Nodding along to Stiglitz's tune
The Nobel laureate offers a vision for rebuilding the economy ripe with both promise and pitfalls.
People listen to Nobel laureates, it is a law of intellectual gravity.
So it is no surprise that Cabinet members lent an ear during their Waterberg lekgotla last weekend to the celebrated economist Joseph Stiglitz. And in what may be a sign that they liked what they heard, some of their most senior staff, including several directors general, were in the Reserve Bank auditorium on Monday to hear his public lecture on climate change and economic policy.
Of course, it isn’t mere wonk-celebrity or political instruction that had the bureaucrats nodding along. Stiglitz’s tune resonates closely with the one emerging from the departments of economic development and trade and industry.
Whether you agree with the details or not, his emphasis on the urgency—and the promise—of mounting a major industrial policy response to the threat of climate change provides real insight into an increasingly mainstream set of views within government. Stiglitz’s basic proposition is simple.
One the one hand, “carbon prices will eventually go to $80 a tonne” as coordinated action to limit climate change accelerates. There is a substantial possibility that governments will begin to impose trade penalties on countries that fail to adhere to a multilateral schedule for reducing carbon dioxide emissions.
Stiglitz himself is a major proponent of punitive tariffs, which, he says, are “the only way to force the United States to agree to cuts”.
As that happens, a carbon-intensive industrial model will become increasingly unviable. Economies must quickly and radically be “retrofitted” to move away from fossil fuels, both to stave off disastrous climate change and to remain competitive in the global trading system.
On the other hand, these imperatives represent “a major opportunity” to create jobs in new industries, from solar panels and wind turbines to hitherto unimagined technologies.
To make this happen, governments need to make deep regulatory changes in areas as diverse as energy pricing and urban design, support massive research and development efforts, provide finance for green start-ups and redesign tax policy around carbon-based sin taxes.
More controversially, Stiglitz sees all these efforts as going hand in hand with the reform of the global financial system and increased government intervention in the economy, including efforts to weaken the rand to ensure a “more stable and competitive” exchange rate. “One should tax bad things [including flighty foreign portfolio capital] not good things like labour,” he said.
It is an enormously attractive argument for the departments of Ebrahim Patel and Rob Davies because it ties together the moral force of the climate argument and the job-creation imperative that is at the centre of current political discourse.
South Africa hosts the United Nations COP 17 climate talks in Durban at the end of 2011. Government hopes to act as a mediator between the rich world, which wants to spread the cuts around, and developing countries, led by China, which insist that rich countries polluted their way to prosperity, so poorer ones must be allowed to do the same, with the developed world carrying most of the cost of adjustment.
This climate justice argument, powerful as it is, is a tough one for South Africa to make on its own account. Our industrialisation was phenomenally dirty, with deep mines, a state-sponsored coal-to-liquids fuel industry, smelters and dispersed spatial development combining to make ours among the most carbon-intensive economies in the world.
So, when we suffer the kinds of severe climate-change effects that most models predict for arid and subtropical countries we won’t really be able to blame American or European emissions. And if a global deal on carbon dioxide takes into account historic emissions, rather than current prosperity, we will be asked to make deep reductions in emissions. And if we don’t, the double blow of higher carbon prices and potential trade penalties will cripple our growth. That is one set of exigencies.
The other is unemployment and inequality. The deepening jobs crisis, created by a combination of bad policies, and structural change in society and the economy are both politically and socially unsustainable.
To be able to view these two sets of risk each as solutions to the other rather than as looming disasters is enormously comforting. It may even be right.
The trick is to ensure that in making the link, poor policy choices don’t hobble both climate and jobs solutions.
For starters, government needs to make a clear commitment right now to a lower carbon growth path. The funding and capacity currently being diverted to projects like the proposed R80-billion Mthombo refinery at Coega should be reprioritised to this end.
And major initiatives in research and development, as well as regulatory change supporting investment in the industry, should get under way now.
What must be avoided at all costs is regulatory and tariff barriers against foreign investment in the sector. Such measures, designed to protect emerging local manufacturers against competition from Danish turbine makers and Chinese solar-panel firms, will simply choke off the development of the sector either by alienating investors or tying them up in red tape. As for currency intervention, it is a dangerous distraction from the real job in hand.
It intensely annoys government officials supportive of a green jobs strategy when this risk is pointed out. “This will not be a statist model,” a senior official told me.
Either way, the Durban meeting represents just the kind of deadline South Africa seems to thrive on. We’ve got 10 months to become the credible host, maybe even the credible broker, of a global deal. The way to do that is to set out a compelling vision of how a dirty middle-income economy can be rebuilt from the inside out. Tick tock.