The Common Good Economy: A New Compass Author: Mariana MazzucatoISBN-13: 978-0241722244Publisher: Allen LaneGuideline Price: £25; 352ppThis year marks the 250th anniversary of the publication of The Wealth of Nations. The author, Adam Smith, is known as the “father of economics” and this work is commonly acknowledged as his most influential.It argued that the self-interest of individuals was a source of progress for societies. This is the famous “invisible hand”, whereby private gain created public good.Centuries of theories on the role of the state were fundamentally influenced by this claim. Governments, it was argued, should confine their work to a small number of duties. Society and free markets should do the rest. These functions included national defence, the administration of justice and the provision of public goods (such as bridges and canals) that would not be built without state support.This limited role for public services became known as the “the night-watchman state” and was a compelling image for classical liberal thinkers, who championed individual liberties and the virtues of the free market.John Maynard Keynes published his masterpiece, The General Theory of Employment, Interest and Money, 160 years after Smith published his seminal work. He made the case for a very different role for the modern state. Keynes argued that free markets do not always correct in a way that is best for society. A lack of demand within an economy can cause recessions and high levels of unemployment. The modern state has a proactive and critical role in providing additional demand, through public investment, to avoid the searing costs of high levels of unemployment.These are only some of the famous, and different, theories regarding the role of the state within economies and societies. However, this is not just a theoretical matter. The size and role of public services have grown in most countries in recent decades. Causes of growth vary, including the development of social insurance and health systems and the effects of wars and pandemics. However, this has not led to consensus on the role of the state. Some argue for a reduction in size, for refocusing on a narrower mandate. Others contend the state is not ambitious enough, that it can achieve more in response to the great challenges of our time.[ Regime Change: The chaos of Donald Trump exposed in blow-by-blow accounts of highly sensitive meetingsOpens in new window ]Mariana Mazzucato is a leading voice in this modern debate. She has powerfully argued for a greater role for modern government and that the catalytic power of the state in innovation is significantly underestimated. Her most celebrated work is The Entrepreneurial State (2013), which analysed how governments play a critical role in research and innovation. Other works, including Mission Economy (2021), argued that economic policy should pursue more radical and transformative goals. Mazzucato returns to this important theme in The Common Good Economy, writing that “…the notion of ‘good’ cannot be just filling the gaps for what the private sector does not do. It must be an objective we reach together – not a correction for something that is missing.”The state should be recognised for what it can do, not as a substitute for what other actors cannot achieve. Schools, hospitals and social protection systems all possess an inherent value that transcends the limitations of private markets. To assert that the function of the state is only to correct market failures is also to indicate a subtle hierarchy between government and market. It is to always accept that markets function first, and the state intervenes when they malfunction. With this approach, public intervention is only justified if actors within the private sector, companies or individuals, fail. The author describes this as a “gap-filling mode of thinking”.[ Author Dave Eggers on AI, staying creative and the daily role of Sinéad O’Connor in his lifeOpens in new window ]Mazzucato examines the relationship between public and private by defining the concept of the “common good” and the consequences of this definition for politics and the practice of economic policy. This is the focus of the first section of this work. The book begins by reviewing the definitions of this common good outside of economic theory. Ancient Greek philosophers described societies where individuals flourished “by living in accordance with virtue”. The practice of morality in public life was more important than the pursuit of economic interests. The medieval theologian St Thomas Aquinas developed this through the lens of Christian faith. The pursuit of holiness offered purpose to societies. This is compared with contributions made by modern thinkers, biologists and social scientists. The conclusion is that “what counts as ‘good’, and how this translates into economics, should be determined collectively”.This contrasts with a narrower view from economic theory. Markets are collections of self-interested individuals guiding all transactions. The definition of what is good is decided after economic activity has occurred.The author calls for a common good economy that “requires embedding economic objectives within the fabric of social relations and rethinking how all actors – individuals, public institutions and private firms – relate to each other”.Such an approach challenges the