition to the carbon footprint. How can we go through our existing cities that are built with a certain type of infrastructure, that are conducive to cars, things of that nature? How can we go and fix those? Then if you were starting from scratch, what type of city would you build that fits in with your framework of mobility, social sustainable housing?
Mariana Mazzucato: (42:13)
Wow.
Anthony Scaramucci: (42:16)
All right, that was a really good question. Okay? I have to admit that. Okay? That was as very good question.
Mariana Mazzucato: (42:20)
Excellent question. A very good question. Your question is really about how can we also think of infrastructure, not just as bricks and cement.
John Darsie: (42:29)
Right, it's people-
Mariana Mazzucato: (42:31)
As Anthony explained about boldness, think of-
John Darsie: (42:32)
There's a certain part of the political class in the US that says infrastructure, if it's not fixing potholes and fixing bridges then it doesn't qualify and shouldn't be in an infrastructure bill.
Mariana Mazzucato: (42:41)
Yeah.
John Darsie: (42:41)
Which is asinine, but we'll get into that maybe on another episode.
Mariana Mazzucato: (42:45)
Yeah. I mean the reason what you're asking is so important is that if you don't answer that question, you end up with your old systems, and old structures, and old contracts. By having a very ambitious strategy, ambition around the future of mobility, for example, and not just thinking about it as the transport sector. I always go back to that point. It's not about a sector. It's about a problem which many different sectors in this case, transport will be one of them, have to be innovating, investing and collaborating in new ways. That doesn't always happen unless you have that vision. An example would be in Germany where in recent years, very much on the back actually of a social movement around their green movement....
Mariana Mazzucato: (43:29)
Which today also we have children all over the world like Greta, the Fridays For Future, striking on Fridays because they believe the previous generation was quite rubbish, fighting climate change. On the back of decades of a social movement arguing for more sustainable production, distribution and consumption, they actually set a vision around, they call it the [Ende Gelände 00:43:51]. It's not perfect, by the way. I know there's problems with it, but it was very ambitious. The fact they had that, so starting with the vision, meant that the way that for example their public loans went out to sectors like steel.
Mariana Mazzucato: (44:04)
Steel in the US and the UK and in Italy, three countries that are part of my world, steel in all those three countries that I just mentioned have been asking for bailouts and loans. What they did in Germany though was the loan provided was conditional. To come back to this issue of conditionality, conditional on steel lowering its material content through, well they didn't tell them how to do it. They said, "You have to lower your material content, so you'll lower your carbon emissions, so you'll become a greener steel." The way the steel sector it was up to it. It wasn't told what to do. Again, micro managing does not work. That kills innovation.
Mariana Mazzucato: (44:37)
They ended up using new techniques around repurpose, reuse, recycle technology through the entire value chain. Today, they have one of the most innovative sustainable steel sectors in the world. Not because they went to the World Economic Forum in Davos and talked the purpose stakeholder value talk, but because they had to in order to get one euro out of the government. By the way, in the US... I realized when I was running an entrepreneurial state, this is kind of how the US government used to think. AT&T, when it had a monopoly, the condition for the monopoly to remain... This is just one part of the AT&T story. There's a whole other side of that, which we all know is also problematic.
Mariana Mazzucato: (45:13)
AT&T had to in order to retain its monopoly status, reinvest its profits back into the economy, into innovation and big innovation beyond telecoms. That was one of the conditions. That's where Bell Labs came from. Bell Labs, which is one of the most innovative private sector laboratories in the history of capitalism, came about because there was pressure on a monopoly, AT&T, to reinvest its profits rather than hoard the profits, rather than financialize the profits, or things like share buybacks today and so on.
Mariana Mazzucato: (45:44)
Coming back to that issue of conditionality, I think is super important in the US context. I think that conditionality can come in all sorts of different ways, but it's not going to happen in and of itself. You have to have a goal that you're trying to pursue. Also around social housing, again future mobility, these can all be used to formulate different types of objectives. Then it has to actually help design a different type of relationship on the ground between public and private.
John Darsie: (46:13)
Right.
