Principles of a Green New Deal Economy

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The Green New Deal is not a brand in the commercial sense of the word, demanding ‘brand loyalty’. Nor is it a binding manifesto that commands absolute adherence. However, while the British and American GNDs differ in some respects, both are built on key principles. The following economic principles can fairly be said to underpin the British Green New Deal and are almost entirely shared with its American counterpart.

Principle Number One: A Steady State Economy

An economy that sustains life on earth will be a steady state economy and will not exceed the nine ecological boundaries: stratospheric ozone depletion; loss of biosphere integrity (biodiversity loss and extinctions); chemical pollution and the release of novel entities; climate change; ocean acidification; freshwater consumption and the global hydrological cycle; land system change; nitrogen and phosphorus flows to the biosphere and oceans; atmospheric aerosol loading.1

Minimising waste by adopting closed loop recycling methods will be central to a steady state economy, as will the rapid development of mutually supporting, circular energy and resource networks where people live and work. Reuse, remanufacture, and secondary material supplies can address resource insecurity. Some products are already designed to be converted back to raw material, allowing for repeated use and the remaking of the same product over and over again. Such activity will ensure that the stock of physical capital is kept steady, while economic and social activity builds and rebuilds overall system health.

Herman Daly, the world’s leading proponent of the steady state economy, argues that it is composed of two physical populations – people and artefacts – existing as elements of a larger, natural system. Artefacts (physical capital) yield services that serve human needs (as opposed to ‘wants’), and so do people.

These two populations may be thought of as a fund, like a lake, with an outflow necessitated by death and depreciation, which can be reduced but never eliminated. The outflow is offset by an inflow of births and production which may exceed, fall short of, or equal the outflow.2

In a steady state, or circular, economy what is held constant is the capital stock in the broadest physical sense of the term, including capital goods, the total inventory of consumer goods, and the population of human bodies. What will not be held constant is culture, care, love, inheritance, knowledge, goodness, ethical codes, empathy, intelligence, judgement and so forth – embodied in human beings.3

Not only is quality free to evolve, but its development is positively encouraged . . . If we use ‘growth’ to mean quantitative change, and ‘development’ to refer to qualitative change, then we may say that a steady-state economy develops but does not grow, just as the planet earth, of which the human economy is a subsystem, develops but does not grow.4

Principle Number Two:‚Ä® Limited Needs, Not Limitless Wants

The Green New Deal’s overwhelming approach to earth systems breakdown is to reverse the dominant paradigm, and place strict limits on the apparently limitless consumption of capitalist economies and societies. At the same time the GND will address and meet society’s more limited needs. All individuals, everywhere in the world, at all times present and future, have certain basic needs. These must be met in order for people to avoid harm, to participate in society and to reflect critically upon the conditions – including their natural surroundings – in which they find themselves. Basic needs are then the universal preconditions for effective participation in any form of social life.5

Drawing on the work of the economist Ian Gough, human needs, unlike consumer preferences, ‘wants’ and happiness, are not morally neutral. They imply ethical obligations on individuals and on claims of justice – universal rights and obligations – from social institutions. In the Anthropocene, they assert standards of sufficiency and the moral priority of human needs (present and future) over consumer wants or preferences.6

The Green New Deal, therefore, aims to satisfy human needs, not wants. While survival is the most basic human need, all people require health and autonomy for effective social participation. Hence Alexandria Ocasio-Cortez’s demand for ‘Medicare for All’ is fundamental to the US Green New Deal, and why, in the UK, the call for the preservation of a well-funded NHS is fundamental.

In addition to health, the GND defines the following basic needs as essential: adequate, nutritious food and water; protective housing; non-hazardous physical and work environments; security in childhood; significant primary relationships; physical security; economic security; safe birth control and child-bearing; basic education. To optimise these needs, argues Professor Gough, societies require freedom from oppression (civic and political rights); freedom to satisfy needs; and freedom of political expression.7

Principle Number Three: Self-Sufficiency

As previously highlighted, within an international framework of cooperation and coordination, and with support and wealth transfers to poor countries suffering the consequences of centuries of colonisation and the industrialisation of rich countries, a steady state economy will encourage societies to establish self-sufficiency. Countries, especially those in the Global South, will be free to throw off colonial chains, and become more autonomous in terms of economic policy-making. All nations will aim at self-sufficiency in the provision of human needs, goods and services for their citizens. While ideas, knowledge, inventions and art will be international, ‘goods will be homespun’.

At an individual level, private sufficiency will be complemented by public luxury. As George Monbiot argues, the expansion of public wealth creates more space for everyone; the expansion of private wealth reduces it, eventually damaging most people ’s quality of life.

