THE MISSION ECONOMY: TAKE OFF OR FAILURE TO LAUNCH? PART 3: PRESSING GO?

A failure to address some of society’s biggest issues – climate change, falling income shares for workers, deepening inequalities within nations – is causing some leading thinkers to say that free-market capitalism is in crisis. According to one, economist Marianna Mazzucato, the answer lies creating a new type of economy - the mission economy – inspired by the Apollo moon-landing of the 1960s.

Part 1 examined the case for change. It found that a dark side to free-market capitalism exists, but the harder question what an obtainable better approach might be.

Part 2 outlined Mazzucato’s vision for a mission economy and compared it to Australia today. It found that Australia did not operate a ‘pure’ free-market approach, and already had some mission-economy like elements. Australia fell short, however, of being a mission economy

For those in government, adopting a fuller version of the mission economy model must be tempting. Mazzucato calls on governments to think big and act big in defining and implementing societal missions. She argues for a “whatever it takes” approach to pursuing missions, and a “what do we really want” rather than “can we afford it” approach to spending.

The ultimate test for any change is what benefits would it deliver, what trade-offs this involves, and whether change can be implemented. Seeking complete certainty on these questions is unreasonable. All change involves a leap of faith. But government has a special responsibility to ensure its decisions are robustly considered. As decisions go, this would be a big one.

Many challenges and questions arise in implementing the mission economy – some big, some more tractable. Below are five interrelated issues which would help determine whether the claims of the mission economy would translate into reality.

A question of philosophy

The mission economy lies somewhere between a pure conception of free-markets and that of a government-controlled economy. Private decisions by ‘consumers’ would still play a key role, but government would more actively determine societal priorities and shape markets towards achieving them.

Part of the rationale for change lies in our growing understanding that people (so called homo economicus) do not behave in the perfectly rational, self interested way free-market theory assumes. History also shows, however, that collective decision making via government has proved imperfect. Theories which rely on high levels of imperium perfectum (perfect government) are likely to be as flawed as those of based on an assumption of homo economicus.

Both forms of imperfect decision making, individual and collective, have a place in our society. The real question is – in what balance. With the mission economy comes a bigger role for government. How much bigger is not clear. Mazzucato’s criteria helps define the type of missions that should be chosen by government, but not how many or how big.

The answer to this question is significant, and involves issues of both practice and philosophy. Free-market theory is based, in part, on a philosophical premise that it is better for people to chose for themselves than have government choose for them. Without a better understanding of how the Mazzucato model might impinge upon this freedom, it may be hard to fully embrace its vision.

A question of selection

Perhaps the biggest practical challenge of the mission economy lies in the selection of missions from the myriad of alternatives which potentially meet Mazzucato’s criteria. 

Mazzucato calls for a rich process of public engagement and debate in selecting and pursing missions. This is important. Captain’s picks, like the Apollo project itself, do not provide a good basis for a new economic system – at least not a democratic one.

Gaining broad, and enduring, societal agreement on mission choices is likely to be much harder than Mazzucato envisages. It involves solving a classic problem of government. Mike Keating and Stephen Bell describe the challenge as choosing between “competing claims” in a way that delivers a “fair share” to everyone. Richard Nelson reminds us that “all demand from all groups cannot be satisfied”.

Missions will generally involve long-term projects, and require enduring high-level commitment from government. The Apollo moon-landing project took nine years, or around three full terms of an Australian government. It is therefore likely that mission choices will need to be above politics to endure.

Mazzucato’s personal view is that the UN’s 17 Sustainable Development Goals are a good starting point for choosing missions. The current government, one suspects, may favour using its forthcoming wellbeing framework. Many would agree. But many might not, including those making up a future government.

The diversity of preferences and reasonable competing claims in Australian society means that coming to a settled position on any public policy issue is difficult. Coming to a genuine and enduring agreement on missions warranting a whatever it takes approach from government magnifies this challenge greatly.

A question of funding

For missions to succeed, funding must be available. This funding need not, and desirably should not, all come from the taxpayer. But it must be there and it must be patient.

The potential scale of public funding needed for missions is large. Peak funding for the Apollo project represented around 0.4 percent of US GDP. This is only slightly less than total Australian government spending on all science, research and innovation (currently around 0.6 per cent of GDP).

Apollo-level funding pales when compared with what might be needed for some social missions. Growing Australia’s social housing stock to meet the current waiting list of around 160 000  would cost about 2.8 per cent of Australia’s annual GDP (assumes $300 000 a dwelling). Spreading this over a more realistic three year period would still involve new spending equal to almost 1 per cent of GDP each year.

The bottom line is that running one ambitious mission, let alone several, would not come cheap.  

Missions are also likely to also cost more than people originally think. Costs of major projects are systematically under-estimated by both the private and public sectors. Total costs for Apollo were more than twice the original estimate. Defence projects often cost multiples of original estimates, as do ambitious social projects like the NDIS.

Mazzucato does not see this as a major problem, noting that government can both borrow and print money if necessary. The only limitation is the need to avoid triggering inflation. For productivity enhancing missions, she argues, the risks of this should be small.

While Mazzucato may have a theoretical point, practical limits exist to government borrowing and printing money. The price of moving beyond these limits is high (ask Greece). In a world where governments have both borrowed and created money to provide an economic bridge through the pandemic, and where inflation is again emerging, these practical limits may be closer than Mazzucato might like.

A question of market shaping

The mission economy involves a shift from market fixing to more active market ‘shaping’ by government.

Market shaping is not defined closely and examples abound of activities which could be taken in the name of market shaping. Does market shaping extend, for example, to directing superannuation entities to invest a proportion of member funds in mission-related activities? Should companies be required to accept a period of losses in pursuing stakeholder value? Should individuals have limits on the number and type of houses they can own as a way of reducing house prices, or the number of overseas trips they can take as a way of lowering greenhouse emissions?

The boundary for where good market shaping drifts into harmful overreach by government is not resolved in Mazzucato’s model. This is not necessarily a fundamental problem. More detailed work may help to define appropriate boundaries for market shaping. But clearer boundaries are needed.

A question of risk tolerance

One of the more interesting challenges inherent in the mission model involves tolerance for failure by government. Mazzucato argues that boldness in the pursuit of missions needs to come with an acceptance that some will fail.

It is not clear that a mission economy would necessarily generate more government failure than the current economic model. Many bold, and less bold, commitments from government have failed to deliver in the past. Despite major government commitments, child poverty has not ended, homelessness has not been halved, and Australia is no closer to a world-class submarine capability. 

Mazzucato’s call swims against a strong and reasonable democratic tide of low tolerance for government failure. Prudence in the use of public resource demands government respond quickly when things are not working (the fast fail model), creating a distinct tension with the patient, push-through ethos demanded by the mission approach. The tension will not be easy to resolve.

A final thought

These are only some of the challenges facing the mission economy model. As it stands, important questions remain unanswered and the risk of unintended consequences is high. Caution is therefore warranted. Given a choice between economic evolution or the economic revolution offered by the full mission economy model, well-managed evolution provides a better path.

Rebecca Henderson calls the future of capitalism “the world’s most important conversation”. It is a conversation we need to continue. Free-market capitalism delivers many benefits, but a dark side does exist. Full-scale implementation of Mazzucato’s mission economy model may not be the answer, but the thinking underpinning it is well worthy of a place in the debate.