The Value of Everything: Making and Taking in the Global Economy

by Mariana Mazzucato

in presenting themselves as modern-day heroes, and justifying their record profits and cash mountains, Apple and other companies conveniently ignore the pioneering role of government in new technologies. Apple has unashamedly declared that its contribution to society should not be sought through tax but through recognition of its great gizmos. But where did the smart tech behind those gizmos come from? Public funds. The Internet, GPS, touchscreen, SIRI and the algorithm behind Google – all were funded by public institutions.

The barbarous gold barons – they did not find the gold, they did not mine the gold, they did not mill the gold, but by some weird alchemy all the gold belonged to them.

In King’s view, the unproductive masses, representing slightly more than half the total population, were leeches on the public wealth because they consumed more than they produced.

Workers, in other words, are exploited because capitalists pocket the surplus value workers produce over and above their subsistence requirements.

creating it. Landlords do not create the soil but they can generate income from their right to exclude from the land others (capitalists) who might use it to produce value.

Socialist critiques of value theory were multiplying even before Marx wrote Capital. A group called the ‘Ricardian socialists’ used Ricardo’s labour theory of value to demand that workers get better wages. They included the Irishman William Thompson (1775–1833), Thomas Hodgskin (1787–1869) and John Gray (1799–1883), both British, and John Bray (1809–97), who was born in the US but worked for part of his life in Britain. Together, they made the obvious argument that if the value of commodities derives from labour, the revenue from their sale should go to workers.

The marginal utility theory of value states that all income is reward for a productive undertaking.

No wonder the rich like it!

all types of accounting methods are evolving social conventions, defined not by physical laws and definite ‘realities’ but reflecting the ideas, theories and ideologies of the age in which they are devised.

Rent – which was regarded as unearned income – was classified as a transfer from the productive to the unproductive sector, and was therefore excluded from GDP. But if, as marginal utility holds, the ‘services’ of a landlord or hedge fund manager are treated as productive, they magically become part of GDP.

Yeah, it still sounds like neoclassical economics is the rich trying to justify themselves.

The marginalist theory of value underlying contemporary national accounting systems leads to an indiscriminate attribution of productivity to anyone grabbing a large income, and downplays the productivity of the less fortunate. In so doing, it justifies excessive inequalities of income and wealth and turns value extraction into value creation.

only about 3 per cent of the money in the UK economy is cash (or what is sometimes called fiat money, i.e. any legal tender backed by government). Banks create all the rest.

Today, the economic mainstream continues to argue that the bigger (measured by the number of actors) or ‘deeper’ financial markets are, the more likely they are to be efficient, revealing the ‘true’ price and therefore value of an asset in the sense defined by the Nobel Prize-winning US economist Eugene Fama.31 An ‘efficient’ market is, in Fama’s definition, one that prices every asset so that no further profit can be made by buying and reselling it.

That's absurd.

By 2016, total cumulative household borrowing in the UK had reached £1.5 trillion – about 83 per cent of national output, and equivalent to nearly £30,000 for each adult in the land – well above average earnings.39

A 2017 Oxfam report, An Economy for the 99%, found that in 2016 eight men own the same wealth as the poorest half of the world’s population.

In the UK, the asset management industry accounted for £5.7 trillion by the end of 2015, more than three times the size of GDP in the same year.

In the 2000s, for example, the US arm of Ford made more money by selling loans for cars than by selling the cars themselves.

There is no doubt that the incentive to generate fees – from advising, analysing and auditing companies, for example – resulted in collusion and conflicts of interest between the gatekeepers and the public corporations that led to failures of governance.

Reinvestment of profits back into the real economy – rather than hoarding or engaging in share buy-backs – should be a condition attached to any type of government support, whether through subsidies or government grants and loans.

When trade union representatives sit on the boards of companies, they are more likely to demand that any sacrifices in wages are compensated by higher investments in areas that eventually create more and better jobs.

As The Economist has observed: ‘Patents are supposed to spread knowledge, by obliging holders to lay out their innovation for all to see … Instead, the system has created a parasitic ecology of trolls and defensive patent-holders, who aim to block innovation, or at least to stand in its way unless they can grab a share of the spoils.’

What is not being pointed out, however, is that the principle that a specialty drug’s price should equal the costs it saves society is fundamentally flawed. If we took such a principle seriously, basic therapies or vaccines should cost a fortune. For that matter, how high should the price of water be, given its indispensable value to society?

If something is free online, you are not the customer, you are the product.65 Facebook’s and Google’s business models are built on the commodification of personal data, transforming through the alchemy of a two-sided market our friendships, interests, beliefs and preferences into sellable propositions. The so-called ‘sharing economy’ is based on the same idea. For all the hype about ‘sharing’, it is less about altruism and more about allowing market exchange to reach into areas of our lives – our homes, our vehicles, even our private relationships – that were previously beyond its scope and to commodify them.

