[{"id":34534,"date":"2026-09-21T19:28:30","date_gmt":"2026-09-21T19:28:30","guid":{"rendered":"https:\/\/phenomenalworld.org\/?p=34534"},"modified":"2026-09-22T16:14:30","modified_gmt":"2026-09-22T16:14:30","slug":"constructions-data-center-gamble","status":"publish","type":"post","link":"https:\/\/phenomenalworld.org\/analysis\/constructions-data-center-gamble\/","title":{"rendered":"Construction’s Data Center Gamble"},"content":{"rendered":"\n

Once touted as a transformational boon to regional economic development, data centers have become one of the few issues that have generated overwhelming bipartisan opposition in communities across the country. A recent series of surveys conducted by Heatmap\/Embold<\/a> found that respondents\u2019 views have moved by sixty-one points in twelve months, such that 75 percent of Americans opposed data center construction as of this August. Michigan Senate candidate Abdul El-Sayed reflected the shifting winds when he told an audience at a rally in late July<\/a>, \u201cPeople really effing hate data centers.\u201d\u00a0 The excessive demands on water and electricity, loss of prime farmland, overly generous tax incentives, and concerns about the impact of AI have all sparked this astonishing swing. The recent alarm bells sounded by Anthropic CEO Dario Amodei and other tech insiders about rogue AI models have only added fuel to the fire.<\/p>\n\n\n\n

Building trades workers and their unions have been among the last reliable supporters of these massive projects: electricians, carpenters, plumbers, and other trades workers regularly turn up at city council hearings and town permitting meetings to advocate for the jobs these megaprojects will create. This enthusiasm stems from the fact that the data center buildout constitutes one of the few expanding sources of contract construction spending. According to the US Census Bureau<\/a>, total private construction spending peaked two years ago in the summer of 2024, and activity has been declining in the general office, manufacturing, and commercial sectors. Data center construction, by contrast, has tripled in scope in two years to now make up nine percent of all private nonresidential construction spending. In the month of July, data center construction spending reached over $6.5 billion, the largest month on record, with the past twenty-four months totaling $133 billion. Describing a proposed data center in Westfield, Massachusetts, Michael Langone, business manager of Plumbers and Pipefitters Local 104<\/a>, told The Boston Globe<\/a><\/em>, \u201cIt would be an absolute game-changer. This goes above and beyond any construction project we\u2019ve ever seen. This would be hundreds and hundreds, thousands of construction jobs.\u201d\u00a0<\/p>\n\n\n\n

Building trades workers recognize that their occupations are inherently unstable and precarious, one well-paid step up from a gig existence. While the hourly wage may be lucrative, the annual income can be highly variable, dependent on the boom and bust nature of a cyclical industry. Projects start and end. Workers have no guarantee of lasting the duration of a particular job, let alone being moved by their employer to the next job. Contractors win and lose bids, resulting in fluctuating labor needs. Layoffs are routine and always around the corner. The old trope\u2014\u201cthe first day on the job is one day nearer to layoff\u201d\u2014is not just a bitter aphorism. During construction booms, the drumbeat for skilled labor eases the level of anxiety in the workforce but the long-term insecurity built into the industry often drives workers from construction into lower paid but less stressful positions. <\/p>\n\n\n\n

Megaprojects like data centers not only provide opportunities for employment, but continuous work. Landing a job on a data center construction project is a trades worker\u2019s equivalent of hitting the lottery. The daily routine of going to work at the same location for months or even years is a welcome alternative to the less secure short- and medium-term job hopping that characterizes much of construction. Big Tech companies have the resources to hire the most experienced supervision available, paying superintendents and project managers above industry norms. As a result, the jobs tend to be well-managed and more likely to emphasize quality and safety over risk and speed. The promise of six day work weeks and ample overtime can generate six-figure compensation. Robert Wilson, an electrician for thirty-nine years who is closing in on retirement, told the Globe<\/a><\/em> that the Westfield data center was \u201ca generational project,\u201d an opportunity for his younger colleagues \u201cto be able to save money for a down payment on their first home.\u201d \u00a0<\/p>\n\n\n\n

The surge in hours worked from the data center projects also benefits the health of unions: it not only means regular paychecks for members and their families, but significant contributions to the unions\u2019 training, health and retirement funds. These programs are a central part of the union mission and their financial stability ebbs and flows along with the other barometers of the industry. <\/p>\n\n\n\n

Tech companies, too, realize the utility of a relationship with unions. Technology writer Jasmine Sun<\/a> claims that data center representatives believe the resistance is merely a marketing problem, to be cured by the infusion of a sufficient amount of cash to win local hearts and minds. Union workers’ support is a far more effective, authentic, form of promotion than the tech companies\u2019 frequently condescending and obtuse PR methods in rural communities. \u201cThose industries did a really bad job of stopping the rhetoric and educating communities,\u201d Anthony Abrantes, assistant executive secretary-treasurer for the Eastern Atlantic States Regional Council of Carpenters, told The New York Times<\/em><\/a>.<\/em> \u201cIt\u2019s almost like we\u2019re doing their advocacy and business development for them.\u201d <\/p>\n\n\n\n

In April, the North America\u2019s Building Trades Unions (NABTU)\u2014the umbrella organization of the individual craft unions\u2014announced a Memorandum of Understanding<\/a> to build a data center for OpenAI in Michigan that is projected to serve as a template for similar projects around the country. In June, Google unveiled a $50 million initiative<\/a> to train over 300,000 skilled workers in conjunction with union training programs. In August, NABTU and Meta agreed on a partnership<\/a> to create a workforce pipeline. While these programs reflect a welcome expansion of union membership, such plans may be overly optimistic: there are some signs that the AI bubble may burst. For now, construction continues apace, but according to Data Center Watch<\/a>, at least seventy-five data center projects\u2014together, worth approximately $130 billion\u2014were already blocked or delayed in the first quarter of 2026, the result of a combination of equipment supply chain logjams and the swelling ranks of opponents. Rather than seeing the data center boom as a panacea for the ills that have troubled the industry, buildings trades unions need to continue to compete aggressively for the standard sorts of projects that make up the bread-and-butter of construction work, while also seeking to grow their ranks and regain market share from non-union contractors.<\/p>\n\n\n\n

The state of the building trades<\/h3>\n\n\n\n

The building trades’ support of data centers comes in the wake of fifty years of decline in the union share of the nonresidential construction market. Through the 1960s, nearly 80 percent of the nation\u2019s construction dollar was spent on projects built with union labor. The combination of an overheated war economy and labor shortages caused by the overseas military deployment of young men who were likely entries into the trades created an inflationary environment toward the end of that decade. Wages rose rapidly and strikes became increasingly common. Corporate leaders and large private owners formed the Construction Users Anti-Inflation Roundtable<\/a> (later renamed the Business Roundtable, a potent policy entity to this day) in 1969 to combat what they saw as the excessive power of building trades unionism. The application of a determined corporate influence in the context of a growing anti-labor political environment altered the landscape. The percentage of workers in the industry who were union members declined from 42 percent in 1970 to 22 percent in 1992. The result was a deterioration of working conditions that persists to this day. Collective bargaining resulted in only modest wage increases during the period, and as a result non-union wages plummeted like a lead weight, such that construction workers overall\u2014union and non-union\u2014 experienced a 17 percent drop in real wages<\/a> between 1980 and 1992. Noting the transformation, Roundtable leader Charles Brown, formerly CEO of DuPont, declared victory as early as 1982, saying that \u201cthe capitalist system worked again.\u201d<\/p>\n\n\n\n

The corporate assault took an earlier generation of union leaders by surprise. A false sense of security\u2014the product of decades of market control\u2014fostered a complacent corps of union officers unfamiliar with and opposed to notions of organizing and growth. In fact, leaders and members alike advocated for keeping the ranks restricted, seeing it as the best route to securing member employment and limiting their pain in business cycle downturns. In the 1972 words of AFL-CIO chief (and former Plumbers Union head) George Meany: \u201cWe didn\u2019t want the people\u2026we merely wanted the work.\u201d Country club unionism, with its racial and gender exclusionary practices, was a tried and true formula for keeping wages high and unemployment low for members in a strong union market. But that formula was no longer effective as union market share declined dramatically.<\/p>\n\n\n\n

Today, building trades unions remain relatively strong in metropolitan areas in the Northeast, Midwest, and West Coast.\u00a0 But buildings in the South, Southwest, and Rocky Mountain states\u2014among the country\u2019s most active markets\u2014are erected largely with non-union labor<\/a> frequently defined by low wages, unsafe conditions, and wage theft. Certainly, many of the data centers under construction or in the pipeline are being built with non-union labor, especially if they are located below the Mason-Dixon line. According to an effusive press release<\/a> from the chief economist of Associated Builders and Contractors (ABC), the industry\u2019s militantly anti-union trade association: \u201c42 percent of [ABC] contractors with more than $100 million in annual revenues are under contract to work on data center projects.\u201d\u00a0<\/p>\n\n\n\n

Activist voices in the union trades have decried the degraded standards in the contemporary industry and have called for the incorporation of organizing strategies into what had once been a servicing model of unionism, in which the union focuses on aiding existing members.  But organizing in the building trades is unlike most other labor, political or community organizing. Workers are mobile and employers are mid-sized or small.  According to 2023 US Census Bureau data, fewer than two percent of the country\u2019s 815,000 construction establishments have fifty or more employees. There are no permanent workplaces. Given the highly competitive nature of the industry, enterprise organizing (achieving a contract with a single firm) is generally impractical since the additional labor costs would immediately place the newly signed contractor with an insurmountable competitive disadvantage against existing rivals. Whole sub-market organizing (identifying and then organizing a particular geographical industry sector) of both companies and workers is the only workable option. Yet there is a complex hierarchy of general contractors and multiple subcontractors and fifteen trades each with their own union and jurisdiction, further complicating innovative strategies. <\/p>\n\n\n\n

The industry\u2019s workforce, physically demanding and with low barriers to entry, has always been made up of immigrants or their descendants. That is still true but today\u2019s non-union trades workers frequently do not speak English as a first language. Many of the unions are now far more diverse and have hired Spanish- and Portuguese-speaking organizers, but the challenge remains daunting. Contrary to Meany\u2019s assertion, effective construction organizing involves both the people and the work. The traditional top-down approach of advocating for upcoming projects to be built with existing union labor remains an essential component, but its success rests on a foundation of the kind of bottom-up organizing that includes advocating for the non-union workforce on jobsites. Salting, stripping (in which a union tries to poach a non-union contractor\u2019s best workers), and pursuing regulatory enforcement are among the tools necessary to undertake this project. Until each of the trade unions is seen by workers as aspiring to represent all<\/em> the members of their craft, not just those already holding membership in local unions, the current market share is likely to be unchanged.<\/p>\n\n\n\n

The opportunity and threat of megaprojects<\/h3>\n\n\n\n

Since the majority of the nation\u2019s contract construction spending has moved from union to non-union firms, union leaders welcome the assurance of the data centers\u2019 long-term stable employment for their members, and are more willing to expand their ranks in light of the swelling demand for labor. In fact, for the first time since 2016, the percent of construction workers who are members of labor unions increased in 2025<\/a>, from 10.3 to 11.1 percent, representing 79,000 new union members.\u00a0Agreements with large construction users reinforce the concept of developing relationships with a smaller number of large clients rather than constantly repeating the daily and sometimes unproductive grind of advocating for a handful of jobs on less significant projects. And yet, a cautionary note is important. At times, megaprojects have produced a sense of euphoria that obscured long-range implications. All projects, even megaprojects, eventually come to an end, and the rising level of opposition to these projects may hasten quicker-than-anticipated endings.\u00a0<\/p>\n\n\n\n

Tina Williams, who was hired by the International Brotherhood of Electrical Workers (IBEW) to manage training grants from the tech giants, recognizes that her mandate is to bring in enough workers to fulfill the perceived need but, as she told the Times<\/a>,<\/em> realizes the union also needs to maintain \u201cour core work in each of these locals.\u201d Unfortunately, Williams\u2019 observation is not always shared or heeded. The allure of the \u201cbig job\u201d obscures the reality that draining union labor from the routine and ongoing construction of office buildings, schools, hospitals, and commercial projects may create a vacuum which risks being filled by aggressive non-union contractors that might not have the capacity for a quantum leap into the requirements of the data center world but can take the next step up the business development ladder and win contracts for jobs that might have been built with union labor.\u00a0<\/p>\n\n\n\n

Some megaprojects, indeed, have a history of leaving a transformed industry in their wake.\u00a0 The creation of the Washington, D.C. Metro system in the 1970s was the single largest project in the history of the city. At the time, construction work in the nation\u2019s capital was largely carried out with union labor. Attracted by the influx of long-term and plentiful jobs, union contractors and members flocked to the tunnels and stations of the new transit system. The union halls were empty as trades workers in the region enjoyed an extended period of full employment. But the magnet of the Metro meant that there were not enough union workers to fill the sites of conventional construction projects. With the active support of an increasingly hostile and anti-union coterie of owners and developers, non-union firms emerged from the margins to the center of the industry. By the time the last ribbon was cut on a new Metro station, Washington D.C. was on track to becoming a non-union city.\u00a0\u00a0<\/p>\n\n\n\n

A similar dynamic occurred when the Seabrook, New Hampshire nuclear power plant was built in the late 1970s and early 1980s. The massive project sucked all the union contractors and labor from the smaller cities and towns in the Granite state, as well as workers from surrounding states. While it lasted, Seabrook was a bonanza for the hundreds of workers on the job and for local small businesses, but when the final piece of finish hardware was applied in 1986, New Hampshire\u2019s regular construction market was dominated by non-union firms.<\/p>\n\n\n\n

Jobs, politics, and organizing<\/h3>\n\n\n\n

The emergence of the data center market has the potential to create an immense number of high road, well-paid long-term jobs and introduce a new generation of men and women to the trades. Working in the unionized trades is a significant pathway for a diverse group of young people without college degrees toward a meaningful and gainful set of occupations. Construction has served, and can still serve, as a singular conduit out of poverty.  The union sector represents one of the best options for a blue-collar version of dignity and respect at work. <\/p>\n\n\n\n

As the mid-term elections approach, the political resistance to data centers is only hardening. Uncertainty and skepticism about the broader consequences of AI amplify the fears about the disruption these monoliths bring to local communities. When even industry leaders like Microsoft founder Bill Gates claim that \u201cthe transition to the AI era will be one of the most turbulent times in human history,\u201d and suggest that adequate preparatory measures are not in place, the pressure to slow or stop the construction of data centers will likely increase.  Most contemporary union leaders have recognized the need to change, organize, and grow. Now they will have to manage the tension that comes with advocating for the windfall of new data center job opportunities in such a climate.<\/p>\n\n\n\n

Even if the projects move forward, unions will need to be on guard to avoid repeating the historical pattern in which megaprojects can derail the mission to reassert overall union strength. By serving as unintended vehicles for the loss of future market share, megaprojects hold as much risk as opportunity. The road to re-organizing the industry will require both union leaders and members to navigate the complicated world of the data center explosion while maintaining a focus on holding and extending their presence on less high-profile projects, combined with a commitment to reaching out to the large non-union workforce, in order to transform conditions in the broader construction world.<\/p>\n","protected":false},"excerpt":{"rendered":"

