On 16 April 2019 Greta Thunberg, the young Swedish climate activist, gave a speech to the European Parliament, calling for ‘cathedral thinking’ to tackle climate change:
It is still not too late to act. It will take a far-reaching vision, it will take courage, it will take fierce, fierce determination to act now, to lay the foundations where we may not know all the details about how to shape the ceiling. In other words, it will take cathedral thinking. I ask you to please wake up and make changes required possible. To do your best is no longer good enough. We must all do the seemingly impossible.1
When they built the cathedrals that are among Europe’s most magnificent cultural achievements, the medieval master builders took chances that would drive a modern architect out of business. Nobody knew how much it would cost to build a cathedral or how long it would take. But these were missions with a purpose – to demonstrate the glory of God through creativity – and they brought together many different sectors of society: clergy, craftsmen, nobles, rulers and ordinary people. Today, the cathedrals are still with us.
Government can build the cathedrals of mission-oriented innovation in the twenty-first century if it is recast with courage, dynamic competency, leadership, resilience and creativity.2 But this means strengthening systems and the underlying forms of collaborations. Indeed, as is well known, many workers died building the great cathedrals. Having societal challenges drive modern innovation means embedding equity, fairness and sustainability within our systems of public health, public education, public transport. The social infrastructure that enables businesses to work and compete globally must be imagined and designed in this way from the outset.
And the relationship goes both ways. For public systems to work and be art of a healthy social fabric, we need a different type of private sector with which governments can interact. Government alone, no matter how ambitious and mission-oriented, cannot pursue a better path if it does not have a more productive relationship with business – and if business itself is not more long-term-minded and purposeful. While there are movements afoot to get business to move away from pure maximization of profits and shareholder value towards a more stakeholder-driven governance structure, so far there is little evidence that this is actually changing anything beyond the feel-good factor. Real progress will only happen when stakeholder governance and ‘purpose’ become central to how organizations are governed and how they interact. To address the challenges set out in this book, to change capitalism, we must therefore change the inter-relationships between government, business and civil society, especially the underlying power relationship. There are a variety of different forms of capitalism, and we have the wrong one.
Chapter 2 began with a list of the central problems in capitalism today: finance financing finance; business preoccupied with quarterly returns instead of long-run growth; global warming; and governments that are tinkering rather than steering transformative change. Chapter 3 looked at how the way in which government acts (too little too late) nests within a particular intellectual framing of what government is for: fixing markets.
Chapters 4 and 5 explored the need to bring a more mission-oriented approach to public policy. This chapter argues that a more purpose-driven government and a new relationship between public and private – i.e. capitalism – requires a new political economy founded on the co-creation and shaping of markets, not just fixing them. This requires rethinking value creation as a collective endeavour. Just as existing policies and structures are informed by (problematic) theories, a mission-oriented ‘practice’ for policy requires a new theoretical basis driven by a new approach to market shaping and value creation.
There are, I believe, seven key pillars to a better political economy that can guide a mission-oriented approach. The first is about a new approach to value and the collective process through which it is created. We need business, government and civil society to create value together, with none being relegated to cheerleaders of the other. In this process it is necessary to define the collective creation of value and the notion of public purpose which can drive the direction of that value creation and inform how value is owned and shared.
The second is about markets and market shaping. Missions require a different framing for policy –not about fixing market failures but actively ‘co-creating and co-shaping’ markets. Shaping markets means moving our language – and our thinking – from a model in which the state’s main goal is to fix and ‘level’ the playing field to one in which it co-creates a direction, and hence must tilt the playing field towards that direction. The latter is not about ‘picking winners’ but (as explained in Chapter 3) picking the willing by aligning instruments that are available to government to steer the economy in the direction that produces the kind of value we want. This means that taxation can be used to reward value creation over value extraction, and to steer value creation towards building an economy that is more inclusive and sustainable.
The third is about organizations and organizational change. If what is being sought is a common purpose, that requires capabilities which are about co-operation, not competition. These include the capability to take risks together and experiment; to welcome learning under conditions of uncertainty; and to use finance to serve long-term objectives rather than itself. It also includes the ability to evaluate past experiences based on a holistic view of the spillovers – both positive and negative – that occur when trying to achieve an objective. Here, it is crucial to go against the trend of governments outsourcing their capabilities and capacity and to reinvest resources into structures that foster knowledge creation, learning and creativity inside the civil service. It is impossible to co- reate value without this.
The fourth is about finance and long-term financing. So much of today’s economic discussion tends to focus on public debts and deficits. But a mission-oriented approach brings a new perspective. Getting the economy to work for societal goals, rather than society working for the economy, requires a reversal of the way budgets are thought about. We must begin with the question, ‘what needs to be done?’ and then move to that of how to pay for it. If structured through dynamic institutions that encourage creativity and innovation along the way, public investment can foster longrun growth. If we can do it in wartime, why not in peacetime, when the urgency is to solve societal battles and achieve common goals?
The fifth is about distribution and inclusive growth. Collective value creation and market shaping make sure the creation of value and its direction gets the conditions right, so that inequality can be fought by predistribution, not only by redistribution. This means more emphasis on good jobs, collective ownership structures – including key resources such as data – rather than the usual ex-post correction via taxation. In other words, once we accept that value creation is a collective effort (value), requiring risk-taking and experimentation (capabilities), and adequate and wellstructured financing (finance), the distribution of that value must reflect those principles. First, it must reward the entire set of value creators. Second, it should enable the recreation of that value by investing in the sources of creativity. Third, the financing sources must be replenished rather than extracted. Then there will be more fairness and resilience in our economic system.
The sixth is about partnership and stakeholder value. Emphasis on collective value creation means that how we design the collaborations between business and government matters. The notion of ‘purpose’ and stakeholder value is not only about changes to corporate governance but is also about the details of contracts between business and the state. The example of how NASA worked with the private sector has important lessons for modern-day partnerships, which too often are parasitic rather than symbiotic. Parasitic partnerships are ones where one organization grows at the expense of another. Symbiotic ones are where both prosper – with a common goal. How this can be done in today’s markets for digital platforms, health and energy is a pressing question.
The seventh is about participation and co-creation. For value to be created collectively, we must foster new forms of participation in that creation process, via a revival of debate, discussion and consensus-building. For this to happen, new, decentralized forums are needed that bring together different voices and experiences, such as citizen assemblies. And if such forums and institutions are not present, they must be built. We should not forget that both Roosevelt’s New Deal and the moon landing were in essence governed by the elite. The challenges of the twenty-first century will require much more interaction with citizens and communities, and indeed leadership by them. But in the first instance, a stakeholder approach to value must begin with the recognition that value is collectively created by multiple groups, including businesses, workers and local and central governments.
Together, these seven pillars can help create a new political economy–one that encourages a mission-oriented approach and builds an economy driven by public purpose and citizen engagement. Let’s take a closer look at each pillar.
Value: Collectively Created
Missions are about bringing a high level of strategic purpose to value creation. They are an admission that growth has not only a rate but also a direction – and that direction should have purpose. Focusing investment on problem-solving requires new tools: first, a revived notion of public value and public purpose and, second, a market co-creation framework. We begin here with the first.
In 1973, J. K. Galbraith argued that the American economy had been captured by business interests and that government had lost its way. He proposed that policy should be driven by public interest, not private interests, and that this could only happen if there was an explicit rejection of the economic orthodoxies of the past: ‘With a revised view of the purpose of the economic system goes a revised view of the purpose of economics.’3 Achieving this would require both economic and political change.
