To meet today’s challenges, economics requires an understanding of how common objectives can be collaboratively set and met. An article by Mariana Mazzucato in the Journal of Economic Policy Reform provides a renewed conception of the common good which goes beyond the classic public good and market failure approach to fixing the economy. It is a way of steering and shaping the economy towards collective goals with the article proposing five pillars to guide actors working together.
What is the common good?
Classical economic theory has defined what is ”good” in the relationship between producers and consumers. The welfare of both are interdependent but rooted in the exercise of individual choice. What individuals have in common is their self-interest. The idea of a collective economic good that is deliberately agreed is eschewed by classical and neoclassical economic theory.
The common good offers an avenue to explore the link between individual and communal interests. It is not just about maximising the sum of aggregate individual interests, but about common interests and mutual concern. In this sense, the common good is rooted in the values and collective responsibility that members of current and future generations share.
Conceptualising economic goods
Economic scholarship differentiates between goods based on two key attributes:
- rivalry which refers to whether one person’s consumption of the good reduces its availability for others.
- excludability, which denotes whether people can be prevented from the consumption of the good.
Public goods are non-excludable and non-rivalrous in their consumption and can be consumed at no additional cost by the rest of society. Examples include environmental protection and national defence. The public good concept is embedded in the market failure theory which accepts public intervention in the economy only if it is geared towards fixing situations in which markets fail.
The public good concept has been elaborated with an international dimension through the idea of global public goods. GPGs are goods shared by more than one country and can even be shared among generations such as transboundary waters and other non-renewable resources. The global feature means that no one nation can deal with the problem alone, requiring the involvement of global organisations such as the United Nations.
From correcting market failures to shaping collective goals
The above concepts of economic goods share one characteristic: they are all embedded in the notion of either market failure or state failure. The traditional notion of market failure has promoted the idea that public intervention in the economy is only justified if it is geared towards fixing situations in which markets fail to efficiently allocate resources. This can be contrasted with a view of government as not only fixing but shaping and co-creating markets.
Rethinking the role of the state in shaping modern market economies requires an underlying theory of public value. This is not thought to be created exclusively inside or outside the private sector but focuses on how public organisations interact with private and civil society actors to deal with the major challenges facing society.
The common good is based on a conception of public value as collectively negotiated and generated by a range of stakeholders. It is only by redirecting the economy with public value at the centre of production, distribution, and consumption that the economy can be shaped and co-created to produce more inclusive and sustainable outcomes.
The article proposes a framework where actors working together towards collective goals are guided by five pillars:
- Purpose and directionality: Promoting outcomes-oriented policies that are in the common interest.
- Co-creation and participation: Allows citizens and stakeholders to participate in debate, discussion, and consensus-building that bring different voices to the table.
- Collective learning and knowledge-sharing: Designing true purpose-oriented partnerships that drive collective intelligence and sharing of knowledge.
- Access for all and reward-sharing: Sharing the benefits of innovation and investment with all the risk takers, whether through equity schemes, royalties, pricing, or collective funds.
- Transparency and accountability: Ensuring public legitimacy and engagement by enforcing commitments amongst all actors and by aligning on evaluation mechanisms.
The bottom line
Previous thinking about the common good has not given sufficient consideration to the governance of collective goals. The five pillars framework re-conceptualises the steps taken by economic actors to create public value while achieving collectively deliberated goals. Putting the economic common good at the heart of governance empowers and encourages governments, business, and civil society to actively shape markets and incorporate public value.
A successful incorporation of the five pillars principles depends on the state’s dynamic capabilities to perform core policy functions – from the provision of public services to policy design and implementation. In turn, these dynamic capabilities rely on investments made by the public sector for it to be more creative, agile and flexible.
Want to read more?
Governing the economics of the common good: from correcting market failures to shaping collective goals – Mariana Mazzucato, Journal of Economic Policy Reform, December 2023.
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- Published Date: 31 January 2024