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From the doom loop to an economy for work not wealth

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Research and reports
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10.The global climate crisis

Any appeal to higher growth naturally runs up against the urgent need to meet climate targets. But the wider perspective here might have a bearing on climate discourse on both negative and positive grounds. To begin with the former:

  • increasingly wealth inequality is regarded as a factor in carbon emissions,52 which could suggest the present arrangement is more dangerous than that before 1979.
  • speculative excess seems particularly problematic, with resources shifted into potentially unsustainable and energy intensive ventures of questionable social worth (e.g. commercial property, auto loans and tech infrastructure).

On positive grounds:

  • it should be helpful to disengage climate policy specifically as well as economic policy generally from the doom loop. Most obviously, significant underutilised potential means the necessary infrastructure can be more easily delivered. Likewise more public authority over the monetary system would simplify financial arrangements.
  • initiatives around public ownership are reenforced: financing will be easier (like the nationalisations in the 1940s), activity more disengaged from global markets and the profit imperative, and as well as compatible with the broader goal of reducing the return to wealth.

On the broadest view aiming policy at domestic full employment rather than external trade is also likely to be more compatible with protecting the climate.

But above all recovering under-consumption/overproduction (UCOP) and Keynes’s analysis leads to fundamental questions of the growth paradigm.53 The concern of left and progressive politicians and economists during and after the inter-war years was resolving the great depression and to secure full employment. The chart below shows for the UK the relative performance of unemployment and real pay, normalised across decades over two centuries; the gains of the post-war decades are unambiguous.

Figure 11: Unemployment and wages

Figure 11: Unemployment and wages
Source: ONS, Bank of England and TUC calculations

In the inter-war years the prospect of such gains was not regarded as contingent on growth; the Harvard historian Charles Maier observed a sleight of hand. 

American blueprints for international monetary order, policy towards trade unions, and the intervention of occupation authorities in West Germany and Japan sought to transform political issues into problems of output, to adjourn class conflict for a consensus on growth. (Maier, 1977, p. 607).

Only since the war have outcomes become fetishized in terms of productivity and GDP growth, and policy in terms of ‘demand management’ and/or supply-side constraint. The idea of post-growth (Likaj et al, 2022) attempts to cut across the polarisation that action to rescue the climate must operate within growth or reject growth. It might be helpful instead to regard growth as an artificial and abstract construct, that is (at best) irrelevant to securing full employment and the actions needed to contain environmental crisis.

Rather than constrained by the real terms growth of the abstract construct labelled GDP, the economy is the sum of what workers do. This becomes obvious in war and more recently over the past three years of the pandemic, but above all the UCOP/Keynes analysis was vindicated by the Attlee government. The economy was reoriented so that labour’s needs were paramount, including the building of substantial social infrastructure. The arrangement proved ‘affordable’ (as was Roosevelt’s New Deal) on the conventional view of the public finances because previously idle workers added to the aggregate amount of activity or production, real incomes rose and so too did government revenues.

But the Attlee government did not operate in isolation from the rest of the world. The Bretton Woods Agreement permitted countries increased scope for these actions. Ultimately the ideal was a global monetary and economic order that advantaged all countries and offered the prospect of genuine advance for poorer countries.54

Today the world economy is plainly operating too much in the interests of the North. Great parts of the South are engaged in a race to the bottom on living standards, with large scale informal work and grave poverty. In the wake of the pandemic, important figures in public debate notably Kristalina Gierogieva and Minouche Shafik called for a renewed Bretton Woods mindset (n. 3). Others like Mark Carney and Hélène Rey had specifically emphasied the international monetary and financial system. The same dislocation is increasingly prominent on climate negotiations, and the call from the global South for “loss and damage”.  As with domestic debate, it should be helpful to shift the emphasis from the affordability of fiscal transfers to the need to level the economic playing field. A new ideal might be an international monetary and financial system to advantage all countries, alongside large-scale development and climate funds for the South. 

  • 54 The Attlee government and especially Bevin at the foreign office sought to give a lead in Europe as a bulwark between the US and USSR, their approach to the Western Union included a clearing mechanism (the European payments union), and focused more generally on harmonised social security, strengthening trade unions and single market consideration. See Tily (2021).
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