This economist believes the system is broken. Maybe she has a point

Governments need to work hand in hand with the private sector, rather than leaving business to its own devices. They should be “moving away from fixing market failures and government failures towards actively shaping how markets are governed”. International economist and adviser to governments, Mariana Mazzucato, argues this in her new book, the Common Good Economy.

Review: The Common Good Economy (A New Compass) – Mariana Mazzucato (Allen Lane/Penguin)

Mazzucato is known for arguing that, all too often, the public sector socialises risks while privatising rewards. Innovative products from private companies such as Apple are often co-created with the state. State institutions may do the basic research, train the skilled workers, provide the infrastructure and clean up the pollution generated. But when this pays off, the resultant profits go to the shareholders of the company.

She believes more of the profits generated should be shared with the public.

This can be done through a combination of taxes on corporate profits, income, capital gains and wealth. Or it can involve equity stakes, where the government takes a part ownership stake in the enterprise. Examples in this book range from Norway’s sovereign wealth fund to the London borough of Camden’s Community Wealth Fund, which invests in businesses to create jobs.

She also reiterates her idea of governments setting out clear “missions”. These involve collaboration between private and public organisations to address major challenges.

And she remains critical of outsourcing policy development to consultancies. This has eroded the capacity of the public service.

The Common Good consolidates her earlier books and articles. (Over 50 are listed in the comprehensive bibliography.)

The ‘common good’

Outside academia, the “common good” and “public good” are not terms we often hear these days. Partly this is a reflection of the more individualistic and less collective political discourse.

But there is also a problem that the terms are a little ambiguous. The “common good” or “public good” can be taken to mean the interests of the broader community.

But the terms are also used by economists to refer to goods (and services) usually provided by governments. Public goods are provided to everyone in a society, typically financed by taxes. Examples include national defence, public parks or street lighting.

Mazzucato refers to the importance of shared public spaces. These include parks, pools, libraries and community centres. They should be inclusive but also beautiful. They should be regarded as an investment, not just a cost.

Five elements of the common good compass

This book introduces a “compass” for navigating economies and markets towards the public good. She contrasts this with the more individualistic paradigm of neoclassical economics.

Unusually, Mazzucato’s “compass” points in five directions:

• the purpose of an economy should be to promote long-term public values not just short-term profits (this should be clearly and publicly stated, with both inspirational and measurable missions)

• co-creation involves inclusive and democratic participation in decision-making

• collective learning involves business and governments more broadly sharing their knowledge with the community

• reward-sharing involves an equitable distribution of economic benefits

• transparency and accountability in government are necessary to build trust.

Putting her ideas into practice

Mazzucato is better at critiquing current economies than describing a plausible path to better ones. But she does give some examples, drawing on her personal experience. She co-chaired the Camden Renewal Commission in the inner-London suburb.

It ran citizens’ assemblies to design ways to reduce inequality within the borough. The commission developed four missions:

• those holding power are as diverse as the community

• every young person should have access to economic opportunity

• everyone should have access to nutritious, affordable and sustainable food

• neighbourhoods should be healthy, sustainable and unlock creativity.

The commission prioritised engagement and helped finance social enterprises, among other examples. For instance, people who were previously recipients of food banks become organisers of food co-operatives.

It aimed to achieve these goals by 2030. So maybe her next book could include an evaluation.

Access to water

Other aspirations for applying her ideas refer to a much larger scale, such as international cooperation on the management of water. This may be becoming more difficult. Some countries are becoming more inwardly focused. They are less amenable to global cooperation.

She argues water governance is a climate and biodiversity issue. It is also a gender issue. She notes “women and girls spend 200 million hours every day collecting water, which limits education and economic opportunities”.

There is a need for clear missions to align local and global priorities. Local and Indigenous knowledge should help shape water management.

Scientific insights and information about water use, costs and allocation should be widely shared. Household and community access to water should take precedence over industrial uses.

Can these ideas influence Jim Chalmers?

Mazzucato is one of Treasurer Jim Chalmers’ favourite economists. In a 2023 essay, he described as “influential” her analysis of how markets built in partnership between governments, business and labour are potentially the most efficient.

Chalmers has argued in his more reflective writings that the succession of recent shocks to the global economy reinforces the need for Mazzucato’s new economic thinking.

Mazzucato’s thinking is influenced by research on the relationship between social values and economics. This was also the basis of the Australian Treasury’s wellbeing framework.

The approach was revived by Chalmers and adopted by the Australian Bureau of Statistics in its Measuring What Matters wellbeing framework.

Mazzucato suggests her five-pointed compass can help build a better framework for measuring wellbeing — beyond the traditional measure of gross domestic product.

Read more: Humanising capitalism: Chalmers new version of an old Labor project