Once touted as a transformational boon to regional economic development, data centers have become one of the few issues that have generated overwhelming bipartisan opposition in communities across the country. A recent series of surveys conducted by Heatmap\/Embold found that respondents\u2019 views have moved by sixty-one points in twelve months, such that 75 percent of […]<\/p>\n","protected":false},"author":468,"featured_media":34535,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4],"tags":[],"issue":[],"newsletter":[],"region":[1116],"sector":[],"theme":[1083,1104],"series":[],"class_list":["post-34534","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-analysis","region-united-states","theme-labor-social-movements","theme-technology-digital-economy"],"acf":[],"yoast_head":"\nConstruction's Data Center Gamble - Phenomenal World<\/title>\n<meta name=\"description\" content=\"Rather than seeing the data center boom as the solution to problems in the industry, buildings trades unions need to continue to organize.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/phenomenalworld.org\/analysis\/constructions-data-center-gamble\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Mark Erlich | Construction's Data Center Gamble\" \/>\n<meta property=\"og:description\" content=\"Is the data center boom the solution to the problems faced by buildings trades unions?\" \/>\n<meta property=\"og:url\" content=\"https:\/\/phenomenalworld.org\/analysis\/constructions-data-center-gamble\/\" \/>\n<meta property=\"og:site_name\" content=\"Phenomenal World\" \/>\n<meta property=\"article:published_time\" content=\"2026-09-21T19:28:30+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2026-09-22T16:14:30+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/09\/Erlich-data-centers.png\" \/>\n\t<meta property=\"og:image:width\" content=\"1200\" \/>\n\t<meta property=\"og:image:height\" content=\"628\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/png\" \/>\n<meta name=\"author\" content=\"Mark Erlich\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Mark Erlich | Construction's Data Center Gamble\" \/>\n<meta name=\"twitter:description\" content=\"Is the data center boom the solution to the problems faced by buildings trades unions?\" \/>\n<meta name=\"twitter:image\" content=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/09\/Erlich-data-centers.png\" \/>\n<meta name=\"twitter:creator\" content=\"@WorldPhenomenal\" \/>\n<meta name=\"twitter:site\" content=\"@WorldPhenomenal\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Mark Erlich\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"13 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/constructions-data-center-gamble\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/constructions-data-center-gamble\\\/\"},\"author\":{\"name\":\"Mark Erlich\",\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/#\\\/schema\\\/person\\\/13f95a9e43e24d9289dc35cc3e729ef0\"},\"headline\":\"Construction’s Data Center Gamble\",\"datePublished\":\"2026-09-21T19:28:30+00:00\",\"dateModified\":\"2026-09-22T16:14:30+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/constructions-data-center-gamble\\\/\"},\"wordCount\":2818,\"publisher\":{\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/#organization\"},\"image\":{\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/constructions-data-center-gamble\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/phenomenalworld.org\\\/wp-content\\\/uploads\\\/2026\\\/09\\\/DJI_20250912101224_0104_D-copy-1900x1268-1.jpg\",\"articleSection\":[\"Analysis\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/constructions-data-center-gamble\\\/\",\"url\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/constructions-data-center-gamble\\\/\",\"name\":\"Construction's Data Center Gamble - 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Credit: Microsoft"},{"@type":"BreadcrumbList","@id":"https:\/\/phenomenalworld.org\/analysis\/constructions-data-center-gamble\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/phenomenalworld.org\/"},{"@type":"ListItem","position":2,"name":"Construction’s Data Center Gamble"}]},{"@type":"WebSite","@id":"https:\/\/phenomenalworld.org\/#website","url":"https:\/\/phenomenalworld.org\/","name":"Phenomenal World","description":"A publication focused on political economy.","publisher":{"@id":"https:\/\/phenomenalworld.org\/#organization"},"potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/phenomenalworld.org\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Organization","@id":"https:\/\/phenomenalworld.org\/#organization","name":"Phenomenal World","url":"https:\/\/phenomenalworld.org\/","logo":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/phenomenalworld.org\/#\/schema\/logo\/image\/","url":"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2021\/11\/pw-icon.png","contentUrl":"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2021\/11\/pw-icon.png","width":512,"height":512,"caption":"Phenomenal World"},"image":{"@id":"https:\/\/phenomenalworld.org\/#\/schema\/logo\/image\/"},"sameAs":["https:\/\/x.com\/WorldPhenomenal"]},{"@type":"Person","@id":"https:\/\/phenomenalworld.org\/#\/schema\/person\/13f95a9e43e24d9289dc35cc3e729ef0","name":"Mark Erlich","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/secure.gravatar.com\/avatar\/a012c10ddd9fc4efcc3cf25e64441ea837529585860c1109c3b8b4ed9aaa2bc0?s=96&d=mm&r=g","url":"https:\/\/secure.gravatar.com\/avatar\/a012c10ddd9fc4efcc3cf25e64441ea837529585860c1109c3b8b4ed9aaa2bc0?s=96&d=mm&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/a012c10ddd9fc4efcc3cf25e64441ea837529585860c1109c3b8b4ed9aaa2bc0?s=96&d=mm&r=g","caption":"Mark Erlich"},"description":"Mark Erlich is a fellow at Harvard Law School's Center for a Just Economy and the retired head of the New England Carpenters Union. He is the author of three books and numerous articles on construction, labor, and politics.","url":"https:\/\/phenomenalworld.org\/author\/mark-erlich\/"}]}},"_links":{"self":[{"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/posts\/34534","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/users\/468"}],"replies":[{"embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/comments?post=34534"}],"version-history":[{"count":20,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/posts\/34534\/revisions"}],"predecessor-version":[{"id":34568,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/posts\/34534\/revisions\/34568"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/media\/34535"}],"wp:attachment":[{"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/media?parent=34534"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/categories?post=34534"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/tags?post=34534"},{"taxonomy":"issue","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/issue?post=34534"},{"taxonomy":"newsletter","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/newsletter?post=34534"},{"taxonomy":"region","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/region?post=34534"},{"taxonomy":"sector","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/sector?post=34534"},{"taxonomy":"theme","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/theme?post=34534"},{"taxonomy":"series","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/series?post=34534"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}},{"id":34457,"date":"2026-09-17T21:34:47","date_gmt":"2026-09-17T21:34:47","guid":{"rendered":"https:\/\/phenomenalworld.org\/?p=34457"},"modified":"2026-09-23T21:39:21","modified_gmt":"2026-09-23T21:39:21","slug":"control-board-colonialism","status":"publish","type":"post","link":"https:\/\/phenomenalworld.org\/analysis\/control-board-colonialism\/","title":{"rendered":"Control Board Colonialism"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">When Hurricane Mar\u00eda made landfall in Puerto Rico in September 2017, its thrashing winds knocked out the territory\u2019s electric power grid, wiped out 80 percent of its agricultural crops, and wrecked 95 percent of its cell networks, along with 85 percent of its aboveground telephone and internet cables. Roads, bridges, and a major dam were severely damaged, and thousands of people were made homeless. The economic damage was colossal, estimated to be in the range of a hundred billion dollars. Rebuilding and repair in the aftermath of the storm was beset by obstacles and is still ongoing. The hurricane triggered the <a href=\"https:\/\/www.usace.army.mil\/Media\/Fact-Sheets\/Fact-Sheets-View\/Article\/4463352\/154-the-longest-blackout-in-us-history-hurricane-maria\/\">longest blackout<\/a> in US history\u2014lasting almost a year in some areas\u2014and Puerto Rico\u2019s power grid remains in a state of disrepair, prone to regular outages across cities and towns. Of the billions of dollars in funds allocated by Washington for reconstruction, including $20 billion for the energy grid, very little arrived to Puerto Rico\u2014the result, in large part, of the <a href=\"http:\/\/google.com\/url?q=https:\/\/revistas.uniandes.edu.co\/index.php\/lar\/article\/view\/4700\/4264&sa=D&source=docs&ust=1789380238434482&usg=AOvVaw3nu73N7vj_Wt_ZbB7cmHJq\">botched federal response<\/a> under the first Trump administration.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The spectacular catastrophe of Hurricane Mar\u00eda drew media attention, but Puerto Rico was already in the midst of a profound crisis, which was only compounded by the storm’s effects; blackouts, uneven access to potable water, soaring unemployment, and stagnation had long been features of life for its 3.2 million residents. Having endured a deep recession for ten years, Puerto Rico finally announced that it would be unable to repay close to <a href=\"https:\/\/drive.google.com\/file\/d\/10fqrxuVrZ1FI6lQwNs1YAnWsLmim-Q7-\/view\">$72 billion<\/a> of debt in 2015, while owing a further <a href=\"https:\/\/www.gao.gov\/assets\/700\/691944.pdf\">$50 billion<\/a> in unfunded pension obligations. In June of the following year, the US Congress passed, and President Obama signed into law, the Puerto Rico Oversight, Management, and Economic Stability Act, known by its optimistic acronym PROMESA. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The Act led to one of the largest bankruptcy-like restructurings in US history, overseen by an unelected control board\u2014known locally as <em>la junta\u2014<\/em>which concentrated economic authority in its own hands. This board, to which President Barack Obama appointed seven members, took complete control of Puerto Rico\u2019s finances, working to preserve bondholders\u2019 assets as much as possible while instructing the local government in San Juan to make sweeping cuts, gutting many social programs while abandoning major infrastructure projects. The results have been transformative: a success in the terms set out by the board insofar as the debt has been reduced by almost half; a calamity from the perspective of most inside Puerto Rico, where social spending has been gutted and economic decision-making has been completely subordinated to an unelected coterie in Washington.\u00a0<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Ten years after the enactment of PROMESA, the control board remains in place. According to the legislation, the condition for the board\u2019s departure is Puerto Rico\u2019s fiscal and economic recovery. How to determine when that has been achieved remains an open question, but it is clear that neither the residents nor the elected representatives of Puerto Rico will be consulted on the matter. Unless the structural conditions that led to PROMESA\u2019s enactment\u2014a colonial financial architecture that encourages predatory behavior and a constitution that radically limits the archipelago\u2019s sovereign powers\u2014are addressed, conditions in Puerto Rico will continue to deteriorate.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">The making of a fiscal emergency<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Puerto Rico\u2019s contemporary political economy has its roots in the territory\u2019s colonial history, which began with the arrival of the Spanish in the late fifteenth century. The archipelago\u2014Puerto Rico is not just an island, but is composed of Vieques, Culebra and another 140 small islands, islets, and cays\u2014was incorporated into an imperial economy, which was based first on mining and subsequently on plantation agriculture, foremost the cultivation of sugar and coffee, worked by enslaved Africans. Following the Spanish\u2013American War, Spain ceded Puerto Rico to the US under the 1898 Treaty of Paris. This entailed a reorganization of the archipelago\u2019s political institutions, landholding, trade relations, and economy, increasingly integrating Puerto Rico into US markets. It was in this context that the US Congress enacted the Foraker Act of 1900, establishing the archipelago\u2019s civil government and economic institutions while exempting the territory from federal income <a href=\"https:\/\/itep.org\/what-taxes-are-paid-in-puerto-rico-and-other-u-s-territories\/\">tax<\/a> (establishing federal income tax would have meant recognizing Puerto Rico as part of the Union) and other financial regulations. Beginning in 1901, the US Supreme Court\u2019s Insular Cases established Puerto Rico as an \u201cunincorporated territory\u201d\u2014meaning a jurisdiction belonging to, but not fully part of the US and therefore subject to Congress\u2019s extensive authority under the Territorial Clause. US monetary policies devalued local currency and real estate, accelerating land dispossession and facilitating large-scale land acquisitions by US sugar corporations. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In 1917, Congress enacted the Jones-Shafroth Act, which imposed US citizenship on Puerto Ricans while further strengthening congressional authority over the archipelago\u2019s political and economic affairs. Another important effect of the Jones Act was the \u201ctriple tax exemption,\u201d which exempted Puerto Rican government bonds from taxation at the municipal, state, and federal levels, making them particularly appealing to US investors. Several years later, the Merchant Marine Act of 1920 further limited Puerto Rican autonomy by requiring all maritime commerce between the archipelago and the US to be conducted on qualifying US vessels, greatly increasing the cost of living on the archipelago. In the years following World War II, the federal government sought to transform Puerto Rico into an export-oriented manufacturing hub. The aptly named Operation Bootstrap combined cheap labor, local tax exemptions, federal incentives, and unrestricted access to US markets for the benefit of US corporations. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In 1952, Congress approved the Puerto Rican constitution, which established the Commonwealth of Puerto Rico (a liberal translation of <em>Estado Libre Asociado<\/em>). The product of bitter conflict amid Puerto Ricans, many of whom preferred either independence or outright statehood, the constitution allowed them to elect their own local government while remaining subordinate to the United States. It also prioritized debt repayment over any other spending. Rapid industrialization brought economic growth during the 1950s and 60s, but by the 1970s it was showing signs of exhaustion. Rising labor costs, increased international competition, and the global oil crisis hit an economy highly dependent on imported petroleum, while unemployment remained persistently high. As growth slowed, the government began to rely on federal transfers and public borrowing to sustain infrastructure, employment, and public expenditures. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><a href=\"https:\/\/uscode.house.gov\/view.xhtml?req=granuleid:USC-2000-title26-section936&num=0&edition=2000\">Section 936<\/a> of the US Internal Revenue Code, introduced in 1976, sought to revitalize development by encouraging US corporations to establish themselves in Puerto Rico. To do this, it allowed qualifying firms to repatriate profits generated in Puerto Rico without paying federal corporate income taxes, making the archipelago all the more attractive to US capital\u2014particularly knowledge-intensive industries such as pharmaceuticals, medical-device manufacturing, electronics, and financial services. To some extent, the tax exemption worked, and by 1995, manufacturing accounted for approximately <a href=\"https:\/\/www.degruyterbrill.com\/document\/doi\/10.1515\/jgd-2017-0009\/html?srsltid=AfmBOorW14xkXGi4iVI3lRmCkXTZ0LeE4tjMmgI2sAx49wllBy7cuEhd\">42 percent of GDP<\/a>. This generated more than 30 percent of deposits in Puerto Rico\u2019s banking system and accounted for approximately 17 percent of total employment.  The gains were, however, limited. Profits generated by Section 936 corporations were largely controlled by US firms and, most significantly, Puerto Rico\u2019s economy had become increasingly dependent on a federal tax provision over which the Puerto Rican government exercised no control.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Puerto Rican governments had used borrowing since at least the mid-twentieth century to finance infrastructure and public corporations, but from the 1980s, a growing public debt had come to bear the burden of compensating for declining fiscal capacity and persistent budgetary deficits. In the 1990s, Pedro Rossell\u00f3\u2019s New Progressive Party government attempted to <a href=\"https:\/\/www.researchgate.net\/publication\/333033622_The_economics_of_PROMESA\">stimulate the economy<\/a> and finance public projects by borrowing large sums\u2014approximately $10.5 billion during Rossell\u00f3\u2019s first term and another $13.7 billion during his second\u2014but public indebtedness grew faster than the economy. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">By the millennium, Puerto Rico\u2019s developmental model was becoming untenable. Trade liberalization\u2014including free-trade agreements like NAFTA\u2014and increased international competition weakened some of the advantages on which Puerto Rico\u2019s industrialization strategy had depended. In 1996 Congress had initiated a ten-year phaseout of Section 936, which American critics had long argued facilitating excessive erosion of the federal tax base, and while the final end to the provision in 2006 did not by itself cause Puerto Rico\u2019s economic crisis, it removed one of the central pillars around which the economy had been organized, at a time when <a href=\"https:\/\/www.degruyterbrill.com\/document\/doi\/10.1515\/jgd-2017-0009\/html\">domestic industry<\/a> was already under mounting pressure from globalization. That year, Puerto Rico entered a recession.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Rather than developing a tax system capable of generating sufficient revenues to replace the declining benefits associated with the existing development model, access to financial markets increasingly substituted for fiscal capacity and economic development, and bonds were issued more and more often to cover operating deficits, refinance existing obligations, and service previous debts. The Puerto Rican Sales Tax Financing Corporation, <a href=\"https:\/\/www.cadtm.org\/The-COFINA-Agreement-Part-1-The-First-40-Year-Plan\">COFINA<\/a>, which was developed in the wake of the recession to issue \u201cextraconstitutional\u201d bonds, epitomized this transformation by securitizing future sales-tax revenues, effectively converting future streams of public revenue into financial assets that could be sold to investors in exchange for immediate financing. Puerto Rico\u2019s triple-tax-exempt status further facilitated this process by sustaining strong demand for its bonds among US investors. Financial institutions, bond underwriters, credit-rating agencies, insurers, and eventually hedge funds consequently assumed an increasingly important role in Puerto Rico\u2019s fiscal governance. As Puerto Rico\u2019s creditworthiness deteriorated, borrowing became increasingly expensive and a growing share of public resources was devoted to servicing existing obligations. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Because Puerto Ricans are US citizens and can move freely between the archipelago and the states, migration quickly presented itself as a response to rising unemployment and austerity. The resulting population decline was both a consequence of the crisis and exacerbated it. The departure of working-age residents and professionals reduced the tax base, weakened domestic consumption, and put additional pressure on public finances, generating a feedback loop between economic contraction, migration, declining revenues, and indebtedness.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">By the time Alejandro Garc\u00eda Padilla took office in 2013, Puerto Rico\u2019s debt stood at about $67 billion. As conventional municipal investors became increasingly unwilling to lend to the government, Puerto Rico came to rely more on high-risk investors like hedge funds. As the crisis deepened, revenues continued to decline and the government increasingly struggled to meet its basic obligations. The response of credit-rating agencies was to downgrade Puerto Rico\u2019s debt, with Moody\u2019s, Fitch Ratings, and Standard & Poor\u2019s eventually pushing its bonds deep into speculative, or \u201cjunk,\u201d territory. These downgrades further constrained Puerto Rico\u2019s access to credit, increasing its financing costs and intensifying fiscal pressures. As investments slowed to a halt, corporate tax incentives and exemptions increased in an attempt to stop the bleeding: in 2004, there were approximately forty tax exemption laws for the private sector; by 2020, more than a decade into the crisis, there were more than ninety tax exemption laws, limiting a substantial flow of income to the government. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The scale of the crisis was finally made public when, on June 29, 2015, Governor Garc\u00eda Padilla declared that the archipelago\u2019s debt was \u201cnot payable.\u201d The debt, roughly $72 billion at the time, was distributed across four categories: general obligation bonds backed by the Commonwealth of Puerto Rico; sales-tax-backed bonds issued by the COFINA; obligations of public corporations, such as the Puerto Rico Electric Power Authority (PREPA); and debts associated with municipalities and other entities. It would still take some months before the defaults began. On May 1, Puerto Rico <a href=\"http:\/\/google.com\/url?q=https:\/\/www.cbsnews.com\/news\/puerto-rico-to-default-on-370-million-debt-payments\/&sa=D&source=docs&ust=1788458373000083&usg=AOvVaw3SZC889jxHughuyUFx9xHc\">defaulted<\/a> on a $442 million bond payment. A second major <a href=\"https:\/\/www.nytimes.com\/interactive\/2016\/business\/dealbook\/puerto-rico-debt-crisis-explained.html\">default<\/a> followed on June 1, when the government was unable to repay a $2 billion loan.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">The structure of the public debt<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Puerto Rico\u2019s debt had, from the beginning, been structured in such a way as to make the odds of repayment slim: much of it was generated by complex, often predatory financial instruments. As the <a href=\"https:\/\/acrecampaigns.org\/campaigns_programs\/puerto-rican-debt-crisis\/\">Action Center on Race and the Economy<\/a> has shown, approximately $36 billion of the more than $70 billion in debt did not correspond to original borrowing, but to accumulated interest on just $4.3 billion in capital appreciation bonds underwritten by Wall Street banks. <a href=\"https:\/\/acrecampaigns.org\/wp-content\/uploads\/2020\/04\/PuertoRicosPaydayLoans-Jun2016.pdf\">Capital appreciation<\/a> bonds, much like payday loans, defer paying any interest\u2014at rates exceeding 700 percent in the Puerto Rican case\u2014until reaching final maturity. Other predatory financial practices included <a href=\"https:\/\/acrecampaigns.org\/wp-content\/uploads\/2020\/04\/ScoopingandTossingPuertoRicosFuture-Aug2016.pdf\">scoop-and-toss<\/a> refinancing schemes, variable-rate debt or adjustable-rate mortgages, interest rate swaps, and auction-rate securities, all of which allowed interest obligations to be rolled into new principal over time. These mechanisms extended repayment horizons beyond what the Puerto Rican constitution allowed, while significantly increasing total liabilities, embedding long-term fiscal instability into the structure of the debt. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><a href=\"https:\/\/acrecampaigns.org\/wp-content\/uploads\/2020\/04\/BewareofBankersBearingGifts-Feb2017.pdf\">Wall Street banks<\/a>, <a href=\"https:\/\/hedgeclippers.org\/wp-content\/uploads\/2016\/12\/20161025_HedgeClippers_ReportPR_v3-3.pdf\">financial entities<\/a>, <a href=\"https:\/\/hedgeclippers.org\/\">hedge funds,<\/a> and law firms all played a decisive role in shaping the scale and structure of Puerto Rico\u2019s indebtedness, and profited from its expansion. Banks charged substantial fees and repeatedly refinanced obligations in ways that generated immediate gains for financial firms while deepening Puerto Rico\u2019s long-term exposure. <a href=\"https:\/\/drive.google.com\/file\/d\/10fqrxuVrZ1FI6lQwNs1YAnWsLmim-Q7-\/view\"><em>ReFund America<\/em><\/a> estimates that UBS, Citigroup, Goldman Sachs, and Barclays have made $1.6 billion in fees on Puerto Rico\u2019s  scoop-and-toss deals since 2000. Hedge funds later acquired distressed bonds at substantial discounts and positioned themselves to extract favorable settlements through litigation. As the research and campaigning organization <a href=\"http:\/\/hedgeclippers.org\/pain-and-profit-after-maria\/\">Hedge Clippers<\/a> has documented, even after the devastation caused by Hurricane Mar\u00eda, hedge funds pressured the Puerto Rican government to prioritize debt repayment, arguing that federal disaster relief funds could be used for that purpose. Public debt became a mechanism of extraction, transferring wealth outward while leaving the archipelago to absorb the social and economic consequences of the structural adjustments imposed to repay it. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Puerto Rico lacked many of the political and legal powers available to sovereign states in attempting to respond to economic crises. In 1984, Congress had amended <a href=\"https:\/\/www.law.cornell.edu\/uscode\/text\/11\/903#:~:text=11%20U.S.%20Code%20%C2%A7%20903%20%2D%20Reservation%20of%20State%20power%20to%20control%20municipalities,-U.S.%20Code&text=a%20judgment%20entered%20under%20such,not%20consent%20to%20such%20composition.\">the Bankruptcy Code<\/a> to explicitly exclude Puerto Rico and its public corporations from Chapter 9 municipal bankruptcy protections. Without access to Chapter 9, Puerto Rico\u2019s heavily indebted public corporations could not seek a court-supervised restructuring of their obligations or obtain the protections from creditor enforcement available through municipal bankruptcy. This exclusion became increasingly consequential as the fiscal crisis deepened after 2006. The government in San Juan enacted its own restructuring law in 2014, but it was quickly <a href=\"https:\/\/supreme.justia.com\/cases\/federal\/us\/579\/15-233\/\">struck down<\/a> by the US Supreme Court in 2016, holding that the Federal Bankruptcy Code preempted local legislation. The Court reasoned that Puerto Rico could not legislate in an area reserved to Congress, even though it was excluded from the protections of that same federal framework. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This decision exposed a central contradiction in Puerto Rico\u2019s legal status. The territory is not a state and therefore lacks sovereign authority and key protections, yet it is treated as a state for certain federal purposes. The contrast with Detroit illustrates the practical consequences of this colonial relation. Facing approximately <a href=\"https:\/\/abcnews.com\/Business\/detroit-largest-us-city-file-bankruptcy\/story?id=19706081\">$18 billion<\/a> in liabilities, Detroit was authorized by the state of Michigan to file for municipal bankruptcy under Chapter 9 in 2013, allowing it to restructure its obligations through an established federal judicial process. Puerto Rico and its public corporations, by contrast, had been expressly excluded from that same mechanism and, as the Supreme Court case established, could not create an alternative restructuring process of their own. Only Congress could resolve this impasse, either by extending existing bankruptcy protections or by creating a new legal framework. With the creation of PROMESA, it chose the latter. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">La Junta begins<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">PROMESA did more than create a mechanism for restructuring Puerto Rico\u2019s debt\u2014it installed a new center of political authority that sat above the institutions of Puerto Rico\u2019s own elected government. The seven-member board was given broad powers to certify fiscal plans and budgets, review legislation and government contracts, demand information from public agencies, and, crucially, to compel the Puerto Rican government to comply with PROMESA\u2019s requirements. <a href=\"https:\/\/www.congress.gov\/bill\/114th-congress\/house-bill\/4900\/text#toc-HA5E59C2979EA478A9DEB36BAC4ABEE61\">Section 108<\/a> of PROMESA explicitly prohibits Puerto Rico\u2019s governor and legislature from exercising \u201ccontrol, supervision, <a href=\"https:\/\/www.nytimes.com\/2016\/05\/20\/business\/puerto-rico-debt-bankruptcy.html\">oversight,<\/a> or review\u201d over the board. Carefully insulated from the ordinary mechanisms of democratic accountability and <a href=\"https:\/\/supreme.justia.com\/cases\/federal\/us\/598\/22-96\/\">local supervision<\/a>, PROMESA thus established the institutional foundations of a parallel, federally authorized government capable of overriding key fiscal and budgetary decisions made by Puerto Rico\u2019s elected institutions.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The geography of the board\u2019s emergence captured something of this relationship. The board did not begin its work in San Juan. On September 30, 2016, its seven members assembled for their <a href=\"https:\/\/www.reuters.com\/article\/legal\/puerto-rico-federal-oversight-board-to-hold-first-meeting-sept-30-idUSL2N1BZ1OA\/\">first public meeting<\/a> in New York City, more than a thousand miles from the territory they had been empowered to oversee. During the meeting, which was interrupted by <a href=\"https:\/\/prospect.org\/2016\/10\/04\/protests-greet-puerto-rico-control-board\/\">protesters<\/a>, the board instructed Governor Garc\u00eda Padilla to submit a new fiscal plan\u2014within weeks\u2014that would comply with the board\u2019s directives. The colonial resonances were difficult to miss: an unelected body created by Congress, meeting in Manhattan, was determining the fiscal parameters within which Puerto Rico\u2019s elected government would have to operate. The board would eventually establish a physical presence in Puerto Rico, but its authority derived from Washington D.C. rather than from Puerto Rican law, Puerto Rican voters, or the consent of Puerto Rico\u2019s legislature.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Title III of PROMESA provided the other major pillar of this new governing architecture by establishing the legal mechanism for restructuring Puerto Rico\u2019s debt within the US federal court system. Drawing on <a href=\"https:\/\/grupocne.org\/2021\/06\/29\/promesa-a-failed-colonial-experiment\/\">elements<\/a> of Chapters 9 and 11 of the US Bankruptcy Code, it created a distinct territorial bankruptcy regime in which only the oversight board has the authority to initiate proceedings and approve restructuring terms. In May 2017, Chief Justice John Roberts appointed Judge Laura Taylor Swain to oversee the Title III proceedings, which the board initiated later that month, acting on behalf of Puerto Rico and several of its instrumentalities. It swiftly became the largest and most expensive public sector restructuring in US history. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">On February 4, 2019, Judge Taylor Swain approved the <a href=\"https:\/\/www.cadtm.org\/The-COFINA-Agreement-Part-1-The-First-40-Year-Plan\">COFINA<\/a> settlement and confirmed its restructuring plan, making it one of the largest municipal bond restructurings in US history. Several days later, old COFINA debt with a value of $17.6 billion was exchanged for $12.02 billion in new COFINA bonds, which were divided into several current-interest-bearing bonds and capital appreciation bonds, for which balloon payments would be due in future decades, the last ones ending in 2058. The COFINA plan of adjustment will result in payments of <a href=\"https:\/\/www.cadtm.org\/The-COFINA-Agreement-Part-1-The-First-40-Year-Plan\">$32.3 billion in forty years<\/a>, and will require the extension of Puerto Rico\u2019s elevated sales and use tax\u2014higher than in any US state\u2014until then. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Nearly five years later, in January 2022, Judge Taylor Swain confirmed the Plan of Adjustment for the Commonwealth of Puerto Rico to restructure $33 billion of liabilities against itself, the Public Buildings Authority, and the Employee Retirement System; and reduced more than $55 billion in pension liabilities to $7 billion. <a href=\"https:\/\/littlesis.org\/news\/7-billion-in-cash-for-vulture-funds-in-oversight-boards-new-debt-adjustment-plan\/\">The Public Accountability Initiative<\/a> estimated that, in the restructuring, hedge funds made $1.1 billion in profit. The plan of adjustment includes cash payments of $7 billion for hedge funds, which came from the savings generated by the austerity measures imposed by the board in the previous years. These austerity measures include pension cuts of 8.5 percent to all retirees whose monthly pension exceeds $1,500. While those pension cuts did not ultimately take effect as originally proposed, the pension systems were\u00a0<a href=\"https:\/\/www.wolfpopper.com\/news\/extreme-measures-how-puerto-ricos-bankruptcy-caused-a-radical-change-to-its-public-pension-retirement-systems\" target=\"_blank\" rel=\"noopener\"><u>substantially restructured<\/u><\/a>, resulting in downgrades for new and future public employees.\u00a0Combined with cuts to benefits for current employees, the adjustment plan amounts to a total reduction in pension spending of 19.3 percent.\u00a0<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Hundreds of lawyers, consultants, advisors, and financial analysts from more than thirty firms participated in the proceedings, with their fees paid by Puerto Rican taxpayers. Each party involved retained its own teams of legal and financial experts. Advising firms such as <a href=\"https:\/\/www.nytimes.com\/2018\/09\/26\/business\/mckinsey-puerto-rico.html\">McKinsey<\/a> played a central role in analyzing budgets, producing fiscal plans, negotiating with creditors, coordinating proceedings, shaping legislation, and designing policy interventions that extended far beyond debt restructuring. Since 2017, well over $<a href=\"https:\/\/drive.google.com\/file\/d\/11Nw8yAtzLN74suGatdcMMyeLLNhOcGm9\/view\">1.5 billion<\/a> has been spent on these professionals (estimates by <a href=\"https:\/\/espaciosabiertos.org\/the-cost-of-the-boards-consultants-a-bill-paid-by-the-people-that-never-ends\/\">Espacios Abiertos<\/a> place the total above $2 billion). The overwhelming share of these funds has flowed to US-based firms. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It\u2019s important to emphasize that all of this occurred against the express wishes of local politicians, government actors, and civil society organizations, who repeatedly challenged the board\u2019s authority in court\u2014to no avail. Indeed, each court case, whether brought in US District courts or the Supreme Court, only worked to further expand the board\u2019s power, allowing it to consolidate its control over fiscal policy while further insulating it from demands from civil society and government. Taken together, these decisions did more than resolve discrete legal disputes; they entrenched a new distribution of power. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Austerity’s social costs<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Mainstream accounts of PROMESA, including those of the <a href=\"https:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=3216119\">former<\/a> <a href=\"https:\/\/www.nytimes.com\/2025\/09\/24\/opinion\/puerto-rico-bankruptcy-debt.html\">board members<\/a>, present the federal intervention as a difficult but necessary belt tightening in the service of restoring growth after decades of stagnation and fiscal mismanagement. The good work of the control board, the <a href=\"https:\/\/www.pauldrybooks.com\/products\/promise-land-the-inside-story-of-the-puerto-rico-debt-crisis\">story goes<\/a>, has meant that pensions have been protected, fiscal discipline has been restored, and Puerto Rico\u2019s economy is close to stable once more. What these sanguine narratives tend to omit, however, is any recognition of the social costs inflicted by the ongoing process of PROMESA.  Between 2019 and 2023, the board vetoed or sought to annul <a href=\"https:\/\/academic.oup.com\/publius\/article-abstract\/56\/1\/155\/8382630?redirectedFrom=fulltext\">thirteen laws<\/a> enacted by the Puerto Rican government that it deems contrary to its fiscal goals, including measures related to health insurance, public sector wages and benefits, pandemic relief for healthcare workers, pensions, and labor reform. The consequences have been far-reaching. Since 2006, <a href=\"https:\/\/belonging.berkeley.edu\/report-puerto-ricos-mass-closures-public-schools-eroding-communities\">673 public<\/a> schools have closed and the University of Puerto Rico has suffered deep cuts; by 2022, the university\u2019s budget had been <a href=\"http:\/\/insidehighered.com\/news\/2019\/07\/11\/university-puerto-rico-faces-deep-cuts-appropriations\">slashed<\/a> by 56 percent of its pre-PROMESA figure. Tuition rates have nearly <a href=\"https:\/\/periodismoinvestigativo.com\/2023\/06\/upr-graduation-rate-up-in-last-decade-despite-its-dismantling\/\">tripled<\/a>. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In 2019, the board called for healthcare reforms that would reduce projected spending by <a href=\"https:\/\/velazquez.house.gov\/media-center\/press-releases\/velazquez-menendez-grijalva-ocasio-cortez-ask-oversight-board-reconsider\">$638 million<\/a> annually by fiscal year 2024. These targets implied approximately $1.8 billion in cumulative savings between fiscal years 2020 and 2024.  The cuts were never implemented at that scale, and with the COVID-19 pandemic and an influx of federal Medicaid funding, the board substantially scaled back its austerity targets. Yet Puerto Rico\u2019s healthcare system continues to face considerable fiscal uncertainty. The enhanced federal Medicaid funding that has sustained the system in recent years is scheduled to expire in September 2027, potentially producing a multibillion-dollar funding shortfall and renewed pressure for reductions in benefits, eligibility, and other public expenditures. Municipal governments, too, faced <a href=\"https:\/\/www.comisionauditoriapr.org\/_files\/ugd\/6c1512_e858a3ed66be4e8498e23750cce8880a.pdf\">$900 million<\/a> in cuts between 2016 and 2026, which have pushed forty-three of them into bankruptcy. Some local governments have lost up to <a href=\"https:\/\/www.comisionauditoriapr.org\/_files\/ugd\/6c1512_e858a3ed66be4e8498e23750cce8880a.pdf\">60 percent<\/a> of their budgets, all while leading disaster responses to ongoing storms, hurricanes, and earthquakes, as well as the Covid-19 pandemic. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Puerto Rico\u2019s Electric Power Authority (PREPA), the now notorious source of blackouts across the archipelago, has been a major target of la junta. The control board had, from its inception, made clear its intention to privatize the public utility. \u201cOnly privatization will enable PREPA to attract the investments it needs to lower costs and provide more reliable power,\u201d wrote four board members in <a href=\"https:\/\/www.wsj.com\/articles\/privatize-puerto-ricos-power-1498776904?eafs_enabled=false\">an editorial<\/a> for the <em>Wall Street Journal<\/em> in June 2017. The control board hired McKinsey to prepare detailed plans for privatization \u201csupported by financial models and market engagement.\u201d Since privatization began in 2021, electricity bills have increased by <a href=\"https:\/\/www.comisionauditoriapr.org\/_files\/ugd\/6c1512_e858a3ed66be4e8498e23750cce8880a.pdf\">40 percent<\/a> while water rates have risen by 30 percent. At the same time, <a href=\"https:\/\/www.comisionauditoriapr.org\/_files\/ugd\/6c1512_e858a3ed66be4e8498e23750cce8880a.pdf\">$1.5 billion<\/a> has been allocated to payments to PREPA bondholders. The transformation of the public utility has been marked by controversy, conflicts of interest, persistent service failures, and rolling blackouts and <a href=\"https:\/\/jacobin.com\/2026\/08\/puerto-rico-water-crisis-debt-privatization\">water shortages<\/a>, leaving Puerto Ricans to pay more for increasingly unreliable electrical and water systems.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">As public services have been reduced, Puerto Rico has been promoted as an offshore financial center. Under <a href=\"https:\/\/www.investpr.org\/why-puerto-rico\/tax-benefits-policy\/\">Act 60 of 2019<\/a>, the local government has offered extraordinary tax advantages to individuals and firms willing to relocate to or structure business activities through the archipelago. International banks, private equity firms, wealth managers, alternative investment funds, international captive insurance, crypto-investors, and more than five thousand wealthy individuals have taken advantage of these incentives. The financial services sector has celebrated this shift as evidence that Puerto Rico is \u201copen for business.\u201d<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">After PROMESA?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">PROMESA provides no fixed date for the control board\u2019s departure, but <a href=\"https:\/\/grupocne.org\/2021\/06\/29\/promesa-a-failed-colonial-experiment\/\">Section 209<\/a> of the Act stipulates that the board will terminate once Puerto Rico demonstrates adequate access to short- and long-term credit markets at reasonable rates. The government is also required to complete at least four consecutive fiscal years with balanced budgets. In the meantime, ten years after its arrival to San Juan, the board continues to certify budgets, oversee fiscal plans, review legislation, and authorize the privatization of public utilities. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">When it does eventually depart, as it one day must, to what extent will Puerto Ricans regain control of their own economy, and their own political and juridical processes? Some areas of fiscal decision-making will inevitably be returned to the Puerto Rican government, but will this amount to the restoration of political and economic sovereignty? In the absence of structural change, Puerto Rico would remain, as it has long been, subject to Congress\u2019s plenary powers and without sovereign control over many of the legal and economic arrangements that helped produce the economic crisis in the first place. Many of the effects of PROMESA\u2014school closures, tuition rises, deteriorating public services, persistent blackouts, municipal disinvestment, and the redirection of public resources toward consultants and creditors\u2014are likely to outlive the control board itself. This is in part due to the fact that debt-service obligations will continue for decades as the government continues to relinquish substantial revenues through the <a href=\"https:\/\/espaciosabiertos.org\/en\/el-costo-de-creditos-contributivos-y-exenciones-deben-ser-parte-de-la-discusion-de-presupuesto\/\">tax incentives and exemptions<\/a> that have always been central to its economic development strategy, but with a new emphasis on financial services and the relocation of wealthy investors to the archipelago. The extraordinary <a href=\"https:\/\/www.worldometers.info\/world-population\/puerto-rico-population\/\">out-migration<\/a> to the US since 2006 poses a further challenge. While the intensity of the out-migration has slowed down, the population continues to decline, sparking new problems for growth.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The question of Puerto Rico\u2019s future socioeconomic health is not just a question of whether or not it will be able to increase its public spending after the control board departs, but whether it will be able to construct a fiscal and developmental model capable of generating funding that can be directed toward public need, rather than continuing a combination of fiscal austerity for residents and incentives for mobile capital. PROMESA laid bare the contemporary forms of US colonial governance, but also generated a decade of resistance from Puerto Ricans who have refused to accept that this arrangement is normal, necessary, or just. Whether they can regain the capacity to decide collectively how public resources are raised, distributed, and invested will determine what comes after la junta. <\/p>\n","protected":false},"excerpt":{"rendered":"<p>When Hurricane Mar\u00eda made landfall in Puerto Rico in September 2017, its thrashing winds knocked out the territory\u2019s electric power grid, wiped out 80 percent of its agricultural crops, and wrecked 95 percent of its cell networks, along with 85 percent of its aboveground telephone and internet cables. Roads, bridges, and a major dam were […]<\/p>\n","protected":false},"author":467,"featured_media":34474,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4],"tags":[],"issue":[],"newsletter":[],"region":[1011,1116],"sector":[1059],"theme":[1089,1101],"series":[],"class_list":["post-34457","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-analysis","region-latin-america-and-the-caribbean","region-united-states","sector-finance-insurance","theme-finance-development","theme-geopolitics"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v28.5 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Control Board Colonialism - Phenomenal World<\/title>\n<meta name=\"description\" content=\"Unless the structural conditions that led to PROMESA\u2019s enactment are addressed, conditions in Puerto Rico will continue to deteriorate.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/phenomenalworld.org\/analysis\/control-board-colonialism\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Jose Atiles | Control Board Colonialism\" \/>\n<meta property=\"og:description\" content=\"Ten years of PROMESA in Puerto Rico\" \/>\n<meta property=\"og:url\" content=\"https:\/\/phenomenalworld.org\/analysis\/control-board-colonialism\/\" \/>\n<meta property=\"og:site_name\" content=\"Phenomenal World\" \/>\n<meta property=\"article:published_time\" content=\"2026-09-17T21:34:47+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2026-09-23T21:39:21+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/09\/Atiles-PROMESA.png\" \/>\n\t<meta property=\"og:image:width\" content=\"1200\" \/>\n\t<meta property=\"og:image:height\" content=\"628\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/png\" \/>\n<meta name=\"author\" content=\"Jose Atiles\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Jose Atiles | Control Board Colonialism\" \/>\n<meta name=\"twitter:description\" content=\"Ten years of PROMESA in Puerto Rico\" \/>\n<meta name=\"twitter:image\" content=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/09\/Atiles-PROMESA.png\" \/>\n<meta name=\"twitter:creator\" content=\"@WorldPhenomenal\" \/>\n<meta name=\"twitter:site\" content=\"@WorldPhenomenal\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Jose Atiles\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"20 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/control-board-colonialism\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/control-board-colonialism\\\/\"},\"author\":{\"name\":\"Jose Atiles\",\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/#\\\/schema\\\/person\\\/a94de9504457ee1d8cc5075b0a4533c3\"},\"headline\":\"Control Board Colonialism\",\"datePublished\":\"2026-09-17T21:34:47+00:00\",\"dateModified\":\"2026-09-23T21:39:21+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/control-board-colonialism\\\/\"},\"wordCount\":4397,\"publisher\":{\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/#organization\"},\"image\":{\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/control-board-colonialism\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/phenomenalworld.org\\\/wp-content\\\/uploads\\\/2026\\\/09\\\/PR_DR4339_20180213_Region_VII_RA_Visit-159_large.jpg\",\"articleSection\":[\"Analysis\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/control-board-colonialism\\\/\",\"url\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/control-board-colonialism\\\/\",\"name\":\"Control Board Colonialism - 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The ensuing debris and floodwaters travelled 100 kilometers down the Lende Khole river, a tributary of the Bhote Koshi, destroying villages, roads, bridges, hydropower facilities, and other critical infrastructure in its path. More than 1,300 people have been <a href=\"https:\/\/english.nepalnews.com\/s\/nation\/bhote-koshi-flood-update-1367-bodies-recovered-around-5100-still-missing\/\">confirmed dead<\/a> and 5,100 are still missing in Nepal; numbers in Tibet are <a href=\"https:\/\/www.theguardian.com\/world\/2026\/aug\/31\/china-concealing-scale-nepal-flood-disaster-say-tibet-campaigners\">more difficult<\/a> to ascertain. Scientists are still investigating the precise mechanics of the disaster, but consensus is forming that it was the result of a landslide\u2015perhaps caused by <a href=\"https:\/\/www.nytimes.com\/interactive\/2026\/09\/01\/world\/asia\/nepal-flash-floods-landslide.html\">bedrock made unstable<\/a> by glacial retreat and its attendant meltwater.\u00a0<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Hindu Kush Himalaya glaciers lost 12 percent of their area and <a href=\"https:\/\/www.icimod.org\/press-releases\/hindu-kush-himalaya-glaciers-losing-ice-at-double-the-rate-since-2000-new-icimod-report-confirm\/\">9 percent of their ice<\/a> between 2000 and 2020, and glaciers and permafrost around the world are being weakened by global heating. The <a href=\"https:\/\/onlinelibrary.wiley.com\/doi\/full\/10.1111\/gto.12526\">frequency<\/a> of complex, cascading events in mountain landscapes such as these is only <a href=\"https:\/\/www.nature.com\/articles\/s43247-026-03352-y\">expected to increase<\/a> in coming years. \u201cLandslides have been occurring as long as the mountains have been building,\u201d G\u00f6ran Ekstr\u00f6m, a seismologist at Columbia University\u2019s Lamont-Doherty Earth Observatory, <a href=\"https:\/\/www.science.org\/content\/article\/how-scientists-unraveled-cause-devastating-flood-tibet-and-nepal\">told <em>Science<\/em><\/a>. But \u201cin areas where glaciers are disappearing, these landslides are occurring more frequently.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">As the rescue mission for the thousands of people still missing continues, Nepal, which is among Asia\u2019s poorest countries, now faces the challenge of recovery and rebuilding. How to pay for that remains an open question. The financial cost of the disaster is <a href=\"https:\/\/www.ft.com\/content\/248d64df-0167-4816-a67a-d4f9577190d8?syn-25a6b1a6=1\">estimated<\/a> at about $5 billion, or a tenth of the country\u2019s annual GDP. Some relief is on its way, but international aid has been meagre (the US sent as little as half a million dollars) and doesn\u2019t even begin to make up for the deficits produced by cuts to global North aid and development finance budgets. <\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"842\" src=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/09\/Seismic-map-Himalayas-USGS-via-ICIMOD-1-1024x842.png\" alt=\"\" class=\"wp-image-34407\" srcset=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/09\/Seismic-map-Himalayas-USGS-via-ICIMOD-1-1024x842.png 1024w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/09\/Seismic-map-Himalayas-USGS-via-ICIMOD-1-300x247.png 300w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/09\/Seismic-map-Himalayas-USGS-via-ICIMOD-1-768x632.png 768w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/09\/Seismic-map-Himalayas-USGS-via-ICIMOD-1.png 1330w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">Nepal\u2019s government, only recently elected after last year\u2019s Gen Z protests successfully ousted an older generation accused of complacency and corruption, has limited options to raise cash. International climate talks in Sharm El-Sheikh in 2022 established an aid facility intended to offer assistance for poorer countries hit by climate-change induced disasters. Nepal\u2019s government was quick to submit a <a href=\"https:\/\/www.bloomberg.com\/news\/articles\/2026-09-06\/nepal-s-request-for-flood-payout-tests-new-climate-aid-system\">request<\/a> to the UN Fund for Responding to Loss and Damage, but it remains unlikely they will receive funds, despite being eminently eligible: the fund has <a href=\"https:\/\/fiftrustee.worldbank.org\/en\/about\/unit\/pim\/fiftrustee\/fund-detail\/frld\">so far<\/a> received just over half a billion dollars, and prior to the disaster in the Himalayas it had already received eligible aid requests for $2.8 billion. It has yet to make a single payment.\u00a0<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Adaption finance<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">This might be the year in which the severity and magnitude of climate change has finally become embedded in our collective psyches, and in our expectations of the future. As this European summer has attested, the global North cannot pretend it\u2019s immune from the crisis. Unprecedented and sustained heat waves <a href=\"https:\/\/www.economist.com\/graphic-detail\/2026\/06\/25\/where-will-europes-heatwave-be-most-deadly\">killed<\/a> tens of thousands and continue to <a href=\"https:\/\/www.theguardian.com\/business\/2026\/aug\/16\/tourism-power-generation-productivity-europe-economic-cost-heatwaves\">wreak havoc<\/a> on industrial vectors such as German shipping and French nuclear power generation. By August, European wildfires alone had <a href=\"https:\/\/www.ft.com\/content\/ef7f88ca-3dc0-49c7-b995-05b1de69cc74\">already cost \u20ac3 billion<\/a>, and will inevitably rise higher. The effects of heat this year\u2014again, only as of the start of August\u2014 could ultimately cost as much as <a href=\"https:\/\/www.triodos.com\/en\/articles\/2026\/hot-summer-economics\">1 percent<\/a> of the bloc\u2019s annual GDP.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">If <a href=\"https:\/\/phenomenalworld.org\/analysis\/global-scorching\/\">wealthy countries are not immune<\/a> from the crisis, the global South nonetheless remains particularly vulnerable. This year\u2019s Asian monsoon\u2014an annual weather system that supports almost a billion people\u2014was much smaller and later than usual, leading to crop failures and reduced planting. Now, with the tropical Pacific entering a <a href=\"https:\/\/interactive.carbonbrief.org\/el-nino-explainer\/index.html\">super El Ni\u00f1o<\/a>\u2014pushing up temperatures while reversing typical patterns or rainfall in Asia and the Americas\u2014the <a href=\"https:\/\/adamtooze.substack.com\/p\/chartbook-467-mad-dogs-and-heatwave\">outlook is even more dramatic<\/a>. <a href=\"https:\/\/www.reuters.com\/business\/environment\/how-indias-below-average-september-rainfall-fuels-concern-about-crops-2026-09-04\/\">Food price inflation<\/a> is expected to rise in many countries as a result.  <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The rapidly changing climate demands a <a href=\"https:\/\/advaitcore.substack.com\/p\/changes-in-the-light\">litany<\/a> of investments and reinvestments. Reducing emissions, and transitioning to clean energy remains of vital importance, but the need for <a href=\"https:\/\/phenomenalworld.org\/analysis\/global-scorching\/\">adaptive measures<\/a>, to protect against the worst effects of disasters like in the Himalayas, is more urgent than ever. This will mean \u201chardening\u201d everyday infrastructure such as energy systems, roads, hospitals, and apartment buildings to minimize risk. It will also mean building entirely new classes of what might as well be called adaptation infrastructure: seawalls and levees, fire-breaks, heating, ventilations, and air conditioning, better irrigation systems, and so on. In the case of northern Nepal, improving disaster resilience in warming conditions would <a href=\"https:\/\/www.adpc.net\/icare\/wp-content\/uploads\/2022\/05\/5.pdf\">include<\/a> better early warning systems and large-scale projects for flood and landslide management.