Mariana Mazzucato says that rather than measuring the value of economic activity purely by its price, capitalism will be more purposeful when recognising that value is created collectively by business, government, and civil society

By Mariana Mazzucato*

One year ago, BlackRock chairman and CEO Larry Fink wrote a letter to 500 CEOs asking them to rethink their sense of purpose. “To prosper over time,” he wrote, “every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”

Fink argued that companies’ excessive short-term focus was hurting their ability to create more value in the long run. Some prominent politicians – including US Senator Elizabeth Warren and (until Brexit torpedoed her policy agenda) British Prime Minister Theresa May – have also advocated a more inclusive and less predatory form of capitalism.

But despite these calls to action, little has changed. The financial sector remains self-obsessed and invests mostly in other parts of finance, insurance, and real estate. Companies also are overly financialised, spending more on share buybacks and dividends than on human capital, machinery, and research and development. And the buyback mania is getting worse, including at companies like Apple, where falling innovation is not unrelated to the failure to reinvest. Many businesses talk soothingly about corporate social responsibility, impact, and social purpose, but very few put these at the core of their operations.

Fink claimed that companies should instead focus on a broader group of stakeholders: “shareholders, employees, customers, and the communities in which they operate.” But this would require corporate governance structures that maximise stakeholder value, not shareholder value – and neither Fink nor other business luminaries seem willing to go down this “Scandinavian” path.

Real change means putting purpose at the center of how value is defined by firms, governments, and the economic theory that informs policymakers. As I argue in my new book, Adam Smith and Karl Marx made the objective conditions of production – the division of labor, machinery, and capital-labor relations – central to their understanding of value. In neoclassical economics, however, value is merely a function of exchange. Only what has a price is valuable, and “collective” effort is omitted, because only individual decisions matter. Even wages are seen as outcomes of people’s utility-maximising choices between leisure and work.

In the neoclassical view, governments at best redistribute value created elsewhere. Furthermore, GDP doesn’t account for the value of essential public services such as health care and education. It does, though, account for their costs (teachers’ salaries, for example), so that civil servants cannot claim to be as “productive” as former Goldman Sachs CEO Lloyd Blankfein in 2009 infamously suggested his employees were.

Unsurprisingly, public officials, long accused of “crowding out” business, have internalised the belief that they should do no more than fix market failures. Yet the public organisations that put a man on the moon and invented the Internet did more than just correct market failures. They had ambition, a purpose, and a mission.

To get real about purpose, we need to recognise that value is created collectively and build more symbiotic partnerships between public and private institutions and civil society. In doing so, we must address three questions: what value to create, how to evaluate the impact, and how to share the rewards.

Paul Polman, the departing CEO of Unilever, has rightly tried to focus companies on creating value in line with substantial targets, especially the United Nations’ 17 Sustainable Development Goals. Of course, neither the public nor the private sector alone can meet all 169 specific targets underpinning the SDGs. But governments can use the goals to create initiatives that require investment and innovation from many public, private, and civil-society organisations. I advocated this approach in a report that has become a key part of the European Commission’s Horizon program.

Similarly, companies evaluating their social impact should ditch fuzzy objectives and focus on concrete steps to help solve problems. Financial institutions would no longer evaluate their loans on the basis of categories of firms or countries, but rather in terms of activities that help fulfill specific missions – such as removing plastic from the ocean or creating more sustainable cities. Likewise, governments should give fewer handouts to companies and instead rely more on procurement and prize schemes to nurture corporate innovations aimed at achieving the SDGs. In other words, there should be less picking winners and more picking the willing.

Finally, companies must share the rewards as well as the risks of creating value. Business has benefited enormously from public investment not only in education, research, and basic infrastructure, but also in technologies like those powering today’s smartphones. Governments could, therefore, retain more of the upside returns to cover the downside losses that risk-taking involves. For example, they could take equity stakes in companies like Tesla, which received a similar amount of support as the failed company Solyndra, or generate non-monetary returns by setting conditions on the prices of goods (such as medicines) that receive heavy public investments, and on knowledge governance (to ensure that the patent system is not abused). Similarly, conditions on reinvesting corporate profits would reduce cash hoarding and share-buybacks. To cite one famous example, when Bell Labs was formed, monopolies like AT&T were pressured to reinvest their profits. That courage has been lost.

A more purposeful capitalism requires more than just letters, speeches, and goodwill gestures. Business, government, and civil society must act together, courageously, to ensure that their walk is as good as their talk.

Mariana Mazzucato is Professor of the Economics of Innovation and Public Value and Director of the UCL Institute for Innovation & Public Purpose (IIPP). She is the author of The Value of Everything: Making and Taking in the Global Economy, which was shortlisted for the Financial Times-McKinsey Business Book of the Year Award.  Copyright: Project Syndicate, 2019, and published here with permission.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.


I think the author is just putting fancy words to the age old paradox/dilemma of the individual vs society/community.... Its about finding the sweet spot along the spectrum of individuality at one end and the community "will" and "needs" on the other end...
eg.. Rocket labs was created by individuals, with individual drives/goals, and this could only have happened within the context of a "community/tribe/nation... BUT, paradoxically ... a community that valued individual freedom and expression.. ( Individual/community is a symbiotic thing... They cant really exist without each other... the health of one kinda defines the health of the other )

An "ism" ( Capitalism, Socialism, Communism..etc ) is not going to change the reality that it is the "qualities" of the individuals that determine the "qualities" of the community... and vice versa..
What are the determinants of morals and values..???
In western democracies, ..has it been religion..?? (historically.? )
Where does a work ethic come from..? Honesty..? Trust..? compassion..? ..competitiveness.?

