In today’s special Say More feature, three leading experts – Director of Policy Research in Macroeconomics Ann Pettifor, former World Bank Managing Director Mamphela Ramphele, and Harvard professor Kenneth Rogoff – examine the new green economics the world needs, and how public finance fits into it.
All three of today’s featured contributors will be discussing these topics and more as part of our 2021 Climate Week coverage, which includes two live virtual events: New Summits on September 15 and Building the Green Consensus on September 20. Register for free today.
Featured in this Say More
Ann Pettifor ANN PETTIFOR
Mamphela Ramphele MAMPHELA RAMPHELE
Kenneth Rogoff KENNETH ROGOFF
An Interview with Ann Pettifor
ANN PETTIFOR
An Interview with Mamphela Ramphele
MAMPHELA RAMPHELE
An Interview with Kenneth Rogoff
KENNETH ROGOFF
An Interview with Ann Pettifor
Sep 7, 2021
ANN PETTIFOR
Project Syndicate:
At the upcoming New Summits event, you will participate in a panel discussion on the New Green Economics. Last year, you wrote that building a sustainable world would require an “overhaul of the global financial and monetary system” to “put finance back in its proper place as servant, not master, of the global economy.” That means, for starters, increasing “democratic oversight of the international financial system.” How has the pandemic highlighted this imperative, and how might it be pursued?
Ann Pettifor: The COVID-19 crisis exposed the deep flaws in our capitalist systems, and the globalized financial sector’s greed, vulnerability, and detachment from the real economy. In fact, during the pandemic, free-market capitalism was suspended, and Wall Street, the City of London, and Frankfurt were effectively nationalized (albeit unconditionally) after the shadow-banking sector’s near-implosion in March 2020.
The Italian sociologist Paolo Gerbaudo described the public reaction to the systemic flaws the pandemic exposed as the “Great Recoil”: economies and societies turned away from the globalized system, and reoriented themselves toward the domestic, nation-state economy. Public support in the United States for the military’s withdrawal from Afghanistan partly reflects this recoil.
This is still simply reaction; it is not yet structurally embedded. But it is preparing the ground for a new economic transformation. That transformation could be ugly – for example, taking the form of nationalism, or even fascism. But it could also be progressive, like the transformation overseen by Franklin D. Roosevelt in the 1930s, with the interests of the domestic economy prioritized over those of the financialized and globalized economy.
PS: You also noted that, “For the US Federal Reserve and other major central banks, the top priority is not to stabilize the financial system, but rather to keep it spinning.” This is exemplified by the large-scale quantitative easing of recent years. You’ve likened this policy to an addiction – one that can be kicked only by ensured that “the extraordinary privilege of credit creation is always balanced by a responsibility not to take undue risks.” How could this be achieved, and why is it important to creating a sustainable economy?
AP: I think that Matthew C. Klein and Michael Pettis, in their recent book Trade Wars Are Class Wars, have illuminated the folly of relying on central bank monetary operations to tackle deep and dangerous global economic imbalances. These imbalances are a result of globalized, export-oriented, over-producing economies drowning in goods and services, while purchasing power at home (and worldwide) is cut.
Germany and China are classic examples of this type of economic system, which is hostile to their own, domestic constituencies. Cuts in purchasing power prevent companies from making sales and therefore profits, and they impair the ability of individuals and households to pay their bills. Firms and households must borrow in order to maintain profits and income.
The combination of excessive production and purchasing-power cuts is deflationary. Tackling deflation with quantitative easing is, as John Maynard Keynes once argued, like pushing on a string. But central banks apparently do not view their role as helping to restore balance to a very imbalanced economy, or as prioritizing the domestic economy over the globalized economy. Technocrats at central banks act to sustain and protect just one sector of the global economy: the financial sector.
The financial sector has, in turn, abandoned the “free market,” and wants its risky activities to be guaranteed and protected by taxpayers. They call this “de-risking” investment. It is an extraordinary distortion of a system once defined as “free-market capitalism.” Even worse, as the financial sector demands protection from the taxpayer, it uses capital mobility to dodge taxation systems.
How can this be changed? By once again privatizing Wall Street and the City of London, and withdrawing subsidies, guarantees, and protection. This means, first and foremost, introducing controls over capital mobility, and obliging global corporations to pay their fair share of taxes.
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An Interview with Mamphela Ramphele
Sep 7, 2021
MAMPHELA RAMPHELE
PS: In a presentation early this year, you pointed out that, in apartheid South Africa, the majority was viewed as an aberration, with black people being described as “non-white” and African people being described as “non-European.” The first step to achieving “any major paradigm shift,” you explained, is thus to become “conscious of the contradictions, the absurdities that we take as normal.” At the New Summits event, you will participate in a panel discussion on the New Green Economics, which focuses on a badly needed paradigm shift in economics. What lessons does your experience as an anti-apartheid activist hold for convincing people today to recognize unsustainable or “absurd” contradictions?
Mamphela Ramphele: The most important lesson from the activism of the 1970s is that one needs to be centered inwardly, in order to be able to take a holistic perspective of the world around them. It was becoming conscious of our worth as human beings on the mother continent of Africa that made us rise up to name ourselves – to pronounce ourselves – black people and proud freedom fighters. Recognizing the absurdity of Europeans establishing themselves as the standard of what it means to be human – and that is what they did when they referred to us as “non-Europeans” – drove even the most timid black person to find their voice, to name themselves, and to recover their humanity.
