Chapter 1: What is the main topic discussed in this episode?
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Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.
And I'm Tracy Allaway.
We're still here in Madrid, Tracy. How are you? Still here. You having a good time?
I am. I've eaten a lot of ham and cheese. That's pretty much all I can say.
Yeah, I'm going to turn into a jamon by the time I leave. I'm certain of that. So we are at the Bloomberg City Lab conference. You know, it's funny, like the mayoral level of politics, not something we spend a ton of time. typically on.
But I would say like it definitely, you know, when I think about it, when I'm like here and like listening to a lot of the conversations, it's just so obviously like connected to a lot of the themes we talk about, because so much of our discussions have to do with something related to, you know, innovation or technology or implementation of policy and how it spans both the public and private sectors.
Yeah. I mean, also, when I think about a lot of Oplot's topics like AI or housing affordability or inequality, like cities, I think CityLab actually used this phrase at one point, but cities are really at the front line of all of those challenges. Right. And trying to implement policy in that local level in a way that's like very easy to see and observe and also to judge.
Totally. Yeah. Yeah, no, it's exactly right.
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Chapter 2: How does Mariana Mazzucato define the 'mission economy'?
They all have such similar challenges. So many things have been like repeated, you know, one time after another that like they all can sort of speak the same language and all have the same issues.
Yeah, it's funny. You kind of get that local idea swapping at a mayoral level that I cannot imagine necessarily happening in national politics. Like, can you imagine Trump and Xi Jinping getting together and be like, oh, we implemented this really cool like national transportation program. Have you tried?
Yeah. You know, you hear like these stories, right, of a governor, a governor sometimes or a mayor will go to like another country like, oh, we can like learn from what the city did on transit or whatever. But no, you don't really hear that the same way at the real national level, which is where a lot of our discussions tend to sit. Absolutely. Anyway, I'm really excited about today's episode.
We're going to be speaking with a guest who I would say, like, since we've been doing Odd Lots, is actually one of the more frequently requested guests.
Long requested.
And so it's sort of a failure on our part that, like, we just, like, never made it happen before. But, yeah, someone who, like, really, like, whose whole career is, like, dedicated to a lot of Odd Lots-y things.
Well, we waited until we could do it at Madrid.
We didn't want to just do it at any other random venue. Yes, it was all very strategically designed. So we really do have the perfect guest, someone that a lot of guests have wanted to listen to, hear from for a long time.
We're going to be speaking with Mariana Mazzucato, professor at University College London, founder of the Institute for Public Purpose, author of several books sort of touching on these themes of technology, public sector, private sector, the roots of innovation, how these things actually get deployed. So Professor Mazzucato, thank you so much for coming on Odd Lots.
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Chapter 3: What role does state capacity play in innovation?
Well, first of all, I'm here also because the government of Spain is really kind of leading the way in many areas that I'm very interested in, especially the kind of new economic thinking that needs to underpin how we rethink government. And so I was meeting with both the prime minister and the minister for the economy, Carlos Cuerpo, who I'm on a panel today with.
about a council that we've just set up. It's called the Global Council for a Common Good Economy.
Anyway, and besides that, I'm also here to speak at the Bloomberg City Labs event about this new public sector capability index that we've been developing with them as a partner, which is really about reinvesting inside the civil service so that they can really tackle those wicked complex problems instead of hiring Deloitte during COVID and giving them 1.5 million a day to do test and trace, which they failed at in the UK.
Yeah. I definitely want to get you to go off on consultants. But before we do, when you meet with someone like the prime minister of Spain, what is it that they want to know from you? What information or expertise are they seeking?
Right. Well, I'm actually quite lucky that my books actually get read by the prime minister. So usually what happens is that they've, especially the entrepreneurial state, which I wrote in 2013, that had quite a bit of an effect here. They even wrote a report called El Estado Emprendedor en EspaƱa. And they really want to asked me, what does that mean?
What does it mean for actually even being able to fail, for example, right? So venture capitalists are always bragging about all the failures that they had in order to get a success, whereas as soon as a civil servant or a minister fails or a prime minister fails, front page of the papers.
So they're very interested in the kind of narrative change, but also, well, the cultural change, but especially the theoretical underpinning within, say, a finance ministry or an economics ministry that needs to then accompany rethinking government.
Because otherwise, if you continue to have the old economic models where we judge things by cost-benefit analysis, net present value, all these really static metrics, we would have never even bothered going to the moon, okay, first of all, in the 1960s had we thought of it as a cost-benefit calculation. And so what should replace that, right?
Right.
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Chapter 4: How can governments prevent top talent from leaving for the private sector?
