Theresa May’s new government can seize the opportunities of the political and economic climate and announce a Green New Deal in this week’s autumn statement
“Only a crisis – actual or perceived – produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes the politically inevitable.” Milton Friedman
It has now been eight years since the Global Financial Crash. As the new Chancellor looks set to announce what could prove a substantive shift in macroeconomic policy in his first autumn statement this week, we are reminded that concerted attempts to resuscitate the UK growth model since 2008 have led only to an uneven and anaemic economic ‘recovery’. Only London has boomed since the crash, with other UK regions stuck in what is now a long-term economic slump (of which Brexit was a symptom and is now a source of significant exacerbation).
In truth, crisis never left Britain. Importantly, the crisis has always been as much social as it was economic, with the UK’s depressed regional economies and low-waged workers bearing the brunt of austerity and benefitting little from extraordinary monetary policy. And – lest it be forgotten – it is also an irreducibly ecological crisis too, for the economic and social costs of environmental degradation associated with British production and consumption will problematise existing growth strategies.
The future path of economic policy is now more in question as Philip Hammond looks primed to announce in the autumn statement a more radical shift in fiscal policy than we have seen since 2008. The shift in policy might even contribute to a re-inauguration of a British industrial strategy, as part of what some have called ‘Theresanomics’. Might this be a moment at which a decisive response to the multifaceted crisis of the British growth model could at last emerge? Theresa May’s re-ordering of government produced the newly-formed Department for Business, Energy and Industrial Strategy, and so there is some hope that this signals a substantive change in economic direction.
Such a response would be welcome. However, it will need to be a substantive shift if it is to address the economic, social and ecological dimensions of the crisis in which Britain is embroiled. It must identify new synergies between the state’s economic, social and environmental purposes, targeting an economic recovery that is lasting, inclusive and green. Such an agenda exceeds that which may or may not be implied by the government’s nominal embrace of ‘industrial strategy’. A very different relationship between the public and private sectors is presupposed, compared to the neoliberal nostrums of the past 30 years, where economic policy goes beyond the narrow focus on growth and strategically reflects social and environmental purposes. In this sense, it is not so much a ‘social stimulus’ nor a ‘green industrial strategy’ that is demanded, so much as an encompassing ‘equitable green development strategy’ – or, to use a less prosaic formulation, a green new deal.
Such an idea is not new. In 2009, at the height of the economic doldrums that followed the crash of 2008, the Green New Deal Group proposed two major agendas by way of an alternative recovery strategy intended to transform Britain’s growth model. Firstly, a sustained programme to invest in and deploy energy conservation and renewable energies, coupled with effective demand management. This entailed investment in ‘clean jobs’ in low-carbon sectors, investment in skills and training to prepare workers for the ‘jobs of the future’, retrofitting and insulation of people’s homes in order to lower energy bills and energy usage. Secondly, it called for the re-regulation of national and international financial systems, the utilisation of banks which are largely publically-owned (such as the Royal Bank of Scotland), legal changes to close tax loopholes, and tax increases for the most affluent. As such, the Green New Deal presupposed a state which adopts a more prominent role in regulation, innovation, and re-directing capital to facilitate the growth of specific sectors.
These ideas never gained significant political traction throughout the troubled post-2008 context. However, the present post-referendum conjuncture marks an important opportunity to advance this agenda, for four key reasons.
First, Britain’s ‘green economy’ has the capacity not only to grow, but to boost a type of growth which supports skilled, sustainable and well-paid jobs. The green economy already employs nearly a million people in the UK, in areas from electric-car manufacturing to wind-turbine installation, but looks ripe to be scaled up through further investment. A green stimulus has recently been endorsed by both Mark Carney at the Bank of England and the TUC, who have lauded the comparable strategies of Germany and Denmark.
Second, the cost of financing such a stimulus is historically forgiving, as investment capital has fled to the safe haven of bond yields in the midst of current economic uncertainty. 10-year bond yields have risen in the past two months but it remains cheaper to finance a stimulus for Hammond today than it was for Osborne almost throughout his entire tenure in Whitehall. If the government is willing to take up the slack of private investment by channelling this risk-averse capital to productive outlets, and provide a clear and credible ‘mission statement’, this could be turned into a historic opportunity.
Third, the institutional context has also shifted in favour of a green new deal. One of few consolations of a so-called ‘hard Brexit’ is that the state aid rules that would previously have hampered the kind of intervention implied by a green new deal would no longer apply (although such an outcome would doubtless pose enumerable challenges of its own). Moreover, many of the domestic capacities that policymakers need to finance such a green new deal already exist in the form of the publicly owned Green Investment Bank. Instead of privatising the institution, the Chancellor must embrace its capacity to translate any fiscal loosening into productive investment in the green economy by giving it access to the capital markets.
Finally, the political context appears to have shifted in a way that favours a rethinking of the relationship between economic policy and other areas of policy. Brexit appears to have brought the inequalities of economic prosperity to Westminster’s attention, with politicians forced to recognise the necessity of – and opportunities to be had in – speaking to popular concerns about economic pressures facing households after nearly a decade of failed austerity. Unlike the government’s misappropriated ‘national living wage’ and increasingly populist tone towards immigration, a green new deal offers a response to these concerns that embodies both a positive narrative and an inclusive, integrated approach to social, economic and environmental policy.
There would undoubtedly be hostility to such an agenda from entrenched interests within the British state and beyond it who favour continuity with the existing financialised economic model. But eight years is a long time in political economy. It increasingly appears that the status quo is becoming politically untenable. The monumental task ahead of those who recognise the full scope of the crisis facing Britain is to make sure that any shift in economic policy priorities that result from this recognition becomes the basis of a form of growth which is inclusive and truly sustainable – a green new deal.