CYRIL’S SECRET WEAPON
Top London economist has president’s ear
Mariana Mazzucato, the high-flying economist whose advice is sought by governments around the globe, cannot find her earphones. We are on a WhatsApp call and one of her children has made off with her handsfree accessories, so we can’t start until she finds another pair.
Parents will be familiar with the frustration of having their offspring interfere with devices. Mazzucato balances raising four young children with a demanding job that includes giving talks on public sector innovation, values and transformation in capitals around the world.
She was born in Italy and spent the first five years of her life in Rome before moving to Princeton in the US, where her father, Ernesto Mazzucato, was a nuclear fusion physicist at Princeton University’s Plasma Physics Laboratory.
She and her husband, Italian film producer Carlo Cresto-Dina, now live in the UK. Mazzucato is a professor of economics at University College London, where she founded and directs the Institute for Innovation & Public Purpose.
She was catapulted to stardom by her 2013 book, The Entrepreneurial State: Debunking Public vs Private Sector Myths, and her advice has subsequently been sought by political and business leaders ranging from Microsoft co-founder Bill
Gates to Nicola Sturgeon, the Scottish first minister.
She is also a special adviser to President Cyril Ramaphosa. This connection to SA was forged by public enterprises minister Pravin Gordhan, who tracked her down after reading her book. Minister of trade, industry & competition Ebrahim Patel was another early convert.
Please come to dinner
At Davos last year, Gordhan introduced Mazzucato to Ramaphosa, who invited her to the annual Brand SA dinner at the Swiss resort and asked her to join his presidential economic advisory council.
“I was taken by their willingness to hear new ideas, their palpable commitment to transformation and their drive,” she says. “I sensed a real ambition among South African government leadership to restructure the economy in such a way as to enhance public purpose and value.”
At the first meeting she attended of the presidential economic advisory council, she says, she found the atmosphere filled with “energy, collegiality and a co-operative spirit”.
In the postcolonial era, foreign economic advisers have earned a less-than-favourable reputation. Particularly in Eastern European countries such as Russia, Poland and Hungary, economic experts from the West — many of them big names — are seen as having failed in trying to help communist systems embrace free-market principles, and to have caused more harm than good.
In Africa, the advisers tended to be either dogmatically Marxist-Leninist or neoliberal, their policies leaving many African countries poorer than they were before independence.
Team player, willing to learn
Mazzucato is cut from a different cloth. “I’m not here to impose my views,” she says. She sees her role as bringing a comparative perspective about public sector innovation to the table. She says she is just one member of a larger team, and is also on the advisory council to learn.
She enters a South African economic policy battlefield paralysed by a fierce ideological fight within the governing party and by conflict between the government and business, with all sides clinging to rigid views.
Many in the ANC tripartite alliance leadership insist that the state should drive development, view the private sector as the “enemy” and believe that economic growth can only take place through redistribution; while many business leaders argue that only the private sector can drive development.
Mazzucato believes in the middle ground, taking the best from both John Maynard Keynes’s ideas on redistribution and Joseph Schumpeter’s on innovation.
She thinks the state’s focus should be not only on wealth redistribution but on wealth creation. “And for the state to spend its income wisely.”
Her view is that regarding the relationship between the public and the private sectors as an adversarial battle is simply wrong; we need a new language to explain the role of the state. “The state must have a public purpose, a mission, and provide value to the public.”
She makes a compelling case for innovation-led growth. “The state must spearhead innovation in new strategic sectors, but bring the public, private and civil society sectors to collaborate across different sectors.”
Having the public sector in a leadership role does not mean it has to take on all initiatives regarding development and industrialisation. Mazzucato’s view is that the public sector should serve as a guide to the private sector in determining the kind of industrialisation that is important for a particular country’s development.
“The conversation should not just be about increasing public spend,” she says, “but for the state to make smarter investments.”
To this end, governments should not just serve as market regulators but should be “co-creators of wealth”.
She calls this type of state “missionoriented”, one that is “actively creating, reshaping and fixing markets”.
As for the perennial problem of stateowned enterprises (SOEs), she says SA is not the only country unsure about what role these should play in the economy. This uncertainty “opens them up for corruption, and for these companies to exist only to serve as employment agencies and rentseeking”, she says.
She firmly believes there must be specific reasons for the existence of an SOE: “They may be essential in markets the private sector is unwilling to enter.”
There is also scope, she says, for the state to involve itself temporarily in a certain market devoid of private players, but to pull out when private sector capacity emerges.
