Cooking the Books: Another reformist dreamer (2024)

The Cooking the Books column from the December 2024 issue of the Socialist Standard

In a speech last year, Rachel Reeves name-checked Mariana Mazzucato who, she said, had long argued that ‘the state’s role is not simply to correct the failures and redress the negative externalities of free markets… Success has always rested upon a partnership between the market and the state’ (tinyurl.com/3m78s2mx).

Although Mazzucato is seen as a radical thinker she has nothing against capitalism as such. Nothing against the private ownership of productive resources. Nothing against production for sale on a market with a view to profit. What she is against is the present ‘dysfunctional form of capitalism’ characterised by ‘the excessive financialization of companies and remorseless pursuit of shareholder value’. As she quotes on her website she is on ‘a mission to save capitalism from itself’. She wants to ‘change’ capitalism, as she put it in her 2020 book Mission Economy: A Moonshot Guide to Changing Capitalism, by ‘restructuring business so that private profits are reinvested back into the economy rather than being used for short-term financialized purposes’. In other words, she is a theorist of reformism. Hence her attraction for the Labour Party. Even under Corbyn, John McDonnell went around echoing her call for an ‘entrepreneurial state’.

Mazzucato’s reform to capitalism is for the state to play a pro-active role in the economy by setting an aim to be achieved — a social or economic problem to be solved — and then mobilising the help of private capitalist corporations to achieve it by ‘shaping’ markets for them. Hence the title of her book which argues that the US government’s 1962 mission to get a man on the Moon within ten years is the example to follow.

There are indeed occasions when capitalism’s spontaneous aim of profit maximisation is set aside. When a country is at war, the ‘mission’ becomes to win ‘whatever it costs’ and the state mobilises resources to achieve this. It is instructive that the only successful example of her ‘change’ to capitalism that she can bring forward had a military dimension. The United States government did not want to get a man on the Moon for scientific reasons but to gain superiority over Russia in rocketry.

Mazzucato herself notes this and asks why a state could not similarly mobilise resources to achieve some peaceful aim such as solving the housing problem or creating a good health and care service. The same question was put by reformists to those who in the 1950s and 60s argued that capitalism had been saved from supposed collapse by providing markets through becoming a ‘permanent arms economy’. Why, the reformists asked, couldn’t capitalism become a ‘permanent welfare state economy’; why couldn’t the state provide extra markets by spending instead on social reforms?

The permanent arms economy theorists struggled to find a coherent answer. In the end, life itself settled the matter — excessive spending on arms turned out to undermine a capitalist state’s international competitiveness by increasing the tax burden on its capitalist enterprises and diverting profits that might otherwise have been invested in cost-cutting innovations. Which explained why in the 1960s Germany and Japan, which weren’t allowed to spend so much on arms, did better on world markets. Excessive arms spending wasn’t saving capitalism but was a burden on the states that practised this. The answer to the reformists was that excessive spending on the welfare state and other social reforms was not practicable because it, too, would be a burden on any capitalist state that tried, undermining its competitiveness.

The same applies to Mazzucato’s reformist project. If, outside of war, the state were to set a purpose for the capitalist economy other than profit maximisation and taxed capitalist corporations to pay for it, this would inhibit, not encourage, growth. In seeking to maximise profits capitalism is not being dysfunctional. It is being itself and can’t be changed to function in any other way.

Cooking the Books: All state activists now? (2021)

The Cooking the Books Column from the February 2021 issue of the Socialist Standard

On the eve of Britain’s final departure from the EU, Boris Johnson wrote an article in the Daily Telegraph in which he praised the development of the Oxford University/AstraZeneca vaccine as an example of collaboration between ‘state activism’ and ‘free market capitalism’. The government, he said, had provided the cash and the scientists while AstraZeneca provided the production facilities and the marketing. This was interpreted as a hint of the economic policy he envisaged his government pursuing.

This praise of ‘state activism’ does seem strange coming from a Tory prime minister as it has traditionally been more associated with the Labour Party. In fact, combining ‘state activism’ with ‘free market capitalism’ has been the economic policy of the Labour Party since it abandoned ‘nationalisation’ – the state owning and running industries – as its panacea. Since then its policy has been that the main means of production should remain in the hands of profit-seeking private enterprises, so with profit as the motivating force of productive activity and ‘state activism’ taking place in this context.

