Can Capitalism Serve the Common Good? - ft. Mariana Mazzucato

Capitalisn't

In this episode of Capitalisn't, economists Luigi Zingales and Bethany McLean explore economist Mariana Mazzucato's vision for a 'Common Good Economy' in her

Key takeaways

• Markets are not naturally occurring; they are shaped by policy choices like patent law and procurement rules.
• Public funding often drives innovation (e.g., drugs, GPS, touchscreens), yet private firms capture the profits.

Main topics

• Public vs. private value creation
• The role of government in innovation

Notable quotes

"The public took the risk. Somebody else took the reward."

"Markets wouldn't even have existed without being forced into existence through very active public administration."

Conclusion

Mazzucato's framework challenges capitalism not by rejecting it but by reimagining its foundations. By

Transcript preview

Speaker 2 (0:00) In a world where we talk about goals constantly, where we even have the SDGs that every country signed up to, are we even capable of getting any closer to achieving those goals? And I say, no, by design, not by coincidence. Speaker 3 (0:16) I'm Bethany McLean. Did you ever have a moment of doubt Speaker 1 (0:19) about capitalism and whether greed's a good idea? Speaker 4 (0:23) And I'm Luigi Zingales. We have socialism for the very rich, rugged individualism for the poor. Speaker 3 (0:29) And this is Capital Isn't, a podcast about what is working in capitalism. First Speaker 4 (0:34) of all, tell me, is there some society you know that doesn't run on greed? And most importantly, what isn't? We ought to do better by the people that get left behind. I don't think we should have killed the capital system in the process. Speaker 3 (0:46) Go look in your medicine cabinet. There's a good chance the science behind whatever's in there was paid for by you at a university lab funded by the National Institutes of Health. But the patent isn't yours, nor do you set the price. Speaker 4 (0:59) Same story with the phone in your pocket. The touchscreen, the GPS, the voice assistants, trace them back far enough and you find research the public paid for. The public took the risk. Somebody else took the reward. Speaker 3 (1:13) Economists have a name for this kind of thing. They call it a market failure, something you patch with a subsidy here, a regulation there. Speaker 4 (1:21) Mariana Mazzucato says patching is the wrong idea entirely. Nobody handed us these markets. They were designed, patent law, corporate charters, procurement rules, what gets bailed out and what is left to fail. Every one of those was a choice somebody made and that somebody was not you. Speaker 3 (1:42) Her new book says we could choose differently and build an economy around what she calls the common good. Which Speaker 4 (1:48) sounds wonderful. It's also the oldest con in Washington. Every lobbyist on K Street has a story about how his client serves the common good. And the government she wants to put in charge of redesigning markets is the same government that keeps getting captured by the companies it will be redesigning them against. So which is this, a real Speaker 3 (2:07) program for changing capitalism or a set of words capitalism will happily adopt while changing nothing? It isn't an academic question. Mazzucato has chaired a commission at the World Health Organization. She's advised Brazil, South Africa, Scotland, and Barbados. Her language turned up in Keir Starmer's manifesto. These ideas are already being taken seriously inside governments. Speaker 4 (2:28) Not that the Keir Starmer manifesto lasted very long, but... Well, that's fair enough. Speaker 4 (2:35) Her new book offers a compass for an economy organized around the common good. Public purpose, participation, shared knowledge, shared rewards, and accountability. Speaker 3 (2:47) So we were talking about something before you joined that I wanted to start with, which is that you aren't a philosopher by training, but your new book is infused, obviously, with a deep philosophical lens. Why do you think, perhaps, that philosophy is called for at this moment in time? Speaker 2 (3:03) What I was interested in was the common good. And actually, philosophy as a discipline has debated it much more rigorously, dynamically, I think, than economics. My critique of for example, notions of the public good in economics, is that it's just a correction, right? If the private sector doesn't invest in something, whether it's defense systems, basic research, clean water, we expect the public sector to come in and fill the gap. So the thesis of the book was we need to learn from philosophers how the common good is an objective, it's not a correction, and the how we relate to each other along the way. Capital labor relationships, government-citizen relationships, and especially when I focus on public-private relationships, matter as much as what we're trying to do. And that notion of good, the objective, should be embodied in the contract, so in the relationships, how they're designed, from the beginning, ex ante, in a pre-distributive way, so we stop having to pick up the mess ex post. We're both Speaker 4 (4:04) Italian. By the way, Speaker 2 (4:06) Luigi surely studied philosophy because he luckily, he's very lucky he went to an Italian high school, probably Aliccio Scientifico Speaker 4 (4:13) or Speaker 2 (4:13) Classico, which one? Speaker 4 (4:15) Classico, of course. Classico. How can you possibly ask? Speaker 2 (4:17) Every