The state as common good’s last stand: Recipes to stop oligarchy

If the Covid pandemic made one thing clear, it’s that profit maximization must not serve as the guiding light for resource allocation. Despite the early warning shots of SARS in 2003 and MERS in 2012, no major pharmaceutical company had made progress in developing vaccines against a possible coronavirus by 2020. No supplier of medical equipment had stocked the ventilators needed to confront the emergency, let alone masks.

This has not been the only issue linked to faith in the invisible hand. Markets have amply demonstrated that they are incapable of avoiding systemic risks such as those related to subprime mortgages and the allocation of resources towards transitioning to green energy. Nor do they typically address the discontent of a citizenry whose salaries lag behind basic goods like housing, whose costs are often inflated by, among other factors, the progressive inability of governments to correct inefficiency.

And what are we to make of the rise of such potent technologies as artificial intelligence? Will the AI products that maximize the earnings of their owners also maximize the wellbeing of society as a whole? Or conversely, will they follow the path of social networks, generating tension in our everyday lives in pursuit of multiplying their advertising revenue?

The dimensions of the challenges to come, and the seriousness of the crisis we are already experiencing, have led to the resurgence of a debate that Italian economist Mariana Mazzucato first identified a decade ago in her book The Entrepreneurial State: Debunking Public Vs. Private Sector Myths, in which she holds that governments must leave their internal conflicts behind and take on their responsibilities as wealth generators and market guides.

To Mazzucato, assuming these duties implies at least two things. On one hand, that the public sector provide incentives and regulate to make sure that the private sector’s pursuit of profit is aligned with the goals that each society sets in its democratic process. On the other hand, that the public sector receive its fair share of investment in development whose benefits are being privatized. In addition to basic pharmaceutical research, Mazzucato often invokes touch screens and GPS systems as examples of public innovations for which the state never received payment or preferential access for its applications.

One of the ideas that takes shape in this debate is that of so-called productivism, of which economist Dani Rodrik is one of the principal theorists. A Harvard political economy professor and winner of the Princess of Asturias Award for Social Sciences, Rodrik has spent years elaborating on the foundations of what he describes as a possible new consensus for the post-neoliberal era, in which governments go beyond the classic functions of the Keynesian welfare state — redistribution, social spending and macroeconomic stability — to intervene in the moment prior to the creation of wealth, stipulating conditions for companies regarding the generation of “good jobs” throughout the country and for all citizens.

Two tracks

In a 2023 essay, Rodrik defined “good jobs” as those that have traditionally worked to create the middle class, featuring salaries that allow for a reasonable quality of life and a certain amount of saving, with workplace stability and possibilities of advancement. In the opinion of the Turkish economist, the scarcity of these kinds of jobs in developed countries is a symptom of their decline towards two-track economies, a duality that was once limited to emerging markets in which a small elite comprised of cutting-edge companies coexist, but hardly interacts, with a large base of very unproductive small businesses.

His thesis is that, to recuperate the well-being of the middle class and tackle polarization, populism, and the lack of faith in experts, institutions and governments, it is no longer enough for the state to merely redistribute. Improving public education and ensuring workers’ right to organize is good, but insufficient, according to Rodrik. “Since the bulk of future jobs will come from services, the creation of good jobs will require a deliberate governmental effort to achieve improvements in productivity,” he adds.

This deliberate governmental effort can take the form of regulations, permits, roadmaps and subsidies towards achieving its goal. Rodrik uses the fight against climate change as an example, saying, “rather than a stick like taxes on carbon emissions, it’s about setting carrots in front of the private sector so that it updates and repositions itself on a greener path to renewable energy technologies.”

His words sound a lot like the Green New Deal program that Joe Biden put into practice in the United States, where the Defense Advanced Research Projects Agency (DARPA) has been pursuing a similar gameplan for the last 50 years. Created by the Pentagon, the agency has gradually grown to encompass projects related to energy, health and infrastructure. In the DARPA model, “instead of limiting itself to providing subsidies, the state dedicates itself to coordinating key actors around a vision that incorporates short-term objectives in order to measure results and adjust strategy,” says Rodrik.