When Labour could still be considered a classic social-democratic reformist party, it envisaged the state being active within capitalism to improve the standard of living of workers through social reforms that brought them some direct material benefit. Nowadays, the Labour Party envisages the state being active to provide cash for infrastructure projects to be carried out by private enterprises and for improving productivity through training schemes.

This was the case even during the Corbyn interregnum. Corbyn himself didn’t seem much interested in economic policy. This was left to the shadow Chancellor of the Exchequer, John McDonnell, who set out to develop an economic policy that Big Business and the City could accept as credible and reasonable.

To this end, he invited the economist Marianna Mazzucato, author of The Entrepreneurial State: Debunking the Public vs. Private Sector Myths, to be one of the Labour Party’s advisers on economic policy. According to publicity for her book, she argued that ‘in the history of modern capitalism the State has not only fixed market failures, but has also actively shaped and created markets’.

This is historically and empirically correct. States can and have done this but the markets they create are not extra markets. They are created by taking money from sections of the capitalist class (whether through taxes, borrowing or inflation) and giving it to other sections to carry out projects that a state has judged are in the general interest of the capitalist class as a whole.

McDonnell made this Labour Party policy, telling the 2015 Labour Party conference:

 ‘We will create what Marianna Mazzucato describes as the entrepreneurial state. A strategic state that works in partnership with businesses, enterprises and workers to stimulate growth.’

The state itself would not organise production, but only ‘stimulate’ private enterprises to do this by putting up the money for them to make profits from activity it wanted to encourage. Or, as Johnson put it, a collaboration between ‘state activism’ and ‘free enterprise capitalism’.

In embracing this, he has stolen the Labour Party’s clothes. It may just be rhetoric designed to retain the support of ex-Labour voters in the Red Wall constituencies in the North that helped the Tories win power in the 2019 general election. It won’t be popular with the hard-line free-marketeers on the ‘libertarian’ wing of the Tory party who deny that the market can ever misallocate resources.

The Value of Value (2018)

Book Review from the July 2018 issue of the Socialist Standard

‘The Value of Everything. Making and Taking in the Global Economy’. By Mariana Mazzucato. (Allen Lane. 384 pages. £20, hardback)

Mariana Mazzucato follows up her previous book, ‘The Entrepreneurial State’, with this fascinating look at how theories of value shape policy and economic behaviour. She reprises the core of that previous book in a chapter of this one, showing how much of the innovative success of capitalist firms in recent decades (such as the internet, GPS, etc.) actually stemmed from investment by the state, and only after the risky stage of product development did private capital swoop in to enormous rewards.

She begins with a brief history of national accounting, and how the question of the productive boundary – what is and is not a productive endeavour – gets brought into measuring these accounts. She notes that how we define this productive boundary shapes how we assess economic performance. She gives examples of difficulties: cleaning up pollution caused by industry adds to the productive side of the economy, but is actually correcting a major damage caused by cost saving by another firm. She notes that there is no economic accounting for housework and child rearing. She also points out that despite the role of the state in investing and driving innovation, the state is seen as inherently unproductive.

Her goal is not to define a new way of looking at value, but to open up the debate on why a theory of value is needed. She notes that the current orthodoxy, marginal utility theory (which essentially sees value as deriving from how useful the next additional unit of a good is, rather than how useful a good is in itself). Essentially, as she notes, this resolves into saying that the value of a good is whatever anyone is prepared to pay for it (and thus any good or services anyone pays for is productive). As a theory it abolishes any standard of value to measure prices by (it doesn’t allow for the concepts of bargains or rip-offs) and justifies the idea that markets are the most efficient measure of demand.

As she notes, marginal utility theorists maintain there is no unemployment, just a rational choice between income and leisure. As there is no measure beyond the market, it means that financial industries, that were once considered unproductive and merely distributive of wealth, can claim to be part of the productive economy. She passes into a quick mention of the idea that banks create money, with the added and helpful twist that sees that alleged ability deriving from the near monopoly of banks created by the state licensing system. This means, in effect that it isn’t private banks creating money, but the state.

