This should be a defining moment for progressive politicians. The economic orthodoxy has failed. Economies around the world are stuck on paths of slow or fragile growth, business investment remains below pre-crisis trajectories, and living standards and wages for ordinary workers continue to stagnate. The Brexit vote reflected a broad dissatisfaction with the status quo – the feeling of being left behind – and a distrust of the ideas, or lack of them, that got us here. If ever there was a time for bold new thinking about where value comes from and how it is shared, that time is now. Yet progressives are struggling to articulate alternatives with enough credibility to seize the moment.
To many voters, politicians on the left seem interested only in how wealth is distributed, not how it is created. Those who try to counter this impression by talking positively about “wealth creators” or being “business-friendly” end up reinforcing a simplistic – and false – idea of who those who create wealth are.
A progressive economic agenda must have at its heart an understanding of wealth creation as a collective process. Yes, businesses are wealth creators, but they do not create wealth alone. Workers, public institutions and civil organisations are also wealth creators. Their collective actions can increase the investments required to drive long-run growth and productivity. But this will happen only if the private and public sectors find a way to share the risks and rewards of the 21st century.
This demands moving away from the idea that the public sector merely facilitates the private sector, or picks up the downside in an economy where the risks are borne by a “flexible” workforce and the rewards hoarded by corporate giants. Instead, we must consider how responsibilities can be shared for the bold investments that are needed. The current situation has led to an overly financialised private sector – with company profits being spent not on reinvestment, but on gimmicks to bolster stock options such as share buybacks – and to a public sector that is told to create the conditions for growth and let the private sector do the steering and profit-making.
Some separate economic from societal problems, stating that we must address the former before we can tackle the latter. But the future for progressives lies in advancing the two together. It is through applying our minds to societal and environmental issues that we can lay the foundations for future prosperity. The means is “mission-oriented” policy, where an objective – such as landing a human being on the moon or decarbonising the economy – can offer a fresh direction for the entire economy. Meeting challenges such as climate change by steering the economy in a green direction requires more than a “nudging” mentality. “Nudging” assumes business already wants to invest in new areas and merely requires incentivising through reductions in tax or regulations. But the animal spirits of business must be created, not assumed. This requires a more active market-shaping and market-creating framework that sparks business excitement about new investment.
Politically, the choice is presented as static and binary: austerity or infrastructure spending. Yet bold thinking about the kind of economy we want – the direction of growth, and not just the rate – prompts questions about the type of infrastructure, and the types of skills and new technologies that are required to transform an economy. We can learn from countries that have achieved innovation-led growth and from the public-sector investment behind some of capitalism’s boldest advances – from general-purpose technologies such as the internet and wireless technology to biotechnology and nanotechnology. As I showed in my book The Entrepreneurial State, in each of these areas, the private sector entered only after the public sector made long-term investments in high-risk areas.
Having recognised the state’s role in financing high-risk areas, we must translate those investments into a fairer distribution of the rewards. Just as the financial sector socialised risks but privatised rewards, so this happens in the real economy. Changing this requires fixing the relationship between business and government, based on new “deals” to ensure both sides co-invest in the innovation ecosystem. This will ensure that the systems we build for wealth creation enrich the achievements of the postwar welfare state.
The conversation on government spending needs to change, with less emphasis placed on the annual deficit and more on investment for long-term growth. The problem in southern Europe, for instance, has been not the deficit but the slow rate of GDP growth. Countries such as Italy have had historically low deficits alongside low rates of growth because of a lack of investments in areas, such as education, which drive long-term economic expansion. It is a failure of growth that has created the problem of ever-higher debt-to-GDP ratios. This is the argument progressives need to make.
There is also a dearth of support for the idea of smart, capable government. Public-sector reform is too often a cipher for cutbacks and outsourcing. This leads to a self-fulfilling prophecy in which public institutions become less able to navigate the obstacle-strewn paths ahead. Rather than consultancies or third-sector institutions telling the state how to be smart and creative, we need reinvestment in government institutions and capacity. But an ideological aversion to the idea that the public sector can be innovative leads to even successful institutions being attacked. The BBC’s great history of innovation, including its investments in iPlayer that helped inform the Government Digital Service’s gov.uk platform, is little recognised.
The time is ripe for progressives to make their case with confidence and to rethink capitalism. Narratives about wealth creation must become more collective, as should the distribution of the rewards which result. The public realm matters to wealth creation, just as it matters to building a stronger and more just society.
Mariana Mazzucato is RM Phillips professor in the economics of innovation in the Science Policy Research Unit (SPRU) at Sussex University, author of The Entrepreneurial State: Debunking Public vs Private Sector Myths and co-editor of Rethinking Capitalism: Economics and Policy for Inclusive and Sustainable Growth.
This article is part of a New Times collection of the future of the left. Read the other pieces here.
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This article appears in the 15 Feb 2017 issue of the New Statesman, The New Times