Great blog post by Mariana Mazzucato. Excerpt:
To reduce inequality, its not enough to consider the power of redistributive taxation or handounts, like Renzi’s ’80 euro monthly bonus’. It is essential to tackle the more intrinsic problems of corporate governance which have allowed profit wage levels to sore to record levels, leaving wages falling behind. It is indeed this point that brings us to the second problem. The notion that big bad finance must be somehow tamed in order to rebalance the economy to good old industry, ignores how sick the real economy has become. Industry itself has become financialised, focussing too much on ‘hoarding cash’ (at record levels) and/or spending on areas that boost short term stock prices (thus stock options and executive pay), than on long run areas like R&D and human capital formation. Indeed, Since 2003 Fortune 500 companies have spent 3 trillion dollars on share buybacks, often justifying these with the excuse that there are ‘no investment opportunities’. Yet a look at the largest buy-backers (pharma and oil) reveals that these are in two sectors yearning for investment in new opportunities: health and renewables. And as I show in my work, it has been a select group of public sector institutions in the world, that have been spending the most on these opportunities rather than the sick and financialised private sector.
Thus it is urgent for industrial policy, which is finally becoming fashionable again, to not simply throw support to certain firms and sectors, such as IT or ‘life sciences’, but ask companies within these and other sectors to be part of the reform that is needed. Instead we are witnessing the opposite: sycophant governments bending backwards to unquestioningly please the ‘growth’ requests of big business, and a widespread attack on workers rights.
And, later, she nails the foolishness of the ‘patent box’ trap that George Osborne has recently walked into:
This policy, which greatly reduces tax on income generated from patented goods, increases business profits even more while doing little or nothing to increase private sector investment in innovation (the goal of the policy). Patents are already monopolies: policies must target not the income they generate (protected for 20 years!) but the research that leads to them–especially in a country like Italy that has one of the lowest business sector spends on R&D. Instead, this policy will only reduce government revenue, forcing cuts elsewhere in order to remain ‘on target’ with the deficit.
Another example of business getting its way in a period in which governments are starving for growth, is the other side of the Jobs Act which reduces taxes for private equity, crowdfinancing, and venture capital funds, as though these are the secret to innovation financing. The reality is that what is required by both small high growth innovative companies is patient long term committed finance, not the increasingly speculative VC model that focuses only on the ‘exit’ phase. Yet the wrong model of what drives growth–an obsession with SMEs and VC– has seen the time that private equity has to be invested from 10 to 2 years to receive capital gains tax reductions–causing many of these companies to focus on short term returns.
Wouldn’t it be nice to have a Labour party which understood some of this stuff?