Purpose defines missions and guides how public and private actors work together, co-creating value. This collaborative process can be called the ‘creation of public value’. In this context, ‘public’ does not mean that government is the sole actor creating value, but rather that value is collectively created by different actors and for the community as a whole, in the public interest.4
The notion of the public interest that needs reviving goes far back. Greek political philosophy had a strong sense of public service and the duty of the citizen to engage in public affairs. This was seen as necessary to avoid tyranny, so much so that the ancient Greeks used the term ‘idiotes’ (ἰδιώτης) to denote those who did not operate in the public sphere; to put it harshly, if you were only concerned with the private sector, you were an idiot. So if you were a wealthy Athenian and you didn’t want to be seen as an idiot, you funded public arts like theatre festivals (as told by Xenophon, perhaps the first economist, in Hiero). Later the ancient Romans spoke of the ‘pro bono publico’, based on the ethical considerations of working for the common good, not the pursuit of profit – a term still used today in the legal sphere. A caveat: it is important to acknowledge that, despite their commitment to public purpose, the ancient Greek and Roman civilizations were deeply flawed. They were based on extreme underlying injustice, with slavery being common – and women having no public role (except in Rome to tend the ‘vestal flame’).
This ambitious notion of the public sphere is hard to reconcile with the dominant economic framework, which rests on the assumption that people maximize their own preferences. Collective effort is missed because only individual decisions matter – with firms maximizing profits, and consumers maximizing utility (a proxy for Benthamite happiness). Even wages are seen as outcomes of workers maximizing their choices between the utility earned from leisure versus that earned from work.5 In this context, the concept of social value is limited to the aggregation of individuals (workers, managers in firms, consumers) making decisions to maximize their own economic welfare. The traditional framework also confuses price with value: only that which has a price is valuable. This means many public services that are free are not valued except through the accounting of their paid inputs (e.g. the cost of schoolteachers). Their costs are accounted for, but many of their outputs (e.g. a well-structured public-education system) are not.
As we saw in Chapter 3, public goods – such as education, basic research or clean air – are seen not as objectives created by the collective imagination of ‘what to do’, but as filling gaps where the private sector does not go. But if our economy were driven by public purpose, we would not ask, ‘What gap or market failure are public goods filling?’ but rather, ‘What are public goods the solution to?’ and ‘What form must they take to benefit us the most?’. To steer our understanding of public interest, it is useful to consider public goods not as corrections of market failures but as common objectives. Common goods are the result of collective imagination, investment and pressure from social movements, from clean air to public education. Producing these well requires the right knowledge and capabilities to plan and manage them, including interactions between different interest groups. In this sense the production of common goods via public purpose needs a theory of collective value creation.
While the traditional question defining public goods is ‘Is it possible to exclude those who do not pay for the good?’, the key question for the broader concept of the common goods is, as the public management theorist Barry Bozeman has framed it for public-value creation: ‘Have those public values endorsed by society been provided or guaranteed?’6 Embedding those values into the production of common goods becomes essential in both physical and social infrastructure. Such questions are fundamental for how we govern twenty-first-century capitalism: how we produce health innovation (vaccine production governed by notions of collective intelligence), how we govern digital platforms (with data seen as a human right), and how we co-design a green transition where different voices imagine together a new way to live in our cities, from the future of mobility to carbon-neutral construction to experimental public spaces. Only by redirecting our economy – with notions of the common good and public value at the centre of production, distribution and consumption – can we shape and co-create the economy to produce a more inclusive and sustainable society.
Markets: Shaping Not Fixing
The collective creation of value, which should be at the centre of a common-good approach, requires justifying policy in terms of actively creating and shaping markets, not fixing them. Market failure theory (MFT) assumes that markets are efficient and, when they fail, government should fix them. Government steps in to correct the sources of market failures such as positive externalities (where, due to the high spillovers, there is underinvestment by the private sector, requiring government to fund areas such as basic research); negative externalities (such as pollution, which might require government to impose carbon taxes); and asymmetric information (which can mean that banks don’t know enough about new companies, requiring SME lending by governments).
MFT has major flaws as a theory but it has nevertheless been adopted as a guide to public policy. It uses as a benchmark perfectly competitive markets characterized by perfect information, completeness, an absence of transaction costs and frictions and so on. So, to measure real markets – that is, markets in which firms compete through innovation and which will often be oligopolistic or characterized by monopoly power (e.g. because of the presence of patents) – MFT argues that the distance from a perfectly competitive market must be ascertained. Yet empirically, perfectly competitive markets don’t exist: markets are nearly always incomplete and imperfect.7 Government may therefore always be able to improve upon a decentralized market outcome, regardless of whether the result of government intervention is inefficient in a Pareto-optimal sense. This does not mean that it is incorrect to tackle market failures, such as pollution, through instruments such as carbon taxes. It just means that we need a better theory of competition to serve as the benchmark. And given that innovation is central to how firms compete, the drivers of innovation and issues around its direction should be at the centre of how we think about competition, not relegated to a list of ‘imperfections’. Furthermore, in economies aiming for transformational growth trajectories (e.g. in a green transition), it will be hard to simply ‘fix’ failures to get there.
And indeed, the examples we looked at in Chapters 4 and 5, from the moon landing to trying to tackle the SDGs, have required government doing much more than just fixing market failures. They require imagining new landscapes, not fixing existing ones, and aligning policies to inspire different actors who can spot opportunities for investment they did not see before. This is not about facilitating investment but catalysing it through the creation of new markets. This happened with the moon landing, which stimulated decades of investments in areas such as software. And it has happened more recently with the green economy: only after government led with high-risk, capital-intensive investments in green technology (e.g. early investments in solar and wind) did the private sector follow, eventually rendering the technologies more competitive.
This means that a broader view of policy can be based on market shaping, not only market fixing, which begins with the question: what sort of markets do we want? Attention needs to be paid both to the quantity of investment needed and also to its quality – and the underlying governance mechanisms. So in the health area, this would require broadening the notion of health to well-being, and investing not only in new remedies but also in new forms of preventative care and governing the intellectual property regime to deliver the outcomes desired. When patents are seen purely from a regulation angle, this perpetuates the idea that innovation occurs in the private sphere and is simply fixed in the public one. But, given the enormous public investments in creating value, patents should deliver in the public interest. This means they should be weak (easy to license), narrow (not used for purely strategic reasons) and not too far upstream (so the tools for research remain in the open domain).8
Organizations: Dynamic Capabilities
To co-create value and shape markets, public and private organizations need dynamic capabilities of experimentation and learning. While the need to be a learning organization is often emphasized in the private sector, it is not so true in the public sector which has, as discussed in Chapter 3, been relegated to the role of a simple market fixer and enabler of value created by business. A more proactive, market-shaping approach requires rethinking the ways in which public organizations create and implement strategic actions (from leadership capabilities to how they engage with groups, other organizations and even individuals in society), rethinking how the civil service is developed (from training to performance assessment and promotion), and rethinking how work in public organizations is managed (from cross-sectoral teams to iterative experimentation, a process which goes through several stages, developing the concept and testing it to produce a workable innovation).10
In the private sector, managers are taught how to be flexible and adaptable, and there is an abundance of thinking about the capabilities private actors need because they are deemed to be value creators. These skills are at the heart of MBA courses in strategic management, organizational behaviour and decision sciences worldwide. And yet there are few models of learning and working dynamically inside government. One of the pioneers of the new business thinking was the economist Edith Penrose,11 who in the 1950s argued that competitiveness was about internal resources, especially the ability to learn. Building on her work, organizational theorists like David Teece, from the Haas School of Business at the University of California, Berkeley, developed the concept of the ‘dynamic capabilities’ of the firm, the internal capabilities to ‘integrate, build, and reconfigure internal and external competences to address rapidly changing environments’.12 This approach differed from that of Michael Porter, a renowned business scholar from Harvard Business School, who emphasized the need for firms to position themselves across their competitive environment (focusing on their suppliers, customers and competitors).13 The emphasis on internal capabilities meant paying less attention to the external environment and more to the ability to learn, pivot, be agile and adapt to complex environments.
