Mariana Mazzucato delivers 2018 John Menadue Oration

Thank you so much.   Thank you to Yvonne for the Welcome to Country.

It’s interesting the pressure we put on states, when we ask, Can the state deliver?, when actually there are so many problems across so many different actors in society.

Just think of the Financial Crisis and what that exposed of the difficulties across both finance and business, it is precisely this provocation to make sure that we’re putting equal pressure on the different partners in society, including civil society, trade unions, different types of business, governance structures, the financial sector – is it actually doing its job? – and of course the state.

One of the interesting things is that because we’ve often dismissed the state in terms of its ability to create value, the words we use are quite boring – the state is just a bunch of enabling and facilitating and fixing things.

Many of the things that are worrying, like climate change could actually be seen as an opportunity.  But it is quite scary, and if you’ve read the IPCC report, of the international group on climate change, apparently we have just twelve years left, in terms of when things are going to get extremely bad. 

We’ve already seen across the world, and Australia of course is very concerned about this because of the geography of the country, but instead of thinking of it in terms of being scary, what could this actually present to us in terms of new investment opportunities?

Just think of all the Sustainable Development Goals, 17 of them, there are goals that over 100 countries have signed up to, underneath them there are about 169 targets, but how are we actually going to get there?   Of course, we will only get there in terms of solving these problems in partnership.  So different types of public actors, different types of businesses, the financial sector properly doing its job, but also social movements which have always historically been critical to the shaping of markets under capitalism.  We should never forget what trade unions brought us in terms of making sure that markets have been more inclusive and sustainable, in the real sense of the word, so even just having weekends and 8-hour workdays and construction workers who have construction hats, that was actually fought for by people. 

So how can we together actually tackle these difficult problems?  That’s what I want to talk about tonight.

I’ll get to the issues of the state, but first let’s remember that it’s not just the state that has to deliver but these other actors as well. One of the big problems that the Financial Crisis revealed is just how dysfunctional the financial sector had become, or has become. 

We shouldn’t forget that at one time, the financial sector even had words like Chemical Bank, so there were banks that were directly fuelling growth within the real economy.  In that case it was the chemical industry, which isn’t necessarily a good thing or a bad thing, depends on what was happening in the chemical industry, but there was a much more direct relationship between how finance saw its role and what we call the real economy. 

Just think of how industries are operating and then how work is being structured, and how technological change occurs in those industries.  And the two things have got quite divorced. 

This graph here which is by Andy Haldane who is the Chief Economist at the Bank of England, just shows how much – this is data for the UK but in the US it was even worse – just how finance ended up getting a logic of its own.  This shows the growth of financial intermediation, that’s that top dotted line, compared to the rest of the economy, in terms of gross value added in the economy – think of everything else that happens besides finance; agriculture is also not included there. 

That’s basically because finance has been financing finance, so other parts of the financial sector, we sometimes call that FIRE – finance, insurance and real estate.  And that’s one side of what we call the financialisation problem.

Another side of the financialisation problem is just how much industry itself has become financialised.   The pressure around maximising shareholder value has actually made lots of industries forget what the whole point is of running a company.  Increasingly they use their income, their profits, not to reinvest back into products – in terms of investing in capital, worker training programs, machinery – but just in doing things like buying back their own shares, so buying back your shares which increase stock prices, stock options and – surprise surprise! – executive pay.

This is getting worse over time.  At Apple under Steve Jobs, most of the profits were reinvested back into the company, especially around design, which is one of the big things that Apple have been very good at, more than R&D.  Recently under Tim Cooke, we’ve seen massive share buy-back schemes, of the amount close to $100B.

This is one of the problems in terms of work.  There’s a lot of talk of “the robots are coming”, that the robots are going to take jobs away and wages are going to fall because of that, and it’s quite interesting that when you go back through the history of economic thought you find that lots of thinkers were actually already talking about that 200 years ago.

