I have read Mariana Mazzucato’s, Mission Economy. A Moonshot Guide to Changing Capitalism (Allen Lane, 2021). As the marketing blurb explains, in the book ‘Taking her inspiration from the “moonshot” programmes which successfully co-ordinated public and private sectors on a massive scale, Mariana Mazzucato calls for the same level of boldness and experimentation to be applied to the biggest problems of our time. We must, she argues, rethink the capacities and role of government within the economy and society, and above all recover a sense of public purpose.’ I must admit that I found the book less than persuasive — and it is a consolation to see that this was also the take of Stiglitz in his book review for The Lancet, The Economist’s reviewer’s take, as well as Whalley’s in his book review for the Journal of Economic History [paywalled].
Mission Economy advances some ideas hard to disagree with, in particular concerning the need to boost public sector capability and competence in order to increase the public sector’s ability to drive complex (strategic) procurement and to effectively monitor supplier and provider performance (as discussed eg here, just a couple of days ago, or here in more general terms); or to raise current levels of public expenditure (by reference to pre-pandemic standards, that is), especially in research, development, and innovation (R&D&I).
However, there are also quite a few proposals that can hardly muster much support, as they simply ignore, or worse reject, the very serious governance difficulties that would result from Mazzucato’s approach. Her proposals for a significant relaxation of procurement-related constraints fall squarely in this latter group.
Given the influential nature of Mazzucato’s work, and the fact that policy-makers around the world are currently thinking about how to leverage procurement expenditure to reactivate the economy and accelerate (or launch?) the green transition, I think that a detailed assessment of her views and proposals on public procurement can be useful. To match Mazzucato’s more detailed analysis (in a 2020 report discussed below), my analysis here refers primarily to EU and UK current rules (ie, mostly, the 2014 Public Procurement Package), in particular as they relate to the bypassing of competitive tendering and the pursuit of public-sector led innovation [on which see the recent piece by Roberto Caranta and Pedro Cerqueira Gomes, ‘Public procurement and innovation' (2021) ERA Forum, and the latter’s extended analysis in EU Public Procurement and Innovation. The Innovation Partnership Procedure and Harmonization Challenges (Edward Elgar, 2021)]. However, the thoughts below are hopefully of interest and relevance to other jurisdictions too.
References to procurement and innovation in ‘Mission Economy’
Unsurprisingly (but uncommonly) for a book on the role of the State in the face of tall order challenges — in particular the climate emergency, public health crises, and the growing digital divide — there are quite a few references to the role that procurement governance needs to play for it to be a catalyst of change, as opposed to the almost caricaturesque stereotype that procurement rules are a hindrance to the State’s ability to spearhead innovation. In fact, on the basis of the book, I would say that the most accurate summary of Mazzucato’s views is that (i) procurement rules should regularly be set aside in an innovation context, so that the State is free to directly award grants and contracts to whoever it sees fit; and (ii) public contracts should be reformed in a way that is primarily outcomes-based and offers rewards for innovative approaches to problem solving.
As an example of her support for bypassing competitive tendering, Mazzucato clearly has a positive take on the fact that, in the context of NASA’s procurement for the Apollo programme (which is the foundation of her analysis), the then current rules were often used ‘to waive formal advertising requirements so as to hire the best possible partners in the business community as quickly as possible — even if they might cost more than others’ (at 93). Quite how those ‘best possible business partners’ were identified and on what basis remains unexplored, as is whether they were actually the best possible partners, or simply the partners known to the contracting administrators, or the partners that ended up doing the job. In a nutshell, Mazzucato seems to be a proponent of rather unconstrained procurement decision-making (or at least procurement free from competition requirements). On this point, I find Mazzucato’s views to starkly clash with the evidence on the undesirability of unregulated procurement that keeps being thrown at us, eg in relation to the dog’s breakfast of pandemic-related procurement in the UK.
