If you want to get an idea of how many universes lie between what passes for economic competence in Germany and what leading international economists are discussing these days, then you missed something yesterday (and can rewatch it here). Our OECD partners (NAEC*) invited us to a veritable world summit on economics to discuss how the economic recovery after the pandemic could be combined with the solution of deeper structural problems such as inequality, climate crises and lack of economic dynamism (secular stagnation). On the panel: Nobel laureate Paul Krugman and IMF chief economist Gita Gopinath, as well as Mariana Mazzucato, former British central bank chief Mark Carney and former IMF chief economist Kenneth Rogoff.
One example how to combine macroeconomic and climate issues that Paul Krugman referred to are the recovery and infrastructure plans of the Biden administration. According to Mariana Mazzucato, even more important than the mere size of fiscal stimuli is to ensure the purposeful direction of finance at public goods. Hence, it does not suffice to just raise public investments and throw out helicopter money, but the targeted use of macroeconomic policy measures is key.
For this to work, Mariana Mazzucato emphasizes the quality of governance (better state) being most important, rather than asking the question of more or less state. For a truly systemic recovery in terms of building back better, we therefore need new public-private partnerships. Instead of de-risking business governments should hold private actors accountable for risks taken, instead of fixing markets they should co-create markets.
Kenneth Rogoff focused on another challenge that is closely related to the development of inequality and stagnating economic growth: the increasing monopolisation of Bigtech. He warned against the growing (market) power of these companies and called for stronger regulations – in the spirit of Elizabeth Warren. Mark Carney also warned against increasing “Uberisation” and emphasised that technological revolutions have always had a polarising effect on income and wealth. This development is now further reinforced by the pandemic, which is why solidarity-based, sustainable and resilient policies are now needed.
Gita Gopinath also focused on the increasing polarisation – but in a global context. The Covid-19 pandemic has wiped out a decade of convergence between developed and developing countries. While most industrialised countries could afford to cushion the economic consequences of the pandemic with rescue packages and to procure enough vaccine, economic performance in developing countries has plummeted. The IMF chief economist therefore appealed to the governments of the global North to distribute vaccine globally.
An article by Mariana Mazzucato, Jayati Ghosh and Els Torreele about patents on medical products in the context of Covid-19 links the problem of vaccine scarcity to an example of what a more offensive stance by the state might look like. Voices praising the forces of capitalism and markets for the rapid development and production of vaccines are neglecting the crucial role of the state. By de-risking business of pharmaceutical firms with massive public investments and extensive public contribution to the development and R&D research, the success story of covid-19 vaccines is far from being written solely by market forces.
According to Mariana Mazzucato, a proactive state with sufficient resources for good governance is necessary to reform public-private partnerships which is at the heart of solving the pressing challenges of our time – for a truly systemic recovery.