By John A. Mathews, Professor Emeritus, Macquarie University
This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.
Amid all the gloomy news surrounding the spread of the Covid-19 pandemic, one response stands out. Suddenly the role of government and public institutions in combating the spread of the disease is seen as vital. The former neoliberal rants at the alleged wastefulness and inefficiency of the public sector can now be seen for what they are – ideologically freighted missiles that ignored reality.
Now in a time of pandemic, a good public health system is seen as a vital ally. In the best cases it encompasses a sound case monitoring system, a capacity to test and trace cases, to provide clinical care in pandemic isolation, to set up and enforce quarantine arrangements, to supply vital protective equipment, to provide wage subsidies to cushion the economic impact, to mobilize government stimulus packages, and much else besides.
There is also another important element of the pandemic response. Countries around the world are recovering their sense of the value of having a manufacturing base, as the need for face masks, respirators, ventilators and medicines all become pressing. Previous reliance on value chains originating in China – most of them located in Hubei province, the epicentre of the pandemic in China – are now being rethought, as companies that still have a toehold in manufacturing are considering switching from existing products to pandemic-related products. In China itself, the electric vehicle maker BYD has switched production to churn out face masks.
Developing countries, which are likely to bear the brunt of the pandemic as it diffuses worldwide, have every incentive to raise their own performance in manufacturing the health-related products needed to combat the virus. This is a time when finance to be supplied by multilateral institutions like the World Bank, the African Development Bank, the ADB, the IIDB et al, should be available to support fresh manufacturing-related projects and the infrastructure needed to underpin industrial development. Likewise it is jobs that the green investment projects will generate in abundance, at a time when the pandemic is threatening widespread unemployment.
There is furthermore the possibility here of taking out two birds with one stone. This is an opportunity to build new green industries that would have as their initial task the supply of health-related products, but a longer-term future as the core industries to support clean development initiatives for the rest of the decade. To many this is seen as a contradiction. So much of “green” industrial policy is framed as a return to nature, or as a means of capturing the natural rents generated by forests, fisheries and the natural world. From this perspective, greening is about imposing limits on growth and dismantling carbon-intensive heavy industry.
Nothing could be further from the real strategy of greening that is being pioneered by China and other giant industrializing countries. In my latest article on the Schumpeterian economic dynamics of greening, published this week by the Journal of Evolutionary Economics, I characterized greening in these terms:
“Fundamentally it is … cost considerations and their predictability and expectation of costs reducing according to the learning curve, that lie at the heart of the business of greening. This is a very different perspective from the one that sees greening as a “return to nature”. On the contrary, the argument developed here is that greening involves the extension of urbanization, electrification and manufacturing to further industrial sectors and to further industrializing countries. Greening, it is argued, involves transforming existing sectors like food production to the controlled environment and controlled inputs associated with manufacturing, in a way that is replicable, scalable and practicable. It is applicable at multiple levels – from that of firms linked via a green platform, to that of industrial parks (eco-industrial parks) and extending to the level of whole cities (eco-cities) and ultimately of the economy as a whole.”
So greening should be seen as central to the developmental aspirations of countries that aspire to the wealth of the presently advanced world. There is no need for such countries (like Ethiopia in Africa or Indonesia in Asia) to retread the advanced countries’ prior footsteps through carbon-intensive industries that are now more costly than their green alternatives. As China has discovered, on its way to becoming the planet’s undisputed renewable energy superpower, renewables offer the least-cost energy alternative, because they are the products of manufacturing and benefit from the cost-reducing learning curve associated with manufacturing. Moreover, renewables offer energy security as well as relief from the particulate pollution that burning fossil fuels inflicts in cities. Former reliance on imports of fossil fuels, with all their geopolitical complications, become potentially a thing of the past.
Other industrializing countries are inspired by the Chinese example. But when India for example seeks to set its own renewables goals (for solar and wind), and imposes the same “local content requirements” that were utilized by China a decade and more ago, in order to build local manufacturing industries, it finds itself confronted by a coalition of advanced industrial countries bringing cases against it at the World Trade Organization (WTO). India was hauled before the WTO over its National Solar Mission and its local content requirements that were seen by the government as crucial to the policy’s success – and the result has been a clear rundown in India’s manufacturing capacities for renewables, as shown in the Figure.
India’s solar PV installed capacity, 2010‒2019
Source: Mathews 2020
The data on India’s solar PV generation in the Figure tell a clear story of rapidly growing PV generation up to the year 2019, and then a decline under the impact of India having to dismantle the local content requirement aspects of the National Solar Mission. It was being threatened with expulsion from the WTO. This is no way to conduct a global campaign to clean the world’s dirty industries and provide industrializing countries with a chance for a fresh start.
The Covid-19 situation may be viewed as a global version of this WTO-inspired strategy to curb the green aspirations of industrializing countries. No doubt there will be voices that proclaim that a pandemic is no time to engage in special strategies like a greening agenda; there are too many pressing issues to do with saving lives. On the contrary, a pandemic is the very best time to swing behind a clean manufacturing policy, starting with medicaments and protective equipment and quickly expanding to encompass related and diversified industries. The green new deals that are being discussed in several OECD member countries provide an excellent model. Now is the time when countries like Ethiopia could insist on their own responsibility to build their own health-related manufacturing industries – without being harassed by advanced countries gathering behind the WTO to curb others’ aspirations. In the words of the Hebrew Talmud, “If not now, when?”
The author gratefully acknowledges input from Prof Linda Weiss (drawing from discussions about her project on state capacity in a time of pandemic) and from my co-researchers in an ARC-sponsored project on East Asian energy transitions: Dr Elizabeth Thurbon, Dr Sung-Young Kim and Dr Hao Tan.