“The Value of Everything: Making & Taking in the Global Economy”

By Mariana Mazzucato

In taking a deeper look at law firm compensation models this month, we have been thinking about how firms define “value,” and how that definition drives their business strategy. Economist Mariana Mazzucato explores who really creates wealth in our world, and how we define value — yes, there is more than one way — in her book, “The Value of Everything: Making & Taking in the Global Economy.”

Mazzucato claims that in our current stage of capitalism, value extraction is more highly rewarded than value creation. Our society has become obsessed with the accumulation of assets, favoring policies that make individuals and companies richer, regardless of the costs to the broader community. She examines three sectors — the finance industry, the innovation economy and government — as evidence of this shift, and offers suggestions on how capitalism could work differently if it aligns with a new conception of “value.”

Finance Industry. According to Mazzucato, the finance industry in the U.S. provides a good example of today’s problematic form of capitalism. The industry has grown tremendously over the past few decades despite its questionable productivity. By this, she means that finance doesn’t actually make or contribute value, but rather extracts value from things that already exist (reinvesting someone else’s money, for example). We put finance on a pedestal, bowing to its primacy in driving the economy, and elite talent flocks to this sector. But we fail to question the cost of this extraction-only model, or as Mazzucato says, “we misidentify taking with making.”

Innovation Economy. While the innovation economy sounds like a sector that would prioritize value creation above all else, it actually emboldens value extraction. Mazzucato points to the modern patent system as proof. Patents serve to provide crucial short-term protections that encourage the sharing of ideas, but long-term patents lead to the hoarding of ideas and erode this concept of knowledge sharing by preventing fellow innovators from using those ideas to create new things. The system as it currently works doesn’t reward innovation, but actually stifles it by preventing competition.

Government. Mazzucato believes that government plays a large, but not large enough, role in the current form of capitalism. The state is mostly seen as a facilitator of value creation but does not actually create any value itself. And because it has become an article of faith that government should not exert too much influence over the market, we underestimate the important role the state should play in fostering true innovation and longer-term economic growth. Mazzucato suggests adopting a deeper understanding of public value that will help, “stimulate the imagination to find the best ways to confront the challenges of the future.”

Ultimately, Mazzucato says that instead of a focus on increasing shareholder value (the goal of which is short-term profit maximization), companies should shift to focusing on stakeholder value, with stakeholders including workers, customers, suppliers and communities. Investing in and rewarding the value provided by all stakeholders builds trust by acknowledging that they are a crucial part of the company’s value creation process. By redefining how we measure value within companies and in society as a whole, and designing business strategy around it, companies and sectors can create a more sustainable form of capitalism that doesn’t leave so many people out.