The Value of
Everything: Making and Taking in the
Global Economy
by Mariana
Mazzucato
Review by
Dave Gamrath
Book Review:
Author
Mariana Mazzucato provides the reader extensive history of the evolution of
economic thought around production, wealth and value. Broadly-agreed-to “rules” for measuring
economic performance have significantly evolved over time, including changes as
to what is truly productive, what really adds value to an economy (and thus to
society), and how polices should be structured to enhance economic
performance. Mazzucato argues that the
rules have been altered to bias private and corporate wealth at the expense of
the public. These manipulations have had
significant impact on our widening wealth and income gaps, and intense lobbying
continues to keep policies in favor of the wealthy.
Mazzucato
argues that “value” used to be, and should still be, at the core of economic
thinking. Value creation is the process
from which wealth is created. Mazzucato defines
value creation as how resources (human, physical and intangible) are used to
produce new goods and services. This is opposed
to “value extraction” where one just moves around existing resources and gains
disproportionately from the transaction, without creating any new value. Mazzucato claims that how society defines
value is determined through politics, thus measurements of value and economic
performance are not objective, but politicized and biased to favor those in
power.
Over
the centuries, how Economists have measured production and value has
changed. These changes have been led by
Economists who pushed for value driving pricing instead of price driving value. Thus, if any activity receives a price, it is
viewed as creating a corresponding value:
whatever you can get is what you are worth. What’s the impact of this? A staggering rise in inequality within
society, and a corresponding reduction of investment in our real economy. This change has led to activities that are in
fact “value-extracting” to be seen as “value-creating”, and rewarded as such. It has led to unearned income (such as rents)
being confused with profits. Our economy
currently rewards value extractors over true wealth creators. Value-extractors often charge as much as possible,
often through monopolies or exploiting workers.
They don’t actually create value, yet they are often rewarded
magnificently. A prime example of a
value-extracting industry is the Financial sector, which has grown into a
“colossus”. Since the 1970s, we have
seen an explosion of the impact banks have had on our economy, including
driving us into the 2008/2009 Great Recession and costing society trillions,
while at the same time making bankers fabulously wealthy. Mazzucato states that instead of benefiting
production, finance has devolved into a casino striving to suck as much wealth
as possible out of the system for itself, while striving to lobby government to
remove regulations that might inhibit their growth (as well as inhibit the next
great financial crash). Mazzucato
dedicates an extensive part of the book to detailing the rise of the financial
sector, and it’s resulting impact on expanding the wealth and income gap while
putting incredible risk onto society.
The
term we use to measure economic performance is Gross Domestic Product, or
GDP. What goes into GDP is critical, for
what we measure directly impacts what we do.
How we measure GDP is impacted by what we value. If you manipulate what goes into GDP, you can
manipulate resulting government policies to your own benefit. Mazzucato defines different ways to measure
GDP, including how we currently measure it and the resulting policies that hurt
our society. Critical aspects of our
society and economy, such as happiness, environmental damage, providing care
and housework don’t get measured, and thus “don’t count”. Mazzucato calls the approach of those in
charge of how we count GDP as a “hodge-podge”, indiscriminately attributing
productivity to anyone making a lot of money, while downplaying the less
fortunate, and driving policies to favor the rich, such as bankers.
Mazzucato
uses the term “production boundary” and activities within this boundary are considered
productive. Activities outside this
boundary are considered unproductive. Economists
have viewed government activities as outside the production boundary, and
current definitions of “what is productive” continue to label government as
wasteful and an inhibitor to the free market.
Continually ignored are real contributions provided by government, such
as investment in new technologies, health and education. IT giants such as Apple, Google, Microsoft
and Facebook have made much of their fortunes based on technologies originally
funded and developed by taxpayers in government research programs. These IT giants are viewed as society’s great
innovators and deserving of the billions in wealth they have amassed. They, like other companies, have worked
extensively to avoid paying taxes, effectively striving to resist not paying
back society for society’s investment in the technological innovation upon
which these companies depend. They
relocate to different states, and even to different countries, in efforts to
avoid paying taxes. This behavior is
also exhibited by other industries that have relied on, and profited from,
government investment. In the healthcare
industry, pharmaceuticals charge outrageous prices for drugs that they have
patented, where often the initial crucial research on the medicine was
conducted by the government at taxpayer expense.
Mazzucato
defines how taxpayer investment in innovation is critical. The “free market” will rarely invest in
innovation that is risky or has a long-term payback period. Lobbyists push hard for government to make
these investments, to put the cost and risk on taxpayers. Once new technologies are developed, the
private sector (“free market”) steps in and runs with them, and can become
fabulously wealthy from them. Then,
instead of willingly paying the government back by paying owed taxes, companies
feverishly avoid taxes, while at the same time attacking government for
regulations “restricting the free market”.
The companies invest millions in lobbying for both less regulations and
more government investment in their industry, then do their best to not help
pay for this. Through extensive public
relations efforts, this behavior is viewed as common sense, and this cycle
continues, at the expense of the public.
Mazzucato argues that society needs a formal redefining of government
efforts, to acknowledge government’s critical and value-creating outcomes, and
to halt the endless attack by business on government. She provides many examples of government
value-creating, including bank bailouts, infrastructure, education and basic
science, as well as stimulating demand during a recession. She argues for taxpayers being better
compensated for their investments, and for redefining patent laws to keep companies
from monopolizing innovations that often began with government research. Mazzucato also shows how often government
outsourcing profits private industry while hurting taxpayers and broader
society.
The
norms and rules for viewing how corporations should behave have also evolved
over time. Today maximizing shareholder-value
(MSV) is the driving initiative, under the theory that it is really the
shareholder that takes the most risk and thus needs to be the focus of rewards,
at the expense of other key company stakeholders such as customers, suppliers,
employees and the communities where the corporations exist. To enhance MSV, corporations typically engage
in paying greater dividends and in stock share buybacks, trying to drive up
stock prices and thus shareholder value.
These decisions take needed monies away from investing in the company,
in research and development or in employees, while fabulously benefiting
corporate executives that are often rewarded based with company stock. The rich get richer, and inequality
rises. Mazzucato stresses the need to
refocus corporations away from MSV and towards maximizing “stakeholder” value: employees, community, suppliers and
customers.
Mazzucato
closes with a discussion on the “economics of hope”, including various ways the
state can reap some return on our taxpayer investments, such as equity holding
and caps on prices. She stresses the
need to return to the days of government “thinking big” as it did in the 1960s
with the space program, and how through this government can not only create
value, but also hope. Mazzucato points
out how even Progressives mistakenly define wealth creators as only being in
the private sector. As a result, those
that claim to be wealth creators dominate government attention with their
mantra of “lower taxes, less regulations, less state and more market!” Instead, Mazzucato argues we need a new type
of economy that focuses on the common good.
This not only includes redefining GDP to include quality-of-life
indicators, and greater taxation on wealth, but also to redefine wealth
creation so that value-extraction is less able to pass as value-creation. Mazzucato provides extensive details and
history in her arguments, not only giving the reader a good lesson in
economics, but also in our current political system.
Reviewer Opinion:
An
often hard chew, but worth the effort
Reviewer Rating of Book:
Thumb
up