As an example of her views on the need to reform the structure of public contracts once (directly?) awarded, Mazzucato repeatedly refers to the need to use procurement budgets as innovation budgets (at 121), to redesign ‘procurement contracts to foster new ideas for solving problems’ (at 126), and to ‘enable experimentation’ (at 128). This is reiterated, when she stresses that ‘… it is important to have a clear goal in mind. That goal can be used to drive innovation, aided by procurement or prize schemes that nurture creativity and allow a scaling-up process for organizations that are willing and able to experiment‘ (at 154).
As a seemingly positive implementation of such an approach, she ventures that ‘Procurement to solve public goals, including the production of ventilators during a health pandemic, can be used to drive innovation in business—with the focus on the goal rather than the static metrics around commercialisation’ (at 127). It may be that the example she chose was a hostage to fortune at the time of writing, but also on this Mazzucato’s views fly on the face of the evidence on the governance problems and significant wastage of public funds that can follow a rushed ‘mission-oriented’ approach to using procurement and public contracts to generate innovation [see eg the evidence on the ‘ventilators challenge’ in the NAO’s 2020 ventilators report, as well as the following evidence that it basically resulted in the loss of over £140 million, eg in The Guardian/Observer].
Mazzucato offers another example of mission-oriented procurement concerning the development of the BBC Micro computer in the UK in the 1980s (at 158). However, it is worth stressing that the award of that contract was competed—albeit only amongst British companies and under a process that seemed to resemble current restricted procedures, or even a competitive dialogue by invitation [see Blyth (2012)]—and that the award seemed to be for the supply of an initial estimate of (fixed-price?) 12,000 computers to be partially subsidised by the Department of Trade and Industry if acquired by schools [see Yi (2012)]. So, even if the details are hard to find given the time that has elapsed, this hardly looks like a procurement procedure or public contract structure resembling the general proposals made by Mazzucato. If anything, it is an example of the use of procurement for industrial policy purposes that is not only highly problematic, but also mostly proscribed by international and bilateral trade agreements.
The repeated (if passing or superficial) references to procurement and the need for it to develop a different role in Mission Economy, as well as the (in my view ill-judged) brushing aside of governance and other crucial procurement regulation issues, picked my curiosity (and if you have read this long, they probably have picked yours too). A quick follow-up search led me to Mazzucato’s more specific ‘Mission-oriented public procurement: lessons from international examples’ (2020) UCL Institute for Innovation and Public Purpose, Policy Report, IIPP WP 2020-20. This report offers more detail on Mazzucato’s position on procurement and how to make it ‘mission-oriented’, so it is worth taking a close look.
‘Mission-oriented public procurement’, some critical comments
General issues
This report advances that ‘using the procurement process to direct and steer can have important effects on the social and economic structure of different countries’, and uses four case studies to support that position. It largely seeks to provide more details on how to operationalise a ‘mission-oriented’ approach to procurement than Mission Economy, but it does not really engage with the existing literature on ‘strategic procurement’, which has largely sought to promote the same outcomes. Despite its title, the report is primarily concerned with the use of procurement to support or foster green innovation within the EU regulatory context.
The report is also largely normative and seeks to rely on the broader ‘mission-oriented’ framework described in detail in Mission Economy, as well as in two earlier reports by the same author. In seeking to relabel or repackage well-known ideas on strategic procurement, the report makes some general statements that, while relatively accurate, are disconnected and decontextualised from the regulatory framework and show a superficial understanding of procurement rules and governance (see the less than bare bones description at 3, or the superficial description of different types of procurement, including pre-commercial procurement, and the lack of engagement with neighbouring important rules, such as those on R&D State aid, at 4).
For example, one of the opening salvoes is that ‘… in order to implement a series of missions, the instrument of public procurement — and therefore the supply of goods, services and technologies to public entities — must also be able to respond to criteria that are based on more than just the highest (sic) bidder, based on cost’ (at 1, emphasis added). This is not only reflective of a likely mindless oversight — for, if anything, cost or price-based procurement would seek to award the contract to the lowest (compliant) bidder — but also absolutely uncontroversial and completely aligned with e.g. EU procurement policy since (at the very least) the early 2000s.
