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quippeThe Blurb On The Back:
Who really creates wealth in our world? And how do we decide the value of what they do? At the heart of today’s financial and economic crisis is a problem hiding in plain sight.
In modern capitalism, value-extraction is rewarded more highly than value-creation, the productive process that drives a healthy economy and society. From companies driven solely to maximise shareholder value, to astronomically high prices of medicines justified through Big Pharma’s ‘value based pricing’, we misidentify taking with making, and have lost sight of what value really means. Once a central plank of economic thought, this concept of value - what it is, why it matters to us - is simply no longer discussed.
Yet, argues Mariana Mazzucato, if we are to reform capitalism - radically to transform an increasingly sick system rather than continue feeding it - we urgently need to rethink where wealth comes from. Who is creating it, who is extracting it, and who is destroying it? Answers to these questions are key if we want to replace the current parasitic system with a type of capitalism that is more sustainable, more symbiotic and that works for us all. The Value Of Everything will reignite a long-needed debate about the kind of world we really want to live in.
Mariana Mazzucato is Professor in the Economics of Innovation and Public Value at University College London. This interesting book makes pertinent points about how value is viewed in economics and how it incentivises companies and executives to engage in behaviour that demonstrably does not add value. It is theory heavy but Mazzucato writes so it’s clear to follow and she makes interesting points about switching to a more stakeholder-focused model.
I picked this up because I’ve read a number of economics books over the last few years that point to flaws or weaknesses within the discipline. I had not heard of Mazzucato before or her previous book, THE ENTREPRENEURIAL STATE, which she draws on and references in some of the later chapters of this book.The central idea of the book revolves around how and what economics regards as “value” and what activities it views as being “productive” and how what is viewed as being valuable and productive is actually extractive and damaging.
Mazzucato begins by looking at how economics and the first economic thinkers (including Adam Smith and David Riccado) viewed the subjects and how this developed through classical, neoclassical and then Marxist theory with a “boundary” existing between the productive and unproductive spheres and then how the calculation of of value moves from being determined by objective categories to more subjective ones, which in turn started to drive inequality. She then moves onto looking at how economists came up with the idea of national accounts and national output and how lobbyists worked to ensure that what are in essence value extracting activities became included within the calculation of GDP.
Mazzucato moves onto looking at the development of financialisation and how the initial economic view of it falling outside the productivity barrier changed so that it was viewed as being a productive activity. Included within this is an assessment of what she terms “asset management capitalism” and specifically the role of intermediaries who charge considerable fees and whether their actual activity justifies those fees, which serve to further extract value. She considers whether this involvement means that it is difficult to reassess and reform the financial sector, especially given common held notion of some institutions being too big to fail. She ties into this the increasing focus of the finance sector on quick return, short term finance aimed at maximising shareholder value and how this has the affect of damaging long term economic growth.
In questioning the idea of risk taking justifying investor reward, Mazzucato builds on what she discussed in THE ENTREPRENEURIAL STATE, specifically how the idea focuses on private sector risk and dismisses risk undertaken by the public sector, including where the private sector only becomes involved once the public sector has ensured that any real risk is minimal. The fact that the private sector discounts the public sector’s role in turn gives credence to its attempts to discredit the state’s role in terms of improving productivity, allowing it to characterise the public sector as inefficient and hampering value. The book ends with Mazzucato advocating for an open debate on what value actually is and how it can be best fostered in order to ensure that the economy is directed in a way that leads to better innovation and less inequality while also ensuring that the finance sector works more effectively.
Although there is a lot of economic theory and history in the book, Mazzucato takes the reader through it in a way that is easy to follow and understand. She also makes interesting points about how the incentivise structure for corporations rewards share backs and high executive pay that come at the cost of employee pay and internal investment. She also makes interesting points about the use of intellectual property rights to reduce competition and innovation, including through the fact that the scope of what is capable of being protected by intellectual property has broadened into the scope of ideas and know how.
However while I supported a lot of her arguments - notably that the economy and economics is not an objective field and how it fails to take into account the political sphere and also that there are real failures within the economics and finance sectors that economists need to get to grips with - there are some ideas, e.g. the use of employee representation on boards, that I don’t see as going much way to fixing things. Also I just don’t think there is currently any political will to get to grips with this given that politics and finance are essentially a revolving door these days.
That said, there is a lot of interest in this book and certainly a lot that resonated with me. I would definitely check out Mazzucato’s previous book on the basis of this one and look forward to reading what she writes next.
The Verdict:
Mariana Mazzucato is Professor in the Economics of Innovation and Public Value at University College London. This interesting book makes pertinent points about how value is viewed in economics and how it incentivises companies and executives to engage in behaviour that demonstrably does not add value. It is theory heavy but Mazzucato writes so it’s clear to follow and she makes interesting points about switching to a more stakeholder-focused model.
