The climate crisis announced its presence last year with a litany of record-breaking disasters, with floods ripping through Pakistan and Bangladesh and droughts drying up sections of major rivers from the Loire to the Yangtze. The UK did not escape this summer of extremes, recording its hottest ever temperature amid a heatwave that depressed crop yields, melted roads, and buckled railway tracks. 2023 is already marking new sinister milestones on the road to climate catastrophe.
After decades of inaction, states are at last scrambling to respond to this crisis. There is a growing consensus among policy elites, at the national and international levels, that addressing climate change is chiefly a matter of investment. Achieving so-called ‘Net Zero’ carbon emissions means reconfiguring the global economy along green lines. Not only the energy sector, but buildings, transport, industry, and food must all be decarbonised. That requires investment, and lots of it. How much exactly? Estimates vary from $4.4 to $9.4 trillion dollars annually until 2050. If these figures are right – and they are likely to underestimate the scale of the task – then that means somewhere between 5-10% of global GDP must be dedicated to decarbonisation every year until midcentury.
There are lots of problems with framing climate change as simply an investment problem. As Melanie Brusseler explains, greening an infrastructure network like the electricity grid requires there to be ‘systemic coherence’ between a broad array of moving parts, from solar farms to storage facilities to transmission line operators. This is a complex issue of coordination, a ‘synchronised dance’ that cannot be achieved by an aggregate rise in investment alone. An unplanned scale up of renewables, moreover, would create a host of other environmental problems – from the expansion of green sacrifice zones in lithium-rich areas of South America to the accumulation of waste that accompanies the buildout of solar panel production. Even if we accept that booming investment is the key to decarbonisation, however, a further problem remains: global economic stagnation.
Stagnation’s causes and consequences
Since at least the 1980s, there has been a marked slowdown in rates of investment in most parts of the world. Global GDP growth has also trended downward in this period, alongside relatively weak rates of profit in many countries. The causes of this protracted economic stagnation are hotly debated, though many accounts locate the source of the malaise in the neoliberal revolution of the 1980s. According to this story, neoliberal governments across the globe pursued policies that fostered a low demand, low investment environment. This includes attacks on organised labour that lowered wages and consumer demand, as well as financial liberalisations that empowered shareholders to divert corporate earnings from long-term investments into share buybacks and dividends payouts.
Such accounts, however, often fail to explore how this neoliberal policy revolution was itself a reaction to the entrenched ‘stag-flation’ of the 1970s and early 1980s. By the 1970s, the post-war boom had begun to lose momentum. The international spread of advanced US industrial technologies that in part drove the post-war economic miracle later resulted in oversupply and falling profitability. Weak profitability led predictably to stagnant investment and, less predictably, to stubbornly high inflation, as companies responded to government demand stimulus measures by hiking prices to bolster their profits.
Neoliberalism was a response to this problem. It sought to defeat inflation and kickstart growth by liberating capital from its social-democratic fetters. While it succeeded in boosting profitability in some regards, for example by weakening the power of unions over the labour process, it simply entrenched stagnation in other ways, not least by allowing a new stratum of rentiers to siphon wealth from the economy without producing. Regardless, in many industries across the world, the problems of overproduction and weak profitability remain today, acting as obstacles to new investment.
As I argue in a recent article, stagnation poses a major problem for mainstream Net Zero visions. The slowdown afflicts several heavy industries that are key to decarbonisation, such as steel, which accounts for 9% of carbon emissions. Profit margins are thin in this industry due to global oversupply, making huge new investments in green steel production an unattractive prospect. Yet similar dynamics are at play in young renewables sectors too. The production of solar photovoltaic panels, for instance, despite booming in recent decades, has also increasingly encountered problems of overproduction and depressed profitability, which have only been overcome (or rather postponed) by the Chinese state’s gargantuan efforts to boost demand for solar panels.
