Does Capitalism Really Need ‘Changing’?

I n her influential book Mission Economy: A Moonshot Guide to Changing Capitalism, economist Mariana Mazzucato argues that capitalism is in crisis but can be saved by a larger regulatory state, greater subsidies, and unrestrained government spending.

Drawing on the 1960s-era Apollo program, Mazzucato champions a “moonshot” economy, an idea behind U.K. prime minister Keir Starmer’s soon-to-be-implemented “mission driven” government and Biden’s Build Back Better agenda.

The idea is that, just as private and public institutions worked together to send a man to the moon in 1969, political leaders today should pursue ambitious missions like net-zero emissions, income equity, and equal health-care access.

“Funding is not enough,” Mazzucato claims. “What’s needed is governance of the process in the public interest.”

That may sound nice on paper. Just get a bunch of capable, well-intentioned people together to make life better for everyone. Unfortunately, it’s dead wrong.

As Mazzucato recognizes, innovation is crucial to human advancement, but she mistakenly treats the government as its source. According to her, NASA-related funding resulted in technologies behind several products, including athletic shoes, camera phones, and dustbusters. She’s convinced this scenario will repeat as the state invests in other industries.

This mind-set, however, overlooks opportunity costs. The taxpayer money that the government spends on projects is funding that the private sector doesn’t have for its innovations.

Political failure is also likely. Unpredictable market forces and wrong incentives complicate the government’s ability to pick and pursue missions. The U.N.’s struggle to reach its sustainability goals reflects this principle on a larger scale.

Additionally, Mazzucato forgets that most Apollo-era inventions were unplanned, unexpected offshoots. Private innovation is no different, but at least when a venture fails, individuals bear the cost, rather than non-consenting taxpayers.

The largest downside to a moonshot economy is the fact that free markets are better at innovation than governments.

The history of flight that Mazzucato cites unintentionally illustrates that lesson. In 1898, the federal government invested $80,000 (more than $3 million in today’s money) into the attempts of America’s best engineer, Samuel Langley, to build the first engine-driven aircraft. The investment never turned a profit, and Langley watched as his Aerodrome plummeted into the Potomac River.

Five years later, using their own savings, two bicycle mechanics from Ohio defied gravity with one-twentieth of Langley’s budget.

Why did the Wright brothers succeed where Langley failed? Unlike Langley, their limited time and resources forced them to be efficient and to focus on the correct problems to solve, such as propeller innovations and wind-tunnel research.

Inefficiencies in the government mission mind-set harken back to the hubris that nationalized Soviet factories in the 20th century, which by the 1980s required 50 percent more material and twice as much energy to equal American factories’ output.

Today, Elon Musk is able to build rockets more quickly and efficiently than NASA because he is free to innovate. According to him, government contracts incentivize employees to maximize their project’s budget and, therefore, their profit. If “you came up with some brilliant idea to reduce the cost . . . you’d be fired,” he claims.

Unlike government workers, Musk doesn’t have to hurdle bureaucratic red tape to run multiple tests a day (an unprecedented practice) or rely on only one type of engine (where typical rockets have three). And if he fails, it’s him and his investors who eat the cost.

If the government prints more money to fund Mazzucato’s ventures, expect inflation and more political failures on the taxpayer dime, as with the electric-vehicle rollout, countless green boondoggles, and Biden-administration-funded factories that are empty because there isn’t enough labor or demand for their products.

This reality should be at the forefront of lawmakers’ minds as they consider implementing yet more regulations and expanding government investment. British and American taxpayers ought to be wary of the further influence that mission-oriented thinking could have on their leaders’ agendas.

Government has an essential but bounded role to play in society, by upholding the rule of law and defending rights. What Mazzucato advocates would not change capitalism but displace it with a bloated government that has far overreached these bounds.

Wayne Crews is the Fred L. Smith Jr. Fellow in Regulatory Policy and Sara Randall is a research associate at the Competitive Enterprise Institute.