The Prof G Pod with Scott Galloway - Rewriting the Rules of Capitalism and Public Investment — with Mariana Mazzucato

Episode Date: September 15, 2022

Mariana Mazzucato, Professor in the Economics of Innovation and Public Value at University College London and author of several books including her latest, Mission Economy: a moonshot guide to changing capitalism, joins Scott to discuss the current state of capitalism, unions, and how to rethink the relationship between markets and governments. Follow Professor Mazzucato on Twitter, @MazzucatoM.  Scott opens with his thoughts on Pinterest's potential, the streaming space, and the at-home fitness market.   Algebra of Happiness: Be kind and evolve. Learn more about your ad choices. Visit podcastchoices.com/adchoices

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NMLS 1617539. Episode 195. episode 195 people born in 1995 doja cat dualipa megan the stallion braveheart premiered in 1995 toy story also premiered in 1995 rumor is that toy story 5 will focus on andy's mother's toys which are also called woody and buzz go go go called Woody and Buzz. Welcome to the 195th episode of the Prop G Pod. In today's episode, we speak with Mariana Mazzucato, a professor in the economics of innovation and public value at University College London and the author of three books, including her latest, Mission Economy,

A Moonshot Guide to Changing Capitalism. I am like fumbling over my words. Why? Because daddy went deep in the paint last night. Little makers in ginger, a lot of makers in ginger. And I am slow today. I am slow today. There is a trade-off between

your productivity the next day and alcohol. I would argue it's worth it most of the time, but I'm definitely feeling it today. We discussed with Professor Matsukato the current state of capitalism unions and how to rethink the relationship between markets and governments. Okay, what's happening? Our team is back in New York after a week at the Code Conference in Los Angeles, which was lovely, which was lovely. State of the Waldorf, a lot of dinners, a lot of tech people. It was Kara Swisher's last code after 20 years. And one of the things I love about Kara's decision for it to be her last conference,

I think there's a lesson here, and that is I think it takes discipline and a lot of strategic insight, if you will, to leave something while it's still strong, to leave the stage while people are applauding. Anyways, there were two major themes coming out of the conference. The first is tick, the second is talk,

and that it is not this silly app with people dancing and videos of great Danes, which are also lovely. It's actually, in our view and the view of several participants at the conference or several speakers, that it's a real threat to United States security, especially under the current Chinese leadership. If you listened to the pod last week, then you heard our guest, Lisa Lin, explain how there are no checks and balances in the Chinese legal system. Therefore, if the CCP asks TikTok for user data, well, then you better believe it's turning it over. reflect us in a positive light and slowly but surely, in a very insidious, incremental way, using the fodder that we produce every day domestically, turn young people off to the greatest experiment in history, and that is the United States. If you look at America geopolitically right now, our position relative to other nations, I'm not sure we've ever been stronger.

We're food independent. We're energy independent. Despite a rising China, it doesn't appear to be a zero-sum game. We've incurred fantastic economic prosperity with great globalization, digitization. The smartest people in the world still want to come to the United States. Our media still dominates globally. We still have the most awesome places to go to school, to vacation, to party, to start a business. I think we're just killing it. The problem is we're also killing each other. 54% of Democrats are worried that their kid will marry a Republican. It used to be 4%. And something we fail to recognize, and I think the media has played a role in this, I think class warfare has played a role in this

because of extreme income inequality, is that Americans will never have better allies than other Americans. And we seem to have forgotten that. And we are eating the monster. We are being eaten from the inside out. The other thing of code that I noticed is when Google CEO Sundar Pichai

responded to a question about potential acquisitions. This is the other kind of observation I would make is we heard an immediate no when it came to Twitter, but there was a bit of a pause and awkward silence when it came to a question about acquiring Pinterest. And this is what's so wonderful about when people get together live at conferences like this is occasionally there's an unscripted moment in the room and you observe something. And I might be reading too deeply into this, but I think I observed something here and other people agreed that there was an awkward moment where he was much more reticent to say, oh no, we would never buy Pinterest. And so my thesis is that Pinterest is in play, specifically has interest from Google. Pinterest has interest from Google. Why would this make

sense? I've always thought of Pinterest as sort of a human-driven search engine. And that is, if you are redoing your kitchen or having a wedding, you see what other people have curated, just as the incredible algorithm at Google determines what other people value when they search for something or what links they and what sites they go to when searching for best hotel in Barcelona, Soho Beach House. Soho Beach House, I think it's called, or Soho Beach Club. That's where you go and I'd go in Barcelona. idea of visual search could be very powerful, and that is figuring out a way to use your Android device to look at something and having some sort of AR overlay that tells you information on that product or that object. I used to see that about 10 years ago. I haven't seen much of it. But also the ability to curate across different categories, to me, feels like more of a meta layer on top of search. Anyways, it'd be cheap. They have a ton of scale.

Antitrust? Antitrust? Maybe. Would Google be allowed to acquire Pinterest? I don't know. I'm sure certain people would get upset, and I think that would warrant real scrutiny. But I think they're a logical buyer, and I think Pinterest needs a big brother here. Now, why might it not be acquired? And it would have likely already been acquired, but it's a two-class shareholder company. And one guy, Ben Silberman, controls the company, so he can just decide, no, I'm already a billionaire. At the end of the day, I don't give a flying fuck about shareholders. They're a nuisance. I've already made my billion bucks. I want to own it. I want to control it. I'm not interested in reporting into whoever I'd have to report into at Google. So yeah, shareholders, sucks for you

that the takeover premium has been taken out of the stock because people realize it's all about my blood sugar level that day. But I think this is a company that needs to be put in play. The only one of those companies that's not a dual-class shareholder company is Twitter. And what do you know, it's in play. That's another talk show.