You know, how are we actually framing it? Is it just a lot of tax incentives? Are we focused too much on sectors? To what degree is industrial strategy actually helping to create a more inclusive, sustainable, innovation-driven economy? Or is it just another wave of handouts and subsidies to particular sectors? And then we end up socializing risks and privatizing rewards.
And also, I mean, I used to joke that the US government has always had an industrial strategy, but pretended not to. And they've always talked the Jefferson talk, but acted the Hamilton talk or the Hamiltonian kind of more proactive government strategy. But by pretending that wasn't there, they kept a lot of things under the radar.
And the joke bit is just that finally people understood what the hell I was talking about because of the musical, before the musical came out. Anyway, so I think that's really important to recognize that industrial strategy has always been there, except that in certain phases, including now in some countries,
It's not really strategy in terms of being driven by public purpose, which, as you said, is the title in this Institute for Innovation and Public Purpose that I direct. It's been just kind of vertical strategies focused on sectors, technologies, types of firms. Right. The whole focus on small, medium enterprises. Right.
So what I've been trying to do is to say, stop focusing on sectors, technologies, and firms, focus on big problems, right? As bold as going to the moon and back in a short amount of time.
This is the mission idea, right?
The missions that then require sectoral support, but you're not getting support because you are a particular sector.
You're getting support if you're willing, so moving away from picking winners to picking the willing, if you're willing to work with government around these very difficult challenges, which could be as, I don't want to say simple, but as concrete as making sure that every child in a country has healthy, tasty, sustainable school lunch.
Not just school lunch, that was the Reagan thing where he said ketchup is a vegetable so we can reduce the cost. We all had t-shirts of Reagan and ketchup, which was the vegetable, is what the t-shirt said. So having moonshots, even on something as simple as a cafeteria, that then requires innovation across many different areas.
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Chapter 5: What inefficiencies exist in government versus consulting firms?
But as soon as COVID stops, we go back to very siloed ways of thinking.
As someone with two kids in the New York City public schools, I can absolutely confirm that the degree to which they associate the mayor with school lunch policy is extremely real. And they like talk about like, oh, we used to have these like really nice waffles or something. And then Eric Adams got rid of it. Like they're really like keyed in. Single issue voters on waffles.
They're like really pay attention to the degree to which school lunch policy shifts with administration. Like this is like, they're really, they really think, what is state capacity? We've been using this term for years on the podcast.
And we were like, during COVID, we were like, you know, it took a, it took, you know, a long time to stand up testing facilities for a sense on people's like, oh, we lack state capacity, but. What is it?
What's the definition? So we actually distinguish between the word capacity, routines, kind of administrative routines, and then capabilities. So what states are often, what governments are often lacking are those kind of dynamic capabilities. So capacity partly is like literally do you even have fiscal space? Do you have a budget?
But also, how are you thinking about that budget in terms of do you, well, put it this way, capacity is, you know, number of people working in your administration, the budget that's been allocated, perhaps also the training, you know, that the civil service actually has, but capabilities are what you actually then do with it. Are you agile? Are you flexible?
Are you able to pivot during COVID and actually start working in this more, again, interministerial way? Do you know how to work with others, right? You know, do you set up good partnerships or are they problematic partnerships? And also you were talking before about what you're learning here, which is fantastic about how mayors can learn from each other, right?
Have you invested in your ability to learn, to adapt? And so I think that ladder, this concept of dynamic capabilities is a much more complex area to be investing in.
And the only reason you would do it is if you actually have a theory about government that is more than what traditional economists think about government, which is at best, well, at worst, get out of the way, at best, fix the market failure.
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Chapter 6: How does Mazzucato view the relationship between public finance and technological development?
Yeah, the pendulum constantly swinging back and forth.
Exactly. But I mean, capacity, of course, is essential without, you know, a budget and fiscal space, you can do nothing. That third category that I mentioned quickly, administrative routines, that's, you know, are you also, you know, do you have a stable environment where you can learn by doing? Because if you're constantly changing what you're doing.
It's going to be hard to have a learning by doing dynamics. So those kind of administrative routines, I even see this in my university, where as soon as you get a lot of turnover, even those kind of basic routines aren't there. But capability, so these three areas, capacity, routines, and capabilities are equally important, but the capabilities are really what I find are lacking.
And it goes back, as I was mentioning before, to the underlying economic dogma that has underpinned the way that we think about policy, government at different levels, that by design, not by coincidence, is reactive.
Have consultants become a substitute for state capacity slash routine slash administrative ability? Right. I always wonder how we got to the point where consultants are so big anyway, because it feels like every time you hire a consultant, it's almost an admission of failure on your part to be able to do something right. And nevertheless, it's a widely accepted practice across governments.