David Ricardo, who’s one of the first economists, proper economists who actually wrote a text book called Principles of Political Economy, had a chapter called “On Machinery”, and he wrote that book in 1821.  He was worried about whether the mechanisation that he was witnessing during the industrial revolution was in fact taking jobs.  What we saw then for about 200 years, was that mechanisation did in fact displace labour, so that’s not new.  Why are we talking about this so much today?

What is new is this stuff.  When profits stop getting reinvested back in the economy, that’s bad for jobs.  What used to happen was that, even though machine A would be introduced and perhaps take jobs, as long as the profits were then reinvested in another part of the economy, those lost jobs actually then appeared elsewhere.   As well as workers being invested in, if profits were reinvested in human capital, their ability to adjust to big changes was greater.  It’s quite interesting that this is ignored in the whole debate about what’s going to happen to jobs and work.  This is a huge problem.

You also see this at the macro-economic level.   You see it in the falling levels of investment which you can see both in terms of fixed capital investment and also in R&D expenditure.  You see it especially in the ratio of these share buy-backs to R&D, which is a good proxy of the investments that companies are making in actually improving long run growth.  That’s getting worse.

This is the context of tonight’s discussion, of Can the state deliver?”  The quick answer is, of course no, because how can the state, or any of these actors, not deliver together.  To tackle these really big global challenges that also have national ramifications, whether they be challenges around equality, challenges around climate change, challenges around ageing and demographic crisis, the future of the welfare state and healthcare.  Of course the state can’t deliver if finance isn’t doing its job, and business isn’t doing its job.  Is the state then also doing its job?  I want to focus on that for the rest of this talk.

The state’s problem I believe is that the way we frame the role of the public sector today and literally also how we then train civil servants, is in terms of fixing problems when they happen.  One of the biggest problems I’ve already mentioned in passing was the Financial Crisis that had to be fixed.   All these banks were bailed out, many industries were also bailed out, in the US the whole auto industry had to be bailed out.  That was a big bandage that had to be brought in.  But policy makers around the world, and I’ve had really interesting discussions with your own policy makers in the last two days, and they confirmed the same thing – that they’re basically not allowed to do anything until they can identify the screw up that happened in the market – what’s the market failure that you’re going to fix. 

It’s not that these different failures don’t exist.  When public goods like basic research that the private sector doesn’t invest in because the spill-overs are so great that they can’t make a profit from it, then the state has to come in and do basic research. That’s a market failure.  Or when companies pollute too much because their cost structures don’t actually account for what pollution does, so you need a carbon tax to make them embody that into their costs.  Or when you have asymmetric information.  This is actually a powerful framework, it’s useful, but it would be very hard to actually use it to understand some of the biggest changes that have occurred in the role of the state.

In the book The Entrepreneurial State, I go through the big technological changes that have occurred, from the Internet to aeronautics to mass production and today the clean technology sector, and I then go through why the state actually did much much more than just fixing market failures. 

It’s quite striking how then this language of fixing and mending and enabling and facilitating and de-risking – I always get bored just saying it – is so powerful.  I even find myself using this language.  We forget how lame and boring it is.  Even central banks – which saved the capitalist system from completely falling apart during the Financial Crisis – are seen as lenders of last resort.  But when you see these big investments that have occurred over time by different kinds of state structures, they were in fact investors of first resort.

But these words have become so powerful, common parlance, that they become part of the storytelling, part of the discourse.  It then makes it really hard to allow the state to deliver in ambitious ways and also be a dynamic partner alongside these other actors. 

The magazine The Economist never fails to have their editorial pieces that make it really clear how powerful this framing is.  This is that the state is important, but should just do the basic stuff – invest in skills and infrastructure, and roads and bridges – and then get the hell out of the way and let the revolutionaries do their thing, the value creators, the wealth creators.

