The value of everything by Mariana Mazzucato is about value creation and value extraction, making versus taking, which is a subtitle of the book. We currently have corporate governance structures which are very much not just aimed at short-termism but actually very much centred around extracting value. The book talks about particular practices of value extraction, for example, the increasing practice of just buying back your own shares to boost your share price or options and, unsurprisingly, executive pay.
The book also opens polemics with narratives and lazy assumptions that are used all the time that wealth is created in business and then, at best, what government can do is facilitate it and redistribute that value through taxation. Mariana, on the other hand, argues that the value creation process is a collective creation and of course labour creates value, different types of state entities create value, businesses create value, and of course, civil society creates value. We would not have weekends and we would not have an eight-hour workday without trade unions. In this concept of different actors comes together to co-create value and, undoubtedly, have conflict in the process. This should be at the heart of any progressive agenda. She also argues that the financial sector and the Silicon Valley seen as great wealth creators are often just shuffling around existing value, or even worse, destroying it.
Anyway, the book provides a good storyline of where does value come from in different ages and gives a great analysis of how these concepts interlink. Mariana explains a change in the understanding of the value and how it affects the way we see things. In the 1600s we had Mercantilists who created value by trade, focusing on the terms of trade, on exchange rates and taxation. They thought it was trade itself that created value and that’s why they put so much emphasis on that. Then in 1700s Physiocrats opted for farming. It was still before the industrial revolution in an agricultural society so at the heart of their theory of value was, in fact, farm labour. In the next century Classicals like Adam Smith and Karl Marks were starting to put emphasis on value as embodied in the industrial environment in the working process. They tried to understand what was the relationship between what was happening in the factories and the rising division of labour. So no longer we had workers making everything but they broke down the process into very small pieces. Then, they tried to find the relationship between that process, the division of labour, increases in productivity, technological change and the distribution of wages, rents and profits. Then in the 1900s and now we have Neoclassicals no longer tied to objective conditions of production but tied to leisure versus work and demand versus supply curves determining prices which now are used to determine value.
Next, the book explains that there are three key factors of innovation processes we should be looking at:
1. collectiveness (where the value creation process engages different people in different jobs and sectors)
2. cumulativeness (where innovations are the most valuable pillars of long-term investments building)
On the other hand, we should also be aware of value extraction in an innovation economy which takes place in several ways, for instance, through renting, buying back in order to increase the value of goods, the patent system which provides short-term protection and encourages knowledge diffusion.
Mariana Mazzucato seems to focus on wealth extraction in the financial sector. She explains the role of these huge, international corporations which have the power and financial resources to stimulate the massive imbalance in the distribution of the gains from economic growth. Mazzucato is arguing for economists to redefine the production boundary to differentiate between rent extraction growth versus true value addition growth. She also calls for setting policies that can reverse some of the modern trends where, for instance, any company applying for government funding programs, should commit to certain offset programs aimed at the national economy or limiting dividend and share buyback activities.
The Value of Everything: Making and Taking in the Global Economy
by Mariana Mazzucato
In the article I made use of a few author’s interviews.
Size: 384 pages
Other information and reviews of this book on Goodreads:
Other useful links:
Mariana Mazzucato’s website: https://marianamazzucato.com/
Mariana Mazzucato on Wikipedia: https://en.wikipedia.org/wiki/Mariana_Mazzucato
Other book taling about global trade in a broad context: The Rational Optimist by Matt Ridley