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"645\" height=\"268\" src=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/09\/Nepal-adaptation-plan-excerpt-from-ACDP-1.png\" alt=\"\" class=\"wp-image-34410\" style=\"width:645px;height:auto\" srcset=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/09\/Nepal-adaptation-plan-excerpt-from-ACDP-1.png 645w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/09\/Nepal-adaptation-plan-excerpt-from-ACDP-1-300x125.png 300w\" sizes=\"auto, (max-width: 645px) 100vw, 645px\" \/><figcaption class=\"wp-element-caption\">Excerpt from a summary of priorities in the Nepal Adaptation Plan, 2022. Source: <a href=\"https:\/\/www.adpc.net\/icare\/wp-content\/uploads\/2022\/05\/5.pdf\">Asian Disaster Preparedness Center<\/a><\/figcaption><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">Little of this adaptation infrastructure yields financial revenues that can be packaged for investors, and finding ways to mobilize private finance for such projects will likely be futile. Only large-scale public borrowing will be capable of pushing back against the climate risk \u201c<a href=\"https:\/\/phenomenalworld.org\/analysis\/the-doom-loop\/\">doom loop<\/a>\u201d in which vulnerability and disinvestment exacerbate each other.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">But where will this investment for adaptation come from? The current landscape is discouraging. The total flow of development aid fell by almost a quarter in 2025, prompting UN agencies to <a href=\"https:\/\/financing.desa.un.org\/iatf\/news\/fragmenting-world-worsens-finance-squeeze-reversing-decades-progress-development-un\">warn<\/a> that decades of progress could be reversed. One existing major foreign direct investment venture, the Upper Trishuli-1 Hydropower Project, financed by the World Bank, Asian Development Bank, and a host of other development finance institutions, was severely damaged by the glacier collapse. NGOs <a href=\"https:\/\/apnews.com\/article\/nepal-tibet-china-flash-floods-744fe6e15ae7751e15efcd6dff70170c\">point out<\/a> that the ADB\u2019s own independent expert panel pointed out the risks of the project and recommended a climate resilience assessment, which doesn\u2019t appear to have been conducted. About <a href=\"https:\/\/apnews.com\/article\/nepal-tibet-china-flash-floods-744fe6e15ae7751e15efcd6dff70170c\">300 workers<\/a> are trapped in the project\u2019s tunnels. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Hydropower projects supply nearly all of Nepal\u2019s electricity, but most are privately financed and are, like Upper Trishuli-1, \u201crun of river,\u201d meaning they lack storage so their electricity generation falters during the dry season and can\u2019t offer the protections against flooding and drought that <a href=\"https:\/\/www.bloomberg.com\/opinion\/articles\/2026-09-01\/nepal-china-to-fix-flood-disasters-we-need-more-giant-dams?srnd=undefined\">well-designed dams<\/a> can provide. The country still relies heavily on burning biofuels and waste for the majority of its energy, as electricity generation is too unreliable to support any growth in manufacturing that might help development. The government has a goal of increasing hydropower generation capacity from 3,000 MW in 2024 to 28,500 MW by 2035\u2014but the World Bank <a href=\"https:\/\/documents1.worldbank.org\/curated\/en\/099032125103030263\/pdf\/P179761-430153ad-672c-4418-89c5-ef3740c65113.pdf?utm_source=chatgpt.com\">notes<\/a> that this would require financing equivalent to 3\u20135 percent of GDP per year, when financing is already scarce.\u00a0<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In the global North, many countries are now facing their own fiscal constraints. Annual interest payments on US national debt now exceed <a href=\"https:\/\/www.cbsnews.com\/news\/us-debt-exceeds-gdp-first-time-since-wwii\/\">$1 trillion<\/a>; it\u2019s the first time in the country\u2019s history that such payments are exceeding national defense or Medicare spending. The change has been popularly attributed, at least in part, to new doubts about US reliability and creditworthiness, as <a href=\"https:\/\/phenomenalworld.org\/analysis\/private-leverage-public-costs\/\">US Treasuries<\/a> appear to be losing their status as safe, low-yielding assets. Analysis by economist <a href=\"https:\/\/www.economicstrategygroup.org\/publication\/americas-risky-debt-what-markets-see-that-policymakers-dont\/\">Hanno Lustig<\/a> shows ten-year Treasuries are now closer in price to the debt of other G10 countries. Some have made the <a href=\"https:\/\/theovershoot.co\/p\/rising-bond-yields-are-good-actually\">case<\/a> that Treasuries markets are not in crisis per se, but simply reflecting a return to more normal expectations of growth and inflation that existed prior to 2008, but nonetheless, it\u2019s clear that the US government is no longer viewed as the risk-free investment it once was. Last week, Norway\u2019s enormous sovereign wealth fund <a href=\"https:\/\/www.ft.com\/content\/ecc15aa6-6e7b-409d-8753-2fb6aadd0592?syn-25a6b1a6=1\">proposed<\/a> slashing its holdings of US Treasuries by $80 billion, and in August the Netherlands moved some of its gold reserves from New York to London. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Other rich countries are also seeing their borrowing costs rise, if not quite as steeply.\u00a0The UK, Germany, France, the Netherlands, and Australia are all facing borrowing costs not seen for almost two decades, stemming in part from increased debt after Covid and the energy shock of 2022. Europe\u2019s annual investment in clean energy has <a href=\"https:\/\/www.i4ce.org\/en\/publication\/state-europe-climate-investment-2026\/\">remained static<\/a> the past few years, falling short of its target by hundreds of billions of euros, and the continent declined to provide exclusions for green public investment when reviewing its fiscal rules in 2023.\u00a0\u00a0<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"470\" src=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/09\/European-climate-investment-2020-25-I4CE-1-1024x470.png\" alt=\"\" class=\"wp-image-34413\" srcset=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/09\/European-climate-investment-2020-25-I4CE-1-1024x470.png 1024w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/09\/European-climate-investment-2020-25-I4CE-1-300x138.png 300w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/09\/European-climate-investment-2020-25-I4CE-1-768x352.png 768w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/09\/European-climate-investment-2020-25-I4CE-1.png 1308w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><figcaption class=\"wp-element-caption\">European climate investment 2020\u20132025. Source: <a href=\"https:\/\/www.i4ce.org\/wp-content\/uploads\/2026\/06\/The_State_of_Europe_s_Climate_Investment_report_2026_V2.pdf\">I4CE<\/a><\/figcaption><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">The reality of higher borrowing costs can compound the fear of governments being unwilling or unable to plan for the longer term, which in turn prompts investors to demand even higher premiums as they perceive risk. It\u2019s a familiar scenario for developing countries, many of which are <a href=\"https:\/\/phenomenalworld.org\/analysis\/the-gigantic-austerity-drive-underway\/\">already enduring<\/a> harsh austerity. Two billion people faced swingeing budget cuts as global South governments followed IMF diktat in the early 2020s. Oxfam researchers <a href=\"https:\/\/oxfamilibrary.openrepository.com\/bitstream\/handle\/10546\/621495\/bp-imf-social-spending-floors-130423-en.pdf;jsessionid=BAC5FA8C7F5D6338AF21E11437ED0B8A?sequence=4\">found<\/a> that “for every dollar that the IMF provides to a poor country for social spending, it requires the country to cut four times more through austerity measures.”<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">New inflationary normal<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">In addition to hurting growth, climate impacts can be inflationary; a difficult combination even in times without fears of a debt blowout. Crop failures from droughts or floods, damage to infrastructure, and interruptions to transport can push up prices of essential goods. Absent the will or means to increase public investment, or to increase taxes, many countries might find themselves managing inflation by raising official interest rates\u2014a brutally blunt tool. Central bankers have recently <a href=\"https:\/\/www.ngfs.net\/en\/publications-and-statistics\/publications\/climate-change-and-monetary-policy-strategy-guide-central-banks\">recognized<\/a> the threat of a <em>permanent<\/em> change in inflation dynamics driven by climate-related disasters. Previously such disasters had largely been seen as only creating temporary inflation which could be ignored in setting interest rates, but James Talbot at the Bank of England <a href=\"https:\/\/www.bankofengland.co.uk\/speech\/2025\/may\/james-talbot-speech-at-university-of-oxford-on-climate\">said<\/a> last year that \u201cmonetary policymakers will need to understand the economic impact of these shocks and may need to react to them in order to keep inflation expectations anchored.\u201d<br><br>Global growth is already <a href=\"https:\/\/www.aljazeera.com\/economy\/2026\/7\/9\/imf-cuts-2026-world-growth-forecast-citing-iran-war-fallout\">sclerotic<\/a>, challenging governments\u2019 abilities to balance debt and pursue domestic priorities. The combination of rearmament in the global North and shortages of key fossil fuel feedstocks will constrain the supply of inputs needed for energy transitions, climate adaptation, and infrastructure investments everywhere. The combination of inflationary shocks stemming from the war on Iran, and the global upward pressure on longer-duration bond yields will continue to add particular fiscal pressure in global South countries.\u00a0<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Nepal had been expected to see a growth rebound to 5 percent next year, <a href=\"https:\/\/www.adb.org\/news\/nepal-economy-slow-fy2026-potentially-rebound-fy2027\">according to<\/a> the Asian Development Bank, but that is no longer on the horizon. The latest disaster makes it more likely that it will join the ranks of countries like Bangladesh and Dominica, where persistent climate disaster intertwined with financial subordination invites capital discipline rather than increased aid and social spending. The lack of reform in the global financial system amid these rolling disasters\u2014setting off doom loops that tighten finance and investment in both rich and poor countries\u2014makes funding recovery, let alone prevention, seem increasingly out of reach.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Catastrophe hit the Himalayas last month when ice and rock collapsed in the Langtang National Park. The ensuing debris and floodwaters travelled 100 kilometers down the Lende Khole river, a tributary of the Bhote Koshi, destroying villages, roads, bridges, hydropower facilities, and other critical infrastructure in its path. More than 1,300 people have been confirmed […]<\/p>\n","protected":false},"author":95,"featured_media":34384,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4],"tags":[],"issue":[],"newsletter":[983],"region":[1026],"sector":[1047,1059],"theme":[1074,1089],"series":[],"class_list":["post-34382","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-analysis","newsletter-the-polycrisis","region-south-asia","sector-energy-utilities","sector-finance-insurance","theme-climate-energy","theme-finance-development"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v28.5 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Disaster and Constraint - Phenomenal World<\/title>\n<meta name=\"description\" content=\"As the rescue mission for the thousands of people still missing continues, Nepal, which is among Asia\u2019s poorest countries, now faces the challenge of recovery and rebuilding.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/phenomenalworld.org\/analysis\/disaster-and-constraint\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Kate Mackenzie, Tim Sahay, & Advait Arun | Disaster and Constraint\" \/>\n<meta property=\"og:description\" content=\"How can Nepal and other countries facing climate catastrophe recover and rebuild amid rising borrowing costs and reduced aid?\" \/>\n<meta property=\"og:url\" content=\"https:\/\/phenomenalworld.org\/analysis\/disaster-and-constraint\/\" \/>\n<meta property=\"og:site_name\" content=\"Phenomenal World\" \/>\n<meta property=\"article:published_time\" content=\"2026-09-09T22:56:12+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2026-09-11T17:52:17+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/09\/Copy-of-Copy-of-Polycrisis-Card-\u2013-Twitter-2.png\" \/>\n\t<meta property=\"og:image:width\" content=\"1200\" \/>\n\t<meta property=\"og:image:height\" content=\"628\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/png\" \/>\n<meta name=\"author\" content=\"Kate Mackenzie\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Kate Mackenzie, Tim Sahay, & Advait Arun | Disaster and Constraint\" \/>\n<meta name=\"twitter:description\" content=\"How can Nepal and other countries facing climate catastrophe recover and rebuild amid rising borrowing costs and reduced aid?\" \/>\n<meta name=\"twitter:image\" content=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/09\/Copy-of-Copy-of-Polycrisis-Card-\u2013-Twitter-2.png\" \/>\n<meta name=\"twitter:creator\" content=\"@WorldPhenomenal\" \/>\n<meta name=\"twitter:site\" content=\"@WorldPhenomenal\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Kate Mackenzie\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"9 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/disaster-and-constraint\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/disaster-and-constraint\\\/\"},\"author\":{\"name\":\"Kate Mackenzie\",\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/#\\\/schema\\\/person\\\/cf720ba30d59eb9917f283202f8e9dc0\"},\"headline\":\"Disaster and Constraint\",\"datePublished\":\"2026-09-09T22:56:12+00:00\",\"dateModified\":\"2026-09-11T17:52:17+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/disaster-and-constraint\\\/\"},\"wordCount\":1750,\"publisher\":{\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/#organization\"},\"image\":{\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/disaster-and-constraint\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/phenomenalworld.org\\\/wp-content\\\/uploads\\\/2026\\\/09\\\/Langtang_Range_from_Pangsanglaa-e1788986194349.jpg\",\"articleSection\":[\"Analysis\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/disaster-and-constraint\\\/\",\"url\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/disaster-and-constraint\\\/\",\"name\":\"Disaster and Constraint - 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She is a regular contributor for Bloomberg Green, where she writes the \\\"Stranded Assets\\\" column. Between 2014 and 2019 she led the finance program at two Australian non-for-profits; Climate-KIC Australia and The Climate Institute. Prior to that she worked for a decade at the Financial Times in London and Sydney, including as founding editor of FT Energy Source and Asia correspondent for FT Alphaville. 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She is a fellow at the Centre for Policy Development, an independent, research-focused think tank.","url":"https:\/\/phenomenalworld.org\/author\/kate-mackenzie\/"}]}},"_links":{"self":[{"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/posts\/34382","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/users\/95"}],"replies":[{"embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/comments?post=34382"}],"version-history":[{"count":18,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/posts\/34382\/revisions"}],"predecessor-version":[{"id":34438,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/posts\/34382\/revisions\/34438"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/media\/34384"}],"wp:attachment":[{"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/media?parent=34382"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/categories?post=34382"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/tags?post=34382"},{"taxonomy":"issue","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/issue?post=34382"},{"taxonomy":"newsletter","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/newsletter?post=34382"},{"taxonomy":"region","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/region?post=34382"},{"taxonomy":"sector","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/sector?post=34382"},{"taxonomy":"theme","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/theme?post=34382"},{"taxonomy":"series","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/series?post=34382"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}},{"id":34309,"date":"2026-09-07T23:28:36","date_gmt":"2026-09-07T23:28:36","guid":{"rendered":"https:\/\/phenomenalworld.org\/?p=34309"},"modified":"2026-09-08T18:24:10","modified_gmt":"2026-09-08T18:24:10","slug":"private-leverage-public-costs","status":"publish","type":"post","link":"https:\/\/phenomenalworld.org\/analysis\/private-leverage-public-costs\/","title":{"rendered":"Private Leverage, Public Costs"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">War, energy shocks and geopolitical crises traditionally send investors running for safety. In the textbook example, stocks fall and money flows into government bonds, especially into US Treasuries. Treasury prices rise, yields fall, and the market for the world\u2019s benchmark safe asset does its best to, as Keynes said of cash in a crisis, \u201clull our disquietude.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The past eighteen months, however, have not followed the textbook. Government bonds are being hammered across the developed world: on August 19, thirty-year Treasury yields topped 5.3 percent, their highest level since 2007. Higher yields raise borrowing costs for households, firms, and governments alike, and have turned into a political problem for a Trump administration that promised lower mortgage rates and cheaper money.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">That day, US Treasury Secretary Scott Bessent, a former hedge fund manager who has described his current role as \u201ctop bond salesman,\u201d announced that the Treasury <a href=\"https:\/\/www.wsj.com\/finance\/investing\/bessent-leans-into-his-role-as-americas-bond-trader-in-chief-633f28a4\">would step up<\/a> purchases of longer-dated government bonds through its existing buyback programme. Officially, the Treasury buyback operation is about liquidity support: buying older, less actively traded Treasuries to improve the smooth functioning of the bond market. In practice, Bessent is trying to bend the yield curve. So far, the buyback announcement has not ended the bond market turmoil but only exposed the underlying problem facing the Treasury Department: the market for the world\u2019s benchmark safe asset now requires increasingly active public management just to remain\u2014or rather appear\u2014orderly.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">But crucially, in attempting to take on this more active management role, the options that Bessent and Federal Reserve Chairman Kevin Warsh face are constrained by the Treasury market\u2019s entanglement with the world of leveraged speculation from which Bessent himself emerged. The problem with the Treasury market is that some of today\u2019s most important \u201cbondholders\u201d are not creditors in the simple sense of lending saved cash to the state. Top multi-strategy hedge funds are elite financial firms that borrow trillions of dollars to build exposures to Treasuries and other assets, safe and otherwise. I\u2019ve written elsewhere about \u201c<a href=\"https:\/\/doi.org\/10.1080\/13563467.2026.2709409\">the paradox of safe assets<\/a>\u201d: the very safety of Treasuries\u2014enabled by their high liquidity, low volatility, and privileged status as collateral\u2014means that they are ideal instruments for leveraged speculation. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Hedge funds borrow heavily against Treasuries, and in times of crisis, it is generally easiest to sell off safe assets first. Hence the Treasury market becomes the place where stresses generated elsewhere in the financial system are released\u2014through the price volatility, yield spikes, and liquidity strains we are witnessing today. And the stabilization of the Treasury market becomes the stabilization of a financial system made fragile through leverage that fewer and fewer can afford.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">The allure of safe assets<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">First and foremost, it is worth pausing over a simple fact: hedge funds speculate in public debt. This is not breaking news, but it should merit more attention than it usually receives. Hedge fund activity in the US Treasury market is often brushed off as unimportant because the assets under hedge fund management can appear almost modest when compared with the balance sheets of major banks, the portfolios of pension funds, or the assets managed by BlackRock, Vanguard, and State Street (over $30 trillion between the three). <a href=\"https:\/\/www.sec.gov\/files\/investment\/private-funds-statistics-2025-q1.pdf\">SEC private fund statistics<\/a> put hedge fund net assets at roughly $5.4 trillion in 2025: enormous in ordinary terms, but small relative to the commanding heights of asset management capitalism.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">However, the power of hedge funds stems from what they can control through leverage, not merely what they own outright. Conservative estimates based on SEC data place hedge fund gross notional exposure (the total scale of their positions across markets through various forms of leverage), at roughly $35 trillion in 2025, with the top ten funds alone\u2014not ten percent, just ten funds\u2014accounting for around 40 percent of this exposure.<a data-contents=\" See Stefano Sgambati, “The Paradox of Safe Assets,” (<)em(>)New Political Economy(<)\/em(>) (2026): 1\u201322. Gross notional exposure is calculated by summing long and short notional exposure totals across all investment types from Tab.8.16 and Tab.8.17 of the SEC Private Funds Statistics, first calendar quarter 2025, supporting data.\" class=\"footnote\" id=\"footnote-1\" href=\"#footnote-list-1\">1<\/a><span class=\"p-absolute d-none footnote-full has-white-background-color\"> See Stefano Sgambati, “The Paradox of Safe Assets,” (<)em(>)New Political Economy(<)\/em(>) (2026): 1\u201322. Gross notional exposure is calculated by summing long and short notional exposure totals across all investment types from Tab.8.16 and Tab.8.17 of the SEC Private Funds Statistics, first calendar quarter 2025, supporting data.<\/span> These are not minor \u201calternative\u201d players operating at the margins of finance, but institutions that can move, and therefore undo, markets.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Much of these funds’ leverage involves Treasuries. Top hedge funds do not buy Treasuries simply because they are safe, but because their safety makes it possible to borrow heavily against them, finance positions cheaply, and scale tiny price discrepancies into \u201cabsolute returns\u201d\u2014profit regardless of the success of the market. Hedge funds have mastered the art of making money out of usually stable assets: high alpha out of low beta. As a result, they reportedly hold more Treasuries than are officially registered to Japanese, Chinese, and Saudi Arabian investors combined.  <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">However, hedge funds\u2019 appetite for Treasuries is not constant. It depends on what is happening elsewhere: in equities, corporate credit, private capital, funding markets, and dealer balance sheets. To understand why hedge funds have become so deeply involved in Treasuries, we therefore have to look beyond the Treasury market itself. The developments leading up to the repo market panic of September 2019\u2014\u201cthe Repocalypse\u201d\u2014give us an important clue as to what may be happening today.\u00a0<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">The expansion of leveraged finance<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">For more than a decade after 2008, ultra-low interest rates and repeated rounds of quantitative easing (QE) created a fertile environment for corporations to borrow cheaply to carry out mergers and acquisitions, leveraged buyouts, dividend recapitalizations, and stock buybacks\u2014all practices of \u201cshareholder value maximization.\u201d\u00a0<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Private equity sat at the centre of this growth in corporate leverage. Buyout firms used debt to acquire companies (leveraged buyouts) and then loaded much of that debt onto the companies themselves, which they reorganized around dividend recaps, refinancing, asset sales, cost-cutting, and eventual exit. All of this generated vast quantities of speculative-grade corporate debt: leveraged loans and high-yield bonds. This junk debt was not incidental to the model: it <em>was<\/em> the model (and still is).<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Crucially, just as in the case of subprime mortgage loans in the 2000s, a great deal of this junk debt was not held by banks, but placed into bankruptcy-remote, shadow banking vehicles: collateralized loan obligations, or CLOs. CLOs buy pools of leveraged loans and finance those purchases by issuing different layers of securities to investors. In this way, risky corporate debt is bundled, tranched, rated, sold, and transformed into something that can circulate through the portfolios of insurers, pension funds, asset managers, private equity firms, and hedge funds. For holders of CLO equity tranches\u2014mainly private equity and hedge funds\u2014the weaker the corporate balance sheets, the higher the corporate borrowing costs, the greater the return on equity.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Large dealer banks such as JP Morgan and Goldman Sachs make this whole system work by arranging and syndicating leveraged loans to be packed into CLOs. At the same time, they finance hedge fund borrowing, serve as primary dealers in US Treasuries and other safe assets, and run the matched repo books that connect leverage-hungry speculators to cash-rich money market funds. In short, dealer banks are the balance sheet infrastructure through which corporate credit, sovereign debt, equity markets, and money markets become entangled with the operations of hedge funds, private equity, and leveraged entities alike: \u201calternative\u201d financial firms whose business model rests on borrowing at scale while making sure that others pay for it.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">I call this whole machinery the “<a href=\"https:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=6393299\">leveraged finance complex<\/a>.” By 2018 and 2019, stress in this complex was becoming harder to ignore. Corporate debt had risen sharply while credit quality had deteriorated, as leveraged lending and CLO issuance had become central to the financing of private equity and speculative-grade firms. The conditions that had made leveraged finance so attractive to investors were changing: in 2017 the Fed began shrinking its balance sheet in a tightening operation, and interest rates were rising accordingly.