What @MazzucatoM gets wrong about business and the Labour Party

Last week, Mariana Mazzucato wrote a withering attack on Labour’s approach to business that gets plenty wrong about business, and about Labour’s economic credibility.

In doing so, she call’s Ed Milliband’s manifesto as ‘Tory Light’ and goes on to suggest Liz Kendall is drawing ‘Tory Light’ conclusions form the election. Both are nonsensical claims that detract from the constructive debate about how the Labour Party might plausibly win back its economic credibility.

Here’s why Mazzucato’s analysis gets it wrong about business, and gets the politics of Labour’s credibility wrong too:

  1. Miliband’s predator/producer distinction didn’t just ‘sound’ anti-business, it was anti-business. But this isn’t for the reason that Mazzucato cites. It was far too blunt and unsophisticated an argument that, from a business perspective, you never really knew whether Miliband would think you were a producer or predator. The business world isn’t binary like that, nor are vague subjective distinctions likely to make business feel like a prospective Labour Government was one they could work in partnership to create wealth across the UK. (Yes, I get that politics is often about subjective distinctions…it’s the vague ones that are more of a problem!)
  2. Business does not present itself as the only wealth creators. One of the weakness of Mazzucato’s Entrepreneurial State is that it draws business-wide conclusions (they’re value extractors; we’ve socialised risk, privatised returns) from an analysis of a narrow set of sectors: pharma, biotech, tech, green-tech. The book tends to glance over other sectors where she has less direct experience, including automotive and aerospace. These are two sectors that are, right now, working in partnership with the Government, with universities, with research institutes and with each other to invest in new technologies and to create wealth across the UK (full disclosure, I have priors in these sectors). The fact that these sectors are working hard to maintain this long-term approach (Mazzucato’s ‘particular type of relationship’) to lifting productivity, to boosting wages and to generating innovation in the UK seems to pass Mazzucato by.
  3. Not all business lobbied for Patent Box. To use her own distinction, there were plenty ‘particular types of business’ that lobbied hard against the Patent Box. I worked on tax policy for EEF, the manufacturing organisation, at the time and I can assure her that we were firmly against its introduction, as were many other businesses. We just lost that particular battle against other ‘particular types of business’. Far from differentiating types of business as she claims, Mazzucato simply sweeps them all into the same self-interested value-extracting category that fits her narrative. It’s that type of broad-brush, vague and dismissive political discourse that concerns ‘particular types of business’. How is a business to know if it is the right- ‘particular-type of business’ or the wrong- ‘particular-type of business’? What’s the point of a distinction that you never use? This is what made the predator/producer distinction anti-business: Miliband had too little to say about the ‘producers’ and whether they meant more to him than a convenient alliteration.
  4. It’s easy for economists to lecture about the composition of deficits — they don’t have to win a single vote. I know, until recently I believed as Mazzucato did. But the politics of deficits and surpluses, of economic management matter. And right now, voters wouldn’t trust Labour to collect money at a school fair; and that has to change if Labour is ever to be trusted with the economy again. Of course the composition of the deficit is critical, but if voters don’t trust you to make that distinction then what’s the point of making nuanced arguments about capital and current spending; or innovation systems and the collective process of wealth creation.

Another way to think Labour’s economic credibility challenge is to think about the MPC’s 2.0% inflation target. Since December 2003 (when inflation targeting was linked to the CPI measure of inflation), CPI inflation has only been 2.0% four out of 138 months. It’s been outside the 1%-3% band over 40 times. Yet the fundamental credibility (in terms of the inflation target) of the Bank of England and Monetary Policy Committee aren’t really in question. Most recently, deflation hasn’t been a worry because of the composition of the price falls (external shocks to oil prices and a a largely beneficial supermarket price war). But it’s the MPC’s credibility that allows it to make such distinctions.

Mazzucato has some genuinely good ideas about the state’s role in innovation. Unfortunately her rhetoric puts off the types of businesses that are actually working with Government to make her ideas a reality.

And her ‘Tory Light’ mudslinging does a real disservice to her intellectual credibility and does nothing to advance the genuine debate within the Labour Party on a new economic model that she claims to want.

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