Chartbook 286 The Berlin Summit Declaration and the new consensus around industrial policy.

“Six years ago a conference like this would have been impossible. The agreement we now have on industrial policy, the lack of fundamental criticism … when I think about it, when I hear myself saying this out loud, I’m amazed.”

That was Dani Rodrik yesterday at a conference hosted on the outskirts of Berlin by the Forum New Economy which brought together a group of economists and other experts to discuss the new paradigm of economic policy.

Based at the Kennedy School Harvard, Rodrik has long been one of the most intelligent and stalwart advocate of the need for advanced economy governments to take industrial policy seriously. For an overview of Rodrik’s views, check out this paper from 2023 co-authored with Réka Juhász and Nathan Lane.

For a podcast featuring Rodrik’s urban generous conversational style, check out:

Episode 29. Dani Rodrik (Harvard Kennedy School Professor) on Industrial Policy, Globalization and His Career

The mission of the Berlin conference was a dual one: To consolidate our understanding of the new industrial policy, specifically with regard to the green energy transition on both sides of the Atlantic, and to discuss its future in the testing political times of the moment. “Winning back the people - testing times for a new economic paradigm” was the overarching title. The program below.

As Rodrik observed, the lack of basic controversy around industrial policy was remarkable.

An element of tension came into the meeting most obviously during the closed door conversation on Wednesday morning when the question was asked: “are there lessons for Europe from the USA?”.

This produced an interesting division between EU and French commentators, who pointed out that the EU had a far larger suite of climate policies that are driving a faster rate of renewable investment in Europe than the US. In the EU carbon pricing is not dead.

Source: Isabella Wedl, Forum New Economy

But since we were meeting in Berlin it was our German hosts who framed the conversation. Bruised by the battles around the Green agenda in Germany in the last two years they seemed in a more receptive mood when it came to lessons from the USA. As one senior German official noted: “We lack a narrative. In the Ministry every department has its own narrative. We are still looking for a narrative.”

And if we look at the development of the cleantech sectors in detail, what emerges is a story of the narcissism of small differences. De facto, both the EU and the US are pushing into the green energy transition at a modest pace. In the case of the EU the pace has slowed alarmingly in 2022-2023.

There is an urgent need for Europe to renew the funding and initiative launched way back in 2019 in the form of the Green Deal and in 2020 under the ambit of Next Gen EU. Against the backdrop Bidenomics has served as a useful spur to further action by the EU, as this helpful slide from Isabella Wedl shows.

---

For my part, I directed my keynote at addressing the political challenge of the conference agenda. I spent my 15 minutes picking apart the idea of what it means to discuss “winning back the people” and how a vision of politics as “paradigm”, if taken seriously, might change the terms of the debate.

Who or what are “the people” that are invoked in this phrase? Do we mean “the” people or “those people”, i.e the “deplorables”? Who is the “us” that needs to “win back” the people? And what is implied by suggesting that the challenge is to win “back” the people? What golden age are we imagining when we suggest that experts, elites and people were once united? What would it mean to actually pursue a paradigm of economic policy as a political project rather than as an exercise in focus-grouping? More on all this in another post.

What I want to highlight here is what struck Rodrik in the middle of the conversation and what emerges from the EU-US slides: the wide-range of agreement and convergence on industrial policy as a necessary part of the economic policy toolkit to meet the challenges of the moment.

---

Apart from the very interesting substantive discussion, the Berlin Forum New Economy meeting was above all an exercise in disciplinary politics. Impelled by Thomas Fricke’s restless energy the New Forum pulled together a remarkable coalition in favor of a general statement of economic policy principles under the current, strained political conditions.

The range of signatories stretches across the Atlantic and across a wide range of political and disciplinary positions. The names on the list include:

Dani Rodrik, Branko Milanovic, Mariana Mazzucato, Laura Tyson, Thomas Piketty, Gabriel Zucman, Jens Südekum, Isabella Weber, Olivier Blanchard, Mark Blyth, Catherine Fieschi, Xavier Ragot, Jean Pisani-Ferry, Barry Eichengreen, Laurence Tubiana, Pascal Lamy, Maja Göpel, Stormy-Annika Mildner and yours truly.

