The extremely intelligent Martin Wolf reviews Maria Mazzucato. I blush to say that her book is still in THE PILE—I have not read it yet: Martin Wolf: Who creates a nation’s economic value?: “Who creates value? Who extracts value? Who destroys value?…
…If we mistake those who do the second or third for those who do the first, or mistake those who do the first for those who do the second or third, we will end up with impoverished and unhappy societies, in which plunderers rule. Many advanced western countries, in particular the US and Britain, have already reached that state, according to Mariana Mazzucato. The consequences of this, including soaring inequality and declining growth are already visible, argues the author…. An obvious example is the way the financial sector generated a huge increase in household debt in the years leading to the financial crisis of 2007-09. This funded zero-sum competition to buy the existing housing stock at soaring prices. Its legacy included a huge crisis, a debt overhang, weak growth and political disenchantment. Yet, for those who created, manipulated and sold this debt, it was a gold mine. This represented value extraction and destruction…. Much the same picture can be seen in asset management, with its excessive trading, exorbitant fees, lack of transparency, poor stewardship and conflicts of interest. This financial sector, together with the “shareholder value maximisation” that economists have promoted, has had a malign effect on the corporate sector as a whole, argues Mazzucato….
That it is hard to see much wider economic benefit from the massive increase in the relative size and influence of finance over the past half century seems self-evident…. If this is success, what might failure look like?…
Mazzucato also attacks… information technology and pharmaceuticals… the award of overly generous or simply unjustifiable rights to intellectual property….
A fundamental thesis… is that mistaking value extraction for value creation, and vice versa, has its roots in the errors of economists…. In Mazzucato’s view the evident failings of our economies are a consequence of our inability to distinguish among activities that create, redistribute and destroy value…. What I would have liked to see far more of, however, is a probing investigation of when and how governments add value. The US government, for example, has played an extraordinary role in innovation….
The book has three significant strengths. First, Mazzucato pushes us to get away from the simplistic creed that markets are always good and governments always bad. Second, she offers the Left a positive goal of prosperity-inducing innovation rather than a sterile and ultimately destructive politics of resentment and redistribution. Finally, she forces us to ask ourselves what adds value to society and how to create an economic and social order that promotes that. The book itself adds value by forcing us to confront these points.