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 just a “story” — which is why I make frequent references to Plato’s maxim that storytellers rule the world. It’s just a story that says shareholders are the biggest risk takers because they are the only agents in the economy without a guaranteed rate of return. They are the residual claimants. Workers get their salaries, banks might get an interest rate, and if there’s something left over in the end, that’s what the shareholders get. The notion that this makes them the biggest risk takers is used to justify why they actually deserve this big booty.

But this is not true: The state didn’t have a guaranteed rate of return when it invented some of the biggest changes that have occurred under capitalism, like the ones I talked about in The Entrepreneurial State: the Internet, GPS, touch screen, Siri. Each one of those occurred through a massive process of experimentation funded by government — with inevitable failures.

Any actor — whether it’s a business, whether it’s a public entity — in order to create value, has to experiment, explore, and fail along the way. So this notion of shareholder value, that only the shareholders have no guaranteed rate of return, completely ignores one of the fundamental principles of value creation: trial and error and error and error. No one has a guaranteed rate of return.

Even though many have critiqued maximization of shareholder value, they’ve only critiqued its consequences, like short-termism, and only a few have critiqued the theory’s underlying principles, which are faulty. And that contributes to the fact that there’s been so little change.

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