And we've had that talk show several times. Okay, moving on. What else is making headlines? Activist investor Dan Loeb has backed away from advising Disney to sell or spin off ESPN. Loeb's hedge fund took a $1 billion stake in Disney back in August and proposed a number of changes, including that spinoff and changes to Disney's board. In an interview with the Financial Times, Disney CEO Bob Chapek explained that, or as I like to call him, or I should say Kara Swisher likes to call him, Bob too, explained that the relationship between Loeb is amicable and that the company has received

dozens of inquiries about buying ESPN. However, he sees its potential within Disney. In 2021, sports accounted for 95 of the top 100 most watched telecasts in the U.S. Let me repeat that. Of the 100 most watched telecasts in the U.S., 95 of them were sports. That kind of makes sense. I don't think I watch anything live unless it's sports now. Unless I want to see one man assault another at an awards show. Yeah, that makes sense.

That kind of summarizes America right now. Putting ESPN aside, Loeb also wants Disney to take full control over Hulu. Hulu! Sooner than Comcast has agreed to sell it, which isn't until 2024. Comcast currently owns 33% of Hulu. Chapek said Disney would love to settle this, but Comcast has been reluctant.

My guess is Comcast is like, we know you want it, so we're going to wait until you offer us an irrational premium for our 33%. So Comcast is a really interesting one too. I think Comcast is sort of lying in the reeds, if you will, waiting to strike. I think the biggest, perhaps one of the biggest acquisitions or most newsworthy acquisitions that will happen sometime in the next 12 months is going to have Comcast on the buying end. Why? They have amazing assets

and distribution, whether it's Comcast Cable, whether it's NBC Universal or Sky in the UK. But at the same time, they need to get out of the cable business because it's a declining business. It's a melting ice cube. But at the same time, these are smart people and they have a lot of ammunition. They have a lot of dry powder, specifically whatever it is, about a $200 billion market cap. It seems interesting that Dan has come to some sort of armistice or some sort of agreement or truce with Disney. I think Disney is arguably the media company with the greatest collection of assets ever assembled, whether it's Pixar, whether it's Lucasfilm, which by the way, they bought for a song. I think they bought it for three or $5 billion. Oh my God, is that the gift that keeps

on giving? Disney Plus has got to be kind of the best streaming network of the last several years in terms of its progress, the bank they have. I mean, this is just a monstrous company and also quite well-run. Bob Chapek doesn't have the charisma of Bob Iger, not as handsome. My God, is that guy a tall drink of lemonade? He's like 105 and he looks like a younger Tom Cruise. I'm pretty sure that he and Tom Cruise live together and share a full-time surgeon. Those guys have made a deal with the devil. There's no way you can look that good at their respective ages. Anyways, also Bob Iger was at the Code Conference.

He's a really interesting guy. And it's fun when they retire as they can talk, they can speak out loud. So let's take a quick look at Netflix versus Disney. Disney has more subscribers than Netflix and has been exploring options, including a Rundle, a recurring revenue bundle, with its other operations, including theme parks, cruises, and stores. Who would have thought of that?

Who would be suggesting that for the last three years? Who has written about that? Who had an entire post in No Mercy, No Malice called Unleash the Mouse? Despite having more subscribers than the original gangster player in the streaming space, Netflix, Disney Plus gets roughly 60% less revenue per subscriber than Netflix. And you can't really compare the subscriber numbers of parody because a Disney bundle that includes Disney+, Hulu, and ESPN+, counts as three separate subscriptions. So a little jockeying or monkeying with the numbers here. However, Netflix has its own challenges.

It's had two consecutive quarters of subscriber losses. And as a result of weak subscriber growth, it's cutting costs, laying off people, and exploring an ad-supported tier. I think this is just a healthy, I don't know, purging, rethinking, tightening, I don't know, pairing of their business. I don't think there's anything wrong with Netflix. It can't be fixed with what's right with Netflix. Now, does Netflix scale linearly as opposed to parabolically like a network effect company? Yeah, there's no network effects here. They essentially are in an arms race where they have to continue to spend more money to get more subscribers.

I think why they will find new wind in their sales is I bet their profitability is going to go up as the majority of streamers, kind of led by David Zaslav at Discovery Warner, have said, this is an arms race where we're all putting each other out of business. And I think everybody has sort of collectively winked at each other and said,

we're going to cut spending. This has just gotten out of control. And I think that all of them will feel the sunshine of less competition. It's still going to be radically competitive, but you won't have the kind of arms race of spending that you've had traditionally. So I like Netflix. I

think the stock has been overpunished, if you will. Disney, unbelievable collection of assets. And it's going to be interesting to see if Disney makes a bigger, bolder acquisition, but I think Comcast is the one I would bet on. Okay, let's wrap up with one look at what's happening in the at-home fitness market. Bloomberg reported that Tonal is pursuing a new round of funding of $100 million at a $1.9 billion valuation. Wow, unicorn. Tonal's at-home workout station sells for roughly $3,500. That's serious cabbage. It's on track to garner $100 million in subscription sales in the next 12 months. This is unusual because Peloton literally has, you know, kind of come off the tracks, if you will, or has dropped a weight on your toe.

