In her recent book, The Value of Everything, Mariana Mazzucato, attempts to “reinvigorate the debate about value” which, she argues, used to be, and still should be, “at the core of economic thinking.”
She argues “the way the word ‘value’ is used in modern economics has made it easier for value-extracting activities to masquerade as value-creating activities. And in the process rents (unearned income) get confused with profits (earned income)”. She goes on to argue that “if we cannot differentiate value creation from value extraction, it becomes nearly impossible to reward the former over the latter.”
Explaining why this is important Mazzucato goes on to say, “if the goal is to produce growth that is more innovation-led (smart-growth), more inclusive and more sustainable, we need a better understanding of value to steer us”.
In consequence, Mazzucato rightly argues the debate about value is not an abstract one. It is a debate with “far researching consequences — social, political as well as economic — for everyone”. Because, “how we discuss value affects the way all of us, from giant corporations to the most modest shopper, behave as actors in the economy and in turn feeds back into the economy, and how we measure its performance.”
Mazzucato goes on to say, “If we cannot define what we mean by value, we cannot be sure to produce it, nor to share it fairly, nor to sustain economic growth”. She is talking of the economy as a whole, at the macro-level.
In essence Mazzucato is saying, without being able to define what value is we have little chance of coming up with good strategies to ensure we achieve what I have argued must be our ultimate goal, sustainable widely shared prosperity, defined in terms of human flourishing and well-being, for this and future generations.
My attention was drawn to this topic after reading research from McKinsey & Co, and through my own research. Both indicate the vast majority of directors and executives cannot define what they mean by value, so cannot be sure to produce it, nor to share it fairly, nor to sustain their growth. This means the macro-level problem Mazzucato looks at is also a problem at the business or organisational level.
More broadly, Mazzucato’s arguments also link to those I have made for Valueism as the next evolution of capitalism — a form of capitalism focused on value-creation, not value-extraction (rent-seeking).
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