In conditions of global stagnation, states are finding that they must undertake ever more extraordinary measures to provoke even moderate levels of private green investment. China has spearheaded this charge, wielding an array of policy tools – from generous subsidy regimes to the coordination of investment by state-owned banks and enterprises – and is consequently leading the world in many green industries. Western governments are also waking up to the challenge, but their interventions are much more modest and chiefly take the form of derisking measures, whereby governments assume the risks associated with investing in green assets, and hike up the potential returns, in order to attract financial capital.
Joe Biden’s Inflation Reduction Act (IRA) epitomises this approach, unleashing hundreds of billions of dollars (and potentially much more) in federal funding, primarily in the form of tax credits to businesses, to incentivise private green investment and boost the US’s position in key renewable industries. The European Union has protested the US’s green protectionism, but has at the same time amended some of its ordoliberal strictures – for example by loosening state aid rules that restrict public support for industry – in order to free up European governments to respond to the international green industrial race.
The UK afloat on turbulent seas
For a rich country, the UK is in a uniquely bad position to navigate these global conditions. In a stagnant world economy, the UK stands out as having the lowest investment rate across the G7 economies over the last two decades according to some measures. The post-2008 period, meanwhile, has been marked by the lowest productivity growth seen since the Industrial Revolution. The Tories’ decarbonisation strategy is spectacularly ill-designed for this context. It relies upon a spurt in private green investment from now until 2030 that will apparently be galvanised by the government undertaking around £56 billion of public investment, supported by several new institutions including the UK Infrastructure Bank and the Green Finance Institute. To put that into perspective, the fossil fuel industry received roughly £80 billion in UK government support since 2015, according to one estimate.
The opposition’s climate plans are more ambitious, but follow a similar derisking logic. Keir Starmer’s Green Prosperity Plan promises to reach net zero in the power sector by 2030, five years ahead of the current government target, and generate half a million new jobs. This is to be achieved by £28 billion of green public investment each year, accompanied by a series of institutional innovations that include the creation of a National Wealth Fund and a publicly-owned energy company, whose ‘priority will be to co-invest in leading edge energy technologies where this can de-risk and unlock private sector investment’.
If Labour’s plans were carried out, however, they would still fall far short of what is required to achieve decarbonisation and reverse the UK’s economic decline. The measures proposed simply don’t match the scale and complexity of the crisis at our doorstep. But it’s unclear whether Labour would even stick to these promises in office. As Starmer has said, the Green Prosperity Plan must adhere to the ‘iron rules’ of budgetary responsibility. Shadow Chancellor Rachel Reeves recently demonstrated her commitment to this principle, backtracking on her £28 billion investment pledge because of the current adverse economic climate. For Labour, as for the Tories, maintaining the stability of the climate is secondary to maintaining the stability of the public finances.
Yet the problem doesn’t ultimately lie with the conservatism of the current Labour leadership. Even if a genuinely radical Labour government was to pursue a budget-busting decarbonisation strategy adequate to the seriousness of the task at hand, it would find itself hamstrung by a variety of institutional and market constraints. As Jeremy Green correctly notes, the struggles of governments to pursue ‘industrial modernisation’ during the halcyon years of UK social democracy are instructive. It is worth looking at this historical comparison in more depth.
Social democracy and its limits
Harold Wilson came to power in 1964 with a ‘National Plan’ to revive the UK’s lagging economy. Mirroring Labour’s rhetoric today, Wilson promised a ‘dynamic, exciting, thrilling change’ from the Tory status quo of boom, bust, and decline; his government would place UK industry at the heart of a global scientific revolution. In service of this goal, Labour created a variety of new public planning and investment bodies, from the Department of Economic Affairs (DEA) to the Industrial Reorganisation Corporation to the Ministry of Technology. Together these institutions sought to set the UK on a path of technological modernisation and international competitiveness.
As the head of a self-proclaimed ‘socialist’ government, Wilson could expect resistance from the UK economic establishment. The Treasury had long pronounced the merits of fiscal conservativism and sound money, serving as a bulwark against what it considered ‘reckless’ government spending. The Bank of England traditionally played a similar role in restraining political radicalism. Its intimate relationship with the City of London and its official responsibility for ensuring monetary stability prejudiced it against left-of-centre governments.