I'm trying to come up with an exercise metaphor. Has had a massive stroke and died or is dying. That's macabre. Anyways, Peloton recently posted a $1.2 billion quarterly loss and nearly 30% drop in revenue. Jeez. My gosh. Hello. That's ugly. By the way, I believe the CEO just stepped down. The CEO and founder subscription quarterly revenue is $383 million, which is up 36% year over year, representing a 56.4% of total company revenues. Stock is down though, 68% year to date. It's lost two thirds of its value and it's planning to cut 3,600 jobs. The market cap, which once peaked to get this 50 billion is now 4 billion. And it's

weird because we anchor off the high, but is a connected fitness company worth 4 billion? That's what you have to look at. It's almost impossible not to anchor off the highs, but when evaluating a stock for investment, you want to say, okay, just look at where it is now. Co-founder John Foley is leaving the company as referenced before. He had 40% of the voting power, which basically means that he's in charge with 40% voting power. There probably isn't a pandemic stock that better represents the ascent and the decline based on the novel coronavirus than Peloton. I believe structurally or from a macro

or a long-term perspective, in-home fitness is here to stay. I think it's a structural shift. I think some people will go back to the gym because they want to be around people. I've started going back to Equinox because I get a little bit bored or I want to get out of the house.

But I'm just spending more and more time working out at home. And just as theaters won't go away, it'll just be a shitty business. I think gyms are going to struggle because if 20, 40, 60% of your workouts move to the home, that's going to have an enormous impact on gyms. And I think Peloton's

a great company. I'm shocked it hasn't been acquired yet. I think Amazon is a likely acquirer or Apple. Why? Because what has really hurt Peloton, in addition to people wanting to get out of the house, what's really hurt them is supply chain issues. And they've had problems assembling and distributing. And Amazon and Apple are going to forget more about supply chain dynamics than Peloton is ever going to know. But I think it's a great company. They do a great job. It's a great product.

And yeah, it's had the wind taken out of its sails, but it's going to be around for a long time. It just needs a big brother or big sister, if you will. We're going to be right back for our conversation with Professor Mariana Mazzucato. words and experiences of investment professionals, you'll discover what differentiates their investment approach, what learnings have shifted their career trajectories, and how do they find their next great idea. Invest 30 minutes in an episode today. Subscribe wherever you get your podcasts. Published by Capital Client Group, Inc. I just don't get it. Just wish someone could do the research on it.

Can we figure this out? Hey, y'all. I'm John Blenhill, and I'm hosting a new podcast at Vox called Explain It To Me. Here's how it works. You call our hotline with questions you can't quite answer on your own. We'll investigate and call you back to tell you what we found. We'll bring you the answers you need every Wednesday starting September 18th. So follow Explain It To Me, presented by Klaviyo. Welcome back.

Here's our conversation with Mariana Mazzucato, a professor in the economics of innovation and public value at University College London. Professor Mazzucato, where does this podcast find you? I am in London where I've been living for the last 22 years. Well, this is very exciting. And I know you and the rest of Britons are just besides themselves that an angry professor is about to hit your shores. As you likely know, you have open arms.

What a thrill, right? What a thrill. Okay, let's bust right into it. We're big fans of your work and want to start off with your thoughts on the current state of capitalism, which in your words continues to reward value extraction over value creation. Can you speak more to that? Sure. I guess I would start with just saying that the word capitalism is thrown around a lot and we sometimes forget just how many different types of capitalisms there are. There's a variety of capitalisms there are. There's a variety of capitalisms. And in some countries, including the United States and the United Kingdom, we have a very dysfunctional form

of capitalism. And by that, I mean, we have a business sector, which is overly financialized, something like $5 trillion have been spent just on companies buying back their own shares to boost stock prices, stock options, and executive pay. There's nothing inevitable about that. That's an outcome of specific decisions that have been made by companies in terms of just maximizing their shares as opposed to maximizing perhaps something else that we could call stakeholder, not just shareholder value. But similarly, we have governments that are governed in very problematic ways, at best just fixing market failures when they happen. So filling the gap of the lack of private sector funding and some things that are good and correcting for the

bads through carbon taxes, for example. And their relationship is problematic. Anytime you use the word ecosystem with a biologist, they might catch you and ask you what you're actually talking about because a biologist knows what economists often don't know, which is that ecosystems can be predator prey, they can be parasitic, or they can be mutualistic and symbiotic. So I believe that in the dysfunctional parts of the world, we have very problematic parasitic forms of partnerships and ecosystems between these different actors, public and private. And so my work has basically said we can do much, much better. We can also learn from other parts of the capitalist world,

for example, how they govern companies, how they govern government. But the main thing is that with the current status quo globally, with this form of capitalism, we're not going to be able to tackle the biggest problems of our time, whether they be around health, whether they be around the digital divide, and especially around climate change, which is, you know, basically the clock is ticking. period or action. But one chart that really struck me was what I call the decoupling of wages and productivity. And that is until about, my understanding is until about 1970, wages and productivity rose somewhat in tandem. When productivity went up in America, wages went up. And then in 1970, something happened and productivity kept going up, but wages sort of flatlined. Is that accurate? And what happened?

