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From market fundamentalism to a mission economy: lessons from Italy and the EU Covid Recovery

Updated: Jun 18, 2023

Christopher Gooding

Marianna Mazzucato is a bit of a rockstar academic at the moment. Her ideas about an entrepreneurial state, with the capacity and wherewithal to not simply manage a privatised economy, but to instead innovate and create value in a mixed public-private partnership economy, are seen by many progressive economists as the antidote to the now two decades of stagnant economic growth suffered by much of the Western world. Understand what value is, realise who creates it, stop stripping the state’s capacity through outsourcing, and re-envision the state as a value creator ex ante, et voila, you will get a stronger, fairer, more resilient economy. That’s the theory at least. But as the oft quoted adage goes: “while in theory there is no difference between theory and practice; in practice, there is”.

And practice comes in the form of the EU covid recovery fund: a landmark deal on a €750 billion plan to support the recovery and re-energisation of member states in economies in the aftermath of Covid-19. It was signed off in December 2020, and has been slowly administered over the past few years. However, after managing to win the largest share of the EU’s funds (E200Bn), Italy is facing a problem: how to spend the money.

Brussels recently refused to sign-off on the Italians current spending plans which include municipal projects such as €1mn to build a new solar-powered health facility for stray dogs and cats, €800,000 to finish a horse racetrack that was started 30 years ago, €4mn to renovate the local golf course, and €125,000 for a new village Christmas nativity scene. The fund’s raison d’etre is to strengthen infrastructure, reduce social inequality and raise long-term growth. However, the aforementioned projects were deemed as failing to fit the bill. Yet Italy’s current predicament is not simply a story about the eccentricity of local municipalities, but a test case for the whole idea of state entrepreneurialism and a mission economy. The basic question at the heart of the study of economics is how to best allocate resources. Pure capitalism says the free-market, while pure-socialism says the state. The reality for most western ‘capitalist’ states is a mixed economy. The debate between the economic left and right is therefore a debate about matters of degree (to what extent should the state involve itself in the economy); and method (how should the state involve itself). For Mazzucatto, and many other European policymakers and economists, the twofold answer is more, and entrepreneurially. The state should pioneer and innovate. It should set missions,and then direct private investment or input public investment to fulfil those missions. The case of Italy servesas a reminder that implementing a mission-oriented economyis not without its challenges. While the conceptof an entrepreneurial state and a re-imagined mission economy holds great promise, the practical execution requires careful consideration and effective resource allocation. The problem is that spending money effectively is hard, really hard. As Hayek’sseminal paper The Use of Knowledge in Society argued, the decentralisation of knowledge within a society necessitates the decentralisation of resource-allocation. Hence the individualised market-economy, and the neoliberal projecten grande. Yet decentralised resource allocation is a double-edged sword. While enriching the individual in micro, it has actually led to the disempowering of individuals as a collective in macro. In a predominantly neoliberal system the state (i.e. the collective will of the people)no longer has the power to shape markets and society. Major socio-economic problems such as effective public transport, responding to climate-change, reducing inequality, and providing affordable housing, all become intractable collective action problems where no individual actor has either the incentive or power to promote positive change in these areas. This is precisely why Mariana Mazzucato advocates for a re-empowered entrepreneurial state and a re-imagined mission economy. But that still leaves the problem of how to spend the money effectively. And as the case of Italy currently shows – while a mission-oriented economy moves economic power away from the market and back to the state, it doesn’t make the state any better at being able to fulfil that mission. And so the fundamental challenge remains: how can the state spend money effectively to achieve its missions? The case of Italy serves as a cautionary tale, highlighting the difficulties of translating theory into practice. It underscores the importance of robust governance, accountability, and strategicdecision-making in the allocation of resources. Simply shifting economic power from the market to the state does not automatically make the state proficient in fulfilling its missions. Seen in this light, perhaps the current refusal of Brussels to sign off on the spending plans is in fact a positive sign: reflecting the intention of EU policymakers to ensure that states spend their money effectively. As policymakers and economists continue to explore the possibilities of a mission-oriented economy, it is imperative to learn from these experiences and refine the mechanisms for effective implementation. Balancing the dynamism of entrepreneurialism with the need for careful resource allocation and long-term planning will be critical. And how to actually reform and reinvigorate mismanaged and ineffective state bureaucracies is a problem no-one has yet managed to solve. But by addressing these challenges head-on there is a better chance of realising the potential of an entrepreneurial state to drive innovation, create value, and foster a stronger, fairer, and more resilient economy.

Image: World Economic Forum (WEF/Manuel Lo)

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