Italian actually knows philosophy. I was born in Italy. Unfortunately, we moved to Princeton when I was little. So it's also a bit of philosophy, how do you say, wannabe for me. Speaker 4 (4:27) Actually, it's funny. Growing up in Italy, I became allergic to the notion of the common good. First of all, they... a history of the common good being used, for example, by the fascist regime. How Speaker 2 (4:37) do you stay away from that? That's such a good point, because that's also why I wrote the book, to be honest. I'm going to keep saying that for every question you ask, to call out those who are common good washing, right? This word actually means everything and nothing. So the idea of having a compass to break down the common good into these five principles, these elements, are supposed to hold anyone, whether it's businesses who show up in Davos and talk about a purpose-oriented business. or governments who say they're interested in SDGs or any goals to hold them accountable. One is even being very clear on what you're trying to do. There's so much vagueness. Think of the SDGs. They're very vague. So climate change. Okay. Yes, it's a problem. What would climate action look like if it was really kind of purpose oriented so that also people can contest what that purpose and direction is? And that brings us... to the second element, which is co-creation and participatory kind of fora. In other words, who sets the goals? Is it just a technocratic state telling us all what's good for us? Or do we, based on these broad challenges, which should really be how governments also get elected, to actually make sure that they then land and are kind of co-created with people based on their lived experience? The third principle is knowledge sharing. There's no point in talking about the common good if we continue to privatize all the knowledge along the way. Just look at what happened during COVID, where only one of the companies agreed to share knowledge even during a global health pandemic. That was AstraZeneca. The fourth is sharing rewards. Based on a lot of the work I've done on the history of Silicon Valley, huge amounts of public investment, share the risks, privatize the rewards. And fifth, transparency and accountability. If we don't even know... who's doing what or who's earning what and why. It's very hard to govern a system towards the common good. So Speaker 3 (6:18) there's a chicken and an egg issue here, I think, that I'm getting confused by, and that's, does the common good inform the principles? And so we start with the common good and then the principles grow out of that, or do the principles point the way to the common good? Speaker 2 (6:31) Those normative kind of ideas of what we should be achieving, the book does not talk about. The book says, in a world where we talk about goals, constantly, where we even have the SDGs that every country signed up to, are we even capable of getting any closer to achieving those goals? And I say, no, by design, not by coincidence. And that's not just because you have certain, you know, leaders like Trump who, you know, debates the science and says we don't even have climate change. Even those who really believe in it are not achieving the goals. And I just say it's really impossible in an advanced capitalist society where you have large multinational corporations, medium-sized companies, small companies, startups, lots of different civil society organizations, different state actors to work together. If at best we think about one of the most important actors, which is the state, that at best sees its role as filling the gap. It's going to be impossible for you even to build the capacity, the capabilities, the intelligence within, because how it's been framed from the start has been to just... fix the market failure. So how do we start from a different position and a Polanyian kind of position? I don't know if you read Carl Polanyi's amazing book, The Great Transformation. He wrote it in 1944. He says markets wouldn't even have existed without being forced into existence through very active public administration. So that already breaks down the idea of state versus market. The market is an outcome of how we govern public institutions, how we govern private institutions, and how we govern their relationship. And when you have... Companies that are just wed to shareholder value, government organizations that are just kind of inertial, not flexible, and just thinking that at best they can fix markets. It's going to be very hard for them to work well together, and you're going to have a pretty problematic relationship between the two. And in terms of that kind of ecosystem, as I said before, you will often have that actor, which is the business sector. that's glorified as creating value, and the other one is just redistributing, administering, fixing, de-risking, facilitating, also having a very hard time to attract the kind of talent that you require to set up a good relationship. Speaker 4 (8:36) Now, maybe this was imposed by your publisher, but the subtitle of the U.S. edition says that you promised to make capitalism work for all of us. I didn't want that subtitle. Look at that. This is the Speaker 2 (8:47) English subtitle. The Speaker 3 (8:50) things that publishers do to us. Speaker 2 (8:52) You Speaker 4 (8:53) accepted it. So what are the non-negotiable capital Speaker 2 (8:57) institution in your preferred system? So a system which is driven by incentives for change that stimulates