How To produce socially just, sustainable and green dynamic growth for a Good Society.
The near meltdown of the world economy in 2008 took most academics and decision-makers by surprise. Much of the early analyses concentrated on the “greed is good” incentive structures and “jenga leverage towers” of casino capitalism. However, the crisis was by no means an accident but rooted in the inherent instability of financial capitalism. Its failure to generate aggregate demand created global and domestic imbalances, which in turn are the turf for bursting bubbles. But the crisis goes well beyond the economy. It is increasingly understood as a multidimensional economic, ecological, political and metaphysical crisis[i].
However, political and business elites continue to adhere to flawed models while prescribing the very same medicine that created the crisis in the first place. This points to a widespread misconception about “The Political”: policies are not only determined by facts and figures. Quite on the contrary, they are the outcome of a power struggle between those who benefit from the status quo and those who want to change it. In this struggle, those who command vast resources and the means of coercion have a permanent seat at the negotiation table. All the others first must raise political capital to be taken seriously.
Given the mainstream state of denial about the root causes of the crisis and negative attitudes towards alternative courses of action, progressive policy initiatives time and again fail to be implemented. For progressive policy-makers, creating political leverage equals being able to mobilize the masses. It is this amnesia about our own historical roots that lies at the root of the “New Left’s” failure to change the current political economy.
Without any utopian promise of a better future, people will not fight to overcome their present day challenges. Without the resistance of the masses, entrenched status quo elites have begun to restore the exclusive economic, social and political order. Without a vision for a Good Society, the fiscal, economic, political, democratic and societal crises cannot be tackled. Without a new economic model crisis management lacks orientation.
The challenge to overcome the mega-crisis is threefold: to elaborate a development model that is able to tackle the economic, ecological, political and social challenges; to construct a compelling narrative that is able to level the political playing field, and finally to build political muscle to win the political struggle against the status quo coalition.
It is against this background that the Friedrich-Ebert-Stiftung (FES) launched the “Economy of Tomorrow” (EoT) project. National model workshops in China, India, Indonesia, South-Korea, Thailand and Vietnam are searching for alternative development models. Bringing together more than one hundred participants from Asia and Europe, the ‘EoT Dialogue‘ series has displayed an astonishing convergence in the challenges identified. Asian economic and political thinkers and decision-makers have realized that old models are no longer capable of tackling the ecological, economic and social crises. Asian thinkers have come to the conclusion that new models need to be developed that can help to move their societies onto a path of sustainable economic growth.
The Economy of Tomorrow development model
The EoT development model needs to describe a virtuous economic cycle capable of tackling the macro-economic, ecological, social and political crises. At the same time, the EoT model needs to be the platform on which discursive alliances can join forces for the struggle over the shift of the development path. Hence, the aim is not to build a unique model but, on the very contrary, to be compatible with existing models wherever it is possible.
Growth? Yes, but qualitative
Critics argue that there cannot be unlimited growth in a finite world. Therefore, some call for the “end of growth”, while others want to replace GDP growth with more holistic and human objectives. On the other side of the spectrum, many fear a “lost decade” of economic travails, growing social unrest and even a bigger financial crisis. There is no question for Asian emerging countries that in order to tackle social and political challenges, their economies need to grow. However, there is a consensus that the obsession with GDP growth leads to distortions and needs to be replaced with a qualitative growth paradigm. Growth is not an end in itself but a means to produce the conditions for a Good Society with full capabilities for all.
A social market economy, guided by a smart state
The experience of the past three decades shows that unfettered markets do not offer any solutions to ecological, economic and social challenges, but are part of the problem. The EoT rejects such blind faith in “the magic of the market” and insists the grand direction of development must be determined by democratic deliberation. In order to achieve this, the relationship between the market and the democratic state needs to be rebalanced. In order to break the vicious cycle of debt and devaluation, the state needs to set a path towards restructuring the economy, inclusive distribution and stable investment allocation. However the states, ideologically discredited and financially crippled, have largely abandoned their policy guidance function. In order set a sustainable growth path, the state needs to regain confidence and policy space. The choice is no longer between a “big” or “small” state, but how to build a “smart state” capable of preventing risk, correcting distortions and giving policy guidance.
