No alternative to green industrial strategy

Sustainable growth requires an industrial policy that prioritises outcomes like clean growth and healthy ageing, moving away from the traditional focus on sectors

With the COP28 climate summit now wrapped up, the spotlight remains firmly on the global financing gap. It is estimated that achieving the 2030 Sustainable Development Goals (SDGs) will require a staggering $5-7 trillion per year. But not only must we urgently secure the necessary capital; we also must ensure that long-term patient investments are strategically directed toward ambitious goals. That means coordinating inter-sectoral responses across different supply chains, which in turn requires a robust industrial strategy.

Countries around the world are doubling down on plans to revitalise their industrial sectors. It is critical that Britain does not lose ground to them. Earlier this year, Chancellor of the Exchequer Jeremy Hunt outlined an ambitious plan to position green industries as the engines of long-term growth. Strongly encouraging green businesses to ramp up their investments, he set an optimistic tone. Conservatives and Labour must act to ensure investors confidence in the stability of UK policy, so that projects with a life of decades are not vulnerable to uncertainty.

The United Kingdom will need a clear, comprehensive vision for sustainable industrial development if it is to reap the economic opportunities presented by a world that is increasingly committed to achieving net-zero emissions. As the Independent Review of Net Zero warns, inconsistent policy approaches are bad not only for the planet, but also for business. After all, green industries could be worth more than $10 trillion globally by 2050.

Industrial strategy thus holds a dual promise: Helping to address climate change and revitalising industry so that it can compete in the 21st century. We need not accept environmental protection as a trade-off against economic progress. The two can go hand in hand if green policies are deployed to fuel growth and innovation, and if sustainable practices are woven into the fabric of how we consume, move, invest, and build.

We had the honour of working together on a UK industrial-strategy blueprint back in 2018, when one of us (Clark) was Secretary of State and the other (Mazzucato) was co-chair of University College London’s Commission for Mission-Oriented Innovation and Industrial Strategy. That work took a sector-based strategy (focused on automobiles, aerospace, finance, life sciences, and creative industries) and applied it to outcomes such as clean growth, healthy ageing, sustainable mobility, and an inclusive data economy.

The point is not to pick winners or only to fix market failures, but to work with firms (from whatever sector) that are willing to join forces to solve problems and to create and shape new markets. Just as the original moon landing required innovation in domains ranging from aerospace to nutrition, electronics, materials, and software, today’s climate-related challenges call for innovation in multiple sectors — not just renewable energy.

A mission-oriented approach leads to more than just completing the mission. The innovations it catalyses can lead to a multiplier effect — with initial investments crowding in private investment and generating spillovers that amplify the impact on gross domestic product or GDP. Through the process of solving smaller problems on the way to the moon, we created the technologies for today’s camera phones, foil blankets, baby formula, and a broad range of software applications.

Public and private actors need to work well together. Reorienting public agencies around ambitious missions requires evaluation metrics to capture dynamic economy-wide spillovers. It will not do to continue obsessing over often spuriously precise cost-benefit calculations (which would have stopped the moon mission from ever getting off the ground).

Equally important, partnerships between the public and private sectors should be symbiotic, and public funding should come with conditions to maximise public value by steering investments in an inclusive and sustainable direction. For example, conditionalities can require recipients to reduce the material content of their products and create greener supply chains.

We know that such measures work. The German steel industry’s progress in adopting a climate-friendly circular-economy model owes much to that country’s industrial strategy. Public policies encouraged low-carbon processes among steel manufacturers and established markets for carbon-efficient steel, materials, and green hydrogen. All countries need broad, coherent plans to align public investments with commitments to decarbonise transportation and supply chains across the economy.

Equally important, the green transition will succeed only if it is also a “just transition.” To support the necessary shift of workers from brown to green jobs, governments can require businesses that receive public benefits to align their operations with climate goals, adopt fair labour policies, and reinvest profits in worker training and research and development. Moreover, policymakers should incentivise brown sectors to reduce their environmental footprint, and to mitigate the risk of stranded assets.

Inclusive green industrial strategies belong neither to the left nor the right. They are about creating an economy that serves people and conserves the natural world on which we all depend. The question is not whether we can afford to implement such policies; it is whether we can afford not to. British political leaders — Conservative and Labour alike — must recognise the profound potential that such strategies hold.

The writers are, respectively, founding director of the UCL Institute for Innovation and Public Purpose, and a former UK secretary of state and member of parliament

©2023 The Project Syndicate