Financing the Common Good

May 1, 2023 |MARIANA MAZZUCATO

LONDON – The Interna�onal Monetary Fund and the World Bank recently held their annual spring mee�ngs,
which, according to the organizers, produced a “strong message of confidence and a willingness to cooperate.”
But lo�y rhetoric and good inten�ons will not be enough to create a truly inclusive and sustainable economy
fit for the twenty-first century. For that, deep structural change is needed.
Some are calling for it. Mia Mo�ley, the prime minister of Barbados, advocates a “New Consensus” between
wealthier and less wealthy countries. Similarly, UN Secretary-General António Guterres has called for a
“Common Agenda” – a roadmap for global intergovernmental coopera�on aimed at moving from “ideas to
ac�on.”

Reforming interna�onal finance and coopera�on goes to the heart of how we “do capitalism.” If we are
serious about the Common Agenda, then it needs to be complemented by a new economics of the common
good.

The interna�onal monetary system that emerged in the a�ermath of World War II undoubtedly represented
an important innova�on. But its structure is no longer fit for purpose. The challenges we face today – from
climate change to public-health crises – are complex, interrelated, and global in nature. Our financial
ins�tu�ons must reflect this reality.

Because the financial system echoes the logic of the en�re economic system, this will require a more
fundamental change: we must broaden the economic thinking that has long underpinned ins�tu�onal
mandates. To shape the markets of the future, maximizing public value in the process, we must embrace an
en�rely new economics.

Most economic thinking today assigns the state and mul�lateral actors responsibility for removing barriers to
economic ac�vity, de-risking trade and finance, and leveling the playing field for business. As a result,
governments and interna�onal lenders �nker on the edges of markets, rather than doing what is actually
needed: deliberately shaping the economic and financial system to advance the common good.
This helps to explain why the world is making so li�le progress toward the Sustainable Development Goals,
which are supposed to be achieved by 2030, and why, as ac�on lags, the costs of mee�ng the SDG targets are
rising. Reflec�ng the current system’s inability to respond promptly to crises, let alone prevent them, the SDG
financing gap has increased from $2.5 trillion annually before the COVID-19 pandemic to between $3.9 and $7
trillion today. While compensa�ng countries for the loss and damage they suffer as a result of climate change
or other crises is essen�al, crea�ng the kind of sustainable, inclusive, and resilient economies envisioned by
the SDG agenda will require a proac�ve approach.

At the same �me, many developing economies are struggling with large debt burdens, exacerbated by an
interna�onal trade and monetary system that favors rich countries. To mi�gate, prepare for, and prevent
crises, developing economies need pa�ent, long-term finance. The ques�on is how to mobilize and direct it.
The answer must reflect the principle of the common good. The need for governments, interna�onal financial
ins�tu�ons (IFIs), and mul�lateral development banks (MDBs) to account for the public good is well
established. It is widely agreed, for example, that governance is needed to manage digi�za�on, guide the
energy transi�on, and protect public health. But this consensus remains rooted in an ex-post mindset: the
state intervenes only to correct market failures. Instead, state actors should be deliberately shaping – even co-
crea�ng – markets in which the common good is the primary objec�ve.
Ac�ng Ex Ante
Such a system requires an outcomes orienta�on; collabora�on and knowledge-sharing; equity, accessibility,
and sustainability; and transparency and accountability. In each of these areas, the “how” is just as important
as the “what.”

The first step toward ensuring that finance supports the common good is to establish a clear mission. The 17
SDGs – with their 169 underlying targets – offer an ideal framework. But governments, IFIs, and MDBs must
ar�culate their objec�ves and commit to designing the tools, ins�tu�ons, and financial instruments needed to
advance them.

This will entail a fundamental rethinking of the “social contract” between the state and business, with
governments (as well as IFIs and MDBs) using innova�ve incen�ves, partnerships, and condi�ons to align
private finance with the public mission. For example, the German state-owned bank Kreditanstalt für
Wiederau�au (KfW) has promoted the green transi�on by issuing loans to the steel sector, condi�oned on
firms’ reduc�on of their resource use and greenhouse-gas emissions. Such interven�ons work not by leveling
the playing field, but by �l�ng it toward the desired outcomes.

If done right, missions can shi� the emphasis from financing par�cular sectors or types of firms to promo�ng
ambi�ous goals that require coopera�on among many sectors and types of firms. Rather than picking winners,
the state would coordinate intersectoral responses among the willing.