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Unsurprisingly, as highly indebted firms struggled, equity markets turned more volatile. In December, the S&P fell dramatically while <a href=\"https:\/\/www.bis.org\/publications\/markets-retreat-and-rebound\">spreads on leveraged loans and CLOs rose sharply<\/a>. The private equity and CLO machine was still operating, but the margins were thinning\u2014both the equity margins underpinning the machinery of leverage, and the profit margins oiling it. These developments did not go unnoticed by central bankers, the IMF, and financial journalists, who issued warnings and struck <a href=\"https:\/\/www.ft.com\/content\/860d5448-5cfb-11e9-9dde-7aedca0a081a?syn-25a6b1a6=1\">alarmist notes<\/a> about corporate credit markets throughout 2019. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Hedge funds, for their part, had already taken countermeasures. From early 2018, they had started to significantly reduce gross exposure to equities while increasing exposure to safe asset markets, especially Treasuries. This made sense. Equities and corporate debt were increasingly tied to fragile corporate balance sheets and deteriorating credit conditions. Treasuries, by contrast, remained liquid, financeable, and privileged as collateral.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This was not a \u201cflight to quality\u201d in the usual sense, but a migration of leverage from one part of the financial system to another. Treasuries became more attractive than usual because they allowed hedge funds to continue doing what they do best: convert small spreads into large returns through cheap borrowing, even as tighter monetary policy made other leveraged trades more precarious.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">The Repocalypse<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Hedge funds’ gross Treasury exposure nearly doubled in eighteen months, from around 1.2 trillion dollars in early 2018 to more than 2.2 trillion by September 2019. This required funding, and dealer banks obliged via the overnight repo market: the short-term funding market where securities, above all Treasuries, are exchanged for cash. More precisely, this is the place where the financial system manufactures liquidity daily: through repos, securities are pledged, financed, re-pledged, and financed again, allowing balance sheets to expand and leveraged exposures to grow.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">However, this growing appetite for leveraged Treasury trades compounded pressure on dealer bank balance sheets at precisely the wrong moment. Following tax cuts and expanding fiscal deficits by the first Trump administration, US Treasury issuance reached historically high levels, exceeding $1 trillion annually in both 2018 and 2019. Large dealer banks were absorbing vast quantities of government debt, often holding it temporarily on their balance sheets before distribution. At the same time, the Fed was selling Treasuries back to the market during its tightening program, such that aggregate bank reserves fell from a peak of roughly $2.8 trillion to under $1.4 trillion by September 2019.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">After months of high demand for financing coming from both the state issuing high amounts of public debt and hedge funds looking to leverage their exposures to Treasuries, all while reserves were shrinking, dealer banks were overstretched. The funding squeeze came in September 2019, when the US repo market suddenly seized up. On September 16\u201317, overnight repo rates spiked abruptly, in some transactions reaching nearly 10 percent. The trigger was a combination of two routine events: US corporations were making quarterly tax payments, withdrawing cash from money market funds to pay the Treasury, while at the same time a large volume of newly issued Treasuries was settling, causing primary dealers to scramble for cash.<a data-contents=\"When the Treasuries that primary dealers use as collateral security to obtain cash from money market funds reach maturity, they must replace them with new-issuance Treasuries, or they risk losing the cash.\" class=\"footnote\" id=\"footnote-2\" href=\"#footnote-list-2\">2<\/a><span class=\"p-absolute d-none footnote-full has-white-background-color\">When the Treasuries that primary dealers use as collateral security to obtain cash from money market funds reach maturity, they must replace them with new-issuance Treasuries, or they risk losing the cash.<\/span> Money market funds pulled back and banks refused to lend. The deepest funding market in the world stopped behaving like a market at all.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The Fed intervened immediately. Beginning on September 17, it launched daily overnight repo operations of $50\u2013100 billion, soon supplemented by longer-term repos. These operations did not remain a brief emergency gesture. By October and November, the Fed was injecting liquidity into the repo market on a continuous basis, and the operation, in essence, never stopped: it simply got folded into the wider pandemic bailouts of 2020.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">But the roots of the problem lay beyond the repo market. The Fed\u2019s repo injections could relieve immediate funding pressures, but not the mounting strains across the leveraged finance complex that were generating those pressures in the first place. When those strains intensified in early 2020, the limits of this approach became apparent. Continuing repo injections\u2014still over $100 billion daily in January and February 2020\u2014did nothing to prevent a Treasury fire sale when hedge funds started deleveraging en masse as distress mounted in equity and corporate credit markets. This fire sale triggered a wave of margin spirals across financial markets. By mid-March, with securities markets at large in shambles, and investors withdrawing cash from money market funds and ETFs, the Fed changed gear and officially launched QE4\u2014or QE infinity, as some have called it.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Since the coronavirus pandemic and the banking crises of early 2023, the propensity for Treasury market stress has not abated.<a data-contents=\"The 2023 regional banking crisis was triggered when rising rates pushed down the market value of older Treasuries, leaving banks such as Silicon Valley Bank with large unrealized losses. When deposit withdrawals forced them to sell those bonds (to obtain cash), those losses crystalized, exposing balance sheets that had effectively gone “underwater.”\" class=\"footnote\" id=\"footnote-3\" href=\"#footnote-list-3\">3<\/a><span class=\"p-absolute d-none footnote-full has-white-background-color\">The 2023 regional banking crisis was triggered when rising rates pushed down the market value of older Treasuries, leaving banks such as Silicon Valley Bank with large unrealized losses. When deposit withdrawals forced them to sell those bonds (to obtain cash), those losses crystalized, exposing balance sheets that had effectively gone “underwater.”<\/span> In April 2025, during the controversy over \u201cLiberation Day,\u201d a tariff-driven equity rout spilled into the US Treasury market. Hedge funds and levered ETFs had just <a href=\"https:\/\/www.reuters.com\/markets\/wealth\/hedge-funds-sell-largest-amount-stocks-since-2010-goldman-sachs-says-2025-04-04\/\">dumped<\/a> more than $40 billion of stocks, while S&P 500 companies had lost trillions in market value. Days later, the refuge for all of this money nearly collapsed as Treasuries sold off sharply, and their yields rose. Once again, stress that started elsewhere travelled into the safe asset core of global finance\u2014and was not alleviated.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The same pattern has reappeared in 2026. In March, as the war with Iran escalated, global stocks slumped, and hedge funds sold global equities for four consecutive months, at the <a href=\"about:blank\">fastest pace<\/a> in thirteen years.  But again, bonds failed to behave as a safe haven against uncertainty: yields rose. On March 20, the US ten-year Treasury yield jumped more than ten basis points in a single session to 4.384 percent. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">By July, crowded technology trades came under pressure, with hedge funds <a href=\"https:\/\/www.reuters.com\/business\/finance\/hedge-funds-2026-gains-dented-by-tech-trades-july-jpmorgan-says-2026-08-04\/\">deleveragin<\/a>g as some positions became harder to exit and more expensive to hold. The portfolio collapse of <a href=\"https:\/\/www.reuters.com\/business\/finance\/situational-awareness-portfolio-sinks-67-july-ai-stock-rout-letter-shows-2026-07-31\/?utm_source=chatgpt.com\">Situational Awareness<\/a>, an AI-focused hedge fund whose leveraged tech bets forced a rapid portfolio unwind, showed how quickly crowded trades could turn into forced selling. Weeks later, Treasury bond yields were creeping so high as to elicit Bessent\u2019s current experiment in bond market jawboning.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">As the Treasury secretary feels compelled to manage the yield curve of the world\u2019s benchmark safe asset, the costs of private leverage begin to appear as public costs. It\u2019s the same old story. When the leveraged finance complex works, hedge funds, dealer banks, private equity firms, and asset owners capture the returns. And when it falters, public authorities are called upon to provide liquidity and stabilize the infrastructure on which those returns depend.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">The cul-de-sac of financial governance<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The Fed has long bought and sold Treasuries through open market operations, but primarily as a way of managing money market conditions and implementing monetary policy, not of propping up the Treasury market itself. Outright purchases large enough to stabilize bond prices today would expand the Fed\u2019s balance sheet and inject liquidity into the financial system, looking uncomfortably like a return to QE at a time of persistent inflation concerns.<a data-contents=\"This is not to suggest that any Treasury purchase programme by the Fed would necessarily have significant inflationary effects, since much would depend on its scale and design. The more immediate issue is institutional: a program explicitly aimed at stabilizing Treasury prices would signal that the Fed once again stands ready to extend its backstop beyond funding markets (as in 2019), and even beyond risky corporate credit markets (as in 2020), to the very safe-asset core of global finance.\" class=\"footnote\" id=\"footnote-4\" href=\"#footnote-list-4\">4<\/a><span class=\"p-absolute d-none footnote-full has-white-background-color\">This is not to suggest that any Treasury purchase programme by the Fed would necessarily have significant inflationary effects, since much would depend on its scale and design. The more immediate issue is institutional: a program explicitly aimed at stabilizing Treasury prices would signal that the Fed once again stands ready to extend its backstop beyond funding markets (as in 2019), and even beyond risky corporate credit markets (as in 2020), to the very safe-asset core of global finance.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Instead, attempting to resolve the current bond market rout has become a problem of Treasury governance. Bessent\u2019s buyback programme is a debt management operation that does not entail money creation: the Treasury uses its existing cash balances to buy back older, less liquid bonds in order to improve the marketability of its own liabilities. The significant development, then, is not simply that the Treasury is buying Treasuries, but that the Treasury market itself now requires active \u201cliability management.\u201d Historically, US government debt could largely be treated as naturally liquid, marketable, and stable, without active official support. But as more and more private leverage has been stacked upon public debt, those qualities can no longer be taken entirely for granted: safe assets themselves must increasingly be managed so that they remain \u201csafe.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The result is a Trump administration politically aligned with private markets and alternative finance that now finds itself using the state\u2019s fiscal capacities to manage the market for its own liabilities. In this respect, Bessent, the former hedge fund manager turned Treasury secretary, personifies the deeper fusion of public debt and private leverage. In the language of my forthcoming book, Bessent comes from the world of \u201cabsentee debtors\u201d: elites who build wealth and power not by lending capital, but by organising leverage and stacking debt over debt through corporate, financial, and institutional structures, while shifting the risks and costs of that leverage elsewhere.<a data-contents=\"See also Stefano Sgambati, “(<)a href='https:\/\/doi.org\/10.2218\/finsoc.7115'(>)Who Owes? Class Struggle, Inequality and the Political Economy of Leverage in the Twenty-First Century(<)\/a(>),” (<)em(>)Finance and Society(<)\/em(>) 8, no. 1 (2022): 1\u201321; Stefano Sgambati, “(<)a href='https:\/\/doi.org\/10.1177\/10245294241265819'(>)The Invisible Leverage of the Rich. Absentee Debtors and Their Hedge Funds(<)\/a(>),” (<)em(>)Competition & Change(<)\/em(>) 28, no. 5 (2024): 625\u201342.\" class=\"footnote\" id=\"footnote-5\" href=\"#footnote-list-5\">5<\/a><span class=\"p-absolute d-none footnote-full has-white-background-color\">See also Stefano Sgambati, “(<)a href='https:\/\/doi.org\/10.2218\/finsoc.7115'(>)Who Owes? Class Struggle, Inequality and the Political Economy of Leverage in the Twenty-First Century(<)\/a(>),” (<)em(>)Finance and Society(<)\/em(>) 8, no. 1 (2022): 1\u201321; Stefano Sgambati, “(<)a href='https:\/\/doi.org\/10.1177\/10245294241265819'(>)The Invisible Leverage of the Rich. Absentee Debtors and Their Hedge Funds(<)\/a(>),” (<)em(>)Competition & Change(<)\/em(>) 28, no. 5 (2024): 625\u201342.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This is not a conspiracy, but what the <em>Financial Times<\/em> has described as a \u201ctoxic codependency\u201d between leveraged private actors and the Treasury.  Treasury markets are too important to fail. If Treasury liquidity disappears, or if yields rise suddenly because leveraged funds are deleveraging, the problem does not remain inside the hedge fund industry. It spreads through banks, money markets, pension funds, insurers, asset managers, public borrowing, corporate finance, and household balance sheets. Even more ominously, the leveraged finance complex\u2014which includes a variety of markets now addicted to cheap leverage, including equities, corporate credit, commodities, and energy\u2014is too important to fail, because its disorderly unwinding would threaten the refinancing machinery on which much of corporate America now depends.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">If yields keep rising, it will raise refinancing costs across leveraged loans, high-yield bonds, private credit and venture debt. According to <a href=\"https:\/\/www.bakermckenzie.com\/en\/insight\/publications\/2026\/01\/-\/media\/files\/insight\/publications\/2026\/01\/lev-fin-annual-report-2026.pdf\">a recent leveraged-finance industry report<\/a>, \u201ca looming $15 trillion refinancing wall [is] maturing in 2026\u20132028, including a $229 billion high-yield bonds maturity wall and a $530 billion leveraged loans maturity wall coming up in 2028.\u201d If these deadlines hit without a reduction in yields, highly indebted firms may face downgrades, defaults, restructuring, or cost-cutting.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">And so, society as a whole is made to live with leverage that cannot be allowed to unwind\u2014leverage organized overwhelmingly for the benefit of economic elites. We all live under a sword of Damocles suspended by absentee debtors. Like leveraged landlords whose mortgages are serviced by their tenants, absentee debtors accumulate wealth because others bear the costs that make their leverage profitable. We all end up paying, one way or another, both for their leveraging\u2014when they make absolute returns we can only dream of, thanks to privileged access to cheap, scalable, limited-liability debt, while we experience rising rents, costs, suppressed wages and degraded services that sustain those returns\u2014and for their deleveraging, when we are made to bear their losses and underwrite their soft landing.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">As the fiscal and monetary authorities look for new fixes, new rules, new mandates, new tools that make the system more \u201cresilient,\u201d they also make private leverage more governable, more scalable, and more institutionally protected. This is the cul-de-sac of financial governance: each rescue stabilizes the system, but each stabilization also preserves the conditions that make the next rescue necessary. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The paradox of safe assets thus points to a difficult question: when public debt and private leverage become unhealthily locked together, should we keep trying to make the relationship work better, or finally ask what it would mean to part ways?<\/p>\n","protected":false},"excerpt":{"rendered":"<p>War, energy shocks and geopolitical crises traditionally send investors running for safety. In the textbook example, stocks fall and money flows into government bonds, especially into US Treasuries. Treasury prices rise, yields fall, and the market for the world\u2019s benchmark safe asset does its best to, as Keynes said of cash in a crisis, \u201clull […]<\/p>\n","protected":false},"author":466,"featured_media":34314,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4],"tags":[],"issue":[],"newsletter":[],"region":[1116],"sector":[1059],"theme":[1089],"series":[],"class_list":["post-34309","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-analysis","region-united-states","sector-finance-insurance","theme-finance-development"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v28.5 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Private Leverage, Public Costs - Phenomenal World<\/title>\n<meta name=\"description\" content=\"The safety of Treasuries makes them ideal instruments for leveraged speculation.\u00a0\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/phenomenalworld.org\/analysis\/private-leverage-public-costs\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Stefano Sgambati | Private Leverage, Public Costs\" \/>\n<meta property=\"og:description\" content=\"How hedge fund speculation destabilized the bond market\" \/>\n<meta property=\"og:url\" content=\"https:\/\/phenomenalworld.org\/analysis\/private-leverage-public-costs\/\" \/>\n<meta property=\"og:site_name\" content=\"Phenomenal World\" \/>\n<meta property=\"article:published_time\" content=\"2026-09-07T23:28:36+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2026-09-08T18:24:10+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/09\/Sgambati-Treasuries.png\" \/>\n\t<meta property=\"og:image:width\" content=\"1200\" \/>\n\t<meta property=\"og:image:height\" content=\"628\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/png\" \/>\n<meta name=\"author\" content=\"Stefano Sgambati\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Stefano Sgambati | Private Leverage, Public Costs\" \/>\n<meta name=\"twitter:description\" content=\"How hedge fund speculation destabilized the bond market\" \/>\n<meta name=\"twitter:image\" content=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/09\/Sgambati-Treasuries.png\" \/>\n<meta name=\"twitter:creator\" content=\"@WorldPhenomenal\" \/>\n<meta name=\"twitter:site\" content=\"@WorldPhenomenal\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Stefano Sgambati\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"15 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/private-leverage-public-costs\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/private-leverage-public-costs\\\/\"},\"author\":{\"name\":\"Stefano Sgambati\",\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/#\\\/schema\\\/person\\\/e0cd35c3a95df7175b1db72905195f2f\"},\"headline\":\"Private Leverage, Public Costs\",\"datePublished\":\"2026-09-07T23:28:36+00:00\",\"dateModified\":\"2026-09-08T18:24:10+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/private-leverage-public-costs\\\/\"},\"wordCount\":3281,\"publisher\":{\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/#organization\"},\"image\":{\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/private-leverage-public-costs\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/phenomenalworld.org\\\/wp-content\\\/uploads\\\/2026\\\/09\\\/Wall_Street_Manhattan_New_York_City_20231002_172333-scaled.jpg\",\"articleSection\":[\"Analysis\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/private-leverage-public-costs\\\/\",\"url\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/private-leverage-public-costs\\\/\",\"name\":\"Private Leverage, Public Costs - 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Think of McDonald\u2019s, which operates a system of over 13,700 restaurants in the US, run by over a million workers, but which admits employer responsibility for only 105,000 of them. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">As part of an effort to organize this labor market, the Service Employees International Union (SEIU) and its allies launched a legislative campaign in 2021 to establish a framework in California for sectoral bargaining\u2014i.e., bargaining on an industry or sector level, rather than the enterprise-level bargaining enshrined in American labor law\u2014for fast food workers. Initially, SEIU\u2019s legislation included the aim of holding “<a href=\"https:\/\/onlabor.org\/california-fast-food-workers-secure-big-win-in-compromise-deal\/\">fast food franchisors jointly liable for labor violations at their franchisees\u2019 establishments<\/a>.” The industry fought hard to kill this language, understanding well that it was a key component of SEIU\u2019s strategy. It was thus willing to concede on a number of fronts\u2014the creation of a Fast Food Council to bring representatives of labor and management together, and even an increase in the industry\u2019s minimum wage to $20 per hour\u2014provided joint liability was taken off the table. What eventually became AB 1228, passed in late 2023, formally established the Fast Food Council as a vestige of the union\u2019s sectoral bargaining goals for the industry. But without a chairperson\u2014Governor Gavin Newsom has delayed appointing one\u2014it has <a href=\"https:\/\/laist.com\/news\/politics\/californias-groundbreaking-fast-food-council-lacks-a-leader-hasnt-met-in-over-a-year\">not met in over a year<\/a>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Though platform-networked gig work is often framed by platform owners as offering workers autonomy and an opportunity for self-management, it is best understood as a more recent instance of workplace fissuring, part of this broader restructuring of American labor markets towards wage competition and individual bargaining. Gig workers, like all independent contractors, do not share the wage-and-hour protections of the Fair Labor Standards Act (FLSA), the organizing protections of the National Labor Relations Act (NLRA), or the safety protections of the Occupational Safety and Health Act (OSHA), and are kept at a distance, both personally and legally, from their <em>de facto<\/em> employers. While SEIU\u2019s attempt to push against employee misclassification in the fast food industry failed, gig worker advocates have made progress on this question elsewhere. British Columbia, for instance, changed its provincial law in 2023 to <a href=\"https:\/\/www.bclaws.gov.bc.ca\/civix\/document\/id\/bills\/billsprevious\/4th42nd:gov48-3\">reclassify online platform workers as employees<\/a> rather than independent contractors. This legislative change made possible the unionization of 1,000 Uber drivers in Victoria, BC. Just <a href=\"https:\/\/www.cbc.ca\/news\/business\/victoria-uber-contract-rideshare-9.7205751\">this April<\/a>, these drivers won a contract, a first of its kind in North America. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">For many gig worker advocates, this path\u2014reclassify rideshare drivers as employees, and then unionize them\u2014represents the best way forward for organizing. Others, however, have been pursuing a competing strategy in the United States for the past few years. In November 2024, Massachusetts voters passed Question 3, a ballot initiative that extended a unique kind of collective bargaining right to rideshare drivers without first granting them rights as employees. Similar laws have been recently passed, in <a href=\"https:\/\/www.seiu1021.org\/article\/over-800000-gig-rideshare-drivers-win-right-form-union\">California<\/a> in October 2025 and <a href=\"https:\/\/www.goiam.org\/news\/100000-illinois-rideshare-drivers-pave-historic-pathway-for-iam-union-seiu-local-1-representation\/\">Illinois<\/a> in August of this year, and legislation has been introduced in Minnesota. In theory, these new laws offer the possibility of collective representation to enormous numbers of workers: the campaigns claim 70,000 rideshare drivers in Massachusetts, 800,000 in California, and 100,000 in Illinois. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Champions of sectoral bargaining see in these state-level experiments a promising new approach for unions in the twenty-first century. But without closing the hole in minimum wage coverage ripped open by rideshare companies\u2019 exploitation of independent contracting, do these new frameworks in the US suggest organized labor is simply legitimizing the business models of Uber and Lyft?<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">The case for reclassifying<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">According to the <a href=\"https:\/\/gigeconomydata.org\/basics\/how-many-gig-workers-are-there.html\">Gig Economy Data Hub<\/a>, between 25 and 43 percent of the American workforce participates in the gig economy, with 10 percent (roughly 17 million people) reliant upon gig work for their primary income. If you take the ratio of rideshare drivers in Illinois (<a href=\"https:\/\/www.goiam.org\/news\/100000-illinois-rideshare-drivers-pave-historic-pathway-for-iam-union-seiu-local-1-representation\/\">100,000<\/a>) to the state\u2019s total population (<a href=\"https:\/\/www.census.gov\/quickfacts\/fact\/table\/IL\/PST045225\">12.7 million<\/a>) to be roughly equivalent nationally, there are approximately 2.7 million rideshare drivers in the US. <a href=\"https:\/\/therideshareguy.com\/how-many-uber-drivers-are-there\/\">Other<\/a> estimates find that there are roughly 2 million drivers working between Uber and Lyft (though Lyft claimed in 2019 to have 2 million drivers in North America, the vast majority of which are in the US). My educated guess is that there are about 2.5 million rideshare drivers in the US today, and extrapolating from one study of Uber drivers, roughly a <a href=\"https:\/\/www.researchgate.net\/figure\/Distribution-of-Uber-Drivers-by-Hours-per-Week-and-by-Approximate-Share-of-Hours-Driven_tbl1_328179906\">fifth of them<\/a> work more than 35 hours per week.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Take-home pay is the most pressing issue rideshare drivers face. Gridwise, a privately held \u201cintelligence platform for gig workers\u201d backed by Silicon Valley venture capital, <a href=\"https:\/\/gridwise.io\/blog\/how-much-do-uber-drivers-make\">claims<\/a> that median gross pay for rideshare drivers is $21.92 per hour, and the top 10 percent of earners clear $29.28 per hour. This is gross pay per hour spent <em>driving<\/em>, however, and so does not include time spent waiting for fares or expenses like fuel, maintenance, and depreciation. Rideshare Drivers Union (RDU), a union of California drivers founded in Los Angeles in 2019 that claims over 20,000 members today, estimates that <a href=\"https:\/\/www.drivers-united.org\/prop22study\">drivers take home<\/a> about $6.20 per hour on average. RDU President Nicole Moore said that take-home pay is typically about a quarter of gross pay. Using Gridwise\u2019s numbers, this would mean the median rideshare driver would be taking home roughly $5.48 per hour after accounting for hours on the clock and driver expenses. \u201cI’ve seen so many drivers drive themselves into homelessness with a bad week,\u201d Moore told me. \u201cYou have a transmission that goes out, and there’s no slack. You’re just barely paying the bills, with a kind of addiction to this app that is doing no good for your life.