This is so powerful that even the Labour party in the UK started talking that way.  When they lost the 2015 election there was all this talk about “how did we lose?”  There were three different articles I remember, by Tony Blair, Rachel Reeves and Chuka Ummuna, all in different ways said the same thing – we lost because we didn’t embrace the wealth creators.  I thought a labour party using this term “wealth creator” in such a narrow way, they were talking only about business.  Of course business creates wealth, but so does labour.  Workers create wealth, different kinds of public institutions create wealth.

But how can they create it?  How can we actually structure these different organisations in such a way that they can really also challenge each other, which is just as important as addressing the challenges, contested spaces are very important for creating value.

I made this graph for my TED talk many years ago.  This shows what we’ve been trained to think – that all the really interesting value creation is done in business by people like Zuckerberg, Elon Musk and Steve Jobs (and every country has their versions of those), and then on the other side you have the bureaucrats.  This is the Kafka-ian bureaucrat, and you’re supposed to think that the guys there on the left are more sexy and interesting.  So it becomes a self-fulfilling prophecy, that the more that we pretend that the state is about facilitating, de-risking, enabling, doing horizontal conditions, shuffling papers here and there, getting the tax system right, setting the rules of the game, levelling, then that’s kind of what we end up getting.  We end up getting this black and white and sometimes a bit boring, inertial and bureaucratic structure, that then we like to complain about and say that they are slow and bureaucratic.

So we have to just pause a minute and say, how did we get here? Why do we have this self-fulfilling prophecy, and how can we get out of that, precisely so the state can deliver and become a dynamic partner and also a thorn in the side of the other partners.  This is one of the roles, similar to how healthy marriages are partnerships where you also challenge each other.  You don’t just say, what do you need, let’s be business friendly, business what would you like, less tax, less regulation. 

So how can we get healthy and symbiotic and mutualistic partnerships?  I’m often reminded by my biologist friends, who say, “why do you always use this word ecosystem, do you even know what you’re talking about?”   And I say “no, not really”, and they say, “do you mean predator/prey, do you mean parasitic, do you mean mutualistic, do you mean symbiotic?  Which ecosystem?”   And it’s such a good point, because we often, especially in the policy arena, hear these words – partnerships, ecosystems, entrepreneurial ecosystems, innovation ecosystems, and then forget to define them.  Are we sure we haven’t built a predator/prey ecosystem?  A parasitic ecosystem?  And if so, how can we change that, even in terms of the contacts that often structure these partnerships, how public and private interact. 

As a quick example, Novartis, the big pharmaceutical company, today is working for free on the International Space Station, and patenting.  Who thought about that?  Where’s the contract?   How can that be that there’s no pay back into this big publicly funded infrastructure which costs a lot of money, for such a highly profitable company which is using not just the infrastructure but the time of the astronauts up there to do some of their research?

I often say, let’s pause a minute and remind ourselves that the word “market” which we often hear, is actually an outcome.  Markets and business are not the same thing.  The market is an outcome of the interactions between public and private and third sector, so civil society organisations, and how those organisations are governed.

I just mentioned the shareholder maximisation governance, and also how the public sector is governed, with a focus on fixing market failures; how these interactions are structured will actually define what kind of market outcomes we get.   Markets are designed; they’re outcomes; they’re built.  This is by the way a great point, as it should make us less depressed when we see what’s happening out there because it means we can actually change things. We can rethink how to design them in better ways.

My book, the Entrepreneurial State, was translated into lots of different languages.  In German they called it Das Kapital Des Staates.  I asked the German publisher, because that’s not a literal translation of the title, and he said the progressives in Germany don’t like the word “entrepreneurship” and “entrepreneurial”, and I thought about that because in Italian that word doesn’t mean what it means in English which is welcoming of risk and uncertainty.  It just makes you think of some business which we call comercialisti, which just try to avoid tax.  But it was interesting.  I love the title Das Kapital De Staat, not only because it makes one think the book will have huge revolutionary impact as Das Kapital did, but it’s actually very clear that it’s the capital of the state.  It starts making you think about it like a portfolio, investing, not just lender of last resort, but investor of first resort.

