Phil’s Book club: The Value of Everything

In this interactive webinar, Phil Rosenzweig and Arturo Bris debate the value of “The Value of Everything”. It’s a homage to the many people doing important things, who are not being “valued” because of the way we have historically defined the word.

Our book for August, The Value of Everything: Making and Taking in the Global Economy (2019) by Professor in the Economics of Innovation and Public Value at University College London Mariana Mazzucato, was published in 2019 and questions contemporary economic theories of value. In doing so, it encourages us to challenge our very own deeply rooted concepts of what has value.

It takes us back to basics, asking why we are designing and measuring things the way we are and what implications this has on, for instance, policy making.

Mazzucato can be strongly credited for elevating the conversation about our value systems. She gets us thinking about value, how we define it and the many potentially serious implications of under- or over-valuing things.

How the economy became “financialized”

A large chunk of the book is dedicated to exploring the “financialization” of the real economy. This is the notion that some things we do produce “real stuff” and others fall into the category of “financial activity” and that the latter is in some sense less “real”.

Value, Rosenzweig reminds us, is not inherent; instead market forces give things value. Consequently, something that earns profit correlates with value, and this is how recent economics has taught us to see the world.

So, does the financial system create value? Mazzucato thinks it is overvalued, to which Bris says: “In most emerging markets, the lack of a stable financial system doesn’t allow companies to flourish. India and China’s divergence last 40 years can be explained by how China went into having a real financial system, through the creation of the Big Four and the privatisation of the banking sector, while India went in the other direction.

“Things become more valuable depending on where they are, not just physically but in time,” he says, giving the example of how a rental car is worth more at the airport than downtown.
“This is not because of supply and demand, but because it is a different good. Mazzucato focuses on how many people have access to a good, but that’s restrictive.”

Rosenzweig expresses concern about value from the financial system becoming excessive, with the US being a case in point. “Why should it be that over last 20-30 years, the amount of profitability generated by the financial system has grown from 10% to up to 30%, as a percentage of profits?” he asks.

Bris agrees to an extent, but thinks this is not a problem in itself unless the value of another sector becomes obscured as a result. To which Rosenzweig adds that it also becomes an issue if the cure becomes worse than the disease.

The value of public versus that of private

In the final stages of the book, Mazzucato turns her attention to policy recommendations, and broader ideas on private versus public value. If the public sector is not valued in a certain way, we might be led to think it is producing less that it is, says Mazzucato. This puts us in mind of whether GDP should be the main choice for measuring private versus public value.

Bris raises the case of France. The fact that “the productivity of the public sector is higher [in France] than that of the private one, as measured by comparing both in terms of the contribution to GDP per employee” defies Mazzucato’s logic, he says. (She says it’s the way we measure the public sector that causes us to understate its value.)

Bris finds it “very weird” that we measure the public sector by looking at public spending. “It is a convention that we have come to define GDP as we have, but it is not the only way to do it. The public sector is mismeasured; we should look at how much is invested in it to see its value. And the same applies to the financial sector,” he says.

What else can we learn from Mazzucato?

The Value of Everything was published just before the COVID-19 pandemic, making its arrival on our shelves well timed; lockdowns and disruptions from 2020 onwards threw into question ideas of “who makes?” and “who takes?” It has become part of the “new normal” to question economic prosperity, as we seek to “build back better”.

Bris would have liked to have seen more solutions from Mazzucato. Referring to her section on the exacerbation of inequalities, he says “she falls short in terms of measurements we can use. Yes, international taxation is a solution, but not the only one.”

However, the book is highly praised for highlighting how some sectors of the economy, manufacturing among them, don’t just transfer value or create it, but – crucially – capture it.