Landing on the Moon Is a Great Lesson for Modern Miracles

of Innovation and Public Value at University College London. Her first book, The Entrepreneurial State, was very influential change the way we think about the role that the public sector has played in some of those great business success stories of our time. And another one, The Value of Everything, Making and Taking in the Global Economy, absolutely nailed the way that a particular narrow conception of value had permeated, indeed distorted the way we think about the economy and

society over the last hundred years. And she's just produced a new book which also seems well timed for the position we find ourselves in right now. It's called The Mission Economy, A moon Shot Guide to Changing Capitalism. I started by asking her about some of the big ideas that had got her thinking about the moon shot as

a guide to policy. This extraction of value which I talked about in the book The Value of Everything, the kind of record level share buy backs in the last ten years, for trillion dollars have gone to bind back shares by the Fortune five companies. This is not the way to run a society in terms of a corporate

business model. So, whether it's Larry Fink or the Business Roundtable putting out the statement over a year ago about you know, we need to rethink that model in terms of reinvesting back into long run areas that help people, planet, working conditions, and so on. And this conversation is a very important one. We shouldn't dismiss it if we remind ourselves that markets are not the same thing as business. Markets are outcomes of how we govern business and how

we govern other types of value creating institutions. We also, you know, present ourselves with the problem, which is how is government governed? How is the public sector government? And what I've been writing about now for some years is that we also have a problem there. It's not just corporate governance that needs to rethink itself. It's also kind

of government governance. The fact that economic theory, and I don't want to blame economists, of which I'm one for everything, but the fact that economic theory itself has at best framed the role of the public sector, the state and policy as simply fixing market failures is part of the problem. We're not going to get there by simply putting different types of patches on the system and the market failure approach which forces government to always ask where is the

market failure? How am I going to fix it? That's an important framework, but it's very hard to fix your way towards transformational growth. And by transformational growth, by the way, don't just mean these kind of big social objectives like health and and climate. I also mean literally in terms

of the direction of growth. And in the UK we're on standing today the kind of growth we have continues to be consumption led growth, which has really led to a very high ratio, for example, of private debt to disposable income, not public debt, but private debt to disposable income.

So shifting that growth model from consumption to investment led growth and innovation driven growth, and having that investment and innovation help us solve some really important problems like the ones around climate health and the sustainable development goals need a different approach to policy making, one that I call actively shaping and co creating markets alongside business, not just

fixing markets. And one thing that I found very curious in the UK was is um you know, a lot of the data that's come out since Brexit and now with COVID has been showing just how much the government has been overly relying on consulting companies Deloitte that ended up being asked to roll out the test and trade system and didn't do too well. But also with Brexit, the KPMG, s Price Waterhouse Coopers and so on, which ended up almost managing project managing Brexit for the government.

This over consultification of government. A Tory Lord Agnew said that this was leading to an infantilized public sector. And when you start outsourcing your brain, as I think the US government has done in the recent years, one could view the whole n Essay kind of Snowden scandal as an outcome of the government almost losing its capability to govern information computing in the technology revolution, that you have

a problem. So this is the reason that in the recent book that I wrote, I asked, we'll hold on a second. You know, we could do better. And only fifty years ago, public and pri of its sectors worked together extremely ambitiously um to get to the moon and back. You know that that's a famous goal that Kennedy set back in nineteen sixty two. The problems we have today are much trickier. Actually, there's wicked problems. They require political, behavioral,

regulatory change, not just technological change. But it was truly a partnership. There was both business and government doing incredibly difficult things. And what was especially interesting to me is how government, through NASA but also some other public institutions, paid a lot of attention to the how to partner with business, and they even looked at the contracts and undid the existing contracts. And will come to that in

a minute. But the kind of leadership that was required by government to set the direction of change and then catalyze a lot of risk taking bottom up amongst different actors in society. So you know, Kennedy's speech was very clear, this is going to cost a huge amount of money,

but it's going to be worth it. And focusing on the goal and then backtracking on the budget, all these are just really interesting lessons I think today as we need to build back better that famous slogan, but especially rethink the organizations that we have in both government and in business. And you know what's quite striking is that when Kennedy, you know, did his speech, they had no

