Professor Mariana Mazzucato’s lecture for the John Menadue Oration 2018.
Total #fangirl event! I would have live tweeted, but Carriageworks, a hop-skip-and-jump from Australia’s main city, has us throttled on 3G. I’ll come back to this later.
Instead, I took notes on my phone. Until my battery ran out and found that there were no power points to be found! In a 2018 lecture hall. A hop-skip-and-jump away from our main city. I am warming up to making my point about this. But take this as a teaser. The hashtag for this lecture is: #publicvalue.
Professor Mazzucato (I’m trying to resist informality — but she is so happy and friendly, it feels slightly off to be formal, so I’m resolving those competing inclinations by referring to her as “PM” for the remainder of this commentary) opened with a banging idea. Let’s frame our discussion of the role of the state, alongside our discussion of the role of the other actors in the economy and society at large. This point is hammered home in the The Value of Everything.
PM makes the case that the economic forces that affect our lives can serve the public interest — despite travesties that have occurred in recent history. Her idea is that we need to grow up. We need to look at the structures that inhibit our advancement. It seems so obvious when she says it out loud. There seems to be little room for disagreement when you think through the arguments laid out in her book.
Key amongst them is the observation that in recent times, shareholder activism and pressure to maximise shareholder returns (I wonder how much of that comes from algorithms programmed to trade hedge fund proxies) which take priority in the form of buy-backs, over reinvestment in R&D, up-skilling labour forces and accepting general market risk, are responsible for the modern insecurity around mechanisation. Although listening to Sam Altman and Kara Swisher discuss this same idea, makes me want them to redo that session with PM on the panel.
However, PM did note, that in 1821, in Chapter 31, of On the Principles of Economy and Taxation, David Ricardo addressed machinery. One of the earlier academics to address the issue that represents a banner of insecurity across swathes of society, of all political persuasions, professions and trades. Only yesterday, I listed as Dr Jill Newby gave a demonstration of her self-guided app for providing psychological care to cancer survivors speak of the hesitancy her colleagues in the profession expressed, driven by a concern that the technology might replace their sessions.
PM noted, that the compelling edge that early economists noted, that seems lost on contemporary business leaders and policy makers is that the reinvestment of capital that comes from earnings, derived from efficiencies, wherever they are found, is an asset. That capital can be put to work, productively, by investment in the new economies that are waiting to be unlocked. Share buy-backs are not a productive use of capital. Patient capital should be recognised and rewarded where it is found. PM had plenty of examples from which we can learn.
However, in more recent times, the mandate of the public office has become confined to the role of fixing problems only when they arise. Governments, cities and public agencies are not permitted to do anything except correct market failure.
It’s on my list of holiday season research to look further into the detail of how Novartis managed to score a totally free ride alongside NASA in space exploration, with full rights to patent discoveries.
I mentioned PM is nice. I’d like to eat pizza with her — I’d even be willing to let her stop talking to eat for the odd moment, but she will need to be quick. She has too many good stories. Light and deep. DYK: her recent book is titled Das Kapital in Germany. The Germans don’t like the tax-avoidance connotations that come with the ‘entrepreneurial’ label.
Back to the substance. The co-shaping and co-creating of markets is what we need to aim for. We’re already doing it. The difference is, that the public sector is not recognised for its contribution. I’m sure everyone has seen this slide. But how can you argue with it? Which private sector participant invests capital at the scale of DARPA in early stage, high risk vision?
Empowering signs of positive change are found in the consumer led demand for green transition. Only recently, school children across the country went on strike from school to protest the sitting governments failure to act on the existential threat represented by climate change. Investment interests are increasingly recognising the displacement of greening demand pull. KfW in Germany and Bank of China were examples of how positive this change can be. We have our own local heroes (shout out to Brighte).
The point of these examples is that long-term, patient, mission-oriented capital has a role to fill in our economy, and society. Its voice has been drowned out in many key segments of the economy. Notably, the recognition of the PLIPO or prodcutless IPO (I have just heard this term for the first time today, but will be following up with the Life Sciences Lead for the LSE tomorrow!) is a trend reflecting the need for quick exit amongst the VC community that is active in the biotech market today.
My 2nd favourite point of the evening was made in observations around the socio-economic benefit of the R&D tax incentive. These comments are made at a point in time that coincides with the StartupAus commentary on the the lifeblood that the R&D tax credit represents for the Australian startup community. I’d be keen to learn more from the policy analysts that did the work for the 2018 Crossroads Report.
