If the German economy were a football game, what role would the state have? Our form of capitalism is based on the assumption that he would be the arbiter. Walter Eucken, one of the pioneers of the social market economy, put it like this a few decades ago: “We need a strong state that sets rules and monitors enforcement.” If Mariana Mazzucato has her way, the state would be playmaker, goalkeeper and striker all in one .
The world-renowned economist was recently a guest in the Bundestag. In a nutshell, their credo is: In the fight against the challenges of the 21st century – especially climate change – the market is overwhelmed. Companies lack the will, the right incentives and the overview to do what is necessary. So the state has to fix it. Setting the framework is no longer enough. What is needed is the “entrepreneurial state” that actively intervenes in markets and steers private sector decisions.
With this message, Mariana Mazzucato tours the world, writes guest articles and gives lectures. Critical interviews with journalists, on the other hand, are less her thing, and our request has not yet been answered. Many government representatives listen to her carefully, in this country especially Robert Habeck (Greens).
The Federal Minister of Economics gave his appreciation in an interview with the women’s magazine “Myself” by calling Mazzucato one of seven women who had changed his life. The “Spiegel” treated her to a cover story and named her the “true heir of Karl Marx”. Supported by the State University College in London, their sense of mission knows practically no borders. Stage instead of ivory tower – that’s the motto.
The correct handling of controversial theses
Now nobody can object to politicians reading books as relevant as those by Mariana Mazzucato undoubtedly are. It is exciting to see how critically such theses are received and how Habeck, the main designer of the social market economy in 2023, deals with them. In essence, this involves a three-fold question: Is the market overwhelmed by the challenges of our time? Can an entrepreneurial state do better? And if so, does that also apply to the German state with all its fax machines, bureaucracy monsters and processes that we have been able to admire so much in recent years?
Economist Mariana Mazzucato already drafted the concept of an alternative economic policy in a book in 2013: “The Entrepreneurial State”. Their thesis is that the major global economic problems, including climate change, can ultimately only be solved by changing the economic policy concept, through a state-controlled economy.
The comparison with Marx does not work, however: Mazzucato sees the solution neither in communism nor in socialism, but in a state-controlled market economy in which politicians and their officials specify the major industrial policy projects. Private companies are carried and guided in their goals by the “progressive engagement” of the citizens.
Their role models are not called Marx and Lenin, but Karl Polanyi and Joseph A. Schumpeter. Mazzucato got the idea of socially embedding economic processes in people’s living environment from Polanyi. From Schumpeter she takes the concept of the entrepreneur as a driver of progress and growth, which she transfers analogously to the new role of the state. Sounds like Franklin D. Roosevelt’s New Deal.
Economist Mazzucato: It needs a lot more coercion
There are various examples in which it was correct that the state took the risk: her analysis that the state should always assume part of the risks that would be too high for an individual investor is almost undisputed. This includes measures to combat climate change. The core of Mazzucato is based on the idea of a wiser, forward-looking state – and that Germany is such a country is open to debate.
Mariana Mazzucato had very concrete proposals for the Bundestag’s Economic Committee – especially with regard to the climate: Incentives such as emissions trading and a CO2 tax are at best a good start. From their point of view, it would be better to provide the industry with specific guidelines. For example, that only “green” cement should be used.
The Germans are familiar with such directives from the Building Energy Act GEG, which regulates which heating systems private households are allowed to install. Mazzucato’s suggestion: If it costs more – and it almost always does – the state has to compensate for it with tax money. The Treasury will have an opinion on this. For Mazzucato, the “big design flaw” in climate policy is that much more coercion is needed. And that internationally. Who wants to force China to do this is another question.
Europe should “invest ambitiously and build state capacities”. A look at the USA and China would show: “Industrial policy is back. The United States and China are investing massively in order to position themselves strategically and see themselves as pioneers in the green transition.” She does emphasize the trillions of dollars that US President Joe Biden is investing as part of the Inflation Reduction Act. In contrast, the insolvency that the United States is facing is going under.
Germany should “invest more ambitiously instead of returning to austerity”
The Green Deal industrial plan announced by the EU Commission in January 2023 is a good start, but has two crucial shortcomings: “No new European funds are being used and one is limited to using subsidies as investment instruments.” What Christian Lindner (FDP) probably doesn’t like to hear that either: the EU, including Germany, should “invest more ambitiously instead of returning to austerity policies”. Mazzucato goes straight to the finance minister and warns that Europe “is in danger of falling into the austerity trap again”.
The fact that Lindner asked the EU Commission on April 25 to reduce deficits and debt rations sounded like it did after the 2008 financial crisis Europe led. This mistake should not be repeated, investment-driven growth and competent public administration are needed.
In this part of the argument, Mazzucato has been the most vulnerable for years: the quality of an administration cannot only be achieved with money. In her recently published book “The Big Consulting Show” she criticizes states for relying too much on the services of consultants instead of building up the expertise themselves. This applies above all to the digital transformation. She only roughly outlines exactly how this can be done, but at least names the problems along the way with a clarity that is rarely heard.
More investment and alignment – what sounds easy will be difficult to achieve
Another recommendation to Germany and the EU is to invest strategically in sectors that are key to more climate protection. As a positive example, she named the steel industry in Germany, which can certainly call itself a pioneer on the way to low-CO2 production. KfW is to make a green bond program available to heavy industry. The companies “benefit from the first-mover advantages and the German steel sector remains globally competitive”. She doesn’t mention that companies like Georgsmarienhütte are on the right track here and are mainly waiting for the state to be allowed to build wind turbines for “green electricity”, but Robert Habeck certainly knows.
In addition, the EU should promote cooperation between government departments, companies and science. She compares this to the Apollo mission in the USA, the first manned flight to the moon – only for the areas of nutrition, materials, electronics and software. This requires more public-private partnerships. It’s not just about direct investments, but also about government control of the procurement of resources and the development of infrastructure.
This also includes closer cooperation with the USA: “A European clash with the Biden government would be productive. It could lead to a green, subsidy-driven race for the environment.” Last but not least, Mazzucato recommends greater harmonization between the European member states. What sounds simple is likely to be far more complicated to implement than the moon mission.
