The EU’s green gambling may make it a low-carbon leader
We are experiencing a renaissance in industrial policy. Thirty years after most governments are content to hand over economic change to the invisible hand of the market, politicians from all walks of life have been convinced that stronger political guidance for growth is needed.
Many things have led to this transformation: the rise of China, a strong resistance to globalization, climate change, regional inequality, and lack of preparation before a pandemic.
Regardless of the stimulus, the result is that the supply chain is now seen as a matter of national interest and repositioning the manufacturing industry as a tool to “upgrade” backward regions.Everyone and their uncles want a version of Darpa, the US Defense Advanced Research Projects Agency, whose research funding supports from the Internet to mRNA vaccine.
Obviously, the thorny problems that prevailed before activist governments have also come back. Can the government choose the winner, or will they choose the loser when they try? Will subsidies just be a scam for people with a wide range of connections, or will they stifle competition and innovation?
Undoubtedly, industrial policy includes government support for activities, entities, or places that have the greatest potential (if only one person can identify them) to achieve innovation and productivity. Paradoxically, however, the completely opposite approach is also making progress. We are beginning to see the government trying to improve economic performance, not to coax companies through subsidies, but to make things more challenging for them.
A typical example of this “stern love” is EU’s decarbonization planIn addition to the political goal of carbon neutrality, the EU also sees it as a tool to promote European industrial and technological development and even leadership.
Last week’s package of policies will allow many companies to pay more for their carbon emissions and for the first time to charge for emissions from new industries.Brussels hail This is not only an opportunity, but also “our company’s advantage.” Road transport has been treated particularly harshly: the sale of new fossil fuel-powered vehicles will end in 2035. However, “our green transportation transformation” is far from the grinding wheel on the neck of the industry. .. Will create a world-leading company that can serve the growing global market”.
Is this crazy?Judgments based Opposition to the planMany people in the industry think so. The argument that adding a burden to a business is a way to make it perform better is at least unusual. But if this is crazy, there is a way.
Frans Timmermans, the commissioner in charge of green transactions, put it succinctly By comparison “Carbon Price [to] Decarbonization premium”. In economics, relative prices are more important than absolute prices: penalizing those who cannot improve means greater profits for those who can.
This is good in theory. Is it effective in practice? There are reasons to think it can.The high level of productivity of the Nordic economies is not in contradiction with the egalitarianism enforced by the unions, but Its result: The inability to hire workers at low wages has prompted the private sector to choose capital-intensive business models.
the study About minimum wage It also shows that the lower wage limit will not cause unemployment, but will redistribute labor from lower-productivity jobs to higher-productivity jobs. Conversely, allowing companies to adopt a business model based on cheap but unproductive labor can lead to this situation.
The same idea can be in Chinese people Interested in adopting strict technical standards to force its corporate sector to upgrade its technology.
What do these cases have in common? They are examples of the Darwinian choice of the government to strengthen the market. When capitalism does not provide enough creative destruction, the state will increase the pressure-in this process, “natural” selection is conducive to the outcome of political preferences.
Of course, in the context of the carbon transition, supporting policies—subsidy for R&D and socially sensitive redistribution—are needed to be effective. Even so, this is a gamble: It can be said that the European Union is taking greater risks in its long-term green industrial policy than the large-scale short-term macroeconomic stimulus of the United States. But if it turns out that Europe is leading the way in green technology, the impact on policy thinking will be far greater than the revival of old-style industrial policies.