But then difficult questions arise. What does that mean? What is the risk profile?  What do we even mean by risk in the public sector versus the risk in the private sector? How might you distribute that risk along different types of say, renewable technologies if you want a green transition, maybe going beyond the renewable energy sector and having a new green direction for the entire economy?  Anyway, I started to really like that, but every other country decided to not to go down that route.

Back to markets, if you read Karl  Polanyi, someone who really influenced me, he was a historian, an anthropologist, a sociologist, he reminds us in his great book The Great Transformation, that how we use the word market, which is the capitalist national market, as opposed to international markets and local markets where you buy fruits and vegetables on the corner, those international and local markets have actually been around for a long long time, thousands of years.  But the national capitalist market, which kind of gives us the sense of a kilo or oranges, was actually forced into existence from different types of policymaking acts.  Which means that we should be careful when we even use the word.  Forget different sides of the political spectrum, policy as an intervention in the market is historically wrong – the market itself is the outcome of all these different actors, so you’re not intervening in the market, you’re co-creating, co-shaping that market. 

Similarly when you criticise business, as I sometimes do when I’m speaking to different business leaders who I often find myself talking to, and ask, “why do you do all these share buybacks why not reinvest?” They say “yeah, you’re right, but this short-termism is being forced on us by the market, the market pressure”.  But I say, how you’re behaving is actually determining the market.   There’s a feedback loop and a tautological way we think about markets, so it’s really important that we unpick these words instead of just repeating them.

So what I tried to do in The Entrepreneurial State is precisely unpick the kind of fallacy, one could say “fake news”, that we have in terms of where all this wealth came from. 

What I tried to do was to use history to show that many of the products that we think came out of entrepreneurship while the states were just doing basic things like some infrastructure and some science here and there, actually would never have happened without the state taking massive risks through particular types of organisations.

This isn’t just public money, which acted as an investor of first resort.  In fact all the technology that’s in your smart products, whether you have an ipad and iphone, that make those products “smart” and not stupid.  People don’t say let me talk to my idiotic phone, they talk about is as a smart phone.  Everything that makes that phone smart was an outcome of a public investment that could have also gone wrong, so for every Internet, there’s also been many failures, and that was an investment made by a particular organisation inside the public sector, DARPA, but the Internet, GPS, touch screen, Siri, and I could go on.

Fracking itself came out of initial DOE investments in the US.  And that is a good reminder, this isn’t a normative point – that the state did all this good stuff.  No, but the state is transformational in that kind of Polanyi-ist sense.  We should be having debates in society about what the state is investing in, but there’s this feedback loop so we dismiss the role of the state and its transformational power, its investment power.  We sometimes don’t look at what’s being invested in until maybe it’s too late.  So lots of debates that do exist about fracking and shell gas only happened after the fact, and few people also know that that came out of public investments.

Around the world what we see is that the investments themselves in the renewal energy side of the green transition – and we shouldn’t forget that it’s not just about renewable energy, it’s about greening the entire manufacturing sector, getting green services, having demand pull and supply push those kinds of investments.  But just looking at renewable energy, what we see is a very similar pattern that we saw in bio-tech, nano-tech, the Internet –  that upper right hand quadrant high risk, high uncertainty high capital intensity – is in fact being occupied by different types of public actors that we don’t really understand because we just don’t have the discourse and the narrative and the theory and framework to understand it.  

Many public banks who are playing roles in the deployment and diffusion of renewable energy, so the KFW in Germany, China Development Bank, the European Investment Bank, ironically get told that they’re crowding out business, that they’re being too active, too ambitious, that they should let the market decide the direction, that they should just be providing counter-cyclical finance.  Yet history shows that actually business tends to only follow once the government plays this lead investor role, creating both certainty, which people like Rick Stern have long argued for, but also really leading in terms of these high-risk investments which also are often long-term – long-term, patient, mission-oriented investments. 