I agree. Fancy words of waffle sounding Ok until you come to the crunch of actually making a decision. So hypothetically you are a CEO of a big company and you have to decide between investing in a device that extracts plastics from the ocean or developing an app that makes it easier to find a brothel. If you are influenced by this writer it is easy to decide so you invest in cleaner oceans.
However there are many other factors that you should be considering - probabily of success, cost of investment, profitability, value of intangible company reputation, retaining staff. If everything balances then take the moral option otherwise leave it to the invisible hand.

Would you put your pension savings into a business where this writer was CEO?

Within the context of the above article , ....this is interesting reading.
Technology has reached a point where the "individual" can be watched and extinguished...... very easily.

This paragraph is worth pondering.... its disturbing for me..

the coming together of these new technologies in the hands of the wrong person translates into the ability to immediately and totally destroy any individual. When this power is placed in the hands of an Orwellian State the implications for society are huge going forward. The control over the individual will become complete as we move towards being a cashless economy where we will be unable to buy food, may at any moment have our ability to message others cut, and will be forced to rely on autonomous vehicles to deliver us to our destinations. Such a lack of control over our lives constitutes their total control over us making us powerless pawns and slaves with little choice but to do their bidding or perish.

Government does not create value. This is basic stuff.

One of the fatal assumptions in western economics

Wait and see, I'd imagine.

China should be the richest country on earth - but socialism ensures it will be 'developing' forever.

Move to a third world shithole where there is no effective Govt to speak of, then tell me a stable effective Govt doesn't create value. I think i could happily live in any country in the top 20, once i'd learned the language. Would not be able to pay me enough to move to any of the bottom twenty.

Less gormless right wing rhetoric, more thinking please.

If value was water then good govt is the bucket; without clear enforced laws everything of value simply drains away. Pushing the analogy - African women carrying water in open pans add palm leaves to their heavy load because it causes less water to slop over the edge; similarly a govt can act to flatten booms and busts but this goes back to Joseph prophesy to the Pharaoh in Genesis.

I think some of those bottom 20 have very strong, pervasive governments which impact greatly upon their populace by intervening directly in their economy.

One visit a year from the gun weilding taxman does not make for strong government.


Reading your post,two emotions surface;sadness at your ignorance and anger at your ignorance. Stable governments create enormous value through essential services such as infrastructure,the provision of education,healthcare,police,fire and many other social services.
I class myself as a Social Democrat;I believe in a mixed economy along the lines of the Nordic model. I want to see a thriving corporate sector and much of my income comes from dividends.

"But despite these calls to action, little has changed. The financial sector remains self-obsessed and invests mostly in other parts of finance, insurance, and real estate. Companies also are overly financialised, spending more on share buybacks and dividends than on human capital, machinery, and research and development."

This is absolutely the problem, but why? Watch about 4 minutes from the time stamp of this video (or the whole thing if you have the time)

If we get the underlying systems right then we wouldn't need overarching political intervention like this article is suggesting i.e. "missions" being set out by the UN.

If we get the underlying systems right then we wouldn't need overarching political intervention like this article is suggesting i.e. "missions" being set out by the UN.

Agree. At the moment too many of our systems simply incentivise value extraction and rent seeking rather than productive enterprise that adds value.

I'm sure young people facing paying 80% land components of their soaring house prices are really thankful for local governments that never seem to return any cost savings or efficient delivery of anything other than a strangled land supply.

Don't worry, someone will come along and say "BUT SOMALIA" while totally overlooking public sector largesse and corruption. Because total anarchy is apparently the only other option.

Ah, but private sector corruption, fraud and monopoly practices are just fine, Got it!

You obviously haven't got it!

Restriction of land supply is to benefit of private sector cartels, delivering windfall gains to a favoured few land bankers. Complaining about council policy that only feathers the nests of wealthy landowners is exactly the opposite of saying "corruption, fraud and monopoly practices are just fine".

And on a slightly related note we are coming up on the 2 year anniversary of Borlase (Projenz) and Noone (Auckland Transport) entering prison.

Oh, I agree entirely that the current local govt system is broken. I was simply pointing out the the unrestricted free-market is not the answer either.

Interesting Article but isn't dressing a wolf up in sheep's clothing? Doesn't Socialism also talk about the greater good of society as a whole, as does capitalism? Somewhere in the middle is where we belong i think, with economic success shared across society delivering the overall greater good.

Cynically, I would say that several large corporations have seen how much free money is being gifted to banks that are too big to fail and trying to insinuate themselves into the social construct in such a way that they are critical to the government.

Some great words by Mariana. Spoken like a true professor. Trouble is we need professionals not professors down at the coal face. Oh yes, their fine theories are well and good, and as you've seen above, read very well. But we still need workers and preferably bright'ish ones to create real value. Value can be many things to many people, but the value of being in a functioning relationship of its component parts - and the smooth running of the cutter, is paramount. We can create wealth for eternity but from what I've seen it just creates more greed. If we can't get on with one another then it really doesn't matter how much wealth you create.