Discussions of radical change to our economic system eventually confront the use of force. No one in our March workshop, Redesigning Finance for Climate Justice (REDFIC), wanted our running theme of “Coercing Climate Finance” to lead to civil war.  And yet at some point in any debate about, for example, how to transform credit policy to speed up decarbonisation, which would include a central bank making loans on petroleum investments unaffordable, someone would say, “This kind of thing always involves shooting people. They don’t give up their assets otherwise.”

Such comments produced some leery chuckling in the workshop. But no one let anticipations of crushing backlash from the financial sector steer the discussion. To project onto everyone, we generally wanted radical changes in today’s global financial system and also wanted them to come through democratic deliberation. The power of finance and the weakness of democracy make it hard to imagine this combination--the democratic redesign of finance. But that is the task.

The workshop had two sessions on papers by Daniela Gabor, the REDFIC project’s lead, one on “Coercive Credit Policy” and then its flip-side, “The Misuse of Private Credit Power.”  

In the first paper, written with Emil Huth, they start by reminding everyone that coercive credit policies have long been “a fundamental pillar of developmentalism alongside industrial policy.”  For example, during an earlier stage in its economic rise, South Korea’s government induced banks to favour companies producing for global rather than local markets. This didn’t cause civil war. To the contrary, the political disciplining of investment capital was the cornerstone of all Asian economic miracles.

China famously steers capital through Government Guidance Funds (GGFs) and public (not just private) capital. The governments of South Korea, Japan, and most of their neighbours also steer credit policy in various ways. On the scale of capital investment, East Asia also towers over the West.

I cited one example from Xuan Li and Cornel Ban’s paper that kicked off our seminar last year: “China’s 2126 GGFs seem to have invested about US$900 billion in 2022, while “128 European GVC agencies operating 392 GVC-like initiatives invested barely 38 billion [dollars] over the entire 2007–2021 time period” (“Decolonization of Economic Policy”).  REDFIC carefully follows such economics of transition, and I haven’t heard anyone disagree with Adam Tooze’s conclusion that I cited last month: for all of China’s authoritarian and neocolonial practices, “We have at this point to start by acknowledging the collapse of any Western claim to leadership in the global project of green modernization (such as that was).”

Given the West’s demonstrable lagging behind, why is the state control of credit policy treated as apostacy that could cause a full-scale capital strike? Obviously, keeping investment in private hands is the permanent goal of those hands, and they use dysfunctional but familiar ideology to do it.  

We moved on to a paper by Charlotte Rommerskirchen, “The Politics of State Money and Credit,” which takes off from her book manuscript, Inside the Collateral Factory: How Public Debt Management Became Market-Based. Charlotte calculates that at the current public-sector share of the estimated level of investment need for the climate transition, the public sector needs to come up with $1.1 trillion globally. This is 6.5% of the sovereign bond issuance of the 38 countries that belong to the Organisation for Economic Co-operation and Development (OECD), which she points out is a percentage that rich countries have been able to handle. Her work on the “collateral state” shows that over the past several decades, states have redesigned credit architecture so that they can borrow more and also more cheaply.

The question is, borrow for what?  Where debt capacity is in the hands of private firms, they naturally borrow to invest for their own maximized returns rather than for general welfare. Credit has also been used to supplement stagnant wages in supporting household consumption. In the US and the UK, state debt capacity has been used to fund public services through deficit spending rather than taxes on high incomes, property, or profits. The credit-money for accelerated green transition is there. It’s just being used for other things, like luxury development, liquified natural gas facilities, or overpriced housing. 

It’s hard for us now to imagine Western governments not held hostage to high neoliberalism, whose regularly predicted demise hasn’t cut the power of its core ideology of mandated privatisation of major investment. A necessary (though not sufficient) condition of political change is the articulated description of compelling alternatives. In Charlotte’s paper, central bank could re-absorb the “debt management offices” they previously spun out to work directly with private banks. Were central banks to manage debt directly, the bank’s credit steering would become an ordinary part of central bank operations.   

Thanks to a paper by Fabian Pape, “Dollar Diminished: The Unmaking of US Financial Hegemony Under Trump,”  we dug into the golden opportunities of shifts away from dollar dominance of global finance. China experts pointed out the complexities of a system in which the dollar is being supported, not supplanted, by China’s central bank. And someone noted the displacement of global banks by asset managers, a category in which the U.S. remains supremely powerful. But the international system is complicated and fluid enough to be steadily pushed toward something much better. Perhaps it will develop a green special purpose money, based on and helping to construct a multilateral global investment system.

Multilateralism raises the question of where Europe is in all of this?  We had a session on a second paper by Daniela that I discussed last month, written for a research unit of the European Parliament, which  addressed the EU’s failure to develop its own distinctive economic model. It calls for the EU to create an “industrial authority that coordinates strategic investments at European level.”

EU policymakers are fixated on weaker cross-border capital structures, in part because of former European Central Bank president Mario Draghi’s influential report, “The Future of European Competitiveness.”  But this misses the real problem, which is a failure to use EU mechanisms to steer green investment. As one person summarised it, Europe doesn’t have sticks like China or fiscal capacity like the US; it should create the sticks, which are more important than fiscal capacity. 