It is accurate. And you just very eloquently summed it up. So, you know, we all have different theories about what happened. And what I definitely don't think happened is some sort of inevitable, you know, secular stagnation, or using these words that economists throw about, which is, you know, assumes basically that there was something that had to happen that now we just have to kind of react to. Coming back to my earlier point, I think what's happened is that the choices we have made around, for example, investment within the private sector, the lack of reinvestment of profits into production and to the real economy and this this ultra-financialized form

of corporate governance where profits have been extracted out. I gave an example before of what that might look like when you just use profits to buy back your own shares to boost against stock prices, stock options, and executive pay. That's a choice. And what's interesting is that another way that people have sometimes framed your question is also through a more practical lens, which is, are all these robots and mechanization and AI going to basically replace labor and put a downward pressure on wages and so on? And again, the answer is not necessarily. It depends. Because what actually happened over the last 200 years is that, in fact, the reason I say 200 years is one of the first economists, David Ricardo,

who wrote a book called Principles of Political Economy in 1821, literally the first economics textbook ever, he was already asking this question. He was saying, what's going to happen when this mechanization that he and Karl Marx were witnessing as an attribute of kind of the beginning of modern day capitalism with industrial revolution, what's going to happen when all this capital machines replace labor? Because that's what they were witnessing. So modern day robots, of course, do replace labor. And what actually then happened for 200 years is yes, capital and mechanization was labor displacing, but as long as the profits being generated were getting reinvested back in, then the labor that was displaced in one sector might actually show up in another, right? You

have this creative destruction, new sectors, new technologies, hence new skills, new labor requirements were required in different parts of the system. That stops in basically the time period that you mentioned, end of 1970s, early 1980s, due to, and again, this is my interpretation, this massive change in corporate governance. So this obsession about just maximizing shareholder value meant that a lot of these companies that before were actually reinvesting back in into also, by the way, training, right? Skills don't just come out of government training programs. They are themselves an endogenous, we want to use that word, endogenous outcome of government, sorry, business investment as well.

When that stops, a lot of these problems around inequality get exacerbated. So if you're not reinvesting in worker training, if you're not reinvesting in better working conditions, if you're not reinvesting in allowing also wages to increase as productivity, which workers contribute to for wages to increase, and you're using a lot of this capital in these financialized ways. That's one, I think, big chunk of the answer. But another side, of course, is what we witnessed in many parts of the world, which was an attack on organized labor. So labor unions, what they're supposed to do is represent labor's interests. And capital represents its interests all the time through organizations like the Chambers of Commerce or different types of business forums. I'm Italian, and in Italy, we call, was not inevitable. There was also a large attack on organized labor. That, of course, also affected labor's ability to negotiate higher wages

to move along with higher productivity. And this question is super important in this era where the labor share of global income, you can divide GDP not only by what's produced, but also the income earned. The labor share of GDP is almost at a record low. The capital share, so the profit share, is at a record high. And the question is, is that because labor became stupid

and capital became super smart? No, it's due to a massive extraction of the value that was actually created collectively that was skewed off by a small part of the actors in the system. My understanding as it relates to capital versus labor, specifically looking at the power of unions, is that unions or the decimation of unions. I believe labor participation or union membership has been cut in half over about the last 40 or 50 years in the U.S., but it's not a uniquely American phenomenon. My understanding is that of the 47 Western nations that have some form of organized labor, 46 of them have lost membership. Is it possible that unions are just a failed construct and we need a different model for figuring out a way that labor can have a better seat at the table with capital?

So I think that's, again, an excellent question. I think there's, I give two sort of answers that are, I guess, complementary or you could say either or. Part of the answer, I think, is that labor unions themselves need to kind of get modernized. And sometimes they've been too reactive at best protecting kind of existing benefits of sometimes a small group of workers, not necessarily in some countries, all workers. So organizing drives, you know,

when you actually get workers to be part of unions sometimes have focused on, jobs. And it used to be the craft labor, the AFL-CIO in the US actually was a merging of kind of industrial and craft representation. But in general, it has been true that some workers, for example, care workers, or there's been lots of workers that have been unprotected by unions because unions actually haven't bothered to go protect those workers. So one thing is, what does it mean actually to have a modern day labor union movement that truly represents all workers and does so in a more proactive way, not just reactive? That's actually one of the reasons I actually became interested

in economics. I was doing some research and interning within three different unions in New York and Boston, and I got fascinated by how little I understood about technological change that was affecting workers. And I asked myself, why is it that trade unions aren't kind of engaged with a more proactive, offensive stance on innovation? They seemed always to kind of be on the defensive side. Another issue still on that bit is that we should remember that trade unions have been absolutely essential for us all, not just unionized workers, to have amazing things like the weekend, right? The weekend was actually- 40-hour work week. Fought for, 40-hour work week, weekends, sick pay, annual leave, and so on. These were all things that were fruit of basically trade unions fighting for them, and then they also became normalized. And that's just a really important thing. Why? Because we should be asking ourselves today, what's the equivalent of the weekend that today labor unions are fighting

for, which is really ambitious and revolutionary, but also requires an imagination, a re-imagination of what well-being means for everybody. I think actually they continue to be in theory on the forefront of that, but when there's such an attack on them, the risk is that they do then sort of become siloed and reactive. But another issue separate from that is basically your point, which is that this isn't the only form of worker representation. Of course, in countries, for example, where you have cooperatives, where you don't necessarily have trade unions, it's the almost organizational form of the firm, of the organization that protects labor. Why? Because labor and capital are kind