Thanks to the Amazon Vine Programme for the review copy of this book.
In modern capitalism, value-extraction is rewarded more highly than value-creation, the productive process that drives a healthy economy and society. From companies driven solely to maximise shareholder value, to astronomically high prices of medicines justified through Big Pharma’s ‘value based pricing’, we misidentify taking with making, and have lost sight of what value really means. Once a central plank of economic thought, this concept of value - what it is, why it matters to us - is simply no longer discussed.
Yet, argues Mariana Mazzucato, if we are to reform capitalism - radically to transform an increasingly sick system rather than continue feeding it - we urgently need to rethink where wealth comes from. Who is creating it, who is extracting it, and who is destroying it? Answers to these questions are key if we want to replace the current parasitic system with a type of capitalism that is more sustainable, more symbiotic and that works for us all. The Value Of Everything will reignite a long-needed debate about the kind of world we really want to live in.
Mariana Mazzucato is Professor in the Economics of Innovation and Public Value at University College London. This interesting book makes pertinent points about how value is viewed in economics and how it incentivises companies and executives to engage in behaviour that demonstrably does not add value. It is theory heavy but Mazzucato writes so it’s clear to follow and she makes interesting points about switching to a more stakeholder-focused model.
I picked this up because I’ve read a number of economics books over the last few years that point to flaws or weaknesses within the discipline. I had not heard of Mazzucato before or her previous book, THE ENTREPRENEURIAL STATE, which she draws on and references in some of the later chapters of this book.The central idea of the book revolves around how and what economics regards as “value” and what activities it views as being “productive” and how what is viewed as being valuable and productive is actually extractive and damaging.
Mazzucato begins by looking at how economics and the first economic thinkers (including Adam Smith and David Riccado) viewed the subjects and how this developed through classical, neoclassical and then Marxist theory with a “boundary” existing between the productive and unproductive spheres and then how the calculation of of value moves from being determined by objective categories to more subjective ones, which in turn started to drive inequality. She then moves onto looking at how economists came up with the idea of national accounts and national output and how lobbyists worked to ensure that what are in essence value extracting activities became included within the calculation of GDP.
Mazzucato moves onto looking at the development of financialisation and how the initial economic view of it falling outside the productivity barrier changed so that it was viewed as being a productive activity. Included within this is an assessment of what she terms “asset management capitalism” and specifically the role of intermediaries who charge considerable fees and whether their actual activity justifies those fees, which serve to further extract value. She considers whether this involvement means that it is difficult to reassess and reform the financial sector, especially given common held notion of some institutions being too big to fail. She ties into this the increasing focus of the finance sector on quick return, short term finance aimed at maximising shareholder value and how this has the affect of damaging long term economic growth.
In questioning the idea of risk taking justifying investor reward, Mazzucato builds on what she discussed in THE ENTREPRENEURIAL STATE, specifically how the idea focuses on private sector risk and dismisses risk undertaken by the public sector, including where the private sector only becomes involved once the public sector has ensured that any real risk is minimal. The fact that the private sector discounts the public sector’s role in turn gives credence to its attempts to discredit the state’s role in terms of improving productivity, allowing it to characterise the public sector as inefficient and hampering value. The book ends with Mazzucato advocating for an open debate on what value actually is and how it can be best fostered in order to ensure that the economy is directed in a way that leads to better innovation and less inequality while also ensuring that the finance sector works more effectively.
Although there is a lot of economic theory and history in the book, Mazzucato takes the reader through it in a way that is easy to follow and understand. She also makes interesting points about how the incentivise structure for corporations rewards share backs and high executive pay that come at the cost of employee pay and internal investment. She also makes interesting points about the use of intellectual property rights to reduce competition and innovation, including through the fact that the scope of what is capable of being protected by intellectual property has broadened into the scope of ideas and know how.
However while I supported a lot of her arguments - notably that the economy and economics is not an objective field and how it fails to take into account the political sphere and also that there are real failures within the economics and finance sectors that economists need to get to grips with - there are some ideas, e.g. the use of employee representation on boards, that I don’t see as going much way to fixing things. Also I just don’t think there is currently any political will to get to grips with this given that politics and finance are essentially a revolving door these days.
That said, there is a lot of interest in this book and certainly a lot that resonated with me. I would definitely check out Mazzucato’s previous book on the basis of this one and look forward to reading what she writes next.
The Verdict:
Mariana Mazzucato is Professor in the Economics of Innovation and Public Value at University College London. This interesting book makes pertinent points about how value is viewed in economics and how it incentivises companies and executives to engage in behaviour that demonstrably does not add value. It is theory heavy but Mazzucato writes so it’s clear to follow and she makes interesting points about switching to a more stakeholder-focused model.
Thanks to the Amazon Vine Programme for the review copy of this book.