That said, in the 1960s Labour faced a friendlier institutional climate than would a radical government today. The Bank of England had been nationalised in 1946 and governments could wield significant influence over its actions. Additionally, Wilson had been able to introduce several measures to undermine the Treasury’s veto power over economic policy, including positioning the DEA as an institutional rival at the heart of government. Nevertheless, Labour’s National Plan provoked considerable establishment pushback. The Treasury successfully resisted Wilson’s political maneuvering and the DEA was shut down in 1969. It was also during these years that the Bank of England began experimenting with money supply targeting – partly as an attempt to place a leash on government spending.
What ultimately sank the National Plan, however, was the impersonal pressure of international economic competition. The UK’s poor export performance was punished by three major sterling crises in 1964, 1965, and 1966. As world market sentiment soured on his government’s plans, Wilson was forced to devalue the pound and go to the IMF for help, after which he introduced the most painful budget since World War II. Instead of forging a new vision of socialism in the ‘white heat’ of the scientific revolution, Labour was coerced by global economic imperatives into becoming the superintendent of a brutal austerity programme.
Beyond social democracy
A transformative decarbonisation agenda that prioritised the habitability of the planet over budgetary orthodoxy would likely run into similar barriers. The contemporary institutional landscape is more hostile to radical policy initiatives than during social democracy’s heyday. Government spending is now constrained by fiscal rules and monitored by the Office for Budgetary Responsibility, while the Bank of England’s post-1997 operational independence grants it more freedom to counteract government stimulus measures with monetary tightening. Governments today also lack the power to use exchange controls to stem capital flight and combat currency crises.
The global economic context is different too. In the 1960s, the UK was struggling to remain competitive in a booming world market. Today the UK is seeking to completely overhaul its energy system and reverse its economic decline in a context of anaemic global growth. The threat of speculative attacks on sterling has lessened since the UK abandoned fixed exchange rates. But the disastrous market reaction to Liz Truss’s mini budget in 2022 demonstrates that such risks have not been vanquished altogether. We should expect an adequate package of climate reforms to elicit a similar response from markets – in fact, such a reaction would be evidence of the seriousness of the decarbonisation strategy.
To face down such challenges, a government committed to tackling climate change would need the backing of a formidable social movement, or rather a network of interconnected movements. Massive popular militancy would be vital in supporting the government as it did battle with establishment forces both within and outside the UK state apparatus. But more importantly, if the government’s climate measures provoked economic turmoil in the form of capital flight, an investment strike, or the currency’s collapse, these same grassroots movements would be required to help people meet their basic subsistence needs. This could mean providing mutual aid within communities, blocking evictions, requisitioning and redistributing food and other essential items, and consequently facing down the forces of law and order.
In other words, the kind of social organising and militancy that would be required to force through a package of social democratic climate policies remotely adequate to the severity of the environmental catastrophe would be almost revolutionary in nature. If such a level of popular mobilisation could be achieved, a world of possibilities would open up beyond the confines of private property and the market. As Aaron Benanav remarks in his critique of Universal Basic Income proposals, building such social power begs the question: why stop at social democracy?
This scenario is a million miles away from that likely to be encountered if the current Labour Party was to win office. Yet as the climate crisis worsens, and as watered-down derisking strategies prove inadequate to effect an energy transition in a context of economic stagnation, existing economic orthodoxies will necessarily crumble, giving rise to new political openings. For a just vision of decarbonisation to be realised in this context will require the onerous task of building social power in workplaces, neighourhoods, and in the streets.
Such organising work should be our foremost priority, whether we envision socio-environmental justice being achieved through the state or through extra-parliamentary action. The status quo forces arrayed against genuine environmental transformation won’t be convinced by a carefully worded election manifesto – they will have to be defeated.
Jack Copley is Assistant Professor in International Political Economy at Durham University. His book, Governing Financialization: The Tangled Politics of Financial Liberalisation in Britain (OUP, 2022), explores how British governments in the 1970s and 80s used financial liberalization to confront the ‘stagflation’ crisis. His current research is focused on the governance of climate change and decarbonisation.