of working together and benefit together by profit sharing. And there's different types of cooperatives or mutualistic type organizations. Or as I mentioned before, there's varieties of capitalism. And what I meant by that was precisely this. In Northern Europe, in places like Germany and Scandinavia, workers are actually represented on the boards of companies. And sometimes that's through their trade union representative, and sometimes through other forms of labor representation. So I think what's definitely true is that without any form of representation, then this problem of inequality is not going to

get solved. Does it have to be just by traditional trade unions? No. Does it have to be just through trade unions per se, even in a modern form? No. Do I think that actually we do need trade unions on the forefront and they should be modernized and more kind of proactive, less reactive? Definitely. But we should remember that the attack on trade unions happened through a huge amount of expenditure. There are law firms, there are like media companies that make movies that scare workers into joining trade unions that are shown to workers when they actually join a particular company in the U.S. This is very widespread. So it wasn't that there was this decay in union representation as some sort of natural phenomenon. It was engineered. So one of the things I love about your work is I've always felt that

big tech and capital, loosely speaking, fall back to this illusion of complexity, that these are complex problems and the world is what it is. And this has happened as a function of dynamics and forces beyond our control. And what you've pointed out is that these have been deliberate choices. I even think of mortgage interest tax deduction or capital gains. Who owns homes and stocks? Rich people who rents and gets most of their income from current income. Younger people without as much money. And I realize you're in the economics department and you're not a social psychologist, but it strikes me that something deeper has happened here.

And I don't know if it's a resentment of workers or a lack of comity of man. A, do you agree with that? And do you have any theses on why the West, the voting West, specifically in America, has decided deliberately to kind of create this Hunger Games economy where we consistently implement policies that transfer capital from the bottom 90 to the top 10? So I think my answer again is sort of yes, but quite granular in the sense that that definitely happened, but it's not always clear, I think, in everyone's eyes kind of why it happened. And sometimes things feel inevitable, even to those that are practicing these problematic policies. I think of the banality of evil kind of a ranch point. And yet others are absolutely doing this very purposefully in order to extract ever more. So let me just backtrack a bit. You said I'm in an economics department, and it's important for me actually to say I'm not. Why? Because actually the kind of research that I'm doing, but especially the kind of training that I'm trying to provide mainly, but not only to civil servants globally, so those working in government or those working in the private

sector who work with government, I'm trying to reinvent the curriculum. So I actually founded a whole department called the Institute for Innovation and Public Purpose at University College London, which has as its goal to rethink the curriculum, to rethink the training, but also to kind of push new economic thinking on the research side and to have a much more practical approach to it, which we call practice-based theorizing. So if we have a better idea, the kind of ideas that you and I are talking about now, but how the economy does function and should function, what does that then mean on the ground? What does it mean for public banks? What does it mean for procurement policy? What does it mean for industrial strategy? And as we try to

implement those new structures, we realize actually the world's much messier than academics like to pretend it is, and bringing back that learning on the ground to the theory and to the curriculum. And our curriculum is actually intentionally the opposite of what has been fed globally, still is fed globally, MPA programs or MPP programs, Masters in Public Administration or Public Policy, which at Harvard, the Kennedy School, Oxford has its own program, LSE has its program. The training that's provided to people who want to go into government has convinced them that at best they can fix market failures. And that comes down to, this sounds a bit fancy, I'll just say the words, public choice theory, new public management, which ultimately actually treats government in a way that tries to make it as, in quotes, efficient as the private sector with no real kind of public purpose What does it mean to have the common good or public purpose at the center of the design, for example, of a bailout program, of a subsidy program, of an investment program? What is the,

for example, quid pro quo, what should be demanded on the side of business if together, both public and private, you're co-creating and co-shaping the economy and not just relying on one, the private sector to do all the entrepreneurship, the risk-taking, and the public bit to always just be fixing the mess as it's created. Now, coming to your point, what that means is that if you don't have that kind of training, then it's very easy to get captured by stories that are told in the private sector of what should be done. And in fact, if you look at inequality, which we began with from what's happened, say, since the 1970s onward, it didn't just happen because someone did something stupid.

It was lobbied for. There were stories that were being told. In my book, The Value of Everything, I began it with the quote, which it's not clear if it was from Plato or Native American Indians that storytellers ruled the world. From the 1970s, absolutely, there were stories that were told by those who ended up ruling the world by, for example, the venture capitalists who were just starting to get organized at the time through the National Venture Capital Association, and more broadly, the Private Equity Association, which convinced government at the time, the end of the 70s, to reduce capital gains tax by over 40% in just five years. And Warren Buffett, who's not a communist, he has said, why did you do that? I don't even look at capital gains. I invest when

I see an opportunity. And all that did was increase inequality. And he's absolutely right. In fact, what venture capitalists then ended up doing since then has always been to follow massive waves of public investment. For example, the National Institutes of Health every year in the United States spend about $40 billion on health innovation. VCs come in after the fact, extract quite a bit of the returns that comes out of that investment, in particular, Blockbuster Drugs or specifically companies like Genentech, a company that made Kleiner Perkins, a famous venture capital fund, lots of money. If you actually look at the

prior investment that was required by what I call the entrepreneurial state investment of the NIH, they did the hard stuff in the early stage. So how they ended up sharing risks is part of the story that's not told. But another part of the story that's not told is if they were sharing risks and that story is not told and we pretend that all the money came out of private farm and VC, then of course they're not going to share the rewards. Distribution of profits that come about from a collective investment process by the public sector, the private sector, because none of my stuff is saying the private sector doesn't do anything. It's saying that we don't recognize these other actors. If we want a more equitable distribution, we have to start with different stories, different framings of where that wealth came from in the first place.

