Bob Hancké, PEACS
14 February 2025
The abstract time inconsistency problem, and the asymmetric distribution of long- and short-term costs and benefits, lands in the concrete world of institutional frameworks and political struggles. Start with the reasonable assumption that clearly identifiable losers will, all other things being equal, likely mobilise, while distant and only loosely identifiable winners (some of which may, again, not even exist yet) are less likely to do so. Losers also have an incumbency advantage: those on the capital and labour side that benefit from the brown economy (and stand to lose from the green transition) are often highly organised. In most of Western Europe, and increasingly also in Central Europe, strong trade unions often hold de facto (soft) veto rights over economy-wide adjustment programmes, while workplace representation schemes are usually geared toward building a community of interests between management and the workforce. In the green transition, where both vested capital and labour stand to lose, that bias towards cooperation becomes the institutional and normative framework for defensive action. Increasingly, organised labour puts the brakes on a rapid transition and/or raises the alarm about its social cost. Similarly, management (and company owners) are often strongly represented in their own business and employers’ associations, the collective voice of capital in the industry. Both unions and industry associations have the government’s ear in this set-up; in many countries, in fact, their right to make or propose economic policy is constitutionally enshrined (Offe 1981). And where governments like to go it alone, as in southern and Central Europe, unions can threaten strikes and business associations have just enough collective mobilisation potential to make the adoption of green economic policies very difficult. While every social actor would have to contribute for the green transition to be a success, many prefer to defect, out of the rational fear of losing their source of income.
These collective action problems help understand much of the ambiguity towards the green transition among key socio-economic actors. Their loss (and gain) functions are very clear, and they have an impressive set of institutional tools at their disposal to bend politics, including green adjustment, their way. Under those conditions, as Mancur Olson (1984) argued, stasis and decline are very likely outcomes. Take the example of the German car industry. Since some of the car makers have been reluctant about battery-powered electric vehicles (EVs), while others have resolutely adopted a 100%-EV strategy, the industry association VDA has been unable to speak with one voice (Santamaria 2023). And since the workforce in the industry, including the large suppliers, is split between those that are certain to lose and those that are likely to gain, the unions have found it equally hard to speak with one voice. In a country where much of economic policy is effectively subcontracted to these organised groups, their immobilism inevitably translates into policy inertia – as we saw in 2023 and 2024, when the German government (with a Green Economics Ministry!) fought for a longer life of the internal combustion engine.
Things are slightly more complex, though. While the image of two monoliths that embrace each other in an existential conservative producer coalition may be very helpful to clarify the strategic options of labour and capital, they are not homogenous actors in modern capitalism. Each consists of different sections, who have different interests in the green transition. A closer look at the discussion about the introduction of EVs in France and Germany reveals a deep strategic rift. While electrification will almost certainly have severe negative effects for the brand-name plants that we associate with cars (known as original equipment manufacturers or OEMs) and their core workforce, much of the rest of the industry, and especially supplier companies and their workforce, are likely to benefit from the transition or suffer significantly less than the OEMs. Those who make engine parts and drive trains will have to retool or disappear, but producers of seats and interiors, headlights, tyres, etc. are just as necessary to supply EVs as traditional cars. And since many cars with internal combustion engines have increasingly become powerful computers on wheels, and battery management requires more and more powerful electronics and software, many of the companies and workers who supply the electrical systems, electronics and software are likely to become more important. The idea of labour and capital in the industry thus covers three very different segments: those whose fate is intimately tied to the old technology (the OEMs and most suppliers of engine parts and components of the drive train), those for whom little will change (such as producers of seats and tyres), and the ones that will become more central to the new electric cars (producers of batteries and of software, which steers many functions in EVs, not least the management of the expensive battery packs) (Kanitz & Hancké 2024).
The first group, located in the OEMs and their current suppliers to the internal combustion engines they make, usually have very strong formal or informal institutions of workers’ representation. In most of North-West Europe, works councils and their equivalent are a central part of company governance, usually on the understanding that they pursue the interests of workers in light of the overall situation of the company. Business in these traditional companies has a similar conservative bias, and usually has a similar strong institutional and political foothold, usually only one phone call away from key ministers’ ears. Since unions have a similar fast track to decision makers, the traditional companies, where the costs for workers and investors are likely to be steepest, are also the ones that are very organised.
For trade unions (as opposed to works councils), however, who represent the workforce in the wider industry, the situation is slightly more complex. Since many, probably most, of the workers they represent are employed in the stable and growing sub-sectors, and electrification poses less of a problem for them, trade unions are in favour of a faster and deeper process of electrification to secure jobs and competitive positions in the emerging world EV market (with two caveats: one, workers who lose out need accompanying social measures and compensation; two, many of the software sub-sectors are relatively weakly organised by unions). The result is therefore that electrification in the car industry has led to a bifurcation of interests, both among capital and labour: OEMs and their dedicated suppliers argue, supported by their workforces, for a slow and gradual transition with many adjustment funds, while suppliers in components that are not related to thermal engines and companies in key electronics-oriented sub-sectors clamour for a fast and deep transition, supported by their workforce and their trade unions (Hancké & Mathei 2024).
These somewhat abstract political-economy problems of time inconsistency, collective action and institutional power in the green transition set the stage for the balance of this essay. Think of these three elements as the starting set-up that define the universal issues and give us analytical leverage to understand specific, concrete processes on the ground. What happens next, when you begin to think about implementing the green transition? How do these issues play out in practice, and what are the tools we have to make sense of them? That is the subject of the next essay later this week.
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