Seminar participant Cornel Ban made this point in a letter to the Financial Times:

The quarrel over “made in Europe” rules misses the structural issue: without coordinated European planning, local content requirements in local procurement cannot shape industrial outcomes. . .

Local-content requirements helped Chinese tech scale without losing its innovative edge only because they were embedded in whole value-chain planning: massive state finance, disciplined investment in technical skills, managed demand at scale and coordinated capacity expansion. Europe has none of these conditions in place.

Smartly done, procurement has been a tool that actually built capacity from China to South Korea because they came in the same package with an arsenal of developmental state levers, from state-owned finance to tight subsidy conditionalities.

Climate mitigation won’t succeed without new public powers of investment coordination.

We did raise questions of means throughout: how do we get from here to there? What are the pressures that would induce the EU’s top politicians, unable to steer their own course well enough even to break openly with the United States over Trump’s war on Iran, to fight their own banks and industries?

One pressure might be public dismay with European financial institutions that have failed to keep Europe at the green tech frontier.  But that will require quite a bit of consciousness raising-- and public study.

I can imagine a changed TV news system in which a trade delegation visits Manchester from Chengdu, Sichuan, China. Here’s a skyline of this city of 21 million with the mountains behind.

^{Photo from Christopher Newfield}

The BBC would cover the visit, but not only with pictures of newly-elected UK Industrial Authority President Hannah Spencer shaking hands with her smiling Sichuan counterparts.  They would also briefly explain the Chinese Government Guidance Fund structure through which the Sichuan Manufacturing Collaborative Development Fund organizes its sub-funds and allocates investment capital. They would put up an image like this (courtesy of Xi and Ban), so that viewers can get a better sense of how the UK’s Green government is adapting China’s GGF model for democratically-steered technology investments in the UK.

A popular TV explanation of this chart is not imaginable now—but it is necessary for the future and a democratic transition.

Another pressure might be elite dismay with Europe so badly lagging behind China in green tech and other key sectors. EU denizens might be susceptible to the argument that a Europe without a European Investment Authority is a Europe without economic independence. 

Whatever pressures might eventually work, Daniela’s and the other papers all took the crucial  step of defining the needed alternatives.

The final session engaged Aaron Benanav’s recent paper (Part 1 and Part 2) on the mechanisms of a democratically planned economy, here extended under the heading, “Planning and Socialising Investment.” Aaron drew on his reconstruction of a combined Keynesian and Marxian lineage that makes the key to transition the socialisation of investment rather than of production. 

We discussed a series of transition steps. There’s the Investment Authority that socialises investment: government sequences investment and has direct and indirect veto power over private sector allocations. 

The second is a very large taxation programme that cuts the power of the wealthy while building public support systems of health, education, child care, housing, and so on of the kind now deemed unaffordable. 

The third is a wind down of the private financial system, involving an enormous annuity bond and the transfer of wealth into income streams that can be directed toward various purposes. 

The fourth is the restructuring of firms in relation to the fifth, which is the reconstruction of democratic institutions with the first four steps in mind.

Throughout our discussions, it felt to me that this transition to socialized planning would not only be good but also possible. I had a few reasons. The first is that I just don’t think private finance will spend enough money on the right things to avoid the worst of climate catastrophe.

A recent report, “Recalibrating Climate Risk,”  pointed out that damage and suffering will be dictated by extremes rather than averages. Meanwhile, consumer costs continue to mount, points of no return come and go with little impact, and the Berkeley Earth Institute put the global annual average temperature for 2025 at 1.44C above the average of the period 1850-1900, very close to the 1.5C target ceiling, while we annually remove only 5% of the carbon we add to the atmosphere and have quietly lowered our sights from meeting the 1.5C target to “temporary overshoot.”  The political system hasn’t responded nearly enough to growing calamity in the present or to the predictable catastrophes of the future. All the more reason to conclude that its senior partner, status quo private finance, won’t do the job.

Second, people do respond strongly to the experience of positive benefits. I grew up with this example in my own family, where the generation that experienced the Great Depression stayed loyal for life to the New Deal Democrats who had kept the wolf from their door. Similarly, several workshop participants invoked the goal of public abundance. Actually having public resources in one’s life is the indispensable experience that enables any radical change.

Thus I’d make sure Step 2 above happens indissociably with Step 1. The new resources for child care, health, and universities have to be in place as the foundation for the public debates about the new Investment Authority. This also mean putting Step 5 up front: the democratic deliberation has to happen from the start and be present throughout, or very difficult changes will lack rationale, legitimacy, and broad support.

Third, several people mentioned the need to sequence the steps of reconstruction. I’d put this in terms of plotting, as in plotting a novel or television series. They can then see where they’ll be at the end of the story, and in the middle. This allows them to feel more comfortable with whatever changes they personally need to make.

The workshop itself was already part of the narrative process. It was for me academia at its best, as a space of free thought where you can imagine exactly the things that current conditions define as impossible. Obstacles become false impossibilities, which the thinkers around the table can feel as they work through the issues point by point and take leaps whenever leaps make sense.

It’s hard to feel the sheer possibility of new openings unless you’re actively involved in the thinking of them. The workshop prefigured for me the process of thinking and plotting by which impossible but necessary futures get built regardless of the traditions of dead generations and the defunct ideas of the living.