In fact, short-term investments create lots of trouble.  Venture capital is needed, but if it’s structured very problematically and very exit-driven as it currently is, venture capital often exits in three to five years through an IPO, or a buy-out, and that can create problems, especially in areas that require that long-termism.  In the bio-tech sector we’ve ended up with lots of PLIPO’s, Product List IPO’s because of the rush that was created.

So finance isn’t neutral. How can we actually structure finance in such a way that it really can nurture these processes, especially in science-based sectors.  And people like Bill Gates have actually been quite forthcoming about this, unlike Peter Thiel, who sometimes says things like “the entrepreneurs of Silicon Valley should secede off the coast, because they’re being impeded by the state, and they shouldn’t even have to pay tax because they’re so valuable”.  Of course, until a tsunami comes, and they’ll call the Coast Guard!  I always think “go to the coast, but then stay there when the waves come”, or even worse, when they say, “if you increase that tax or impose that regulation we’re going to leave the country”, and I think, “OK, I’ll drive you to the airport!”

Because in fact the really interesting and ambitious businesses don’t talk like that.  And they know.  Bill Gates is very clear that both he and Steve Jobs surfed a massive wave of government investments and he is rightly concerned that that wave today is not being created and so you’re just left with a bunch of surfers.

I love this letter – it’s actually much longer than this – that Keynes wrote to Roosevelt.  It’s saying the same thing but in a different way.  Modern Keynesians didn’t really capture this, they bought into the idea that all you need is government in terms of being counter-cyclical, which is an important role, but this is more than that.  He’s saying, “we’ve got a problem here”.  In business it’s not true that we have these lions and wolves and tigers with a willingness to roar.  That’s why I had a lion and a pussycat on the front cover of The Entrepreneurial State.  We’ve actually got a bunch of hamsters and gerbils and pussycats, domesticated animals.  He didn’t mean it as a criticism.  I think what he meant, and unfortunately this hasn’t been developed in much of his writings, was taht we need to better understand how get the pussycat to roar, how to get these domestic animals to even want to invest.  The assumption that business wants to invest and you just have to get rid of the impediments, get rid of the regulation, get rid of the tax, and then they’re going to invest, is simply not true.  It often has been ambitious and bold, directional and strategic, what I will soon call mission-oriented investments that got business to even see the opportunity for investment in the first place.

A well devised tax credit might affect the marginal contribution, but many countries, including – I would almost say especially but that would be too exaggerated – Australia, over-rely on these indirect tax incentives, that only work if your businesses are already super ready to roar and you just have to just play around with the tax structure, whether there’s an R&D tax credit or whatever, to make them invest more.  But the evidence shows that there’s very little additionality – that’s the word that economists use – from tax incentives.  They don’t make investment happen that wouldn’t have happened anyway.  What actually drives business investment is the expectation in the business sector and different parts of the private sector of where the future opportunities lie.  In fact, Warren Buffett often says, “can you stop reducing my tax.  I don’t even look at it – I invest when I see an opportunity”.

This doesn’t mean that tax should go through the roof, but just to really understand what drives the expectation in the business community of where these future opportunities lie, and it’s exactly those kind of public investments that I looked at in The Entrepreneurial State.   

In all these different sectors, which really laid down the groundwork, the high risk, early stage investments, especially the capital rich ones which business was able to surf on.   This shows you that distribution of direct and indirect, so the indirect is the light blue, these are tax incentives that different countries might use to support their R&D decisions, and it tends to be those countries that over-rely on tax incentives and don’t have enough of the direct investment from the DARPA-type institutions or strategic public banks or public venture capital funds like Yazma in Israel, they don’t actually galvanise and catalyse the business community to invest.

There’s a strong correlation between countries that have high business spending on R&D (that’s what BERD stands for) to GDP), and those that actually have a good distribution of both direct investments and just rely on indirects just for the kind of icing on the cake, not the cake itself.  And in Australia its quite worrying actually that both the over-reliance on indirects has shown up as a falling BERD ratio in terms of business spending.  This is something that needs to be thought about in terms of what should happen in order to transition from an economy that has over-relied on natural resources and mining to one that can transition to a green direction, what kind of policy toolkit. 