clue how to get to the moon. So literally the innovation and risk taking, the experimentation that was that was required was immense. Uh. They ended up you know, landing on this lunar or a bit rendezvous way, but they

were really exploring all sorts of different techniques. And on the tragic day in which Apollo one the fire occurred, one of the astronauts said something that I think is just so important, which was we can't even talk to each other through different NASA kind of mission control rooms,

how are we going to get to the moon. He was talking about the very siloed, linear, vertical bureaucratic form in which the state itself was structured, and he was basically saying, if we're gonna be purpose driven, using today's words and get to the moon and back in the generation, we're gonna have to rethink actually how we communicate within our own structures and that kind of attention to organizational change with something that NASA, through George Mueller's leadership, really

embarked on. And this is important, right because if you are going to be purpose driven, what does it mean for your own organizational culture, not just in business, but also in government and the purpose This notion of a partnership with a common purpose is really what I think is so important in terms of allowing us to give

more substance to this notion of stakeholder capitalism. It was so curious that they paid attention not only to the procurement contracts in terms of how to devise them so government wouldn't be, uh, just if you want, vulnerable to paying any costs that were presented to them through cost price contracts, which they changed to fixed price contracts with

incentives for innovation. But they also paid attention to making sure that this enterprise that they were going to do together, this wonderful, difficult mission, was it just going to become a gambling casino. So they even had clauses like no excess profits clauses in the procurement contracts, and of course profits were earned, but there was also a real kind of risk sharing and reward sharing in the process and so sharing both risks and rewards I think is incredibly important.

This idea that you know, mass itself required its own capabilities, investing within its own brain what I call the dynamic capabilities of the public sector in order even to know how to write the terms of reference with business to foster a symbiotic and mutualistic partnership. And what was so special about the moon landing was so much happened along

the way, spillovers across many different sectors. It wasn't just aeronautics, it was nutrition, materials, electronics, the entire software industry in some ways was an outcome of that. And that really did happen because of a kind of top down, you know, mission setting, but lots of bottom up experimentation, and that kind of delicate balance between the two is really what I focus on in the book for allowing us to really create a concrete investment pathway in trajectory for the SDGs.

The SDGs these are the earth shots. They're much harder actually than a purely technological missions. And what that really requires is again partnership with purpose, I guess, just to get one thing out of the way first, you know, there will be people listening, certainly people who have heard a lot about stakeholder capitalism before and indeed maybe sitting

in businesses trying to make it work. Um, there will be others who are just used to managing people and getting things done, and they'll say it's not very complicated. If you actually want to make progress, you need to set a big target and then work as a team to meet it. Why do I need a whole book to tell me that? What? What is different about what you're actually what you're proposing? Because having a mission exactly so um for me at least, missions are about again,

how do you partner in a different way? So let's even unpick for example, Um, you know any of the goals like you know STG fourteen around clean oceans, what does it mean actually to transform it into a very concrete goal like getting the plastic out of the ocean and make sure that the way that government interacts with business, which is constantly interact in terms of subsidies, guarantees, grants and loans becomes actually conditional on you know, business and

different types of businesses which will actually require different types of support, uh, investing in that goal together. And even

though that sounds really obvious. It simply doesn't happen. I mean, I've looked at so many different sectors, especially by the way, the pharmaceutical sector, which gets all sorts of benefits from government in the United States forty billion dollars a year goes towards drug innovation, and somehow then we don't get that kind of conditionality and partnership, right, So intellectual property

rights in particular for that sector are often abused. They are to upstream, their too wide, used for strategic patenting, there too strong, so hard to license. The prices of the drugs don't actually reflect that collective value creation. And so you know, governing the partnership, governing innovation in such a way as serious as NASA was when it unpicked those procurement contracts and said, Nope, this isn't gonna be good. We're gonna be taken for a ride. And truly sharing

both risks and rewards means doing things quite differently. And the vaccine, which is a great example actually today of you know, both the public and the private sector putting in a lot of money, but also you know it was based on a lot of previous funding. The Oxford vaccine from also the European Commission, as was by the way, the fives are vaccine, which got money from the European

Commission and the German government. Um so these are all kind of ecosystems public and private investments that produce something like a vaccine. But then if you don't govern it right to meet let's call it the common good, then that's a problem in terms of the deal. So the idea of a patent pool for the vaccine, but also making sure the vaccine is universally accessible so we don't have what Dr Tedris called vaccine apartheid, so countries just

hoarding it. That's all about kind of governing that process right in a particular way. And you could unpick the same thing with digital platforms. You know, everything that makes our smart products smart and not stupid was funded by government, Internet, GPS, touchscreen, serrie.