Another example of the limited understanding of procurement (and its terminology) concerns the way in which Mazzucato wants to instrumentalise procurement, when she states that ‘… missions require rethinking the setting and implementation of procurement, moving towards schemes based on the allocation of prizes for the achievement of specific quantitative objectives but also, more importantly, qualitative objectives’ (at 1, emphasis added). This is quite unclear, in particular as procurement is rarely ever involved in the allocation of prizes (except, perhaps, in the context of the seldom used design contest). What she may mean is that public contracts (not procurement procedures) need to have in-built (financial) incentive mechanisms that are linked to performance or outcomes, measured in quantitative and qualitative terms. Again, this is a rather uncontroversial statement of principle and the object of rather voluminous economic literature. However, the difficulties in setting adequate outcomes-based KPIs and quality control mechanisms need to be scrutinised in great detail — and the report is of no help there. If, alternatively, Mazzucato was arguing for a complete revolution and the adoption of an approach seeking to reward ‘any qualified provider’ (or, more generally, anybody) making a measurable quantitative or qualitative contribution to pre-defined governmental goals, then that would have required a lot more explanation, as well as some consideration on the feasibility of its implementation and management.
A further example is the statement that ‘The mission-oriented approach … offers the potential to structure different economic policy objectives by specifying the final results to be obtained (such as safe driving on the roads) rather than the solution (for example, self-driving cars). This allows margins for experimentation and coordination of the public procurement process across different institutions and value chains’ (at 2). Quite. But this is generally (and uncontroversially) termed a functional or performance-based approach to the setting of technical specifications (which, incidentally, is discussed later in the report, at 5), and is also long-standing policy in the EU context.
And the difficulties in making sense of the ‘mission-oriented’ approach by contrast to existing regulatory and policy approaches are perhaps most evident in trying to make sense of the statement that ‘An effective procurement system for missions can create a positive dynamic that selects “willing” actors (picking the willing) instead of predetermined “winners” (picking the winners)’ (at 2).
All in all, despite its fancy labelling as mission-orientatedness, the framing of the report seems to mainly be linked to the standard approach to using procurement to foster (green) innovation as a demand tool, as it emphasises that ‘Public organisations can support innovation through procurement in different ways within a mission-oriented approach. They can create new markets for cutting-edge products and systems thanks to the boosting effect of public demand, which enables them to bear the risk of companies that invest to obtain technological innovations. Similarly, procurement can encourage innovation by creating a lead market for new technologies and solutions or by providing a testing ground for innovative products’ (at 3). Again, hard to disagree with this, but the approach is solely reflective of the ‘what to buy’ decision, which is fundamentally unconstrained by the (EU and UK) procurement rules. In failing to explore ways in which the current rules allow contracting authorities to take proactive steps towards demanding, or rewarding, (green) innovation within procurement tenders and in public contracts, the report falls well short of painting a full picture of the potential of the existing regulatory framework.
Agreement on the need to boost public sector capability
Much like in Mission Economy, the one section of the more detailed procurement report with which one can but agree, concerns Mazzucato’s call for more investment in procurement-related capabilities, in particular from a technical/scientific perspective (section 2.4, at 6-7). As she rightly puts,
The state must invest in its own resources, developing internal capabilities in strategic areas, including the ability to design contracts aimed at achieving public policy objectives. Without these key competences, which the private sector normally develops, the public sector will not be able to achieve its objectives. Investing in the capabilities within the public administration, especially in the procurement area, becomes a prerequisite for rethinking the relationship that public procurement agencies establish with private suppliers in a more dynamic and symbiotic way (at 7).
The point is broader than the issue of public-private interaction or collaboration, though, and it should be stressed that without more internal capabilities, all efforts to leverage procurement expenditure to pursue economic, green, social or innovation goals (or whatever mission we wanted to label them under) are likely to result in poor implementation and wastage of public resources.
