Mazzucato vs Hayek: who knows where the economy should go?

Every European government is arguing about industrial policy again, and underneath the argument sits an old question: who knows where the economy should go? Two economists on this week's reading list give opposite answers. Mariana Mazzucato, professor at University College London and founding director of its Institute for Innovation & Public Purpose, published Mission Economy: A Moonshot Guide to Changing Capitalism with Penguin in 2021. Friedrich A. Hayek published The Constitution of Liberty with the University of Chicago Press in 1960, building on a short essay from 1945, "The Use of Knowledge in Society", printed in the American Economic Review. We will publish a full explainer of each book later this week. Here we put the two in the same room, because Europe is already running the experiment that tests them.

Mazzucato: give growth a direction

Mazzucato's model is the Moon landing. Her publisher's description makes the point that Apollo needed new forms of collaboration between the public sector, above all NASA, and private companies, on top of the aeronautical science. She then asks what would happen if governments brought the same boldness to climate change, disease and inequality: ambitious goals, a willingness to take risks, and large spending up front for returns that come much later. Government, in her account, directs innovation towards goals society has chosen and sets its budgets for the long term. The state is an investor that takes risks and shapes markets from the start.

Brussels took the idea seriously. Mazzucato was special adviser to the research commissioner Carlos Moedas, and on 4 July 2019 she published a report with 17 recommendations on how to govern missions, covering citizen engagement, the capabilities of the public sector, and finance. In an interview with the Commission's Horizon magazine that day she argued that growth and innovation have a direction as well as a rate. She also said two things a Hayekian would welcome: missions have to work through bottom-up experimentation to reach a specific goal, and public procurement in most countries is static and linear, which stifles innovation.

Five EU missions were launched in 2021 under Horizon Europe, with targets for 2030: help at least 150 regions and communities become climate resilient, improve the lives of more than 3 million people through better cancer prevention and care, restore the ocean and waters, support at least 100 cities to reach climate neutrality, and set up 100 living labs for healthy soils. Their budget for 2021–2027 is €4.837 billion, and by November 2025 they had 306 funded projects.

Hayek: nobody holds the whole map

Hayek's 1945 essay starts from a different place. The economic problem, he says, is how to use knowledge that never exists in concentrated or integrated form. It is scattered in incomplete and often contradictory pieces among separate people. Some of it is scientific. Much of the most valuable part is knowledge of the particular circumstances of time and place: a machine standing idle, a spare stock, a short-lived opportunity. Statistics strip those details out, so decisions that depend on them belong with the man on the spot.

The person on the spot still needs to know what is happening elsewhere, and prices tell him. Hayek's example is tin. When tin becomes scarcer, its users only need to learn that it has become more valuable elsewhere, and they economise on it. Their adjustments spread through substitutes and related markets until the whole acts as one market, even though nobody surveys the whole field. Hayek called the price mechanism a "system of telecommunications", and he thought it a marvel because nobody designed it.

The Constitution of Liberty turns this into a political philosophy. Its chapters run from the creative powers of a free civilisation, through the rule of law and its decline, to the rise of the welfare state, social security and taxation. The University of Chicago Press sums up its worry as the effect of an expanding government on the creation, preservation and use of knowledge, and its case as a free market in a democracy, under the rule of law, as liberty's best chance. A Hayekian reading of Apollo follows: the Moon was a single engineering destination with one customer, while decarbonising a city depends on millions of particular facts about buildings, streets, habits and prices that no ministry can see.

What Europe's missions show, and where we land

The Commission published its mid-term assessment of the missions on 14 September 2026. The climate adaptation mission has supported 292 regional and local authorities, well above its target of 150. The cancer mission is expected to improve the lives of 2.3 million people by 2030 against its goal of 3 million. The soil mission has 45 living labs on more than 500 real sites, such as farms, with another 60 to 70 being selected. And 107 cities are producing Climate City Contracts, with plans that add up to cutting about 200 million tonnes of CO2 equivalent, roughly the combined annual emissions of Austria, Romania and Slovakia. The Commission also admits that co-investment from outside Horizon Europe still needs attention.

Look at how the cities mission works and both authors appear. Brussels sets one destination, climate neutrality by 2030. Each city writes its own contract, with its own action plan and investment plan, because only the city knows its tram lines, its housing stock and its councillors. That is Mazzucato's direction delivered through Hayek's people on the spot.

Spain has its own version in the PERTE, the strategic projects of the recovery plan. The science ministry describes them as strategic projects with heavy public-private collaboration, meant to drive priority projects, especially complex ones or those facing market failures, and lists the aerospace PERTE and one for cutting-edge health. The useful question for any PERTE is the one this confrontation teaches: does it fix a goal and let many firms compete to reach it, or does it choose the route and the winners in advance?

Our answer takes something from each side and adds a rule neither of them wrote. From the left, and from Mazzucato, we take the state as an investor willing to take risks on goals that markets will not set for themselves, such as clean cities or more people surviving cancer. From the liberal market tradition, and from Hayek, we take the conviction that the knowledge of how to get there is dispersed, and that prices, local actors and competition between approaches find it faster than any planner. The part that fits neither camp is the discipline of the search. The public sector names the destination and pays for many routes through open calls. Each route reports results against the goal, in public, and its money stops when the evidence says it is failing, with a sunset date written in from the start, the way Karl Popper's piecemeal reform asks us to treat laws as tests (we applied that idea in sunset clauses and ex-post evaluation). Cities and regions write their own plans, much as Elinor Ostrom found water users building their own polycentric systems of rights.

For Spain, that means PERTE calls judged by the goal, with many entrants and a firm end date for projects that miss it. Tomorrow we explain Hayek's book in full, and Mazzucato's comes on day 32.