Dear Lord, Mazzucato Is A Bad Economist

Tutto nello Stato all over again

No, of course Mariana Mazzucato is not a fascist. She’s all out of spiffy uniforms and has evinced no desire whatever to invade either Ethiopia or Libya. So, that’s good then. On the other hand her economics is a modern day copy of the ideas within that fascist economics. It’s corporatism, big government, big business, big unions. It’s very Tutto nello Stato, niente al di fuori dello Stato, nulla contro lo Stato. It’ll work about as well this time around as it did last.

For this is one of the unfortunate things about fascism. Sure, as a political system it was all about power and so on. But it picked up a particularly bad set of economic ideas along the way and those particularly bad ideas did not go down in flames the same way the political system did. Note, please, that I am not saying that those who still advocate those ideas are themselves fascists. Rather, I’m insisting that they’re making the same mistakes the fascists did. Salazar and Franco are better examples for us here for their systems lasted 50 and near 40 years each without being involved in the 1940s unpleasantness and thus going to those firey deaths. Portugal and Spain were also the poorest countries in western Europe by the time the regimes died.

Being the poorest countries in the area is indeed a little black mark against the economic policies followed over those years.

So, Mazzo (in the Italian I learned as a child “pazzo” means mad, perhaps dotty) has a report out for the Brazilian government. Lula should do more of what Lula wants to do basically. This is clearly written not as advice but as cover, justification, for what is already decided upon.

I should just note that I have written like this about Mazzo before and doing so brought shrieks of indignation to editors about how awful I am and demands for the right of reply etc. Here at Substack there are no editors to complain to. But there is a comments section.

So, that report:

Summary of Recommendations:

• Identify bold, clear, centrally governed missions that require cross-sectoral

investment and innovation and will engage and help to coordinate all

ministries. These missions should be oriented around tackling social and

environmental challenges.

Government should do such things. And no doubt kittens are cute too.

Reorient key institutions, including state-owned enterprises, to become

mission-aligned.

Invest in public sector capabilities, including those needed to support a

digital transformation that can enable all missions

Erm, buy the finance ministry a computer? Like Allende was going to do to run the Chilean economy? Or perhaps just the repeat of fashionable mantras? Well, obviously, up to you what you think of such accurate, precise and detailed prescriptions for a national economy.

So, perhaps we can find some more detail of what the actual recommendations are?

Clear missions that sit above all ministries would foster

alignment around a set of shared goals required to achieve this vision,

rather than allowing these goals to be reinvented within each ministry

in a siloed way.

Well, no, that’s just a repeat of the usual guff.

These missions would, in turn, be operationalised through

key investments and policy initiatives advanced by all ministries, as outlined

in Figure 1, including, for example, Novo PAC infrastructure investments,

fiscal measures enacted as part of the Ecological Transformation Plan,

measures aimed at encouraging innovation, industrial strategy investments,

including through initiatives such as the Health Economic-Industrial Complex (HEIC), measures to combat illegal deforestation, preserve biodiversity, and

encourage sustainable practices in agriculture and other sectors, investments

in Bolsa Família, and policies aimed at tackling food insecurity, among others.

Importantly, MGI’s civil service reform agenda will help to ensure that

the civil service has the capacity to institutionalise this vision.

No doubt views will differ on which bodily orifice those sorts of parps emanate from.

But note the laudatory tone over the bureaucratic reshuffling already being done. As with management consultancy there’s at least an element here of justification for a decision already taken rather than accurate analysis of which decision needs to be taken in what manner. As in, one use of this report is for Lula to wave around saying that Prof. Mazzo approves of what he’s already doing.

Yeah, yeah, I know, evil of me to say so. But to repeat there are no editors to shriek at here, just that comments section. Professor.

But again, let’s look for detail:

Brazil is currently highly dependent on agriculture and natural resource

extraction; however, ambitious missions could help to transform these

sectors and move production up the value chain to seize domestic and

global market opportunities that are relevant for directed growth. For example,

a mission focused on reducing carbon emissions could benefit from localised

electric vehicle and battery production, which could mean building the capacity

to manufacture these high-value products in Brazil, potentially with regional

partners. This could catalyse a shift up the value chain from extracting minerals

(like copper, nickel and lithium) for export to incorporating these minerals into

locally manufactured products, like batteries (Mazzucato, 2022; forthcoming).

Snigger.

The lithium price has just crashed 90% in the last 20 months, even Australian mines are closing as a result. But there’s more here. The sort of thing that economic planners never do get simply because the detail of how things work never does penetrate those ivory towers. Sure, there’s lots of spodumene (a major lithium containing ore) in Brazil. But mines produce a spod concentrate, normally around 6% Li. That then gets shipped to a concentrate processor. Of which Brazil has precisely none. The lithium produced from that then gets made into batteries. It’s not wave a wand and make Li into batteries. It’s build a vast train of industrial plant to even be able to get to the point where you might be able to do so. And no, Brazil has no comparative advantage in anything past the spodumene stage. For example, it’s highly capital intensive to do everything between the mine and the car. Capital is expensive in Brazil. This isn’t an industry well suited, not in the least.