Mission-oriented thinking requires that we discover the importance of those features inside all organizations that tackle problems together, including those in the public sector. Yet because it’s assumed that government is not crucial to value creation, only to market-fixing, attention has not been paid to the capabilities and skills for value creation and risktaking within the public sector. Not surprisingly, many public organizations have concentrated on increasing the marginal efficiency of their activities rather than on more ambitious change.14
Dynamic capabilities help organizations develop and improve resources such as knowledge and are different from static operational capabilities, which are part of an organization’s existing operations and resource base. Dynamic capabilities are part of the ‘core competencies’ needed to change short-term competitive positions that are eventually used to create longerterm competitive advantage. Learning by doing is a key element in improving an organization’s fitness and developing ‘absorptive capacity’ – that is, the ability to understand the world around it.15
This is what the UK government failed to recognize in its outsourcing of the response to the COVID- 9 pandemic. By relying on consultancy firms to manage the test-and-trace system, the government has not only deprived our brilliant civil servants of an opportunity to demonstrate and develop their knowledge, but in doing so undermined the possibility of organizational learning through the crisis.
New challenges are daunting, but they are also an opportunity to augment capabilities in the public sector. Instead, all too often governments have not invested in organizational learning processes but instead over-relied on consultancy firms to manage difficult tasks. In the UK, after the Brexit referendum, spending on consultancies rose by £1.5 billion in 2018, and similarly, with the COVID-19 pandemic, £56 million was used in 2020 to outsource the test-and-trace system – hardly the kind of moonshot thinking that saw NASA, wary of capture and ‘brochuremanship’, invest in inhouse capabilities.
Rethinking government capabilities can benefit from the work of Richard Nelson and Sidney Winter, two economists known for their pioneering study of innovation and competition in economics, grounded in the work of the innovation scholar Joseph Schumpeter. Nelson and Winter helped economists understand why the ‘black box’ (so called because its explanation was limited) production function of economic theory (input and outputs) needed to be dismantled to really understand the dynamics of innovation, and especially how innovation happens in conditions of uncertainty.16 Their work on ‘evolutionary economics’ posits that economic agents adapt to uncertainty by setting routines and rules of thumb, and that those evolve over time via experimentation and learning – and only some survive the competitive selection process. Their work is built on the thinking of Herbert Simon, a cognitive psychologist, who argued that economic actors are ‘bounded’ in their rationality, so do not operate by maximizing but by ‘satisficing’: they content themselves with being satisfied, not necessarily to the highest degree. Indeed, if businesses were constantly changing what they were doing to maximize profits (a function of costs and prices), they would never learn – there would be no learning by doing since what was being done would be constantly changing, as prices and costs change. In other words, a theory of innovation needs to be nested in a theory of learning, experimentation and adaptation to uncertainty.
In Chapter 4 we looked at fundamental attributes and principles that laid the foundation for government’s ability to lead a mission to the moon. Following on from those, five capabilities are, I believe, central to modern bureaucracies’ ability to manage complex and ‘wicked’ problems:17 Leadership and engagement: A market co-creating role requires government to have capabilities for leadership and engagement; missions can all too quickly become either just fashionable labels on ‘business-asusual’ practices or over-rigid top-down planning exercises. Thus, capabilities to engage with a wide set of social actors and display leadership through bold vision are vital in times with high ‘democratic deficit’ in many developed countries. Some of the grand challenges contest the way of life as we know it (e.g. suburbanization accompanied by congested transportation systems). Having capabilities to encourage bottom-up engagement means that there is a capacity both to set mission but also leave enough space for contestation and adaptability.18
Co-ordination: The ability to find coherent policy mixes (instruments and funding) and capabilities of co-ordination are fundamental to the success of today’s mission-oriented policies. As these are not just about technological solutions but include strong socio-political aspects, experimentation capabilities matter more than before. Working across departmental silos is crucial.
Administration: Administrative capabilities need especially to benefit from a diversity of expertise and skills, from engineering to human-centric design. And the management of missions requires new organizational forms to mix unrelated knowledge areas (e.g. in urban mobility and planning, lifestyles matter as much as new energy storage systems) and organizational fluidity (e.g. cross-departmental teams).19
Risk-taking and experimentation. A key capability needed by governments is to take risks, welcome uncertainty and learn through trial and error. Learning is, by definition, a dynamic skill. It takes time, and therefore means embedding patience into the system. Static measures of efficiency – that is, output per input – do not capture this dynamism. And many of the supposed reforms undertaken to achieve efficiency have outsourced key capabilities for learning and knowledge creation and in the process hollowed out public organizations, reducing their ability to learn and to adapt to uncertainty.
Dynamic evaluation. Equally important are evaluation capabilities that do not rely only on market-failure-based approaches (e.g. cost–benefit analysis) but can integrate experimentation and put citizens at the centre of the process (e.g. citizen as user) to make sure the system is working for them.20 Mission-oriented policies have a clear metric: was the mission achieved? But along the way, other things happen; indeed, an attribute of innovation is that while searching for one thing another thing is discovered.
Thus, metrics need to capture the dynamic spillovers that are created, as discussed in Chapter 4. That requires paying less attention to static CBA and more to dynamic feedback effects. While CBA and net present value calculations rest on static assumptions about market prices and costs, strategic mission-oriented investments often lead to a shifting of the technology frontier (to use the most advanced technology), which can have ripple effects across the economy – so nothing is held equal. Even an investment like that which led to Concorde should be measured not only by whether the plane was flying but also by the effects which the investment had across multiple sectors. Thus, new evaluation indicators are needed to capture the economy-wide benefits of such policies, including dynamic spillovers and additionality. Additionality means the way in which policies make things happen that would not have happened anyway. This is key, as so many policies focused on incentives, just about reducing the costs of business investment that would have happened in any case. What really drives business investment are expectations of where future opportunities lie. So evaluating the degree to which policies change those expectations is key. In this sense, it is essential to move beyond CBA and allocative efficiency to embrace a more dynamic notion of efficiency.21 Table 4 builds on Tables 3’s distinction between market fixing and market shaping, concentrating on the different assumptions which inform the remit and evaluation of public investments in each.
Finance: Outcomes-Based Budgeting
Missions require long-term thinking and patient finance. Like any other undertaking, missions must be paid for. As was discussed in Chapter 4, Kennedy was clear that the Apollo project would cost a lot of money – and it did. And while he and NASA had to constantly defend the use of the budget, in the end the pressure and urgency to ‘beat the Russians’ made the money come through. Indeed, the urgency to win is why money is always available for wartime missions – whether in the world wars or Vietnam or Iraq. Money seems to be created for this purpose.
There is no reason why a ‘whatever it takes’ mentality cannot be used for social problems. Yet the conventional approach is to assume that budgets are fixed, and so if money is spent in one area, it will be at the expense of another area. For example, if you want new energy infrastructure, you can’t have new hospitals as well. But what if budgets were based on outcomes to be reached, as they were for the moon landing and in wars? What if the first question is not ‘Can we afford it?’ but ‘What do we really want to do? And how do we create the resources required to realize the mission?’
