Ann Pettifor

Why a Green New Deal is central to recovery..

20 September, 2020
Nigel Doggett and Mike Davis spoke to Ann Pettifor about why a Green New Deal is central to our recovery
How do you see the GND playing out against the Covid crisis?

There are two roads to travel. One is the progressive one in which our leaders wake up to the scale of the climate threat and decide they are going to prepare. There are signs of that happening: little things like the French deciding to abolish burners in Paris streets.

But there are signs of a nationalist, autocratic and reactionary response too. This in some senses is the gravest threat and perhaps more likely. I hate to be pessimistic but if you watch Trump, Bolsonaro, Poland and Hungary, but also the new bellicose American approach to China, there is a lot for us to worry about. There is the weakness, and in some cases the collapse, of European social democracy and also the Labour Party’s 2019 defeat. Here in Britain we have many on the left in denial about the scale of the defeat in 2019 and, in some cases, refusing to take responsibility for the defeat, while many on the right are effectively celebrating that defeat. The result is civil war inside the Labour Party, and that is not a reason for hope.

How do you see the GND’s prospects after the election loss and Brexit?

It’s clear that we are cutting ourselves off from our main trading partner and that is going to have a really serious impact on the economy. We don’t understand quite how bad it’s going to be and the government is clearly going to blame the pandemic. Britain is in a very weak position. We are clearly aligning ourselves with the US and with the Trumpian Republican party, which is disturbing.

Our economy is largely services-based and we can’t afford to lose trading partners. I don’t think people are prepared for the scale of unemployment we’re facing because of Brexit and the deflationary period ahead. We don’t fully understand deflation, that it increases the cost of debt and debt servicing. Many of us have very high levels of personal debt. But there is also the government’s debt, so deflation is a worrying development, a symptom of slump, of an economy operating well below its capacity. Some prices will rise after lockdown, but inflation only occurs when an economy operates beyond its capacity and that’s not the case in Britain at the moment. The next year or so looks grim.

However there are good outcomes the pandemic has alerted us to: namely the awareness that we live in, and rely on, the cooperation of communities. I live in a very conservative area in Suffolk and it was extraordinary the way people rallied round to support each other and so on. Perhaps the most inspiring fact to emerge from this pandemic is that the economy is made by us, the people. We make the economy. With the exception maybe of Jeff Bezos’ Amazon, the big oligarchs, billionaires [and] rich footballers were largely irrelevant to the functioning of the economy. The people who mattered were the shelf stackers, truck drivers, nurses, carers: without them we would have died of disease and starvation.

Ordinary working people make the economy. Once we understand that we can work together to remake it much better than before. So let’s transform the economy to prepare for the next big climate-related shock – whether pandemic, flood or fire. Another storm wrecking a major western city would have a profound impact. Not long ago Cape Town nearly ran out of water: what if a major city runs out? We know a shock’s coming because this summer the Arctic heated up well beyond the normal range and that’s got to have consequences, especially for populations living below the Arctic and on an island, with seas rising.

With the aviation industry in a deep nosedive, will people be thinking about alternative forms of transport? Should we set conditions on recovery?

The aviation industry is no longer the triumphant sector it was, and thousands of workers depend on it so, because the private sector cannot do so, government has to offer an alternative. One reason why the GND hasn’t gone down well in much of the labour movement is because trade unions have long memories and remember the closure of the coal industry. The Tories under Thatcher determinedly refused to offer alternatives to miners and left them abandoned. Labour has to care about aviation workers but to do so we should care even more about creating and building alternative industries. There is no doubt that there is a huge variety of other work required, some needing the soft skills of, for example, airline hostesses.

The other exciting thing – though it isn’t going to have an amazing impact in the short term – is the cycling revolution. Highways departments are increasingly providing for bikes and making streets more open and accessible for people. So that is hopeful and has been driven from below.

The third thing I am positive about is that the pandemic awakened us to nature and our dependence on nature. It hasn’t stopped HS2 crushing large swathes of nature but public awareness is there, and we will see more demands made of politicians than in the past.

So what are the essential features of the GND?

The phrase is based on what Roosevelt achieved in 1933. There was a lot wrong with the 1930s New Deal: it was racist and segregationist, not just guilty of colour- but also gender-segregation. Yet Roosevelt set up large conservation corps that employed millions of white men to tackle the dustbowl, the environmental crisis they faced then. Together they planted 3-4 billion trees.

Roosevelt made an extraordinary inauguration speech about the money-changers taking over the temple of our democracy and how they had to be chased out. The only alternative they offered to the financial crisis, he said, was more credit, more debt. That night he told his staff “we’re dismantling the gold standard”. That system was today’s equivalent of globalisation with control of the economy effectively by Wall Street and the City of London. Roosevelt wanted to take Wall Street out of the driving seat of the economy. He wanted government to manage the key levers of the economy: first, the exchange rate; second, the rate of interest on credit – because that is so vital to investment and therefore the economy. Also banks can create too much credit, or debt. Because credit is a social construct, a promise to pay, it can, if deregulated, be too easy to create. Bankers setting the price of credit is like a purveyor of tomatoes setting their price. Banks can raise the ‘price’ of credit (the interest rate) and make huge gains effortlessly.

