How do you handle the problems that this essay series has identified? If neither technology nor economics are the core of the problem, as I started out several weeks ago, but most of the tensions are related to the distributive aspects of the transition and the way interests and institutions channel those, what does that imply for policy? I have already hinted at policy logics on specific issues that could help; this section will take a step back and discuss conceptually how policymakers could think about addressing the tensions that the green transition will inevitably produce.
Solutions should follow the diagnosis. If a medical problem is viral, diabetes medicine is useless; if an attacking line in a football team is weak, strengthening defence is futile; and if educational failure is related to class size, higher wages for teachers will not remedy the problem. The same is true here: since most of the problems that I have discussed in this essay series are known as aspects of market failures – situations in which rational people pursuing their rational interest lead to a collectively (or even individually) suboptimal outcome – solutions need to address these problems as market failures. Usually this involves significant (though careful) government intervention, simply because market failures cannot logically be resolved with market-based instruments. If environmental pollution is an uncosted negative externality, you could try including it in a contract, but that would lead to an infinite number of contracts, unless you accept an outside enforcer such as the government through police and courts, voluntary associations backed up by the state, or private coercive mechanisms like the mafia. You could impose a tax on the pollution, on the principle that the demand for and therefore the supply of a good (a ‘bad’, in this instance) falls if the price rises. Yet this does not guarantee that pollution will disappear: some actors will see the environmental tax as a price for being allowed to pollute (in the same way parents see a fine for late pick-up of their children at a nursery as a fee that gives them the right to show up late; see ref.). Or, following the precautionary principle, you regulate, as we often do with extremely harmful substances in daily life, like food, drugs, asbestos, lead pipes, or filthy air in heavily populated areas. Logically none of these types of solution is superior, because they all impose heavy costs, including enforcement, and their effectiveness can also differ depending on the exact problem they are trying to solve. But there is little doubt that market failures can, almost by definition, not be resolved in the market and require government intervention.
The need for public goods in the transition
This notion of government intervention is embodied in one central idea that runs through practically all the issues I sketched earlier in this essay series: many of the solutions to the climate crisis and much of the green transition require investment in what political economists call public goods. Public goods are benefits that accrue to others who have not contributed (fully) to their production because they cannot be excluded from their consumption, and who do not diminish in value when that third party uses them; they are, technically non-excludable and their consumption is non-rivalrous, and/but others cannot be forced to contribute to them. A classic example is a light tower on a coastline, which benefits all passing ships, and not only those who will dock nearby (and from whom a part of the consumption could be recovered in the harbour). Public education, public health, police and defence are usually also considered public goods of sorts, because in these cases citizens cannot easily be excluded, while they pay a nominal fee through taxes. Imagining the counterfactual, say a private army, shows the limits of private goods: if it protects your family, it will likely also protect at least some others who fall under your defence umbrella.
Public goods are crucial in a capitalist economy. Private investment may be necessary and desired, but much of that depends on the availability of institutions, non-profit technology and resources that produce arrangements benefiting all, and that are close to impossible to privatise efficiently. Think of the following simple examples. The success of electric cars relies on charging infrastructure, upgraded electricity, and new skills, most of which require an important dose of public supply in the shape of R&D, land availability, etc. The energy transition will demand basic investment in housing stock upgrades, regulations to make new houses carbon neutral, international cooperation and negotiations on rare earth materials, as well as massive investment to upgrade and decarbonise the existing housing stock. The success of many of these processes will depend on reliable, inclusive and progressive technical standards. The (green) jobs of the future will require the higher skills that, in most places, only between a quarter and half of a cohort acquire through the standard educational system today. These are combinations of several general skills that can be used in many different settings, as opposed to the technology-specific ones that prevailed in the brown industrial era. Because of the relative concentration of industry in a small number of regions, local economies that are significantly affected by the green transition will need public adjustment policies on reconversion, redevelopment, training and social plans. The green transition will require a step change in innovation, from basic science in public universities and laboratories to commercial R&D efforts that require financial support. In short, very few aspects of the green transition escape the need for investment in public goods that benefit all, and which provide a common floor that private actors can build on.
