Getting Serious About Value

INSTITUTE FOR INNOVATION AND PUBLIC PURPOSE IIPP POLICY BRIEF 07 JUNE 2019 GETTING SERIOUS ABOUT VALUE Prof. Mariana Mazzucato Director, UCL Institute for Innovation and Public Purpose Prof. Rainer Kattel Deputy Director, UCL Institute for Innovation and Public Purpose Public value is value that is created Keynes claimed that practitioners who thought they collectively for a public purpose. were just getting the ‘job done’ were slaves of defunct This requires understanding of how economic theory.1 Purposeful capitalism, if it is to happen public institutions can engage citizens on the ground for real, requires a rethinking of value in in defining purpose (participatory economic theory and how it has shaped actions. structures), nurture organisational capabilities and capacity to shape Today’s dominant economics framework restricts its new opportunities (organisational understanding of value to a theory of exchange; only competencies); dynamically assess the that which has a price is valuable. ‘Collective’ effort is value created (dynamic evaluation); missed since it is only individual decisions that matter: and ensure that societal value is even wages are seen as outcomes of an individual’s distributed equitably (inclusive choice (maximisation of utility) between leisure versus g r o w t h). work.2 ‘Social value’ itself is limited to looking at economic ‘welfare’ principles; that is, aggregate outcomes from Purpose-driven capitalism requires more than just words individual behaviours. and gestures of goodwill. It requires purpose to be put at the centre of how companies and governments are run and how they interact with civil society. 1 Keynes, J. M., General Theory of Employment, Interest, and Money, 1936. 2 Mazzucato, M., The Value of Everything: Who makes and who takes from the Real Economy, Public Affairs, 2018. IIPP POLICY BRIEF — JUNE 2019 2 In economic theory, value is created inside business (the However, great city neighbourhoods are great partially ‘production function’). Governments are seen as, at best, because of redundancy, as argued by IIPP Fellow, Dan creating some of the inputs (such as education and skills Hill: each neighbourhood replicates similar sets of for workers) and redistributing value (for instance, via services from grocers to pubs to hairdressers. Instead taxation and subsidies). In this sense, public investment is of the efficiency of large malls, the redundancy of small seen as simply fixing a market failure, whether the failure service providers creates public value.6 has occurred due to lack of investment in areas with good spillovers like new knowledge (positive externalities), or Civil servants have been convinced by the dominant over-investment in ‘bads’ like industrial processes that economic narrative that, at best, they can fix market create pollution (negative externalities). Public goods, failures (for example, markets do not provide national investments in basic research or clean air, are seen not as security or fund fundamental research). If they do objectives created from a collective imagination of ‘what anything beyond that, they get accused of ‘crowding out’ to do’, but as corrections − to fill gaps − in areas that the business or creating ‘government failure’ (for example, private sector does not enter. through corruption). Bureaucrats are supposed to implement the political will of the day while speaking truth At the macroeconomic level, GDP is not able to account to power. Such narrow lenses risk dehumanising work in for the value of goods and services that do not have public organisations and crush both ethos and creativity. prices, such as the essential care we receive inside our homes from family members, or the negative effects of It is true that academics have discussed the idea of public pollution on the environment. Measuring productivity by value over the past two decades, most notably in the output per unit input (both measured with their relative public management and administration field7, and public prices) means that the term ‘productive’ is biased towards policy practitioners have sought to capture the distinctive services that have high fees. It is no coincidence that contribution to society created by government and public the CEO of Goldman Sachs once argued the investment institutions outside the market sphere.8 In the United bank’s workers were the most productive in the world.3 Kingdom, the New Labour government, informed by the The value of essential public services like free healthcare ‘Third Way’, began to develop the ideaof public value and education is hard to measure and thus only their as a yardstick for measuring policies and institutions’ costs enter GDP, not their value (for example, only the effectiveness.9 This was based on the idea that public