Stability and Balance
Global imbalances and speculative bubbles set the stage for the financial crisis. The boom and bust cycles typical for financial capitalism must be avoided. Steady growth needs a stable and balanced foundation. Vaccinating against the instability emanating from the globalized financial markets is therefore crucial. To achieve a new global equilibrium, underlying trade and financial imbalances need to be resolved. Allocating capital for productivity and innovation is crucial for sustainable and dynamic growth. The real economy needs a solid financial foundation to allow for industrial restructuring (especially with a view to the Third Industrial Revolution), research and development, the qualification of the workforce and the development of markets. The globalized financial sector has systematically failed to perform its key role of allocating capital and managing risk. Accordingly, banking needs to be turned into a service function for the corporate sector again. Finally, economic growth cannot be sustainable if the ecological and social environment is unstable. Preserving the means of livelihood and cushioning the impact of rapid socio-economic transformation are normative policy objectives in their own right, but they are also key framework conditions for economic development.
Steady demand, dynamic supply
Without the “steroids” of debt-driven consumption and “jenga leveraging”, market fundamentalism fails to create adequate aggregate demand. Income inequalities and the cut-back of the state are not only destroying the social fabric, but choke off economic growth due to the lack of consumption and investment demand. The EoT model seeks to balance between dynamic supply and steady demand. To recover global and domestic imbalances, income-driven demand needs to be the fuel that keeps the growth engine running. A more equal income distribution will not only stabilize societies rocked by rapid economic and social transformation, but stimulate consumption amongst those most likely to spend it. Income equality not only promotes innovation and productivity, but stimulates consumption demand and investment. To unleash the “supply-side” dynamic of “creative destruction”, innovation and productivity continuously need to be strengthened.
This requires major investment in infrastructure, machinery, organization, human capital, research and development and resource efficiency. However, deleveraging, restoring fiscal balance and establishing a new basis for long-term growth will take time in Europe, America and Japan. Therefore, staying clear of any planning hubris, state policy needs to set the path to “move up the value-chain”. Industrial policy can set incentive structures to encourage investment in productivity and innovation. Strategic investment under an “Ecological Industrial Policy” may lead the way and at the same time strengthen aggregate demand. Green innovation will be one of the major driving forces of the post-carbon economy. Green jobs through new qualifications of the workforce, new markets for green products, and energy security through lateral energy networks and renewables may unleash the dynamic of a “Third Indus-trial Revolution”. Higher resource efficiency slashes costs, drives total factor productivity, and strengthens the competitiveness of the industrial sector.
Inclusion of all talent
In the neoliberal model, economic dynamism grows out of the incentives set by inequality and competition (“Greed is good”). In contrast, dynamic growth in the EoT model is driven by inclusiveness. All citizens must have access to education, health care and credit and must be able to start an enterprise. If citizens are challenged by nature or face discrimination due to their race, gender or religion, both the state and the private sector have an active role to play in removing these obstacles. By providing full capabilities for all, a society unleashes the full potential of all its citizens. The provision of public goods by the state not only strengthens consumption demand but also increases labor productivity by improving the qualification and health of the workforce. Tapping into the innovative genius, creativity, entrepreneurial energy, and talent of all people unleashes the full inclusive growth potential of a society.
Translate the development model into a tool for political communication
Chances for the implementation of policies recommended by the EoT development model depend on more than their academic value. To win the struggle against the status quo coalition, a rainbow coalition needs to pool its forces on a common platform. In order to level the political playing field, this rainbow coalition needs to promote a suggestive and potent discourse. Hence, the technical EoT development model needs to be transformed into a tool for political communication.
The EoT discourse matrix aims to make the first step in this direction. It reduces complexity by organizing the overwhelming wealth of knowledge into three dimensions of socially just, sustainable and green dynamic growth. Along those communicative axes, it takes only four steps for policy instruments understood only by experts to be argumentatively linked to a normative vision which is emotionally tangible for the layman. Vice versa, the normative vision gives orientation for state and private policy-makers and facilitates the development of coherent policies. The discourse matrix suggests argumentative lines that make it easy to build a narrative around them.
However, while reducing complexity is a necessary first step, it is hardly enough to win discursive hegemony. What is needed is to translate the technical expert jargon into the plain, simple language spoken around the kitchen table. The work on an alternative narrative will begin now. Given the shift of the global economy towards Asia, a new hegemony in Asian discourses will undoubtedly have an impact on discourses in the West. A common Asian-European progressive narrative will affect how people around the world think and talk about the relationship between state, society and markets. The Economy of Tomorrow project does not only search for answers for the challenges of today but aims to prepare the discursive ground for the political struggles over the Economy of Tomorrow.
[i] Compare the EoT manifesto, Marc Saxer, The Economy of Tomorrow, http://library.fes.de/pdf-files/bueros/thailand/10000.pdf