By William Lazonick, The prevailing stock market ideology enriches value extractors, not value creators. Conventional wisdom holds that the primary function of the stock market is to raise cash that companies use to invest in productive capabilities. The conventional wisdom is wrong. Academic research on corporate finance shows that, compared with other sources of funds, […]
“[Flourishing is] the heart of prospering – engagement, meeting challenges, self-expression and personal growth…a person’s flourishing comes from the experience of the new: new situations, new problems, new insights and new ideas to develop and share. Similarly, prosperity on a national scale – mass flourishing – comes from broad involvement of people in the processes of innovation; the conception, development and spread of new methods and products – indigenous innovation down to the grass roots.”
Hutton follows with his own take on the mass flourishing which he sees as an essential outcome of the good economy and society:
“…the smart economy, resting on innovation, is coterminous with a society that ceaselessly and restlessly sponsors mass flourishing: they are indispensable and interdependent concepts. This was the heart of the Enlightenment – makers, inventors and philosophers all interconnected, daring to think, to understand and to challenge old boundaries, infecting each other with the enthusiasm for the new while being part of a greater social awakening that affected everyone. This spirit imbued every branch of British economic and social life in the late eighteenth century; it was this as much as cheap labour, water mills and Europe’s first single national market that triggered the Industrial Revolution. Every age is different, but what is not different are the interdependencies between the economic and social that animate and lift the human spirit.”
An interesting post from Simon Wren-Lewis on how sustained austerity can lower innovation and productivity growth. With the latter growing painfully slowly in the UK and other rich countries for a number of years, this is potentially important. As he notes, it may only explain part of the productivity slowdown, but it still highlights one of the negative impacts of austerity.
Put briefly, austerity weakens aggregate demand when it cannot be offset by monetary policy (as has been the case since the recession). This may create an ‘innovations gap’. Firms facing reduced demand for their products will slow down the rate at which they create or utilize new products, processes and technology via new investment, leading to weaker growth in productivity. This sort of investment would have ’embodied’ the new technology, but in its absence, the improvements will not take place.
Economist Michael Kitson dispels some myths about public and private debt and discusses the importance of public investment in new technologies. This video is especially relevant to today’s world of largely sluggish growth in output and productivity. Some of these ideas might help the world economy, and particularly the UK, to do a little better.
This short interview from the Real News Network illustrates the progress of clean energy generation in the US, compared with dirtier sources. The argument is that the cost of renewables is falling fast, such that they are becoming cheaper than coal-fired generation, which Mr Trump has promised to support. Cleaner sources also have positive spillover effects on health, known in economics as a positive externality.
The logic of market forces has probably been helped along by industrial policies, from Obama’s Clean Power Plan to the Chinese government, which has promoted the development of its solar panel industry. But if clean energy becomes cheaper than dirty energy, surely a Republican president looking for a good deal can’t argue with that.
Following yesterday’s quote, a brief video featuring Professor Mariana Mazzucato, who specializes in the economics of innovation and the role of government in shaping new technologies for inclusive growth. I can highly recommend her eye-opening book The Entrepreneurial State – Debunking Public vs Private Sector Myths.
“[W]hen organised effectively, the State’s hand is firm but not heavy, providing the vision and the dynamic push (as well as some ‘nudges’ – though nudges don’t get you the IT revolution of the past, nor the green revolution today) to make things happen that otherwise would not have. Such actions are meant to increase the courage of private business. This requires understanding the State as neither a ‘meddler’ nor a simple ‘facilitator’ of economic growth. It is a key partner of the private sector – and often a more daring one, willing to take the risks that business won’t. The State cannot and should not bow down easily to interest groups who approach it to seek handouts, rents and unnecessary privileges like tax cuts. It should seek instead for those interest groups to work dynamically with it in its search for growth and technological change.”
Mariana Mazzucato (2013), The Entrepreneurial State