Principle Number Four: A Mixed-Market Economy

Extraordinary levels of collective effort will be required if societies are to achieve the transformation of their economies away from dependence on fossil fuels and the extraction of the earth’s finite assets. The scale of such efforts will be comparable to that of a nation urgently embarking on the collective effort of defence in the face of impending war.

A discussion of the role of the state in implementing the Green New Deal is for another book. Suffice to say that, as in wartime, the state is the most appropriate institution for financing, mobilising and implementing the huge effort of economic transformation. A state with regulatory and taxation powers over different sectors will be in a position to use these powers to end dependence on fossil fuels, and to ensure planetary boundaries are not breached. Regulation will be essential if we are to eliminate market incentives to disrupt ecosystem services.

Ideally the transformation project should be participative, decentralising and anti-bureaucratic. In their book, The People’s Republic of Walmart, Leigh Phillips and Michal Rozworski point out that big corporations ignore all the ballyhoo about free market competition in running their companies. Centralised planning and above all trust, openness and cooperation along the supply chain – rather than competition – are fundamental to the success of one corporation, Walmart, that is simultaneously the most exploitative of labour and the ecosystem. Planning, trust, transparency, participation and cooperation in pursuit of quite different goals will be fundamental to the Green New Deal.

We recognise, however, that transformation of the economy requires more than the collective efforts of the state. Market transactions will complement, support and gain from the activities of the state. Human societies have at least 5,000 years’ experience of transacting through markets and regulating those markets. The Green New Deal is best delivered by a mixed economy – in which the state undertakes those activities most appropriate for collective action, while the market will facilitate the transaction of goods and services provided within the steady state framework.

The way this could work will be for the state to invest in the big transformational projects – for example, the acquisition and reforestation of large swathes of land, the building of mass transit, and the retrofitting of buildings. Such public investment will benefit local contractors and entrepreneurs who know the area, can recruit and train a locally based workforce to undertake the decarbonising work, and thereby generate income for the firm itself, but also for its employees and the local community.

Principle Number Five: A Labour-Intensive Economy

As implied above, the Green New Deal economy will be labour-intensive. Activities currently driven by energy derived from fossil fuels will run on renewable energy. Those activities that cannot be powered by the sun’s energy will be undertaken by human energy: labour. Hence the US Green New Deal’s promise of a ‘job guarantee’ for everyone, and the British GND promise to mobilise a ‘carbon army’ of workers to undertake and maintain the transformation. Both public and private sectors will create highly skilled jobs for, for example, physicists, climatologists, dendrologists, arboriculturists, civil engineers, chemical engineers, electricians, welders, bus drivers, computer software engineers, millwrights and sheet metal workers, as well as hairdressers, tailors, designers, coffee merchants and retailers, cleaners and carers – to name but a few.

During the Second World War, millions of women were drawn into the labour force. Likewise, millions of unemployed and under-employed people will be drawn into the vast areas of work needed for the transformation of the economy to a steady state. There will be no room for discrimination on grounds of gender, race or ability. The promise of the GND is that the workforce will be rewarded with meaningful tasks; resourced with skills, training and higher education. And, crucially, workers will earn decent wages and incomes.

Therefore, the economy will be geared towards addressing their finite human needs. Decent wages backed up by the provision of universal basic services, like health, education, housing and care will not only create meaningful work, they will also be necessary to keep the economic system in balance. The aim will be to abolish the obscene inequalities characteristic of late-stage capitalism.

Principle Number Six: Monetary and Fiscal Coordination for a Steady State Economy

Next, we must reverse neoliberalism’s elevation of monetary policy over fiscal policy.

This is a mistake often repeated inadvertently by ‘monetary reformers’. Under the GND, the state’s monetary and fiscal institutions and policies will work in tandem to support society as a whole, not just the finance sector. Our understanding of the macroeconomy (the economy in aggregate) over the microeconomy (such as the economy of the household) owes everything to Keynes. Before Keynes, economists thought of the economy largely in ‘micro’ terms – and many still do. Keynes was concerned with the macroeconomy because he was overwhelmingly concerned to create conditions that would increase employment. Full employment is fundamental to the Green New Deal.

To create full employment, the monetary authorities will, via the central bank, provide (‘macro’) clients like the government, banks and pension funds with loans and deposits, just as commercial banks provide loans and deposits to (‘micro’) firms and individuals. This is not to suggest that central banks will finance government spending; however, their exchange of government bonds for central bank reserves will help keep the cost of government borrowing low.

