The students of the college granted the economist the award in an extraordinary online ceremony, and n her more than one hour long lecture the recipient talked about the rethinking of the economic roles of the states and the system of capitalism, the misinterpreted thoughts of Keynes, as well as why it would be much for the economy if we took climate change more seriously.
The name of the Rajk College for Advanced Studies – which celebrates its 50th anniversary this year – has become an institution over the last half a century. The college founded under the leadership of Attila Chikán has helped launch the career of numerous well-known economists, and it is also famous for its democratic principles and for training the students beyond the university and turning them into a community. Professional debates and discussions constitute an important basis of the philosophy of Rajk, and over the years two awards were founded, the John von Neumann Award and the Herbert Simon Award.
The John von Neumann Award was awarded for the first time in 1995, at that time it was given to economist John Harsany, who also received the Nobel Prize for his game theory research. One of the founders of the award, Péter Eső said that after Harsanyi had accepted the award, they had known that “from now on there will not be any economist who would reject it”. Since then the students of the college for advanced studies has selected a practising researcher with significant effect on social sciences to whom the acknowledgement is given every year (except for 2000). János Kornai, Esther Duflo and Alvin E. Roth have already received this award from the students.
Rajk College student community leader Péter Hobot said that every year the award is given to a researcher who not only has had an outstanding academic career but whose theories and work inspire the community of the college and compel the students to have constructive debates.
Rethinking the world
The statements of Mariana Mazzucato do induce debates very easily. She was the co-editor of the book titled “Rethinking Capitalism” (which was published in Hungarian as well), in which world famous researchers analyse , how measures which were based on the orthodox economic science of the last 10 to 15 years led to policy failures . However, she was the economist who had enough of the IT craze of the past period and started to research that the superstar tech companies (e.g. Apple, Tesla, Space-X) managed to either stay afloat from state loans or owe the technology from which they produced their products popular worldwide to publicly founded research. In comparison, in recent years these companies did not reinvest the profits in research but bought shares, with which they drove up their own value .
Even if title of the lecture ((Rethinking the State – in Hungarian: Újragondolni az államot) did not imply evidently that we can expect a straightforward one and half hours, there could be no more doubt about this when after the introduction it was declared that in the interest of sustainable economy it would be advisable to rethink capitalism, in addition to the role of the state.
In the opinion of Mazzucato, the goals are clear for the world: the Sustainable Development Goals accepted by the UN Member States in 2015 and to be achieved until 2030, the Green New Deal, as well as the plan of the European Union for recovering from the coronavirus pandemic (which is being developed) all set very ambitious goals but one crucial is not evident yet: the appropriate economic strategy.
As a first step the relationship of the state and the market economic operators should be rethought, since according to Mazzucato, neither Adam Smith, nor John M. Keyes understood free market as the state not intervening in the processes in any way. While quoting Adam Smith’s famous theory about the free market, Mazzucato said that the functioning of the market should be ensured until there is actually competition in the market. As soon as an economic operator takes advantage of its monopoly and accumulates profit to the detriment of the others, then it already deprives the market of value.
Value and purpose are two central concepts for Mazzucato, and she considers these as the main duties of the state: retain the value and specify for the appropriate purposes, and then direct the market towards these purposes.
The state is a patient investor
This is where a 1926 sentence of Keynes becomes important; according to which the duty of the state is to make the steps that are currently not taken in the market. In the opinion of Mazzucato, it is only the commonly known interpretation of this sentence that the state should spend when the people do not have the money for that. (Among others, this helped the world in recovering from the 1929 world economy crisis.) However, this is only a superficial interpretation according to the economist: she says that the state has to think proactively, and through investments it shall shepherd the market in the direction where the market operators create value.
In support of her thought, she also mentioned an article published in the New York Times last year as an example; according to this article, top companies such as Apple, Amazon and JP Morgan jointly declared that short-term profit could no longer be kept in mind, and instead they have to think through how they would be able to create value in the long term on the overall social level. According to Mazzucato, this has been talked about a lot for a long time, and still few specific measures have been taken, therefore she thinks it was time that the governments took action.