I paste the statement below. It is remarkable both for its capacious agreement on economic and industrial policy principles and the way they are embedded in a reading of the political and geopolitical risks of the moment.

Berlin Summit Declaration –

Liberal democracies are today confronted with a wave of popular distrust in their ability to serve the majority of their citizens and solve the multiple crises that threaten our future. This threatens to lead us into a world of dangerous populist policies exploiting the anger without addressing the real risks, ranging from climate change to unbearable inequalities, or major global conflicts. To avert major damages to humanity and the planet, we must urgently get to the root causes of people’s resentment.

There is ample evidence today that this distrust is not only, but to a large extent, driven by the widely shared experience of a real or perceived loss of control over one’s own livelihood and the trajectory of societal changes. This sense of powerlessness has been triggered by shocks stemming from globalization and technological shifts, now amplified by climate change, AI and the inflation shock. And, decades of poorly managed globalization, overconfidence in the self-regulation of markets and austerity have hollowed out the ability of governments to respond to such crises effectively.

Winning back the people’s trust means rebuilding these capacities. We do not pretend to have definitive answers. However, it seems crucial to re-design or strengthen policies based on some of the fundamental lessons we can draw from what has caused such levels of distrust.These suggest that we need to - reorient our policies and institutions from targeting economic efficiency above all to focusing on the creation of shared prosperity and secure quality jobs;

- develop industrial policies to proactively address imminent regional disruptions by supporting new industries and direct innovation toward wealth-creation for the many;

- make sure industrial strategy is less about giving out subsidies and loans to sectors to stay in place and more about helping those invest and innovate towards achieving goals like net zero;

- design a healthier form of globalization that balances the advantages of free trade against the need to protect the vulnerable and coordinate climate policies while allowing for national control over crucial strategic interests;

- address income and wealth inequalities that are reinforced via inheritance and financial market automatism, be it by strengthening the power of poorly paid, appropriately taxing high incomes and wealth, or securing less unequal initial conditions through instruments like a social inheritance;

- redesign climate policies combining reasonable carbon pricing with strong positive incentives reduce carbon emissions and ambitious infrastructure investment;

- ensure developing nations have the financial and technological resources they need to embark on the climate transition and the mitigation and adaptation measures without compromising their prospects;

- generally establish a new balance between markets and collective action, avoiding self-defeating austerity while investing in an effective innovative state;

- reduce market power in highly concentrated markets.

We are living through a critical period. Markets on their own will neither stop climate change nor lead to a less unequal distribution of wealth. Trickle-down has failed. We now face a choice between a conflictual protectionist backlash and a new suite of policies that are responsive to people’s concerns. There is a whole body of groundbreaking research on how to design new industrial policies, good jobs, better global governance and modern climate policies for all. It is now critical to develop them further and put them into practice. What is needed is a new political consensus addressing the deep drivers of people’s distrust instead of merely focusing on the symptoms, or falling into the trap of populists who pretend to have simple answers.

As the danger of armed conflicts around the world has risen due to diverging geo-political interests, liberal democracies will, as a prerequisite, need to demonstrate their ability to both defend their values and defuse direct hostilities, ultimately open the path to sustainable peace, as well as diminish the tensions between the US and China.

Any attempt to durably get citizens and their governments back into the driver’s seat has the potential to not only promote wellbeing for the many. It will help to once again foster trust in the ability of our societies to solve crises and secure a better future. We need an agenda for the people to win back the people. There is no time to waste.

May 2024

---

If you found this interesting, if you would like to get regular mailshots from Chartbook newsletter on current questions in political economy and a wide range of other historical, cultural and political issues, click below:

The newsletters goes out to free to thousands of readers around the world. It is very rewarding to write, but it takes a lot of work. What sustains the effort are voluntary subscriptions from paying supporters. If you are enjoying the newsletter think about joining the ranks of the supporters. As a token of appreciation you will receive the full Top Links emails several times per week. One of those will be out later today.