Taking away the most effective weapon of oppression – the minds of the oppressed – made the oppressor lose control. So, now, like in apartheid South Africa, we must mobilize people by changing their ideas. This requires a powerful message that touches their hearts and minds, thereby setting them free from the fear of change. By giving people a taste of freedom from the absurdities that have been normalized in their minds, we will empower them to claim their freedom.
PS: At the African Peace and Security annual conference, you observed that “Conflicts around the globe are initiated and wars are waged predominantly by men. Even the most empowered women and courageous activists find it very difficult to make breakthroughs, unless there is a partnership between those who tend to wage war and those who are peacemakers.” Similar arguments could be made about environmental destruction. How prominent a role will those who “wage environmental war” – for example, the business community – have to play in efforts to stem that destruction, in order to make breakthroughs?
MR: Lasting partnerships need a shared vision to sustain them. Those “waging environmental wars” are often segments of business that deny the shared vision of a healthy biosphere, because of the attractiveness of short-term profits. The most effective way of pushing them out of denial – of getting them to acknowledge the interconnectedness and interdependence of all life of Earth – is to call out their shareholders, who often speak the language of our “shared vision,” as they reap profits from activities that undermine it.
Environmental, Social, and Governance (ESG) reporting has become a powerful way of calling shareholders out when they fail to back their pronouncements with action. It helps that it is effectively their peers who are doing the calling out, much like when men who believe in gender equity and respect for human rights take the lead in calling out abusive men. Putting pressure on shareholders is the best way of driving companies to become good citizens and partners in the fight to ensure the well-being of all on a healthy planet.
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An Interview with Kenneth Rogoff
Sep 7, 2021
KENNETH ROGOFF
PS: At the upcoming Building the Green Consensus event, you will participate in a panel discussion on the Green Power of Public Finance. You have often advocated for the creation of a World Carbon Bank “that provides a vehicle for advanced economies to coordinate aid and technical transfer, and that is not simultaneously trying to solve every other development problem.” With what incentives should such an institution start? Do you see other options for establishing the right incentives for large developing countries to decarbonize?
Kenneth Rogoff: The progressive climate agenda in the United States has blinders on when it comes to the global nature of the carbon problem, and the imperative of finding ways to secure the buy-in of emerging-market and developing economies, which are by far the main source of carbon-emission growth.
In many parts of Asia – not least China and India – coal is plentiful and cheap. While carbon emissions in the US and Europe have been flatlining, they are still soaring in Asia, despite being briefly interrupted by the pandemic. Moreover, the average age of a coal plant in the advanced economies is more than 45 years. With many nearing the end of their useful lifespan, it is natural to start shutting them down. In Asia, the average age is 12 years, and there is no quick substitute.
Given this, the advanced economies need to take concerted action to support an energy transition in the emerging markets. The European Union plans to impose a carbon border tax on imports from countries that do not have in place their own carbon-pricing scheme (either a carbon tax or a carbon-pricing mechanism). This will provide an incentive for emerging markets to accelerate their decarbonization plans. But with limited energy alternatives – Africa is in even more dire straits – the transition will very painful. Easing this pain should a top priority for targeted Western assistance. A World Carbon Bank would be a valuable vehicle for achieving this.
PS: Last December, you pointed out that “public-finance specialists largely agree that, in advanced economies, maintenance and repair” – rather than new construction – “offers the highest return from infrastructure investment.” How do environmental considerations – particularly the goal of reaching net-zero greenhouse-gas emissions by 2050 – factor into this assessment? By these metrics, how do you rate the $1 trillion infrastructure bill that the US Senate recently passed? Finally, what steps should be taken to ensure that each project is guided by the technocratic expertise that will be needed to bring both economic and environmental gains?
KR: Let’s understand that a lot of what is happening in Washington today is being driven by political expediency. President Joe Biden’s administration is trying to push through a robust progressive agenda during 2021 and 2022. The hope is that it will have strong enough political legs to withstand a Republican assault should the Democrats lose control of the House of Representatives in the 2022 midterm elections – a very significant risk.
The infrastructure bill takes a very broad view of infrastructure. That is appropriate in a modern knowledge economy. Still, it includes many investments that are only very loosely connected to generating the increased growth needed to cover most of the costs.
As for the environmental impact, we economists tend to prefer a carbon tax to a command-and-control approach. A carbon tax would provide producers and consumers with incentives to conserve, while providing industry with incentives to innovate. It would also give the government tax revenues that could be used to pay for expanded social programs.
Featured in this Say More
Ann Pettifor
ANN PETTIFOR
Writing for PS since 2020
2 Commentaries
Ann Pettifor, Director of Policy Research in Macroeconomics, is the author of The Case for the Green New Deal.
Mamphela Ramphele
MAMPHELA RAMPHELE
Writing for PS since 2012
2 Commentaries
Mamphela Ramphele is the founder of the Citizens Movement for Social Change.
Kenneth Rogoff
KENNETH ROGOFF
Writing for PS since 2002
213 Commentaries
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Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. He is co-author of This Time is Different: Eight Centuries of Financial Folly and author of The Curse of Cash.
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