So I believe that a lot of this extraction that you began your question with has come about ultimately from particular stories that have been told that are very narrow and simply false of where that wealth came from. And again, it's not to say private pharma doesn't invest. Of course it does, but it's A, not the only investor and B, it often invests after state investments come in much more early stage. And if you think of the terminology that we use of wealth creators, we never use that word for school teachers, for nurses. We hear that word in Silicon Valley, but we also hear it from the financial sector. In fact, I'll shut up in a second, but Lloyd Blankfein, the head of Goldman Sachs, after the financial crisis,

had the guts to say, I think this was 2009, so like one year after they got 10 billion in a bailout from the government, he dared to say that Goldman Sachs workers are the most productive in the world. Again, after being bailed out from a, they helped to produce. Now, the crazy thing is he's right. Because how we measure production, how we measure GDP confuses value with price. So the fact that they are paid, often through these extraction policies, huge amounts, we in GDP confuse price with value. So all those different areas, for example, that we might receive for free through a public education system or public health system, and the people working

in them are often not very well paid. If we have a system that confuses price with value, we will then assume that they are not productive, that they are not adding value to the economy. In fact, it's tautological, right? When you confuse price with value, you end up paying them less, then you end up accounting for their value less. It just becomes this vicious cycle. So a lot of these changes that are needed are not just different stories, different theory, but also different accounting for how we account for wealth creation. We'll be right back. Hey, it's Scott Galloway. And on our podcast, Pivot, we are bringing you a special series We'll be right back. by Kylie Robeson, the senior AI reporter for The Verge, to give you a primer on how to integrate AI into your life. So tune into AI Basics, How and When to Use AI, a special series from Pivot

sponsored by AWS, wherever you get your podcasts. Hello, I'm Esther Perel, psychotherapist and host of the podcast, Where Should We Begin?, which delves into the multiple layers of relationships, mostly romantic. But in this special series, I focus on our relationships with our colleagues, business partners, and managers. Listen in as I talk to coworkers facing their own challenges with one another

and get the real work done. Tune into Housework, a special series from Where Should We Begin, sponsored by Klaviyo. So, Professor, one of your pieces of work that has really been profound for me, and I'm trying to play a role in being one of those storytellers, is this notion of the entrepreneurial state. And what is just so incredibly disappointing to me and apparent is that the folks that are most blessed by our system are the first ones to shitpost it. And I'm talking about Marc Andreessen or Elon Musk or Chamath Palapatia. And the general narrative is that government should get out of the way

and that government is inefficient out of the way and that government is inefficient. And all of these individuals, as far as I can tell, have built a very robust, ingenious layer of innovation on top of a mountain of middle-class taxpayer investment. And I don't resent their wealth. I resent their lack of gratitude. And it just, it feels outrageous to me and just obvious when you look at the most valuable companies in the world, whether it's Moderna or Microsoft or Apple, they're all built on top of these enormous forward-leaning investments by the U.S. government. How do we recapture some of that wealth? And how do we tell better stories about this? This to me just feels at best obnoxious. What are your thoughts? Well, I agree with you 100%. And I

have four kids that I've always trained to say thank you for everything. And once I tweeted to Elon Musk, could you at least just say thank you? And strangely, he then did. I think like two days later, he's like, thank you, NASA. I'm sure it wasn't because of my tweet, but it's kind of funny. So, I mean, just breaking down the point.

So first of all, absolutely. And none of this is to say that those individuals or companies, whether it's Elon Musk or Apple, haven't created wealth. The point is that they have actually extracted so much more by telling those stories about themselves as the sole wealth creators. And some, by the way, are much worse than others. I would argue Peter Thiel is one of the most

dysfunctional in terms of this weird storytelling. He actually wanted to set up some sort of secession movement. He's a government contractor. Well, exactly. And I was like, yeah, do your secession. And then when the tsunami arrives, don't call the Coast Guard, right? I mean, Elon Musk himself has received over $5 billion, which sounds like not much, but $5 billion for his three companies, not much compared to the wealth perhaps that one could argue he created. But that $5 billion was received by him for his companies in the early stage high-risk capital intensive phase. And that bit of the story is why I call it the

entrepreneurial state. It's not just about, hey, you got some government loans here and there or benefited from public infrastructure. It's also that the state actually made key investments much earlier than often these individuals were willing to invest. And they came in after and rode that wave. And they should not only be grateful, but actually, those profits then that are generated collectively, of course, not just through tax revenue, but sometimes also through other vehicles could come back to the public. And just to kind of hone in on an example, because I think it's only three examples that we can actually think both of what went wrong, but also what we might do better. When Tesla received $465 million in a guaranteed loan from the US government through the Department of Energy, the same amount, or actually a bit more, $500 million went to Solyndra story because Solyndra went bankrupt and it fed into the story, the storytelling of basket case government, doesn't know how to do anything. Why are you getting involved? Just, you know, fix rules of the game, set the, you know, do a bit of infrastructure

here, policing there, then get out of the way. Well, had they done that again, we wouldn't have Tesla. We wouldn't have the internet. We wouldn't have GPS. We wouldn't have touch screen display in our phones have GPS, we wouldn't have touchscreen display in our phones. These were all fruits of early stage government investment. And in this particular case, what should have happened in terms of the government, and I'll use a specific word, portfolio of investments after the financial crisis, because this is what happened. The