In her 2013 book The Entrepreneurial State Mazzucato wrote about the opportunities and also the obligations the state could have. In her opinion, if the state only watches over the market and remedies the “smaller” defects, then we will not get closer to the ambitious goals. Mazzucato mentions those scientific researches as examples owing to which we can use the internet today, or those developments even from the American army or DARPA (agency of the United States Department of Defense responsible for the development of emerging technologies – editor), without which the iPhone would have never been produced. The researches were all state investments. The economist also emphasised that as a patient investor the state should think in the long term and it should under no circumstance have fast return in mind.
Let’s save the Earth
At the end of the 1960s in America a lot of people thought that the state project which set the moon landing as a goal was wasteful, however, according to Mazzucato, these are the very ambitious objectives the likes of which should be set. It is true that flying to, landing on and setting up a flag on another planet required lot of investments, however, what it did achieve is that state cooperated with market operators such as Honeywell, General Electric or Motorola.
Nowadays it is not another celestial body that mankind wants to conquer but it wants to save its own, therefore for example it is advisable to set goals in the fight against climate change – such as maintaining a hundred carbon neutral cities until 2030 – or avoiding plastic waste in the oceans. In order to achieve this, numerous different state-owned and market operators have to cooperate in numerous partial projects.
In the opinion of Mazzucato, in order to allow this change to happen, it is also necessary that the market operators and the society found a common ground with respect to what they consider as values and that both parties accepted that they create value jointly, as a community.
The great value debate
However, the economist says that nowadays the way we are thinking about value creation is too individualised, and we are inclined to confuse value itself with productivity, price, revenue and profit. This is the reason why it remained without much uproar when the CEO of Goldman Sachs said in 2009 that the employees of the bank managed by him were among the most productive people of the world. The only problem with this is that the survival of the bank 2008 was ensured by the American state with a substantial bail-out package – using the money of the American taxpayers.
It also raises the issue that the countless researches which are not related directly to the production of the medicine but still is the basis and facilitates the process do not appear in the pricing of the pharmaceutical industry. Meanwhile, this research activity is usually paid by the state from public funds, i.e. the taxpayer had contributed to the production of the final product (or value?) just as the pharmaceutical company did. Still, the profit is claimed by the large enterprise in the end, and in this sense the consumer pays for the medicine twice.
Key to the future: cooperation
According to Mazzucato, the solution lies in a theoretical change, which also affects the practical role of the state. Instead of fixing and stabilising the market, the state should shape the market in course of cooperation with the entrepreneurial sector, as well as the state should acknowledge that although unknown and new situations cause uncertainty, one can learn the most this way. Therefore, it is advisable to turn towards the risky instead of the certain, to dare to make mistakes and to proceed to the strategic goal.
Mazzucato mentioned Barcelona as a positive example, where the city opened to the IT sector and started to think about solutions which allow the city to make use of the vast masses of data generated by the inhabitants of the city and to return the knowledge to the community.
She closed her lecture with the situation emerged as a result of the coronavirus pandemic, since the (“Building back “) program UN has come up as a slogan often recently, and this is no coincidence at all, since it shows in several areas that governments are trying to influence the market operators through measures. In France companies could use state aid on condition that they reduced their carbon emission, while in Scotland companies could not be involved in the government bail-out package if their registered offices were registered in any of the tax havens.One of the questions asked after the lecture was about the pandemic as well: can an active state role similar to role of the state after the world wars be expected in course of the restoration after COVID-19? In Mazzucato’s opinion, the current situation can be compared to the crises after the Second World Was and the great economic depressions, and it is advisable to learn from the mistakes made before. Although a lot of money was put in the system after the economic crisis, these sums remained at the financial sector, and the fundamental problems were not solved with this money. In her opinion, we have to strive for strengthening the system structurally, primarily the healthcare, and as many opportunities as possible should be provided for the public and private sector to solve emerging problems through.