‘Time for a Green New Deal XXL’

by John Vandaele, translation by Evelien Van Muylem.

In Brussels this last week as the guest of MO*  – an international affairs magazine.  This is an article they wrote for the website/magazine on the green New Deal.

‘Time for a Green New Deal XXL’

19 juni 2009 (MO) – In April, world leaders from the G-20 countries met in London. Trade unions, non-governmental and international organizations hoped they would consider Green New Deal XXL: a radical reform of the global system which also tackles economic, social and environmental problems.

Humanity is facing the worst economic crisis in seventy years. Not a single country in the world has been spared. We witnessed globalization in times of growth and now we are living it in times of crisis. Twenty million Chinese workers have lost their jobs in the city (where they produced shoes, mobile phones, computers for the whole world) during the past six months and returned to the countryside. The entire American car industry, with trademarks like GM, Ford and Chrysler, has in fact gone bankrupt. The world’s largest banks fear nationalization. South Korean production has decreased as much as twenty percent over the last three months of 2008, and Japanese export shrank by 45 percent in comparison with last year. Even one of the least integrated countries with world economy, Congo, is being affected by the crisis: Dropping copper prices put an end to the copper boom and are eating away one of the few sources of money the Congolese Republic has left. The Belgian stock market Bel 20, 4500 points at the beginning of 2007, has dropped to 1700.

It seems that global economy is on the slide: shares, business, production, employment, etc. have been going down for months. There is only one comfort in all this: waste production and greenhouse gas emissions are declining as well, which is beneficial for the environment and indirectly also for mankind. Also, companies are redistributing work in part-time working hours to keep everybody at work.

Nevertheless, the “good news” about downsizing the rat race is blown away by the flow of bad economic statistics. Some people even fear for a depression reminiscent of the Dirty Thirties with its draconic political consequences of fascism and war. Indeed, Russia and Italy already show some peculiar characteristics… I’ve seen the future, brother, it is murder, sang Leonard Cohen.

The current crisis did not occur accidentally. In fact, it is closely related to neoliberal globalization, strong interdependency and few genuine global rules. It proved to be a risky situation. If the USA preferred to poorly regulate their financial system, this had to have worldwide consequences. Global economy is strongly globalized but financial institutions are weak. For years the International Monetary Fund (IMF) has quietly been warning about the great inequities between China and the US. And yet ‘the IMF has only power of advice for those countries,’ admitted Belgian IMF manager Willy Kiekens some time ago in MO*. ‘I am told that the IMF first submitted its reports on the US to Treasury, which then eliminated the elements that didn’t suit them,’ whispers an insider in the Belgian Ministry of Finance. How then could the IMF have predicted the crisis?
Roosevelt Revisited

It is clear that global economy has ended up in a vicious circle. Bank problems increase business problems, and those for their part weaken the banks’ shares in companies. Consumers, banks and companies in the red are forced to sell their belongings to pay off their debts. This makes house and share prices drop further, and this in turn makes balances look even worse.

Downwards spirals have also started off on a global scale. As American citizens stop buying Chinese export surplus, many factories are forced to close and, as a result, consumers grow less confident and so on. The spiral is unstoppable. What then should happen? The vicious spiral should be broken by an instance capable of rowing against the current. Only governments can do so, at least if they are still able to borrow money or have resources at their disposal to invest in employment. As employed people will keep consuming, they will keep the factories running. This idea is characteristic of the New Deal, American President Franklin Delano Roosevelt’s weapon against the Great Depression of the Thirties. The state invested in road construction, education, power stations, social relief…

Roosevelt’s recipe is now pursued once again. Country upon country is currently developing a stimulus package, even if they would like to see other countries do the same in order to prevent that more jobs are created abroad than in the interior. That is the reason why the US inserted a “Buy American” clause into their package.
Green New Deal Light

Enter the green part of the Green New Deal. For some time research has shown that green investments in green energy, in the insulation of buildings or in public transport could create many jobs. Nevertheless, private companies were forced to wait until the market was ready for it. When Greenpeace inquired ten years ago about what was needed to make solar cells profitable, consultancy firm KPMG answered:  “a huge solar cell factory which can reduce the price per piece.” Companies, however, did not want to build such a factory until there was enough demand for solar cells. Moreover, in the neoliberal era the body politic was not supposed to meddle with economics, however serious climate crisis may have been.