financial crisis hit, Obama had an 800 billion stimulus program. He wanted to direct it, at least part of it, towards greening the economy. He brought in this Nobel Prize winning physicist to run the Department of Energy, who accepted, by the way, because this 800 billion stimulus was in fact being framed as kind of potentially transformational. This is before the whole Tea Party thing that started to make the thing fall apart. But anyway, those government investments created new government organizations like ARPA-E, which tried to emulate the DARPA kind of investment on the internet. ARPA-E was supposed to do that, but also they had this subsidized loan program, which both Tesla and Solyndra benefited from. And how they set it up made little sense. Well, first of all, there was no storytelling. Everyone

knows about Solyndra. No one knows about the Tesla investment. Second, even if they knew about the Tesla investment, how it was set up was problematic because what they told Elon Musk was basically, here's a loan. You need it for the Tesla S car. If things go bad, don't worry. It's guaranteed. But if you don't pay back the loan, we want 3 million shares in your company. And why would you want 3 million shares in a company that is not paying back a loan? It's probably not a very good company. What they should have said is, if you do do well, we get 3 million shares in your company. And the price per share in the meantime, from 2009, 2013, went from 9 to 90, that difference multiplied by 3

million would have more than paid back the Solyndra loss and the next round of investment. So that requires just thinking of, again, both telling the story and making sure also that government programs aren't just putting all your eggs in one basket. If they were just funding Solyndra, that would have been a problem. There was a wider portfolio, but you also need to start thinking about it in terms of an investor first resort portfolio kind of storytelling, but also in order to share not just the risks, but also the rewards. So not just covering the downside, but getting a share of the upside. And that example would be through a monetary reward, right?

Which could go into a public fund to fund the next round of Teslas and so on. But another way to do it, if you don't, and this is sometimes the case, want necessarily a monetary reward, is to make sure that there's conditionality. So you're not just putting money in the system and hoping for the best, but think of the pharmaceutical companies, which again, benefit from 40 billion a year of National Institute of Health Investment. There could be conditions attached to make sure, for example, that they don't abuse the intellectual property rights, patents. So currently we have a patent system which has been abused. What I mean by that is patents are

often way too wide beyond what the company actually innovated in just to keep competitors away. Way too strong, so hard to license, which is especially a problem for the developing countries that need to eventually also produce things like vaccines. And also too upstream, too early in the innovation process. So the tools for research, like the hammer and the screwdriver equivalent of the research, are getting privatized. And that's not really what should be patented. It should be much more downstream. But that kind of governance of an innovation system for the public good, because let's not forget patents are contracts that the public sector gives the private sector.

You get 20 or 17 to 20 years of monopoly profits. That should be an exchange of something, an exchange for something, both in terms of the conditions around intellectual property rights, but we could also, for example, have conditions that those companies benefiting don't just use all that money to buy back their shares. Pfizer, by the way, is one of the biggest share buybackers in the world after Exxon. And so having conditionality shows confidence. It shows that you know your role. And instead, if you're just seen as a market fixer, or you have to be business friendly, or have to de-risk and enable business, that's all the story and the narrative around one view of government, which again, has come down

from Chicago school kind of economics, which then, as I said, got translated into public choice theory, new public management. That doesn't help, A, with the design of the right tools, and B, literally the confidence in the room to strike the right deal. When you look at nations that attempt to thread the needle between maintaining enough incentive and letting the markets sort out winners and losers, while at the same time having policies that encourage or demand investment in the middle class and forward-leaning investments, some of which you referenced. Which economies, which nations do you think serve as role models? And what policies do you think that America would be wise to adopt? So, I mean, I don't think there's any perfect country, but I think coming to the core of your question, what are the kind of policies or practices that we can learn from that might be happening in some countries, even though the country itself is in no way perfect? And made sure that companies like Renault or Air France

actually committed to reducing their carbon emissions in order to get one euro out of the government. Similarly, in Germany, before COVID even struck, the steel sector, just like in the US, the steel sector globally is undergoing all sorts of problems also because it's very carbon heavy and it's being asked to change. But often it just gets money from governments through different types of subsidies. And in Germany, the public bank they have called the KfW produced a very conditional form of loan that the steel sector had to reduce its material content in order to receive the subsidy. They didn't tell them how to do it, because I should continue also to say that this isn't about micromanaging the system,

but they had to do it. In other words, how they reduced their material content was up to them, but they had to do it in order to get that public subsidy. And more broadly, I think some of these countries, like in Northern Europe and Scandinavia, they also have welfare policies that make sure that it's easier to have this

kind of flex security system. So a flexible system where you might have this creative destruction I talked about previously, where technological change is affecting the demand for workers or types of workers in different areas, but there's a ground below which they don't go. Everyone has access to good education, good healthcare, good public transport, no matter what job you have or at what moment you have it, which means actually that that flexibility in the system is greater while also retaining your basic human right to have a roof over your head and have good healthcare and be able to send your kids to school. And so, or if we look at Singapore, again, far from perfect, it's not, you know, completely democratic as we're used to in the US and Western Europe, but something they've done very well is made it really sexy to work in the civil service, in the public service. They pay

their people who work in government well, but also they have Israel, absolutely. And Israel also has something called YASMA or had YASMA. I think it's no longer, I think they have a different name for it now, but it's basically a public venture capital fund, which means that the people working in that fund see themselves explicitly as investors and risk takers. Again, kind of abandoning that cartoon dichotomy of risk-taking happening in the private sector and the public sector, only enabling or de-risking that. So just to wrap up here, and this will be our last segment, I'm going to do a lightning round. So I'm going to force you, like, first thing that comes into your mind, latest piece of media that you've binge-watched or read. I'm just constantly on BBC. Person who's had the most influence on your life?

