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Toward a New Fiscal Constitution

Jul 10, 2020 Mariana Mazzucato and Robert Skidelsky

With the COVID-19 pandemic forcing governments to spend on an unprecedented scale to sustain businesses and households, there has never been a better time to restore the state to its proper role as a rudder for the broader economy. The market alone is simply no match for the challenges of the twenty-first century.

LONDON – The COVID-19 pandemic has had an immense, unpredictable, and lasting impact on economies around the world. As a result, governments have been given an opportunity – and an imperative – to rethink the role and purpose of fiscal policy.

A new approach is long overdue. Since the era of British Prime Minister Margaret Thatcher and US President Ronald Reagan, the prevailing economic orthodoxy has effectively denied the state’s potential investment function and made balancing the budget an end in itself. This indifference to both the direction and level of economic activity rendered the 2008-09 crash all but inevitable, and the subsequent rush to austerity weakened the recovery. Now, the simultaneous collapse of supply and demand following the arrival of COVID-19 has made neoliberal orthodoxy doubly untenable.

There is, however, little evidence that any new fiscal thinking is underway. Yes, emergency financing is being deployed. But unless this spending is structured, the post-2008 outcome will be repeated, with the liquidity driving up asset prices in financial markets but doing little to help the real economy.

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Mariana Mazzucato

Writing for PS since 2015
53 Commentaries

Mariana Mazzucato, Professor in the Economics of Innovation and Public Value at University College London, is Founding Director of the UCL Institute for Innovation and Public Purpose, Chair of the World Health Organization’s Council on the Economics of Health For All, and a co-chair of the Global Commission on the Economics of Water. She is the author of The Value of Everything: Making and Taking in the Global Economy (Penguin Books, 2019), The Entrepreneurial State: Debunking Public vs. Private Sector Myths (Penguin Books, 2018), Mission Economy: A Moonshot Guide to Changing Capitalism (Penguin Books, 2022), and, most recently, The Big Con: How the Consulting Industry Weakens our Businesses, Infantilizes our Governments and Warps our Economies (Penguin Press, 2023).

Robert Skidelsky

Writing for PS since 2003
202 Commentaries

Robert Skidelsky, a member of the British House of Lords and Professor Emeritus of Political Economy at Warwick University, was a non-executive director of the private Russian oil company PJSC Russneft from 2016 to 2021. The author of a three-volume biography of John Maynard Keynes, he began his political career in the Labour party, became the Conservative Party’s spokesman for Treasury affairs in the House of Lords, and was eventually forced out of the Conservative Party for his opposition to NATO’s intervention in Kosovo in 1999.

Capitalism’s Triple Crisis
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Economics 24

Capitalism’s Triple Crisis

Mariana Mazzucato shows why only a forward-looking, entrepreneurial state can save the system from itself.
The Big Failure of Small Government
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Politics 15

The Big Failure of Small Government

Mariana Mazzucato & Giulio Quaggiotto show why countries that have embraced a proactive state have fared better against COVID-19.
Which Economic Stimulus Works?
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Economics 14

Which Economic Stimulus Works?

Joseph E. Stiglitz & Hamid Rashid emphasize that the design of government programs to support growth matters as much as their size.
The Case for a Guaranteed Job
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Longer Reads 14

The Case for a Guaranteed Job

Robert Skidelsky welcomes current proposals to make governments, not markets, responsible for ensuring full employment.

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0 Comments on this paragraph, 8 Comments on this article

Kurt Kristensen Sep 17, 2020

In the US official unemployment numbers currently hover around 10%, however, it appears that the combined unemployment, underemployed and resigned workers more closely should be between 20-30%. This is, of course, not sustainable.

In the near future the US and the EU will have to deal with increasing total unemployment due to increases in high-technology manufacturing systems primarily using robotics. Both areas will also be facing increasing unemployment due to in-migration of displaced people driven my climate and war factors.

It would seem logical that both the US and the EU look at effective public works projects as the authors suggest.

It would also seem logical, as the authors suggest, that voters consider more effective forward driven policies that have the public Good as a sustainable principle, rather than rely exclusively on short-term profit driven policies as we have seen in the aftermath of both Reagan, Thatcher and Trump.

However, the electorate will, of course, look for short-term solutions and excitement until courageous leaders emerge to guide us.
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Norman Kennedy Jul 10, 2020

The article assumes voters understand what is good goverance when in fact 75% of them have the attention span of a sparrow and cannot plan beyond the end of the week.
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Lisandro Bril Jul 10, 2020

How would you apply the New State Role in countries , such as Argentina, Venezuela, Brazil among many others where the Government lacks transparency and a no corruption value needs to be enforced so that public budget is transparently, efficiently and effectively deployed ...
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Joe Ryan Jul 10, 2020

Along with good specific proposals, the authors also make a general philosophical proposal, that "It is time to embrace the state’s unique and profound capacity for steering economic life in the interest of the common good." It's this philosophy that underlies and empowers all their specific recommendations.

Since they wouldn't want to burden their argument with the stigma, they don't use the taboo term "capitalism" or even the deprecated term "socialism." But what they are actually advocating at the level of state ideology is replacing capitalism with socialism.

As an ideology, capitalism, or "laissez faire," asserts that any involvement in direction of firms by others besides the capitalist owners — such as by employees, governments, or "society" — is illegitimate and socially harmful. That's because profits of the capitalist firm are a rational measure of capitalism's social benefits, rather than being merely a pleasurable result for capitalists. The illegitimacy of outside intervention in capitalist firms is also based on a concept of individualism that ignores the facts of social relations, viewing a contract between a firm and a person as an inviolable deal between equal individuals and denying that there's such a thing as "the public interest," since there are only individual persons (including firms as persons) and no corporate entity such as "society."

The opposite idea, that society as a whole exists, has a right to take economic initiatives including to direct some aspects of the activities of firms with many stakeholders, and may benefit from exercising that right, is "socialism," which is what the authors espouse in other words.
- Marc Laventurier Jul 28, 2020
  
  It's notable that some of the more thoughtful american 'libertarians' explicitly deny any authority to 'democracy', since it can impinge on the exercise of individual 'rights', except (absurdly) for their reliance on 'society' for the inevitable enforcement of such 'rights'. It seems to me that any government that has ever in its' history conscripted and consigned even one citizen to certain death in war can monotonically then tax at least an equal number of the wealthy to death.
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Michael Heng Jul 10, 2020

Excellent points made by the two esteemed authors. History shows very clearly that economic growth depends on scientific breakthroughs and technological innovations, supported by the appropriate social-legal institutions. The last century has revealed the crucial imperative of protecting the environment.
Fundamental scientific discovery and technological breakthrough are not the forte of business organizations whose interests are pretty short-sighted. These tasks are best done by the state. China and Japan have understood this point far better than most other countries.
For the past several decades, a perverted understanding of the market among western elites in power has allowed neoliberalism to rule supreme. Market is seen to be the principal mechanism to run schools, hospitals, prisons, and to some extent even the armed forces. If we continue along this path, we may soon have the military run by mercenaries.
Centuries ago, Aristotle in his meditations on society, argued that economy must serve society. Thinking along this line, finance must serve the economy, and economy must serve society. What we see now is the opposite, and we have a financialized economy, and financialized society, and even, financialized politics. Wall Street has morphed into a cancer in the body politik.
The Western world needs to come to its senses. Market is important. But for it to perform its roles well, market must be both FAIR and FREE. The two attributes are like the two wings of a bird.
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