This is why I wrote this second book, The Value of Everything, because in my travels I found around the world policy-makers who were quite thirsty for this new narrative and framework about market co-creating, market co-shaping.  Even those that agreed with it, that it’s really interesting that entrepreneurs aren’t only found in Silicon Valley.  That does mean that we need to have a whole set of different tools across the whole innovation chain, supply side, demand side, patient capital, basic research, applied research, institutions that facilitate the feedback between science and industry.  To look at how the actual instruments that they devised were often problematic, like the patent box, and you should be congratulated as a country for not having introduced it, and when you looked at why they came about, they were lobbied for by companies in the name of innovation, in the name of value creation, in the name of wealth creation.  I wrote this new book that really just unpicked that word “value”.

Just quickly, the patent box is a tax reduction on profits earned through areas that have patents, intellectual property rights, which makes no sense because a patent is already a monopoly for 20 years, so there’s no reason to reduce the tax on monopoly profits.  It’s very interesting how the pharmaceutical industry really lobbied that through and if you look at the way it did it, it was very much in terms of value and innovation, and so many countries, even those that have had those direct public investments, just bought into that due to this very strong discourse.

Similarly, I mentioned before Warren Buffett, the particular tax he was complaining about that was getting too low was the capital gains tax, which in the US dropped by 50% in 4 years in the 1970s, and he rightly says that all that led to was higher inequality; it didn’t actually increase investment, and was lobbied for very specifically by the national venture capital association that had just organised itself as an association of VC’s who then made it their big lobbying  effort and succeeded to get that tax down.

So I was very taken, as I mentioned, by how the Labour Party talks and this commonplace assumption that the state doesn’t create value, that it can at best facilitate it.   Where do these ideas come from? 

It was very interesting that in the history of economic thought, this was at the core of how economists debated between themselves.  The physiocrats in the 1700s thought that value came out of farm labour.  They were very worried about the value that they saw as being siphoned out of the system by landlords, who they called the sterile class.  The classical economists Adam Smith, David Ricardo, Karl Marx had a different understanding.  They thought that value was in industrial labour.  Adam Smith wrote a book called The Wealth of Nations, where he really unpicked what was happening with the division of labour inside the factories of the time, the effect on productivity, the effect on growth, and hence the wealth of nations.  He was very worried about value being siphoned out in rent, the power of the landlords at the time, and he called this unearned income.  Marx also thought that way.  But then what happened, and I go through this very laboriously in the book,  through these 400 years, a huge revolution happened in neo-classical  economics.  The attention by previous economists to the objective conditions of production, that determine their understanding of value – whether it was farm labour, industrial labour, a focus on technological change, the division of labour, productivity – all of a sudden became this more subjective focus on prices, and supply and demand curve, and preferences and even wages were understood no longer in terms of the objective class struggle and labour’s bargaining power, but in terms of preferences for leisure versus work, so lots of attention on the individual. 

This relates back to this issue of the state, and “Can the state deliver?”, because if the state itself can’t be understood in terms of productivity, then how is it going to be able to guide its investments and think of itself as valuable? 

Lloyd Blankfein , CEO of Goldman Sachs, was able to say with a straight face one year after the Crisis, that Goldman Sachs employees are the most productive in the world!  This is because of the focus on preferences and subjectivity, basically a theory of price which determines the theory of value, versus what previous economists did, which is have a theory of value which determined the theory of price.  But even if it wanted to, government can’t do that because the way we actually account for government activities in GDP is only through the cost of the activity, so we don’t actually have a measure of the value of the education system or the health system. In many countries those things are free, so we only know how to calculate the costs, so for instance the salaries of the teachers.  If you don’t know how to value the output of what government does then you literally can’t account for its productivity.