\u201d <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">There is a good case to be made that these conditions follow from the basic misclassification of rideshare drivers as independent contractors rather than employees. Indeed, Uber seems to admit as much <a href=\"https:\/\/www.sec.gov\/Archives\/edgar\/data\/1543151\/000154315126000015\/uber-20251231.htm\">in their 10-K<\/a>:<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\">If, as a result of legislation or judicial decisions, we are required to classify Drivers as employees (or as workers or quasi-employees where those statuses exist), we would incur significant additional expenses for compensating Drivers, including expenses associated with the application of wage and hour laws (including minimum wage, overtime, and meal and rest period requirements), employee benefits, social security contributions, taxes (direct and indirect), and potential penalties.<\/p>\n<\/blockquote>\n\n\n\n<p class=\"wp-block-paragraph\">In other words, legal reclassification would effectively translate to higher wages and benefits expenses for the company. \u201cWe want drivers to stand on a floor set by states and the federal government, and to be able to move up off that floor,\u201d Moore told me. \u201cInstead, we’re in the dungeon, and we’re hoping to get to the floor.\u201d <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In British Columbia, reclassification not only brought drivers up to the floor that the rest of the labor market stands on, but led United Food and Commercial Workers Local 1518 to organize the drivers. They recently won a contract with \u201csigning and quarterly bonuses based on the number of rides completed, a five per cent yearly increase on some fees, $500 for health benefits and a formal dispute resolution process.\u201d The International Brotherhood of Teamsters (IBT), too, believes that reclassification is a necessary prerequisite for organizing. When the idea of collective bargaining for independently contracted drivers appeared in Massachusetts, first in the legislature and then on the ballot, the IBT consistently opposed it. \u201cWorkers are either employed by a company or they aren\u2019t,\u201d IBT president <a href=\"https:\/\/onlabor.org\/question-3-still-a-question-massachusetts-experiment-in-sectoral-bargaining-for-gig-workers\/\">Sean O\u2019Brien declared<\/a>. \u201cThere is no \u2018third way.\u2019 We should not be changing our laws in support of greedy corporations that want to deny full employment rights to workers.\u201d O\u2019Brien gets to the heart of the issue here: if workers are employed by the company, they should not only have the labor rights granted by the NLRA, FLSA, OSHA, and other worker protection laws, but their employers should also take responsibility for the direct employment relationship. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The simple fact that Uber and Lyft have either not opposed or in fact supported the new sectoral bargaining frameworks in California, Massachusetts, and Illinois could be seen as Evidence A that these changes will in fact preserve the status quo. In California, company support for AB 1340, the legislation passed last October, was traded for additional favors, such as the condition that their <a href=\"https:\/\/www.politico.com\/news\/2025\/09\/14\/california-uber-lyft-union-00562680\">minimum insurance liability requirement<\/a> would be lowered. These are not the typical signs of progressive labor legislation.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">The case for moving beyond the classification fight<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">There are a few minor differences between the new state rideshare driver organizing frameworks, but there are also basic commonalities. First, a union may petition the state to be certified as a bargaining representative of all rideshare drivers by submitting signed cards indicating a desire for union representation from a certain percentage of workers (see table). Second, the rideshare companies that dominate market share (Uber and Lyft, primarily) must bargain with this representative, but they may choose either to negotiate individually or to form a bargaining association. And finally, the negotiated agreement between the two parties is submitted to the state for ratification, a legal procedure devised to circumvent <a href=\"https:\/\/www.americanbar.org\/content\/dam\/aba\/publications\/aba_journal_of_labor_employment_law\/v37\/number-3\/jlel-vol37-no3-6.pdf\">possible antitrust suits<\/a>. <\/p>\n\n\n\n<figure class=\"wp-block-table aligncenter has-small-font-size\"><table class=\"has-fixed-layout\"><tbody><tr><td><strong>State<\/strong><\/td><td><strong>Enabling Legislation<\/strong><\/td><td><strong>Status<\/strong><\/td><td><strong><strong>Support\/Opposition<\/strong><\/strong><\/td><td><strong>Description<\/strong><\/td><\/tr><tr><td>MA<\/td><td>Question 3: Unionization for Transportation Network Drivers<\/td><td>Ballot initiative passed November 2024; App Drivers Union certified May 2026<\/td><td>Supported by SEIU Local 32BJ\/IAM, opposed by IBT; Uber\/Lyft did not oppose<\/td><td>5 percent for lists, 25 percent for certification;* potential 70,000 driver unit<\/td><\/tr><tr><td>CA<\/td><td>AB 1340: Transportation Network Company Drivers Labor Relations Act<\/td><td>AB1340 passed October 2025; California Gig Workers Union reached 30 percent threshold in August 2026<\/td><td>Supported by SEIU, Uber, Lyft<\/td><td>10 percent for lists, 30 percent for certification; potential 800,000 driver unit<\/td><\/tr><tr><td>IL<\/td><td>HB 5090: Transportation Network Driver Labor Relations Act<\/td><td>HB 5090 passed August 2026<\/td><td>Supported by Illinois Drivers Alliance (SEIU Local 1\/IAM) and Uber, opposed by AFSCME Council 31<\/td><td>10 percent for list, 30 percent for certification; potential 100,000 driver unit; a 4-cent-per-ride implementation fee, which also supports the creation of a Rideshare Workers Support Fund<\/td><\/tr><\/tbody><\/table><figcaption class=\"wp-element-caption\">Comparison of Rideshare Driver Organizing Frameworks in Massachusetts, California, and Illinois.<br><br>*Unions seeking to be the sectoral bargaining representative for rideshare drivers receive full lists of drivers\u2019 contact information, provided by the companies to the state, after they submit petitions from a certain percentage of workers who indicate they wish to be represented by that union; they are certified as a bargaining representative when they submit petitions from a higher percentage of workers.<\/figcaption><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">All three efforts could be seen as having essentially ceded to the companies the issue of worker misclassification. <a href=\"https:\/\/legiscan.com\/IL\/text\/HB5090\/id\/3446645\">The Illinois law<\/a>, for example, notes that the drivers the legislation refers to “does not include any individual who [is] . . . determined by a final order of a court of competent jurisdiction to be an employee within the meaning of Section 2(3) of the National Labor Relations Act”\u2014and the California and Massachusetts laws have similar language. But at the same time, none of the laws codify\u00a0rideshare drivers\u2019 status as independent contractors. In the case of California, the new statute is merely in accordance with Proposition 22, the Silicon Valley-backed initiative passed in 2020 that solidified rideshare drivers\u2019 non-employee status. In 2023, the California Supreme Court decided that <a href=\"https:\/\/medium.com\/@reshaping_work\/california-grants-collective-bargaining-rights-for-app-based-drivers-under-ab-1340-e17359661fc7\">Prop 22 forbid collective bargaining<\/a> for these workers, so AB 1340 simply reinstated their collective bargaining rights rather than trading anything away in exchange. Nonetheless, rideshare drivers remain non-employees, without rights to minimum wage or other employee protections.\u00a0<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">\u201cI totally agree these workers are employees legally by most legal definitions,\u201d said <a href=\"https:\/\/www.americanprogress.org\/article\/fast-facts-about-massachusetts-rideshare-sectoral-bargaining\/\">David Madland<\/a>, senior fellow at the Center for American Progress and prominent advocate for sectoral bargaining. But \u201cthe political power that these companies have\u201d means that \u201ceven though most people agree with that, they are still independent contractors under basically every law.\u201d Silicon Valley companies, Madland continues, have<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\">changed the law in most states. You’re dealing with a really tough opponent. You can still fight them [at the federal level], which would require the Trump administration to totally change course and say these are employees . . . which seems to me an almost impossible course of events. . . . So then you’re left with the question, \u201cWhat do you do with these drivers <em>now<\/em>? What can improve their conditions <em>now<\/em>?<\/p>\n<\/blockquote>\n\n\n\n<p class=\"wp-block-paragraph\">Ronnie Gonzalez, Special Representative of the International Association of Machinists and Aerospace Workers (IAM) and a member of the leadership team of the Illinois Drivers Alliance, agreed with Madland: \u201cThere\u2019s already been millions of dollars spent on the independent contractor question. We believe it\u2019s answered. We\u2019ve been down that road, and we\u2019ve lost that fight.\u201d <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Gonzalez also opposes employee status on grounds beyond feasibility. Many drivers, he argues, do not wish to be reclassified as W2 employees. \u201cIn our years of representing drivers, we understand that they enjoy the independent contractor status because it provides the freedom and flexibility that is the attractive part of the job in the first place. Taking that away from them wouldn\u2019t be properly representing the desires of the drivers we\u2019re looking to represent.\u201d Opinions on this question are, of course, mixed. Unsurprisingly, survey results tend to differ considerably depending on how employee benefits are framed.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">But, most often, supporters of the new framework are motivated by pragmatic calculations of what their existing power can achieve. \u201cWhat is the most promising way to improve these workers’ conditions?\u201d Madland asked. \u201cYou can have that fight, or you can have an ideological fight about what should be happening in a purely ideal world. And in the pure ideal world, yes, these should be employees with bargaining rights. But we have a more limited set of paths forward.\u201d Moore, for her part, has criticized the new laws for \u201ctrading labor rights for collective bargaining,\u201d but nonetheless is participating in the new framework: she and the RDU are now competing with the SEIU-backed California Gig Workers Union to become the state\u2019s bargaining representative under AB 1340.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Autumn Weintraub, the executive director of the App Drivers Union, believes that rideshare drivers having some form of institutional power at the present moment is particularly important. The App Drivers Union recently became the certified bargaining representative of 70,000 rideshare drivers in Massachusetts, under the framework established by Question 3. As Waymo is pushing to expand their automated taxi services around the country, Massachusetts had been considering an industry-backed bill that would have established a <a href=\"https:\/\/malegislature.gov\/Bills\/194\/S2379\/PrimarySponsorSummary\">regulatory framework for autonomous vehicles<\/a>, overseeing their expansion in the state. But the legislative session recently ended without its passage, and Weintraub argues the App Drivers Union played a key role in the bill\u2019s defeat. \u201cIf we weren\u2019t organized here, this would have gone through this year,\u201d she says. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Best and worst case scenarios<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The new framework for rideshare driver organizing in the United States is still very new, and so judgment of it should be stayed at least until the dust settles on the new process in one of these states. But it is clear, even at this early stage, what the best and worst case scenarios for the framework would be.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The worst is that this new framework essentially codifies a sub-minimum wage for an entire segment of gig workers. Moore outlined a scenario in which drivers in a particular state would get a 20\u201330 percent wage bump out of a first contract, and all sides would tout the bump as a huge victory. But a 20\u201330 percent bump on $6.20 per hour in California would put workers\u2019 take home pay between $7.44 per hour and $8.06 per hour\u2014still well below California\u2019s minimum wage of $16.90 per hour. \u201cThis [kind of] collective bargaining, it\u2019s not going to solve our pay problem,\u201d she said.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">However, the determination of hourly pay relies on the broader question of how much collective power the workers will have in bargaining, and their ability to enforce any agreement. CAP\u2019s Madland understands the framework to involve true sectoral bargaining: \u201cThis is collective bargaining, the workers and the employers negotiating agreements. The state does have a certification role, but that is to to review and approve, not to actually be involved in the contract negotiation. So I really view it as actual bargaining. . . . The hope is that both in Massachusetts and California, they might be able to achieve a contract this year.\u201d <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The IAM\u2019s Gonzalez has a somewhat different view. What the Illinois Drivers Alliance is pursuing, he says, is not what is traditionally understood as collective bargaining: \u201cIt\u2019s essentially being in a union, but not completely. We call it a union, but for all intents and purposes, it\u2019s an organization that\u2019s going to recommend standards to the state, and the state will approve them. There will not be a contract between the company and the unions. This will be a set of state standards that are recommended to the state, and then the state will create policy.\u201d There are major substantive differences between these two views; even with a hard squint, it\u2019s difficult to portray the latter as a robust form of sectoral bargaining. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Finally, the fact that SEIU and IAM are major supporters of the framework is troubling to many: in 2019, it was revealed that the <a href=\"https:\/\/www.nytimes.com\/2019\/06\/29\/business\/economy\/uber-lyft-drivers-unions.html\">California council of SEIU<\/a> may have supported Uber and Lyft\u2019s attempt then to classify drivers as independent contractors, in a shady move that would have indeed straightforwardly traded labor rights for collective bargaining. The IAM, meanwhile, was behind the creation in 2016 of the Independent Drivers Guild based in New York City, which many in the rideshare driver organizing space <a href=\"https:\/\/www.labornotes.org\/blogs\/2016\/08\/putting-con-gig-economy\">think of as a company union<\/a>, i.e., a \u201cunion\u201d that is essentially controlled by Uber. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In sum, this <em>could<\/em> be a process without teeth, geared toward Pyrrhic victories that paper over worker misclassification puzzlingly condoned by unions, and resulting in a state codified minimum wage for rideshare drivers worth half of the legal minimum for all other employees.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The best case scenario, by contrast, has a clear precedent: SEIU\u2019s home care organizing campaign in the 1990s and early 2000s. Briefly, under the leadership of Andy Stern, SEIU pursued a number of regulatory changes that allowed home care workers in various states, on the West Coast in particular, to form unions and collectively bargain with public authorities. Importantly, many home care workers who gained collective bargaining rights remained independent contractors throughout this process\u2014they were not converted into true civil servants, even though they were technically working for newly established public authorities. <a href=\"https:\/\/drive.google.com\/file\/d\/1qT1jNH3N8QtUfG-2fNC6UT21ik1esPEX\/view\">According to David Rolf<\/a>, a leader in home care worker organizing in California and later president of SEIU 775, Washington state\u2019s home care union, the home care strategy yielded 750,000 new members for SEIU, a high proportion of the roughly 1.2 million new members the union claimed in the fourteen years it was led by Stern. (Rolf is also a co-founder of the Workers Lab, which published the Gig Economy Data Hub.)<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">SEIU\u2019s home care unions are not simply paper organizations legitimizing low wages. Before organizing, home care workers on the West Coast were for the most part making minimum wage (the minimum wage in California in 1990 was $3.35 per hour) with no benefits and the expectation of long hours with no overtime. Today, the West Coast home care unions have either <a href=\"https:\/\/nwlaborpress.org\/2025\/07\/new-union-contract-raises-oregon-homecare-wages-to-25-by-2027\/\">won<\/a> or are pressing for $25 per hour with affordable health insurance, paid time off, retirement benefits, and travel pay. SEIU 775 has also built formidable political clout in Washington and was a key player in the Fight for $15 in the state, and the home care union model was in many ways the basis of the Biden administration\u2019s proposed care work expansion, which was stymied in the Build Back Better legislation. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Of course, there are a number of differences between the home care and rideshare organizing frameworks: new state agencies were created to act as the employers of record for home care workers, while rideshare drivers must sit across the table from more formidable adversaries in Uber and Lyft. Crucially, since Medicaid reimbursements make up a sizable chunk of home care workers\u2019 pay, SEIU can lean on its lobbying arms to improve workers\u2019 pay when bargaining home care contracts. No such option is available for the new rideshare driver unions, while the rideshare companies will be free to raise prices if they can.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">My point in drawing this comparison is simply to say that the basics of the framework that have drawn so much criticism\u2014passing regulatory changes that make a particular sector of poorly remunerated independent contractors organizable without fighting the classification battle on the front end, and then using these imperfect changes to build strong workers\u2019 organizations\u2014have been tried before, and to some success. It could be that the small differences between the pieces of the enabling legislation in these various states end up mattering quite a bit here: Question 3 in Massachusetts, for instance, is stronger on a number of fronts than HB 5090 in Illinois, and those legislative details might grant the App Drivers Union a success that the Illinois Drivers Alliance will not see.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Extending the framework<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Thus far, none of the new laws cover other app-based delivery workers, and there doesn\u2019t seem to have been any attempt to include them in the framework. Moore told me that there is more division in their interests than one might think: for instance, while rideshare drivers bemoaned the passage of Prop 22 in California, many app-based delivery drivers celebrated it for including wait time in statutory pay considerations, given that delivery drivers are often waiting for pickups longer than rideshare drivers. Amazon Flex drivers, for instance, will often wait in a long queue at the company\u2019s <a href=\"https:\/\/phenomenalworld.org\/analysis\/the-apotheosis-of-point-of-sale-data\/\">Sub-Same Day centers<\/a> before even being able to get into the facility to pick up their packages. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">But this is not to say that a similar model could not be applied to delivery drivers. In New York City, pressure is ramping up to pass the proposed Delivery Protection Act, an ordinance which would reclassify subcontracted delivery drivers (including gig workers) as direct employees of parent companies. One wonders, if such municipal threats of stronger wage-and-hour coverage or outright reclassification proliferate, whether other large corporations may turn to the independent contractor sectoral bargaining idea as a relief valve. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Nonetheless, both in theory and practice, sectoral bargaining has more than proven its worth: by bargaining at the level of an industry instead of an enterprise, it takes wages out of competition, and so defuses one source of employer animosity towards unions. And in various European cases, it has borne some staying power in guaranteeing workers their rights and a strong voice. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">But it should always be remembered that European sectoral arrangements were won by an ascendant labor movement in the early and mid-twentieth century, the fruit of a short-lived and reluctant post-war compromise between capital and labor. So, too, with the US minimum wage, which was not codified in federal statute until 1938 and did not expand to large retail employers until 1961. Today, by contrast, organized labor imagines its future from a place of weakness, and it\u2019s possible that sectoral bargaining is just one more mirage in the desert.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It\u2019s also possible, however, that an imperfect structure will make collective organization possible in a way that transcends the imperfections of its genesis, as in the case of SEIU\u2019s home care organizing. As Weintraub noted, the Massachusetts law occasioned \u201cthe first time in the United States that Uber and Lyft have actually been forced to sit at the table with drivers.\u201d However much the rideshare companies think they can control this process, they\u2019re ultimately in untested waters; facing off with the hundred-plus worker bargaining committee that the App Drivers Union is forming, they may realize they\u2019ve bitten off more than they can chew.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>One of the greatest impediments to unionization in the neoliberal period has been what economist David Weil calls \u201cworkplace fissuring\u201d\u2014a business model that, whether through subcontracting, franchising, or offshoring, is designed to distance labor from capital. Think of McDonald\u2019s, which operates a system of over 13,700 restaurants in the US, run by over a million […]<\/p>\n","protected":false},"author":287,"featured_media":34250,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4],"tags":[106,583,224,613],"issue":[],"newsletter":[981],"region":[1116],"sector":[1056],"theme":[1095,1083,1104],"series":[973],"class_list":["post-34249","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-analysis","tag-labor","tag-labor-market-power","tag-logistics","tag-longform","newsletter-labor-logistics","region-united-states","sector-transport-logistics","theme-governance-party-politics","theme-labor-social-movements","theme-technology-digital-economy","series-labor-and-logistics"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v28.5 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Two Paths for Rideshare Organizing - Phenomenal World<\/title>\n<meta name=\"description\" content=\"Champions of sectoral bargaining see in state-level rideshare organizing experiments a promising new approach for unions in the twenty-first century.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/phenomenalworld.org\/analysis\/a-fork-in-the-road-for-rideshare-organizing\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Benjamin Y. 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Fong","Est. reading time":"17 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/phenomenalworld.org\/analysis\/a-fork-in-the-road-for-rideshare-organizing\/#article","isPartOf":{"@id":"https:\/\/phenomenalworld.org\/analysis\/a-fork-in-the-road-for-rideshare-organizing\/"},"author":{"name":"Benjamin Y. Fong","@id":"https:\/\/phenomenalworld.org\/#\/schema\/person\/eabc4014ee6d0d56192d1e72537007a2"},"headline":"Two Paths for Rideshare Organizing","datePublished":"2026-09-02T22:17:23+00:00","dateModified":"2026-09-04T21:51:04+00:00","mainEntityOfPage":{"@id":"https:\/\/phenomenalworld.org\/analysis\/a-fork-in-the-road-for-rideshare-organizing\/"},"wordCount":3935,"publisher":{"@id":"https:\/\/phenomenalworld.org\/#organization"},"image":{"@id":"https:\/\/phenomenalworld.org\/analysis\/a-fork-in-the-road-for-rideshare-organizing\/#primaryimage"},"thumbnailUrl":"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/09\/image-2.png","keywords":["labor","labor market power","logistics","longform"],"articleSection":["Analysis"],"inLanguage":"en-US"},{"@type":"WebPage","@id":"https:\/\/phenomenalworld.org\/analysis\/a-fork-in-the-road-for-rideshare-organizing\/","url":"https:\/\/phenomenalworld.org\/analysis\/a-fork-in-the-road-for-rideshare-organizing\/","name":"Two Paths for Rideshare Organizing - Phenomenal World","isPartOf":{"@id":"https:\/\/phenomenalworld.org\/#website"},"primaryImageOfPage":{"@id":"https:\/\/phenomenalworld.org\/analysis\/a-fork-in-the-road-for-rideshare-organizing\/#primaryimage"},"image":{"@id":"https:\/\/phenomenalworld.org\/analysis\/a-fork-in-the-road-for-rideshare-organizing\/#primaryimage"},"thumbnailUrl":"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/09\/image-2.png","datePublished":"2026-09-02T22:17:23+00:00","dateModified":"2026-09-04T21:51:04+00:00","description":"Champions of sectoral bargaining see in state-level rideshare organizing experiments a promising new approach for unions in the twenty-first century.","breadcrumb":{"@id":"https:\/\/phenomenalworld.org\/analysis\/a-fork-in-the-road-for-rideshare-organizing\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/phenomenalworld.org\/analysis\/a-fork-in-the-road-for-rideshare-organizing\/"]}]},{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/phenomenalworld.org\/analysis\/a-fork-in-the-road-for-rideshare-organizing\/#primaryimage","url":"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/09\/image-2.png","contentUrl":"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/09\/image-2.png","width":2000,"height":1334,"caption":"Jean Fredo and other members of the App Drivers Union celebrate outside the Massachusetts State House following the certification of their union, Boston, May 2026"},{"@type":"BreadcrumbList","@id":"https:\/\/phenomenalworld.org\/analysis\/a-fork-in-the-road-for-rideshare-organizing\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/phenomenalworld.org\/"},{"@type":"ListItem","position":2,"name":"Two Paths for Rideshare Organizing"}]},{"@type":"WebSite","@id":"https:\/\/phenomenalworld.org\/#website","url":"https:\/\/phenomenalworld.org\/","name":"Phenomenal World","description":"A publication focused on political economy.","publisher":{"@id":"https:\/\/phenomenalworld.org\/#organization"},"potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/phenomenalworld.org\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Organization","@id":"https:\/\/phenomenalworld.org\/#organization","name":"Phenomenal World","url":"https:\/\/phenomenalworld.org\/","logo":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/phenomenalworld.org\/#\/schema\/logo\/image\/","url":"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2021\/11\/pw-icon.png","contentUrl":"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2021\/11\/pw-icon.png","width":512,"height":512,"caption":"Phenomenal World"},"image":{"@id":"https:\/\/phenomenalworld.org\/#\/schema\/logo\/image\/"},"sameAs":["https:\/\/x.com\/WorldPhenomenal"]},{"@type":"Person","@id":"https:\/\/phenomenalworld.org\/#\/schema\/person\/eabc4014ee6d0d56192d1e72537007a2","name":"Benjamin Y. Fong","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/secure.gravatar.com\/avatar\/6e811471d2824c6add7589d4e19236e8e0c24980ed57e8db2f0190ad5c6c19e8?s=96&d=mm&r=g","url":"https:\/\/secure.gravatar.com\/avatar\/6e811471d2824c6add7589d4e19236e8e0c24980ed57e8db2f0190ad5c6c19e8?s=96&d=mm&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/6e811471d2824c6add7589d4e19236e8e0c24980ed57e8db2f0190ad5c6c19e8?s=96&d=mm&r=g","caption":"Benjamin Y. Fong"},"description":"Benjamin Y. Fong is Honors Faculty Fellow at Barrett, the Honors College and Associate Director of the Center for Work & Democracy at Arizona State University.","url":"https:\/\/phenomenalworld.org\/author\/benjamin-fong\/"}]}},"_links":{"self":[{"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/posts\/34249","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/users\/287"}],"replies":[{"embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/comments?post=34249"}],"version-history":[{"count":28,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/posts\/34249\/revisions"}],"predecessor-version":[{"id":34304,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/posts\/34249\/revisions\/34304"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/media\/34250"}],"wp:attachment":[{"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/media?parent=34249"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/categories?post=34249"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/tags?post=34249"},{"taxonomy":"issue","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/issue?post=34249"},{"taxonomy":"newsletter","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/newsletter?post=34249"},{"taxonomy":"region","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/region?post=34249"},{"taxonomy":"sector","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/sector?post=34249"},{"taxonomy":"theme","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/theme?post=34249"},{"taxonomy":"series","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/series?post=34249"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}},{"id":34191,"date":"2026-08-31T18:14:25","date_gmt":"2026-08-31T18:14:25","guid":{"rendered":"https:\/\/phenomenalworld.org\/?p=34191"},"modified":"2026-09-01T12:58:15","modified_gmt":"2026-09-01T12:58:15","slug":"governing-the-grid","status":"publish","type":"post","link":"https:\/\/phenomenalworld.org\/analysis\/governing-the-grid\/","title":{"rendered":"Governing the Grid"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">Americans\u2019 electricity bills are at historic highs and rising. In 2025, utility companies filed a record <a href=\"https:\/\/powerlines.org\/utilities-requested-record-31-billion-in-rate-increases-in-2025-double-that-of-2024\/\">$31 billion<\/a> in rate increase requests. A report\u00a0early this year found that about <a href=\"https:\/\/stateline.org\/2026\/03\/12\/utility-profits-rise-as-household-bills-soar-new-analysis-finds\/\">one in six households<\/a> was behind on its utility bills\u2014even before the war in Iran sent energy costs soaring. Electricity is rising faster than inflation, and as of June, the rising cost of energy alone has <a href=\"https:\/\/www.axios.com\/2026\/06\/11\/trump-inflation-wages-economy\">erased<\/a> a year and a half of wage gains for the average American worker.