Second, the COVID-19 pandemic highlighted the importance of broad-based coopera�on – within and across
borders – to tackle global challenges. And yet, rich countries, aided by a flawed system of intellectual-property
rights, hoarded vaccine doses when they became available, and subsequent efforts to support effec�ve
redistribu�on were far from adequate. By making accessibility and equity an explicit objec�ve, this “vaccine
apartheid” could have been avoided, and more than a million lives could have been saved.

Unfortunately, the world seems to be moving away from coopera�on. Tensions between the United States and
China are increasing the risk of financial fragmenta�on, and divergent investment strategies by regional MDBs
are not helping ma�ers. In fact, MDBs, which together hold $509 billion in assets and loans must play a central
role in advancing mission-oriented policy, because they typically offer developing countries concessional
financing. In its recent SDG S�mulus report, the United Na�ons es�mates that MDBs could increase their loans
by $487 billion – and nearly $1.9 trillion if governments paid in more capital. If these loans are to be leveraged
for the common good, MDBs must incorporate shared objec�ves into their mandates.

More broadly, a common-good approach requires a comprehensive framework for global collabora�on,
coordina�on, and knowledge-sharing. What counts as collec�ve intelligence must be clearly defined, and
structures that impede its forma�on (such as IP regimes) must be reformed. Likewise, if countries are to invest
in tackling shared challenges, they must be able to benefit from a more equitable global financial system.
Specifically, they need sufficient administra�ve capacity to absorb interna�onal finance, design contracts with
business that maximize public value, and ensure that the money is spent in ways that advance the common
good. (Outsourcing capacity to intermediaries is not the answer.)

Third, condi�onality is crucial for placing equity, accessibility, and sustainability at the center of contracts and
financial instruments. The COVID-19 vaccine produced by Oxford and AstraZeneca was rela�vely cheap and
easy to transport and distribute globally because it met the condi�on of being storable in a normal
refrigerator. The Pfizer-BioNTech vaccine, by contrast, required expensive ultra-cold storage and transport
when it was first approved.

Such examples demonstrate why condi�onality must underpin ini�a�ves like the World Bank’s Financial
Intermediary Fund, which leverages public and private resources to strengthen pandemic preven�on,
preparedness, and response capaci�es at the na�onal, regional, and global levels. To reach its poten�al, the
FIF should commit to incorpora�ng “common good” condi�ons – concerning, say, IP and pricing regula�on –
into its contracts, with the goal of ensuring inclusive governance and universal access.

Lastly, an objec�ve-oriented common-good approach is impossible without an equitable, accountable, and

credible financial system. But, because our current global financial system is designed to be reac�ve, it
promotes short-termism and perpetuates inequality between North and South. Changing this will require, for
starters, reforming the governance of the IMF and the World Bank, so that developing economies have a
greater voice.

Furthermore, strengthening accountability and transparency mechanisms can help prevent misappropria�on
of funds, tax evasion, and fraud. The FIF can help here, by embedding transparency-related condi�ons into all
of its partnerships with MDBs that involve investment in private-sector projects.

The UN secretary-general’s new report this week says that the “defining principle of the 2030 Agenda for
Sustainable Development is a shared promise by every country to work together to secure the rights and well-
being of everyone on a healthy, thriving planet. But halfway to 2030, that promise is in peril.” Fulfilling it
requires ge�ng interna�onal finance right, which will be possible only if we replace the market-fixing
paradigm with a market-shaping mindset, centered on the common good.

MARIANA MAZZUCATO
Mariana Mazzucato, Professor in the Economics of Innova�on and Public Value at University College London, is
Founding Director of the UCL Ins�tute for Innova�on and Public Purpose and a co-chair of the Global
Commission on the Economics of Water. She was Chair of the World Health Organiza�on’s Council on the
Economics of Health For All. She is the author of The Value of Everything: Making and Taking in the Global
Economy (Penguin Books, 2019), Mission Economy: A Moonshot Guide to Changing Capitalism (Penguin Books,
2022), and, most recently, The Big Con: How the Consul�ng Industry Weakens Our Businesses, Infan�lizes Our
Governments and Warps Our Economies (Penguin Press, 2023). A tenth anniversary edi�on of her book The
Entrepreneurial State: Debunking Public vs. Private Sector Myths was published by Penguin in September.

h�ps://prosyn.org/oUNUoJY

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