COMBINING GROWTH, CLIMATE AND SOCIAL RESPONSIBILITY

HOW THE SPD PROGRAMME FOR THE EUROPEAN ELECTIONS ADDRESSES THE ISSUE

The creeping worsening of the environmental and energy crisis, accompanied by a remarkable acceleration in the development of new technologies, forces a reprioritisation of the political discourse of left-leaning parties. Issues linked to economic growth and sustaining the immense demand for investment in new technologies are taking precedence over traditional concerns for a fairer income and wealth distribution. This can be considered one of the main reasons for the decreasing electoral success of social democratic parties, with many voters doubting the ability of politicians to competently manage the economy in such a demanding time, while individual economic stress drives many to embrace the opportunistic policies of populists.

Projections regarding the future need for energy are constantly growing. For example, the US Energy Information Administration-EIA presently foresees an increase in the global demand for electricity of up to 75% by 2025 compared with 2022. Among the main drivers of demand growth are Artificial Intelligence and green hydrogen production, key technologies for addressing the climate crisis. But western economies appear to be mired by slow productivity growth, limiting the ability to sustain new investments – including the accumulated backlog to maintain and improve transportation infrastructures, health facilities and schools. To complicate things further, the risk-adjusted cash-flow projections of new technology endeavours are often not sufficiently attractive for private investors – at least in the initial stages – calling for intervention by the state that places additional strain on its limited financial resources.

The state must be an active agent in the transformation of the economy – not in the old way of a direct commitment via state-run enterprises, but by supporting the economy through adequate financial and regulatory incentives. Experience from the US suggests that high multipliers may induce strong private investments alongside state interventions – as shown for instance, by the CHIPS and Science Act of 2022, where just half of the US$ 39bn federal investment spent so far has already triggered private investments in the amount of US$ 324 bn (Financial Times, April 25th, 2024). Additional pressure for Europe to act comes from the risk of falling even further behind the leading economies of the US and China, which are already investing heavily in key technological areas.

Such a role for the state clearly exceeds the neoliberal ideal of a neutral state that is principally committed to guaranteeing a level playing field in an unfettered market, with little or no own financial involvement, and the free and smooth functioning of finance, while targeting under all possible circumstances a balanced budget. This approach appears to be one or two sizes too small in the present situation, where the environment and „other gangs of brutal facts“, as Walter Lipmann used to say, do not allow us to wait for the miraculous action of the invisible hand (which is not so powerful as wished in all circumstances). We also shouldn’t forget that the neoliberal definition of the state’s role is by no small measure the projection of intentions. Reality has always looked somewhat different, forcing us to detour from the ideal in service of the disrespectful ups and downs of the economy, as well as – importantly – the will of some actors.

The present discussion in Germany about the fiscal budget exemplifies how inadequate past rules have become if applied with unabated stringency. Much needed improvements in the economy cannot be achieved by handling crucial investments in the same manner as ordinary expenses, to the extent that they are sacrificed to the main goal of a balanced budget (the famous „schwarze Null“, the black zero) without considering that productivity and growth depend upon them. The answers of the conservative parties promise just the same as the past, i.e. no real solution to present problems.

Does all this mean that a fairer income distribution is so overwhelmed by the pursuit of growth that it has lost its importance? Not at all!

If the growth of a country in a climate neutral economy is a precondition for the future prosperity of its population, as it is indeed, a fair income distribution is not only essential for a just society offering equitable rewards to its people, but also a requisite for its cohesion, which is never more indispensable than in a phase of swift transition. Here, too, the neoliberal recipes reveal their shortcomings, allowing all too often for the kind of increase in inequality that is contributing to the present drive of populism.

Despite their lately unsatisfactory performance, the progressive parties – and in particular the social democratic family – are best placed to take up the challenge of combining eco-friendly economic growth with an equitable society. Their traditional attention to the ordinary citizen and the weaker part of society makes them the natural advocate of such policies.

For examples of how social, economic and ecological needs can be combined into a set of coordinated guidelines for future policies, we may look to the programme of the German SPD (Social democratic Party of Germany) for the pending European elections.

Key points from the party’s industrial strategy provide an idea of the route they are proposing to take:

• Continue and strengthen the industrial strategy started with the Green Deal Industrial Plan (Feb. 2023) within the framework of a location and resilience policy – this with the consensual participation of the main social actors.

• Intensify support for innovative and promising industries concentrating the efforts in selected areas, in particular green hydrogen, e-mobility, battery technology, wind and solar power, biotechnology.

• Complete the European Energy Union and structure an energy market with an offering at affordable prices for service users.

• Strengthen the European ETS-Emissions Trading System.

• Protect the European market from unfair competition.

• Improve regulations and shorten planning processes.

• Allow for a substantial increase in the skilled and professional labour force a.o. thanks to a better immigration regulation.

This strategy is to be pursued in a socially responsible manner, ensuring safe workplaces and social prosperity. An international dimension is also added, calling for an increase in international aid to economically weak countries as these are hit more severely by the climate crisis.

Two important remarks are to be made here about the above economic proposals:

• The main attention is still addressed to industrial production, while other economic value creating and increasingly important activities, in particular those related to the digital economy, attract little consideration.

• No significant mention is made of the NextGenerationEU programme which is due to end in 2026. This is an additional confirmation that there still is no inclination to allow for the direct issuing of new debt by the European Union, while expressing support for new dedicated fiscal revenues. These two sources of finance appear to be considered as alternatives rather than complementary.

But there is more than that. As Peter Bofinger explained in a recent article (“Time for supply-side policy”, Social Europe; https://www.socialeurope.eu/time-for-supply-side-policy-thatcher-versus-schumpeter), we are not experiencing the situation of a depressed economy with high unemployment rates, where typical Keynesian demand-driven stimuli could be required. A transformative supply policy, as presently exemplified by the US administration, is needed instead. This calls for interventions in selected production areas to be carried out to support investments, rather than relying on the market-liberal supply policies which, contrary to imaginary trickle-down expectations, have not increased investment. Increased liquidity from the tax reductions of the last 20-30 years was instead poured into financial markets, to the benefit only of the wealthy by driving up valuations.

The approach proposed these days in Germany by conservative parties can have no other outcome than more or less heavy reductions in social spending to compensate for higher outlays by the state elsewhere, as long as the strict debt brake (“Schuldenbremse”) is maintained (allowing max. a 0,35% state deficit on GDP). This is, by the way, what Carsten Linnemann of the CDU (Christian Democratic Union) has repeatedly and explicitly been saying: to allow for investments, social spending has to be reduced.

The German SPD chancellor, Olav Schloz, has just recently supported the finance minister, Christian Lindner of the liberal FDP (Free Democratic Party), in keeping a strict debt brake against the coalition partners of the Green party, saying: „It’s time that we all sweat“. Although the majority of Germans are actually in favour of keeping the debt brake as it is, it is a fact that such a decision is already now a clear obstacle to bringing about the “Doppelwumms” (double bang, so called by Mr Scholz) needed to reinvigorate the German economy.

I should add here that the Programme adopted by PES (Party of European Socialists) at its election Congress in March („PES Manifesto for the 2024 European elections“) unfortunately doesn’t contribute much in the area of public finance and industrial policy, preferring to concentrate on social and rights issues with green input elements („1. Solutions for a better quality of life“, „2. Solutions for open and democratic societies“, „3. Solutions for a fairer world“).

The situation requires a bolder approach than what we presently see in order to realise the social policies brought forward.