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">One particularly noticeable driver of this trend is the data center boom. After decades of flat electricity demand, peak load\u2014the maximum demand for electricity at any given moment\u2014is projected to grow by anywhere from <a href=\"https:\/\/www.niskanencenter.org\/the-arithmetic-of-availability-prospects-for-american-grid-dominance-in-2030\/\">103 to 197 gigawatts by 2030<\/a>, with data centers the single largest source of that new consumption. In total, this represents the equivalent of adding the electricity needs of several new states to a grid already struggling with current demand. In electricity markets where supply is short, that demand is showing up directly in wholesale prices and, downstream, in household bills. For example, in Pennsylvania, where the data center buildout has accelerated sharply, <a href=\"https:\/\/www.washingtonpost.com\/business\/2025\/11\/24\/power-shutoffs-surge-electric-bills\/\">average electricity bills rose 13 percent<\/a> in a single year.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">These numbers have generated popular political opposition to data centers. <a href=\"https:\/\/poll.qu.edu\/poll-release?releaseid=3955\">Sixty-five percent<\/a> of Americans oppose the construction of new data centers in their community, with <a href=\"https:\/\/groundworkcollaborative.org\/work\/trump-is-raising-energy-and-utility-bills\/\">many citing energy costs as a chief concern<\/a>. The concerns are legitimate. Data centers are arriving at a moment when the grid is already strained, and absent intervention, the energy price increases they will cause will land hardest on the people with the fewest options. But the affordability crisis did not begin with the data center boom, and its roots run deeper than any single category of new load.\u00a0<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The reason the data center buildout is landing with such potential pain for household energy bills is that the grid has, for decades, been operated by a deregulated patchwork of rent-seeking private companies who have insufficient incentives to build ahead of demand. Whether or not the data center boom continues apace, without dramatic changes to the structure of grid planning and grid governance, that status quo will persist. However, the combination of growing political pressure on AI companies and their need for a reliable and quickly expanding grid presents an opportunity\u2014and the leverage\u2014to change who plans and finances American power.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">The compact’s decay<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The American electricity system\u2014composed of electricity generation, high-voltage transmission, and low-voltage distribution\u2014has never been a free market. It is the product of a longstanding\u00a0bargain: investor-owned utilities (IOUs) receive exclusive franchises to serve defined service territories and, in exchange, state public utility commissions set the rates they can charge. This regulatory regime is the product of over a century of struggle between the private utility lobby and the state.<a data-contents=\"Before state public utility commissions extended jurisdiction over electric companies, competition was limited by the municipal franchises authorizing their operation.\" class=\"footnote\" id=\"footnote-1\" href=\"#footnote-list-1\">1<\/a><span class=\"p-absolute d-none footnote-full has-white-background-color\">Before state public utility commissions extended jurisdiction over electric companies, competition was limited by the municipal franchises authorizing their operation.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In the decades after Edison opened the Pearl Street Station in Lower Manhattan in 1882\u2014<a href=\"https:\/\/magazine.ieee-pes.org\/marchapril-2013\/history-7\/\">the world\u2019s first central power plant<\/a>\u2014there was a contest over who would own the pieces of this burgeoning electric system. Cities and towns electrified via both small municipally- or privately-owned utilities. As private firms engaged in chaotic competition, their overbuilding and subsequent financial instability gave way to the consolidation of ownership under sprawling monopoly holding companies. The incumbent power of these early monopolies to set prices was <a href=\"https:\/\/energyhistory.yale.edu\/electricity-and-the-public-good-private-public-power-debates-in-the-1920s-30s\">threatened<\/a> by a political movement for municipal ownership of utilities. State-level regulation of private utilities\u2014the \u2018regulated monopoly\u2019 model\u2014was thus pushed by the utility industry to ward off this danger. In 1910, Samuel Insull, utility magnate and mentee of Thomas Edison, <a href=\"https:\/\/energyhistory.yale.edu\/samuel-insull-the-obligations-of-monopoly-must-be-accepted-1910\/\">wrote<\/a> about state regulation, arguing that \u201cthe obligations of monopoly must be accepted\u201d in order to prevent municipalization.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It was not until the New Deal that federal regulation was implemented. Utility holding companies had <a href=\"https:\/\/www.presidency.ucsb.edu\/documents\/message-congress-recommending-regulation-public-utility-holding-companies\">become adept<\/a> at operating pyramid corporate structures that forced risk onto mom-and-pop investors and evaded state jurisdiction. During the Great Depression, the biggest holding companies <a href=\"https:\/\/www.ebsco.com\/research-starters\/politics-and-government\/insull-utilities-trusts-collapse-prompts-new-federal\">collapsed<\/a> into bankruptcy (forcing Samuel Insull to <a href=\"https:\/\/www.cambridge.org\/core\/journals\/american-journal-of-international-law\/article\/extradition-case-of-samuel-insull-sr-in-relation-to-greece\/012DFB484C325DB257C7176FB28D4DA1\">flee<\/a> to Europe on charges of larceny and embezzlement). In the years following the Great Crash of 1929, investor-owned utilities, facing intense national scrutiny, <a href=\"https:\/\/www.eei.org\/en\/news\/news\/all\/eei-celebrates-90-years-of-power-by-association\">organized<\/a> their own trade association in 1933\u2014the Edison Electric Institute, which still exists today\u2014to improve public relations and attempt to influence the policy changes on the horizon. This change arrived in 1935 when Congress passed the Public Utility Holding Company Act, which broke up the holding companies and pulled the industry under federal regulation.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Out of that crisis emerged a federal government willing to plan and finance the expansion of the grid. The New Deal not only empowered the Federal Power Commission (FPC, later the Federal Energy Regulatory Commission, or FERC) to <a href=\"https:\/\/www.law.cornell.edu\/uscode\/text\/16\/824\">regulate interstate power sales<\/a>, but also created a constellation of public institutions to plan and drive cheap public financing for generation and transmission capacity in regions the electric companies had written off. This included building <a href=\"https:\/\/www.tva.com\/learn\/what-is-tva\/tva-history\">capital-intensive<\/a> <a href=\"https:\/\/www.usbr.gov\/pn\/grandcoulee\/history\/index.html\">hydropower projects<\/a> and <a href=\"https:\/\/www.usda.gov\/about-usda\/news\/blog\/celebrating-80th-anniversary-rural-electrification-administration\">electrifying rural America<\/a>\u2014which had for decades been without the lightbulbs or radios available in cities\u2014in roughly fifteen years. (Many of these institutions still anchor the electricity system today, including the Tennessee Valley Authority and the Bonneville Power Administration.) <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">That planning capacity continued into the postwar decades. Through the 1960s, as economic expansion and rising electrification drove load growth, the FPC <a href=\"https:\/\/www.congress.gov\/crs-product\/R47862\">coordinated<\/a> reliability standards and construction across the country. By ensuring a guaranteed rate of profit via regulation, utilities had the certainty to build transmission and coal-powered generation ahead of demand, in turn driving <a href=\"https:\/\/www.eia.gov\/totalenergy\/data\/annual\/txt\/ptb0810.html\">lower electricity prices<\/a> throughout the 1950s and 1960s. But this managed equilibrium between capital and the state was a far cry from the New Deal\u2019s planning ambition. Instead, the era saw the gradual corrosion of New Deal planning as the gas lobby worked to <a href=\"https:\/\/www.cambridge.org\/core\/journals\/american-political-science-review\/article\/abs\/senatorial-rejection-of-leland-olds-a-case-study\/C00FBC53E69C4E4BED7992414EB54D68\">expel New Dealers like Leland Olds<\/a> from the FPC during the Red Scare.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This corrosion would soon give way to an entirely new philosophy of governing the grid based on market competition. As the 1970s and the 1980s brought deregulation to <a href=\"https:\/\/www.brookings.edu\/articles\/the-success-of-the-staggers-rail-act-of-1980\">railroads<\/a>, <a href=\"https:\/\/www.econlib.org\/library\/Enc\/AirlineDeregulation.html\">airlines<\/a>, and other once-regulated industries, electricity was soon to follow. Facing cost increases, capacity constraints, and a need to improve energy efficiency due to the 1970s oil crises, a bipartisan coalition wagered that markets could do what planners had done half a century before, only better. The <a href=\"https:\/\/www.congress.gov\/bill\/95th-congress\/house-bill\/4018\">Public Utility Regulatory Policies Act of 1978 (PURPA)<\/a> required utilities to purchase power from independent generators at the “avoided cost” of not having to produce energy themselves, calculated by regulators based on hypothetical fuel and construction costs.\u00a0Although this scheme was intended to introduce competitive discipline in electricity generation, instead, as fuel prices fell below the forecasts embedded in those contracts, utilities were <a href=\"https:\/\/www.ucs.org\/resources\/public-utility-regulatory-policy-act\">locked into above-market purchase obligations<\/a> for years, passing the costs to ratepayers (a dynamic that required legislative correction in the <a href=\"https:\/\/www.congress.gov\/bill\/109th-congress\/house-bill\/6\">Energy Policy Act of 2005<\/a>).\u00a0<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This trend toward competition continued into the new millenium. Beginning in the late 1990s, at the initiation of another bipartisan coalition, FERC <a href=\"https:\/\/www.ferc.gov\/industries-data\/electric\/industry-activities\/open-access-transmission-tariff-oatt-reform\/history-oatt-reform\/order-no-888\">ordered<\/a> utilities to let competitors ship power over their transmission lines and <a href=\"https:\/\/ferc.gov\/sites\/default\/files\/2020-06\/OrderNo.2000.pdf\">encouraged<\/a> the creation of Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) to oversee wholesale electricity markets, auctions where suppliers would compete to sell electricity. Free-market conservatives <a href=\"https:\/\/www.annualreviews.org\/content\/journals\/10.1146\/annurev-economics-080614-115630\">argued<\/a> that competition would lower costs, while environmentalists <a href=\"https:\/\/www.edf.org\/media\/over-100000-california-members-nrdc-and-edf-urged-choose-cleaner-power\">bet<\/a> that markets would favor cleaner energy for electric generation, leading the nation to retire polluting plants faster. Following suit, roughly <a href=\"https:\/\/www.gao.gov\/assets\/a157321.html\">half of states<\/a> restructured electricity sales by creating new electricity markets. Lawmakers also moved to open new <a href=\"https:\/\/docs.nlr.gov\/docs\/fy18osti\/68993.pdf\">retail choice programs<\/a> for consumers, which enabled households to choose which company supplied their electricity. Following the trend PURPA set two decades earlier by establishing independent generators, these reforms fully split generation from transmission and distribution, which were understood as natural monopolies and thus difficult to deregulate, and created a new class of third-party power producers and retailers, many of which operated with less oversight and regulation than their vertically integrated counterparts.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Today\u2019s electric grid consists of a patchwork of approaches to planning, financing, and operating the grid, sedimented with time. In all fifty states, utilities that generate, transmit, and\/or distribute energy sit under the jurisdiction of state regulatory commissions and, in all but one (Nebraska), IOUs distribute electricity as regulated monopolies with a guaranteed rate of profit. In all the lower forty-eight states but Texas, the federal government regulates the interstate sale of electricity. In a majority of states, some combination of wholesale and retail markets for electricity has been opened to competition. Nearly all states are covered by an overlapping patchwork of regional “balancing authorities,” responsible for balancing supply and demand across the grid. Some of these\u2014such as the RTOs and ISOs\u2014oversee wholesale markets in deregulated states. Others\u2014such as the Tennessee Valley Authority and the Bonneville Power Administration, the largest of the four Power Marketing Administrations\u2014continue to operate as public power relics of the New Deal era.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Competition and its limits<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The founding theory of regulated monopoly is that, absent public ownership, regulation acts as a substitute for competition that cannot exist in a natural monopoly, keeping prices at a level that covers costs without generating excess returns. In the standard version of this model, a utility\u2019s authorized profit is calculated as a return on the value of its physical assets, known as the \u201crate base.\u201d Following precedent set by the Supreme Court, utilities\u2019 rate of return must be “<a href=\"https:\/\/supreme.justia.com\/cases\/federal\/us\/320\/591\/\">commensurate with returns on investments in other enterprises having corresponding risks.<\/a>” This means that\u2014despite the fact that utilities have captive customers, no default risk, no competition, and very low demand risk\u2014returns are calculated on an approximation of standard business risk (when in fact the main risk they face is the regulatory risk of commissions not approving their returns).\u00a0<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Another result of this system is that every dollar invested in infrastructure in the rate base generates a guaranteed return and every dollar withheld does not. This structure was famously critiqued by the economists <a href=\"https:\/\/www.jstor.org\/stable\/1812181\">Harvey Averch and Leland Johnson<\/a>, who argued in 1962 that this arrangement creates a perverse incentive to choose capital-intensive solutions over cheaper ones (to “gold-plate”) and to resist regulatory reforms that would reduce asset deployment or lower asset costs.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Today, the rate gap between publicly-owned utilities and their IOU siblings is evident, though there is active debate over whether the Averch-Johnson effect is responsible for the discrepancy. Between 2000 and 2024, residential rates at IOUs rose <a href=\"https:\/\/groundworkcollaborative.org\/work\/gridlocked\/\">93 percent<\/a>, from 8.53 cents to 16.50 cents per kilowatt-hour. Publicly-owned utilities delivered lower rates in every one of those years, and since 2020 the gap has widened sharply. A peer-reviewed <a href=\"https:\/\/emp.lbl.gov\/publications\/factors-influencing-recent-trends\">study<\/a> from Lawrence Berkeley National Laboratory has since confirmed that prices from IOUs are not only higher but have also risen faster than those of their publicly-owned counterparts. Another <a href=\"https:\/\/stateline.org\/2026\/03\/12\/utility-profits-rise-as-household-bills-soar-new-analysis-finds\/\">recent analysis<\/a> found that IOUs kept about fifteen cents of every dollar collected as profit in 2025, up from thirteen cents over the preceding four years. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">IOUs\u2019 high prices are further compounded by the regressiveness of their pricing system.\u00a0 Most utilities spread costs through volumetric pricing models in which the cost per kilowatt-hour of electricity is the same across households, regardless of income. As a result, very low-income families spend roughly <a href=\"https:\/\/www.energy.gov\/cmei\/scep\/slsc\/lead-tool\">16 percent<\/a> of what they earn on energy\u2014over five times the burden facing median income households. And unlike large commercial or industrial customers, who can negotiate individual contracts, switch suppliers, or credibly threaten to relocate, residential ratepayers have nowhere to go.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The impulse to further inject competition into the system is understandable given the limits of the regulated monopoly model. Following decades of wholesale and retail deregulation that unleashed the market on the generation portion of the grid, proposals to inject competition into the distribution portion of the grid are today being floated by <a href=\"https:\/\/www.cato.org\/briefing-paper\/case-consumer-regulated-electricity-private-electricity-grids-offer-parallel-path\">both<\/a> <a href=\"https:\/\/www.thebulwark.com\/p\/exclusive-first-look-at-the-democrats-version-policy-project-2025-2029\">sides<\/a> of the aisle. Meanwhile, the <a href=\"https:\/\/www.economicliberties.us\/wp-content\/uploads\/2026\/02\/State-ROE-Model-Legislation_Feb-2026.pdf\">neo-Brandeisian left<\/a> has proposed injecting competition into utility equity valuations to lower the cost of capital.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">However, dismantling vertically-integrated utilities never delivered the savings that were promised. Restructured states <a href=\"https:\/\/emp.lbl.gov\/publications\/factors-influencing-recent-trends\">have not<\/a> consistently delivered lower residential prices than regulated states, and households in deregulated states pay <a href=\"https:\/\/ceepr.mit.edu\/wp-content\/uploads\/2022\/04\/2022-008.pdf\">six percent<\/a> more than their regulated peers. A <a href=\"https:\/\/www.annualreviews.org\/content\/journals\/10.1146\/annurev-economics-080614-115630\">peer-reviewed assessment<\/a> from UC Berkeley found that the past two decades of restructuring have \u201cgenerally been viewed as a disappointment because the price-reduction promises made by some advocates were based on politically unsustainable rent transfers\u201d between ratepayers and capital. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Deregulation <a href=\"https:\/\/www.nytimes.com\/2023\/01\/04\/business\/energy-environment\/electricity-deregulation-energy-markets.html\">has produced a risk profile<\/a> defined by boom-bust investment cycles, thinner reserve margins, and\u2014in some cases\u2014spot market structures that respond to scarcity by producing price spikes. But the grid is full of assets with long revenue horizons and high up-front costs\u2014such as nuclear facilities and high-voltage transmission lines\u2014so high prices during supply shocks are seldom enough to smooth the financing and completion risks of these long-lead assets. Rather than incentivizing supply, high prices leave captive ratepayers paying a premium as scarcity persists.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Deregulated markets are also crisis-prone. In their early days, deregulatory efforts were most infamous for producing the California electricity crisis of 2000\u20132002, when Enron and other market actors gamed the state’s brand-new spot market to drive prices up, triggering rolling blackouts, <a href=\"https:\/\/www.cbo.gov\/sites\/default\/files\/107th-congress-2001-2002\/reports\/californiaenergy.pdf\">$40\u201350 billion<\/a> in damages, and punishing bills. In 2021, Texas\u2019 competitive market <a href=\"https:\/\/www.ferc.gov\/news-events\/news\/final-report-february-2021-freeze-underscores-winterization-recommendations\">failed catastrophically<\/a> during Winter Storm Uri, leaving <a href=\"https:\/\/www.uh.edu\/news-events\/stories\/2021\/march-2021\/03292021-hobby-winter-storm.php\">more than 4.5 million homes and businesses<\/a> without power for days. In January 2026, Texas\u2019 grid held through Winter Storm Fern, not because the market had self-corrected, but because the Texas legislature had in the interim <a href=\"https:\/\/www.ercot.com\/files\/docs\/2026\/01\/28\/ERCOT-Post-Event-Report-Winter-Storm-Fern.pdf\">mandated weatherization requirements<\/a> that the market had failed to produce voluntarily. The lesson is the same in all cases: grid reliability requires some degree of regulation and public planning.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The fundamental issue at the core of the competition argument is that the electricity system has the characteristics of a natural monopoly, not unlike airports or the Interstate Highway System: namely high fixed costs, substantial coordination needs, and long-term planning and revenue horizons that make it cost-prohibitive for competitors to enter. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The deeper, larger cost of deregulation is only now being exposed in this moment of rampant load growth, which demands a significant expansion of transmission and generation capacity. By deferring planning to the marketplace, the country has surrendered the one capacity a natural monopoly cannot do without in times of demand growth: the ability to coordinate and build ahead of need. The question of how to finance and govern the grid is therefore not one that market design or deregulation alone can answer. What the grid requires is an institution with the authority to plan it, the mandate to build it, the power to prevent institutional capture, and a financing structure that does not extract unnecessary returns from the public.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Coordination and finance<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The United States has built these types of institutions before. The <a href=\"https:\/\/www.nypa.gov\/about\/the-new-york-power-authority\">New York <\/a><a href=\"https:\/\/www.nypa.gov\/About\/Timeline\">Power Autho<\/a><a href=\"https:\/\/www.nypa.gov\/about\/the-new-york-power-authority\">rity<\/a>, created in 1931 by then-Governor Franklin Roosevelt, is today the largest state public power organization in the country. Financed entirely through bond revenues, it operates over 1,500 circuit-miles of transmission and provides the lowest-cost electricity in New York State. The Tennessee Valley Authority (TVA) offers retail rates that are lower than those charged by roughly <a href=\"https:\/\/tva-azr-eastus-cdn-ep-tvawcm-prd.azureedge.net\/cdn-tvawcma\/docs\/default-source\/about-tva\/guidelines-reports\/annual-performance-report-2027.pdf?sfvrsn=952fcdd7_1\">80 percent of the top one hundred US utilities<\/a>. The Rural Electrification Administration achieved <a href=\"https:\/\/www.usda.gov\/about-usda\/news\/blog\/celebrating-80th-anniversary-rural-electrification-administration\">near-universal rural electrification in under two decades<\/a>. The <a href=\"https:\/\/www.historylink.org\/file\/11060\">Bonneville Power Administration<\/a> knit together a seven-state regional electricity market in the Pacific Northwest that continues to deliver cheap electricity to some of the country\u2019s largest industrial customers.\u00a0<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The state has effectively planned ahead of need in the twenty-first century as well. In 2005, confronting a lack of transmission capacity that was strangling the state\u2019s wind resources, the Texas legislature authorized its utility commission to <a href=\"https:\/\/www.energy.gov\/sites\/prod\/files\/2014\/08\/f18\/c_lasher_qer_santafe_presentation.pdf\">designate \u201cCompetitive Renewable Energy Zones<\/a>\u201d\u2014 regions of the state dense in wind resources\u2014and directed <a href=\"https:\/\/www.utilitydive.com\/news\/texas-crez-lines-delivering-grid-benefits-at-7b-price-tag\/278834\/\">$7 billion<\/a> in public investment to build transmission infrastructure to connect them to demand centers. Wind generation capacity grew from <a href=\"https:\/\/www.ercot.com\/files\/docs\/2019\/04\/16\/ERCOT_2018_State_of_the_Grid_Report.pdf\">under 5 gigawatts at the time to nearly 22 gigawatts by 2018<\/a>. The Electric Reliability Council of Texas estimated the buildout would save ratepayers <a href=\"https:\/\/cleanenergygrid.org\/why-renewable-energy-really-is-bigger-in-texas\/\">$2 billion per year<\/a>, paying back the full construction cost within a few years and delivering net benefits for decades. The program was done in the name of competition given that it left the generation market to private developers\u2014and indeed resulted in an explosion of private investment\u2014but would not have been possible without public planning and public capital.