In addition to companies, key actors can be universities, the technological community and other public administrations. The state provides training for future employees and small business owners, access to technology, permits, or simply the certainty of a gameplan and coordination among these entities. “The third phase of all of this is to measure results, betting on investments that get us closer to the goal, abandoning those that don’t, and going on from there with a repeating cycle,” says the economist.

The National Nutrition Strategy, which was announced in January by Spain’s Ministry of Agriculture, seems to square with this notion of a self-imposed mission that orients the private sector toward goals that benefit society. Similarly, according to the breakdown provided by the country’s Ministry of Health, the Pharmaceutical Industry Strategy’s objectives are to guarantee equitable access to medicine, the sustainability of the national health service, and the industry’s innovation and competitiveness.

Javier Padilla, Spain’s Secretary of State for Health, recognizes that the idea of mounting such strategies has had a lot to do with “upward pressures being felt in pharmaceutical spending that put its sustainability and predictability at risk.” In recent years, the relationship between industry and state has been deprioritized, says Padilla, “and was almost exclusively limited to the conditions of access to medicine, price and quantity.” Such strategies’ objectives are to extend the state’s participation to other areas of the value chain: basic and applied research and everything related to the development of strategic autonomy. “Moving from a supply-based model to a needs-based model, where the state signals the private economy as to its needs and ensures accessibility to medicine,” says Padilla.

“Within European pharmaceutical strategy, one of the main points of discussion revolves around shortages now that we no longer have a peaceful global market, with the capacity to guarantee low prices and supply for all products,” says the Secretary of State. In Padilla’s opinion, Spain has several assets for attracting investment and reducing uncertainty. One of them is its size as a pharmaceutical market, which he calls “one of the largest in the world.” Also, its connection with Latin America and competitiveness within the context of the European Union, due to “good levels of training, good social protection conditions and lower salaries.”

“With 174 drug production plants in Spain, the sector has become an important source of highly qualified jobs, with above-average salaries, greater stability and a high degree of technification and greater gender diversity,” says Padilla, referring to the kind of productive service jobs for which Rodrik advocates. Two companies, the State Network Consortium for the Development of Advanced Therapy Medicines and Terafront Farmatech, have been created in the goal of growing public-private collaboration, with the government as their largest shareholder at 49% of capital. “It’s not something we’re used to seeing, the public and private sectors thinking ahead in terms of 10 years or more to solve specific problems with measurable results and risks truly shared between the two,” says Padilla.

Coming together

Peruvian economist Piero Ghezzi is an expert when it comes to collaborative projects in which governments provide benefits to companies that freely decide to sign up for initiatives to improve their productivity. Between 2014 and 2016, the two years he served as Minister of Production in the Ollanta Humala administration, Ghezzi organized what wound up being called “executive roundtables,” public-private meeting points with the goal of eliminating bottlenecks that stifle productivity.

“One example of the things we did after meeting with aquaculture companies was the creation of a health authority to guarantee that Peruvian aquaculture exports were up to the health and quality standards required by international markets,” says Ghezzi. “Providing a public good can mean fixing an institution that isn’t functioning well, or creating one that didn’t previously exist, as in this case, which served to open up the Chinese market to Peruvian prawns,” he adds. “We did it because it worked, and little by little, we developed a methodology that has been taken up by Dani Rodrik, [Rodrik’s fellow Harvard economist] Ricardo Hausmann, and the Inter-American Development Bank, alongside other ideas about modern industrial policy.”

In Ghezzi’s opinion, one of the key parts of this methodology, which has been replicated in governments as diverse as those of Chile’s Gabriel Boric and El Salvador’s Nayib Bukele, was opening up forums accessible to companies that were truly interested in developing this work mode, “that demand more commitment than applying for a subsidy,” and organically developing capabilities in both the public and private sectors. “As the saying goes, we ‘ate the elephant one bite at a time’ [took it step by step], starting with small missions to also begin building the government’s capacity, because again, it’s more complicated than the state limiting itself to handing out subsidies,” he says.

