284. Is it time to smash the economic consensus?

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23:56Robert Peston:How specific can we be about giving people that sense of ownership? I mean, right now, it looks as though Andy Burnham is certainly the most popular Labour politician and possibly the most popular politician in the country. There's a low bar for that, isn't there? There is a fairly low bar for that. And, you know, most of that would stem from the fact that within the Manchester area, he is apparently a very much loved individual because he certainly conveys that he listens to the people of Manchester in respect of those bits of policy that he has control of. I mean, one shouldn't get carried away with how much power our mayors have, but they have some.

24:49Robert Peston:And I suppose my question is, how much is it about the extent to which somebody with power like Burnham just does common sense things like talking to people, listening to people? And how much is it about structures of participation? Well, it's definitely about both. And the first bit you mentioned is about empathy, which is listening, not just sympathy. Right. So actually being humble enough to listen and to talk to people. And you have a structure also to do that. So it's not just random, you know, talking to someone one day and then going back to your old way of doing things. And I just saw Andy Burnham actually in Madrid some weeks ago.

25:27We were there because I work with Bloomberg philanthropies with mayors around the world in terms of thinking of what capabilities do they need within their public sector institutions. And he came running up to me. It was very nice, actually. I hadn't seen him in a while to thank me for the work that we had done with him in Manchester five years ago. and was very keen that we continue to engage. And I was like, well, let's see also how things go, right? But what I also experienced with him when we were working in Manchester was not just he was talking to people, but there was a very genuine and concrete interest in improving, for example, sustainable mobility in the city.

26:02So it's across, so, you know, for example, you can talk about transport, that's just a sector. If you think about sustainable mobility, it's about sustainability, both in terms of climate, you know, so carbon targets, but also sustainable for people? Like, are they living also closer to their workplace or recreating the banlieue, you know, in Paris, which interestingly, even though PSG won, right, we saw the riots that happened. That's when people feel very excluded from the center, right? So this kind of exclusion that many cities, by the way, have had. I mean, you and I both live in Camden, which I think is actually quite extraordinary in terms of urban planning from back in the day, where there are housing estates, you know, in the middle of a very rich square.

26:42Think of where Amy Winehouse's house is on Camden Square, across the square. Again, our housing estates, there isn't what you have in New York, in Chicago, in San Francisco, which is, you know, it's very exclusive and you end up with schools with certain types of kids. You know, that's why they had to do the busing back in the day, not just for racial grounds, but also for class. And I think we no longer do that. We no longer think about how do we build cities, which are both sustainable, of course, because of the carbon issues, but also in terms of putting culture, you know, in terms of green spaces, in terms of distance, you know, how far do you have to work, sorry, travel to go to work.

27:21So that's why the 15 minute, you know, a city is like in Paris. I mean, anyway, so the point is, he was really, I think, at least when we were working there, when I just set up the Institute for Innovation and Public Purpose, interacting with those ideas, at least my experience was, in a very genuine way. Now, what you also need is a personality that is interested, again, in speaking to people and putting yourself in communities, which also might be pushing back. And that's, I think, the sign of also a really good politician, one who doesn't fear kind of dissent. And also, once you have a vision, you stick with it instead of kind of going where the wind blows.

27:53But one of the things we're working on with the mayors around the world is this issue of, can we also, how do you say, plot out what capabilities you require to govern really difficult problems, whether it's a flood, whether it's a World Cup in a city, whether it's carnival. So we're working with the mayor in Rio and in Salvador. How do you govern in a way that's inclusive? So even carnival, right? Like it's a great, happy party, but it's also very exclusive. So the people in Salvador call it carnival apartheid in terms of who's in, who's out, who's welcomed, CCTV watching all the time. So that's really, I think what, you know, is very important in terms of participation.

28:32It's not just in terms of do you have a voice. It's are you valued as much as other people? And if you think of, we've talked about it before, you know, knife crime in London, if you look at the young people who it's affecting the most, including the culprits, these are many people who literally have not been made to feel very valued. Their own body has no value. If your own body has no value, if you have, let's just call it really strongly self-hate, well, then someone else's body has no value. So what are the social and economic investments we should be making in places to make communities feel valued?

