Act now to rethink the direction of company growth and address important societal challenges because an increasingly unstable society is bad for business, advises Professor Mariana Mazzucato, founding director of the Institute for Innovation and Public Purpose at University College London. The future of health systems, economic inequality and “the biggest challenge, climate change”, are among the issues worth tackling.
Visiting Australia in December, Mazzucato has advised policy makers around the world on how to achieve smart, sustainable and inclusive growth.
In Mazzucato’s 2013 book The Entrepreneurial State: Debunking public vs private sector myths, she argued that the contribution of governments to capitalist economies has been wildly understated.
This year’s The Value of Everything: Making and taking in the global economy also made a splash when she challenged the meaning of “value” in Western economies, questioning the elements included in GDP calculation and corporate activity that she argues amounts to value “extraction” rather than the “creation” it purports to be. One instance of this is when publicly listed companies use profits to fund share buybacks, boosting stock values rather than for capital and other reinvestment to strengthen and grow the business.
“My work puts just as much emphasis on the direction of growth as on the rate,” she says. “There was plenty of growth just before the GFC, but it was problematic and led in many countries by consumption that was fuelled by private debt.”
The reinvestment she’s advocating may not instantly appeal to boards, but Mazzucato is blunt. “I’m talking to those companies interested in long-run growth, not short-term profits. If that’s [short-term profit] your strategy, then none of what I’m talking about makes any sense.”
However, she says, “it’s not about being anti-shareholders, it’s about how to position shareholders as being one of the many constituents in a company that will be important. Maximisation of shareholder value is a really faulty concept because it dismisses all the other value creators.”
She says our system accepts that shareholders are the only value creators, but declares it a myth she is eager to debunk, together with the assumption that shareholders are the biggest risk-takers. “That’s completely wrong, no-one has a guaranteed rate of return,” including employees “who might start working in the company under the assumption they will have a lifelong career — there’s definitely no guarantee there.”
Mazzucato believes there is potential in the cooperative model, citing UK retailer John Lewis, where as a staff member “not only are you getting a share in the profits, but you are invested in the company as a value creator”.
Another business at the forefront of innovation-led growth is German industrial manufacturer Siemens AG, which this year won a £1.5 billion UK government train contract, prompting domestic outcry in the UK. “The real question is what led to Siemens being able to produce fast, smart and green trains,” says Mazzucato. “They were part of a much more dynamic and innovative ecosystem in Germany.”
Siemens is a beneficiary of the entrepreneurial systems she favours, which should be co-created and fostered by government, to stimulate innovation from the bottom up, while also working top-down in collaboration with business, to frame and realise bold “missions” involving multiple sectors and disciplines. The 1960s moon mission, for example, involved sectors as diverse as nutrition, footwear and textiles, as well as engineering and technology.
“Reputation is part of the way you create value, part of your theory of value for the company.” Mariana Mazzucato
While ameliorating climate change is the modern equivalent, Mazzucato opposes defensive thinking. “We should be seeing them as opportunities… asking what it really looks like to have an investment program guided by industrial strategy or innovation policy that is creating a green direction for a country,” she says. “It should not just be about renewable energy, every single sector can be greening itself.”
That attitude is also crucial for individual companies and in all aspects of the business. She advises that reputation must also be constructed as part of a long-term growth strategy. “It has to be seen as relationship-building with citizens and stakeholders,” she says.
“Reputation is part of the way you create value, part of your theory of value for the company.”
Corporate social responsibility cannot just be bolted on or confected. “Not what should I not do wrong so I don’t get a bad reputation? But what can I do right and what does right mean?”
Emphasis should be on transforming the value chain across all areas, from wages and the working environment to government relationships. For example, British-Dutch consumer goods giant Unilever “has been very important with Paul Polman’s leadership making a company that has a real responsibility towards rethinking its value chain in a sustainable way”.
So how might a director seek to influence their board when a business as usual mindset is enduring? Keep restating the issues, be brave and stand firm. “People nowadays really respect that bravery,” she says. “Sincere rethinking and repurposing of yourself can be really important — [and] how you organise yourself. It’s going to be really important for your ability to create the next wave of opportunities for future growth and profits.”
She poses three questions for directors to reflect on:
- What does value really mean to our organisation?
- Are we investing and reinvesting in our people and business for the long-term?
- What is our bold mission?
Prof Mariana Mazzucato will visit Australia Dec 10-14 for events in Sydney and Melbourne, presenting the 2018 John Menadue Oration for the Centre for Policy Development (CPD) at Carriageworks, Sydney, Dec 11.