The idea may seem strange and new, but it’s not. It’s how things actually work from the technical point of view. In March 2005 Paul Ryan, a Republican Senator from Wisconsin, questioned Alan Greenspan, then Chair of the US Federal Reserve Board, in a Senate hearing on the US pension system. He asked whether a pay-as-you-go system was affordable and whether there would be a cash-flow problem. Greenspan answered clearly: ‘There is nothing to prevent the government from creating as much money as it wants and paying it to somebody. The question is, how do you set up a system which assures the real assets are created which those benefits are employed to purchase. So, it’s not a question of security. It’s a question of the structure of a financial system which assures that the real resources are created for retirement as distinct from the cash.’ In other words, the key question is whether the economy has the productive capacity to make good use of the money that is created and placed in private hands.22
Missions give spending and investment precisely that directionality to expand the productive capacity in a desired direction. That direction is what should be examined and debated, not whether there is enough money to do it. The reply is usually: but what if government continues indefinitely to increase its stock of borrowing to meet its social security commitments? We can’t go on spending more than we earn. Someday there will be terrible debt reckoning. There’s no magic money tree.
But that logic confuses household finances with those of a government. It is indeed true that a household can’t go on spending more than it earns for long without selling possessions, securing more income or cutting expenditure. But governments don’t work that way. The reason is simple: they print the money, they have a sovereign currency. When government decides to spend money on social security, defence or highways, the central bank – whether that’s the European Central Bank, the Bank of England or the Federal Reserve – essentially makes the money available. It does not bounce the government’s cheques. Because a central bank can issue pounds or dollars, it simply keeps the score much as the scorekeeper in a football game can count without limit how many goals each side bangs into the net. The debt keeps accumulating, and interest costs will rise, but so long as people want to hold the country’s currency and – Greenspan’s point – the money created is invested productively, the debt can be carried without defaulting.
Recently, economists such as Stephanie Kelton, who belong to the economic school called modern money theory (MMT), have been trying to get governments to realize that the idea that they have to come up with money before they can spend is reverse logic. In reality, spending itself creates money.23 The thinking builds on the work of Hyman Minsky, who wrote about the theory of money beyond the notion that it simply oils the wheels of commerce. Here’s how it works when applied to governments that are issuing their own currency, and are thus the monopoly issuers of that currency. The process logically starts with government spending/investing money. This is obvious, given that citizens cannot get their hands on money that is issued by government if the government had not spent or lent it into existence in the first place. Every time the government spends money, it taxes some of it back afterwards. If the government spends £10 and taxes £4, it can be said to be in deficit by £6. But that £6 is also in the hands of people and businesses. They are £6 better off. The other side of a government deficit is a private surplus. In other words, the government’s and the private sector’s balance sheets must be mirror images of each other (it is more complicated when we include exports and imports, but we do not need to do that for this discussion). A government deficit ‘blows’ British pounds onto balance sheets, while a government surplus ‘sucks’ pounds off balance sheets. A sustained fiscal surplus means constant sucking, which means that the private sector is losing financial assets, as maturing bonds are not reissued. Thus, fiscal surpluses weaken private-sector balance sheets.
It is useful to consider how budgeting actually works. A government department must first decide what it wants to do – and hence what missions are worth pursuing. Then it must persuade Parliament or Congress to accept a line in the national budget dedicated to that mission. If Parliament or Congress is persuaded, the relevant agency appropriates the budget and gets on with the job. Reducing or removing a budget in one department does not necessarily mean that more money is created for another department. Cutting NASA’s funding in the 1960s, for example, would not automatically have released more cash for the US Agency for International Development or Department of Health and Human Services.
What happens to the money government is spending when it gets into private hands? Much of it is invested in government bonds. Unlike mere pounds or dollars, these bonds pay interest at a guaranteed rate. They are also highly liquid. In fact, government bonds are the lynchpin of the financial system and the core of many portfolios: pensioners who complain about government profligacy are probably living off income partly derived from government bonds. The national debt, which so exercises many politicians and citizens, is actually the historical accumulation of money spent by government, not taxed back, and now a privately held asset.24 Government red ink equals private-sector black ink.
In 2020, events around COVID-19 took this theory of money creation in an unexpected direction. In March that year, the US Congress was terrified that the coronavirus pandemic would cause an economic disaster to rival the Great Depression of the 1930s. It voted for a $2 trillion rescue package. And the Governor of the Bank of England, Andrew Bailey, revealed in June 2020 that the bank had bought £200 billion worth of UK government bonds in April because there was a danger that the government could become insolvent.25 What set the US package apart, however, was not just its size. It was the absence of an offset. When Congress agrees to spending measures, it usually sends two instructions to the Federal Reserve. One is to add dollars by computer to the credit of the US Treasury, which distributes the dollars to be spent as agreed. The other is to subtract dollars in the form of agreed taxes. In the case of the $2 trillion package, however, the instruction was only to add dollars. Money was indeed created out of thin air.
While there are many controversies around who actually benefits from the relief packages, with many arguing that too large a part of the funds went to bailouts for companies rather than to proper relief for workers and citizens, the exceptional size of the package raises fundamental questions about the choices we have during more normal times. On an average night in the 2000s, about 500,000 Americans are homeless. Why had Congress never been able to find money to house them? Or to feed millions of hungry children? Or to provide clean drinking water for the residents of Flint, Michigan and other places who have been plagued for years by polluted water supplies? Why, for that matter, given the pandemic, had Congress not ensured that the USA had a health-care system that adequately covered the entire population? There are, of course, political answers to these questions – answers often to be found in the power of lobby groups. But the choices are not principally financial because, as we have seen, sovereign governments can (and do) create money.26 What convinces them to consider something urgent enough to be acted on without asking the false question: is there enough money in the piggy bank to do it?
Of course, this does not mean that money can or should be created without limit. The real question is, what is the limit? The answer is inflation and how much of it can be tolerated. The key issue, as Greenspan explained, is how productive the spending is. Social security can look like a Ponzi scheme because the number of workers per social security retiree in the USA has fallen from 16:1 in 1950 to about 2:1 today. But if those two workers are much more productive than their sixteen grandparents were in 1950, the pensions will go on being paid. Similarly, as long as additional spending fuelled by government money creation does not bump up against the real resources of the economy – supply of workers, factories, machines, raw materials, technical know-how and so on – the risk of excessive inflation is low.27 And of course that supply is not static – it can grow. Investments in physical capital (machinery, factories) and the underlying organizational and technological innovation can expand capacity.
There is no reason why investing and spending will cause inflation as long as the economy has room to grow and is not running at full capacity (human and physical). This means that making investments which expand the economy due to their strategic nature (patient, long-run and missionoriented) – as opposed to investments that just pour money into a static economy – rarely cause inflation. They expand the pie rather than increase the money in an existing pie.
The inflation of the 1970s, which came alongside high unemployment (stagflation), was not caused by capacity constraints. It was a supply-side phenomenon, with contributing factors including oil price shocks, tight money and wage-indexation. And it happened not only in the USA, but over much of the developed world. The inflation experienced during the Weimer Republic in 1921–3 is another supply-side story. The French and Belgian armies retaliated after the German default in 1922 and took over he Ruhr, Germany’s mining and manufacturing heartland. The Germans, in turn, stopped work and production ground to a halt. The Germans kept paying the workers in local currency even though only limited production was possible, so nominal demand quickly started to rise relative to real output, which was grinding to a halt. It is this kind of dynamic that can cause inflation. But this was not a normal situation in which a sovereign government was trying to finance the non- government sector’s desire to save and keep employment and output levels high.
Some argue that inflation can also be caused by cancelling debt. But this too is wrong. A model of the economic impact of student debt cancellation in the USA, using conventional macro models, found that it would push up inflation by only 0.3 percentage points (at the peak).28 Another model done by Moody’s found the effect even smaller, adding a trivial 0.09 percentage points to the inflation rate.
When public investment is done strategically, with a system of organizations in the public sphere investing in long-run growth areas –including the key factors that increase productivity (education, research, science–industry linkages, worker training, patient finance etc.) – it crowds in private-sector investment. By expanding capacity, it will not cause inflation. Keeping citizens healthy with a holistic approach to their wellbeing (mental, physical and social) also expands capacity.
