This time she’s running a conference telling us all how it’s absolutely vital that the UK economy be planned the way that Ms. Mazzucato thinks it ought to be. Which is, if we are fair about it, a plan that rather ignores one of the most basic economic points about economies:
This is encouraging news and shows that the UK is hopefully on the path towards ‘rebalancing’ away from an economy biased towards financial services, towards growth of innovation and productivity in the ‘real economy’.
Hmm. For this to be either true or desirable we’d need to show that we actually have an economy biased towards financial services.
The key problem that he and other international policy makers have is to make sure that such rebalancing tackles finance on two equally important sides. On the one hand, rebalancing so that finance funds the real economy. This means addressing the dire situation that figure 1 shows below, i.e. the degree to which finance has been financing itself leading to the exponential rise in the value added made up of financial intermediation, compared to that of the real economy (everything but finance and agriculture).
Hmm, so, OK, finance has been a greater part of the value added in the economy in recent times. It’s still difficult to understand why this is a bad idea.
The second key issue that rebalancing must address is not just how to get more value added from the ‘real economy’ and less from ‘financial intermediation’ (finance financing finance), but also how to de-financialise the real economy itself!
So, back to this question of whether the UK economy is in fact excessively financialised. And there’s two parts to that question. In the general economy we’re no more financialised than other advanced economies. We have roughly the same sized pensions industry, insurance and retail and commercial banking industries, mortgages, savings products and all the rest. And we need only invoke Maslow’s Hierarchy of Needs to see why a richer nation might want more of such financial activity. Once the basic needs are met we move on to wanting to have security which is exactly what savings and insurance do for us.
But it is also true that the total financial sector in the UK is larger than it is in most other countries. Almost nowhere else has anything even remotely comparable to The City. but to say that is a problem would be to make the poor departed spirit of David Ricardo cry. For we do seem to have a comparative advantage in being the financial marketplace for the world and that’s an advantage that we should be exploiting.
So if we look at the domestic economy we don’t seem to be excessively financialised. And if we look at the total economy that financialisation is about our successfully selling services to Johnny Foreigner. Neither of which are obviously problems that require solutions. Making Ms. Mazzucato’s conference, and possibly the good professor herself, somewhat redundant.