salaries of teachers are included, not the quality of public value should be concerned with outcomes (rather than education). This is not unrelated to why civil servants outputs) including equity, ethos and accountability; cannot claim to be as ‘productive’ as those working in the means used to deliver these outcomes; and with financial services. The same applies for the value of generation of trust and legitimacy in government. In public spaces such as parks, or diversity of well-designed parallel, a conception of public values was developed in city districts. How do we measure the value created by a an effort to operationalise the broader concept of the public space? ‘public interest’ that incorporates both private and public activity. This led to ‘public value mapping’ and ‘public value Our discussions of value have been ‘McKinsey-fied’ − a failure’ as a counterpoint to market failure theory, as a term used by the artist Olafur Eliasson4 − which means means of justifying government intervention and public that valuable is what can be rationalised, made more policy.10 efficient. A public space is seen as a place that fills a gap rather than one that creates a valuable experience.5 3 “Goldman Chief Defends Employee Pay”, Financial Times, Nov. 10, 2009, available at https://www.ft.com/content/52917628-ce33-11de-a1ea- 00144feabdc0 4 In 2020, Olafur Eliasson will be joining IIPP as artist in residence. 5 ‘Olafur Eliasson is literally shining a light onto our environmental crisis’, Dazed, 2018, available at http://www.dazeddigital.com/art-photography/arti- cle/39096/1/artist-olafur-eliasson-little-sun-diamond-environmental-crisis-art 6 Hill, D., Dark Matter and Trojan Horses: A Strategic Design Vocabulary, Strelka, 2015. 7 See Mark Moore’s seminal Creating public value: Strategic management in government, Harvard, 1995; and, more recently, Jean Hartley, John Alford, Eva Knies & Scott Douglas (2017), ‘Towards an empirical research agenda for public value theory’, Public Management Review, 19(5), 670-685, DOI: 10.1080/14719037.2016.1192166. 8 See forthcoming IIPP working paper by Mariana Mazzucato and IIPP Fellow June Sekera, ‘Rethinking public production: producing public value and achieving public purpose’, 2019. 9 Kelly, G., Mulgan, G., & Muers, S., Creating Public Value: An analytical framework for public service reform, London, 2002. 10 Bozeman, B., ‘Public value failure: When efficient markets may not do’,Public Administration Review, 2002, 62(2), 145–161; and Public values and public interest: Counterbalancing economic individualism, Georgetown, 2007. IIPP POLICY BRIEF — JUNE 2019 3 While these contributions have been important, they do action in shaping markets and co-creating the direction of not disrupt the economic understanding of where value economic growth. is created, so they have not changed how governments view their role in the economy. We argue that in order The search for value should not be limited to soul- to make public value a functional and powerful new searching inside the private sector. Public institutions policy framework, we need to fundamentally rethink the must also carefully consider their role in creating public economics that such a framework is based on. value. The most ambitious public organisations – those that invented the welfare state, put a man on the moon, A positive agenda: from public goods to public value created the Internet, and are today funding renewable energy and creating sustainable carbon-neutral cities – Any theory of value must first identify the collective did more than just fix market failures. They had ambition, nature of how value is conceptualised and created. purpose, and a mission that extended beyond day-to-day Public value is not just about measuring how the public politics. or society benefits from the value that is created; it is also about how it is created in the first place. Public value Consider the example of the British Broadcasting has been diminished by not being centred on the state Corporation (BBC), which used the concept of public as co-creator and producer. Public value results from the value extensively in its two most recent Charter Renewal collective imagination, investments and pressure from documents. In 2004, it presented a conception of public social movements. To produce those well, knowledge value based on the three principles on which it was and capabilities are required in the planning, production, founded: universality, fairness and accountability.12 The management and interactions among the different BBC’s appeal to public value is a bold attempt to clarify interest groups. its mission in the face of considerable pressure from commercial broadcast media. Public value is used to The conventional view is that public

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