29:06So that to me, it's because I keep talking about devolution a lot on the podcast at the moment, that to me feels like we need more of that, that we need more, you know, control areas, having more control over their expenditure, their tax, and then what they actually spend it on and who it helps? So I think there's two issues. One, in terms of the way that I've been thinking about also devolution, is if you really respect local communities, you will allow your gaze, your understanding of what's happening there to inform also your national policies. So the lessons should go from local to national.

29:39The money should flow in the reverse, right? And so, for example, back to this capability index, what we're trying to do is better understand which cities were able or less able, whether it's during COVID with the lockdown to deal with that problem, whether it's a flood in New Orleans or in Delhi, what was revealed in terms of the capacity and capability of the mayor and their team to work with citizens to solve their problems. So you can call it devolution, but it's also about working with people at the local level. And we should be learning from cities and local places because that's where the leaders, the political leaders have a closer relationship with the people that in theory they're trying to serve.

30:21Those lessons currently are not going national because we don't look at cities or local places as places where innovation, where knowledge, where kind of 21st century capitalism is happening in a way that we should learn how to do better. We always go back to the national policies. So do the learnings that happen locally, if you're saying the learnings come from the, you know, the areas and then they feed into national policy. But what if those learnings are that things are really different and the problems are really different. Yeah, yeah, yeah. So that's absolutely important. But for example, coming back to the Camden example, where it was the learning across 10 housing estates in Camden that the city, the council leader, sorry, learned how to create better adult social care.

31:04That, to be honest, is not local, right? That's about working with your local people, which in Newcastle will be different, say, from Camden, of course, but the lesson of don't work at people, but work with them and figure out the structure, hence my focus on this compass to create that structure, to do that and then have learnings between, for example, cities. We don't do that. I mean, what's really striking, and this is why I set up the institute at UCL, is because we value the private sector, the learning of what works, what doesn't in companies, you know, Harvard Business School's case study methodology.

31:37Why do they have all these case studies on global firms around the world? Because we value business, which we should. Business is important. Do we value public institutions? No. We just roll our eyes at bureaucracies. We end up saying too much red tape, too much planning. Again, go back to Tony Blair's very un-innovative essay. That's the usual kind of narrative of what's holding things back, as opposed to saying, what actually happened, say, at GDS, Government Digital Services, in that particular five-year period where they really did incredible work. Like what can we learn from the culture within that organization, how they attracted top talent?

32:09Why did they say the first thing they said was people are not clients and customers. They are users with human rights and we need to design, you know, gov.uk to make that user experience much more innovative and kind of nourishing. Let's learn from that. So learning from organizational or local places in public institutions and having learning between them, sharing between mayors, whether it's Newcastle, York, and so on, on what works, what doesn't, there's very little of that. Also, because as soon as you mess up, as soon as you fail, you're in the front page of the paper. Whereas venture capitalists and entrepreneurs love it when they fail because then they say, look, yeah, I had to fail 10 times to succeed.

32:47That's why I'm a risk taker. We don't allow that learning by doing. And that's why I've been helping countries think about gov labs. Like how do you create a laboratory within a government, even a local government, that actually explicitly welcomes risk-taking, experimentation, and trial and error to learn how to do things better. And one of the ways that I say in the book, we learn better is by working with people and not at them.

33:08Robert Peston:You're pretty ambitious in an intellectual sense in this book. Pretty much the whole of the first half is an attack on conventional neoclassical economics, deification of markets, the idea that broadly markets can fix everything for us. And when they don't, it's the role of government to correct. But you have this theory which says, actually, markets, which is true, are just totally social structures, and therefore we should redesign markets so the problems don't arise in the first place. Now, all of which is incredibly interesting, no question about it. But the bit that I struggle with, and I think it's a very good argument, but the bit that I struggle with is how do you, essentially you are saying that pretty much every Western economy has been run on a false premise for the last century or so.