And yet then if you don't govern that innovation for the public good, you end up with what I was arguing in the beginning, kind of too little, too late, worried about privacy taxation as kind of in the back saying oh wait, wait, wait, hold on, as opposed to making sure you have kind of you know what I called predistribution, which is a nice term also that others use, which is how do we get the conditions right ex anti so you don't have to pick the up the

mess x post. And that to me is central to a mission oriented approach where purpose is at the center of the relationship, as opposed to just kind of a siloed notion of how governments can improve. So we're going to try and be kind of ruthlessly practical in this session and think about how it applies to the new administration, But any any government who's trying to think about how

to change the way we do these things. You say yourself in the book that there are there are ways in which the moon landings are not a helpful guide for now and for the challenges we face now. One of one is that it was sort of chosen by a quite narrow part of society that we were going to go to boon, and maybe not everyone would have

signed up for that um. But another is that it's it is quite a sort of clear technical challenge, enormously ambitious and difficult, but easily explained and with a quite clear process leading up to it. Where and I think you could say the vaccines are actually an even better example of that, you know, a very clearly defined target. Some of the sustainable development goals would have that characteristic,

they're quite specific. But when you think about something that you're obviously very focused on and you have applied this too, I mean climate change, so many layers of that that are not just technical, they are also social. They're also about how we value you know, going back to your other book about how we value things. Um, So I just where do you get to the point where it's less helpful to have this kind of parallel Um, how can you use this approach for something which is more

social and more multi layered. Thanks for that question. It's very important. So, um, you know what's interesting is, you know many people remember that that famous story that the janitor who worked and asked so when he was asked, what do you do? And he said, I'm helping to get a man on the moon. So in some sense, you know what also the moon landing did was really inspire so many different people, including lots of kids who ended up studying science, you know, because of the inspiration.

But it wasn't you know, citizens weren't engaged in the design, you know, of the mission itself, you know, it really was top down. Some of the more interesting missions that we're working on in the institute that I run at University College London, which is called the Institute of Innovation and Public Purpose, you know, the whole notion of purpose at the center of political economy UM are on missions in countries like Sweden where the national mission is so interesting.

It's about a fossil free welfare state. And then if you break down everything the state does and provides, from public transport, public education, public health, a lot of that is actually obviously in partnership with business UM. But what does it mean to land those those ambitions in concrete places.

Take the the public education system. You know, if you have a carbon neutral agenda, a fossil free welfare state agenda, it can actually land in a place like school meals, right, so you can have the production, distribution and consumption of school meals driven by this carbon neutral agenda. But what would it look like to bring kids to the day, students in schools to the table to design that, but also to monitor it along the way. You know, if the food is sustainable but kind of sucks and it's

not very tasty, that's not gonna work. Um, so that both the issue of code design but also monitoring along

the way is an important point. And in Camden, the part of London where I live and I co chair the Camden Renewal Commission with Georgia Gould, the Leader of the Council, and one of the things we started doing is thinking about carbon neutrality with the place where it lands is the social housing estates what in the USA called housing projects and again, what does it mean to bring housing associations or citizen assemblies to the table to really talk and debate and contest about how do we

want to live together in these places so that it is not just sustainable, but it's also an outcome of, you know, a discussion. You know, it's easy to pet Breta Tornberg on the head and say, oh, how cute. You know, sixteen or eighteen year old now cares about climate change. But what does it mean to listen to social movements? And that's really important, by the way, because it's not just you know, the green movement, it's also

the labor movement. Labor at as a record labor is at a record low in terms of the labor share of GDP globally, the profit shares at a record high. Labor unions trade unions have historically been incredibly important for shaping markets to be more inclusive. We wouldn't have weekends, by the way, not bad as a social innovation. We wouldn't have the eight hour work day without trade unions.