This is wedded to how we think about the policy making process itself, in terms of just fixing market failures and public choice theory which is a whole strong apparatus that has been used to train civil servants around the world.  It has very clearly delineated those spaces where the public sector is allowed to tread and where it’s not because if it goes anywhere beyond there, it’s at risk of getting captured and corrupted, to the point where many civil servants have actually been trained to think government failure is even worse than market failure.

I see this every few years when the BBC gets evaluated by the Treasury, it’s told it’s crowding out business. It’s fine to do documentaries about giraffes in Africa, it’s fine to do high quality news, but you can’t do soap operas and talk shows, that’s for business.  So this idea that there’s a slice of the market that’s OK for the business sector to operate in, and another slice that’s OK for the government sector, shows that we don’t have a concept of public value, so that, independent of the format, how you actually create value matters.

This is highlighted all the time for the business sector, which of course we know does create value.  That’s why you have CEO’s and managers all over the world attending top business schools and taking these really cool courses like strategic management, organisational behaviour, decision sciences, and they’re told to take risks.  Steve Jobs gave this great lecture to the Stanford graduating class saying “be hungry, be foolish, if you want to innovate”.  Have you ever heard a civil servant being told the same thing?  Be hungry, be foolish, be muddy, make mistakes then get up and learn again.

This is just common parlance.  Venture capitalists are actually proud to say how many times they’ve failed, because then they say, and then I succeeded.  If you fail in the public sector, you’re on the front page of the news, and you are told, “why were you trying to do any more than these horizontal conditions?”.

Recently in the US, this came up with Solyndra, the investment in the solar company that Obama, through the Department of Energy, gave a $500M guaranteed loan to, and it failed.  And everyone was said, “government is stupid, you shouldn’t invest, just do the bridges and the roads and the skills and then get the hell out of the way”.  But we’ve got a problem, because if you want the state to get out of the way, throw your iPhone away, because it would not be a smart phone.  Those were strategic choices in all those different technologies.

But the same amount of money went to Tesla.  Tesla got the same amount of money, just a bit less, than Solyndra, and Elon Musk is seen as a success.  Most people don’t realise that not only did one of his companies, Tesla, get the same amount of money as Solyndra, but his first three companies including SpaceX and Solar City got $5B from the US government.  So if the government actually understands itself as Das Kapital des Staate, the portfolio of the state, it would really be able to talk about that better.  Then people could understand that this is hard, to have a green transition you will need to have that patient long-term capital, especially in the early stage for different companies not just for basic research, but for the few companies willing to innovate to get us these transitions, and yes, this may sometimes end in failure. 

The next question should be, how do you make sure you’re not just subsidising and bailing out the failures, perhaps getting some of the upside to these successes.  It was quite interesting that Obama in the Tesla example said the exact opposite of what he should have, which was, if you don’t pay back the loan we get 3 million shares in your company, and Elon said, well yes.  What Obama should have said was, if you are successful we get 3 million shares in your company.  The price per share went from $9 to $90, which would have more than paid back the Solyndra loss if multiplied by 3 million.  But we don’t think like that.  This is why Obama was right when he said we live and do business in the information age, the knowledge economy, but the last major reorganisation of the government happened in the age of black and white TV, and he’s absolutely right. 

This isn’t a coincidence.  We have an incredibly ideological apparatus, even in civilised countries like Australia where you don‘t have something like the Tea Party.  So many countries are just so wedded to this understanding of the limited role of the what the public sector is for. 

We also don’t have a rigorous way to talk about value as being collectively created, even though some illuminated businesspeople like Buffett and Gates will actually sit down and say we would not have made the money we did without this amazing structure around us.

That’s why it’s very important to unpick this notion of value and to suggest that it will be impossible to address the big challenges we have ahead unless we see it as collectively creating the value.   And literally we should start changing the way we talk.  So all the words we said were boring and bureaucratic, we need to get people to talk differently.

At the institute that I set up at UCL, one of the main things we’re trying to do is set up a whole new training program for global public servants to be trained outside of the public choice, public management box, which is very much part of the problem, and to unpick this word public value.  What is it?  How could it be that the BBC has had this discussion for so many years and yet as economists, we don’t even have this word in our toolbox?