In a 1934 essay, Keynes asked, ‘Can America Spend Its Way into Recovery?’8 His answer was that when the government borrows in order to spend, it undoubtedly gets the nation into debt, but the debt of a nation to its own citizens is a very different thing from the debt of a private individual. It’s a macroeconomic issue, not a microeconomic one. The nation is the aggregate of citizens who comprise it – no more and no less – and to owe money to them is not very different from owing money to oneself, wrote Keynes, concluding that ‘insofar as taxes are necessary to shift the interest payments out of one pocket and into the other, this is certainly a disadvantage; but it is a small matter compared with the importance of restoring normal conditions of prosperity’.

The GND economy will not be debt-free, but its credit creation systems will be balanced by tax revenues gained from employment, used to repay loans to prevent the build-up of debt and deficits.

The monetary authorities will also ensure the value of the currency remains stable, will regulate the private banking system, and manage the rate of interest over society’s spectrum of borrowing. This will include short- and long- term loans, differentiating between safe and risky loans, and the price (interest) on loans in relation to inflation.

The public authorities (in the form of the finance ministry) in charge of fiscal policy will use loan-finance to spend and support investment on productive activity that will transform the economy away from fossil fuels, create jobs and generate tax revenues. Public investment will provide the goods and services needed by society and the ecosystem, and by stimulating both private and public sector employment will also generate the income needed to fund this transformation. Finally, employment will generate tax revenues – to be used to repay the government’s borrowing. Just as now, tax revenues will not finance that initial investment or activity. Instead they will arise as a consequence of government (and private) expenditure, and will be used to repay public debt. It would be a fine thing if politicians understood that the best way to raise taxes is not by hiking them, but by expanding skilled, well-paid employment. As we all know from our own experience, once employed, workers are taxed. The higher our income the more we are (or should be) taxed. Part of the income from employment returns to government to pay for the loan-financed public expenditure that helped create the skilled, well-paid jobs, and that was spent on education, health, transport, reforestation, and so on.

Nonetheless, there is one form of taxation that we should be cautious about. Carbon taxes generate revenue and may be necessary to alter behaviour, but like flat taxes, they are largely regressive. They could have an important but limited role to play as part of a far more fundamental reshaping of the economy, but to be effective they should be targeted at the biggest emitters. We know that the richest 10 per cent are responsible for half of the total lifestyle consumption carbon emissions in the world, while the poorest half contribute a mere ten per cent. Slashing the carbon emissions of wealthy people to the European average (not the Malawian average!) would go a long way to resolving the world’s carbon emissions crisis, as Professor Kevin Anderson has argued. If 90 per cent of the population did nothing, then carbon emissions would be cut by 30 per cent. We have only to recall the ‘morally bereft ’ CEOs that visited Davos in January 2019 in dozens of private jets to grasp that it is the 10 per cent that should be targeted not the rest. Neoliberal economists resort to carbon taxes and carbon trading as the first and only way to change behaviour and discourage carbon use. Such taxes shift the burden of carbon adjustment on to the poor and relatively powerless. At the same time the politically powerful discourage large-scale public investment in alternative systems. The flaws and corrupt practices exposed by the European market-based ‘cap and trade ’ schemes, and the insurgency of the French gilets jaunes, have shown that this approach worsens conditions, and almost surely delays transformation away from a fossil fuel-based economy.

Instead, in the spirit of the Marshall Plan, massive investment in infrastructure to tackle earth systems breakdown must be frontloaded. In other words, urgent transformation will be more easily achieved if governments working with the private sector rapidly construct alternatives to the current financial, transport, energy, built environment, and agricultural systems. Once alternative systems are in place for use by citizens, only then will it be necessary to use carbon taxes to incentivise or discourage different behaviours by the public.

The Case for the Green New Deal by Ann Pettifor is out now

To protect the future of life on earth, we need to do more than just reimagine the economy—we have to change everything. One of the seminal thinkers of the program that helped ignite the US Green New Deal campaign, Ann Pettifor explains how we can afford what we can do, and what we need to do, before it is too late.

Notes:

1. For more on the nine planetary boundaries, see the Stockholm Resilience Centre, Stockholm University, stockholmresilience.org/

2. Herman E. Daly [1977], Steady-State Economics (2nd ed.), Washington, DC, Island Press, 1991, p.15. 

3. Ibid., p.14.

4. Ibid., p.17.

5. Ian Gough, Heat, Greed and Human Need: Climate Change, Capitalism and Sustainable Wellbeing, Elgar, 2017, p.42.

6. Ibid., p.38

7. Ibid., p.43

8. John Maynard Keynes, CW 21, 'Can America Spend Its Way into Recovery?', First printed in Redbook, December 1934. Reproduced in Robert Skidelsky, The Essential Keynes, Penguin, 2015, p.385. 

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