Departmental budgets should align around core missions to set a purposeful direction of growth
The United Kingdom is in recession. The Autumn Budget reflected this sobering diagnosis of the country’s economic state and foreshadowed an Osbornesque turn to the austerity policies of the 2010s.
However, austerity didn’t work and won’t work – even the IMF and the World Bank have recognised the link between fiscal consolidation and rising inequality. Citizens across Europe are €3,000 a year worse-off than they would have been had austerity not been implemented. Even from a budgetary perspective, cuts to public spending make little sense. Public debt often ends up rising when governments have to pick up the mess austerity creates – a pertinent example being austerity-induced crime prompting additional costs of policing.
An agenda of austerity and short-term thinking will continue to exacerbate the cost-of-living and climate crises
To tackle the multiple crises we are facing today – from cost-of-living, housing, and energy to climate – governments need to take a much more deliberate approach to market shaping. Markets will not find an ecological and socially equitable direction on their own. Oil and gas companies for example have massively increased their spending on share buybacks while also setting out to expand production in coming years.
The public sector plays a fundamental role in providing a stable and consistent conduit for investment, which can ensure that regulation and innovation converge along a green and just trajectory. What I have called “mission-oriented” policies can help bring the direction of growth—rather than only its rate—to the centre of the conversation. This was at the core of my work with Lord Willetts as science minister and Greg Clarke as BEIS secretary when we developed eight recommendations for a mission-oriented UK industrial strategy in 2019.
Governments should think more expansively about their policy tools and departmental budgets to set a purposeful direction of growth. Well-designed procurement contracts can be used to stimulate bottom-up innovation in the direction of missions. Conditions can also be attached to public funding to maximise the public value created by public investments. They can require recipient companies to align business practices with missions related to a just green transition and good labour standards. In France, Covid-19-related government bailouts were conditional on five-year targets to lower domestic carbon dioxide emissions. Meanwhile, the UK government loaned $683 million to EasyJet with no strings attached.
However, mission-oriented industrial strategy is only effective if the state possesses the corresponding capabilities. This means transforming government from within. Dynamic capabilities are needed to empower the public sector to genuinely serve the public interest, for example, by devising robust terms and conditions governing public-private partnerships – without which companies can easily capture the agenda. Bold missions require governments to work outside of the usual silos – they should span ministries, departments, and local government bodies. Building these capabilities also requires avoiding the temptation to outsource to consultants as argued in my forthcoming book, The Big Con: How the Consulting Industry Weakens our Businesses, Infantilizes our Governments and Warps our Economies.
Finally, in an age of increasing polarisation and political divide, it has become more important than ever that missions are founded in a social consensus. My work on the Camden Renewal Commission illustrates how this consensus can be built by engaging citizens in community-level processes. Building a social consensus means inviting community associations, cooperatives, and trade unions to form partnerships with governments.
Ultimately, the goal cannot be to just mitigate the damage from today’s shocks. When the Covid-19 pandemic hit, people around the globe felt the cuts that were previously made to the health care sector. A similar agenda of austerity and short-term thinking will continue to exacerbate the cost-of-living and climate crises.
I have encouraged the UK government to rebuild its confidence to “think big” — to direct sustainable and just economic growth, backed by symbiotic partnerships with the private sector, investments in creating the right internal capacity to create mission-oriented policies and institutions, and a special emphasis on engaging ordinary citizens. Because one thing is clearer than ever: the cost of inaction will always be much greater than the cost of action.
Mariana Mazzucato, economist and professor at UCL. Marina is giving a Lord Speaker’s lecture “Building Forwards Much Better” on 5 December 6.30-7.30pm in the River Room.
Get the inside track on what MPs and Peers are talking about. Sign up to The House's morning email for the latest insight and reaction from Parliamentarians, policy-makers and organisations.