May 31, 2020,09:56am EDT
Few economists become household names. Last century, it was John Maynard Keynes or Milton Friedman. Today, Thomas Piketty has become the economists’ poster-boy. Yet listen to the buzz, and it is five female economists who deserve our attention. They are revolutionising their field by questioning the meaning of everything from ‘value’ and ‘debt’ to ‘growth’ and ‘GDP.’ Esther Duflo, Stephanie Kelton, Mariana Mazzucato, Carlota Perez and Kate Raworth are united in one thing: their amazement at the way economics has been defined and debated to date. Their incredulity is palpable.
It reminds me of many women I’ve seen emerge into power over the past decade. Like Rebecca Henderson, a Management and Strategy professor at Harvard Business School and author of the new Reimagining Capitalism in a World on Fire. “It’s odd to finally make it to the inner circle,” she says, “and discover just how strangely the world is being run.” When women finally make it to the pinnacle of many professions, they often discover a world more wart-covered frog than handsome prince. Like Dorothy in The Wizard of Oz, when they get a glimpse behind the curtain, they discover the machinery of power can be more bluster than substance. As newcomers to the game, they can often see this more clearly than the long-term players. Henderson cites Tom Toro’s cartoon as her mantra. A group in rags sit around a fire with the ruins of civilisation in the background. “Yes, the planet got destroyed” says a man in a disheveled suit, “but for a beautiful moment in time we created a lot of value for shareholders.”
You get the same sense when you listen to the female economists throwing themselves into the still very male dominated economics field. A kind of collective ‘you’re kidding me, right? These five female economists are letting the secret out – and inviting people to flip the priorities. A growing number are listening – even the Pope (see below).
All question concepts long considered sacrosanct. Here are four messages they share:
Get Over It – Challenge the Orthodoxy
Described as “one of the most forward-thinking economists of our times,” Mariana Mazzucato is foremost among the flame throwers. A professor at University College London and the Founder/Director of the UCL Institute for Innovation and Public Purpose, she asks fundamental questions about how ‘value’ has been defined, who decides what that means, and who gets to measure it. Her TED talk, provocatively titled “What is economic value? And who creates it?” lays down the gauntlet. If some people are value creators,” she asks, what does that make everyone else? “The couch potatoes? The value extractors? The value destroyers?” She wants to make economics explicitly serve the people, rather than explain their servitude.
Stephanie Kelton takes on our approach to debt and spoofs the simplistic metaphors, like comparing national income and expenditure to ‘family budgets’ in an attempt to prove how dangerous debt is. In her upcoming book, The Deficit Myth (June 2020), she argues they are not at all similar; what household can print additional money, or set interest rates? Debt should be rebranded as a strategic investment in the future. Deficits can be used in ways good or bad but are themselves a neutral and powerful policy tool. “They can fund unjust wars that destabilize the world and cost millions their lives,” she writes, “or they can be used to sustain life and build a more just economy that works for the many and not just the few.” Like all the economists profiled here, she’s pointing at the mind and the meaning behind the money.
Get Green Growth – Reshaping Growth Beyond GDP
Kate Raworth, a Senior Research Associate at Oxford University’s Environmental Change Institute, is the author of Doughnut Economics. She challenges our obsession with growth, and its outdated measures. The concept of Gross Domestic Product (GDP), was created in the 1930s and is being applied in the 21st century to an economy ten times larger. GDP’s limited scope (eg. ignoring the value of unpaid labour like housework and parenting or making no distinction between revenues from weapons or water) has kept us “financially, politically and socially addicted to growth” without integrating its costs on people and planet. She is pushing for new visual maps and metaphors to represent sustainable growth that doesn’t compromise future generations. What this means is moving away from the linear, upward moving line of ‘progress’ ingrained in us all, to a “regenerative and distributive” model designed to engage everyone and shaped like … a doughnut (food and babies figure prominently in these women’s metaphors).
Carlota Perez doesn’t want to stop or slow growth, she wants to dematerialize it. “Green won’t spread by guilt and fear, we need aspiration and desire,” she says. Her push is towards a redefinition of the ‘good life’ and the need for “smart green growth” to be fuelled by a desire for new, attractive and aspirational lifestyles. Lives will be built on a circular economy that multiplies services and intangibles which offer limitless (and less environmentally harmful) growth. She points to every technological revolution creating new lifestyles. She says we can see it emerging, as it has in the past, among the educated, the wealthy and the young: more services rather than more things, active and creative work, a focus on health and care, a move to solar power, intense use of the internet, a preference for customisation over conformity, renting vs owning, and recycling over waste. As these new lifestyles become widespread, they offer immense opportunities for innovation and new jobs to service them.
