Mariana Mazzucato Thinks We Need More Moonshots
Economist Mariana Mazzucato joins the Odd Lots podcast in Madrid to discuss her theories on mission-oriented public policy, state capacity, the overuse of consultants, and how governments should guide innovation including AI. She argues that governments need to move beyond fixing market failures toward actively shaping economies around bold public goals, akin to the Apollo moon mission.
Summary
Recorded at the Bloomberg CityLab conference in Madrid, this episode of Odd Lots features Mariana Mazzucato, professor at University College London and founder of the Institute for Innovation and Public Purpose. The hosts note she has been one of the most frequently requested guests since the podcast began.
Mazzucato begins by explaining her work with the Spanish government, including a newly formed Global Council for a Common Good Economy and a Public Sector Capability Index developed with Bloomberg. She describes meeting with Spain's prime minister and minister for economy to discuss what it means for governments to take entrepreneurial risks, noting that unlike venture capitalists who celebrate failure as part of innovation, civil servants are punished publicly for any misstep.
She revisits the central thesis of her 2013 book 'The Entrepreneurial State,' arguing that the post-2020 industrial policy revival is often misunderstood. Governments spending large sums on sectors or technologies does not automatically constitute genuine industrial strategy. She criticizes the tendency to focus on sectors, technologies, or firm types (like SMEs) rather than on bold, problem-oriented missions. Her alternative is 'mission-oriented policy' — defining large societal challenges (like healthy school lunches or climate transition) and mobilizing cross-sector collaboration to meet them, similar to the Apollo program.
On state capacity, Mazzucato distinguishes between three layers: capacity (budgets, headcount), administrative routines (stable institutional learning), and dynamic capabilities (agility, adaptability, inter-ministerial coordination). She argues governments consistently underinvest in the third category because prevailing economic theory still frames government as a reactive market-fixer rather than a value creator.
Mazzucato is sharply critical of the consulting industry, arguing its dominance stems from decades of ideologically-driven government downsizing beginning in the Reagan-Thatcher era. She contends that hiring consultants like McKinsey to perform core government functions (e.g., the UK's COVID test-and-trace program run by Deloitte) reflects both a lack of internal capability and a culture of diffusing political accountability. She advocates for insourcing expertise, better-conditioned contracts when consultants are used, and investing in government's ability to identify and work with the right external partners — citing Ernest Brackett's warning at NASA about 'brochuremanship' as a historical parallel.
On AI, Mazzucato warns that the massive concentration of wealth in big tech companies is causing a dangerous hemorrhaging of top research talent away from public institutions and universities. She argues that without a strong underlying system — such as a well-functioning health system — AI will not solve major societal problems. She criticizes the 'abundance' framing that attributes stagnation to over-regulation, attributing more blame to shareholder value maximization. She discusses a project with Tim O'Reilly on 'algorithmic rents' and AI disclosures as a governance mechanism analogous to climate disclosures or ESG metrics.
Mazzucato also discusses the political dimension, noting that economically successful policies (like Biden's IRA investments in red states) can still fail electorally if people don't feel valued or regain their dignity. She advocates for participatory policy design — bringing citizens, carers, and communities into the process — as both better policy and a counter to populism. She cites examples of transforming food banks into green food cooperatives and Camden Council's mission-oriented adult social care procurement as illustrations.
Finally, she identifies several countries with noteworthy examples: Brazil's ecological transition mission embedded in public bank BNDES's lending conditions; Germany's KfW bank conditioning steel sector loans on reducing material content, yielding the world's greenest steel; Sweden's 'fossil-free welfare state' challenge leading to missions like sustainable school meals; and the UK's Government Digital Service (GDS), which she holds up as an example of insourced talent creating world-class public digital infrastructure that became a magnet for top software engineers.
Key Insights
- Mazzucato argues that the post-2020 revival of industrial policy is often superficial — large government spending on sectors or technologies does not constitute genuine strategy unless it is driven by public purpose and tied to concrete societal missions rather than sector-specific subsidies.
- Mazzucato claims that governments systematically lack 'dynamic capabilities' — the agility, inter-ministerial coordination, and willingness to experiment — not just budgets or headcount, and that this deficit stems directly from economic theories that frame government as a reactive market-fixer rather than a value creator.
- Mazzucato contends that the dominance of consultants in government is primarily the government's own fault, rooted in ideologically-driven downsizing since the 1980s, and is perpetuated by a culture of accountability diffusion — politicians and officials hiring McKinsey so they can blame the consultant if a decision fails.
- Mazzucato argues that the Apollo program's success came from NASA transforming its procurement from cost-minimization to outcomes-oriented contracts, working with 400,000 private sector participants around clearly defined problems — and that this model of 'picking the willing rather than picking winners' is the correct template for modern industrial policy.
- Mazzucato warns that the concentration of AI-generated wealth is causing an unprecedented hemorrhaging of top research talent from public universities and government agencies into private tech companies, which she argues poses a fundamental threat to society's ability to govern or even understand AI going forward.
- Mazzucato claims that AI will not meaningfully solve major societal problems like health or climate unless it is deployed within well-functioning public systems — citing the debate between Eric Schmidt (who believed a health app could suffice) and Nandan Nilekani (who argued no app can substitute for a proper health system in India) as illustrative of the tension.
- Mazzucato argues that even economically successful government policies can fail politically if the people they are meant to help don't feel valued or regain their dignity, and advocates for participatory co-design of policy — including bringing carers and residents directly into procurement decisions — as both better policy and a structural counter to populism.
- Mazzucato holds up Germany's KfW public bank as a model of mission-aligned conditional lending, noting that loans to the steel sector were made contingent on reducing material content of production, which yielded what she describes as the world's greenest steel without government dictating the technological solution.
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