The Mission-Oriented Government

Instead of just fixing market failures, governments need to co-create markets by defining bold economic objectives and building systems for achieving them, says economist Mariana Mazzucato.

Norman Duenas for Noema Magazine

Noema deputy editor Nils Gilman recently spoke with Mariana Mazzucato, who is the founding director of the Institute for Innovation and Public Purpose at University College London, where she is a professor of the economics of innovation and public value. She advises governments around the world, and her most recent book is “Mission Economy: A Moonshot Guide To Changing Capitalism.”

Gilman: Let’s start with the basics: What do you mean by a “mission-oriented” approach to government?

Mazzucato: I mean a government driven by a strong sense of public purpose, with policy focused on solving key societal problems. For example, instead of having an industrial strategy that is a list of sectors it’s going to give subsidies to (life sciences, automobiles, financial services), the question should be: What are the problems you’re facing (climate change, the digital divide or a weak health system, for example). And then work backward to figure out how all sectors and actors in the economy (public, private, non-profit) can help deliver solutions.

Missions are concrete ways to tackle challenges. Take the moon landing for example. The challenge then was the Cold War and the space race against the Russians. Had the U.S. government left it at that, however, nothing would have happened. That challenge needed to be turned into a concrete mission, and that mission was to get to the moon and back in a generation. This ended up requiring innovation by lots of sectors, not just aeronautics but also materials, electronics, nutrition, software and more.  

Climate change is our equivalent of the space race. We need to think of concrete missions that will help us keep the worst effects of global warming from happening. To paraphrase John F. Kennedy, we need to choose to confront climate change not because it’s easy, but because it’s hard.

How do we do that? One thing we don’t have to do is rethink the challenges. Five years ago, every country signed up to the 17 U.N. Sustainable Development Goals (SDGs). Now, we need to take the SDGs and transform them into missions. Take SDG 13 on clean oceans. This can be turned into a concrete mission to get the plastic out in the next five years. This will require innovation in areas as different as marine science and technology, artificial intelligence, new materials and, of course, behavioral science too.

Then we need to encourage risk-taking and experimentation, as NASA was willing to do with the moonshot. We need to crowd in solutions from the private sector — not by picking winners, but by picking the willing: getting as many sectors as possible involved in the processes of design and experimentation.

“Climate change is our equivalent of the space race.”

Gilman: Part of the argument in your book is that our governments used to have these kinds of capacities but lost them. You tell a story about how a narrative emerged in the late 1970s and early 80s that undermined these capacities by depicting government essentially as a realm of uncreative rent-seeking bureaucrats, in contrast to the efficiency and innovativeness of the private sector. That narrative gave rise to a number of what you call myths: that government should get out of the innovation game, avoid risk-taking and instead focus on fixing market failures and outsourcing as many functions as possible to businesses.

Mazzucato: By accepting that governments are there to simply fix market failures, we fail to invest in the ability of governments to create and shape markets. If we relied on governments only to fix markets, we wouldn’t have any of the big, general-purpose technologies that over the last 200 years have dramatically changed production, distribution and consumption patterns. During the revolutions in information technology, pharmaceuticals, space exploration and green tech, the government did much more than fix markets, much more than trying to be as efficient as the private sector. It really was driving the change. It had a vision of what needed to be done.

Today, we don’t have enough governments that are structured this way: making investments across the whole innovation chain, including basic research and applied research, providing the patient long-term finance downstream and the bold demand-side policies that allow the technologies that do come about to actually get fully diffused and deployed.

The idea that businesses alone create value, and that government is there only to redistribute the value or to enable and de-risk that process, is a myth in the sense that it’s not founded on the actual experience of what has made governments successful.

“Capitalism is dysfunctional at its core today because the way businesses and governments interact is sick.”

Gilman: The central metaphor of your book is the moonshot. What makes the Apollo mission such a powerful historical episode in your telling?

