Mazzucato on Iran war & the global economy: Who's really benefiting? — UpFront

[0:00] the world is reckoning with the biggest oil supply disruption in history one that has sent [0:05] energy prices soaring rattled stock markets and exposed the deep vulnerabilities of economies [0:11] still hooked on fossil fuels but will these crises fuel a change in global economic structures [0:18] this week on up front i'll ask one of the world's most influential economic thinkers [0:23] the founding director of university college london's institute for innovation and purpose [0:28] mariana mazucato mariana mazucato thank you for joining us on up front thank you so much very [0:40] happy to be here so since the war on iran began we've seen oil prices averaging above 100 us dollars [0:46] a barrel last month global markets are rattled the cost of borrowing has gone up for governments [0:52] everywhere but let's talk about everyday people if somebody's trying to fill up their tank in [0:57] cleveland or pay electricity in london buy fuel in nairobi what are they going through at this moment [1:03] sure well what we see by the way with the iran war is what we also saw with kovid [1:07] when you'll remember that the supply chains globally were affected what we saw already with the ukraine [1:12] war but even six months before the war in ukraine we had a huge energy shock and you know gas prices [1:18] were rising and what's interesting is that not every country is affected in the same way it's those [1:23] countries who have actually invested in having a more diversified uh a supply of energy that are [1:30] actually more resilient so this question you're asking the answer is not the same in every country [1:35] look at spain spain has actually taken for years now uh very um active proactive uh stances on how [1:42] to diversify their energy so they're not over reliant on these very fossil fuels that now are stuck [1:48] at the strait but also the question is who's benefiting you know some are hurting most people are hurting [1:53] those who have to pay these higher prices of course to fill their uh cars however uh you know [1:59] the top one percent is benefiting from what's happening globally so even in 2022 when we had [2:07] a very large energy shock the largest of fossil fuel companies in the u.s made 400 billion dollars of [2:13] which one the the top one percent actually benefited from that because of how finance is structured [2:19] because you'll remember that you know for every company there's shareholders so who owns the shares [2:23] in these companies who's benefiting and who's hurting and that question should always be asked otherwise [2:29] we're acting as though we're all in it together but it's not true every time there's a price change [2:34] right anytime there's volatility uh in prices of any of these commodities lots of money is being made [2:41] in fact i read a very staggering statistic from the guardian that the top 100 oil and gas companies [2:47] actually profited about what 30 million u.s dollars per hour uh since this war in in the month of this [2:55] war yes and and also every time trump makes an announcement the question is who might have had [3:00] some insider information about those announcements just before because there's lots of trades happening [3:05] every time social media posts are going out okay we'll talk a little bit more about that but let's [3:10] just talk about the international energy agency calls this the largest oil supply disruption in history [3:16] and oxford economics warns that this could be one of the worst global economic downturns in 40 years [3:23] and the united nations is actually warning that 32 million people could be pushed into poverty so [3:29] the impact of this war has been absolutely devastating is this a temporary shock or are we seeing the [3:35] reshaping of the global economy well again i mean this war is absolutely terrible both in terms of the [3:42] fact that it didn't have to happen but also its effects but we shouldn't lose sight of the fact that it [3:47] also has happened in a period where there's lots of really other bad things happening i mean two [3:52] billion people in the world still don't have access to safe drinking water that's insane in the 21st [3:58] century 1 000 children under the age of five die every single day due to that unsafe drinking water [4:05] and in fact we're here today in washington dc where yesterday ajay bang at the world bank talked about [4:11] the world bank's own mission around water to make it safer they also have a mission 300 to get 400 [4:17] million people in africa to have electricity that currently don't have electricity but the question [4:22] is how we do these things if we continue to think that policy is just about doing good for people [4:28] without changing the underlying economics so as an economist i'm really focusing a lot on the [4:33] problematic relationship we've had with kind of defunct i would call it economic theory that has informed [4:40] inertial policies right if we think that the role of the state is just to fix market failures to put bandages [4:45] here and there instead of to actively shape a different type of economy that's good for people [4:50] and planet by design we will always be on the back foot you can't have you know during covid vaccine [4:57] nationalism because we're all affected together you can't have a climate uh nationalism water nationalism [5:04] biodiversity nationalism this artemis you know