Towards Labour’s green golden age

With a few short weeks until the general election, Labour still lacks a unifying narrative that could give impetus and direction to what is otherwise a collection of important but disparate social and economic reforms. And less than one year until the important Paris climate change conference, Labour is still struggling to communicate its approach to climate change to an electorate that is largely disengaged from the issue.

These two problems have a common solution: a national mission to build the infrastructure, technologies, businesses and skills needed to decarbonise the UK economy and tackle wider environmental and resource challenges would provide the basis for an inclusive and sustainable economic revitalisation of Britain. Building a ‘green economy’, in this sense, is about much more than responding to global climate change; it’s about creating locally the conditions for a new golden age of shared prosperity.

But integrating climate change into such a coherent narrative and policy agenda requires Labour to overcome three divisions – one conceptual, one geographic and one ideological – that have hampered its approach to date.

The conceptual division: towards a ‘green golden age’

The first division has to do with how we typically conceive of climate change as a problem, and the responses to it. Traditionally, policymakers and activists have tended to treat climate change as a standalone issue. Greenhouse gases are emitted from smokestacks, exhaust pipes and other sources, they mix in the atmosphere, and they affect the climate in ways that expose people to a variety of natural hazards. Responding to it requires international cooperation and domestic policies to reduce those emissions (and to adapt to the climatic changes already in train).

Sometimes, this narrow approach to climate change is analytically useful. But often it is more useful to zoom out and consider the wider systems in which these emissions sources are embedded: the buildings in which we live and work; the transport networks that get us from A to B; the cities and communities of which we are a part; the electricity and heating systems that power our homes and factories; and the land-use patterns implicated in the food and other goods we produce and consume. They all form part of a wider economy, with flows of trade and investment, with taxes and regulations, with incentives for individuals and companies to behave in this way or that. And they all form part of a social, cultural and political milieu, with norms, shared beliefs and common values that shape how people think and behave.

When we look at these wider systems, we can see many problems, quite aside from unsustainably high greenhouse gas emissions. Too much energy is wasted heating poorly insulated homes and offices. The public transport networks in too many cities are inadequate. Our energy system is too centralised and dominated by a handful of large companies. Natural resources are increasingly constrained and under-valued. Urban air pollution takes a large human and economic toll. There is a great need for new and refurbished infrastructure. Too much capital is locked up in safe government bonds or risky financial speculation and there is too little investment in the real economy. Too many people are unemployed. And our society is grossly unequal, with enormous rewards going to a few at the top, while too many at the bottom, and in the middle, struggle.

Much of what we need to do to tackle climate change can be done in ways that make our economy and society function better. But even accounting for these ‘co-benefits’ misses the truly transformative potential of strong action on climate change. Sound policy to induce or accelerate innovation and social change towards a green economy holds the potential for a new wave of innovation-based growth and prosperity – a “new energy-industrial revolution”, as Lord Stern has called it – affecting all sectors of the economy and involving everyone.

Two effects of green innovation give rise to this transformative potential. First, action to induce a technological shift in the pathway of innovation from high-carbon to low or zero-carbon activities can have a beneficial effect on relative prices. Previous government subsidies (mainly in Europe, and later in China) for solar photovoltaics and onshore wind energy, for example, created markets for onceniche industries, allowing them to be deployed at scale and enabling innovation by producers in all parts of their supply chains. These dynamics have caused production costs for these technologies to plummet to the point where they are now price-competitive with fossil fuel energy in many parts of the world. We are observing similar cost declines in batteries, electric vehicles and many other critical, low or zero-carbon technologies. With continued support for such technologies (and by removing subsidies for, and raising taxes on, fossil fuel energy) techno-economic tipping points can be reached: these technologies could become the new normal, generating sustained cost advantages over high-carbon incumbents that more than justify the upfront subsidies.

The second effect of green innovation is less obvious, but is likely to be even more important than the first. It has to do with how new ideas and technologies can spill over into other sectors of the economy, begetting further innovation and growth. For example, as Mariana Mazzucato and others have shown, public research and development by the US defence sector led to the invention of the internet, GPS, the touch-screen, and most of the other technologies used in smart phones. Much green innovation is likely to spur this kind of economy-wide innovation to a greater extent than incumbent technologies do. Consider innovation in vehicles: battery-powered electric vehicles are likely to spur innovation in a variety of other sectors – not least of all in electricity supply systems – whereas the potential for innovation spillovers in combustion engines is, these days, much more modest.

