Mariana Mazzucato

Dysfunctions … occur when we don’t debate value — when [value is] just presented as “this is how the economy works.” So it becomes very easy for some actors in the economy to present themselves as value creators, and in the process extract value, because the difference — what’s value creation, what’s value extraction — is no longer part of the way we think about … [ Read more ]

Mariana Mazzucato

The twin problems I see in modern-day capitalism are the fact that the financial sector is financing itself and industry itself has become financialized, obsessed with short-term quarterly returns. To change that system, you need to debunk the pillars on which those behaviors are based. The problem with the maximization of shareholder value approach is that it has dismissed the role of other actors in … [ Read more ]

Mariana Mazzucato

Value in capitalism has fundamentally been created collectively through different types of actors coming together to solve problems. Workers have contributed. The state has contributed. Of course managers and people on the ground have contributed, but we need a body of thought within economics that really captures that collective value creation.

Maximization of shareholder value is a very narrow approach to understanding value. Indeed, it is … [ Read more ]

Mariana Mazzucato

As soon as you take innovation seriously, you start having to throw up in the air so many of the things we learn in mainstream economics: unique equilibria, representative agents, perfect competition. Indeed, the mathematics that we’re taught in mainstream economics departments mainly comes from Newtonian physics. It allows nice, smooth curves to be drawn where there is a maximum point (important if firms are … [ Read more ]

How McKinsey Destroyed the Middle Class

Technocratic management, no matter how brilliant, cannot unwind structural inequalities.

Jerry Useem, Francis Fukuyama

If you can rely on people to do what they say they’re going to do—without costly coercive mechanisms to make them dependable—a lot of things become possible.

Jerry Useem

Trust is to capitalism what alcohol is to wedding receptions: a social lubricant. In low-trust societies (Russia, southern Italy), economic growth is constrained.

Kenneth Arrow

Virtually every commercial transaction has within itself an element of trust.

Global flows: The ties that bind in an interconnected world

Economic and political turbulence have prompted speculation that the world is already deglobalizing. But the evidence suggests that global integration is here to stay, albeit with nuance.

Reimagining Capitalism

What is capitalism? Is it the greatest source of prosperity and freedom the world has ever seen or a menace on the verge of destroying the planet and our society? Rebecca Henderson argues that capitalism is the only solution to the massive problems that we face and explores the ways in which the private sector can help to reimagine capitalism so that it works for … [ Read more ]

Rebecca Henderson

Scholars came to distinguish between “inclusive” and “extractive” societies. Extractive regimes concentrate both political and economic power in the hands of an elite few. Healthy inclusive societies, by contrast, rest on three foundations: a free market; a strong civil society; and a democratically elected, transparent, capable, and responsive government. Together these three institutions hold each other accountable, balancing the power of the free market with … [ Read more ]

Rebecca Henderson

Markets require adult supervision. Markets only lead to prosperity and freedom when they are genuinely free and fair. Intuitively, if firms can dump toxic waste into rivers, lie to their consumers, and form alliances to fix prices, there is no guarantee that maximizing profits will increase either aggregate wealth or individual freedom.

Rebecca Henderson

The rule of law, well-designed corporate governance, anti-corruption safeguards, democratic government, a free media, and appropriate financial regulations are critical to enabling free markets to stimulate high quality development.

Rebecca Henderson

The deepest moral commitments of capitalism require that they help to sustain the health of the institutions on which the free market relies. If firms exist to maximize prosperity and social welfare, they have a moral duty to act as if there were a price for carbon, for example, even when there is no price in place. If firms exist to maximize freedom of opportunity, … [ Read more ]

James O’Toole

When the purpose of a corporation is seen as only maximizing shareholder profit, enlightened capitalism — even when it is linked to long-term financial success — tends to fall by the wayside.

Mission critical

Economist Mariana Mazzucato explains how solving society’s toughest problems starts with rethinking how value is created and innovation is incentivized.

Michael Birshan

Value flows from corporations to households through eight different pathways. If you take a dollar of revenue that the average corporation generates, 25 cents of that flows through as labor income: wages, salaries, and other benefits to employees. Seven cents of that dollar goes to capital income, meaning dividends, share buybacks, and interest payments to debtholders. Six cents goes to investment—earnings that are retained to … [ Read more ]

Bethany McLean

The biggest lesson of all from the crash — one that would resonate in our own time — is that when the financial system cracks, the motto of “free markets for free men” no longer holds, because the government has to step in.

Aaron De Smet

Transaction costs are now low enough that you can have a gig economy. We can create technology-enabled platforms that allow us to have collaboration at scale through nonemployees or quasi employees.

Now there were some economists who said that when transaction costs fall enough, the large employed workforces will go away. That was the prediction. I never agreed with it, because another reason why people work … [ Read more ]

James Surowiecki, Viktor Mayer-Schönberger, Thomas Ramge

It’s easier than ever to enter into, and successfully monitor, partnerships, and to outsource even core corporate functions to outside players. Intermediaries and brokers are less important. As a result, the transaction costs of doing business outside corporate walls are falling, which means that the economic case for the traditional big corporation (which exists in large part because of its ability to coordinate production with … [ Read more ]