34:01Robert Peston:I mean, do you genuinely believe that we are capable of making the kind of changes that, you know, nobody who reads this will come away thinking, well, of course, We'd love to change in the way that you suggest. And as a sort of benchmark of where we might want to get to. Brilliant. But practically, you are broadly talking about the dismantling of what you might think of as the Western way of doing things. So I'm glad you put it that way because it's yes and no. So first of all, the whole first bit also tackles a very specific thing in neoclassical economic theory, which is how we talk about good.

34:45So public goods, two words, one is good. It's just, it's not even a theory of good. It's a theory of what the private sector is not doing. So it's a negative theory. It's a not. It's not a yes. Yeah. Right. So if the private sector is not investing in clean water, the state should. In basic research, the state should. In national defense systems, the state should. These are all public goods due to the non-excludable, non-rival characteristics. So that's boring. that would have, you know. It's not boring. It's actually central in the way we run things. Exactly. I mean, boring meaning I could go on and on and your listeners are like, okay, whatever.

35:15So markets work and when they don't, we expect the government to come in and fix it so that the concept of public good is itself a correction. That's why we think of financial gaps, right? It's almost like, oh, there's a 7 trillion financial gap for the sustainable development goals, 4 trillion for climate, you know, adaptation and mitigation. It makes it sound like there's a hole to go throw money in, which is literally what happens. We end up thinking, okay, how much public money will go in? How much philanthropic money? Oh dear, ODA money goes down. How will we fill the gap? So instead of thinking of a gap, right?

35:48I say that's a corrective mechanism. Think of what the objectives are and have outcomes-oriented budgeting, for example. One of the examples I give in the middle of the book, which is all about showing this is not utopia. There are examples of where each one of the five elements are happening. And I take the whole world to look at the examples. Obviously, that means we can do it. This comes to your question. We can do it. Why don't we do it? Because we don't take these problems seriously or we don't have the full compass. So we do parts of it really well and the people doing it are serious. Why is it that during both covid and war, we did things that are normal times we don't because there was no time to waste.

36:25Right. In war, no one says the 2030 agenda in Ukraine. Right. You want to win. You want to win quickly. Why is it that during covid we ended up using wartime tools like the Defense Production Procurement Act in the U.S., which came from the Korean War? So that's just what I meant by taking things seriously. There's a whole section in the book before I get to the common good compass. Hold on a second. The reason why public goods and the commons, which is Eleanor Ostrom's great idea, she was the first woman to win the Nobel Prize. One is correcting for market failure, one for government failure.

36:53Why are they kind of not enough? And I don't think we should throw the baby out with the bathwater. Why we need something kind of extra, which is the common good economy, is that the way we've structured business, the way we've structured public institutions, and the way we've structured their interrelationship is problematic. So market fixing states, problematic. Shareholder value maximization businesses, problematic. Parasitic relationships between the two, very problematic. So I unpick all these problems in capitalism. This is not about going to communism. We can all talk about whether we prefer a socialist or a communist state.

37:26That's not what the book's about. Capitalism can be done differently.

37:29Robert Peston:The cliched presumption about how you get good governance is that people have to be accountable for specific outcomes. And one of the things that people might say about your approach, which I have an enormous amount of sympathy with, as it were, is that your approach would only work predicated on the idea that people will just behave better, irrespective of the sort of accountability. It's the opposite. What I say is that we're relying on people to just rely on goodwill. Oh, companies might do some corporate social responsibility. Oh, we might have, you know, Amazon doing a little, the company, not the horse, doing a bit of bad here.

38:16Oh, but they have the Bezos Earth Fund there. So this philanthropization of global capitalism, I think it's bringing us back to the Middle Ages, where we had the benefactors, where we had to wait for someone to do good because the system was not working. What I say is go to the contracts. We have 80 % of industrial wastewater is not recycled. The contract, the state is giving Pepsi-Cola, Anheuser-Busch water rights, because that happens around the world. The contracts, so the whole relational value thing is not just a philosophical issue. Water rights, property rights, procurement contracts, bailouts, public loans do not embody the good.

