How to recover green

NEW YORK — For a while in the early stages of the COVID-19 pandemic, there were high hopes for a V-shaped recovery. After a brief but sweeping lockdown to stanch the spread of the virus, the economy would easily reopen, and with enough care and money, everything would go back to the way it was at the start of the year.

That was clearly a fantasy. Months after the initial lockdown period, the United States and many other countries were still reaching new highs in terms of both infections and COVID-19 deaths. And the pandemic had exposed — and probably exacerbated — deep problems plaguing the economy well before the crisis began. For example, the US economy generated massive inequalities not only in income and wealth but also in health outcomes and access to care. And because these disparities closely track those of race in America, already marginalised populations were left even more vulnerable to the virus.

Governments, meanwhile, have intervened on an unprecedented scale. With such massive levels of public spending, citizens have every right to demand that the post-crisis economy be shaped in accordance with their own interests, not those of “markets” or whatever short-sighted capitalists demand.

Ideally, a “new” economy would be much greener than the previous one. Current spending and investment would facilitate a broad shift away from the fossil-fuel-driven economy that has prevailed for the past 200 years. Knowledge-based sectors would replace manufacturing, oil and coal. The crisis would be met with policies designed to accelerate positive trends, such as falling costs for solar and wind energy, while reversing negative developments, such as rising inequality.

An outcome like this is eminently feasible. Recent emergency expenditures have furnished policymakers with a suite of instruments for reshaping the economy. For example, state financial assistance (be it a grant or a loan) can be a life saver, and thus should be allocated wisely, with an eye towards sustaining those sectors that we want to see emerge even stronger from the crisis. Unfortunately, in the US, while the airlines received billions, knowledge sectors (including research universities) have not been extended the financial support they need. This suggests that the US economy is being pushed in the opposite direction from where it should be going.

When government assistance is provided, it needs to come with conditions designed to drive the economy in the right direction. When the US bailed out its airlines, few strings were attached. France, by contrast, has required that Air France reduce its carbon dioxide emissions and domestic flights as a condition of receiving government aid. The disparity between the two countries should come as no surprise. Current US leadership has offered no vision for the future of the economy. When President Donald Trump’s administration has not been denying the crisis outright, it has acted as if the economy will simply pick up where it left off.

It now seems likely that the pandemic will remain with us long enough to give us time to think strategically about how recovery programmes can be designed both to restore economies to health and to reshape them for the future. Before the pandemic, we knew that the transition to a carbon-neutral economy would require a society-wide effort on the scale of the New Deal or a “wartime mobilisation”. Because it is now clear that recovery itself will require massive investments, it is only natural that we combine these imperatives in a single strategy.

The good news is that green investments in renewable energy, sustainable infrastructure, energy-efficient buildings, and other outlays can be timely and flexible, which is important when there is so much uncertainty about the course of the pandemic. Green investments also tend to be labour-intensive, which is ideal for reducing unemployment and driving up wages. And they usually have large multiplier effects (delivering a bigger bang for the buck, compared to other forms of spending), which matters when so many countries are facing ballooning deficits and debts.

New Zealand has already been putting these ideas into action, by redeploying hospitality workers (who otherwise would be unemployed) to work on conservation projects in “nature tourism” areas. This scheme will likely pay off well into the future. The US Civilian Conservation Corps, the Works Progress Administration, and other New Deal programmes left a physical and cultural legacy that Americans still enjoy almost 100 years later.

Yet implementing such investments today will require institutional innovation, including creating new “green” development banks and expanding existing organisations. Market institutions are often too short-sighted to see the wisdom of long-term investment. But while some existing green banks have proven quite effective, others have not. We will need to heed the lessons of recent success and failures, and adapt accordingly.

In our complex economy, public investment is necessary but not sufficient to drive a green recovery. There also will need to be incentives to facilitate private investment in green sectors. Again, there are already multiple tools for doing this. For example, by requiring large corporations, including banks, to disclose their climate risks, we can nudge private capital away from brown investments and toward green projects.

Moreover, simply promoting long-term thinking and discouraging short-termism will move the economy in a greener direction almost as a matter of course. To that end, fiduciaries should be required to focus more on long-term risks, and corporate governance should be reformed to give long-term investors more say (through “loyalty shares”) in firms’ decision-making.

Finally, while existing and newly created green banks can make more investment funds available, regulations can be tightened to move the economy “greener”, for instance by forbidding coal-fired power and other forms of dirty energy. And it is time to start discussing a meaningful carbon price, which also would encourage green investment.

As of this summer, forecasts from the International Monetary Fund and other organisations indicated that it would be quite difficult to return to full employment any time soon. In many countries, unemployment rates may not return to their late-2019 level until sometime in 2022. And that’s the optimistic scenario: The longer the COVID-19 crisis lasts, the deeper the economic scars will be.

A strong recovery will require government support that is not only well designed but also sustained over time. A disastrous situation has furnished us with a rare opportunity to pursue the investments and reforms needed for a more sustainable and prosperous future. We must not waste it.

Joseph E. Stiglitz, a Nobel laureate in economics and professor at Columbia University, is chief economist at the Roosevelt Institute and a former senior vice president and chief economist of the World Bank. His most recent book is “People, Power, and Profits: Progressive Capitalism for an Age of Discontent”. Copyright: Project Syndicate, 2020. 

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