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The path to COVID recovery

The urgent need for the EU Green Deal and a new approach to Industrial Strategy

Mariana Mazzucato, George Dibb and Martha McPherson

Due to the COVID19 crisis, states and governments are having to step up in unprecedented ways to intervene in their economies.

Even before the COVID-19 crisis hit, Europe already had a fragile macroeconomic context, not having recovered to its pre-2008 crisis GDP level until 2014, and by the end of 2019 was still performing worse than most major economic areas. Within the eurozone, countries continue to have very different levels of competitiveness, often down to the fact they have different levels of investment in key drivers of growth, such as education, Research & Development and skills.

Unless Europe kickstarts a new action plan that looks at both the rate of growth and its direction, we risk a decade of stagnation for the continent.

The European community is currently planning the details of its so-called ‘Next Generation EU’ recovery fund proposal, comprising an emergency European Recovery Instrument worth €750 billion raised on financial markets, and a reinforced Multiannual Financial Framework to increase the EU budget to €1.85 trillion; member states would start repaying from 2028. The continent should take up the missions approach, its renewed industrial strategy, and its world-first Green Deal to provide the direction for this recovery proposal, as a vital and pivotal opportunity to reframe economic growth. They are critically interlinked policies, that come with the potential for new ways of doing capitalism, new routes to economic growth, and a new prioritisation of citizens. Missions can stimulate innovation in areas as different as vaccines, to online education for the digital divide experienced by students while studying from locked down homes. Rather than being neglected, hollowed out or overlooked, policy-makers and industry alike should count these strategies as the key stimuli needed to restart and reshape European economies. COVID19 is the moment which makes mission-oriented, innovation-led economic renewal urgent.

Missions, Industrial Strategy and the European Green Deal

On the back of the report on Mission Oriented Research and Innovation in the European Union, which I wrote in 2018, and which brought a challenge-oriented approach to innovation policy, the European Commission decided on 5 mission areas. It simultaneously launched its new European Industrial Strategy in March 2020, which aims to foster a green and digital transition and advance global competitiveness.

There is a call — now more than ever — for mission-oriented industrial policy. This means governments getting engaged not just in fixing the failures of markets, but directly creating or shaping markets — to directly address the world’s most pressing challenges.

Towards the end of 2019, the EU also launched its plan for a European Green Deal (EGD) to reach net-zero carbon emissions by 2050, move towards a circular economy, and restore biodiversity and cut pollution. Ursula von der Leyen recently announced that the EGD will be the “compass” and “motor for the recovery”. Taking up long-term, mission-oriented, and newly established policies to respond to the current public health crisis sends clear signals that handling the economic crisis and the climate crisis are not mutually exclusive; and that the EU is ready to use this opportunity to reshape the economic pathway of the continent.

The Just Transition Mechanism is a crucial supplement to the EGD and Industrial Strategy,ensuring that the rights of workers, who have lost out hugely in the COVID19 crisis so far — are prioritized in the ‘build back better’ approach to a carbon-neutral continent. This mechanism and fund, if used correctly, can ensure that new structures are built between workers, employers and organisations, towards a fairer, ‘stakeholder capitalism’.

Citizens need to be the first consideration in a public health crisis: and they need to be in the climate crisis too. While transition away from brown industries is important, so are the people currently relying on these industries for their livelihoods. With unemployment in the Eurozone currently at 7.3%, there are a lot of unemployed people who could be put to work on many of the promises of the EGD — an opportunity to increase economic growth and job security. A proactive governance approach entails targeted training, infrastructure investments, preferential lending arrangements for new local companies and income maintenance support. In the follow-up report, Governing Missions in the European Union which I wrote together with colleagues at the UCL Institute for Innovation and Public Purpose, we addressed the importance of engaging citizens in the innovation process, both in terms of defining the direction of transformation, but also in implementation and evaluation. In the context of the green deal, the ‘deal’ part of ‘green deal’ developed is just as important as the ‘green’ part.

Conditionalities on government assistance also make up part of the ‘deal’. The European Commission recently agreed that, despite calls from economists,, there would not be a Europe-wide green requirement on the provision of state aid bailouts to industries such as airlines, which have been eager for support since global travel collapsed. This leaves it up to national governments to make their own decisions on conditionalities, leading to inconsistent outcomes; at the same time as the French government put green conditions on Air France — to decrease CO2 emissions in domestic flights by 50% by 2024; and  stop flying domestic routes where there are rail competitors;  Germany’s Lufthansa was bailed out with no green conditionalities. A joined up investment and bail-out approach would push further — leading to a co-ordinated air travel and rail system; where rail, air and road investment plans act as carbon-friendly complements, rather than competitors. At a time when more pan-European thinking is needed, this feels like a missed opportunity for direction.

European readiness and willingness to transition must not be thrown away in a misguided vision of COVID-19 and climate change as a zero-sum investment game, in which incumbent (brown) systems are invested in because they seem like the most straightforward way to re-start the economy. This would risk locking in decades of innovation and investment into a high-carbon path, because of short-term reactive, rather than long-term strategic, approaches, to the COVID crisis. Yes, action must be taken quickly to avoid the worst depths of this ‘greater depression’ crisis. But rapid action does not mean short-termist decision making. It means setting in motion the structural pathways of industrial and social change that are critical to making the Green Deal shape the 21st century.

Mariana Mazzucato is a professor for economics of innovation and public value and  the director of the UCL Institute for Innovation and Public Purpose (IIPP), which she founded in 2017.

This article was adapted from an article first published on the IIPP’s Medium site.