conception of the state as a default actor, intervening when all else has failed. Measures to achieve this include rethinking the role of shareholders, reducing the power of financial markets and increasing the share of earnings allocated to workers. This raises an obvious and serious question. We are in an era when the nature of global economies has become deeply financial. Bond and equity markets are embedded in the global economy. Reimagining how this financial core can be governed is one task, and a demanding one. Making this change happen, and minimising serious economic risk, is a large challenge.Mazzucato, to her great credit, seeks to address these questions in this book. She makes the case for a “common good compass”, for policy measures that can make progress towards this vision. Her goal is clear as she writes that “it is not about which market failure is to be fixed, but the direction we want our economy to sail in”. How such decisions are made is critical. This compass has five different dimensions. They include better consideration of purpose when decisions are made, more focus on the sharing of knowledge and increased transparency. The application of this compass will integrate a better sense of the common good into important economic and social decisions.These changes would improve the impact of policymakers. The author is particularly strong, and correct, on the impact of mission setting in public policy. This is when many departments across a government or many international organisations unite to deliver a clear goal. For example, reducing child poverty would involve collaboration between the ministries of education, health and social protection and normally require a co-ordinating mechanism through the office of the prime minister.[ Central Bank warns spending trajectory could ‘deplete fiscal buffers’Opens in new window ]Mazzucato also identifies the very powerful role of the state in shaping and stimulating economic activity. A wide variety of financial instruments can now be used by governments to support research, entrepreneurs and companies with great potential. It is equally important that taxpayers can benefit from success and not just the losses of business failure. However, the compass does not fully address issues of political economy. Or to write it more bluntly, how and why voters would support this agenda. Writing that “Elections represent only a small, though vital, part of the wider practices of co-creation and participation needed to shape political and economic policy” underestimates the challenges confronting policymakers. A lack of compassion or imagination is not the constraint that holds most public leaders back. Trade-offs exist. Public patience for long-term reform is limited. The opinions of voters have become more complex and volatile. These issues deserve better consideration in this work.There are different definitions of the common good. Policymakers face complex challenges in implementing policies. Reconciling societies to change is fundamental to policy development and implementation, not incidental.There are no easy solutions to these dilemmas but perspectives from the author on how to manage them would significantly strengthen the compass and this book. Bringing these ideas to life requires effort and dedication in the public square, not in a sealed vacuum. This needs recognition. It is not just the echoes of public opinion that are lessened in this book. So are the consequences of public debt. Most modern states confront high debt, powerful bond markets and low growth. When most governments want to increase capital spending they must borrow, tax more or spend less elsewhere. These are the defining constraints of modern governments. This does not receive enough attention and analysis in The Common Good Economy. This is a pity as the views of the author on this theme would only add to this book. However, in the absence of this the reader is left to wonder how ambition can be reconciled with the challenge of affordability.With that, it is equally important to acknowledge that this is a positive and very elegant work that reminds the reader of the power of the state and the need for optimism on what it can yet achieve. It builds on her earlier works and will be of great interest to any reader who not only wants to imagine a better future, but who wants to know how it can be built.Paschal Donohoe is managing director and Chief Knowledge Officer of the World Bank Group.Further readingThe Limits of the Market by Paul De Grauwe (Oxford University Press, 2017). A slim, punchy and wise volume on the limits of markets and governments. It quickly summarises relevant theories and applies them to real-life situations. Do not let the graphs put you off. A lot of wisdom in a small book.The Future of Capitalism by Paul Collier (Allen Lane, 2018). This author is vividly aware of how economic fractures affect politics. Collier is a distinguished development economist but, in this book, he turns to Sheffield and Oxford, laying out a passionate case for a more inclusive set of economic policies.What We Owe Each Other by Minouche Shafik (The Bodley Head, 2021). The author is an eminent and deeply experienced public servant. In her book, she reminds the readers of the importance of the social contract and how it can be strengthened in different policy areas, from childcare to education.