Mariana Mazzucato Calls For A Disruption Of Value

by: CFA Institute Contributors
Summary

A dynamic, healthy economy that adapts to changes in financial systems requires dynamic, healthy discussions that adapt to changes in perspective.

In her most recent book, "The Value of Everything: Making and Taking in the Global Economy," Mariana Mazzucato aims to disrupt how we think about value and questions the link between value and prices.

Mazzucato believes the government’s capacity to produce value has been seriously underestimated.

Economic policy is the focus of intense debate - and for good reason: A dynamic, healthy economy that adapts to changes in financial systems requires dynamic, healthy discussions that adapt to changes in perspective. The shifting nature of modern business, for example, has raised questions about anti-trust regulation and whether it can address current challenges in global markets.

Mariana Mazzucato, economics professor and director of the Institute of Innovation and Public Purpose at University College London, frequently enters the public debate to discuss how to improve productivity and limit rent-extracting behavior in the markets. Her most recent work aims to disrupt how we think about value.

In The Value of Everything: Making and Taking in the Global Economy, Mazzucato questions the link between value and prices. In modern economic thought, value is commonly seen as price multiplied by quantity, but this understanding presumes that price is the basis of value. Mazzucato believes it can be equally useful to invert that equation and look at something’s value in order to set its price.

Price and value are not the same. Warren Buffett famously claimed that one of the lessons he learned from Benjamin Graham was “Price is what you pay; value is what you get.” Re-defining value could disrupt the public’s understanding of markets and force us to re-examine how they are structured and why they function.

Markets are not a synonym for business, according to Mazzacuto, but rather a dynamic set of relationships between public and private entities. These interactions include the broad spectrum of institutions, such as public–private partnerships, that merge elements of the two. These activities together compose the larger economy, and Mazzucato believes governments can do more to create value.

She dismissed the common critique that governments cannot pick winners, noting that the internet was picked as a worldwide communications protocol because of government investment. Much of the technology used in smartphones was developed by governments as well.

Disrupting the government’s traditional role in the marketplace could lead to a more productive economy, Mazzacuto believes. The key is to craft effective economic policies that encourage growth.

Bringing value back to economic policy is not about calling finance predatory, according to Mazzucato. Instead of demonizing either the financial or public sector, she encourages creative thinking to find new and constructive ways for them to interact.

She believes the government’s capacity to produce value has been seriously underestimated. Bank bailouts, tech development, and infrastructure investment, among other government activities, have helped spur productivity and boost the economy. But these contributions are ignored when it comes to calculating the subsequent growth that they enabled.

At the 72nd CFA Institute Annual Conference, hosted by CFA Society of the UK, Mazzucato will lead a session on “Rethinking Capitalism,” where she will disrupt economic theory and discuss the challenges facing public and private sectors.

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