Third, Roosevelt understood that governments should manage the flow of money across borders, that capital mobility is important. He wanted the government to manage (I prefer this rather than ‘control’) these key levers of the economy.

Bankers, in other words, should not be dominant. The levers of the economy that result in employment or unemployment, poverty and inequality: those decisions deserve to be taken democratically by elected governments. So Roosevelt’s administration took over these key levers – to raise affordable finance, create jobs and end unemployment. Money was found for big state investment projects but also for health, social care, social security and so on. Prosperity reigned.

We must learn from that. The economic system has to change before we can transform the ecological system. That is at the heart of the GND.

The GND group of economists and environmentalists came together in 2007 and struggled to understand each other and to integrate our ideas and policies.

Integrating the economy with the ecosystem matters because today the financial system finances the expansion of fossil fuel extraction which in turn generates greenhouse gas emissions. Also, with liberalisation and deregulation during the 1960s, ‘70s and ‘80s, it became easier for almost anyone to get a credit card and go shopping, to consume beyond our means and beyond the means of the ecosystem. If we forget that we won’t solve the emissions problem.

The US version of the GND does not address the issues of Wall Street and the economy. It concentrates primarily on projects and employment and not Wall Street – no doubt for political reasons. Biden may adopt some of the GND ideas. In Britain, Corbyn and McDonnell promoted the ‘Green Industrial Revolution’, which I thought was a misnomer because more industrial expansion is not sustainable.

The European Commission and its President, Ursula Von de Leyen, have actively promoted a Green Deal and promised to integrate it into law. This too doesn’t tackle the financial sector, and the sums proposed for the EU Green Deal are too small. Some on the left denounce it but I think we need to grasp every straw. That this is an official commitment in Europe, not just a campaign commitment as in Britain and the US, is hopeful. Of course, there are powerful lobbying forces in Brussels. The fossil fuel industry is powerful and will do everything possible to undermine it, but now they have to deal with official institutions, not just activists.

I am quite excited that my book has been translated into Italian, German and Swedish. I am spending time talking to European NGOs and the German Federal government is engaged. So I am looking towards Europe with huge optimism.

The Progressive Economic Forum wrote a paper for Jeremy Corbyn and John McDonnell proposing radical changes to the Bank of England. We argued that the Bank of England should demand only ‘green’ collateral, not ‘brown’ collateral from institutions, like pensions funds, in exchange for liquidity. Central banks are beginning to listen to these ideas. The big challenge is defining the taxonomy of collateral – whether collateral is green or brown. There are lobbyists in Brussels arguing that fossil fuels are green! Central banks have in the past accepted collateral that is dodgy, putting the central bank at risk. Mark Carney, no socialist, has long argued that banks, pension funds and insurance companies should be very careful about taking on collateral that may become ‘distressed assets’ and in future be worthless. When a pension fund can’t raise central bank cash because it owns ‘brown’ assets, it will change its tune and invest sustainably, is the argument.

This is where the Labour movement could be far more active. Pension funds sweep up our savings, but how are they invested?

Pension funds, to deliver a pension in 30 years’ time, need to earn enough interest to pay pensions in the future. The safest investment is in OECD government bonds. Yet at the moment there is a shortage of government debt, because Germany, the US & Britain aren’t borrowing and spending enough. We need to understand the dependence of the private finance sector on the public asset that is government debt.

So how do you reconcile this with government debt currently at a 300-year high?

Borrowing and debt has suddenly exploded – but that is only relative. Think of public debt as a slice of the whole economic cake. If the cake shrinks then the government share automatically gets bigger. Right now the British private economic ‘cake’ is shrinking – thanks to a virus. It is only the expansion of public borrowing and spending that is keeping the economy going.

Because the private sector has been so badly weakened by the pandemic, we are being sustained by government borrowing and spending on jobs. Unfortunately, unless the government reverses policy in the autumn, unemployment will rise, tax revenues will fall, and government debt will grow.

Unfortunately most orthodox, neoliberal economists don’t care a damn. If they really cared about the government deficit and wanted to reduce debt, the best policy is for government to create jobs – because public and private jobs generate tax revenues (both income and sales tax revenues) to be used to ‘balance the government’s books’.

But this is where the Green New Deal comes in. It is a full employment strategy and plan.

The most vital work now is the need to retrofit 30 million British houses by 2030 to save energy from fossil fuels and lower energy costs. That is labour-intensive work. It requires plasterers, bricklayers, architects, engineers, all kinds of labour. The GND is about creating jobs. The experts on technology can describe the kinds of green jobs there are: I just want to establish the economic principle of job creation as essential to future sustainability.

What are the key points we need the Labour front bench and green activists to put forward?

I am very encouraged that Anneliese Dodds has got the job of Shadow Chancellor. Central to our economic strategy we need a Green New Deal that requires a job-intensive recovery and a care-led recovery. It was cleaners, nurses and carers who ensured our survival though this pandemic and that kind of work doesn’t on the whole generate emissions. Labour should develop these ideas well which will be popular over time. I respect the fact that Keir is taking time to get it right because it’s so important – but the climate crisis is upon us.

We do not have time.

Ann Pettifor wrote The Case for The Green New Deal and recently published The Production of Money (Verso, 2017). She is also a Council Member of the Progressive Economy Forum and Director at Policy Research in Macroeconomics (PRIME).

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