Reconsidering green industrial policy: Does techno-nationalism maximise green growth in the domestic economy? Addressing political economy concerns of investing in green industrial policy with increasing global competition in supplying green technologies Abstract. This paper recognises how techno-national debates on green industrial policy are connected to domestic political economy expectations of green growth. Techno-nationalist policies are aimed at ensuring that the returns from green industrial policy are appropriated within the national economy. The domestic political economy debate focuses on whether it is worth supporting green innovation and markets if other economies learn to manufacture and export these technologies to their domestic market. The literature on green growth recognises that global competition results in innovation and manufacturing shifting to countries where comparative advantage exists, but these spatial dynamics contradict the political economy expectations of economic spill-overs between domestic innovation, manufacturing and markets. This paper focuses on why this techno-nationalist perspective is problematic. In doing so, it develops a conceptual framework based on the spatial characteristics of industrial activities and technologies. Through this spatial framework, it demonstrates how different economies are exposed to global competition and examines how innovation enables economies to become resilient to global competition in manufacturing. Lastly it illustrates how supply-side protectionism can inhibit domestic market expansion, along with the associated economic value-added and employment opportunities. Consequently, this paper seeks to provide a balanced assessment of how domestic economies can achieve green growth from innovation, manufacturing and markets. 1 Introduction Beyond the environmental imperative, the political justification for green industrial policy includes economic and social benefits that can be realised within the national economy (Hallegatte et al., 2011). These co-bene fits consist of improving domestic companies’
profitability and building domestic green industries to increase net employment (Jacobs, 2012). Therefore policy support and fiscal investments into green industrial policy can yield green growth in the national economy (Bowen et al., 2009). This economic rationale was used by national governments to support green stimulus packages after the start of 2008/09 economic crisis (Barbier, 2010). Out of a total of USD 2.8 trillion in stimulus packages globally, 16% was dedicated specifically to green sectors (Robins, Clover & Singh, 2009, p. 2). Nevertheless the opportunity to realise green growth in each national economy appears to be threatened as more economies compete to supply green technologies (Barua, Tawney & Weischer, 2012). The current literature on these competitive dynamics analyse the merits of first-mover versus late-comer advantage. The early literature demonstrates how certain developed economies were successful in commercialising green technologies through policies establishing national innovation systems (Bergek et al., 2008). The Porter hypothesis confirmed that early success in the commercialisation of green technologies enabled economies to achieve first-mover advantage in global markets (Porter & van Der Linde, 1995). However, the rise of Chinese, Taiwanese and Indian solar photovoltaic (PV) firms and wind technology companies challenges the merits of first-mover advantage (Lewis & Wiser, 2007; Liebreich, 2011). These firms’ success in manufacturing res ulted from technology transfer and capitalising on their comparative advantage in low-cost production (Lewis & Wiser, 2007; Wu & Mathews, 2012). These globally competitive dynamics have stimulated domestic policy debates similar to those that occurred with other technologies such as internet and communication technologies (ICT), and electronics. Archibugi & Michie (1997, p. 17) highlight how techno-nationalist perspectives can affect public attitudes towards industrial policy: “What is the point of government policies to promote innovation in industry if the benefits can be transferred to other countries? Is there any guarantee that firms will use these benefits to the advantage of the nation which provides support?” This paper argues that these political economy concerns centre on whether the domestic economy can appropriate the returns from public investments into green industries. These debates on green growth can benefit from evolutionary economic geography (EEG) theory, which addresses how global dynamics of technological competition affects local economic development (Potter & Watts, 2010). More recent literature on green growth 2
recognises that innovation and manufacturing of green technologies shift to countries where comparative advantage exists (Dutz & Sharma, 2012). For example, international organisations such as the recently established Global Green Growth Institute identify how various economies can realise green growth (Barua et al., 2012; OECD, 2011b). However this literature does not recognise how globally competitive dynamics affect long-run economic value-added from industrial activities. Therefore EEG demonstrates how the concept of ‘resilience’ identifies key opportunities and challenges facing economies in realising green growth in the long-run. The second gap in the literature on green technologies is that it does not differentiate technologies according to their trade costs. However these characteristics influence the balance of economic value from technology supply and market creation. This paper argues that protectionist policies against cheaper foreign technology imports can incur opportunity costs from not realising green growth or providing domestic employment through enabling market expansion. This paper ’ s objective is to address political economy concerns regarding investment in green industrial policy due to increasing global competition. To this end, the second section of the paper demonstrates how the lack of a spatial perspective on technologies in the current literature creates dilemmas in the political economy. The third section draws on EEG’s concept of resilience to demonstrate long-term green growth opportunities for different economies. The fourth section considers how the spatial characteristics of technologies and trade costs affect the balance of growth from supply and demand for green technologies in the domestic economy. The last section reviews how this spatial perspective is useful for the literature on green growth, and considers questions for future research. 2 Realising green growth through green industrial policy 2.1 Key premises of green growth Green growth stems from a combination of sustainable development, ecological modernisation, and endogenous economic growth imperatives (Hepburn & Bowen, 2012). The analysis of green growth is largely circumscribed by environmental economics and policy fields – and now increasingly, the industrial policy sphere (Rodrik, 2013). The rationale for 3
green growth is described in the literature according to three underlying premises (Hallegatte et al., 2011; Jacobs, 2012): 1. There is a need to sustainably preserve natural capital in the process of economic development. 2. Innovation (both technological and organisational) can be used to significantly decrease the impact on the environment. 3. Such innovation can provide long-run economic growth opportunities through improving production efficiencies, whilst creating new industries and markets. The first two premises have strong ideological underpinnings in sustainable development and ecological modernisation. Their combined argument is that economic growth can be decoupled from long-term environmental impacts through developing green technologies (Coenen & Díaz López, 2010). Bailey & Wilson (2009) recognise how these premises of green growth are in line with the hegemonic discourse of neoliberal techno-centric solutions to environmental problems. They are techno-centric by focusing on technological innovation as a solution to environmental problems, and neoliberal because of the emphasis on, “economic growth as the normal condition of a healthy society” (Dryzek, 1997, p. 46). Premises of green growth are in direct contrast to green radicalism, which places a greater inherent value on the environment over the imperative of economic growth. Its main critique is that the pursuit of economic growth is misaligned with the goal of maximising the welfare of both society and the environment (Meadows, Meadows & Randers, 2004). Instead, environmental policy should focus on the importance of social and economic values to create behavioural changes that preserve the ecological rather than the capitalist system (Fitzpatrick, 2011). These critiques are especially important in terms of questioning the viability of substituting natural capital with green technological capital (Neumayer, 2003). The green radical perspective is useful in questioning whether technological solutions will be deployed in time to avoid irreversible climate change. Solar PV and wind technologies demonstrate how clean energy technologies can make significant technological advances over a short period of time and become cost-competitive with incumbent technologies (see Figure 10). However, other low-carbon technologies still need to move along the learning curve to provide more low-carbon energy alternatives. The IEA estimates that energy and process- related emissions have to reduce to half the 2011 level by 2050 in order to avoid a 2 degree Celsius increase in global average temperatures (IEA, 2014). 4
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