That hierarchy has now been turned upside down by the crisis. Nowadays the state can, not to say should, for the first time in years interfere in economics. And it should do so by investing massively. According to the United Nations Environmental Programme (UNEP), between 2000 and 3000 billion dollars will be or have already been spent on governmental investments. So, this is a unique opportunity to –against the logic of short-term market– make massive green investments and so kill three birds with one stone: job creation, concern for the environment (especially the war against global warming) and the reduction in dependency on oil and gas, which will inevitably become scarce and expensive. No wonder the UN fully supports the Green New Deal: UN Secretary-General Ban Ki Moon and, previously, the UNEP and the International Labour Organization have called on the world to colour the New Deal green.

Support is also growing among trade unions. Recently, a partnership between trade unions and environmental organizations, called the Blue Green Alliance, has been formed in the US. Steelworkers and environmentalist, who have always been at loggerheads with each other, are now joining forces for a Green New Deal and green jobs. A growing trade union conscience with regards to environmental problems surely plays a part in this change. At least as important, however, are the green jobs. Research by the Center for American Progress shows that investments in railways, windmills and an intelligent electricity grid produce more local jobs –in fact, only 9 percent would still have to be imported (by way of comparison: 22 percent of general domestic consumption derives from imported goods). ‘We form a strong alliance that can achieve a great deal in the Congress,’ said Dave Foster from the Blue Green Alliance. And so it has turned out. 100 out of 800 billion dollars of the American stimulus package go to green investments.

South Korea is yet another country that comes to grips with a relatively more elaborate and greener New Deal. Belgium, on the other hand, adopts a rather passive attitude. Flanders in Action (the Flemish government’s programme which should lead Flanders into the top five European regions by 2020) contains green accents but does in no way resemble the élan that characterizes the Green New Deal. ‘Belgian politicians shun environmentalism,’ says Jan Turf of the Bond Beter Leefmilieu (Federation for a Better Environment) , who dreams of a Belgian Blue Green Alliance. ABVV (Belgian Socialist Trade Union) President Rudy De Leeuw, on the other hand, is not particularly sold on the idea of a similar Belgian alliance. He is satisfied with the existing consultative bodies in which trade unions and environmental organizations develop collective advice. Turf and De Leeuw, however, both observe a growing interest in environmentalism among employers. Gradually, a basis is starting to develop that may help move the Belgian governments into the green direction.

In any case, we are talking about a light version of the Green New Deal, that is to say, serious governmental investments in green sectors acting as a kind of breaker to stop the spiral of crisis. Yet trade unions, international and non-governmental organizations want a Green New Deal XXL, an extra extra large version which is global and will be accompanied by radical social and financial reforms. They will make their demand heard during the protests in response to the G20 summit.
Global=Social

A Green New Deal demands money, and that is why on a national scale it can only be realized in rich countries with access to credit or in countries like China with large amounts of savings. A good many developing countries are not in that position and have many other priorities. Development aid will probably go down because of the recession. The question then is what the Green New Deal should be like in the south. That it is necessary, is beyond doubt according to UNEP. Not only is it necessary for the environment, it is also crucial to sustainably combat poverty. For example, in Central Africa people cut the forest to make a living by producing and selling carbon.

Although  understandable, it can hardly be called a long-term solution: The cutting of forests leads to climate change, causes drought and so undermines food production. ‘The solution is that all developing countries be integrated into the climate mechanisms, which provide for rich countries to earn emission rights by financing environmental projects in developing countries. The problem is that up to now projects are being financed especially in China, India and Brazil. Only recently projects have been set up in Africa as well. Rich countries should also compensate developing countries if they sensibly deal with global ecosystems such as rain forests. In the long-term we will all profit from it,’ says Olivier Deleuze of UNEP.

It is crucial to come to a strong climate agreement in Copenhagen at the end of this year. Now the oil prices have lowered once again, the agreement has become even more important. Only an agreement that imposes severe restrictions with regards to emissions will make emission rights (to emit greenhouse gases) scarce and expensive. And this in turn will make green investments more profitable as the acquisition of emission rights is made redundant. The profit made from the sale of the emission rights will also produce the necessary funds to bring about a green revolution in the developing countries. In other words, a good climate agreement is an excellent instrument of development aid.
A Green Social Pact

Usually the fact is overlooked that the original New Deal also implied a deal or social pact between labour unions, empoyers, farmers and governments on/about the distribution of wealth. Indeed, in the US and Sweden, and later as well in Belgium, France and Holland it was agreed that an increase of productivity would correspond to wage increases so that labourers themselves could afford  the products they produced. In agriculture, the government would even provide livable incomes for farmers by means of fixed prices and subsidies.