So you know, whether it's the labor movement, whether it's a green movement, whether it's Black Lives Matter, whether it's the care workers today and that movement, what does it mean for governments themselves to listen to actually allow that to be part of the process through which emissions are set.

And in German, I think what's interesting is they've had one of the strongest green movements um across the globe, having risen slowly up to the to the very high level of government, and that ended up fostering a very

different relationship between government and business. So couple of years ago, when the steel industry asked government for a loan and a bailout, as steel is more or less asking every government or bailout in Germany, they were confident enough to make that loan conditional on the steel sector reducing its material content, which it ended up doing. In its own way.

Today the German steel sector is one of the most green and innovative in the world, not because you know, they went to the World Economic Forum and talked about purpose, but because they had to in order to access the

public loan. And that's a really interesting thing that started to be applied with COVID nineteen recovery funds in some parts of the world, like in France, where both the airlines and automotive industries received their recovery bailout conditional on reducing or committing to reducing their carbon emissions, whereas in the UK we just gave a massive handout, you know, to easy Jet, no conditions attached. So that issue of conditionality, I think is a really interesting concrete example of how

to foster this new partnership. And unfortunately the word conditionality sounds negative. So I do think we need to think the narrative as well around partnership, you know, purpose driven social contracts. Clearly, the really bigly tough challenge these days is the US, after decades of undermining the perceived value of government only little corners NASA and me. As Michael Lewis points out in his book It's NASA was sort of one of the few bits of government that was

allowed to take credit as a public sector organization. If you're facing that which existed long before Donald Trump and but now coming in as the Biden administration with the particular record of the sort of acceleration of the undermining of government that's happened over the last few years, I

guess there were there is. There is a sort of debate obviously ongoing within the administration in lots of areas about whether the best thing to do is to be quietly competent and just remind people that the government can be quietly competent and doesn't need to ruin your life um and is actually quite important, or does it need

to be visionary. And of course a lot of people would say you have to be competent and visionary, but they might sense, in the kind of way that you talk about this a real risk for them that if they try, if they set those enormous targets and seem to signal that they're going to completely transform the way we think about government and have your kind of approach, they'll be setting themselves up for this failure, for a failure, an equally grand failure, which could undermine the battle kind

of longer term. So I just wonder, when you think about the challenges that the administration faces and this trade off between being competent and being visionary, how would you apply your approach um great question, And you know, and first of all, we should remember that Trump was quite unique in case people didn't now. Trump was actually the first president that really attacked what I called the entrepreneurial state.

But one of the things I've been arguing is that in the US especially but also globally, we need to bring together these concepts of the well first state in the innovation state that can actually work together, and the welfare state can also be a demand pull for what. Then the innovation state also feeds into the U S. It's very dysfunctional. You have again forty billion a year going in from the National Institutes of Health, and then at best you have Medicare and Medicaid on the sort

of demand side, but they're not really aligned. And that's why we get this whole kind of hyper inflated system where the prices and the fees don't reflect at all that public sector is taking. Biden's bringing back the attention to an industrial strategy and innovation strategy and the investments that we require in both social physical infrastructure innovation. That's

an important first step. What he needs to avoid is making this kind of an old style just list of sectors, you know, make America great again in X, Y, and Z areas with the mission oriented approach suggests is that we need to remember that some of the best innovations in the US, like all the ones that I mentioned before, making this thing smart and not stupid, Internet, GPS and so on, the where outcomes of the U. S Government trying to solve a problem. So the Internet was a

solution to trying to get the satellites to communicate. GPS. Similarly, there was a problem, GPS was a solution. So the real question is how can the American kind of industrial innovation system which did make it great. You know, they really were the leaders around the computer, computer revolution, etcetera. What are the you know, what are today's problems and questions that can drive that real kind of dynamic innovation

by both the public and the private sector. And lastly, you know, we need to remember when you talked about the US government perhaps getting blamed for any failures that happened along the way, that's normal. You know, it's impossible to innovate without screwing up. But the only difference is that the venture capital is brag about it rightly. So you can't have success without also admitting that you're going

to fail. And what the venture capitalists do, however, is they make sure they're not just kind of you know, picking up the downside. They're obviously also getting an upside that gets reinvested back in. That's where the US government in the past kind of you know, didn't uh follow through.