She also gives a brief schematic account of the labour theory of value, and an account of Marx’ place in the history of the discussion of what is productive. She gives one of the better accounts of Marx’ theories you’ll likely find in any popular economics book. Marx noted that any activity that generates a surplus value for a capitalist was productive. What Mazzucatto misses in her account, is that Marx was clear that this was productive for capitalists and within a capitalist economy. This ‘valuable, for whom?’ is missing in most of her account, although she clearly gives hints that she would rather see a system of value accounting that gives a positive role to the state.

Her perspective is broadly Keynesian, seeing the struggle between the rent seeking of finance and the productive capacity of industry, and siding with productive capital. One aspect of her narrative that seems to undermine her case for stricter financial regulation, is that she recounts how the banks broke out of their previous regulated regime, and basically forced deregulation. Where there are profits to be made, they will be sought.

This is a useful read, and an opportunity for socialists to get involved in a debate about ensuring that the best way forward is to put an end to economic value through common ownership and the production of an abundance of wealth for use rather than exchange. We would still need mechanisms to assess resources and effective use, but we wouldn’t need a singular measure of personal wealth like a private market economy requires.

Pik Smeet

Cooking the Books: Value, Creation and Extraction (2013)

The Cooking the Books column from the March 2013 issue of the Socialist Standard

Writing in the Guardian (19 January) in an article subtitled ‘Talk of a fairer capitalism is just hot air unless we rehabilitate and reward the idea of value creation,’ economics professor Mariana Mazzucato quoted Big Bill Haywood of the Western Federation of Miners and later the IWW as saying: ‘The barbarous gold barons do not find the gold, they do not mine the gold, they do not mill the gold, but by some weird alchemy all the gold belongs to them.’

She used this as an introduction to her case that capitalism today is more concerned with ‘value extraction’ than ‘value creation’ and that this needs to be corrected to avoid further financial crises. ‘Restraining the power of value extraction,’ she wrote, ‘requires a theory of value – an area once hotly discussed in economics, but no longer,’ and went on:

‘This is because a century ago the notion that labour creates value (central to the work of classical’ economists like David Ricardo and Karl Marx, and measured by objective factors like productivity) was replaced by the ‘neo-classical’, subjective notion that satisfaction and ‘preferences’ create value.’

This is a valid point. In fact, modern bourgeois economics has gone further and dismisses the whole idea of ‘value’ as a useless concept, arguing that all you need is a theory of price. This enables it to obscure the obvious fact that wealth, as something useful to human life, can only be created by people working. In their theory labour becomes reduced to just one element, along with land and capital, of cost and so of price.

Marx’s theory of value was that a commodity (as a good or a service produced for sale) was determined by the amount of ‘socially necessary’ labour expended on its production from start to finish. By ‘socially necessary’ he meant the labour that had to be expended to produce it by an average worker of average skill working with average equipment; in other words, not necessarily the actual labour expended, otherwise a slower than average worker would create more value.

Marx was not talking just about the labour expended at the last stage of production of a good but of all the labour expended on it from start to finish.  That included labour expended on mining or growing the materials, constructing the machinery, supplying the energy, and making the semi-finished products, i.e. the past labour incorporated in the fixed and circulating capital.

According to Marx, ‘value creation,’ to use Mazzucato’s terminology, took place when workers produced a commodity. The workers transferred existing value from the raw materials, machinery, etc. to the product but at the same time created new value.  However, what they produced was not theirs but belonged to the capitalist owner who employed them. A part of this did go to them as their wages, but most went to the capitalist as ‘surplus value’. This legalised robbery (Haywood‘s ‘weird alchemy’) could well be described as ‘value extraction’.

But this is not what Mazzucato means by the term. She is not as radical as might at first seem. Her case is not against capitalism as such, but only against present-day capitalism which she sees as biased in favour of finance and against industry. Her ‘production theory of value’ is a plea for, as she put it, ‘reinvesting profits into areas that create goods and services’ instead of financial juggling.

But, as Marx explained, ‘value extraction’ occurs at the point of production. Financial juggling is not extracting value from the producers but from those who originally extracted it from them: the mining, manufacturing and service capitalists who employ them. Mazzucato is taking sides in a thieves’ quarrel.