My high school teacher, Mr. Lucker, a wonderful history teacher. How would you effectively or crisply as you could define the differences between the UK and the US? Both pretty dysfunctional, but at least in the US, you haven't just dismantled the entire market that you had. So Brexit is going to be a permanent disaster for the UK. Whereas, you know, what you've had is cyclical problems that don't necessarily force you into having a trajectory that you're going to regret. Proudest achievement? My four children, that they're very empathetic. Best piece of advice

you've ever received? Oh, God. Don't work on weekends. Person you'd most like to meet that you haven't? Alive? Either. I think Karl Marx is someone

because he was someone who, he read everything. You know, before dying, he said, I'm not a Marxist because he realized all the ideological single-minded people that were calling themselves Marxists. And alive, well, I actually just met someone alive for the first time who had been wanting to meet, and that's the wonderful author of Americana and Half of a Yellow Sun, Chimamanda Ngozi Adichie. And I just think she's an incredible novelist. And I'm just realizing that if you can tell the kind of stories that you and I have been talking about, but in a way that really make people also go into another type of life, that's the best way to have the greatest level of empathy, which then in your work, you can activate in whatever way. Guilty pleasure? Staring out the window and doing nothing. I actually get into trains and do nothing.

I like that. Mariana Mazzucato is professor in the economics of innovation and public value at University College London, where she is founding director of the UCL Institute for Innovation and Public Purpose. She's also the author of three highly acclaimed books, The Entrepreneurial State, Debunking Public Versus Private Sector Myths, The Value of Everything, Making and Taking in the Global Economy, and the newly released Mission Economy, A Moonshot Guide to Changing Capitalism. So I am disappointed that you're more famous than I thought. I thought I was onto something here, but it's all well-deserved. I really think you're doing important

work. You're fearless. And the thing I love about your work is it not only has tremendous rigor, it's optimistic. And I find so many economists look at stuff from a viewpoint of these are our problems. I find you look at it in sort of a recognition of the immense things we've accomplished. And we just we need to keep doing that. I'm really I just love your work. Congratulations on all of it. Thanks, Scott. That's so kind of you.

Algebra of Happiness I want to read an email that I received from parents after an episode of Pivot and if you listen to Pivot and have already heard this you can peace out right now but I think it's important so I got this email

and it reads we are big fans of the Pivot podcast and listen to it regularly. We write as parents to our beautiful nine-year-old daughter who has achondroplasia. I think I said that right. Achondroplasia, the most common form of dwarfism. We were disappointed in a moment in the past week's episode

where you referred to Kara as the tallest M-word in the room. I think we're all adults. I said the tallest midget in the room. We are sure you are aware that the M word is extremely derogatory. For some reason, stature seems to be one of the few physical differences where negative comments are still deemed acceptable. You are obviously a very intelligent and eloquent person, and there are many other ways you could have made the point without using that expression. As parents, we hear that word. It is like a punch to the gut, especially when used by someone we respect. We will always advocate for our daughter London. I think there's a lot to be learned here. Obviously, there's personal learning. I just shouldn't use the word, and I'm not going to moving forward. And I appreciate the pushback here, but the real learning, I think, is the following. There's a difference between being right and being effective, and they're right. They're right. It's an offensive word. I shouldn't

use it. And when it makes people feel bad, and the idea that it might make a little girl feel bad is absolutely horrific to me. I was wrong. They are right. But they're also effective. And that is that email was respectful. It was civil. It made their point. It was strong.

But it wasn't offensive and it wasn't in attack mode. I get so much feedback and a lot of it is correct. A lot of it is right, but the majority of it is people who see an opportunity to try and acquire some sort of social status or likes on Twitter by attacking someone or pointing out the soft tissue of something I said. And the moment they do that, I'm human, I get on my heels, and I go into defense mode, and I have no desire to try and correct, or all my energy goes to being defensive or pushing back on them, as opposed to actually addressing the issue. There is a difference between being right and being effective, and this email was both. It was strong, It was assertive.

But it was civil. In addition, the other learning, you are never too old to evolve. Also, there is a dangerous dynamic in our society, especially among some of our public figures and our elected officials, where the moment they are challenged on anything, they double down. I'm going to say what I want to say, or you're too woke, or you're too sensitive, and your sensitivities are killing us, and all that bullshit. They feel as if they have to double down on everything. There is nothing wrong with saying, you're right, I was wrong, I apologize, and it's not going to happen again. That is what it is to evolve.

The key isn't being right. The key is evolving. If it's a real fundamental ideological issue or to require you to absolutely change something fundamental in your life, okay, that's a different issue. But most of these asks aren't a function of any big change in your life. They're a function of just being kind. You are never too late to evolve. It is absolutely okay to say, you're right, I'm wrong, I'm going to change my behavior, and decide, are you a kind person? Being kind or one component of being kind is saying, you know what? That's a small gift for me. I will absolutely do that. Why? Why? Because I want to evolve and because I am kind.

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