New growth models: green must be part of the answer
Raghuran Rajan, Professor at Chicago University and author of ‘Fault Lines’, has said this afternoon that the world is looking for new growth paradigms. After the 2008 global economic downturn, there were a number of fiscal stimulus programmes that have now run their course. To add to this, in industrial countries, monetary policy has reached its limits, creating a climate of unease. That unease will continue until we find new ways to promote economic growth.
Speaking on ‘Economic Edge’ on Bloomberg, Professor Rajan said that a lot of what needs to be done is political, but as soon as politicians indicate the will to act, market pressure subsides and political ambition subsequently fades away.
There was a limit to what China could do, according to Jonathan Fenby, also interviewed on the programme, while Rajan said that India faced problems which could be overcome if the political will was there. At the US Fed, there was some anxiety that monetary policy had reached its limits.
Inevitably, the programme looked to the the US and the BRIC economies as the main players in this drama, whilst also recognising the stalemate in the eurozone. The UK did get a mention, in the question of whether the Olympics would be helpful for London. The Beijing Olympics marked a renaissance in China, so could the same happen in the UK?
It’s obviously too early to answer that question, but I have two reflections for a Friday afternoon. First, aggressive spending cuts in economies that clearly cannot handle them must subside. Here at home, the UK must surely change economic policy after this week. The wall-to-wall media coverage of events in E20 has prevented further analysis of our shocking growth figures, but with open gossip about George Osborne being replaced as Chancellor, the Government cannot go on laying the blame for the UK’s continued recession at the eurozone. Call it Plan B, call it Plan A+, call it whatever you like, but a change on course has to happen.
Second, smart, green investment must form part of the answer. President Obama has spoken today of a Congress to-do list, in which one of his proposals is for Congress to renew tax breaks for green energy companies. Obama has described the uncertainty felt by companies producing wind turbines, solar panels and other green products, who fear tax rises will force them to lay off staff.
Let’s not be naive: this is a Presidential election year and Obama is in campaign mode, yet this must surely be the focus of our ideas. If cuts are not the answer at this time, where to invest? Green technology, which will contribute to both a rebalanced economy and a cleaner, more sustainable future, must be prioritised, in the US, in the UK, and elsewhere.
The problems facing the world economy are fiendishly difficult, and whilst I probably haven’t answered Raghuran Rajan’s conundrum of a new growth model, I do think that green, clean investment is one part of the solution.