In addition to improving productivity in creating good jobs across all sectors of the economy and guaranteeing access to essential goods like medicine, an increased presence of the state is essential when it comes to powerful technologies like AI, says Katharina Pistor, a law professor at Columbia University. Not only because many models utilize data that is compiled and categorized by public organizations, such as DeepMind’s AlphaFold (Google’s AI), but also because they have massive transformative potential. As Simon Johnson and 2024 Nobel Prize in Economics winner Daron Acemoglu argue in their book Power and Progress: Our 1,000-Year Struggle Over Technology and Prosperity, we still don’t know whether AI will ultimately serve to amplify human labor or substitute it.

“Even without AI, we are being subjected to a ton of influences that we are not able to easily detect, that will impact the way we understand the world, what we think about what is true and false, and the way we relate to others,” says Pistor, who authored The Code of Capital — selected by The Financial Times as one of the best books of 2019 — in which she analyzes the way that legal systems are designed to produce wealth and inequality. “AI will be able to do similar things much more quickly, but we could lose one of the most important things for us, which is our creativity, our search for the new… AI is very close to the heart of what it means to be human,” says the academic.

In an opinion column published in November by this newspaper, Pistor spoke of the obstacles that California ran into while considering a law to regulate the use of AI as an example of the lobbying power exercised by large tech companies. “Our very identity as human beings is in play and the political risks are huge, as well as the doubt as to whether or not we are being manipulated into believing in things that we don’t yet understand,” she says. “And we’ve seen how the internet has been transformed into a machine for monetization, and now the danger is that the data is an infinite asset… Unless we find a way to stop its harvesting, those who control digital platforms will have access to an infinite source of resources that they will monetize for profit,” says Pistor.

So far, Europe seems to be keeping up in the race for productivity and the future without betraying its values of respect for intellectual property and citizen privacy. However, the European Artificial Intelligence Act, which came into effect in August, has also been criticized for its discouraging effect on investment. “Microsoft and Google have developed new models that are not available in Europe because complying with our regulations is too difficult and costly, or downright impossible,” says Bertin Martens, senior researcher at the European think tank Bruegel. “The result is that European companies and European consumers end up being left without access to the most advanced models.”

In light of this, the second part of Europe’s strategy is to generate the computing capacities required by AI within the EU itself, and to develop models that respect privacy and align with the values that are democratically decided by its citizens. Seven European AI factories are working to this end, including the National Supercomputing Center in Barcelona. In January, the Alia AI model that was developed at the Barcelona facility was announced, having been created with the aim of enabling Spanish companies and public institutions to incorporate it into their processes, without depending on foreign technologies and “with all the guarantees of transparency and respect for copyright,” as María González Veracruz, Secretary of State for Digitalization, told journalists during that presentation.

But is it enough?

According to Cecilia Rikap, head of research at the Institute for Innovation and Public Purpose at University College London (which is directed by Muzzucato), having seven European AI factories is a good start, but it’s not enough. “Computing capacity is one part of it, but you also need the digital ecosystem in which European start-ups can sell the AI models they have trained.” In her opinion, creating your own marketplace runs into the difficulty of attracting demand that is, for the moment, concentrated in the ecosystems developed by the big technology platforms. “What happens when no one comes to yours and demand stays with Amazon, Microsoft, Google?”

Rikap believes that European states should avoid that pitfall by uing their own purchasing power. “I’m not just talking about ministry offices, but also health services, education services, military services… The big platforms are desperate to have all these institutions as clients, but the states themselves could source services through a truly public marketplace,” she says.

In her opinion, this would also enable states to issue guidelines on AI developments. “The Pentagon, with DARPA, did not just finance, it also directed innovation. The public sector set the agenda, prioritizing U.S. scientific and technological interests,” she says. “But what is happening today with AI is that the ones who decide the direction, where to go, and what AI we have are companies. That’s why I believe that the solution is not simply to put a little industrial policy here and there, but to plan innovation from a space that is truly democratic,” she concludes.

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