Should Countries Profit Each Time You Buy an iPhone? This Economist Says Yes
WHY YOU SHOULD CARE
Economist Mariana Mazzucato thinks the government should get a cut when it backs technologies that turn massive profits.
By Ali May
The iPhone would not be such a smart phone without GPS, a touch screen or the internet. And who funded the development of those technologies? U.S. taxpayers, observes Mariana Mazzucato, who believes the state can be the boldest innovator, and ignoring it in Silicon Valley mythmaking is “extremely dangerous.” She points out that even the lengthy authorized biography of Steve Jobs by journalist Walter Isaacson “didn’t have one page, one paragraph, one sentence, one little word on any of those public investments.”
Mazzucato, 50, who is the founder and director of the University College London (UCL) Institute for Innovation and Public Purpose, wants to be clear that she does not consider Apple a parasite or Jobs and other entrepreneurs unimportant. They put together existing technology in new ways and fantastic products, but profits that come from selling those products, she argues, should reflect a collective effort.
“Why shouldn’t the government retain some equity in some of the upside to fund the downside?” This question has created tension among economists, even those who agree with Mazzucato on government investment, she says. “My model is a mission-oriented stakeholder model of capitalism where value is created collectively.”
Mariana’s work reveals the root of the problems, shows the practical solutions and then fights for them.
Carlota Perez, professor of technology and development
The notion of the entrepreneurial state — also the title of a book by Mazzucato — has attracted a lot of criticism.
“There is a role for the government to fund basic science and support research and development through the tax system,” says Sam Dumitriu, head of research at the Adam Smith Institute. “I don’t think her policy recommendations follow from her story.” Dimitriu, whose interests include emerging technologies and corporate tax reform, adds that “putting the complexity of turning the government into a VC fund to one side, taking stakes in innovative companies, would in effect reduce the incentive to invest in or found an R&D–intensive company.”
But Mazzucato’s model of this new type of capitalism is a result of what she sees as one of the fundamental problems with modern economies: the blurring line between value creation and extraction. “By not actually having a contested argument about ‘what is value?’ it becomes really easy for the wealth creators to talk about themselves using these words and, in the process, we confuse value extraction with value creation or rents with profits,” she says.
In her new book The Value of Everything, published in the U.S. last month, Mazzucato explains the concept of value extraction — also referred to as rent-seeking — as overcharging for a good or service rather than producing anything new, and blocking competition: “The ‘takers’ winning out over the ‘makers,’ and ‘predatory’ capitalism winning over ‘productive’ capitalism.” Examples include the banks and other financial institutions that are seen as profiting from speculative activities based on little more than buying low and selling high, or buying and then stripping productive assets simply to sell them again with no real value added.
She acknowledges that there is a distinction between different breeds of value extractors. On Wall Street or in the city of London, there are financial figures who actually impede growth. The West Coast story is a little different. There are productive actors in Silicon Valley who get a lot of credit for what they have created, but they seem to willfully hide the real story about the other contributing sources of that value.
Mazzucato’s views have also gained her staunch allies. Carlota Perez, professor of technology and development at various universities, including the London School of Economics, praises her colleague’s “uncanny capacity to see the essence of what’s really going on behind what has become conventional wisdom.”
“I think she’s stronger than [Thomas] Piketty,” Perez adds, referring to the French economist whose 2014 book on income inequality was an unexpected best-seller. “His very powerful depiction of inequality brought the spotlight onto a serious 21st-century problem but did not offer any way out beyond taxing wealth. Mariana’s work reveals the root of the problems, shows the practical solutions and then fights for them, working with the decision-makers.”
International organizations and governments are taking notice. Earlier this year, the European Commission published a report Mazzucato wrote, titled “Mission-Oriented Research & Innovation in the European Union.” Now a legal document in the EU, it has been dubbed the “Mazzucato Report.” She has also advised the Scottish government since 2016, helping inspire its plans to create a national investment bank by 2020.
Mazzucato was born in Italy on a summer’s day in 1968. The family moved to Princeton, New Jersey, when she was 5 because of her father’s work as a nuclear physicist. Her mother, who had been a political scientist in Italy, decided not to work after the move, instead becoming a pillar of the Italian community in Princeton. Mazzucato feels rather conflicted about her identity.
“I don’t feel American in America,” she says. “I don’t feel Italian in Italy. I definitely don’t feel British in the U.K., but I do feel very London.” The part about not feeling British rings true at the time of Brexit, which she considers “foolish.” A graduate of Tufts University in Boston and the New School in New York City, Mazzucato climbed the ranks in academia mostly in the U.K., earning the professorship at UCL last year.
In her spare time, Mazzucato still plays with Lego and loves drawing. She has four children. Fittingly, all have been sent to state-run schools.
OZY’s 5 Questions With Mariana Mazzucato
- What’s the last book you read? Factfulness, by Hans Rosling, who wrote me a very nice letter the week before he died.
- What do you worry about? I worry about worrying. And teenagers.
- What’s the one thing you can’t live without? Hugs.
- Who’s your hero? Rosa Luxemburg. She was such a complex woman. She was so much of a woman: She was womanly, but she fought for political stuff, and she was an economist. And she died for what she believed in.
- What’s one item on your bucket list? I hike a lot, but never alone. I’d like to hike alone to one of the high peaks — say, Mont Blanc. It doesn’t have to be alone.
- Ali May, OZY Author Contact Ali May