But, you know, wave pen over paper from 5 thousand miles away and devise an industrial plan.

But yes, since you ask, it gets worse:

Within Brazil, produce 70 per cent of the country’s needs for medicines, vaccines, medical equipment and devices, materials and other inputs and

health technologies.

Obtain autonomy in the production of 50 per cent per cent of critical

defence technologies (MDIC, 2023a;b).

Ah, now that’s something we should all recognise. That’s import substitution that is. That’s the - in common with fascist economic ideas but again, not involving spiffy uniforms and invading Poland - idea that we should make stuff at home because that’s good.

But this is what Brazil has been doing for much of the past century. Here, here, here.

Yes, yes, it’s true that our little industries are not as efficient as the globe bestriding ones. But if we do it here at home they will become so. Thus we protect the little ones here until they do become as efficient. Great idea!

Except, as this damn report itself points out, it doesn’t work:

Over the last 30 years, the country has faced a decline in its industrial sector, with an

average 0.4 per cent yearly drop in productivity between 1995 and 2022; this

has resulted in the loss of one million jobs and has reduced the manufacturing

contribution to GDP to its lowest level since the 1940s (IBGE, 2022; FGV

IBRE, 2023).

No, that’s Mazzo herself. It doesn’t work.

As to why it doesn’t even the British Treasury has been able to work this out. It’s roughly true that only the top 10% of firms export. For there are costs to exporting and mediocrity in production can be found around any corner. So, only the top 10% most efficient forms export. Which means that imports do indeed come from the most efficient firms and thus challenge those mediocre to be found around any corner domestically. But it’s that very competition which bucks up local productivity.

Capitalists are, after all, lazy bastards. So, if it’s possible to make fat profits in a protected market they will. It’s only if they are exposed to the bracing competition of the globally best that they’ll do that hard work of improving productivity. One of the major values of free trade is that it increases domestic productivity. Precisely and exactly because it makes the local capitalists buck up or go bust.

Oh, and the import substitution programmes always, but always, are a method of increasing the wealth of the local capitalists. Because that’s precisely what the tariffs, import bans and quotas do, protect the profits of the local capitalists against the lower prices of the foreign companies.

Mazzo again:

Relatedly, Brazil’s innovation ecosystem faces challenges with respect to

investment in research and development (R&D), which sits at 1.14 per cent of

GDP – falling significantly short of the OECD average of 2.14 per cent (FGV

and MBC 2023). Notably, business R&D investment makes up just 0.5 per

cent of GDP (Ministério da Ciência, Tecnologia e Inovação, 2022). As a result,

the potential to leverage the country’s wealth of natural resources and its

human capital to generate innovative products is under-realised, with negative

repercussions for productivity and growth.

The capitalists aren’t doing shit, aren’t investing, because they’re protected from those ghastly foreigners.

Brazil is facing significant social, environmental and economic challenges.

While important gains have been made recently, Brazil remains among the

most unequal countries globally, with nearly half of its household wealth held

by one per cent of the population and nearly half of all children living in poverty.

So the capitalists make out like bandits because of the import substitution policies. And, of course, poor people are poorer because everything costs so damn much because it’s made by the inefficient local companies.

Mazzo’s policy recommendation is to do more of this.

Now, there’s one possible explanation:

Successful execution of a mission-oriented agenda will rely not only on

coordination between ministries, but also on investment and reform within

the civil service. Brazil’s commitment to a sustainable and inclusive economic

transformation must be undergirded by a new understanding of the role of the

state in driving broad-scale economic transformation, and by investments in

the dynamic capabilities required to implement this transformation (Kattel and

Mazzucato, 2018; Mazzucato and Kattel, 2020). The Government of Brazil

recognises this and created the Ministry of Management and Innovation (MGI)

in March 2023 with a mandate for state transformation and coordination

(MGI, 2023a)

Brazil’s already doing what Mazzo says Brazil should do, this is good, therefore do more. Says Mazzo.

OK, ego is a powerful force in human affairs, we could just go with that one.

Another idea is that Mazzo is simply ignorant. She doesn’t know, cannot realise, that nowhere has managed to use this import substitution idea to lead to sustained and substantial economic growth. Even the cases touted - say, South Korea as in the work of Ha Joon Chang (“For example, Chang praises the firm economic action taken by South Korea to bolster economic growth. Entirely true, but he fails to point out that the government that had those necessary economic powers was also a quasi-fascist military dictatorship.” which does bring us back to spiffy uniforms) aren’t quite what people say they are. And of course it simply isn’t going to be true that someone who is a Professor at a British university, goes to WEF panels, runs a specially funded innovation and development academic centre, is ignorant. Perish that thought, no.

But it really is true that Mazzucato is proposing economic policies which have been shown not to work. In general, across many countries, over time. Also in Brazil, over time and more recently. But still the proposal is that more of this must be done.

My suggestion, opinion perhaps, is simply that Mazzo hates poor people and so wishes them to remain poor. That is, at least, a more polite explanation than either ego or ignorance.

Tutto nello Stato didn’t even work for Musso so why it will work for Mazzo is more than a little puzzling.