Mazzucato: The “Mission Economy” is fundamentally about changing how business operates with government. Capitalism is dysfunctional at its core today because the way businesses and governments interact is sick. Businesses are too short-termist, often more busy extracting value than creating it. Consider the more than $4 trillion in stock buybacks by the S&P 500 companies in the last decade. And government organizations are often too static, inertial, lacking in confidence and prone to getting captured. Moonshot thinking is about changing the governance structures of each and how they interact.

During the Apollo years, NASA cared about questions like: How do we ensure that procurement relationships between public and private entities reach a fair deal? NASA put clauses that stipulated “no excess profits” into its procurement policy and also changed procurement from cost-plus (easily gamed with inflated costs) to fixed-priced contracts with incentives for continual innovation. This made sure that the design of the procurement actually reflected what I call “collective value creation.” If value is co-created, then the contract should make sure the rewards are also shared — creating a more symbiotic rather than parasitic partnership.

“We need government to not only make public investments, but also to govern innovation to make sure that there is a public reward for public risk-taking.”

Gilman: You use the phrase “outsourcing the government’s brain.” A couple years ago, the transit guru Alon Levy wrote a much-discussed analysis of why it costs so much more to do infrastructure projects in the United States than in other countries. Why does underground subway development in Spain, for example, cost an order of magnitude less per mile than here?

The main takeaway from his analysis was that the U.S. agencies that requisition these contracts have lost the native capacity to understand how to run construction projects. The agencies, therefore, don’t know how to criticize contract structures and terms of reference, which in turn allows developers to run up costs. If that’s true — that governments have lost the technocratic competence to be able to manage complex projects, and therefore even to competently manage outsourced projects — how do we build that capacity back?

Mazzucato: The head of procurement at NASA was aware of this problem and argued that too much outsourcing of R&D would make NASA less capable and eventually vulnerable to capture by private “brochuremanship” (businessmen arriving with sexy brochures or PowerPoints). Let’s begin by asking: What would cause anyone with expertise to want to work in government? One option is to offer them a lot of money, like in Singapore, where some top civil servants earn a million dollars in salary. But a lot of governments, especially larger ones, don’t have the ability to do that. Instead, what you need to do is make government service seem exciting by making it an investor of first resort, not just a lender of last resort.

For example, in 2009, why was President Obama able to hire Steven Chu, a Nobel Prize-winning physicist, to direct the Department of Energy? It was not because he said he needed someone to help design a carbon tax or to de-risk Elon Musk so he can do great things in the energy space. Rather, it was because the American Recovery and Reinvestment Act was ambitiously trying to direct the $800 billion stimulus program towards a green economy. Yes, the Tea Party helped to ruin that ambition, but nevertheless, for a Nobel Prize-winning physicist, that was exciting.

Beyond attracting talent with an exciting mission, government also has to support bottom-up experimentation and learning by doing. It has to be risk-loving. And it has to learn from the failures that inevitably come with risk-taking.

So first: actively describe the government as key to the value-creation process, or as directing instead of just facilitating. Second: make internal investments in your knowledge creation. And third: work with the private sector in a more confident, bold way.

“Tesla and Solyndra got a similar amount in a guaranteed loan from the U.S. Department of Energy about a decade ago, but the narrative about them was totally different.”

Gilman: You gave the example of going from the big problem of climate change to the SDGs. What is the process for going from the SDGs to concrete, specific projects, like the mission of creating carbon-neutral cities? And how do we make sure that it’s a democratic process?

Mazzucato: At the Institute for Innovation and Public Purpose, we’re currently working with governments around the globe to define and implement mission-oriented approaches to innovation and industry. One of the most interesting recent projects for me was in Camden, a district in northwest London, where we are using a mission-oriented approach for its COVID recovery. Camden has a knowledge quarter where Google, Netflix and Facebook all have their headquarters. There’s also University College London, the British Library, the Wellcome Trust, the Francis Crick Institute and so on.

But Camden also has some of the poorest neighborhoods in London, afflicted by inequality and the social ills that result, like knife crime and mental health problems. It has the best that the 21st century can offer but also the worst.