But technological and economic change will not fulfil its transformative potential – nor will we achieve sufficient levels of emissions reductions – without wider changes in institutions, in social norms, and in the distribution of income and wealth. Carlota Perez, the eminent scholar of economic and technological change, has highlighted the critical role of such factors in generating past ‘golden ages’ of capitalism, in which the volume and direction of finance, production and demand leads to profound and inclusive economic prosperity. For example, consider the features of the post-second world war golden age in the advanced capitalist countries, roughly from 1945 to 1973, when income per person grew strongly in Europe and the US, their economies were relatively stable, unemployment was very low, and income and wealth were much more widely and equally shared than in the preceding or subsequent decades.

Perez argues that the post-war golden age, built around ‘suburbanisation’, was not merely a product of its enabling technologies and resources (cheap land outside cities, cheap oil, roads, electricity infrastructure, automobiles, electrical appliances, other mass-produced consumer goods, and materials and electronics fuelled by cold war military innovation). It was also enabled by a politically chosen set of social institutions that increased consumer demand and directed it toward the technologies of suburbanisation: public support for suburban infrastructure projects (eg roads and electricity infrastructure); official recognition of the trade unions, which ensured wages increased with productivity; and a strong welfare state, providing pensions and unemployment insurance. Together, these arrangements ensured a mutually beneficial relationship in which the middle classes expanded, with people enjoying the means to purchase the goods and services being produced by the companies in which they were employed, and in which financial institutions invested in this ‘real economy’ rather than in intra-financial sector lending and speculation.

We all know that political choices affect the distribution and redistribution of income and wealth in society. Perez’s point is that by designing institutions and policies so as to encourage the deployment of particular types of production – in this case, those of the green economy – we can create a mutually reinforcing loop between the demand and supply necessary to sustain a new golden age of sociallyproductive investment and inclusive wealth creation.

This link between an intelligent green agenda and reforms to socio-economic policies and institutions is largely missing from Labour’s current rhetoric and policy. It is the difference, for example, between an ambitious program to build new homes and an ambitious program to build new homes sogressively higher green building standards, inducing green structural change in the construction industry. It is the difference between reforms to the vocational training sector and an intense focus on skills training for the green economy. It is the difference between tackling inequality through higher tax rates and better enforcement at the top, and comprehensive fiscal reform to stimulate a socially just, green economy – one that combines more progressive tax measures at the top with taxes on carbon and local pollutants, lower marginal income tax rates for those at the bottom, and a clear public purpose to invest the proceeds in green infrastructure, innovation and skills.

It’s the difference between a divided approach to climate change, environmental, social and economic issues, and a comprehensive strategy to build a green golden age.

The geographic division: towards a consistent international and domestic agenda

Like many of its counterparts around the world, the British Labour party has understandably struggled to connect the arcane world of international climate policy with domestic action on climate change. Unwieldy acronyms, opaque international conferences and technocratic debates about longterm targets are difficult to translate into local narratives.

The traditional EU/UN approach to climate change looks even more foreign when one adopts the economically and socially integrated perspective sketched above. The UK could probably foster a domestic green golden age through actions it takes at home, in the absence of deep international co-operation. Certainly the EU and a handful of other large economies could do so. Accordingly, we can question the need for a ‘comprehensive and legally binding treaty’ of the kind that has long been heralded as the holy grail of international climate policy.

But international co-operation still has an important, if more nuanced, role to play. Well-designed international institutions and agreements can reduce the costs and expand the benefits of action in any one single county. They can help countries to overcome the technical and political barriers that stand in the way of strong climate action. And, ultimately, they can reinforce the desirable dynamics in technology, prices, institutions and social norms discussed earlier, accelerating us toward the desirable ‘tipping points’ beyond which the transition to a green golden age becomes self-sustaining. Setting shared global goals and national emissions targets are important elements of the co-operation that is needed, as they signal to investors and policymakers the future direction of global policy.

