More of the Same or Transformation?

The calls for a new European Industrial Strategy are getting louder. Europe’s low growth, remaining high energy prices and convoluted decision procedures have recently led to an „Antwerp Declaration for a European Industrial Deal“, instigated by Belgian authorities and institutions (http://antwerp-declaration.eu/). Chinese excess industrial capacity, the easy access and quick effectiveness of the US Inflation Reduction Act, in addition to high energy prices, the need for de-carbonisation and lack of adequate labor lead to this call for action which by May 6, 2024 has been supported by 1101 organizations, 763 companies and 204 associations and unions. The claim that production sites are being closed and additional businesses move to the USA reinforce this call to action.

Ten individual actions are proposed, from a strategic industry plan 2024-2029, strong public funding with a Clean Tech Doployment Fund, making Europa a globally competitive provider of energy, to a focus on European infrastructure needs, increasing EU’s raw materials security, to boost demand for net zero, low carbon an circular products, to leverage, enforce, revive and improve the Single Market (see my recent blogpostf https://wordpress.com/post/kurtbayer.wordpress.com/3869), to making the innovation framework smarter, a „new spirit of law-making“, to, finally, ensure the structure to permit to achieve results.

Very self-assuredly, the authors claim „We need to keep industry in Europa because the (sic!) industy will deliver the climate solutions Europe needs“.

One would not expect a very different call to action from Europe’s combined industrial sector: it sees itself as the main solution to competitiveness and climate action – forgetting that its actors have been the main culprits in deteriorating climate and biodiversity, in generating vast gaps in income and wealth leading to a breakdown in social and political consensus, thus enabling populist agitators to offer „simple solutions“.

There is noting wrong with many of industry’s demands, however the following points need making:

1. This is a very narrow definition of the subject of an industrial policy: it leaves out all the business services which drive goods and services production as much as production itself.

2. It relies on a „business as usual“ idea: with lower energy costs, more public funds we will „green and decarbonize“ the economy and invest the necessary funds. A thorough re-structuring of the economy, of the way we produce and consume is lacking.

3. The call relies on technical solutions to decarbonize. It does not mention the regulatory role of the state in changing behavior patterns: no decommissionings, no forbidding of products and processes, no tax incentives are mentioned, only „more money“.

4. The proposed actions will not touch the present „model“: no mentioning of the role of the financial sector, no mentioning of controls of production processes and consumption, no mentioning of a change in business investment decision procedures, e.g. involving civil society or even the workers.

5. The „forecast“ that by 2050 Europe’s electricity needs will need to „multiply“ and that industry investment „will need a factor six (!!!)“ shows that no transformational change in the European business model is intended.

We have to take this Antwerp Declaration for what it is: an interest-driven statement by European businesses. Its lack of a „transformational spirit“ shows that it is not fit for the necessary transition towards sustainability. We should expect more.

Enhancing “Efficiency” or Transition towards Sustainability?

Enrico Letta’s report on „Much more than a market – Speed, Security, Solidarity Empowering the Single Market to deliver a sustainable future and prosperity for all EU Citizens“ (April 2024) was delivered to EU prime ministers at their recent meeting. It is a thorough analysis of the changes since the Single Market’s inception in the early 1990s and of future requirements.

If, as an Austrian economist has recently called it, it is „the crown jewel of the EU“ (reader forget about the monarchistic slant!), then its rejuvenation and enhancement, as proposed by Lettas, is quite mpressive.

More Liquid Financial Markets?

If, however, one sees the Single Market’s philosophy as „globalization on steroids“, as the epitomy of neoliberal supply-side economics, at least partially responsible for the crises we are facing, climate and environment, pandemics spread, massive income and wealth inequality and the concomitant loss of social cohesion and confidence in politics, then one could question – as I do – why „more and better of the same“, as Letta proposes, is not rather a missed opportunity to make the Single Market the core piece of transition towards sustainability.