uh uh these astronauts who took those amazing pictures [5:10] of earth you know from the moon that was extraordinary and if you heard what they said you [5:15] know that that we're all one humanity that sounds great and it gave me you know shivers when they said [5:21] it but that's not how we're acting right now and and it was such a i mean it's it's interesting in this [5:27] moment where there's you know geopolitical tensions uh to a degree that we haven't had for a very long time [5:33] since the cold war where we have mass suffering in terms of inequality again water climate uh um the symptoms of [5:41] climate change that we have globally it's not true that we're acting as one you know and that would [5:46] have been such a great call to action right now to not only stop the war but to really reflect our [5:51] solutions in a global way you mentioned the world bank you are here in washington for the world bank imf [5:57] spring meetings you just presented a paper and you actually see this that the world bank has failed [6:03] in its uh mission what's your core message then to these multilateral institutions and what can they [6:09] change now what do they need to do so the world bank i think failed in the past as did the imf because [6:15] for example when they provided loans to developing countries these were loans that were conditional [6:20] on certain types of structural reforms but also reductions in the deficit as though that was just [6:26] this number that had to fall as opposed to here's loans that will help you invest that will help you [6:31] spend that will help you strengthen your health systems your infrastructure your innovation policy that [6:37] should be targeted to actually solve you know problems on the ground and i do think however [6:41] now the world bank is on a different trajectory the current president uh ajay banga is trying not to [6:47] transform it and they have for example some very ambitious policies which i think are progress they're [6:52] not failing we shouldn't just judge you know the bank as though it's you know good or bad they're trying to [6:58] transform it but what i've been saying is that for example with their mission 300 again you know electrifying [7:03] actually not 400 million people in africa unless that's underpinned with a different way to think [7:09] about finance so that it's not a financial gap as though there's a hole that you just have to throw [7:14] money into but that we really think about the structure of finance so we need more patient long-term [7:19] finance so what public banks should be doing when they provide loans to companies is making sure that [7:24] the benefits the profits that are then generated are reinvested back into the economy and not extracted out [7:31] into just the financial sector so what we actually need is for the world bank to really rethink the [7:36] whole ecosystem or help to rethink the ecosystem of these multilateral development banks and the [7:42] national banks to work together so that the sum is bigger than the parts otherwise you just have this [7:48] kind of project funding it sounds good a water project here a climate project there an infrastructure [7:53] project but we're not actually seeing transformation we're not really reducing any quality we're not [7:58] getting more resilient energy supply chains so as soon as we have an energy shock a country that's [8:03] over reliant on one form of energy will you know sink faster and so that idea of really starting with [8:10] the question what's to be done and then making sure the finance is structured to help make that happen [8:15] that's about outcomes oriented finance and i wrote a book recently called mission economy a moonshot guide to [8:21] changing capitalism where i talk about what a mission oriented financial structure would look like [8:27] but that requires in the first instance a very different public private relationship and i i often [8:33] joke that biologists are more rigorous than economists when we talk about partnership you know partnerships [8:40] can be bad partnerships and biologists look at ecosystems and they don't just use it as like a neutral [8:46] you know normative word they will differentiate whether an ecosystem is predatory parasitic symbiotic mutualistic [8:54] and what we need in the global order but also at the national level you know i'm from italy you're [9:00] from south africa and i'm sure we can both reflect our own countries that the relationship between the [9:05] state and business is often parasitic we socialize risks privatize rewards there's not enough conditionality [9:12] on businesses not only to reinvest the profits as i said but to treat workers better improve working [9:18] conditions use um you know energy efficient supply chains instead of just money passing from one [9:25] hand to another so we are living in this era of austerity and we know that the trump administration [9:30] has been withdrawing from multilateral institutions including those that are at the forefront of saving [9:35] lives like the world health organization and then you also have uh european governments that are under [9:41] pressure to slash to slash expenditure at the same time and you touched on this when you talked about [9:46] the cost of servicing debt for global south countries that that inequality there so that has resulted in [9:53] erosion of faith across the global south erosion of faith in multilateral institutions like the world [9:59] bank and the