Long-run, vision-oriented public investments also have a greater possibility of creating a significant multiplier effect; that is, adding to GDP more than the total amount of investment. This is due to the way in which missions can create intersectoral effects and is a reason to think more strategically about public investments.29
An outcomes-based economy is one where finance serves the economy, rather than the economy serving finance. The Jesuits did well when they agreed that the money box for their missions could only be opened with two keys: one held by the rettore (the visionary), and one by the procuratore (the accountant). The vision and release of funds have to go hand in hand.30
Distribution: Sharing Risks and Rewards
Discussions about how to decrease inequality are rarely linked to ones about innovation and wealth creation. The former tend to be more interested in social inclusion and reforms of the welfare state, and the latter in productivity and innovation policies around entrepreneurship. Yet a marketshaping perspective on collective value creation needs to bring together these communities and related discussions. It asks: if wealth is created socially, what are the tools to make sure wealth is also distributed socially – both for considerations of equity but also for fairness in effort and skin in the game?
This is what predistribution is about.31 While redistribution advocates addressing inequality by redistributing income after it’s created, such as through taxes or benefits, predistribution aims to prevent inequality ex ante. They are both needed to achieve equitable outcomes, but predistribution focuses more on getting the conditions right in the first place, so less redistribution is needed to make corrections afterwards. The idea is that if value is created collectively through societal effort, all actors should be getting their fair share in proportion to their risk-taking, input and creativity. Identifying these actors and their interactions also raises the question of how benefits are distributed among them. A predistribution approach creates structures that lead to fairer outcomes in the economy, such as contracts which ensure that the public and private sectors share the risks and rewards of value creation.
Given the immense investments involved in a mission, along with the risks of failure, it makes sense for government to consider ways to share the benefits of that investment with the widest number of citizens. Indeed, because innovation is inherently uncertain and investments have no guaranteed return, strengthening public control over rewards is a necessary condition for legitimizing government’s role in creating and shaping markets. If public agencies are to absorb high technological and market risks, there is a valid expectation that the fruits of successful public finance will serve taxpayers and provide a rationale for socializing the financial rewards achieved.32
This can be done in various ways. One is to do it directly through a public-wealth fund, built up by the returns from government-funded activity or through equity stakes in companies benefiting from public investments. The returns from such activities can be distributed through a citizen’s dividend, in essence rewarding collective value creators with a share of the wealth they created. Such public wealth could be derived from natural resources or through processes that have engaged massive collective efforts, such as the innovations that have led to path-breaking technologies like the internet or artificial intelligence.33 This runs counter to the more commonplace situation where government investment leads to socialization of risks but privatization of rewards. That happens especially in times of crisis when companies are bailed out, but then if they recover the profits go private. But it has also happened as a normal outcome of innovation financing.
By allowing government to retain equity stakes in companies that have benefited from public investments, wealth funds can be replenished. When Tesla (discussed in Chapter 3) benefited from a $465 million guaranteed loan, strangely the US Department of Energy negotiated backwards, apparently asking that the government retain 3 million shares only if the loan was not paid back! Afterwards, the price per share increased nearly tenfold. Had the US government retained an equity stake in that investment in 2009, it would have earned more than enough by 2013 (when the loan was paid back) to cover the Solyndra loss and fund the next round of investments – which was the thinking that a venture capitalist would have had. But such logic requires changing the narrative to one of value creation – away from government as a lender of last resort to being an investor of first resort, thus allowing taxpayers to get a share of the value they contribute to. This is less relevant for upstream investments in basic research, the benefits of which do come back to society through knowledge spillovers. But the downstream investments going directly to companies – including during periods of bailouts – are high-risk and should indeed benefit the (collective) risk-takers in that process.
The prospect of government owning a stake in a private corporation will be anathema to many parts of the capitalist world. But, given that governments are already investing in the private sector, they may as well earn a return on those investments (something even fiscal conservatives might find attractive). Government need not hold a controlling stake, but it could hold equity in the form of preferred stocks that get priority in receiving dividends or have a ‘golden share’ that gives it veto rights in certain circumstances such as takeovers. The returns could be used to fund future innovation. When governments provided massive bailouts during the COVID-19 crisis, even the Financial Times advocated that they should retain equity stakes, so they could cover the debt that was being accrued.34 A more indirect way to achieve a proper public return for public investment is to link public investments or subsidies that benefit the private sector with strong conditions that foster inclusive and sustainable growth (partly addressed in Chapter 5). Conditions can be attached to loan guarantees and bailouts that governments give to business. Such conditions can require companies which receive public funds to reinvest profits back into areas that benefit society: carbon-reduction worker training and investments in R&D. Conditions could also limit the amount of value that is extracted via share buybacks, as US Senator Elizabeth Warren argued should be the case with bailouts during the COVID-19 epidemic. Indeed, for its COVID-related recovery funds, Denmark was clear that those companies using tax havens would not have access to government help. Other conditions might be to make sure that medicines that receive public investment – indeed, most medicines – are affordably priced.35 These questions about sharing rewards are all about linking value creation with value distribution. The answer to the question ‘Who gets what and why?’ will also determine how the relevant system reproduces itself. The eighteenth-century economists known as the Physiocrats worried that some classes in society (the merchants and the landlords) were siphoning too much value out of the system, so that the true source of value creation – agriculture – would be hurt.36 This is why they called the merchants and the landlords, who they believed extracted more value than they created, the sterile class.
Keynes also believed it was critical to connect value creation with its distribution through the socialization of investment, a concept he briefly wrote about in the concluding chapter of his 1936 magnum opus The General Theory of Employment, Interest and Money. There, he identified three major tasks to be undertaken in order to save capitalism from its own demise: ‘parting with liquidity’, ‘euthanizing the rentiers’ and ‘socializing investment’. He connected the three concepts because of their role in preserving ‘effective demand’ – spending by consumers, investment by firms and the government. If value is siphoned out, then these sources of growth will be hurt. Socialization of investment is an important concept because it highlights that it is not only important to think of aggregate investment and demand, but also the form of that investment. Keynes was interested in mutual companies and co-operatives because they shared risks and rewards; that is, they reinvested profits back into the company for longterm growth and income was distributed between the collective sets of owners.
Partnership: Purpose and Stakeholder Value
The thinking above – about how to ensure equitable relationships and a public return for a public investment – will help to build more mutualistic and symbiotic value-creating ecosystems. While the term ‘public–private partnership’ is often used, we need to think more about how to develop true partnerships that benefit all. As was discussed in Chapter 4, getting to the moon required an enormous effort by both public and private actors. NASA thought long and hard about how to ensure that the contracts between itself and the private providers were fair, embedded the right incentives, and did not result in capture.
In recent years the concept of ‘stakeholder value’ has been revived to explore ways to counter the short-termism that accompanies focusing only on shareholder value. The latter has led to companies focusing on simply maximizing profits, which then are distributed to shareholders through dividend pay-outs and through practices such as share buybacks that increase stock prices. A stakeholder view needs instead to reward all stakeholders, not only shareholders: workers, the communities and the environment. This concept recognizes that value is collectively created – so the rewards must be distributed equitably – and most of all that companies need to focus on the long term, not the short term. Long-term thinking by definition is linked to thinking about all the sources of wealth creation that must be financed, as well as the different voices that should contribute to decisions about what to finance. Under stakeholder corporate governance, companies are controlled, directly or indirectly, by shareholders and the wider group of stakeholders. For example, in Scandinavia workers’ trade unions have representatives on the boards of companies and have a say on the types of investments made in their future, as well as on issues around remuneration.