Letta proposes the quick implementation of the long-discussed „Capital Market Union“, in order to prevent capital from leaving the EU to attract foreign capital. He fails to mention the ravages unbridled financial market activity has wreaked on the world economy, not least in 2008 ff, when the crisis nearly brought down the world economy. He seems to suggest that the EU should emulate the US „deep and liquid financial market“ as the solution to enhance growth, to finance climate change and the digital transformation. No word about speculation, tax avoidance, high volatility which threatens the real economy. Sensibly, he suggests to create a unified institution for financial market supervision, instead of the sectoral fragmentation (banks, insurance, stock exchanges, euqity and bonds). But I would rather rely on completing the EU „Banking Union“, because bank finance, if properly supervised and risk-assessed, still rests on a personal link between the bank and the debtor, instead of the anonymous idea underlying financial markets (a multitude of „investors“ will make correct decisions). I also think that it is not – and should not be – the liquidity of a regional financial market that attracts capital, but the viability and strength of the to-be-financed real investments. I doubt whether a proposed „ EU automated personal pension product“ would reduce the challenges to finance pensionns in the future in the face of ageing societies. I prefer making pay-as-you-go systems viable instead of turning them over to the whims and irrationalities of financial markets. To turn more of Europe’s citizens savings, held in current accounts (around 10 trillion €??) into real investment, will remain an important challenge. It also makes sense to jointly finance mor of the Eus public goods, especially with respect to a Green Transition Fund. But: To reduce the domination of financial markets of the economy would be an important development of a future Single Market.

Europeanization of Networks

Also sensibly and within the mandate towards sustainability is Letta’s call for Europeanization of electricity, mobility and communication networks. Here fragmentation into 27 networks unnecessarily costs money and reduces service. Whether Letta’s proposed „Fifth Freedom“, comprising education, research and development and innovation – in addition to the existing four: goods, services, capital, labor – will bring Europe forward is to be seen. While recently, „security“ concerns, whether real or imagined, have given rise to a retrenchment of globalization, stronger European efforts in green and digital technologies could enhance the transition. The call for a relaxation of EU’s strict state aid rules, in order to create „European Champions“ to be able to counter the competition of US and Chinese giants, can be sensible, as well as the proposed creation of joint European financing of the Green Transition Fund.

Where is the Demand Side of the Single Market?

What Letta completely ignores is the idea the the Single Market should not only be a production enhancer, but also target the wellbeing of households. To direct more of EU economic policy towards the 450 million Europeans, instead of pursuing „international competitiveness“ by lowering costs of production – in this way also putting a lot of pressure on European wages, would make the Single Market more acceptable to citizens, by showing them real benefits accruing to Europeans. As the third largest economic space in the world, containing 450 million persons, the enhancement of sustainable wellbeing of the Europeans should be the Single Market’s primary aim, not whether we can compete with the outside world. Europe is strong enough, and wealthy enough to rely on its own ideas, its own cultures, its own values. Of course, where possible and positive, it should stay open to the outside world, exports its ideas and import useful ideas, goods and services.

Sustainability Needs More than Renewables, it Needs a New Economic Model

The order of the day is quick progress towards „sustainability“. It is not enough the „green“ the energy sector, as long as we rely on GDP growth as the main indicator for wellbeing, we will need more resources, impact more the environment and exhaust the creativity of our citizens. We need to stay on this green path, but turn the economy into not surpassing our planetary limits.

The recent statements by „world leaders“, including the heads of the major financial institutions, their lament about „global growth“ having fallen, is misguided. Why not use this weakness in GDP growth to push more forcibly for a quicker transition. The tools are available, political will is lacking. This is the real tragedy of our times. Letta’s report unfortunately fits this pattern.

Climate justice within capitalism? Interview with Kurt Bayer at GSIS Talks

Kurt Bayer at GSIS Talks in October 2023

In October 2023 the Institute for a Global Sustainable Information Society (GSIS) organised its first major event: “Utopia(s) reloaded: Science, activism and the techno-eco-social transformation”. For three days scientists and activists alike discussed the role of utopian/dystopian imaginaries of the future in transforming global risks. In intensive debates visions of how a sustainable living could be possible took shape.

The event was accompanied by a video team, creating a summary video and several interviews with speakers from different disciplines. In this short clip, Karolin Pichler and Patrick Hagn from GSIS’ project team asked Kurt Bayer, self-employed economics consultant and, among others, former Board Director of the World Bank, the following questions:

• How can climate justice be executed?
• What does that mean for capitalism?
• Can capitalism become green?
• What does it mean for the so-called Global South?
• What is the role of the West in international development?

See also the summary video of the GSIS event: vimeo.com/890635204

Interview with GSIS’ Director Wolfgang Hofkirchner about the event: gsis.at/2023/12/02/utopias-reloaded-talks-iii-call-for-a-shared-future-an-interview/

The event’s programme: gsis.at/meetings/utopias-reloaded-2/

The Mainstream Economic Model will not steer us towards sustainability.

(Draft Contribution at the 2023 GSIS Utopia(s) Reloaded Conference in Vienna, Oct. 27,2023)

1. The mainstream standard production function is not able to steer transition towards sustainability, as defined by the Sustainable Development Goals of Agenda 2030 (SDG).