imf you said that the world bank hasn't completely failed and you mentioned a couple of [10:04] things that ought to be done are decision makers listening so first of all you know it's not just the [10:11] the problem with the world bank it is again how we have structured our national policies right governments [10:19] nationally have failed to deliver for their own people there's no point in just showing up in places [10:24] like davos at the world economic forum or this week at the spring meetings or at the cop conferences where [10:30] they discuss climate solutions if then we don't practice what we preach right so i'm very interested in [10:36] local policies as well and to show how we can actually then scale better solutions so for example [10:42] if we're interested in hunger and the issues around hunger or climate or you know life below water in [10:48] terms of what's happening inside our oceans this great documentary just made by david attenborough [10:53] who just shows all these animals you know choking on the plastic that we're throwing into our seas [10:58] unless we actually show that we can structure our own governments and our own businesses in a different way [11:04] and create as i mentioned before a mission-oriented partnership then why should people believe you [11:09] know why should they have trust in their governments and this is what we see globally many people resorting [11:14] unfortunately to voting uh for certain parties that then just you know have a quick if you want [11:21] answer oh blame the immigrants or blame you know exactly whether it was brexit whether it's blaming [11:27] immigrants in different parts of the world whether it's often blaming those who ultimately are the most [11:32] vulnerable i mean this is the irony that we're blaming those who actually have been suffering the [11:37] most as opposed to the underlying structures that are causing these problems so i'm interested in [11:42] things like you know uh i'm an arsenal supporter and i hope that arsenal wins i am too okay let's not [11:49] actually go there we'll start you know going off on tangents but arsenal will win the premier league and [11:54] maybe even the champion anyway so but i was going to mention marcus rashford who played for manchester united [12:00] now he's playing for barcelona um and he did something so important during covet he said i would [12:06] never have become a footballer had i not had a free school meal right so just imagine that if now during [12:14] the world cup we had all the footballers in the world saying we need to actually invest in our welfare [12:20] policy so everyone can flourish and we or i would not have become a footballer had i not had access to [12:26] to breakfast at school and lunch at school and what does that mean right for actually then saying [12:31] okay let's make sure that every child in a country especially but not only in global south countries he [12:36] was talking about one of the richest countries in the world in the united kingdom where there is by the [12:41] way so much inequality there's starvation in many parts of the united kingdom so imagine if we actually [12:46] had policies that meant something for people you know that every child has access to healthy tasty so they [12:53] actually eat it and sustainable school lunch sustainable very important so that these climate [12:58] strategies aren't just you know blah blah blah but they're grounded in the everyday which then would [13:02] require governments to work in that kind of situation room kind of way that we only do with wars but we [13:08] should normalize that department of health department of agriculture department of environment [13:13] department of economy working together to deliver a policy that matters to people that they can actually say [13:20] yes or no did they receive it you know the reason i wrote mission economy is that to go to the moon [13:26] and back in a short amount of time which is the apollo mission the first thing they did was have to [13:31] change how government works they changed procurement from being just cost plus which is always a race to [13:36] the bottom you know ketchup is a vegetable is what reagan said in order to reduce the cost of school meals [13:43] right instead of what i just said before they change procurement to be mission oriented outcomes oriented to [13:49] find solutions to what the astronauts found themselves requiring better ways to go to the bathroom in the [13:54] lunar module what would they eat what would they wear and solutions to those problems happen through [13:59] public-private partnerships which got us camera phones foil blankets baby formula home insulation software [14:06] so we shouldn't believe the hype the trump and the elon musk hype where they said empathy is for wimps [14:12] we should start with the goals that will actually help solve problems on the ground and find solutions [14:20] to those problems through innovation through investment through industrial strategies that are grounded on [14:26] good public-private partnerships and what's interesting is if we do it well growth follows growth isn't the [14:32] mission growth is the outcome if we can stimulate investment and i say this in an era in capitalism [14:38] where the the the profit share of global income is at a very high level but the investment share isn't [14:45] so the labor share is low the profit share is high but these profits are not being invested they're not [14:51] actually being