To trigger these desirable tipping points more quickly, however, we need greater coordination among the major economies on their policies and measures to reduce emissions. These include investments in support of green innovation, regulatory standards, carbon taxes, the abolition of fossil fuel subsidies, and measures to phase out coal. Greater support is also needed to ensure that developing countries switch to clean and safe energy sources, and that the move to a green economy benefits the world’s poor and energy-poor, including by radically expanding access to (clean and safe) energy services. We also need to think about how global institutions and rules concerned with taxation, finance, trade and investment can be reoriented toward the performance of these urgent tasks – in particular, to channel the trillions of dollars of footloose financial capital and corporate activity into the green economy.

For Labour, this means not only integrating climate change horizontally, with its wider social and economic reform agenda, but also vertically, with its EU and international policy agenda. Building a green golden age begins at home, but means we can lead the world.

The ideological division: towards a more humanistic politics of climate change

The third climate change division Labour faces is an ideological one, manifested in different approaches to the issue within its own party. The traditional approach to climate change – with its emphasis on scientific and economic expertise, centralised climate policy institutions, international co-operation and the maximisation of economic efficiency – fits naturally with the politics of liberal-internationalists and centralising social-democrats. But it is anathema to Labour politicians of a more communitarian or conservative inclination. The latter tend to be concerned about the absence of local control over decisions affecting local communities, economies and natural environments.

Climate change is a global and fiendishly complex problem. The responses to it inevitably require a degree of expertise, internationalism and rational, utilitarian calculation. The ‘new energy-industrial revolution’ and the green golden age hold immense potential for a better Britain and a better world. But revolutions are disruptive. Net benefits still involve absolute costs. And a flourishing economy based on the minimal use of natural resources, carbon and energy implies that some sectors will need to contract. Jobs in the ‘brown’ economy will be lost. It is at these points that we begin to see the limits of expertise, internationalism and utilitarian calculation, and at which we must – for both moral and pragmatic reasons – embrace a politics that is more local, participatory and respectful of human dignity.

We must recognise, for example, the interests and identities bound up in local forms of work and community life that face changes in the move to a green economy. This does not mean that they must be protected at all costs: as the victims of climate change and of our unequal, fossilfuel based economy remind us, there is no loss-free future pathway. But it calls for a sympathetic approach to transition that is well managed at the local level – what the union movement and others refer to as a ‘just transition’. It entails a commitment to encouraging participation by workers and vulnerable groups in the corporate and political decisions that affect them, as well as formulating substantive government policies that support their transition into the green economy.

There are other ways in which the transition to a green economy could be more localised and human, but which might be eschewed if we were concerned only with national-level efficiency maximisation. Labour has already opted for a more localised approach to delivering household energy efficiency retrofits in fuel-poor homes. Energy could also become more localised and democratised – for example, through the establishment of green energy ownership and financing initiatives that invite and encourage participation by ‘mum and dad investors’ in the nation’s energy transition. And government support for innovation, from basic research to deployment, could consider regional as well as national characteristics. The state could prioritise technologies likely to bring strong social benefits at the household level – such as building energy efficiency, heating, electricity networks, electricity storage, and renewable energy generation.

There is a final lesson for Labour in this analysis: be bold. Moderate improvements in climate policy here or there will help, and there is much that can be done to increase the flow of private finance into the green economy. But without a greater willingness to spend public money on productive investments in the infrastructure, innovation and skills needed to build a green economy, and to reform 20th century social and economic institutions, there will be no green golden age. Austerity will continue to choke recovery, unemployment will remain high, skills will atrophy, confidence will dwindle, and the opportunities to stake a leadership position in the green economy will go begging. And for those concerned about the sustainability of public debt, it is growth in the medium term that will improve the sustainability of Britain’s debt in the longer term. Medium term growth won’t come from austerity; it will come from a green transition.

A national mission to build a green golden age at home and abroad has a worthy response to climate change at its core. Yet it is much more than that: it is a compelling Labour vision for a stronger economy and a better society that provides impetus and direction to an ambitious, whole-of-government reform agenda, based in a politics of the common good.

If we think boldly and creatively to connect climate change with other important social and economic issues, and if we think across geographic scales and ideological lines, then we could tackle our biggest challenges together.

Fergus Green works on climate change policy at the Grantham Research Institute on Climate Change and the Environment, the LSE. He writes in a personal capacity.

A longer version of this essay containing full references can be obtained from the author on request.