Some sectors, however, need to remain in public hands, for example the essential-medicine market. “Access to vaccines is a fundamental human right where making a profit is hard to justify,” Mazzucato says.
Wherever it operates, a state cannot lead innovatively unless it has sufficient capacity. “You need capable staff.” She believes the public sector has to be reasonably meritocratic to attract the best talent.
With regard to SA’s particular challenges, she warns that our high levels of inequality make it hard to create wealth, innovation and value because large numbers of people are cut out of the loop.
She calls for a new way of looking at the creation of a company’s value and wealth. “The conventional view that wealth is created by a small group of entrepreneurs, say a Bill Gates or a Jeff Bezos, is wrong.”
Her view is that corporate value and wealth creation are outcomes not of a single entrepreneur but of a collective process. So workers, researchers and civil servants often take the risks, yet are not credited or rewarded.
A prerequisite for a more equal economy, she thinks, is for the redistribution of entrepreneurial rewards — for workers to share in company profits and for more of those profits to be invested in training a productive workforce.
“Shareholders are not the only risktakers,” she says. “Other stakeholders, such as employees, also carry risks. Therefore rewards must be distributed to the other stakeholders.”
She is critical of governments that pursue policy agendas based on grand visions; she argues for policy based on pursuing a mission.
In a mission-focused strategy, expertise, talent and resources from across the public, private and civil society sectors are harnessed to solve public challenges.
She has five criteria for mission-oriented public strategies: they must be bold, have a deadline, be cross-disciplinary and crosssectional and allow for experimentation. As an example of a mission-oriented strategy, she cites the US programme launched in the 1960s to land a person on the moon. In meeting the ambitious goals of the Apollo mission, the US spent $26bn between 1960 and 1972, starting more than 300 different projects in areas such as aeronautics, electronics, medicine and space meals.
The research spawned innovative products that have become everyday items, such as spring tyres, freezedried food and the integrated circuit. The mission meant more than putting a man on the moon. It required innovation, investment and collaboration across sectors. Experimentation, risk-taking and innovation cut across disciplines and institutions in public, private and civil society.
With this in mind, Mazzucato says mission-oriented policy should focus on addressing challenges that society broadly agrees to be important and have the potential for wide-ranging transformative impact.
“This means that the selection process to identify a mission must involve wide public participation, to secure broad buy-in and to inspire.”
The public must also be involved in implementation and be kept informed of progress, and evaluation of that progress must be rigorous, she says.
The Covid-19 crisis offers plenty of opportunities for SA, says Mazzucato. “The response should prioritise innovation, be collaborative and aim to overcome historical inequalities while creating new industries.”
Covid-19 will accelerate the digital economy, she says, making it important that investments in critical infrastructure focus on digital technology to explore new ways of delivering health care to all. Similarly, digital technology could expand the delivery of education to the disadvantaged.
She mentions Denmark as an example of a country that has transitioned to hi-tech manufacturing and now provides many products and services that support China’s clean-energy transition.
She sees an increasing global demand for green products, services and solutions in the post-Covid world.
She believes that green technologies and a transition to a green economy can provide new jobs in SA, and that the “circular economy” — with an emphasis on reuse and recycling — provides scope for SA to drive inclusive economic growth.
To be successful, she says, SA will have to build on its current technology, strengths and capabilities, but repurpose these for the future, creating new maintenance opportunities and new services.
Construction workers could be reskilled to produce green buildings and the unemployed and low-skilled could be retrained to provide the new services.
Taking full advantage of opportunities created by the circular economy and newtech revolution requires major innovation and investment in training and education.
Importance of sustainability
Another caveat she stresses is that the state should attach transformation conditions when providing financial support to struggling companies.
Such conditions, she says, must include ensuring that the beneficiaries of state support proceed along a sustainable growth path, investing in employees, adapting to new technologies and transitioning to green energy.
At the first meeting of the presidential economic advisory council she attended, Mazzucato was appalled to hear that SA had introduced heavy budget cuts for state research entities such as Stats SA and the Council for Scientific & Industrial Research.
“Research, data and information is a core part of the capacity of the state — without it the state cannot lead, innovate and exploit the new opportunities offered by Covid-19. High-technology manufacturing is a product of high research & development, and relies heavily on data.”
Mazzucato is a fighter for ideas. In an interview with Wired magazine she said: “Sometimes you either just want to crawl back in bed or you fight harder. I tend to always do the latter.”
She may have started out cautiously on the president’s advisory council, but she is likely to enliven future meetings and hopefully help us beat a new economic path to growth and transformation — with her earphones or without them.