The International Trade Union (ITU, which represents 168 million members worldwide) thinks time has come for a similar pact. Following the International Labour Organization, it observes that income inequality in rich and especially in poor countries has increased. In the majority of countries the labour share declined –the share of national income paid to workers as wages. The ITU mentions in this respect a crisis of the redistribution mechanisms. It advocates a new growing regime ‘as the one we saw between 1945 and 1980 that secures an income increase in line with productivity. Fiscality can contribute as well: progressive taxation prevents fortunes and speculation from accumulating and adds to stable growth on the basis of more demand of the employees.’

The Belgian social organizations –from ACV (Christian Trade Union) and ABVV to 11.11.11 and Attac- strongly recognize themselves in this model of wage increase instead of debts. More importantly, however, is that the model is also particularly relevant to developing countries. Not only because of social but also because of economic reasons. The crisis is in fact a crisis of demand creation on the basis of debts. If American employees did not have such low wages, they did not need to borrow that much. If the Chinese, Vietnamese or Indian labourers had higher wages, they could buy more products they produce themselves. Eventually, this model will make up the basis for a stable global economy whose profits will be more equally distributed.
A New Financial Order

Many organizations of the World Social Forum in Belém advocated a drastic reform of the monetary system. The British Green New Deal Group has done some interesting brainwork on the subject. They believe the government cannot solely assume the responsibility for the necessary green mass-investments to combat the transition towards a low-carbon economy. The private sector should also take part in the process. Their participation is only possible if the use of fossil fuels is made more expensive (on the market and/or by the government through the climate treaty or eco-taxation) and green investments are made cheaper.

The latter requires the government to provide for a low interest rate (and a strict regulation in order to prevent that the low interest rate creates speculative bubbles rather than boosts concrete green investments). The Group refers to the financial world that was put back on the rails between 1945 and 1980. Such a policy demands capital control. This will enable the government to restore its grip on the financial system. Otherwise, countries with a lower interest rate will immediately be the victim.

But there is more. In addition, governments could continue supporting green investments by means of state guarantees. Banks could launch special green bonds and saving funds which enjoy the fiscal benefits and state guarantees –grannies go green. A better distribution of wealth (see A Green Social Pact) requires a change in the financial sector. For example, think of the fiscal paradises which need to be tackled or the transparent country-by-country accounting which no longer allows profits to surface where taxes are lowest. A tax on financial transactions (Tobintax) could help finance the Green New Deal in the south. There are indications in countries like the US and Germany that tolerance of fiscal paradises is decreasing. ‘I hope the G20 will not get stuck in partial solutions, such as advocating non-binding best practices,’ says Rudy Demeyer of 11.11.11.
The Sudden Rise of the G-20

The G20 is considered the successor to the G-7, the informal club of the seven richest countries in the world. During its annual meeting, ever since 1975, the G-7 fixed solutions beforehand, which became formally accepted in international institutions afterwards. The G-7 functioned as a parallel global decision-making body as it were.

In 1999 the G-20 originated as the G-7 realized that global economy could no longer be governed by the conventional seven richest countries only. Therefore, Ministers of Finance and Central Bank Governors of the so-called “systematically important economies” united, nineteen countries plus the European Union, whose economy is so large that its impact is global. The G-20 is indeed much more representative: the countries involved correspond to 90 percent of global production and two thirds of global population.

Nevertheless, the G-20 is also an informal forum that has no real power in itself. Though no G-20 members, Holland and Spain, for example, were included with a trick by French President Sarkozy. After much insistence, Balkenende will once again attend the summit in London. And this to the relative annoyance of Belgium, which remains on the sidelines. ‘We don’t really know who is saying what as the meetings take place behind closed doors and reports on the proceedings aren’t published,’ complains an expert of the Belgian Ministry of Finance.

The G-20 remained on the political sidelines until November 2008, when it suddenly became the body where the leaders of the countries involved met to discuss the expanding crisis. The result was a number of intentions to improve transparency in the financial sector, regulations and control by a better international cooperation.

Many non-governmental organizations are skeptical about the G-20 because they do not consider it representative. Rudy Demeyer of 11.11.11: ‘The least developed countries are absent. In fact, these kind of discussions are a UN matter’.

Furthermore, the question is whether or not the G-20 can live up to the high expectations. The G-20 originated among Ministers of Finance and central bankers. Generally, that social ambience is the least sensitive to ecological and social concerns. However, now that social and ecological problems are converting into actual economic problems, the situation may change. Moreover, the heads of state are now in charge and they are subject to much more influences. In addition, the most powerful among them, Barack Obama, seems to be more sensitive to these issues than his predecessor. However, whether or not this will do for quite another kind of regime change, has yet to be seen.

Auteur: John Vandaele, translation by Evelien Van Muylem.
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