So even if you look at the recovery after the financial crisis, when Obama had an eight hundred billion stimulus program, much of which was initially green directed, that's when he brought in a Nobel Prize winner to direct the d Oe Steve cho who set up are pa E. They made all sorts of investments in different companies to foster a green transition. Some of those companies failed, like Cylindra, some succeeded like Tesla. Tesla and Slinder got the same

almost the same amount of money um. And the strange thing is that even though Obama had all these golden Sax guys in government, he said something that was quite silly, he said to um Elon Musk. If you don't pay back the loan, we get three million shares in your company. Now, the loan was paid back in two thousand thirteen. It was taken out two thousand nine, and had the government said, what a venture capitalists would say is if you succeed,

we get equity, we get three million schairs. The change in price per share was that multiplied by three million, would have more than paid back the cylinder loss in the next round. So the point here is that you don't want to just be choosing kind of siloed projects. You want to choose a direction. You want to pick the willing, not pick the winners, pick the willing along the way, but also structure it in an intelligent way so citizens aren't just kind of belling out the downside

but also getting a share of the upside. Okay, one final question. There's lots of versions of this question which have come through, which is kind of it sounds like, uh, nothing's going to be fixed until everything is going to be fixed. You know, you have a wonderful or economist would put it. You know, you have a very general equilibrium way of looking at the world, which is very is immensely helpful in thinking about how one thing relates

to another, and they need to be more holistic. But how should again, the Biden administration take on what you're saying whilst also allowing there to be sort of short term practical winds along the way. So I mean, I usually get accused of the opposite, that I'm too practical and concrete. Um, So you know, the big point, of course is that economic growth has not just a rate but a direction. That's what we're talking about. That's like the big broad point, which one could argue is kind

of too generic. The concrete point point is, how do you render really explicit that directionality? What does it mean for the concrete ways that we design things like procurement and procurement, by the way, is a huge percentage of government budgets. In the UK where you and I live, the whole innovation budget of the country is ten billion. Just the procurement budget of the Ministry of Transport the

Department of Transport is forty billion. And this is true almost you know, globally it's often almost half of the whole government budget. So what does it mean to unpick those contracts to make them really have purpose, you know, a green transport system, and designing that procurement in order that it really crowds in business investment because this isn't

about the state kind of doing everything. It's about choosing and and really choosing very specific areas also, you know, whether it's health or digital platforms, the vaccine, where we can unpick where things go wrong and redesigned the contracts themselves to foster a purpose driven kind of orientation. But also the public investment side has to do much more than just incentivize. You know, this is why if we simply had R and D tax credits, we would not

have had the Internet revolution. It required active public investment, and it was ambitious, it was bold, which then created a whole new kind of you know, market opportunity, which then raised business expectations of where future growth opportunities lie.

And unfortunately, so much tax policy, and I often go very concrete on different types of tax policy, like capital gains tax policies simply increased profits, they don't actually create what economists called additionality, catalyzing investment to happen where it

wouldn't have happened anyway. And having you know, proper metrics about additionality, but also the kind of partnerships that we are fostering, whether their predatory or symbiotic or mutualistic, that needs just as much attention as kind of E. S G types of targets. Marianna, we could talk a lot more. Thank you very much for joining us, and thank you for everyone for listening and for all your questions. Thank you thanks for listening to Stephanomics. We'll be back with

more next week. In the meantime, you can always get more from Bloomberg Economics on the Bloomberg Terminal or Bloomberg News website. You can also follow at Economics on Twitter. This episode was produced by Mangus Hendrickson, with thanks to Marianna Matteo Carta and the Aspen Institute. Lucy Meekin is the executive producer of Stephanomics and the head of Bloomberg Podcasts. Frances Can Leave