Standard production function: Q = f(K,L) where Q is Gross Domestic Product (GDP), K is capital services and L is labor input. Capital and labor inputs are (to some extent) substituable, e.g. more machines can compensate for a lack of labor.

With respect to the environment/nature, this function may be maximized „subject to“ that environment is not harmed. Environmental damage is „external“ to the production process. At best the polluter (upstream) needs to compensate the downstream firm for the cleaning of the water. The social effects of production, e.g. increasing discrepancies in income and wealth distributions, labor conditions, lack of inclusion, the health effects of this system of production are ignored (physical and mental illness), as well as the increasing polarization of society and the threat to social cohesion – all parts of the SDGs.

We know that in this neoclassical concept nothing figures which does not have a market price. Thus, this production model has brought us to the present predicament with respect to the climate crisis, the pernicious loss of biodiversity and increasing polarization with its effects on the attractiveness of populists.

2. If we take transition towards sustainability seriously, we have basically two options: a) extending the existing concept of production, b) radical change

A new transition-oriented production model must have human wellbeing (Q*) as its objective (instead of GDP). This goes far beyond material Q, and requires social and environmental services (including climate) as essential inputs.

The unit to be „optimized“ (not maximized like in the standard model) must be human welfare, not GDP; this corresponds to Sustainability Indicators agreed by UN in 2015 (Agenda 2030), the UN Human Development Indicators or the OECD Bewtter Life Index, or the Stiglitz-Sen-Fitoussi indicators. Various studies have attempted to replace GDP as the main objective of economic/social policy. So far they have not been able to wean policymakers of their GDP/growth fetishism.

Thus Q* = f (K,L,E,S), where E is environmental services and S is an indicator of social conditions. In this way, all inputs are essential to the production process, none is „external“. While these inputs may be subsitutable to some extent, the environmental input is a finite factor: once certain trigger points are reached, „planetary boundaries“, they cannot be traded off by other inputs. Whether such absolute limits exist for the social indicator, is a highly political question to be discussed.

3. In making such a new concept of production conditions operational, one could rely on M. Mazzucato’s „mission-oriented“ approach. The mission of inclusive and sustainable wellbeing (approximation of Q*) would be broken into defined sub-targets and furnished with enforceable timeline and measurable indicators. For each sub-mission all available resources, especially experts, government, civil society, instruments of goverment intervention would be mustered, in addition to the necesssary capital.

In addition, each government intervention would contain socio-environmental conditionality, i.e. have to incentivise or prevent desirably or damaging environmental and social objectives.

In this more comprehensive approach K,L,E,S usage is seen jointly: there may be synergies, but there may also be tradeoffs between these „production factors“, their joint optimization keeps all of them as instruments towards wellbeing at a „sustainable“ level. Negotiation processes would have to balance them towards to optimal human wellbeing level.

This switch towards human wellbeing („a good life for all“) requires also a change in political processes. Much more involvement by civil society, by experts, by social partners both into the design as in the implementation of such missions would be necessary. A pre-parliamentary process of „citizens fora“, „focus groups“ and similar assemblies would deliberate about the individual strategies, negotiate tradeoffs and advise parliament on the desired course of action. In this way understanding of different interests will be enhanced, as well as knowledge about the bottlenecks and sticking points of different proposals. Transparency and professional organization is key.

4. A more radical approach would aim at „systems change“. The question whether a capitalist, profit-driven model can accomodate such changes has been answered by Adorno: „there is no right life in the wrong one“ (Adorno); this would militate against the more gradual extension steps outlined above, calling for a radical re-ordering of socio-economic life, away from a capitalist profit-driven system towards a commons-determined system.

5. We know that the required change in behavior to achieve sustainability is difficult and widely resisted by populations, as well as powerful vested interests. But: socio-economic systems are man-made, thus can be changed by man. We saw such a change in the break from the more collective-minded Keynesian after-war system to the painstakingly engineered neo-liberal system dominant today. Friedrich Hayek with the Mont-Pelerin Society managed to infiltrate academia and mainstream economic thinking. The existing crises make the next step forward necessary.

The Global Governance Conundrum: G-7, G-20, BRICS

Global governance has deteriorated during the past decades. The leadership by G-7 countries has been challenged by the rise of China and India, and a number of other countries. Regional groupings, like the African Union, ASEAN, Mercosur, and BRICS – plus a multitude of other groupings so far have not been successful in making their interests and voices heard on the global scene. The hegemonial battle between „upstart“ China and the established United States, with other countries, like India (now with the largest population) also attempting to represent their own interests more strongly have led to a „multi-polar“ world which threatens to descend into „my country first“ attitudes on all sides and, possibly, into chaos with violent outcomes.