Ironically, intentionally producing public goods can be quite difficult. Almost by definition, private actors will rarely engage in that process: while they may reap the benefits, they would also indirectly subsidise their competitors. Unless they can privatise the public good, something that is by definition impossible, they stand to lose in relative terms. Now, governments could make participation in public goods production mandatory, of course, but that assumes that governments know which public goods we need. Since they often do not, this may be a very costly and ineffective way to produce public goods. And if you accept a modicum of variation because not every problem everywhere is exactly the same, knowing what to do depends on knowing how to discover and negotiate what to do – you not only need the knowledge but also institutions that invite parties to explore knowledge and negotiate solutions, as I explained in a previous essay. Governments rarely offer that flexibility, for a variety of cultural, constitutional or administrative reasons.
An alternative is to rely on quasi-public, non-state arrangements, such as trade associations or Chambers of Commerce; but these do not always and everywhere have the organising and disciplining capacity that such a devolution of decision-making requires, and very often competing interests make cooperation very difficult. Perhaps the urgency of the green transition shocks all parties into action – a bit like what happened during the Maastricht process, when every country discovered its inner neo-corporatism – but problem load and urgency are in and of themselves rarely enough to nudge two or more parties into binding agreements, even if they agree, as I pointed out when discussing problems of cooperation. If they were, the green transition would run a lot more smoothly.
Perhaps – or better: most likely – the solution to the collective action problem at the basis of the public goods conundrum resides in combinations of solutions. Imagine, for example, that all agree on targets (for carbon reduction, EV sales, or pollution), government devolves decision-making on how to reach these targets to civil society actors and local governments outside the traditional centralised decision-making circuits, then coordinates efforts to avoid mutually destructive outcomes (such as tax competition), subsidises experimental arrangements from which all can learn, and organises ‘show and tell’ rounds, in which key players can learn from each other. Some localities may privilege tax-based measures, while others think the solution lies in gradual increases in regulation. A third, remaining, group of regions or countries concentrate on supply-side aspects like skills, innovation and inter-firm cooperation. If these different actors learn about each other’s experiences in regular meetings, they may also adopt mixed strategies, tailored to the local needs, opportunities and sensitivities. Even though this may go wrong, it will probably produce outcomes that reflect current wisdom, the distribution of risks, costs and benefits, and warn others about potential problems. It may also lead to faster adoption after the initial cooperation problems are overcome, since tensions are front-loaded and negotiated ex ante in such an arrangement.
With this set-up in place, knowledge can be developed and flow between actors and across regions. If actors also have access to tools that help them organise the knowledge they have and induce them to develop a common language to explain their position, presentation and discussion will likely lead to understanding and, eventually, cooperation.
In a recent project that the LSE funded (and which I hope to document in more detail soon), we developed a checklist-type questionnaire that asked all stakeholders in British, French and German highly car-dependent regions about where they were with regard to electrification, where they would like to be, and what resources would help them get there. Several rounds of discussions later, business, local governments, chambers of commerce and trade unions were capable of jointly developing a series of transition plans that would address what they had collectively come to see as the main obstacles to an EV future. The German participants in the project then initiated contacts with their counterparts in other countries to understand how they were performing compared to those regions (and learn, where possible). Such a structure for the collection, exchange and dissemination of available knowledge is in itself a public good that is necessary to further the production of other public goods such as training systems, support for suppliers, or other developments that benefit the region. Knowledge was produced and shared on the back of the project, which offered the forum and processes that allowed parties to collectively think and exchange – effectively producing a first-order public good on which many others could be built. We won’t know what the outcome of this ‘action research’ project will be – not least because many decisions are made outside the local circles that we engaged, but the foundation for cooperation is now there and can probably easily be picked up again if the electric future of cars picks up speed.
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