Companies like Google are de facto monopolies.74 But they are not recognized as such and have not attracted the kind of anti-trust legislation that large companies in more traditional industries

The low rates of tax that technology companies are typically paying on these rewards are also paradoxical, given that their success was built on technologies funded and developed by high-risk public investments.75 If anything, companies owing their fortunes to taxpayer investment should be repaying the taxpayer, not seeking tax breaks.

regulation is not about interference, as is commonly perceived, but about managing a process that produces the results that are best for society as a whole.

‘If we are generous with ourselves,’ Simon considered, ‘I suppose that we might claim that we “earned” as much as one-fifth of our income. The rest of the patrimony [is] associated with being a member of an enormously productive social system, which has accumulated a vast store of physical capital, and an even larger store of intellectual capital – including knowledge, skills, and organizational know-how held by all of us.’

After the 2008 financial crash – a crisis chiefly brought about by private, not public, debt – governments saved the capitalist system from breakdown. Not only did they pump money into the financial system: they took over private assets. A few months after Lehman Brothers collapsed, the US government was in charge of General Motors and Chrysler, the British government was running high street banks and, across the OECD, governments had committed the equivalent of 2.5 per cent of GDP to rescuing the system. And yet, even though the crisis was caused by a combination of high private debt and reckless financial-sector behaviour, the extraordinary policy conclusion was that governments were to blame – despite the fact that, through bailouts and counter-cyclical stimulus, they had saved the financial system from crumbling.

this fixation on austerity to reduce debt misses a basic point: what matters is long-run growth, its source (what is being invested in), and its distribution (who reaps the rewards). If, through austerity, cuts are made to essential areas that create the capacity for future growth (education, infrastructure, care for a healthy population), then GDP (however ill defined) will not grow.

politicians and technocrats eager to ‘balance’ public spending seized on Reinhart and Rogoff’s research, which proved highly influential in the post-2008 crisis debate about austerity measures. In his Federal Budget Plan for 2013, passed by the US House of Representatives, the Republican Congressman Paul Ryan cited the study as evidence for the negative impact of high government debt on economic growth. It also informed austerity policies proposed by then UK Chancellor George Osborne and the EU Economy Commissioner, Olli Rehn. Also in 2013, as part of his PhD studies, Thomas Herndon, a twenty-eight-year-old student at the University of Massachusetts Amherst, tested Reinhart and Rogoff’s data.6 He couldn’t replicate their results: his calculations showed no steep drop in growth rates when debt was high. Examining the professors’ data sheet, Herndon found a simple spreadsheet error. He also discovered inconsistencies in the countries and data cited.

Wow.

For the last two decades Italy’s budget deficit has been lower than Germany’s, rarely exceeding the 3 per cent limit specified for euro membership. Indeed, Italy has been running a primary budget surplus since 1991, the only exception being 2009. And yet Italy has a high and rising debt/GDP ratio: 133 per cent in 2015,9 way above the 60 per cent ceiling. The ratio is less affected by the numerator (the budget deficit) than by the lack of public and private investment determining the denominator (growth of GDP).

Developed by Keynes’s Cambridge student and colleague Richard Kahn (1905–1989) and used by Keynes himself, it formalized the idea that government spending would stimulate the economy. Quite literally: every pound that the government spent would be multiplied, because the demand it created would lead to several rounds of additional spending.

Through PFI, private companies were allowed to build hospitals which were then rented back to the NHS for a substantially high price. PFI was widely used throughout the ‘New Labour’ governments to save on infrastructure investment, with the renting price of hospitals subsequently burdening the NHS budget.

Noam Chomsky has called the ‘standard technique of privatization: ‘defund, make sure things don’t work, people get angry, you hand it over to private capital’.

Social Enterprise UK, which promotes organizations such as the Big Issue, Cafédirect and the Eden Project, has referred to the oligopoly of outsourcing providers as the ‘Shadow State’. Capita, G4S and Serco continue to win contracts in both the UK and US, even though they have all been fined for improper management.60 In 2016, for example, an investigative article revealed that G4S has been fined for at least 100 breaches of prison contracts between 2010 and 2016, including ‘failure to achieve search targets, smuggling of contraband items, failure of security procedures, serious cases of “concerted indiscipline”, hostage taking, and roof climbing. Other cases include failure to lock doors, poor hygiene and a reduction in staffing levels.’61

Public institutions can reclaim their rightful role as servants of the common good. They must think big and play a full part in the great transformations to come, squaring up to the issues of climate change, ageing populations and the need for twenty-first-century infrastructure and innovation. They must get over the self-fulfilling fear of failure, and realize that experimentation and trial and error (and error and error) are part of the learning process. With confidence and responsibility, they can expect success, and in so doing will recruit and retain top-quality employees. They can change the discourse. Instead of de-risking projects, there will be risk-sharing – and reward-sharing.