Governance of Economic Transition is an invited background document for the Global Sustainable Development Report 2019 drafted by the Group of independent scientists.
They point out straight away the difference between typical economists who emphasize carbon pricing as a policy tool for tackling climate change and natural scientists and multidisciplinary environmental research groups who are arguing for more profound political engagement and proactive governance of economic transition (Chapin et al. 2011, Steffen et al. 2018) – something akin to a global Marshall Plan (Aronoff 2017, Gore 1992). (Their references throughout this blog apart from Mazzucato link.) And the reason: the faster than expected decline in ecosystems and the whole range of human pressures, not just climate change.
Decades of academic work in ecological economics that integrate energetic and material stocks, flows, and boundaries into economic thinking (van den Bergh 2001, Røpke 2005) are ignored while dominant economic theories and policy-related economic modeling rely on the presupposition of continued energetic and material growth. They cannot explain the current turmoil because they anticipate only incremental changes in the existing economic order.
Central banks have resorted to unconventional mechanisms such as negative interest rates and buying public debt to provide relief but what next? There's nothing left in the conventional models. They have no workable tools for dealing with rapid climate change, biodiversity loss, and other environmental hazards, rising inequality, rising unemployment, slow economic growth and rising debt levels.
The authors acknowledge that no "widely applicable economic models have been developed specifically for the upcoming era" but go on to "highlight underutilized tenets of existing economic-theoretical thinking that can assist governments in channeling economies toward activity that causes a radically lighter burden on natural ecosystems and simultaneously ensures more equal opportunities for good human life" focusing on a transition period over the next few decades.
The document goes on to look at what needs to be done on four key areas: energy, transport, food and housing. Four paragraphs sum up what SH and followers already know but useful references. In short, greater self-sufficiency with trade providing security supplies not basic commodities.
They go on to say "Rapid economic transition requires proactive governance – markets cannot accomplish the task". They take apart the two main arguments of neoliberalism - that markets cannot be efficient if governments intervene and that state budgets should be balanced and regulation limited as it negatively affects private enterprise and therefore tax revenues. They refer to Mazzucato's work showing the way in which state funded co-ordinated technological developments have been drawn on to make huge profits for the private sector (scroll down here for Mazzucato's interesting lecture). And critique their impacts: the main policy tool "carbon pricing lacks the crucial element of coordinating a diverse set of economic actors toward a common goal. Individual actors would have an incentive to decrease carbon emissions, but they would still compete through their own business logics; there would be nothing to ensure that any one business logic would support the transition to sustainability on a systemic level. Moreover, it has been extremely difficult in recent years to settle almost anything with such a wide impact on an international level." and the goal of a balanced state budget means "states have not been keen to invest in sustainability transformation or limit resource-intensive economic activity."
Their concluding paragraph in this section can be used against many neoliberal arguments: " Both a priori arguments against strong state governance presented above depend on a particular kind of economic theory, namely the neoclassical school. If we switch to another theoretical lens, looking at the economy from another perspective, these arguments lose their effect. The theoretical move is analogous to a shift from a focus on individual cognition to social or structural dimensions of human behavior, where we begin to see that individual wants, for example, are not merely individual but are produced or conditioned by a set of extra-individual dimensions. This kind of theoretical shift is a normal procedure for any student of the social or human sciences."
They go on to look at economic theory beyond the simplified mathematical functions of the neoclassical school to those that can support transition governance, starting with the Post-Keynesian school (Hein and Stockhammer 2011, Lavoie 2009) Markets would not and do not exist without political regulation, they tend to generate market bubbles and other crises and they do not lead to socially and ecologically desirable outcomes on their own so don't be wary of the state’s role in the market. Markets but require active political guidance. And they point to China as not having been held back by pursuing this school of thought.
BUT, "Past transitions have, however, been ecologically unsustainable in many ways. so they start looking beyond to "a variety of economic theories that support rapid materially and ecologically beneficial transitions" and that meet "The key theoretical requirement (is) that they must enable politics to acknowledge transformational social goals and the material boundaries of economic activity."
"... generally the direction would be toward “a Keynesian world with planetary boundaries”: unique, autonomous economies and societies engaging in regulated international trade for specific reasons, such as food security, rather than for the sake of free trade as a principle. Individuals, organizations, and nations would approach the economy as a tool to enable a good life rather than as an end in itself. Economic activity will gain meaning not by achieving economic growth but by rebuilding infrastructure and practices toward a post-fossil fuel world with a radically smaller burden on natural ecosystems. In rich countries, citizens would have less purchasing power than now, but it would be distributed more equally. Citizens in all countries would have access to meaningful jobs and they could trust that a desirable future is being constructed on the collective level.
The focus on life-improving and emissions-reducing goals rather than abstract economic goals would also characterize the relations between developing and developed countries; economic activity between them would consist of bidirectional learning in order to build new, locally suitable infrastructure and practices at both ends. This kind of proactive state-led economic governance oriented toward self-sustained, low emission production and consumption runs contrary to the currently dominant world political order, which has been organized around international free trade. Key international institutions, such as the International Monetary Fund, which has been known for its policies of privatization and export-led industrialization, will need to be reconfigured accordingly."
Because the climate and environmental catastrophe threatens livelihoods across the planet, giving cause for mass migration, it's in the interest of all countries to maintain local opportunities for a good life. There's "...no sociotechnical solution that fits all. One especially important constraint for rich countries is that dramatic reductions in emissions at current high levels of consumption are very challenging, if not impossible. Some developing countries, in contrast, can make significant improvements in their people’s wellbeing with new investments in low-carbon solutions. These developing countries do not need to begin by dismantling the fossil-fuelled infrastructure that has provided a range of low-cost production and consumption opportunities in rich countries for decades. Shifting climate zones towards the Earth’s North and South Poles ads another imperative for learning: for example, food producers in northern Europe have a lot to learn from their southern colleagues.
In view of the challenges encountered today in implementing meaningful international agreements, the most likely option for initiating transitions to sustainability would be for a group of progressive states to take the lead. This would require economic thinking that enables large public investment programs on the one hand and strong regulation and environmental caps on the other. In the modern global economy, states are the only actors that have the legitimacy and capacity to fund and organize large-scale transitions."
This offers a guide for our way forward on Brexit, an alternative to the trade dominant desperation. I've quoted extensively from the document but do read the five and a bit pages in full.
Thanks to Gritpost for the heads up on this document and the title for this blog.
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