The Camden Renewal Commission, which I co-chair with the Camden leader Georgia Gould, is using a mission approach to tackle food poverty, sustainable housing, diversity in power structures and empowering youth. Critical to all these is the need to involve citizens in the work.

Camden has a history of taking citizen engagement seriously, for example with citizens’ assemblies, where people come together to learn, deliberate and make policy recommendations. Citizens’ assemblies are about listening and fostering sincere public engagement.

Similarly, through our work with Mondragon, the Spanish worker-owned corporation, we’re learning about how different parts of society can come together to discuss a green transition. This is key in an era where the labor share of income is at a record low. The working class needs to have more of a voice in planning our future.

“A better way would be for the government to treat its investments as a portfolio, like a public venture capitalist.”

Gilman: We’ve been talking about upstream engagement, about what the public engagement model is for defining missions and how they should be implemented. But what about downstream?

Let’s assume we get the flywheel of the mission economy going. How then should the fruits of that productivity growth be distributed?

After all, isn’t economic democracy not just about democratic decision-making in terms of setting goals, but also about the democratic distribution of rewards? Specifically, if the government sponsors private-sector research that produces valuable intellectual property, what sort of payback should the public get for that investment?

Mazzucato: We need government to not only make public investments, but also to govern innovation to make sure that there is a public reward for public risk-taking. Take, for example, intellectual property rights. Patents are a 20-year contract that government gives to business to earn monopoly profits. Ensuring that society benefits more would require governing patents to promote value creation, not value extraction. Patents are often too wide (used to keep competitors away), too strong (hard to license) or too upstream (where the research tools themselves are patented). William Baumol called the abuse of patents “unproductive entrepreneurship.” So there should be strong conditions attached to patents.

Similarly, there could be strong conditions attached that make sure that companies that benefit from public investments and subsidies have a functional corporate governance model. For example, we should limit the use of stock buybacks in sectors like health, where the U.S. government invests over $40 billion a year in innovation (through the National Institutes of Health). There are also interesting experiments on conditionalities with COVID-19 recovery funds. For example, in France, both Air France and Renault had to commit to reducing their carbon emissions to access the national recovery funds; in Denmark and Austria, companies receiving aid had to commit to not using tax havens. 

And we need to think differently about the government taking equity stakes in firms that benefit from government money. Consider Tesla and Solyndra. They both got a similar amount in a guaranteed loan from the U.S. Department of Energy about a decade ago, but the narrative about them was totally different. Solyndra went bust, and people said: “See, government investments are misguided.” But Tesla did well, and people said: “Oh, that must be a private-sector success.”

“You could say to Sergey Brin, if you make a billion off this grant, you’ll put 1% of your profits into a public innovation fund, which will fund the next Google.”

How should we do this differently? A better way would be for the government to treat its investments as a portfolio, like a public venture capitalist. If a company does well after getting government funding, like Tesla or Google, the government should get an equity stake. Strangely, the Energy Department wanted shares only if Tesla failed to pay back the loan. The opposite would have made sense: Tesla’s share price skyrocketed between 2009 and 2013, so the government would have had more than enough money to pay back the Solyndra loss and fund the next round of investments.

Lastly, we can set up new institutions, like public wealth funds. Google was funded by the National Science Foundation in the U.S. You could say to Sergey Brin, Google’s co-founder, here’s money, try it out. If it fails, no worries. It’s guaranteed. It’s just a grant. But if you make a billion off this, you’ll put 1% of your profits into a public innovation fund, which will fund the next Google.

If you don’t do any of this, you end up socializing the risks and privatizing the rewards, and there will be a mess afterward that the government has to clean up. That not only wastes time and money, but it also once again gets the government caught up in just fixing and patching problems, rather than being mission-oriented. We need more of a pre-distribution lens that sets up the right conditions from the start. That is what a mission economy is about: creating and distributing value in a public purpose-driven way.