Economic growth has not just a rate but a direction. Directing growth to make our economy more inclusive and sustainable, requires putting directionality at the centre of economic theory and policy. This is not about levelling the playing field but tilting it to meet our objectives. It is not about fixing markets but shaping them. We must in the first instance, reward value creation over value extraction.[1] And secondly to direct that value creation towards meeting goals, as ambitious as the 17 Sustainable Development Goals.
Conventional wisdom in economics is that policy is about fixing markets. When markets fail, due to positive or negative externalities and asymmetric information, policy comes in to fix the problem. A carbon tax for pollution, basic research for creating knowledge, or financing of SMEs. But to reach a transformational change towards an economy driven by inclusion and sustainability, we must do more than fix markets, we must pro-actively create and shape them. We would not have the internet economy without government funding, and we will not have a green revolution without public investment and regulation.[2] Furthermore, markets are embedded in institutions and norms and markets are co-created by different activities and different actors in both the public sector and private sector, as well as by civil society organisations such as trade unions.[3] Without trade unions we would not have weekends or the 8-hour workday. Such movements shaped the markets we have. Markets must be constantly contested by movements with shift and shape markets to deliver social goals.
Directionality requires putting purpose at the centre of an economic system. For too long the sole objective of maximising shareholder value has governed companies. This must be replaced by stakeholder value founded on an idea of purpose and collective value creation that goes to the heart not only of corporate governance but how public and private actors interact. This collaborative process can be called public value — value that is collectively created by different actors.[4] Public value can help us make the concept of the common good more rigorous. In economics, the public good is a correction for something the private sector is not doing (e.g. basic research is a public good due to the positive externality features). The common good is not a correction but an objective.
In early Catholic Social Teaching the common good is defined as ‘the sum total of social conditions which allow people, either as groups or as individuals, to reach their fulfilment more fully and more easily’.[5]
The common good concerns the life of all, and consists of three essential elements:
· Respect for and promotion of the fundamental rights of the person as part of the collective
· Prosperity or the development of the spiritual and temporal goods of society
· The peace and security of the group and of its members
In focussing on the dignity of the human person, the common good requires creation of, and support for, institutions that improve the conditions of human life. This idea is core to Amartya Sen’s concept of capabilities: without basic capabilities such as those related to education and health, we cannot take advantage of the opportunities that we have to flourish.[6] In today’s digital world, the capability to work with data and digital technology comes close to being a human right, as Sir Tim Berners-Lee, the founder of the internet, has argued.[7] Without it, there are no opportunities related to what the knowledge economy and hyper-connectivity provide. It is thus the role of the state to defend and promote the common good in civil society. The common good of the whole human family calls for an organisation of society on the international level.
We can thus reframe stakeholder driven capitalism as purpose-driven capitalism where purpose is not words and gestures of goodwill. It infuses the whole of society — private, public and third sector towards addressing key goals together. It is at the centre of how companies and governments are run and how they interact with civil society. If purposeful capitalism is to be real, it is essential to rethink value in economic theory and how it has shaped actions.
The dominant economics framework restricts its understanding of value to a theory of exchange. That is, only that which has a price is valuable. Collective effort is missed because only individual decisions matter. Even wages are seen as outcomes of an individual’s choice (maximisation of utility) between leisure and work.[8] In this context, the concept of social value is limited to the aggregation up of individuals (workers, managers in firms, consumers) making decisions to maximise their own economic welfare. Public goods, such as investments in basic research or clean air, are seen not as objectives created from a collective imagination of ‘what to do,’ but as filling gaps where the private sector does not go. Rather than asking ‘What gap are public goods filling?’ or ‘What failure are public goods fixing?’ we should ask, ‘What are public goods the solution to?’ Many of our public goods are results of imagination, collective investments and pressure from social movements, from clean air to public education. Producing those well requires the right knowledge and capabilities to plan and manage them, including interactions between different interest groups.
Public values can be distinguished from public goods because they do not depend on pricing efficiency for their identification. The key question for public goods is: ‘Is it possible to exclude those who do not pay for the good?’ The key question in public values is: ‘Have those public values endorsed by society been provided or guaranteed?’.[9]
Such questions are fundamental for how we govern 21st century capitalism: how we produce health innovation (vaccine production governed by notions of collective intelligence), how we govern digital platforms (with data seen as a human right), and how we co-design a green transition where different voices imagine together a new way to live in our cities, from the future of mobility to carbon neutral construction, to experimental public spaces.
Only by redirecting our economy – with notions of the common good and public value at the centre of production, distribution and consumption – can we shape and co-create the economy to create a more inclusive and sustainable society. Only in this way can we make the notion of a common ‘purpose’ into a real walk, and not just talk.
Further Reading: Foreign Affairs “Capitalism After the Pandemic: Getting the Recovery Right” | The New York Times “Capitalism is Broken. The Fix Begins With a Free Covid-19 Vaccine.” | TIME Magazine “It’s 2023. Here’s How We Fixed the Global Economy.”
END NOTES
[1] Mazzucato, M. (20018), The Value of Everything: Who makes and who takes from the Real Economy Public Affairs, 2018.
[2] Mazzucato, M. (2013), The Entrepreneurial State, Penguin, 2013.
[3] Evans, Peter, Embedded Markets.
[4] See Chapters 8 and 9 in Mazzucato, M (2018) above.
[5] Hollenbach, S.J. and Hollenbach, D., 2002. The common good and Christian ethics (Vol. 22). Cambridge University Press.
[6] Sen, A., 2004. Capabilities, lists, and public reason: continuing the conversation. Feminist economics, 10(3), pp. 77-80.
[7] See The Guardian, 4 June 2020 https://www.theguardian.com/commentisfree/2020/jun/04/covid-19-internet-universal-right-lockdown-online Accessed 6 June 2020.
[8] Mazzucato, M. (2008), The Value of Everything: Who makes and who takes from the Real Economy Public Affairs, 2018.
[9] Barry Bozeman, Public values and public interest: Counterbalancing economic individualism. Georgetown, 2007, p. 15.