Stakeholder value brings purpose to the interaction of different economic actors and the creation of value in support of a common good. The value created is reinvested back into a wider group of actors, including the community.37 Critical to a mission-oriented view of stakeholder governance is the focus on relationships – for example, those between the public and private actors. In this sense, the commitment not to use tax havens, to invest in worker training or to lower carbon commitments in exchange for access to publicly financed technology or subsidies can become the norm. This type of conditionality could be used both in bad times – such as conditions on which to receive bailouts – but also in good times in order to receive contracts for building better health systems and renewable energy.
But fundamentally, stakeholder value needs to be seen as a way to produce differently. A perfect example is vaccine production (as discussed in Chapter 5). The public sector needs to govern vaccines as a market shaper: steering innovation, getting fair prices, ensuring that patents and competition work as intended and safeguard supply. Patent pools (agreements between patent holders to cross-license patents to each other) can enable research institutions, academia, companies and other key players across different countries collectively to govern and utilize intellectual properties to co-shape, co-create and scale up technological solutions and ensure affordable and universal access for all. The patent pools advocated by the World Health Organization to foster ‘collective intelligence’ could be a mechanism of solidarity, driving a common desire for collective action at one of the most sensitive inflection points in public health.38 This would also help patents to promote productive rather than unproductive entrepreneurship.39
Another interesting example is modern-day space exploration. Historically, state actors such as NASA in the USA or the European Space Agency are the ones who have made the high-risk, capital-intensive investments. Today there are many private actors in space, from Elon Musk with SpaceX to Richard Branson with Virgin Galactic. These private actors are standing on the shoulders of giants that invested in the most high-risk stage of space exploration. What is the right way to share the rewards that result from this partnership? Elon Musk has reportedly received $4.9 billion in public subsidies for his three companies, including SpaceX.40 This support is not part of the narrative of his entrepreneurial success story, and it is also not reflected in concrete contracts; there is no sharing of the rewards of money made on the backs of taxpayers.
With the private sector increasingly involved in space, it is critical that the public sector backing this involvement retains the confidence needed to ensure that public objectives are met. In recent years, astronauts have complained there is too much ‘clutter’ in space. For example, Musk’s SpaceX has sent thousands of satellites into space; ultimately, it plans to launch 12,000 satellites to create a space-based internet. These satellites, called CubeSats, are very small and hence much cheaper to produce. They are one of the reasons it has become so much easier for private companies to enter space. But this is also why space is now cluttered, making it harder to see the sky at night from earth and increasing the danger of collisions.41 All of this points to the need to make sure that the public–private partnership is a true one and not simply a crowded one – literally.
Another key area is digital platforms. How to govern digital platforms in a way that fosters value creation for the majority of citizens, rather than private profits for the few, is a major issue today. The large technology companies have amassed record profits from the use of technologies such as the internet and artificial intelligence. These ‘big tech’ companies, sometimes called FAANG (Facebook, Apple, Amazon, Netflix and Google), have benefited from network economies which give early movers an advantage since consumers want to be on the same platform as others they can interact with. This, mixed with vast advertising revenues, has created a platform economy characterized by strong and increasing returns to scale, in which companies such as Amazon and Google hold enormous market power. The problem is they have increasingly used this power to extract what I have called ‘algorithmic rents’ in a modern capitalist system that looks more like ‘digital feudalism’42 – the ability to use algorithms to manipulate what people see and what they want. As the social psychologist Shoshana Zuboff has argued, we think we are lucky because we can search Google for ‘free’, but actually Google is searching us for free, and making a killing in the process.43 The abilities of these large companies to sell our personal data, and manipulate searches so that their advertising revenues increase, are big problems which competition authorities have to grapple with, along with the problems associated with tax avoidance (the common strategy of shifting the source of profits to minimize tax owed). The fact that much of the ‘tech’ underlying ‘Big Tech’ is a product of public investment creates an even stronger case that publicly funded technology must serve the public interest. This requires regulation from a marketshaping perspective, and the need to find ways for governments to reward value creation, not value extraction.
Defending the underlying public interest can be framed in terms of the approach to the ‘commons’ – such as the data commons. Previous work on governing the commons, such as that of the economist Elinor Ostrom, stressed how to structure ways in which to share a common good to make sure it is also reproduced over time, rather than being destroyed by individual self-interest. Ostrom’s critical work looked at how areas that are communally owned (for example, ocean fisheries) can be mismanaged because they are overly used (catching too many fish relative to stocks) and the common area is destroyed, providing a theoretical basis for explaining how some communities have governed common resources to ensure they remain viable for future generations. She showed that as long as certain rules are followed for the use and care of resources, there is no need for overly centralized command and control (by government) or by companies through privatization. Those rules for collective action included defining clear boundaries of the common resource, monitoring usage, informal conflict resolution and participatory structures for decision-making. Such rules could be very useful today to think about how to govern the data commons. This is critical given that people create data every time they ‘click’. Data is created collectively, and is increasingly central to the ability of citizens to access their rights to education, health and services like public transport. Finding ways in which to make sure that we govern data creation to benefit the common good is thus central to the ability to govern inclusive growth. The mayor of Barcelona, Ada Colau, hired hackers in the city administration to set up a ‘city data commons’ to find ways for the city proactively to manage the data generated to improve public transport and social housing.
If we prioritize the economy’s regenerative potential – that is, its ability to regenerate sources of value creation within both planetary boundaries and human and physical capital boundaries – it is useful to think in terms of a circular economy. As the Oxford economist Kate Raworth advocates, the circular economy not only minimizes waste, but also nurtures new institutions and collaborations between organizations and individuals so that we prosper while living within planetary boundaries. She argues that this requires investing in the areas that determine human flourishing such as food and housing, better working conditions, good health care and having a political voice, while ensuring that collectively we do not increase intolerably our pressure on the earth’s life-supporting systems, such as a stable climate, fertile soils and a protective ozone layer.44 Circular production and consumption of this kind disconnects economic growth from the extraction and consumption of materials, reducing resource dependency. As the Venezuelan-born economic historian Carlota Perez has written, this can spur economic and industrial renewal, with a related increase in investments in new types of services and methods of production.45 Critically, it requires investment in the institutions that support human flourishing and planetary health, as the common-good perspective implies.
Participation: Open Systems to Co-Design Our Future
The moon landing was inspirational and required a massive collective effort: over 400,000 people across NASA, universities and the private sector contributed. But the mission itself came from a classic top-down initiative. Today’s missions (as discussed in Chapter 5) require more citizen engagement in the vision of the mission itself – for example, who gets to define what a ‘green city’ might look like?
The philosopher Hannah Arendt developed the concept of the common good and public value – mentioned above – into an active participatory one with her concept of vita activa.46 Her idea was that citizens should engage in public affairs, as this is the only way to escape totalitarianism and alienation in mass-production capitalism: here the idea of common good is reflected in the idea of an active citizen. But vita activa also means the need for society to be open to real debate, the contestation of ideas and explicit conflicts over values. For Arendt this was a good thing (as it was for ancient Greek political philosophy). Participation is not a silent, harmonious process. Economic theory, on the other hand, does not think about participation, which is left to those areas of political science focused on participatory institutions.
A great advocate of locally engaged citizens and the institutional structures that help them was Alexis de Tocqueville. In Democracy in America (1835) he identifies a key feature of American democracy as its participatory public and argues that this is the great strength of the American political system:
It is extremely difficult to obtain a hearing from men living in democracies, unless it be to speak to them of themselves. They do not attend to the things said to them, because they are always fully engrossed with the things they are doing. For indeed few men are idle in democratic nations; life is passed in the midst of noise and excitement, and men are so engaged in acting that little remains to them for thinking. I would especially remark that they are not only employed, but that they are passionately devoted to their employments. They are always in action, and each of their actions absorbs their faculties: the zeal which they display in business puts out the enthusiasm they might otherwise entertain for idea.47
Alas, de Tocqueville’s truths about America are under threat. As Robert Putnam puts it, ‘declining electoral participation is merely the most visible symptom of a broader disengagement from community life. Like a fever, electoral abstention is even more important as a sign of deeper trouble in the body politic than as a malady itself. It is not just from the voting booth that Americans are increasingly AWOL.’48 Nevertheless, we do increasingly see social movements having a large effect on how society develops in progressive ways – from the Fridays for Future (FFF) students fighting against the climate crisis to Black Lives Matter (BLM), which argues for a new social contract between races; but also, more widely, a renewed attention to all forms of inequalities and the investments and new structures needed to eliminate them.
