by Harris MacLeod/19 May 2021/Category

For anyone that wants to understand how the Biden administration sees the future of the global economy, listen to Brian Deese.

Mr Deese is director of the National Economic Council, the nerve centre that coordinates economic policy in the White House. He was a top economic adviser to President Obama (he’s been called one of Washington’s “most powerful, least famous people”) and now, after a spell at BlackRock, he’s back leading the Biden administration’s multi-trillion-dollar ‘American Jobs Plan’ to transform the US economy.

In a recent interview with the New York Times’ Ezra Klein Show, Mr Deese gave what the host described as the best explanation he’s heard of ‘Bidenomics’. The overarching takeaway is that, in the age of Covid and climate change, there is no dividing line between domestic policy and foreign policy, and no differentiation between policy and communications. The US sees its ability to transition to net zero – and to maintain popular support for its agenda by ensuring that transition brings unambiguous benefits to its people – as central to how it will compete with China to be the dominant global superpower of the 21st century.

One of Biden’s first actions as president was to issue a slew of executive orders that put climate change at the heart of US foreign and domestic policy, and national security, and ordered his cabinet and departments to come together in a “government-wide approach”. He appointed heavy-hitter John Kerry to a new international climate envoy role, and created the National Climate Task Force made up of Cabinet-level leaders from 21 federal agencies and senior White House officials.

Looking at the European Union (the world’s second biggest economy after the US and still ahead of China), while it does not muster the same drive for supremacy as the Americans and Chinese, it’s further along than the US in bringing its domestic policy and foreign policy together around climate change.

The European Green Deal will usher in a seismic shift away from the fossil-fuel producing countries that have kept the engines running in Europe for decades, restructuring the fundamentals of long-held relationships with oil-producing countries like Russia, Algeria, Azerbaijan, Kazakhstan and Libya. Even states like Saudi Arabia, which exports less than 10 per cent of its oil to Europe, will still be massively impacted by the broader transition away from fossil fuels.

The effect of this will be felt far beyond energy markets. European companies worry about their competitiveness against foreign peers because they will have to pay higher carbon prices and comply with more stringent environmental laws. The European Green Deal could protect such firms by introducing a so-called “border adjustment mechanism” – a tariff on imported goods based on their carbon content, equivalent to the domestic carbon price. In short, Europe is heading in the direction of penalizing imports from countries that do not have roughly equivalent domestic climate change policies.

It’s not hard to imagine how a European carbon tax on imports could become a transatlantic agreement (or “climate club”), similar to the global minimum corporation tax that the US is pushing at the G7. This could exert significant pressure on China to be more ambitious on sustainability to ensure its industries are not locked out of global supply chains. Climate change is also the one issue where China and the US seem willing to come together diplomatically at a time when the relationship is the rockiest it’s ever been.

Everything must change so that everything can stay the same

Asked what he’s learned since 2009, when he played a key role in shepherding the Obama administration’s rescue package in response the global financial crisis, Mr Deese said three key factors warrant a different approach from last time: 1) the sense of growing inequality felt among the American people, which contributed to the election of Donald Trump 2) China is vastly more powerful and assertive than it was a decade ago 3) “the inevitable and now irreversible changes that increasing global average temperatures are having on our society” due to climate change.

Mr Deese says that in 2009 they designed the policy for the rescue plan, and then “went out on the road” to tell citizens how it would benefit them. Post-Trump, the benefits of the American Jobs Plan need to be (almost immediately) felt by the American people in their day-to-day lives, and that governs how the policy is designed and implemented. As far as the Biden administration is concerned, gone are the days when policy is developed first by one team, and then handed over to government communicators to devise messaging to promote it. When it comes to government intervention, the medium is the message and vice versa.

For the administration, maintaining popular support for its policies is not seen as solely a domestic issue. Rather, they see their ability to lead internationally as being tied to their ability to implement their domestic agenda, particularly on climate change, more than ever before.

China is now decisively in the lead on electric vehicles, solar and wind, and is a major force in the development of other clean tech. The Biden administration believes that to win, it needs to be more like China when it comes to having an industrial policy that develops strategic low-carbon industries and technologies.

As Mr Deese sees it, America’s faith in the power of unfettered markets to take care of things has left it on the backfoot relative to its main competitor.

“China has been meticulously thinking about making those investments… all with a deliberate focus on trying to build its own industrial base and its own intellectual and innovation base. And we have, for the better part of a decade, ignored or derogated and undermined those levers. So whatever argument there was for making those investments a decade ago is more pertinent now.”

