Sat, Jan 19, 2013 - Page 9 News List

Value extraction keeps economies moving from bubble to bubble

Talk of a fairer capitalism is just hot air unless we rehabilitate and reward the idea of value creation instead of favoring private equity firms’ wealth creation

By Mariana Mazzucato  /  The Guardian

This is where today’s politicians on both left and right should begin the debate. There is a need for a theory that identifies those factors that contribute to value creation versus those that are focused on value extraction. Or put another way, is it really possible to pursue a “pre-distribution” strategy, or a “fairer” capitalism, without first questioning the underlying model of what determines wages? Indeed, the battle against “rent-seeking” behavior will remain lost without a theory able to clearly distinguish when profits move from being a result of value creation, to “rents” — a result of value extraction.

Value creation is about reinvesting profits into areas that create new goods and services, and allow existing goods to be produced with higher quality and lower cost. Investments in human capital, skills, infrastructure, and research and development create value. If we do not get this right we will go from one bubble to the next, talking about “morality” and “responsibility” while challenging little that threatens value extraction and the inequality it generates.

Mariana Mazzucato is an economist and RM Phillips professor in science and technology policy at the University of Sussex.

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