Yeah. So my last book actually was called The Big Con. So con for consulting. And the subtitle was how we've weakened businesses, infantilized our governments and warped our economies basically due to this consultification. I wouldn't blame the consultants. I mean, I actually blame governments, right? Like, why are you opening the door so wide to consultants?
And it's fine to have advisors and some consultants. The problem is when they are actually doing the core tasks that government should do. Again, test and trace. during COVID was a core task. And so I think it really stems from, I'd say, the 80s when we, you know, the kind of Reagan, Thatcher years, if you want. It always goes back to Reagan.
Yeah, but actually in the UK, for example, it even increased more during the Labour government. So it's not one party, but it did begin, I'd say, in the 80s with this kind of downsizing of governments, which then ironically cost them more. Because as soon as you start downsizing without really strategically thinking what you need and what you don't need, of course, you should trim the fat.
There's no reason to have a bloated. government structure. But when it's done for ideological reasons and not strategic reasons, then ironically, then you end up not having those capabilities that you need as soon as you have a flood or Brexit or COVID. And so I think then what happens with the consultants is It's not their fault that they're invited in.
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Chapter 7: What are the implications of AI on public policy?
I do think it's very problematic what they end up doing once they're in. So there's huge conflicts of interest. Well, the biggest conflict of interest being that they have no incentive really to make government better later because they wouldn't have no contracts. It'd be like having a therapist your whole life. That therapist is probably not very good.
Which is how the therapy models work.
Well, do you remember this came up in the episode we did about construction in New York and this idea that like one of the reasons it's so expensive and takes so long for like public funded projects is because consultants have no incentive to actually get the project done. Yes.
But also they're often working on both sides of the street. Right. So there'll be, for example, consulting for, I don't know, a state owned enterprise like Escom in South Africa, as well as the Treasury. Right. Which should be regulating ESCOM.
Or in Australia, there was a famous case with PwC where they were consulting for a medical device company, as well as the regulators of the medical device companies. Like, come on. So that should just be illegal. Right. And again, you know, getting the right kind of regulation that makes sure that we don't have these kind of scams.
So what we also argued was, you know, the first thing is start investing back inside government so you don't need so much consulting. But also when you do bring in the consultants, make sure the contracts actually embed learning within them and that you are also bringing in the right people.
You know, if you have an oncology strategy, of course, you should get the top doctors and consultants and cancer to advise. So the other huge problem is that these consultants, when they're coming in, they often actually don't know very much and they end up really bothering consultants.
The poor public servants that they end up emailing, oh, would you mind telling me what you think about or sending me your plan that we can study? It's like, why are you even working with government if you don't have within the consulting companies that deep expertise? Which, you know, I'm not saying this just because I'm an academic, but I don't think academics are used enough.
If you have a research center that's been thinking about climate change for the last 40 years, use them. Don't ask McKinsey, as Australia did, to design your climate strategy, which ended up, by the way, being terrible.
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Chapter 8: What are some successful examples of mission-oriented policies in different countries?
To me, that makes sense as a time to bring in a consultant.
People also argue for something like that, there's a value to having an external viewpoint, right?
That makes sense. The redesign, that's a one-time job. To me, I was like, all right, that doesn't seem crazy to bring in a third party to help figure out what that plan is.
Exactly. So that's the myth, right, that somehow we're talking about either government does everything, right, or even nationalize everything, or it does nothing and it privatizes and brings in the consultants. So the truth is obviously somewhere in the middle. So, of course, you're absolutely right. Government doesn't have to have all those skills.
It definitely needs the skills to know who to work with outside of government. Sure. But it also needs to even understand that kind of outside landscape to even think about what might we need, how might we start developing a strategy that reimagines, say, the trash collection process. So that's why I talk about missions.
So when NASA wanted to go to the moon and back in a short amount of time, they didn't say, we're going to do it all by ourselves. And they also didn't say, we're just going to do it with the aerospace sector, right? They said, we're going to have to work with so many different private sector people to They ended up working with something like 400,000 people in the private sector.
They said, we have a lot of problems, but we don't know the solutions. But we're going to set very clearly a direction for working with the private sector in a problem-oriented way. So the first thing they did was change procurement. procurement, you know, government purchasing is often like 30% of a government's budget.
It's a very important part of their budget, whether it's Barbados, a small island state, or the U.S., a very large government. Procurement is there. How are we using it? So they realized they had the wrong type of procurement. It was just, again, minimizing costs. It was
cost plus procurement, they changed it to outcomes oriented procurement, and they started to ask themselves, what are the outcomes that we need? We need to figure out how are the astronauts gonna go to the bathroom, right? Which by the way, was just a problem again with Artemis, the toilet, always a problem up in space. What are they gonna eat? What are they gonna wear?
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