New World Order

The anti-globalization ructions of the past few years, including Brexit and the election of Donald Trump, accompanied by the increasingly dire effects of climate change, and finally the global pandemic, have made starkly clear that no country (however powerful) can be an island.

The Biden administration has fully internalized this and is directing its efforts to 1) transform the US economy to compete in the new global economy that is emerging 2) show the world it can still lead by doing this successfully within its democratic system and 3) continue to use its economic, diplomatic and military heft (in partnership with the EU and others) to shape the global system according to its vision, values and in a way that benefits America – just as it did after the Second World War.

Countries that are slow to realize what’s happening and adapt to the new reality will be left behind. There is an opportunity, however, in the fact that whilst the trajectory and the endgame (net zero) are clear, how to get there or the roles that different countries and regions will play remains undecided.

The US is open about borrowing elements of its plan from other countries; for instance, it seeks to copy the UK’s Infrastructure and Projects Authority to ensure that localities have the technical expertise to build new climate-friendly infrastructure. Countries that want to position themselves to be leaders and beneficiaries of the low-carbon economy should look far and wide for solutions they can adapt to their own unique contexts.

Here are a few suggestions:

  1. Establish a climate ‘intelligence and influence’ unit within central government
  • As major economies and international organizations develop sustainability policies that will define the terms of engagement for the world, it is critical that government departments have access to top-notch expert analysis beyond what can be provided by most generalist civil servants. The EU is particularly good at wielding influence by combining its economic might with its prowess in creating regulations, which inevitably tend to favour its own. If countries can understand complex and evolving policy, they can act quickly to make credible contributions to policy questions and influence outcomes. The unit would also support the development of strategies and programmes to transform domestic economies to adapt and capitalize on the opportunities of the future.
  1. Appoint a lead international interlocutor for climate change
  • President Biden and his Secretary of State Antony Blinken both often speak about climate change on the international stage, but the world knows that Climate Envoy John Kerry is the lead international interlocutor on the issue. Mr Kerry is a former senator, presidential candidate and was Obama’s last secretary of state – he is a household name in America. Creating the envoy role and appointing someone of Mr Kerry’s stature sent a strong signal to the world about the prioritization of this issue and, critically, it provides a deeply credible key point of contact for the rest of the world. Other countries should appoint an international lead on climate change who is influential at home, and can gain trust and be seen as credible by international governments and multilateral organizations. Countries where governments change often, like Israel, should consider appointing a non-political interlocutor whose presence will outlast more than one administration.
  1. Setup a national climate task force
  1. Use government procurement as a catalyst
  • Public procurement comprises on average 12% of GDP in OECD countries, and up to 20% in the richest countries. “Spending public money for public good” has a self-evident communications logic. Public procurement is also in the full control of government, meaning changes can be made quickly, without having to cajole industry or individuals to act. Greening public procurement creates a huge market for low carbon goods and services. It gives unambiguous signals to producers that investing in low carbon innovation and new product lines are worth it, because there’s a big spender ready to buy. This creates more variety in the marketplace, stimulates economies of scale, which reduces costs for green products, and helps create implicit standards and raise environmental performance across the board, resulting in a green virtuous circle.
  1. Invest in nature
  • The world needs to quadruple its annual investment in nature if the crises in climate, biodiversity and land degradation are to be addressed by the middle of the century, according to a new UN report. The shortfall amounts to $4.1tn (0.1% of global GDP) which could avert the breakdown of natural “ecosystem services” such as clean water, food and flood protection. More than half of global GDP relies on high-functioning biodiversity but about a fifth of countries are at risk of their ecosystems collapsing due to the destruction of the natural world. ‘Nature-based solutions’ are the hot topic in environmental circles right now, and it’s an issue we’ll all be hearing a lot more about. They are also especially effective stimulus measures, as they create most of their jobs and economic activity in the first year when economies need a boost, compared to infrastructure projects that can take years for money to be spent. With relatively low upskilling requirements and opportunities to restore ecosystems in all geographies – including hard-to-reach rural places – they can be deployed fast with little training and targeted at hard-hit (and politically relevant) communities. In addition to being critically important, investing in nature is also one of those issues that tends to draw a broad coalition of support, and that publics find easy to understand and to notice improvements, like more trees and cleaner lakes and rivers.
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