The political scientist Ronald Inglehart argues that ‘One frequently hears references to growing apathy on the part of the public … These allegations of apathy are misleading: mass publics are deserting the old-line, oligarchical political organizations that mobilized them in the modernization era – but they are becoming more active in a wide range of elite-challenging forms of political action.’49 Political consumerism, contentious activity, deliberative action and online participation have all increased since the halcyon days of the early 1960s. From this perspective, America is potentially witnessing a renaissance of democratic engagement rather than a general decline in participation.50
Participation requires reimagining the future together. For this reason, it is vital to bring different voices to the table, not only to react to a mission but to design it. Today, for example, labour unions are interacting with the green transition through the concept of the ‘just transition’, discussed in Chapter 5. But the real challenge is to make sure that the designing of missions crosses class boundaries. The reaction against the ‘elite’ is a wakeup call to the way in which many feel disenfranchised from the process of creation, having only to react to its consequences.
Finally, true participation requires systems to be open to change and adaptation based on the feedback received. Otherwise the participation – and feedback – is only tokenistic. Open-endedness must be a feature both of how systems are designed and how they work in practice. Open systems are more reactive to what can be seen as a counterveiling power, i.e. dissension. To avoid missions becoming the pet project of a minister or a tyrant, it is important to embed experimentation into the design of the system and to inform that experimentation – and learning from differences – from real participation. The European Union, for example, cannot dictate how cities become carbon-neutral: that must be discovered by the cities and their participants and organizations themselves.
Understanding systems change requires understanding the relationship between the parts and the whole. Complexity science looks at how the way in which agents (a fancy word for people!) interact in a system determines a macro structure (the surrounding environment) which feeds back to the micro (individual) interaction.51 The lens of complexity theory, similar to the evolutionary approach to the economy inspired by the work of Joseph Schumpeter, emphasizes differentiation between the actors in a system and the competitive processes of selection which only allow some to grow. It also looks at how initial conditions (historical circumstances) might set a feedback loop that causes systems to ‘lock in’ and get stuck. This emphasis is different from the lens of mainstream economics, where the focus is not on differentiation but on average agents, and not on disequilibrium but on equilibrium and ideal outcomes. In the same way that complexity theory has greatly helped us in recent years to understand dynamic phenomena such as asset-price bubbles and crashes,52 and system lock-in due to network effects, it can also help us understand ways in which public and private actors co-create change. Missions need to be open to uncertainty, while being able to carry out long-run planning and working across departments. Governments can fail to adapt to change due to their inability to take risks and welcome uncertainty, but especially their work within silos – closed to feedback loops. Open systems are full of uncertainty and ambiguity. And the more a system is participatory, the more it is open.
Hence the more need there is to adapt to the underlying complexity. Elsewhere I have summed up the dynamic capabilities that governments need to govern a market-shaping process in terms of ROAR.53 ROAR is an acronym that stands for four key areas that can guide mission-oriented organizations:
R: Routes and directions: setting a direction of change, which motivates innovation across different parts of the economy;
O: Organizations: building decentralized networks of explorative organizations that can learn-by-doing and welcome trial and error, forming dynamic partnerships with private and third-sector partners;
A: Assessment: evaluating the dynamic impact of market-creating investments, going beyond static cost–benefit analysis, and capturing the dynamic spillovers;
R: Risks and rewards: forming symbiotic deals between public and private sectors so that both risks and rewards are shared.
M I S S I O N E C O N O M Y, A Moonshot Guide to Changing Capitalism, 2021, Good Theory, Good Practice: Seven Principles for a New Political Economy
1 http://newstoryhub.com/2019/04/it-will-take-cathedral-thinkinggreta- thunbergs-climate-change-speech-to-european-parliament- 16-april-2019/ (accessed 1 May 2020).
2 Conway, R. “How to be adaptive in government’, UCL IIPP blog, https://medium.com/iipp- blog/purpose-driven-innovation-in-atime- of-covid-19-296e9d05cb (accessed 1 July 2020).
3 J. K. Galbraith, Economics and the Public Purpose (Boston: Houghton Mifflin, 1973), p. 4.
4 See Chapters 8 and 9 in M. Mazzucato, The Value of Everything: Making and Taking in the Global Economy (London: Allen Lane, 2018).
5 Ibid.
6 B. Bozeman, Public Values and Public Interest: Counterbalancing Economic Individualism (Georgetown, Washington, DC: Georgetown University Press, 2007), p. 15.
7 W. M. Cohen and D. A. Levinthal, ‘Absorptive Capacity: A New Perspective on Learning and Innovation’, Administrative Science Quarterly, 35 (1) (1990), pp. 128–52.
8 https://www.project-syndicate.org/commentary/covid-vaccinesfor- profit-not-for-people-by-mariana-mazzucato-et-al-2020-12
9 M. Mazzucato, R. Conway, E. Mazzoli, E. Knoll and S. Albala, ‘Creating and Measuring Dynamic Public Value at the BBC’, UCL Institute for Innovation and Public Purpose, Policy Report (IIPP WP 2020-16) https://www.ucl.ac.uk/bartlett/publicpurpose/ wp2020-16
10 M. Mazzucato and R. Kattel, ‘Getting Serious About Value’, UCL Institute of Innovation and Public Purpose (IIPP PB 07, 2019) https://www.ucl.ac.uk/bartlett/publicpurpose/ publications/2019/jun/getting-serious-about-value
11 E. Penrose, The Theory of the Growth of the Firm (Oxford, Basil Blackwell, 1959).
12 D. Teece, G. S. Pisano and A. Shuen, ‘Dynamic Capabilities and Strategic Management’, Strategic Management Journal, 18 (7) (1997).
13 M. E. Porter, Competitive Advantage of Nations: Creating and Sustaining Superior Performance (New York: Simon and Schuster, 2011).
14 As discussed in Chapter 2, the intellectual origins of such reforms can be traced back to the theory of public choice, as expounded by James M. Buchanan and Gordon Tullock in The Calculus of Consent: Logical Foundations of Constitutional Democracy (Ann Arbor: University of Michigan Press, 1962). For a critical overview see Wolfgang Drechsler, ‘The Rise and Demise of the New Public Management’, PAE Review, 2005 http://www.paecon.net/PAEReview/issue33/Drechsler33.html
15 W. M. Cohen and D. A. Levinthal, ‘Absorptive Capacity: A New Perspective on Learning and Innovation’, Administrative Science Quarterly, 35 (1) (1990), pp. 128–52.
16 R. R. Nelson and S. G. Winter, An Evolutionary Theory of Economic Change (Cambridge, MA: Harvard University Press, 1982).
17 All of the points made in this section are developed further in M. Mazzucato, Governing Missions in the European Union (Luxembourg: European Commission, Directorate-General for Research and Innovation, 2019) https://ec.europa.eu/info/sites/info/files/research_and_innovation/contact/documents/ec_rtd_mazzucato-report-issue2_072019.pdf and R. Kattel and M. Mazzucato, ‘Mission-oriented Innovation Policy and Dynamic Capabilities in the Public Sector’, Industrial nd Corporate Change, 27 (5) (2018), pp. 787–801 https://doi.org/10.1093/icc/dty032
18 R. S. Lindner, S. Daimer, B. Beckert, N. Heyen, J. Koehler, B. Teufel, P. Warnke and S. Wydra, ‘Addressing Directionality: Orientation Failure and the Systems of Innovation Heuristic. Towards Reflexive Governance’, Fraunhofer ISI Discussion Papers Innovation Systems and Policy Analysis no. 52, 2016.