In this situation, it makes sense to look at the emergence of a small number of possible actors on the global scale, challenging the established power of the G-7.

At the recent BRICS Summit in South Africa, the original 5 BRICS countries (Brazil, Russia, India, China and South Africa) added 6 additional member states (Ethiopia, Egypt, Saudi Arabia, United Arab Emirates, Argentina and Iran) to their membership. Many more have joined the development bank of BRICS. BRICS plus claim to represent the Global South and aim to advance the South’s interests in global negotiations. The expansion was contested for a long time: some countries, like China, were in favor in order to represent a more potent power, some were against, mainly in order not to advance China, the by far largest economy, to its self-claim to speak for all emerging and developing countries. Membership does not follow any discernible pattern: for instance, none of the other important Asian countries is represented, in Africa Nigeria, the largest economy is left out. Still, the new BRICS + is, if they can agree among themselves, a more powerful voice of the non-industrialized countries. Whether this grouping sees itself as antagonistic to the „West’s“ global leadership, is also contested, as some of its members lean towards the US, some more towards China, and most aim to find a tightrope-thin role between these two antagonists for global leadership.

Soon afterwards, the G-20 group of the world’s largest economies (Australia, Saudi Arabia, Canada, United States, India, Russia, Turkey, South Africa, Brazil, Argentina, Mexico, France, Italy, Great Britain, Germany, China, Indonesia, Japan, South Korea, European Union and new African Union) held their meeting in India, where again Putin and Xi were not present in person. Still, a joint communique was agreed by all, while not dondemning Russia’s invasion of Ukraine outright, reiterated the invioalability of sovereign borders. The 19 individual G-20 countries plus the European and the African Union could, if they agreed on joint positions, play a significant role in gobal governance issues. In a book chapter on global governance in 2008 I had attributed, following in the footsteps of my friend Johannes Linn, hope that the G-20 could assume the leadership role in important governance issues. For better or worse, the importance of G-20 has waned, after giving hope to a forceful mechanism negotiating globally important decisions after their inception after the financial crisis. Its recent re-emergence might make it a formidable global governance institution, if it manages to overcome its inherently different interests.

As an important grouping this leaves the G-7 (United States, United Kingdom, Japan, Canada, France, Germany, Italy plus the European Union) which for a long time assumed the role of deciding global issues. While for a long time combining more than 50% of global GDP, it decided many important questions in the Bretton Woods Institutions and beyond. However, today its economic power, while still growing in absolute terms, has been reduced to a share in global GDP of little more than 30% (with less than 10% of world population); this is roughly the same share as that of the BRICS + (with arond 1/3 of world population). The G-20 comprises around 80% of global GDP and 2/3 of world population. However, the fact that the G-7 did not allow adequate voting share, and thus influence on the direction of the institutions, to emerging countries in the IMF, the World Bank, the WTO, in the eyes of the Global South it has disqualified itself as a credible global governance institution. Today, its exclusive membership of hihgly industrialized countries is no longer accepted, however grudgingly, by emerging and developing countries.

The fact that the G-20 has added the African Union to its members should give it more clout in international negotiations, if they manage joint positions. It could be even more „representative“ and possibly stronger, if the individual EU member states gave up their seats to a joint EU chair. At the present time of each country promoting its own interests, also at the expense of a larger grouping, this seems as unrealistic as having a single EU chair in the Bretton Woods Institutions.

The financial press has hailed the recent G-20 meeting and especially the fact that the members were able to agree a joint communiqué as a major success. However, as we say in German „one swallow alone does not make summer“, there are reasonable doubts that this „success“ will not be sustainable – as the past has proven. Still, the G-20 is the only „South-North“ grouping of any size which could potentially assume a global governance role, growing ever more urgent as the climate crisis, pandemic threats, wars of all kinds and the stability and future of the world economy creat ever more problems for the world.

In general, there is a lot of evidence that global governance institutions based on regional or common-interest-determined memberships can be more effective than those based on individual country memberships. While regional groupings are easy to define, common-interest-determined groupings would be more temporary and have different memberships, depending on the issue at hand. While we often speak of „like-minded“ groupings, presupposing a similar acceptance of basic citizens rights and „values“, a more realistic approach would accept that on issues like trade, like nature preservation and climate, like trafficking, like tax evasion – and others, countries have varying interests. This would determine the ad-hoc membership in „common interest groups“. Such groups could be started by some countries, with membership always open to newcomers, develop time-dependent governance structures and content and, hopefully, implementation and monitoring mechanisms. The difficult task of how compliance in such voluntary groups can be assured, needs to be answered by the members.