used for innovation for investment for finding solutions on the ground so this requires [14:56] active and ambitious governments nationally but also with our multilateral organizations to stop just [15:03] talking in this abstract way and to really find solutions that matter maybe people will start to trust [15:07] governments again so let's just talk about how the world is reorganizing itself as a result of this [15:13] war during this war iran has been using the strait of hummus as leverage in fact they've introduced [15:20] a toll booths for select vessels and reportedly charged transit fees not in u.s dollars but in chinese yuan [15:28] we've seen countries uh scrambling to cut a deal with iran to negotiate directly with iran so my question is [15:36] is this crisis accelerating a shift away from dollar dominance so i actually wrote a piece last [15:43] september in foreign affairs about this that the brics countries so brazil russia india china south africa [15:50] and other countries that have joined that coalition are actually starting to present a very different [15:55] type of model take russia out of the picture just for a minute but definitely brazil and south africa for [15:59] example when they currently hosted both the g20 uh but also the cop in brazil the the language this idea [16:07] of a coalition of the willing right and we also see this now with spain with president sanchez talking [16:12] in a very different way about the war and why it shouldn't have happened in the first place about [16:16] national austerity plants that do not help people it actually costs more to the state to pick up the [16:22] pieces afterwards uh because of you know health costs when people aren't actually being taken care [16:27] of at source for example um he also took a very important stance on gaza so there is there are [16:34] different leaders out there that are not just talking to camera but are trying to also collaborate [16:41] and find coalitions together and actually this weekend uh president sanchez is hosting a global [16:47] progressive mobilization i'll be flying out tonight to go to spain for that and we see president lula [16:53] from brazil president sanchez in spain mia motley who i think is one of the most ambitious leaders in [16:59] the world the prime minister of barbados meeting to really create a different narrative framing i would [17:05] argue theory that's what we also need from the economists a different theory of how the economy works [17:09] but also very different practice and doing it together and unless we have a coalition of the willing [17:15] then we will still you know at best have leaders you know talking the good talk but we won't show [17:20] that we can do things differently so this kind of predatory way of uh doing business is just off but [17:27] i think it speaks then to your new book that is coming up later in the year you focus you've talked [17:31] about a mission focused yeah mission oriented uh business uh but the book is called the common good [17:37] economy a new campus it's an interesting phrase common good it conjures up benevolence shared humanity [17:45] but it can mean different things to different exactly how do you define it economically and ensure [17:50] that it is not captured by the exactly so well the reason i've written the book which is coming out [17:55] in june in the uk in the us in um september and it's coming out in many different languages [18:01] um is precisely what you just said it's so easy to talk about good but are we actually delivering it [18:07] and the answer is no we're in fact going backwards in most of the sustainable development goals and we [18:11] know from our own countries and equality is rising and so on and so how do we actually create a [18:16] framework that holds ourselves accountable when we talk about good and the book begins by criticizing [18:21] how economists talk about good when we talk about the public good it sounds good two words one of [18:26] which is good it's just a correction for something the private sector is not doing um so this idea [18:31] that we're just fixing market failures and when it's an area that we would like the private sector to be [18:37] investing in but they don't we expect government to fill the gap and so i begin by saying the common [18:42] good is not a correction it's an objective like a moonshot however what really matters is the how we [18:49] reach it so the how we work together how capital and labor work together how public and private how [18:56] public and citizens matters as much as what we're trying to do and so i lean more in political philosophy [19:01] so aristotle for example talked about the telos the goal and the police not the police the police [19:07] the community right so how do we actually form community how do we really start looking at all [19:12] contracts so the common good economy i break the compass down into five elements the first is purpose [19:18] and directionality let's really talk about what we're trying to do on the ground like the school meal [19:22] example second co-creation what these missions are need to be outcomes of a participatory discussion [19:29] for the moon landing it didn't really matter if it was technocratic but for these earthly missions [19:33] we really need participation of people who are most affected also by the policies and i used to [19:39] talk quite a bit with pope francis and he wrote in his encyclicals and the laudato si that the common [19:45] good