Get Good Government – The Strategic Role of the State
All these economists want the state to play a major role. Women understand viscerally how reliant the underdogs of any system are on the inclusivity of the rules of the game. “It shapes the context to create a positive sum game” for both the public and business, says Perez. You need an active state to “tilt the playing field toward social good.” Perez outlines five technological revolutions, starting with the industrial one. She suggests we’re halfway through the fifth, the age of Tech & Information. Studying the repetitive arcs of each revolution enables us to see the opportunity of the extraordinary moment we are in. It’s the moment to shape the future for centuries to come. But she balances economic sustainability with the need for social sustainability, warning that one without the other is asking for trouble.
Mariana Mazzucato challenges governments to be more ambitious. They gain confidence and public trust by remembering and communicating what they are there to do. In her mind that is ensuring the public good. This takes vision and strategy, two ingredients she says are too often sorely lacking. Especially post-COVID, purpose needs to be the driver determining the ‘directionality’ of focus, investments and public/ private partnerships. Governments should be using their power – both of investment and procurement – to orient efforts towards the big challenges on our horizon, not just the immediate short-term recovery. They should be putting conditions on the massive financial bail outs they are currently handing out. She points to the contrast in imagination and impact between airline bailouts in Austria and the UK. The Austrian airlines are getting government aid on the condition they meet agreed emissions targets. The UK is supporting airlines without any conditionality, a huge missed opportunity to move towards larger, broader goals of building a better and greener economy out of the crisis.
Get Real – Beyond the Formulae and Into the Field
All of these economists also argue for getting out of the theories and into the field. They reject the idea of nerdy theoretical calculations done within the confines of a university tower and challenge economists to experiment and test their formulae in the real world.
Esther Duflo, Professor of Poverty Alleviation and Development Economics at MIT, is the major proponent of bringing what is accepted practice in medicine to the field of economics: field trials with randomised control groups. She rails against the billions poured into aid without any actual understanding or measurement of the returns. She gently accuses us of being no better with our 21st century approaches to problems like immunisation, education or malaria than any medieval doctor, throwing money and solutions at things with no idea of their impact. She and her husband, Abhijit Banerjee, have pioneered randomised control trials across hundreds of locations in different countries of the world, winning a Nobel Prize for Economics in 2019 for the insights.
They test, for example, how to get people to use bed nets against malaria. Nets are a highly effective preventive measure but getting people to acquire and use them has been a hard nut to crack. Duflo set up experiments to answer the conundrums: If people have to pay for nets, will they value them more? If they are free, will they use them? If they get them free once, will this discourage future purchases? As it turns out, based on these comparisons, take-up is best if nets are initially given, “people don’t get used to handouts, they get used to nets,” and will buy them – and use them – once they understand their effectiveness. Hence, she concludes, we can target policy and money towards impact.
Mazzucato is also hands-on with a number of governments around the world, including Denmark, the UK, Austria, South Africa and even the Vatican, where she has just signed up for weekly calls contributing to a post-Covid policy. ‘I believe [her vision] can help to think about the future,’ Pope Francis said after reading her book, The Value of Everything: Making and Taking in the Global Economy. No one can accuse her of being stuck in an ivory tower. Like Duflo, she is elbow-deep in creating new answers to seemingly intractable problems.
She warns that we don’t want to go back to normal after Covid-19. Normal was what got us here. Instead, she invites governments to use the crisis to embed ‘directionality’ towards more equitable public good into their recovery strategies and investments. Her approach is to define ambitious ‘missions’ which can focus minds and bring together broad coalitions of stakeholders to create solutions to support them. The original NASA mission to the moon is an obvious precursor model. Why, anyone listening to her comes away thinking, did we forget purpose in our public spending? And why, when so much commercial innovation and profit has grown out of government basic research spending, don’t a greater share of the fruits of success return to promote the greater good?
Economics has long remained a stubbornly male domain and men continue to dominate mainstream thinking. Yet, over time, ideas once considered without value become increasingly visible. The move from outlandish to acceptable to policy is often accelerated by crisis. Emerging from this crisis, five smart economists are offering an innovative range of new ideas about a greener, healthier and more inclusive way forward. Oh, and they happen to be women.