In “The Value of Everything: Making and Taking in the Global Economy,” Mariana Mazzucato, a University College London economics professor, makes a strong and detailed argument that the current methods for measuring our society’s production, wealth and value have been manipulated in favor of promoting private wealth at expense of the public good. Mazzucato provides history of the evolution of economic thought around production, wealth and value. Broadly agreed-to “rules” for measuring economic performance have 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 points out that the systemic altering of rules and manipulations have had significant impact on our widening wealth- and income-gaps. Lobbyists then maintain these policies that favor the wealthy.
“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 human, physical and intangible resources are used to produce goods and services. This is opposed to “value extraction,” where one just moves existing resources and gains disproportionately from the transaction, without creating any new value. Mazzucato claims that how society defines value is determined through politics, which in turn favors those in power.
Our economy currently rewards value extractors over true wealth creators. Value extractors 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, the impact of that behemoth has been felt unevenly across strata of our society, a fact made evident during the 2008 Great Recession that cost society a fortune while enriching the bankers who caused it. Instead of benefiting production, finance has devolved into a casino, which is striving to suck as much wealth as possible out of the system for itself while intensely lobbying governments to remove regulations that might inhibit its growth — regulations that might just prevent the next great financial crash.
Our best known measure of economic performance is Gross Domestic Product (GDP). 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 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.
Many economists 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. Taxpayer investment in innovation is critical because the free market will rarely invest in innovation that is risky or has a long-term payback period. Once new technologies are developed with taxpayer assistance, the free-market private sector steps in, becomes fabulously wealthy, then feverishly avoids paying any corporate tax.
Mazzucato argues that society needs a formal redefining of government efforts, to acknowledge government’s critical and value-creating outcomes, and to halt endless attacks by business on government. She provides many examples of government value-creating, including bank bailouts, infrastructure, education and basic science, which includes development of the internet and GPS. She argues that taxpayers should be better compensated for these investments.
The norms and rules for viewing how corporations should behave have also evolved over time. Today maximizing shareholder-value (MSV) is the driving initiative, 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 away from investing in the company or in employees, while fabulously benefiting corporate executives who are often rewarded with company stock. The rich get richer, and inequality rises. Mazzucato stresses the need to refocus corporations away from MSV and toward 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. She stresses the need to return to the days of government “thinking big” as it did in the 1960s with the space program. By doing so, government can not only create value, but also hope.
Mazzucato describes how those who 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. She provides details and history in her arguments, which gives the reader a good lesson in economics. It also frankly describes our current political system.
Read the full April 10 - 16 issue.
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