38:49Robert Peston:Who are you trusting to write these contracts in a way that doesn't? I mean, because part of the problem with all of this is if you go back to the last 60 years of, you know, of government in the West, when you've had more government direction in a country like the UK, quite a lot of it's just gone wrong. Hold on. That's a whole different point. So in the 1970s, when government was much more directive and it ended up, you know, picking winners, picking sectors, whatever, that went wrong. Government should pick problems. And the book is also about how to pick the problems. Well, let's just leave that for now.

39:23that require all sectors to change. So when you just have a list, and I think this is happening now with AI. AI is a sector or it's a set of problems that we should be solving. And that means a lot for also other sectors and how they engage with AI. Whether we have governments capable of doing this or not, I think, first of all, we have to invest in that capability. But coming back to the contracts, there is so much, how do you say, not just inertia, but incumbency effects, which you had mentioned before, which is very right. There's, you know, it's not true that it's win-win. You know, Pfizer will make less money if this book has had, you know, is the recipe, if you want, especially in how we think about health.

40:02Why? Because Pfizer abused its power. You know, Pfizer benefits massively from publicly funded research and then is able to set whatever prices it wants, but also how it interacts with publicly funded research, which I've written about elsewhere. I used to tell my husband if I don't come home at night, it was Pfizer. You know, it's a company that's very financialized, spends much more on share buybacks and R &D. I think government has failed in how it works with companies like Pfizer to not make sure that the intellectual property rights are not too strong, too wide, too upstream, so on and so forth.

40:32So the book is not about saying this is easy. It's hard. That's why we need the compass to hold us all accountable when we talk about good. But it's also very prescriptive in terms of where things have gone wrong. And that's not because the civil servants didn't care. Right. They have been trying their hardest. But I think as long as the ideology that the market works and you come in to fix it, as opposed to shaping the market to deliver for people and planet with a compass that holds you within the civil service and others inside business accountable for doing good, then it will not happen. But just to Robert's point, though, on all of this is there is a huge power imbalance across the world, which means that and we had Gabriel Zuckman on recently talking about, you know, how you tax billionaires.

41:16And he was talking to us about how they're, you know, how much their wealth has gone by. It's a staggering amount. It's something like in the last so many decades, it's gone from 3 % equivalent of global GDP to like 17%. And with that wealth has come power so that they can buy the politicians essentially. And all the researchers, by the way, they are buying all the researchers in AI. I wrote about in the entrepreneurial state how most of the funding for this great technology revolution was state funded. No longer. Yeah. They have. So how do you stop them? Because they are the people who currently have the most power.

41:49And so you would, as Robert was saying, you would have to get them. And, you know, you mentioned about they do philanthropic things to try and kind of, you know, wash their money in a way. But how can you change that when that seems to be just getting bigger and bigger? So there's two issues. One is how you change it now. Another one is what should have happened, but also what we should do in the future to prevent that from getting worse. I'm actually having breakfast with him on Friday morning, Zucman, for this big conference that Piketty set up where I'm giving a talk. You know everyone, you, don't you?

42:15Well, we're all economists, it's not everyone. I don't know you. Anyway, however, so the reason why I think our two arguments also go very much hand in hand is both Zuckman and Piketty's work has been very important for redistribution. Right. My work is about predistribution. How do you get these relationships right so you don't even create that excess wealth that then needs to be taxed? So what is predistribution is precisely as the book's main point, it's to get the capital labor relationship right from the start. The public-private, which is the main thing that I've written about in my life right from the start, instead of what?

42:51Socialization of risk, privatization of reward. By the way, when Piketty's book came out, one of the reasons I really liked it is it really complemented what I had been saying for a while, decade by decade. If you look at his curve, what happens from the 1970s onwards in terms of inequality rising, I can tell you exactly what the narrative and the story was about wealth creation and innovation in the UK and the US that, how do you say, exacerbated the inequality. For example, it was actually Blair's government which reduced the time that private equity had to be invested from 10 years to two years in order to get this massive capital gains tax reduction.

