Greening, Knowledge and State Roles

written by: Mark Swilling on Tuesday, 12 January 2010. Posted in Footprints Blog

I was commissioned by the GCRO working for the Gauteng Government to write a strategy paper on building a green economy for Gauteng. While deliberating on how one formulates recommendations on what the Department of Economic Development of the Gauteng Government should spend their money on, I formulating the follows thoughts for discussion by the research team (slightly modified for this blog):

We need a bit more to go on with respect to the ‘cost to fiscus’ argument. ? Obviously what we are looking at is redirecting certain funds in a GE (green economy) direction, and away – therefore – from other things. I am not sure I like this way of thinking. In my view, the maximum gains will not come from public sector expenditures on stuff, but rather clever strategic investments in ‘knowledge capital’ and the ‘capacity for innovation’. This is why I have been interested in the Innovation Hub as a possible vehicle for GE innovations and investment facilitation. It also means facilitation learning circles within and across particular sectors around innovations across a broad spectrum of activities, i.e. cleaner production, renewable energy, waste recycling, green buildings, etc etc. This way of thinking only makes sense if you get away from the long outdate d(but still very much alive and kicking in the SA context) of a capital-centred development economics – I cant help recalling the headline in the runup to the ANC's decisive Polokwane conference which read: “Tokyo says we only have one problem – shortage of capital”. This is THE classic SA perspective, and interestingly unites the left and right. Problem is that it is empirically unjustified – according to endogenous growth theory, the greatest returns are on investments in knowledge (technological innovations, system innovations for greater efficiency normally via IT, product or marketing innovations). In other words, the greatest barrier to growth for endogenous growth theory is the lack of capacity for innovation (Homer Dixon’s famous ‘ingenuity gap’). Admittedly, though, there is a shift taking place in the SA context: in the last budget speech Pravim paid homage to the current holy text of the mainstream economic glitterati who have taken over at World Bank and to some extent IMF, namely the Growth Commission report. Inspired by Stiglitz and chaired by Spence, the Growth Commission report is orthodox institutional economics, i.e. the barrier to growth is not capital shortage or even knowledge, but more fundamentally weak institutions. Get your institutions right and growth follows – and to boot they have about 25 countries who got it right over the past 25 years and so are the big 'growers' – torture the evidence long enough and it will confess, as the old saying goes.

Now, if you merge endogenous growth theory and institutional economics (as Peter Evans does), you get: for growth through innovation to work you must get the institutions right, but getting the institutions right may also well mean institutional innovation. Ok fine. But my own theoretical work goes one step further: ecological economics says yes innovation matters, yes institutions matter, but the real obstacle to growth is the limits to natural resources. So if you graft ecological economics onto endogenous growth theory and institutional economics  you get something like this: innovation is not just about growth, but green growth (because resource limits are recognised) and you need an approrpriate set of institutions that are able to foster the evolution of new technologies (and in particular in the infrastructure sector where you have what Summerton long ago called ‘large technical systems’ that evolve over many decades on the basis of a founding technology which means alternatives are screened out, often with the help of vested economic interests). In short, innovations for a green economy recognise the twin obstacles to future growth, namely knowledge and resource limits. Recognise one obstacle without the other in an age of empirically proven resource constraints is an exercise in futility.

So, with the Green Economics 101 behind us, back to the ‘cost to fiscus’ and the DED-centred strategy. Surely what we should be saying is that DED should see itself as a knowledge facilitator that assembles coalitions of interests that see opportunity in green growth because, in turn, issues are targeted that will undermine growth if they don’t become the focus of new investments – hence job creation through renewable energy, sustainable food production, waste recycling, waterwise management, conversion of buildings to make them more efficient, massive new public transport systems, densification, etc.

Maybe this is all about 'greening the developmental state'?