The New Paradigm Papers of the Month of November
Once a month the Forum New Economy is showcasing a handful of selected research papers that lead the way towards a new economic paradigm.
PUBLISHED3. NOVEMBER 2022
READING TIME6 MIN
Germany’s Industrial strategy 2030, EU competition policy and the Crisis of New Constitutionalism. (Geo-)political economy of a contested paradigm shift
What kind of industrial policy is necessary to address upheavals that threaten to emerge through globalization, geopolitical rivalries or climate policy? In 2019, the German government presented its try of an answer in form of the German National Industrial Strategy 2030. The NIS 2030 proposes far-reaching, targeted and strategic industrial policy interventions to build ‘national and European champions’ and to promote ‘industrial and technological sovereignty’ by reshoring global value chains, and is widely regarded as a considerable paradigm shift in industrial policy. The new German government formed in December 2021 has continued to stand by the NIS in key respects, complementing it with a ‘transformation fund’ and a ‘mission-oriented’ approach in research policy.
Which factors have instigated this apparent paradigm shift, particularly in a country which has been famous for its ordoliberal stance, first and foremost regarding industrial and competition and European economic integration after the Eurozone crisis? A new paper by Etienne Schneider tries to discern the driving factors behind the strategic re-orientation in German policymaking. Drawing on regulation and critical state theory, expert interviews and trade and investment data, it reconstructs the crisis tendencies and the constellation of interests and actors which have underpinned this shift in Germany. The article argues that the origins of this re-orientation are rooted in contested shifts in the German power bloc that have emerged over increasing geopolitical rivalries, crisis tendencies of Germany’s highly export-oriented economy, and the technological decoupling between the US and China as well as a more general crisis of the liberal world order. The paper also finds that this re-orientation is deeply contested, revealing not only growing divisions within German capital along diverging competitive positions and patterns of internationalisation but also open tensions with the established neoliberal EU competition policy framework.
Neoliberalism and climate change: How the free-market myth has prevented climate action
Anders Fremstad, Mark Paul
In the heyday of faith in markets, carbon prices were considered as the best way to combat the climate crisis. Today, the tides have turned so far that scholars and activists increasingly blame neoliberalism for the failure to reduce greenhouse gases and arrive at a climate-neutral economy. A new research paper by the US-economists Anders Fremstad and Mark Paul investigates the theoretical link between neoliberalism and climate paralysis. The paper presents evidence that more neoliberal countries perform worse in addressing climate change and analyzes how three tenets of neoliberal policymaking and ideology – deregulating the economy, defunding public investment, and decentralizing democracy – have constrained policies to address climate change in the United States. The paper also discusses how the Green New Deal, that seeks to wield the power of the federal government to pursue large-scale public investments and binding climate regulations for rapid decarbonization, is a decisively anti-neoliberal framework.
Exit, Control, and Politics: Structural Power and Corporate Governance under Asset Manager Capitalism
The nature of the power of finance is a crucial question not only for the political economy of capitalism but also inequality. But how powerful are asset managers? Traditionally, the financial sector is thought of as powerful due to its ability to withdraw capital from firms, sectors, or entire countries. This type of power is often referred to as exit-based power and rose to dominance in the 1990s with the increasing financialization of many economies.
In a recent contribution, Benjamin Braun argues this power of finance vis-à-vis the nonfinancial sector is no longer dominant. Macroeconomic developments and financial innovations have reduced financial actors’ exit options, thus diminishing exit-based structural power. At the same time, shareholdings and other large, illiquid equity stakes have become more concentrated in the hands of large asset managers. Today, venture capital firms groom startup companies, and turn everything, from companies to housing and infrastructure into asset classes. While this opens up ever new areas of economic activity for financial investment, asset managers forfeit the option for easy exits in exchange for ownership rights, forging a new form of control-based, structural power.
In his analysis, Brown identifies the reasons for this shift and answers the question whether the change from exit to control based power impacts financial actors’ ability to exercise their power, or the goals they pursue. He finds that the largest asset managers are engaged in a multilevel game that, besides corporate governance, also comprises regulatory politics and the market for asset management services. This makes control-based power more visible, and thus more easily contested and politicized. Today, according to the author, many asset managers find themselves torn between the overriding goals of maximizing assets and minimizing political and regulatory risk, which can best be seen in the debate around ESG and the failure of universal shareholders to steer corporate behavior toward decarbonization.
Wellbeing economy: An effective paradigm to mainstream post-growth policies?
Lorenzo Fioramonti , Luca Coscieme, Robert Costanza, Ida Kubiszewski , Katherine Trebeck, Stewart Wallis , Debra Roberts, Lars F. Mortensen, Kate E. Pickett, Richard Wilkinson, Kristín Vala Ragnarsdottír , Jacqueline McGlade, Hunter Lovins, Roberto De Vogli
A wellbeing economy (WE) is one that is not solely steered by enhancing GDP but pursues human and ecological wellbeing on a broader level. In recent years, the concept of the wellbeing economy has gained increasing support among policymakers, civil society and international organizations like the OECD. Over the past couple of years, several national governments have adopted the WE as their guiding framework to design development policies and assess social and economic progress. But does the WE framework have potential to become mainstreamed – not only in industrialized economies but also developing ones? A recent contribution by Lorenzo Fioramonti et. al sets out to answer this question. Analyzing the key features of WE, the researchers find that while the concept shares a number of basic principles with other post-growth streams, its language and tenets are more adaptable to various economic and social contexts, enabling it to travel across cultures and penetrate policy processes because it links with values and concepts that are shared by a number of societies. They conclude that the WE framework has thus far been effective at triggering change in institutions and in society at large, and may be one of the most effective bases to mainstream post-growth policies at the national and global level and across countries with diverse levels of industrialization.
The economic basis of democracy in Europe
Pepijn Bergsen, Leah Downey, Max Krahé, Hans Kundnani, Manuela Moschella and Quinn Slobodian
Democracy in Europe is under threat. A new policy paper now tries to analyze the multifaceted contemporary developments that challenge European democracy by looking beyond the surface of politics and populism to the structure of European economies and economic policymaking as a whole. Understanding the threats to European democracies is crucial to ensure that the necessary transformations, including the green transition, are dealt with equitably and do not create huge political backlashes and social turmoil. The authors outline that decades of rising economic inequality and wealth discrepancies have led to an increasing political inequality, as economic policymaking has served the interests of the well-off. They also find that the expansion of technocratic modes of governance – notably through independent central banks and EU-level institutions – has in many cases entrenched the policy preferences of specific groups in institutions removed from direct democratic control. As a consequence, democratic contestation over economic policy has gradually worn out, leaving politics open to increasing polarization around cultural questions. The authors therefore conclude that European democracy can only be strengthened through a ‘repoliticization’ of economic policymaking, including fiscal and monetary policymaking.