Mariana Mazzucato: (46:14)
Around housing, by the way, one of the things I'm doing in London, because I work globally but I also work very much at the local level in literally my neighborhood in London. We have a renewal commission in Camden, the part of London where I live. We're trying to think about these carbon neutral targets at the level of social housing, what in the US you call projects. That shouldn't, again, happen top-down. That needs to also bring citizens to the table to even talk about, how do we want to live together? What does sustainable living even mean, as opposed to just think of it as a retrofit problem. That means reviving things like citizen assemblies, and bringing housing associations together. That kind of stakeholder governance of a mission oriented system I don't think gets talked about enough.
John Darsie: (46:55)
Right. A lot of it boils down to what you wrote a book about previously, and is ingrained in this book, is that creating these public private partnerships and doing them well is really an art. It's not overly simplistic, where every piece of government spending is wasteful, people say on one side. Then flooding the system with liquidity isn't particularly useful as well. You need to structure these things in a way where everybody is aligned with their incentives. You're able to not stifle innovation, but at the same time provide the capital needed to really execute these moon shots. I think it's a great lesson. We listed off a group of countries that we are closely working with on a number of issues. We hope you continue to work very closely here. At home, with the Biden administration. We'll leave it there, Professor Mazzucato. It's a pleasure to have you on.
Mariana Mazzucato: (47:46)
Thank you.
John Darsie: (47:46)
Your book is fantastic. It's called Mission Economy. We've been handing them out at the office. I was telling you before we went live, have gotten very positive reviews.
Mariana Mazzucato: (47:55)
Great.
John Darsie: (47:55)
I hope to have you back here on SALT Talks. I hope to have you at one of our in-person conferences here as soon-
Mariana Mazzucato: (48:01)
I'd love it.
John Darsie: (48:01)
As soon as we can travel back and forth safely, I know Anthony and I are eager to get back to London as well. Thank you for joining us. Anthony, do you have a final word for Mariana before we let her go?
Anthony Scaramucci: (48:10)
I'm not the most terrific wordsmith, Professor. I think what you're providing is almost like stripping out some of the ideology. Working towards the economics of pragmatism in terms of helping this society come up with policies that are not left or right oriented, but right or wrong for the society. We applaud you for that. We really thank you for coming on. Yes, John did ask a few good questions, Mariana, so we're going to let-
Mariana Mazzucato: (48:39)
And he pronounced my name really well.
Anthony Scaramucci: (48:41)
Yes, he did. You notice I've not pronounced-
Mariana Mazzucato: (48:42)
Can I hear you do it? Can I hear you do it?
Anthony Scaramucci: (48:43)
Mazzucato. Mazzucato.
Mariana Mazzucato: (48:46)
Oh, wait. Yours was better. You won.
Anthony Scaramucci: (48:50)
Mazzucato. Let me explain to you something-
John Darsie: (48:51)
I notice an advantage.
Anthony Scaramucci: (48:52)
I was nervous about it, because I'm a fellow Italian. I'm like, "Oh my God. Father, Son and the Holy Ghost. I can't mispronounce her name." See that, John? I pulled it off at the end here.
Mariana Mazzucato: (49:01)
We're ending with The Sopranos.
Anthony Scaramucci: (49:04)
Thank you, Professor. You're terrific. I hope we can get you back on, and-
Mariana Mazzucato: (49:06)
I'd love to.
Anthony Scaramucci: (49:06)
Good luck with the new book that you're working on.
Mariana Mazzucato: (49:08)
Thank you so much. Bye-bye.
John Darsie: (49:11)
Thank you, Mariana. Thank you, everybody, for joining us today on SALT Talks. Just a reminder, if you missed any part of this talk, or any of our previous SALT Talks, you can access them on our website on demand at salt.org/talks, or on our YouTube channel, which is called SALT Tube. We're also on social media @SALTConference on Twitter, is where we're most active. We're also on LinkedIn, Instagram and Facebook as well. Please spread the word about these SALT Talks. Again, this is another I think is extremely important that people read books like Mission Economy and understand these problems are fixable. This notion that we're stuck in some sort of permanent malaise is misplaced for certain. On behalf of the entire SALT team, and Anthony, this is John Darsie signing off from SALT Talks for today. We hope to see you back here again soon.