43:29That's not just tax, right? That's capital gains tax, which if you get it right, you can foster either long-termism or short-termism. What they did was foster more short-termism. You have, again, many pharmaceutical companies, not just Pfizer, having lobbied governments for big R &D tax incentives or what's called the patent box, which I think is one of the stupidest policies ever because patents are already a 17-year monopoly that the state gives to the private sector. There's no reason for economic incentives that the state should also then reduce the tax on a 17-year monopoly profit. And yet they lobbied for this in this wonderful way of talking about the story of how important they were to the innovation process.

44:10So my work, right, we all work together. I can't solve all the world's problems. My work, the kind of value added of my work was to highlight, first of all, how value is actually created collectively. And then how the narrative, the framing and the theory goes wrong when we don't recognize that, which is then used to lobby for the wealth to be skewed in terms of how it's distributed. So we socialize risks, privatize rewards. So first we need to show how the risks were socialized, sector by sector, country by country, and then show how the rewards then were not as social as the risk taken. And I can tell you that in every decade that they've plotted their figures, like where a lot of the lobbying went.

44:50For example, in the U.S., the National Venture Capital Association lobbied for capital gains to fall by 50 percent in four years with this narrative about the innovation economy. So, of course, we need to get the taxes right. And there's a whole chapter on which taxes, wealth tax, land tax, capital gains, corporate, personal income tax. We need to think of these things in a much more granular way. It's not just tax, but we should also make sure that when governments are speaking to businesses, they don't get kind of bullied.

45:16Robert Peston:And, you know, if you change the tax or intellectual property rights and I'm leaving, you're not going to get a global consensus on these sorts of wholesale reforms to essentially the design of markets. That's that's, you know, describe it as it is. How confident can you be that any individual country would do this? Because, of course, the threat that whether it's a billionaire who has investments in a country or whether it is simply a corporation with headquarters, all they say is, well, if you do it here, we're just going to go somewhere else and you'll lose the jobs and you'll lose the tax revenue.

46:04Again, the book is not about everything under the sun, so I actually have written about tax.

46:09Robert Peston:And the problem is, you know, any government that says, right, okay, we are now insisting, because this came out of essentially public refunded research, that we're going to get X percent of, you know. Or keep the prices down and so on. Or basically say this is a medicine that everyone should have accessed to at half the current price. You know, at that point, because I speak to the guys who run these companies and they say, okay, we're out of Britain. That's what they say. Yeah. So first of all, the third part of the book where I talk about places, again, it's theory, policy, places. The places that I look at are both at the local level.

46:42So I argue that we need to reimagine, redesign and put people at the center of how we design youth centers, community centers, public spaces, public pools. It's been boiling it in London. There is very few public pools. So places where people also learn how to work together and feel valued, but also global places. So this is your question. So how can we get countries to work together? Which countries? Those countries that even care about having more progressive economy that's inclusive, sustainable, driven by innovation instead of rent seeking. So what I look at is the coalition of the willing.

47:14So look at what's happening right now. And I give examples in the book between Spain, South Africa and Brazil, for example. And I've been working with all three of those countries in terms of how they're trying to practice what they preach, both in terms of how differently they're dealing with the energy companies. very different in Spain and the UK, but also how to work together. For example, in South Africa, in preparation for, God forbid, another health pandemic, they have the mRNA hub. It's a new hub of innovation with different countries working together precisely to avoid doing what Pfizer did, which was the refusal to share the knowledge with African countries.

47:48For a global pandemic, you must share the knowledge because even if you just think about yourself, you want everyone to have access to the vaccine. So it's an innovation collaboration. I talk about it in the book, which has the common good at the center of how the collaboration happens from the start. So we don't have to end up sending expired vaccines to Africa, which is what happened in COVID, which is what Dr. Tedros, the head of the WHO, called vaccine apartheid. Yeah. And on that, we should probably now, I think we've reached the common good. We just also say how happy we are that Arsenal won the Premier League.

48:18Yeah. A couple of people in the room are happy. Can we please finish with that one? Yeah, fair enough, whatever. So that's it from us and the rest is money. Bye-bye. Goodbye.