I’ve gone overtime but I want to give you an inkling of what I’ve been working on in recent years with the European Commission, which is how can we operationalise this idea about collective value creation.  For me it was about asking a practical question, which is really quite philosophical – how do we get to the moon?  How can it be that we can’t get our hospitals working properly and yet we got up there?  That’s pretty hard.  Sometimes I’m in the middle of traffic in London and I think, how can it be that we got to the moon and we can’t structure London traffic. 

What got us to the moon, and I’ve completely run out of time so this is going to be super quick. There was a very inspirational goal.  It was addressing a challenge – the challenge was not going to the moon; the challenge was the whole space race and beating the Russians and the whole Sputnik thing.  But getting to the moon and back again in a generation was concrete, it was targeted, you can actually answer – yes or no, did we get there? 

Lots of different sectors across the economy had to invest, you could not get to the moon in jeans and a t-shirt eating a hot dog.  There are specific types of clothing and textiles that also had to innovate; specific types of food had to innovate.  Of course there were also big aeronautics experiments, lots of different projects, most of which failed.  We know the successful ones, because again a lot of those products ended up in our smart products. But what would it look like if we did the same thing around missions to address climate change?  The different types of sectors that would need to invest, using the full gamut of government instruments from procurement to price schemes, to grants.  Rewarding those organisations that are willing to engage with government with these difficult missions – those organisations willing to invest. 

Instead of just talking about clean oceans, which was a huge issue in David Attenborourg’s wonderful series Blue Planet, the last episode of which was about all the plastic in the oceans. What would it really look like, also internationally, to go after that problem, and use the full gamut of government instruments and also rewarding companies that are willing to co-invest in that project across different sectors?  Instead of seeing it in terms of just getting plastic out, it would require lots of innovations and investments in terms of what goes in in the first place. 

What this report that I wrote did, which has now actually become part of the legal framework for the European Commission, was to unpick, what does it mean to pick a mission and to be sure that it’s bold and inspirational and to get different parts of civil society engaged in defining that mission in the first place.  This is a bit different from the moonshot, which was very top-down, with Kennedy and his team. 

How can we actually devise democratic and stakeholder engagement to define these missions in the first place?  And to make sure they are defined in such a way that requires that cross-sectoral, cross-actor, cross-disciplinary investment.  In fact, how do you design the organisations themselves to be mission-oriented?   It’s quite striking if you just look at the websites of many of these that have been very impactful, they never describe themselves as just fixing markets.  But if we don’t understand what it means to have a mission and to see and test whether that variable you want is important on our economic models, it doesn’t in fact exist, we don’t capture mission in how we think about our economy. 

I don’t really have time to talk about this, but just to say that this can also really frame how to do your industrial strategy.  Instead of handing out money, focus on challenges.   We have a commission at UCL which I co-share with David Willets which breaks down these challenges around clean growth and future mobility, and what we’ve been doing with the Commission and also with stakeholders is, what would it really look like to address the future of mobility, with a concrete mission that would include having a public infrastructure and public transport system that was 100% accessible by people with disabilities.  That would be one of the bottom-up projects.

What’s the answer to the question, Can the state deliver?  Yes, it can.  But only if we really change the way we think, the way we talk about the state, the way we train our public servants, and also the way we get proper deals.  It’s not just about de-risking, it’s about sharing risks and rewards.  The Tesla example of how we were only thinking about how we would bail it out if things went wrong.  How can we really rethink the contract; so co-creating value not just enabling it, market co-shaping not just fixing, investor of first resort not just lender of last resort, but also creating interesting spaces where these debates can be had, where we can contest value, where we can talk about why it is so easy for Goldman Sachs to talk about itself as a value creator.  But so difficult for a teacher or a nurse to feel the confidence and happiness of the amazing value they create.  We have no clue how to capture that, and hence have a difficulty in nurturing it.