As cities reopen even while global COVID-19 cases continue to grow, most people are wondering when things will truly get back to normal. In a TED2020 talk on Monday, economist Mariana Mazzucato said that it’s the wrong question to ask. “Really, my view is that we need to do everything we can not to go back to normal, because normal was part of the problem,” she told the virtual audience.
The “normal” healthcare system was broken. The economy, with problematic corporate governance and business structures, wasn’t working, as inequality has skyrocketed over the last few decades in places such as the U.S. The climate crisis hasn’t gone away. “This is really an opportunity to fix those underlying sources, but also to do capitalism differently,” she said.
This is really an opportunity to fix those underlying sources, but also to do capitalism differently.”
In part, that means a different role for the government. In her book The Entrepreneurial State, Mazzucato looked at examples of technology like the smartphone and the fact that core tech that enabled it—the internet, touchscreens, GPS, voice control—came from public investments and scientific research, not entrepreneurs. She argues that governments need to see their role differently, focusing on co-creating value with businesses, rather than only intervening if the market fails, and investing more in innovation. Investments could be structured differently so the government can benefit rather than only taking risk, for instance. If the U.S. government had taken shares in Tesla when it invested, it would have offset the losses when Solyndra, a solar company it also invested in, later went bankrupt.
When governments do invest in technology, Mazzucato says that they also need to go further, also creating regulation to address potential issues that might arise, like privacy problems in the case of smart technology, or high costs in the case of healthcare. “It’s not enough to spend as much as many countries do through public budgets and health innovation, if then the drugs that come out of that process are either too expensive, that the same citizens who paid for it can’t afford it.”
Now, as governments spend trillions on the COVID-19 recovery, there’s an opportunity to rethink how they interact with businesses, Mazzucato says. “Unless we get those structures right, we’re going to repeat the problems that we caused in the financial crisis, where lots of money came in to save the day, but it more or less ended up back in the financial sector.” Some investments need to go to healthcare systems, fixing problems laid bare by the crisis.
Support that goes to businesses should be attached to conditions for change—airlines that get government support now can promise to reduce emissions, or companies that heavily use stock buybacks could be forced to reform their corporate governance. While there is a lot of talk about this happening (and some limited examples), it hasn’t been implemented widely. EasyJet, for example, a U.K. airline that has gotten a large amount of public support in the past, just got bailed out by the U.K. government without conditions attached.
Governments can also set targeted goals to tackle pieces of social problems such as climate change or affordable healthcare, catalyzing new innovation. Mazzucato points to NASA’s procurement contracts for the original moon mission as a good example. “If you look at the procurement contracts, they were really dynamic, very ambitious,” she said. “They’re also quite short, which is interesting. And when the private sector didn’t deliver, NASA just threw the stuff back and said, ‘Nope, doesn’t work. Do it again.’ So there was much more ambition and in some ways, confidence.”
Companies are beginning to talk more about creating social value, like when the Business Roundtable’s 200 CEOs said last year that the purpose of a business isn’t only about creating value for shareholders. But statements aren’t enough to drive true investment back into communities, workers, and sustainability, Mazzucato says. “None of this happens just by waking up and saying, ‘Oh, we need to be more purpose-driven. We need to do stakeholder value,'” she says. “It only happens when it goes to the center of the system, and when it’s mandatory.” A government investment floods into the system, governments can require those companies to focus on purpose.
“The point now is government has huge negotiating power,” she says. “It has the upper hand. It’s being begged to intervene. So this is the moment that really we cannot waste. And it shouldn’t be seen just as a stick—that would be kind of a negative way to frame this. This really is about building a more inclusive and sustainable type of growth, type of economy—type of capitalism, if we want to stick with the capitalist system right now—and bringing that need to change, making it mandatory, not just voluntary, not just a Davos kind of talk . . . . It needs a new contract, a new social contract between what it means for business and government to work together.”