19 M. Grillitsch, B. Asheim and M. Trippl, ‘Unrelated Knowledge Combinations: Unexplored Potential for Regional Industrial Path Development’, Papers in Innovation Studies, Lund University, Center for Innovation, Research and Competences in the Learning Economy, 2017/10; OECD, Systems Approaches to Public Sector Challenges. Working with Change (Paris: OECD Publishing, 2017) http://dx.doi.org/10.1787/9789264279865-en.
20 A. Rip, ‘A Co-evolutionary Approach to Reflexive Governance –and its Ironies’, in J.-P. Voss, D. Bauknecht, and R. Kemp (eds), Reflexive Governance for Sustainable Development (Cheltenham, UK and Northampton, MA: Edward Elgar, 2006). 21 M. Mazzucato, R. Kattel and J. Ryan-Collins, ‘Challenge-driven Innovation Policy: Towards a New Policy Toolkit’, Journal of Industry, Competition and Trade, 1 (17) (2019) https://doi.org/10.1007/s10842-019-00329-w
22 https://www.youtube.com/watch? v=DNCZHAQnfGU&feature=youtu.be (accessed 17 July 2020) 23 The reasoning in this paragraph comes from S. Kelton, The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy (New York: Public Affairs, 2020).
24 W. Mosler, Soft Currency Economics II: What Everyone Thinks That They Know About Monetary Policy Is Wrong (Christiansted, USVI: Valance, 2012).
25 https://www.theguardian.com/world/2020/jun/22/britain-nearlywent-bust-in-march-says-bank-of-england (accessed 2 July 2020).
26 It should be noted that it is not so easy for developing countries with external debt in a currency other than their own to ‘create’ money. They need to use a mission-oriented approach to restructure their economies to reduce dependency on imports of essential goods and services such as food and energy. As long as they remain dependent on imports for those goods and services, then their own sovereign currency will also be dependent on the currency in which their external debt is denominated.
27 S. Kelton, ‘As Congress Pushes a $2 Trillion Stimulus Package, the “How Will You Pay for It?” Question Is Tossed in the Trash’, The Intercept, 27 March 2020 https://theintercept.com/2020/03/27/coronavirus-stimuluspackage- spending/ (accessed 1 April 2020).
28 http://www.levyinstitute.org/publications/the-macroeconomiceffects- of-student-debt-cancellation (accessed 2 July 2020).
29 M. Deleidi and M. Mazzucato, ‘Mission-oriented Innovation Policies and the Supermultiplier: An Empirical Assessment for the US Economy’, forthcoming in Research Policy.
30 P. Quattrone, ‘Accounting for God: Accounting and Accountability Practices in the Society of Jesus (Italy, XVI–XVII Centuries)’, Accounting, Organizations and Society, 29 (7) (2004), pp. 647–83.
31 J. Hacker, ‘How to Reinvigorate the Centre-Left: Predistribution’ https://www.theguardian.com/commentisfree/2013/jun/12/reinvig orate-centre-left-predistribution (accessed 2 July 2020).
32 W. Lazonick and M. Mazzucato, ‘The Risk–Reward Nexus in the Innovation–Inequality Relationship: Who Takes the Risks? Who Gets the Rewards?’, Industrial and Corporate Change, 22 (4) (2013), pp.1093–1128.
33 M. Mazzucato, ‘We Socialise Bailouts. We Should Socialise Successes, Too.’ https://www.nytimes.com/2020/07/01/opinion/inequalitygoverment- bailout.html (accessed 2 July 2020).
34 The US Must Take Equity Stakes in the Companies it Rescues’, https://on.ft.com/37sfq8P via @FT (accessed 1 December 2020). And also this for background on the bigger topic: D. Detter, S. Fölster and J. Ryan-Collins, ‘Public Wealth Funds: Supporting Economic Recovery and Sustainable Growth’, UCL Institute for Innovation and Public Purpose, IIPP Policy Report (IIPP WP 2020-16), available at: https://www.ucl.ac.uk/bartlett/publicpurpose/ wp2020-16
35 All these are discussed in Chapter 8 of Mazzucato, The Value of Everything.
36 Ibid.
37 G. Charreaux and P. Desbrières, ‘Corporate Governance: Stakeholder Value versus Shareholder Value’, Journal of Management and Governance, 5 (2) (2001), pp.107–28.
38 https://www.statnews.com/2020/06/10/collective-intelligence-notmarket- competition-deliver-best-covid-19-vaccine/ (accessed 1 July 2020).
39 W. J. Baumol, ‘Entrepreneurship: Productiv e, Unproductive, and Destructive’, Journal of Business Venturing, 11 (1) (1996), pp. 3– 22.
40 https://www.latimes.com/business/la-fi-hy-musk-subsidies- 20150531-story.html (accessed 1 April 2020).
41 https://astronomy.com/news/2018/12/despite-concerns-spacejunk-continues-to-clutter-earth-orbit (accessed 13 March 2020).
42 https://www.project-syndicate.org/commentary/platformeconomy-
digital-feudalism-by-mariana-mazzucato-2019-10 (accessed 1 May 2020).
43 S. Zuboff, The Age of Surveillance Capitalism: The Fight for a Human Future at the New Frontier of Power (London: Profile Books, 2019).
44 K. Raworth, Doughnut Economics: Seven Ways to Think like a21st-century Economist (White River Junction, VT: Chelsea Green Publishing, 2017).
45 C. Perez, ‘Transitioning to Smart Green Growth: Lessons from History’, in R. Fouquet (ed.), Handbook on Green Growth (Cheltenham: Edward Elgar, 2019), pp. 447–63.
46 H. Arendt, The Human Condition (Chicago: University of Chicago Press, 1958).
47 A. de Tocqueville (translated by R. Howard), Democracy in America (New York: J. & H. G. Langley, 1840).
48 Robert Putnam, Bowling Alone: The Collapse and Renewal of American Community (New York: Simon and Schuster, 2000), Chapter 2. Also Robert Putnam, Our Kids: The American Dream in Crisis (New York: Simon and Schuster, 2015); J. E. Leighley and J. Nagler, Who Votes Now? (Princeton, NJ: Princeton University Press, 2014).
49 Ronald Inglehart, Modernization and Post-Modernization (Princeton, NJ: Princeton University Press, 1997), p. 307; Russell Dalton, The Good Citizen: How a Younger Generation is Reshaping American Politics (2nd edn, Washington, DC: CQ Press, 2015), Chapter 4; Cliff Zukin et al., A New Engagement? (New York: Oxford University Press, 2006).
50 Dalton, The Good Citizen, Chapter 4; Zukin et al., A New Engagement?
51 W. B. Arthur, ‘Complexity and the economy’, Science, 284(5411) (1999), pp.107–9.
52 W. B. Arthur, ‘Complexity in Economic and Financial Markets’, Complexity, 1(1) (1995), pp. 20–25.
53 These questions are developed in M. Mazzucato ‘From Market Fixing to Market-Creating: A New Framework for Innovation policy’, special issue of Industry and Innovation: ‘Innovation Policy – Can it Make a Difference?’, 23 (2) (2016), and M. Mazzucato, ‘Mission-oriented Innovation Policy: Challenges and Opportunities’, Industrial and Corporate Change, 27 (5) (2018), pp. 803–15.