entrepreneurship, knowledge, technology, and so on, I think is extremely important. How to direct that. innovation, not top-down micromanaging in a technocratic way, which as we know will kill the innovation, but with a strong direction. So the second institution is governments that are democratically, so not dictatorship, elected. The question is then, How does that government work with business, which is a fundamental aspect of capitalism, right? The modern enterprise, the firm. How do we also admit that companies can be governed in very different ways? So I don't think there's one way to do capitalism. Corporate governance in Scandinavia and in other parts of the world might have trade unions on the board of that company at the table to not just defend the worker, oh, increase the wages, improve working conditions, but to actually set the direction of change. So that's another thing which doesn't exist in capitalism, but in some capitalist countries, I would definitely keep, which is experimentation of different corporate governance forms, which admit that value is created collectively. You know, labor creates value. Again, that's a very important thing that came from Marxist economics. But by the way, people don't realize that Marx said so many interesting things about capitalism. Forget communism. He actually talked a lot about innovation. He studied the effect of innovation. on different economic dynamics. What's striking about neoclassical economics, as Schumpeter said, was you almost, in order to talk about innovation, you have to talk about imperfect competition. And so, of course, we all know that we don't have a bunch of small companies that are perfectly competitive. Fine. All economists know that. But what's weird about neoclassical economics, Schumpeter said, was that to talk about innovation. you have to then distance yourself from this benchmark of perfect competition. And how weird is it, given that competition itself between companies is also the answer to your question, which is it's a key dynamic of capitalism. It's a key characteristic of capitalism. And then to talk about it, to talk about how they're competing through innovation, we have to talk about imperfect competition. He said, we obviously have the wrong theory of competition. That was actually Schumpeter's really important contribution. So I think those three things I would retain. that we have a system which is driven by innovation, a system where to compete, firms are having to kind of produce higher quality, I would say accessible products, but the direction of that innovation will often bring us the wrong kind of economy, the wrong kind of society. Look at what's happening today with artificial intelligence, which is completely undirected. By the way, it's one of the first times that such a large innovation is so undirected. I wrote about in my previous book, The Entrepreneurial State, where large... innovations that we've had from the IT revolution, nanotech, biotech, the whole energy revolution often came out of huge problems that the government was actually trying to solve, right? The internet came from government wanting to get the satellites to communicate. GPS came from the Navy wanting to know where the ships were. The fact that we've had this problem-oriented innovation. mainly driven by the military-industrial complex, which then involved lots of private sector actors. 400,000 people got us to the moon in the private sector, but directed by government. I think that's a really functional way to think about innovation, strong direction by government, lots of private initiative, bottom-up, not micromanaged. But the big question that I've been putting in my previous books was, why do we only know how to do that with the military-industrial complex? Why haven't we figured out how to have this bottom-up innovation, intersectoral? in industry directed by government for health challenges, water challenges, biodiversity challenges, and so on. And so what I would retain are these kind of fundamental levers of a government that in theory can help direct the show, not by micromanaging, but using tools like outcomes-oriented procurement or public loan systems to incentivize innovation in the business sector, which will be competing amongst each other for market share, but that it's directed. not top down towards solving big problems. Some will win, some will fail. What I would throw out is this financialized form of capitalism. You know, $7 trillion have been used by the top companies in the last 10 years just to buy back their shares, to boost stock prices, stock options, executive pay. That is a result of coming back to shareholder value. Capitalism, I would definitely throw that out. Speaker 2 (13:22) finance, how the financial sector itself is structured. In my country, in the UK, 80 % of finance goes back to finance, so finance, insurance, and real estate. So we have been very poor in the modern form of, let's say, mainly Anglo-Saxon capitalism to get finance to do its job in the real economy instead of just a gambling casino. I would get rid of something that you've written about, Luigi, in terms of how we are governing. intellectual property. I mean, that's not what patents were for. We are currently patenting really upstream in the innovation process. It was mainly meant to be more downstream. Patents are way too wide. So just used for strategic reasons, too strong, hard to license. So we have misgoverned a fundamental tool that should, in fact, be