had to be based on the preferential option for the poor which comes from catholic social thought [19:53] which means to make sure that every policy is judged by how it will affect the most vulnerable the [19:59] most but also the principle of subsidiarity which meant it has to be also designed at a very local [20:05] level third sharing knowledge fourth sharing rewards so we stopped doing what we did in silicon valley [20:11] where everything in your iphone was publicly financed internet gps touch screen siri and yet the [20:17] benefits we know where they've gone to these very large trillion dollar earning companies on the back of [20:24] public investment and the fifth transparency and accountability again think of our own countries [20:29] where there's lots of lack of transparency and this is also a key reason why people lose faith in what's [20:35] happening because you don't even know who owns what and why who's doing what and why we talked about [20:39] this earlier about who's benefiting the most from this war the top 100 oil and gas companies money that's [20:45] leaving the pockets of ordinary citizens into these shareholders but i wonder whether this knowledge that [20:50] this war has been lucrative for some the tech uh architecture lucrative for some you actually wrote [20:56] then that this energy crisis shows us that it's time for a new green industrial strategy yeah tell us [21:03] about that sure and you know i actually talk about green growth because industrial strategy ultimately you [21:07] know we're talking about capitalism right so industry matters business matters how do you get business [21:13] also to rethink its own governance when i talked about this this huge amount of money that's just going to [21:19] buying back shares that's due to a corporate governance strategy which is maximizing shareholder value [21:25] so what does it mean to maximize stakeholder value the value that that is both created by a much wider [21:31] group of people including labor including indigenous communities for example in the amazon that have [21:36] huge amounts of knowledge about how to preserve biodiversity but their own knowledge is not being brought to [21:41] the table in uh you know the design for example of the amazon fund which sounds great but who has actually [21:48] both created it and who's benefiting we need to have much more as i said participatory structures [21:53] but the idea of having green growth and by the way it's not because i think we need green growth it's [21:57] the planet just you know like we are expanding what they call the planetary boundaries um and the the issue [22:05] is what does it mean to also just go beyond talking about energy but to really talk about you know green [22:11] cement green steel uh different transport structures so it's not about transport but sustainable mobility [22:17] how do we bring these goals to the center of an industrial strategy which ultimately will catalyze [22:22] business investment and what is growth but a function of investment so we're solving both a climate [22:28] issue but also fostering growth and this is why i often argue to politicians don't talk about growth [22:34] talk about the problems and make sure you use your industrial strategy to foster solutions to those [22:39] problems and lo and behold growth follows as long as the solutions are driven by innovation last last [22:45] question we've spoken about the iran war energy crisis market shocks and all of that and you are [22:51] talking about a mission oriented approach do these crises make it harder to implement that mission [22:58] oriented approach no i think the crises interestingly uh bring the urgency back and it's it's not surprising [23:05] that we have mission oriented approaches in times of war you know again going to the moon and back in a [23:10] short amount of time was during the cold war where the u.s was you know really at war uh well during the [23:17] cold war with russia and there you know the whole sputnik moment also during covid where we were uh you [23:23] know started to have again departments of health and energy uh and and and uh military and finance and [23:30] education in the room together because they had to work together to solve the problems that the countries [23:36] were facing so when we have periods of urgency and crisis governments often wake up but the problem [23:41] is they then fall back asleep as we saw post covid where we no longer had the kinds of investments in [23:46] our health services and health systems that we really should have been continuing to have in order to be [23:51] more resilient next time around so hopefully this energy crisis will actually make governments realize [23:59] that they have to become more resilient to not depend on fossil fuels to have that more renewable energy [24:05] mix in their energy sources however that requires leadership and this is where again this this event [24:11] that's happening this weekend this global progressive mobilization by those leaders who do talk about [24:16] the need to improve public services public housing sustainability so we are breathing good air water for [24:23] all you know this moment is very very important to allow the leaders who do care about a more progressive [24:29] way to structure economies to have a voice together and to also build that trust back with citizens as [24:35] as you rightly say have lost that trust mariana matsukatio thank you so much for joining us on up front thank you