Most speakers at Falling Walls take the stage amongst the large red cubes to share the findings that gained them academic renown. But Mariana Mazzucato, an economist at the University of Sussex, professed that she would instead be sharing thoughts that have not typically entered the debate surrounding public budgetary allocations.
Mazzucato talked through the recent economic recession that has gripped the Eurozone, focusing primarily on the PIGS (Portugal, Italy, Greeece, and Spain), countries that have seen the biggest repercussions of economic stagnation. Rather than focusing on debt, she pointed toward the lack of strategic spending as the primary issue. “The narrative that we need to reduce the debt brings us to various policies and structural reforms,” Mazzucato explains, and lower spending is often the result. But such approaches may have been stopping many countries from achieving smart, innovation led growth. Rather than turn the spigot off, the flow of funding should be directed in a strategic way.
Instead of having states come in and fix market failures, Mazzucato proposes a shift toward “actively shaping and creating markets.” In particular, funding of human capital, education, and research and development have proven effective. “This is not the narrative you usually hear,” she confesses, “that these countries should be spending more.” But it seems to have worked well in the United States, where stimulus spending caused the deficit to rise, but growth followed an upward trend as well.
Mazzucato also pushed back against the glorification of venture capital funding. Venture firms are “always thinking about the exit,” she explains, looking to maximize profit over a 3 or 5-year period. But the innovation chain takes 15-20 years she notes, “it’s just a fact,” which leads to the underfunding of strategic, mission-oriented public funding. The Italian economist concluded by pointing to her iPhone, and noting that all of the foundational technologies came not from Silicon Valley wunderkinds, but from long-term government funding through programs like DARPA and the CIA.
“The way that economists talk about the state and the process of economic growth is blinded and limited,” Mazzucato says, and a smarter approach would rapidly improve economic recoveries.