PM makes the case for the argument that over-reliance (as Australia has been demonstrated to do) on the R&D tax incentive does very little to generate additional value. She notes that the evidence shows that the tax incentive does little more than signal where future opportunities may lie. It’s a spray and pray approach in a market that demands structure and nuance. This is particularly so where the tax credit is not coupled with programs that drive transformative change, like those run by DARPA. Very keen to dive in deeper here. In Australia, PM identifies ABS stats on BERD as a starting point for over-reliance on R&D tax credit. Does anyone from StartupAUS care to share the analysis made in support of the expansion argument?
The policy lobbyists also need closer analysis. Taking the UK’s patent box by way of example, and the concerted action taken by BigPharma in shaping that policy, there is very real need to reshape the value conversation.
The point is made in the book, that the market is happy to reward value extraction at the expense of creation.
Why is that? Read the book! Neo-classical economists have much to answer for. The subjective focus on price as a measure of value — really needs the book to show the true cost of this frame.
Another fun side story. Obama made an innovation loan to Solyndra. Then it went bankrupt and couldn’t repay the loan. Obama was hammered. If he were sitting on a trading floor, that loss would have been booked and his bonus could have been large, because he made similar sized loans to Tesla. If the terms of the Tesla loan had included upside equity sharing (instead of downside equity conversion only), the Solyndra loss would have been one entry in a loan book with a net-gain, with plenty of room for re-investment.
Should a public sector lender be permitted to fail? Once? When they’re still up on the whole? Not in this economy!
PM makes the case that instead of spray & pray R&D incentives, we should reward those who work to find the structures that operationalise mission statements, and reward market entrants that are willing to work with government. That calls for rethinking the contract. It will force institutional change. Is everyone up for that!?
PM closed by making the case that in an era of populism, and in an environment of mistrust in public sector organisations, missions are a way to unpick problematic structures and engage in discourse across the segments of the socio-economic ‘ecosystem’. Those in the room heard why we need to retire the use of that word in economic parlance.
Then, the panel discussion looked into issues closer to home. The point was made that Rudd’s 2007 campaign was run on the basis of an NBN (I said I was coming back to 3G at Carriageworks — here I am) and a computer in every classroom. Glyn Davis raised 4 points as to why that didn’t fly, being:
- a long term decline in social capital — leaving hacks in office with no real ballast holding the system steady
- the forces that PM describes as leading the financial services sector to being counted as productive capital in our estimation of economic performance (read the book!)
- the role of tech in obliterating the forum for public policy conversation (twitter is not a place for reasoned debate)
- and the existential crisis that climate change represents
PM addressed these ideas with some hope. Noting that China is having a dramatic impact in its efforts to green its economy. Having invested US$1.7T across activities involved in building an energy friendly economy. China sees the problem as extremely urgent. Their action is being taken at a time when they are learning from Silicon Valley at the same time as Trump is taking steps to unlearn (by crippling its institutions — try getting data from DoE these days). When you’ve finished reading PM’s book, take a look at the threat outlined in Michael Lewis’ The Fifth Risk.
My final run of fun facts for the note is in this list:
- Denmark is the Number 1 provider of high tech green services to China. Denmark!
- Huawei is a co-operative. Just like John Lewis in the UK and the Uni book shop here in Oz. Co-operatives are an interesting idea to explore further in thinking about how to structure mission oriented companies.
- When we define challenges and missions, we as a society find it easier to focus on tech, rather than social, because social is so divisive. What if there were a CERN style lab that addressed issues of immigration? We have the tech to ensure that no refugee dies on the Med. Do we want to harness that power and use it for good? Will the UK’s leaving the EU be a positive influence on that discussion?
So much to learn. So much to be done. So many tools for us to use in making this change.
Total fan of PM. Very happy she is meeting policy makers in Oz.
I couldn’t help but think, as I used public transport to make a 1 hour trip that would have taken 10 minutes in an uber — that I want to see someone make a mission out of local improvements. Why can’t buses come when they are scheduled? Is a 30 minute delay acceptable? Are Sydney buses privately owned? Why can’t Redfern train station post a sign identifying which exit leads to Carriageworks? Why can’t Carriageworks sort out decent internet (that’s the last jab at 3G!). Should I internalise the additional $10 cost of an uber that would save me 50 minutes waiting for a bus that doesn’t come?
Now, I’m off off to finish mapping PM’s timeline of economic theory over the last couple of hundred years against the patent evolution since Sir Francis Galton’s English Men of Science & their Nature and Nurture (1874).
