On long-termism and sustainable competitiveness
The London Interdisciplinary School (LIS) recently hosted an interdisciplinary gathering for discussion, under the format of a contemporary version of a Parisian salon, where the founder and director of ICENS lab, Șerban Scrieciu, was fortunate to be invited. The event brought together a civil servant, an economist, a biologist, a political ecologist, an artist, a venture capitalist, a linguist, and a CEO to discuss issues related to longevity and the power of long-term thinking (some images from the event are displayed below). Discussions on longevity have been well reflected in a LIS blog written by one of the participants, Mark Griffiths. This short essay further reflects on the aspect of long-termism and takes it forward by linking it to the challenge of nurturing the competitiveness of a sustainable economy.
Strong global climate action could have large, lasting benefits in the long term, materialising in the next coming decades or so, on largely two fronts. First, there are the avoided climate damages, meaning that climate action can significantly reduce the extent to which climate change will impact our future, long-term wellbeing. The stronger the action is now, the better it will be for the future prosperity of our societies and ecological systems. However, such potentially avoided climate damages have been drastically oversimplified and underestimated in parts of the conventional economics literature, although more realistically projected in other strands of economics research.1 For instance, it has been assessed that in the absence of further climate mitigation action, the global economy could lose, because of climate change, as little as 2% or as much as 45% of total output by the end of the century.2 This wide range in estimates depends on how economists model the relationship between climate variables and economic output, as well as on the uncertainties surrounding the various parameters entering their so-called “damage functions”.
Even more, such estimates are typically limited to accounting for impacts on future GDP (gross domestic product) levels and on changes in (typically labour) productivity prospects, especially for certain sectors that are regarded as more vulnerable to weather extremes (e.g. agriculture). Other crucial long-term impact channels have not been generally considered, such as those relating to harmful climate tipping points and nonlinear threshold effects that could suddenly and severely worsen climate damages (e.g. thawing permafrost; the disappearance of large parts of the Amazon forest) or to climate-induced socioeconomic risks (e.g. forced migration; security concerns due to increased competition over natural resources ; adverse impacts on food, water and energy supplies). Furthermore, there is an inability of many climate economics researchers to consider beyond-GDP (e.g. social and environmental) effects and non-monetised values (e.g. climate impacts on human lives, on biodiversity, on ecosystems), which ultimately are all strongly interlocked with our economic welfare and societal wellbeing.3
Second, there are the potential innovation-induced longer-term growth effects of low-carbon investments, which are often ignored in conventional climate economics modelling. The latter usually projects a by-default cost to the economy from government intervention for climate stabilisation. This is because it assumes that the economy is in a so-called ‘equilibrium’ state, where market forces ‘optimally’ allocate resources across economic sectors. As such, green growth potentials are hard to achieve from a standard economics perspective, since any public climate policy action is assumed to introduce further constraints to the private economy and disturbs this idealised state of economic affairs. This standard view feeds into the neoliberal agenda, which favours economic growth over environmental protection and at the most accepts a net-zero economy, as long as the status quo of economic dynamics and power relations remains untouched.
On the other hand, other schools of economic thought acknowledge the potential for green growth. For example, Post Keynesian economic thinking puts forward a different understanding of the long-term interactions between investments, technological change and innovation, and of the nature of finance and money. According to this perspective, the economy is demand-led, and economic development occurs via entrepreneurial activity, credit creation and lending through private banks.4 If government climate action supports the attractiveness of low-carbon investments through various policy measures that are not limited to price-based instruments, then the confidence of banks and investors is boosted. This subsequently results in greater innovation, employment and income, stimulating demand and the economy, whilst nurturing climate stability. In other words, since innovation and learning-by-doing are taken to be key determinants of reducing the long-run costs of mitigation efforts, climate policies that encourage these have plausible strong prospects of yielding economic benefits. Having said this, the quality of economic growth and beyond-GDP considerations are at least, as equally as important, as focusing on trade-offs or synergies between economic growth and climate action.5
Long-termism or long-term thinking is thus embedded in these two main transmission channels, via which the investment efforts from early, strong climate action, implemented now, get translated into longer run benefits. Despite these positive prospects, the investment cost dimension that climate action carries for the short-term tends to dominate policy discourses and decision-making mentalities, across private economic actors and public policy shapers or doers. This is because there is a tendency to view any new additional investments through the narrow lens of short-termism and the corresponding upfront financial expenditures and institutional efforts. It is less common though to view this investment push through the long-term prism of positive societal returns for the resilience and sustainability of future economies. Put differently, it is not only nature and society overall that can benefit from embedding long-termism in decision making processes, but also and chiefly, the economy. The incorporation of long-term management practices into strategies for steering economies alongside the human-nature relationship, could help shape the competitive edge of a sustainable economy. It could encourage the formation of more sustainable ownership forms that favour innovation, reinvestment, resilience, and prosperity for people and planet.6 It could also help rethink the concept of competitiveness to account for long-term sustainability outcomes, where not only price but also non-price elements, such as environmental sustainability and social responsibility play equally important roles.7 Long-term competitiveness translates into ‘sustainable competitiveness’, essentially building on the classical productivity growth concept to include environmental sustainability, fairness and macroeconomic stability.8
The bottom line is that fostering mentalities that consider long-termism, as a core pillar or value of governance plans, in both the private and public sector can be a powerful force for good. This is no easy task in today’s fast changing world, urgent challenges, the excessive quest for short-term profitability, and the tremendous pressure of the here-and-now.
Written by Șerban Scrieciu, 26 November 2024
References:
S. Keen (2021) “The appallingly bad neoclassical economics of climate change”, Globalizations 18(7): 1149–1177; also see: C. Souffron and P. Jacques (2024) “A successful assessment of the economic impacts of ecological transition policies in the EU requires the European Commission to broaden the range of its modelling tools”, available at SSRN: https://ssrn.com/abstract=4640677
S. Aerts, L. Stracca and A. Trzcinska “Economic losses from climate change are probably larger than you think: New NGFS scenarios”, VoxEU.org, 22 October 2024
R. van Eynde, D.H. Greenford, D.W. O’Neill and F. Demaria (2024) “Modelling what matters: How do current models handle environmental limits and social outcomes”, Journal of Cleaner Production 476, 14377
J.F. Mercure, F. Knobloch, H. Pollitt, L. Paroussos, S. Scrieciu and R. Lewney (2019) “Modelling innovation and the macroeconomics of low-carbon transitions: theory, perspective and practice use”, Climate Policy 19(8): 1019-1037
S. Scrieciu, A. Rezai and R. Mechler (2013) “On the economic foundations of green growth discourses: the case of climate change mitigation and macroeconomic dynamics in economic modelling”, WIREs Energy Environ2: 251-268
M. Bartl, R. Claassen and N. van der Horst (eds.) (2024) “Sustainable by design: Industrial policy for long-term competitiveness in the EU”, White Paper, outcome of a joint conference on “Transforming Ownership in Times of Overlapping Crisis”, held in Amsterdam on October 5-6, 2023
L. Škuflić, S. Šokčević and M. Bašić (2024) “Sustainable Development and Competitiveness: Is there a need for GCI reconstruction?”, Economics - Innovative and Economics Research Journal 12(1): 153-173
European Commission (2023) “Long-term competitiveness of the EU: looking beyond 2030”, COM(2023) 168 final