A look at the international examples
The first set of examples concerns the US’ Small Business Innovation Research (SBIR) programme, and the UK’s Small Business Research Initiative (SBRI) programme — both of which can be drawn together by the fact that they largely involve pre-commercial procurement, have a clear industrial policy-orientation, and are carefully designed to remain below economic thresholds that could trigger competitive tendering and other (non-discrimination) obligations. Moreover, the discussion ignores that, in particular the US programme and broader SME protectionism in US trade commitments are a constant bone of contention (with the EU). It also seeks to illustrate the US experience by referring to the same NASA example as above, which has no connection whatsoever with the SBIR. The discussion of the UK’s approach is also fudged by discussion of eg the 2012 Social Value Act, which not only has nothing to do with SBRI, but also can hardly be seen as an instrument of effective policy orientation (with its insufficiency being acknowledged in recent efforts to push for the inclusion of social value considerations well beyond the requirements of the social value act — see eg PPN 6/20 on taking account of social value in the award of central government contracts).
The second set of examples concerns the Swedish approach to green public procurement and a host (or rather, random collection) of policy and pilot projects that have taken place in the last 20 years or so. There is no clear point to be extracted from these examples, other than the fact that green procurement has been growing in importance as a policy issue over the last two decades, and that Sweden and other Nordic countries (see below) have been front-runners in the that respect, at least in the European context.
The third example concerns the City of Copenhagen’s approach to green procurement, in particular one competitive dialogue for street lighting. Other than the mere description of the case, there is no analysis of the procurement or its practical implications.
The final example concerns Italy and simply bunches together discrete examples of pandemic-related emergency procurement (for ventilators and PPE) and broader green procurement policies of recent years. Again, there is no analysis or clear line or argumentation. The ‘case study’ also includes superficial comments on the Italian transposition of the EU Directives, which are extremely naïve in their face value reading of the relevant rules.
Where do those conclusions come from?
The concluding section is completely unrelated to the ‘empirical evidence’ offered by the international case studies. Mazzucato claims that the analysis in the report offers lessons, including the need for discretionality, directionality, capabilities and flexibility in procurement and, more generally, that ‘… it is essential to nest the dynamics of public procurement within a new logic for public administration (PA). A PA driven by public value and public purpose. One that is focussed on catalyzing investment and innovation across a wide variety of actors in the economy, in the public, private and civil society sectors. Only in this way can public purpose be brought to the centre of economic growth that is more inclusive and sustainable’ (at 17).
While some of this would require some unpacking, the level of generality and abstraction of these recommendations make them hard to disagree with, as a point of principle. They are, however, not based on even an acceptable level of engagement with the reality of procurement regulation and practice in the jurisdictions the report claims to cover. Not to mince words, the quality of the report should be embarrassing to a professor of the economics of innovation sincerely interested in making proposals for an improved system of governance, as those can only really be built on a proper understanding of the current structures and practices (boring as procurement law may be, to some).
Mission confusion?
All in all, I have come to realise that I have a big problem with Mazzucato’s discussion of new approaches to procurement and how to use them to unlock the very much required green innovation that needs to lead us to a net zero economy, or beyond, in the already too late response to the climate crisis. Much like Mission Economy more broadly, the specific report on ‘mission-oriented public procurement’ is not more than a (relatively) well-written piece with an imaginative use of labels that seek to camouflage both a poorly informed and very general analysis of procurement regulation and practice, and a complete omission of both earlier scholarship and policy-making trends, as well as all discussion of the likely (for there have to be some) downsides of the proposed ‘changes in approach’.
And this is reflective of one of the broader problems in scholarship and policy-making surrounding innovation and social challenges, not only in procurement, where there is also a lot of repackaging of old ideas (garbage can theory, anyone?) and abstract or high-level promises that are undeliverable (makes me think of the snake oil and hype surrounding many a proposed ‘application’ of digital technologies for procurement, in particular blockchain). Doing mostly the same, or advancing the same old ideas, but calling them something else is not innovative, and certainly not the way to rethink or reinvent anything. And it won’t fly for procurement either.