What Can the Private Sector Offer in Tackling the Climate Crisis?

Ben Szreter writes a three-part series about climate change. In his final article, Ben discusses the merits of utilising the private sector to tackle the climate emergency.

As my previous two pieces on this topic have argued, the public sector has an essential role in tackling the climate crisis. The incentives currently existing within markets are not conducive to private sector innovation tackling the climate crisis. This is due to issues around short-termism, tragedy of the commons, and path-dependency of technological innovation.

However, with sufficient state-investment in green markets and research we can stimulate the best aspects of the private sector. What we should aim to achieve is the creation of green technology markets characterised by innovation, investment, and opportunity. The private sector can provide a significant degree of the dynamism within these markets. However, the impetus for market creation must come from the state.

The history of economic growth has been about overcoming ‘natural limits’ to production, tied to the exploitation of fossil fuels. Now we must shape capitalism to overcome the harms we have unwittingly imposed on ourselves and other species. These harms have occurred through the path-dependent technological development reliant on fuel that has created environmental degradation over the long-term.

Public sector investment is unlikely to crowd the private sector out of the green economy. As Komlos argues, the idea of public spending crowding out the private sector does not hold when global underemployment exists and also does not hold for public goods creating long-run sustainable economic growth such as education, public health, infrastructure, and renewable energy. These are real investments in the long-term productive capacity of the economy, not just tax-funded ‘costs’ to the economy.

Politically and practically it is also important to work with the private sector rather than against it to combat climate change. Ultimately, huge numbers of jobs rely on private sector innovation. Market creation by the public sector can create sustainable spaces for innovative firms to flourish.

In combating the climate crisis we don’t have to see it as the sole responsibility of either the state or the market. The two must work together intelligently for the benefit of all. The public sector must institutionalise the long-term, invest in the green shoots of the green economy, and create sustainable green markets. This can in turn bring the best out of the private sector in tackling the climate crisis. The private sector can then fill those markets with innovations and transformative technology.

Capitalism and the private sector have helped to bring great wealth to many economies, including the UK, over several hundreds of years. However, this has occurred in an ever-evolving partnership with the public sector and its voting citizens. As part of that partnership, the public sector has provided education, health, research investment, and the rule of law among many other things. This relationship needs to continue to adapt and develop to tackle the climate crisis.

It’s not either the public sector or the private sector that we need to tackle the climate crisis. It is both, working in tandem, bringing the best out of each other for the long-term benefit of all.

Ben is a policy professional and former parliamentary researcher for a Labour MP. He was part of a team that was joint winners of the IPPR Economics Prize in 2019.
He tweets at @BSzreter


References across all three pieces include:
Halpern, D. (2015). Inside the nudge unit: How small changes can make a big difference. Random House.
Komlos, J. (2015). What every economics student needs to know and doesn't get in the usual principles text. Routledge.
Mazzucato M (2013) The Entrepreneurial State: Debunking Public vs. Private Sector Myths, Anthem.
New Economics Foundation (2017) Central Banks, Climate Change and the Transition to a Low-Carbon Economy: A Policy Briefing. https://neweconomics.org/uploads/files/NEF_BRIEFING_CENTRAL-BANKS-CLIMATE_E.pdf
Pilling, D. (2018). The growth delusion: wealth, poverty, and the well-being of nations. Tim Duggan Books.
Warde, P. (2018). The Invention of sustainability: Nature and destiny, c. 1500–1870. Cambridge University Press.
Zenghelis D. (2016) ‘Decarbonisation: Innovation and the Economics of Climate Change’, in Jacobs M and Mazzucato M (eds), Rethinking Capitalism: Economics and Policy for Sustainable and Inclusive Growth, Wiley Blackwell, 172–190
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