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">I have previously <a href=\"https:\/\/groundworkcollaborative.org\/work\/gridlocked\/\">proposed<\/a> the creation of a \u201cNational Power Authority,\u201d which would model Texas\u2019 approach to transmission planning at a federal scale. However, rather than exclusively connecting private generation markets to the grid, it would also finance and build the large-scale clean firm assets like geothermal, battery storage, and nuclear that today\u2019s load growth demands. Structured as a government corporation, like the TVA, the National Power Authority would be invested with a number of powers that no existing national institution combines.  <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">One such ability would be the issuance of Treasury-backed bonds. Treasury-backed public debt is cheaper than IOU equity by a substantial margin. Where IOUs must deliver shareholders an authorized return in the range of <a href=\"https:\/\/eta-publications.lbl.gov\/sites\/default\/files\/2026-03\/retail_price_trends_2026_edition.pdf\">9.7 percent<\/a>, Treasury yields currently <a href=\"https:\/\/home.treasury.gov\/resource-center\/data-chart-center\/interest-rates\/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=202607\">sit around 5 percent<\/a>.\u00a0 Given that utilities currently spend <a href=\"https:\/\/www.eei.org\/-\/media\/Project\/EEI\/Documents\/Issues-and-Policy\/Finance-And-Tax\/Industry-Capital-Expenditures.pdf\">roughly $35 billion<\/a> on transmission each year\u2014and the <a href=\"https:\/\/www.energy.gov\/oe\/national-transmission-planning-study-0\">DOE National Transmission Planning Study<\/a> finds that the transmission network has to grow to between two-and-a-half and three-and-a-half times its present footprint by 2050 in order for the country to decarbonize\u2014the difference between public and private borrowing costs for infrastructure upgrades compounds into hundreds of billions of dollars in savings that ratepayers would otherwise transfer to shareholders.\u00a0<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Just as the TVA and the REA built infrastructure in rural regions of the country that private utilities\u2014operating under a more myopic incentive structure\u2014had written off, the National Power Authority will need its own valuation metrics and final say in where to build infrastructural projects. This could involve leveraging various portions of the Department of Energy (DOE) and FERC\u2019s existing code. DOE already has authority to designate <a href=\"https:\/\/www.energy.gov\/oe\/frequently-asked-questions-national-interest-electric-transmission-corridor-designation-process\">National Interest Electric Transmission Corridors (NIETCs)<\/a>\u2014capacity-constrained regions within which public and private transmission operators can already access federal funding and expedited permitting. Moreover, FERC <a href=\"https:\/\/www.velaw.com\/insights\/ferc-issues-final-rules-on-electric-transmission-planning-cost-allocation-and-backstop-authority-evaluation-procedures\/\">has the authority<\/a> to issue permits for these regions if states fail to act on a private developer\u2019s application, but no transmission line has ever been constructed within a NIETC. This is in part because the authorities to plan, permit, finance, and build within these corridors are spread across DOE, FERC, state governments, and the private sector. As the need for new transmission becomes an increasingly bipartisan consensus, an NPA would solve FERC\u2019s reactivity by aligning incentives within an independent entity with a proactive mandate to site and build. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Beyond its borrowing capacity, the National Power Authority would also manage liquid capital via a \u201cGrid Trust Fund,” which would be modeled after other federal trust funds for public infrastructure such as highways, airports, and ports. Capitalized via general fund transfers and an excise tax on data centers, this fund could provide public equity stakes and grants for infrastructure buildouts, workforce development, ratepayer relief, and green investments, among other things.\u00a0<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It is worth mentioning that the current congressional debate on permitting reform, such as the <a href=\"https:\/\/www.congress.gov\/bill\/118th-congress\/senate-bill\/4753\">Energy Permitting Reform Act<\/a>, introduced last Congress by Senators Manchin and Barrasso, and the <a href=\"https:\/\/www.c2es.org\/document\/federal-permitting-reform-in-the-119th-congress\/\">package currently being negotiated<\/a> there, would all streamline regulatory processes, but are only intended to clear the path for what private capital has already decided to build. Recent history has illustrated that interregional transmission will not develop without an entrenched institution incentivized to coordinate it: the Inflation Reduction Act delegated the pace and geography of clean energy investment to private actors optimizing for their own returns, which meant benefits accrued unevenly and interregional transmission went largely unbuilt. As a result, utilities in states with renewable portfolio standards were unable to access the necessary clean capacity, leading to price increases. <a href=\"https:\/\/ceepr.mit.edu\/wp-content\/uploads\/2026\/07\/MIT-CEEPR-RC-2026-07.pdf\">Moreover, a recent MIT analysis from Lily Bermel<\/a> found that, even had the One Big Beautiful Bill Act (OBBBA) not gutted the IRA\u2019s core provisions, supply-side barriers and transmission bottlenecks would have significantly limited the IRA\u2019s projections. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">As a result, Democrats must recognize that the next legislative moment requires grappling with the investment and coordination problem that currently acts as a ceiling on climate action, rather than only derisking the current market by streamlining regulatory risk or \u201cre-running\u201d the IRA via another package of subsidies. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">A data center compact <\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Traditionally, utilities have offered their cheapest electricity to large, industrial consumers. By attracting larger industrial users of electricity (such as aluminum smelters), utilities and developers were guaranteed the \u201canchor\u201d demand necessary to justify large capital investments in power plants and the grid. But lower industrial rates rely on an informal compact between utilities and residential and commercial ratepayers: by paying higher rates to subsidize their industrial counterparts, residential ratepayers would be compensated with good jobs, economic development, and sizable tax revenue. But, as the corporate tax base has weakened over decades, and as large consumers have shifted from steel mills employing thousands of people to data centers and crypto mining facilities that employ few, this informal compact makes increasingly less sense.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Among industrial electricity customers, data centers are a category unto themselves. While their electricity footprint is not dissimilar to other industrial facilities, they are backed by historic levels of private capital from hyperscalers (the Big Tech companies which develop and operate data centers), have stringent reliability and urgency (\u201cspeed-to-power\u201d) needs, bring very few jobs apart from their initial construction, and are broadly and intensely unpopular. All of these factors must be considered as politicians and the state determine how to govern their interaction with the energy system.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Most data center regulations rightfully focus on protecting ratepayers from rising costs. Today, the majority of these proposals revolve around two solutions: requiring \u201cbuild your own generation\u201d (BYOG) contracts\u2014in which hyperscalers pay for the grid infrastructure necessary to accommodate their facility, either colocated on-site or interconnected elsewhere on the grid\u2014or by applying dedicated \u201clarge load tariffs\u201d that require data centers to pay a dedicated, higher electricity rate.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The political asymmetry between residential ratepayers and other customers is important for understanding the data center moment. When policymakers propose that hyperscalers pay their way through BYOG contracts or state large load tariffs, they are proposing to settle the question of cost allocation through a regulatory regime in which hyperscalers hold overwhelming structural advantage. Most hyperscalers develop data centers and sign private power purchase agreements (PPAs) through a special purpose vehicle (SPV), a legally separate entity that is able to make capital commitments <a href=\"https:\/\/www.datacenterdynamics.com\/en\/news\/moodys-hyperscalers-understating-risks-of-short-term-ai-dc-lease-agreements-leaving-investors-in-the-dark\/\">off the parent company\u2019s balance sheet<\/a>. Beyond the opacity of these private contracts, tasking state utility commissions, which are often subject to regulatory capture, and consumer advocates, often sorely underresourced, with negotiating against counterparties with the financial and legal resources to wait them out or credibly threaten to leave is <a href=\"https:\/\/eelp.law.harvard.edu\/extracting-profits-from-the-public-how-utility-ratepayers-are-paying-for-big-techs-power\/\">aspirational at best<\/a>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">However, data center operators share an interest in strengthening and expanding the grid, which means there are opportunities for a new compact if the public and the state can muster sufficient political power. AI companies are poised to invest <a href=\"https:\/\/www.delloro.com\/news\/ai-boom-drives-data-center-capex-to-1-7-trillion-by-2030\/\">$1.7 trillion<\/a> in data centers globally by 2030, but power is only a sliver (<a href=\"https:\/\/www.mckinsey.com\/industries\/technology-media-and-telecommunications\/our-insights\/the-cost-of-compute-a-7-trillion-dollar-race-to-scale-data-centers\">5 to 8 percent<\/a>) of what a data center costs to build, with chips and cooling absorbing the majority of investment. This amount of hyperscaler investment in the grid is both transformative when compared to existing utility expenditure, and small enough that hyperscalers may accept meaningful public discipline if they get their reliability and speed-to-power needs met.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Hyperscalers\u2019 willingness to fund expensive, behind-the-meter generation in order to sidestep the process for interconnecting with the grid already indicates that they will pay a premium for their unique reliability and speed-to-power needs. The White House\u2019s March 2026 <a href=\"https:\/\/www.whitehouse.gov\/releases\/2026\/03\/ratepayer-protection-pledge\/\">Ratepayer Protection Pledge<\/a>, as well as the subsequent <a href=\"https:\/\/www.cnbc.com\/2026\/06\/24\/ai-data-centers-tech-companies-congress-energy-costs.html\">bipartisan advancement of the Ratepayer Protection Act<\/a> through the House Committee on Energy and Commerce, indicates that these firms view some form of regulatory constraints as inevitable. However, just as Samuel Insull only accepted the \u201cobligations of monopoly\u201d when municipalization became a credible threat to his business, history teaches us that the strength of regulation depends entirely on the organized force and friction applied to capital.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">While corporate taxes should undoubtedly remain the centerpiece of any fiscal demand on Big Tech, I propose that a federal excise tax on data center energy usage would price in the specific externalities of new data center energy usage while raising significant revenues for grid improvement via the Grid Trust Fund. Even a modest per-megawatt-hour consumption tax would raise tens of billions in federal revenue for infrastructure investment, ratepayer relief, and stranded-asset insurance. At 1.5 cents per kilowatt-hour, a loose approximation of the costs currently being shifted onto households and approximately 15 to 30 percent of base data center electricity costs, this levy would raise <a href=\"https:\/\/groundworkcollaborative.org\/work\/gridlocked\/\">nearly $100 billion<\/a> over ten years. In exchange for shifting investment decisions into the public\u2019s hands and enabling grid modernization for public benefit, data centers would receive regulatory certainty.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">An excise tax would be fairer than the \u201cfair payment\u201d alternatives that are currently on offer. First, by centralizing funds within a Grid Trust Fund\u2014rather than across a suite of bespoke BYOG contracts or tariffs that require a myopic calculation of cost-causation\u2014these dollars would leverage the efficiencies of economies of scale and centralized coordination. Second, an excise tax would enable the government to raise revenues <em>beyond<\/em> the costs new data centers incur on the grid, since the IRS is not bound by the revenue-limiting cost-of-service principles that state commissions are. Third, a federal floor for large load energy taxation would remove the exit threat that currently enables Big Tech firms to perform regulatory arbitrage across states and regions. Fourth, by funding a Grid Trust Fund via both an excise tax and general fund transfers from existing income and corporate taxes, we would shift grid investment from the regressive, volumetric rate base model to a progressive tax base model. Lastly, by making data centers pay their fair share via the IRS, rather than through state commissions, we would put a stronger cop on the beat and make the auditing process more efficient and transparent.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The old industrial compact, which asked residential ratepayers to subsidize the largest users, held because those users paid the favor back via payrolls and the tax base. Data centers have inherited the privileges of that arrangement (volume discounts and bargaining leverage) while shedding the obligations to provide employment or tax revenue. A federal levy that channels their spending into transmission and ratepayer relief corrects this and revives the principle that the system’s largest beneficiaries owe something back to the households who underwrite it.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Toward public power<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The nation\u2019s grid has, for decades, been the sclerotic domain of balkanized interests. If we continue to treat the grid as a private commodity governed by private utilities and regional authorities, the incentive structure we have created will cause costs to compound on the households least able to bear them. If we instead treat the grid as a national public platform\u2014a commons for electricity\u2014the logic inverts. A grid planned for public good via public capital would leverage progressive financing mechanisms and spread costs efficiently, lowering prices and encouraging growth across its vast network.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">None of this is a fringe proposition. The constituencies for public power are broader and larger than past coalitions that sought climate investment through tax policy and derisking. They include working-class households seeking lower costs, climate advocates, union workers seeking jobs in construction or manufacturing, American enterprise seeking speed-to-power and regulatory certainty, and red states sitting on vast renewable resources. But this window, which sits at the confluence of load growth, inflation, and near-universal distrust of utilities and Big Tech, will not stay open for long.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">When President Roosevelt <a href=\"https:\/\/www.presidency.ucsb.edu\/documents\/message-congress-suggesting-the-tennessee-valley-authority\">addressed Congress<\/a> to suggest the formation of the Tennessee Valley Authority, he said \u201cmany hard lessons have taught us the human waste that results from lack of planning.\u201d Faced now with the largest load growth in a half-century, we would be wise to avoid further hard lessons.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Americans\u2019 electricity bills are at historic highs and rising. In 2025, utility companies filed a record $31 billion in rate increase requests. A report\u00a0early this year found that about one in six households was behind on its utility bills\u2014even before the war in Iran sent energy costs soaring. Electricity is rising faster than inflation, and […]<\/p>\n","protected":false},"author":465,"featured_media":34199,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4],"tags":[],"issue":[],"newsletter":[],"region":[1116],"sector":[1047],"theme":[1074,1077,1104],"series":[],"class_list":["post-34191","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-analysis","region-united-states","sector-energy-utilities","theme-climate-energy","theme-industrial-policy","theme-technology-digital-economy"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v28.5 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Governing the Grid - Phenomenal World<\/title>\n<meta name=\"description\" content=\"The combination of growing political pressure on AI companies and their need for a reliable and quickly expanding grid presents an opportunity to change who plans and finances American power.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/phenomenalworld.org\/analysis\/governing-the-grid\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Grayson Flood | Governing the Grid\" \/>\n<meta property=\"og:description\" content=\"The data center boom has exposed decades of deferred choices about who plans and finances America\u2019s electricity infrastructure\" \/>\n<meta property=\"og:url\" content=\"https:\/\/phenomenalworld.org\/analysis\/governing-the-grid\/\" \/>\n<meta property=\"og:site_name\" content=\"Phenomenal World\" \/>\n<meta property=\"article:published_time\" content=\"2026-08-31T18:14:25+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2026-09-01T12:58:15+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/Flood-Public-Power.png\" \/>\n\t<meta property=\"og:image:width\" content=\"1200\" \/>\n\t<meta property=\"og:image:height\" content=\"628\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/png\" \/>\n<meta name=\"author\" content=\"Grayson Flood\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Grayson Flood | Governing the Grid\" \/>\n<meta name=\"twitter:description\" content=\"The data center boom has exposed decades of deferred choices about who plans and finances America\u2019s electricity infrastructure\" \/>\n<meta name=\"twitter:image\" content=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/Flood-Public-Power.png\" \/>\n<meta name=\"twitter:creator\" content=\"@WorldPhenomenal\" \/>\n<meta name=\"twitter:site\" content=\"@WorldPhenomenal\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Grayson Flood\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"21 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/governing-the-grid\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/governing-the-grid\\\/\"},\"author\":{\"name\":\"Grayson Flood\",\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/#\\\/schema\\\/person\\\/67a61e3f6bbe5125b73222495c6cd083\"},\"headline\":\"Governing the Grid\",\"datePublished\":\"2026-08-31T18:14:25+00:00\",\"dateModified\":\"2026-09-01T12:58:15+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/governing-the-grid\\\/\"},\"wordCount\":4668,\"publisher\":{\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/#organization\"},\"image\":{\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/governing-the-grid\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/phenomenalworld.org\\\/wp-content\\\/uploads\\\/2026\\\/08\\\/Google_Mayes_County_P0004991a-scaled.jpg\",\"articleSection\":[\"Analysis\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/governing-the-grid\\\/\",\"url\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/governing-the-grid\\\/\",\"name\":\"Governing the Grid - 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In his <a href=\"https:\/\/press.princeton.edu\/books\/hardcover\/9780691215716\/w-arthur-lewis-and-the-birth-of-development-economics?srsltid=AfmBOoocLhfY7qcsF98B6oQA9OYutNQ_1ALs8BpZqmq5rpgJ5pCHEgwA\">biography<\/a> of the Caribbean economist, Robert Tignor argued that \u201cEconomic Development With Unlimited Supplies of Labor,\u201d Lewis\u2019s classic <a href=\"https:\/\/onlinelibrary.wiley.com\/doi\/10.1111\/j.1467-9957.1954.tb00021.x\">1954 article<\/a>, \u201cgalvanized the new field of development economics, providing it with a legitimacy that it had not previously enjoyed.\u201d In the years in which I taught a course on development for postgraduate students at the University of S\u00e3o Paulo, I used to present the key works from the 1950s and 1960s\u2014those by Rosenstein-Rodan, Nurkse, Furtado, Hirschman, Myrdal, Kuznets, and Pinto\u2014as extensions and\/or critiques of the \u201cLewis model.\u201d <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This is not to suggest that Lewis started the conversation. In fact, many of the ideas he articulated in the piece had been explored by others in the preceding decade.  One critical plank of his argument, that there existed unlimited supplies of labor in peripheral economies, was the topic of <a href=\"https:\/\/www.jstor.org\/stable\/1910629\">extensive<\/a> <a href=\"https:\/\/repositorio.cepal.org\/server\/api\/core\/bitstreams\/08ac817a-864c-4df6-961c-7745a3b2fae9\/content\">research<\/a>, usually described as \u201c<a href=\"https:\/\/academic.oup.com\/ej\/article-abstract\/46\/182\/225\/5268209\">disguised unemployment<\/a>.\u201d His contribution was to provide a unifying perspective on the process of development, combining key insights about the realities of the global periphery with a rigorous analysis of the interaction between income distribution, capital accumulation, and structural transformation. As Hirschman <a href=\"https:\/\/academic.oup.com\/princeton-scholarship-online\/book\/18029\/chapter-abstract\/175892842?redirectedFrom=fulltext\">put it<\/a>, \u201che managed\u2014almost miraculously\u2014to squeeze out of the simple proposition about underemployment a full set of \u2018laws of motion\u2019 for the typical underdeveloped country, as well as a wide range of recommendations for domestic and international economic policy.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The influence that the 1954 article had\u2014together with a few subsequent works\u2014was such that Lewis was awarded the Nobel Prize in Economics, making him the first Black person and the first (and, so far, only) economist from Latin America and the Caribbean to achieve that recognition. Today, his work remains a key reference point, mobilized by economists <a href=\"https:\/\/doi.org\/10.1080\/08911916.2017.1407742\">from<\/a> <a href=\"https:\/\/www.penguinrandomhouse.com\/books\/205014\/why-nations-fail-by-daron-acemoglu-and-james-a-robinson\/\">very<\/a> <a href=\"https:\/\/www.cambridge.org\/core\/books\/macroeconomic-inequality-from-reagan-to-trump\/38C31A794E054985CD24002F15FAD5F1\">different<\/a> <a href=\"https:\/\/direct.mit.edu\/books\/book\/2271\/The-Vanishing-Middle-ClassPrejudice-and-Power-in-a\">perspectives<\/a>. Yet abundant evidence from different countries and different periods indicate that Lewis\u2019s framing of development should be turned on its head. His prediction that capital accumulation would transform labor-abundant countries into labor-scarce ones has rarely been borne out by the actual experience of development.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">For a start, labor abundance has seldom been a feature of peripheral economies <em>before<\/em> they embark on the development path. Besides, in countries where capitalist social relations become widespread, labor scarcity is observed only transitorily, even in the cases of nations that achieve high levels of income per capita. This is because, as Marx <a href=\"https:\/\/www.penguin.co.uk\/books\/35192\/capital-by-karl-marx-intro-ernest-mandel-trans-ben-fowkes\/9780140445688\">indicated<\/a>, in societies where capital becomes dominant, a surplus population relative to the needs of capital accumulation tends to be constantly reproduced. Thus, the story has not been one of a transition from labor abundance to scarcity, but in fact the opposite, from labor scarcity to truly unlimited supplies of labor.      <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">A classical model<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The opening of the <a href=\"https:\/\/onlinelibrary.wiley.com\/doi\/10.1111\/j.1467-9957.1954.tb00021.x\">1954 article<\/a> is memorable: \u201cThis essay is written in the classical tradition, making the classical assumption, and asking the classical question. The classics, from Smith to Marx, all assumed, or argued, that an unlimited supply of labour was available at subsistence wages.\u201d In a way, Lewis was using the same argumentative strategy that Keynes <a href=\"https:\/\/link.springer.com\/book\/10.1007\/978-3-319-70344-2\">had used<\/a> less than two decades earlier, when he claimed that the theory he was challenging was not wrong, but simply not applicable to the cases at hand: in Lewis\u2019s view, neoclassical theory held true for economies in which labor was scarce, but this was not the case for many peripheral economies. So, to study the latter, one <a href=\"https:\/\/onlinelibrary.wiley.com\/doi\/10.1111\/j.1467-9957.1954.tb00021.x\">had<\/a> \u201cto work right back to the classical economists,\u201d who put forward theories assuming labor abundance, supposedly in line with the realities of the beginning of the Industrial Revolution.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Such a claim revealed a linear view of history that was at odds with some development thinkers working at that time, such as the Latin American structuralists. As Celso Furtado <a href=\"https:\/\/www.ucpress.edu\/books\/development-and-underdevelopment\/paper\">put it<\/a>, the situation of \u201cunderdeveloped\u201d economies looked similar to that of the core countries in the first phase of their capitalist development, but this similarity was superficial. For him, \u201cunderdevelopment . . . is a particular process, resulting from the introduction of modern capitalist firms in archaic structures\u201d and thus required \u201can autonomous theorization effort.\u201d In much of Lewis\u2019s writing\u2014as in his discussion of the open economy model in the 1954 article\u2014he was of course aware of this historical specificity and took it onboard. But the framing of his main model assumed it away. As he put it in a <a href=\"https:\/\/doi.org\/10.1016\/B978-0-12-216450-7.50017-7\">later piece<\/a>, \u201cthe chief historical example on which the [1954] model was based\u201d was Great Britain in the period between 1780 and 1870\u2014as if mid-twentieth century peripheral economies would retrace Britain\u2019s earlier path.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">What was this path? Lewis’s <a href=\"https:\/\/onlinelibrary.wiley.com\/doi\/10.1111\/j.1467-9957.1954.tb00021.x\">model<\/a> included two \u201csectors,\u201d a capitalist one and a subsistence one, \u201cheavily developed patches of the economy, surrounded by economic darkness.\u201d Development meant increasing those patches, so that they could eventually encompass the whole economy. The main constraint was the lack of capital to productively employ workers in the capitalist sector, and overcoming it required profits to be saved and reinvested in the production process.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Lewis therefore <a href=\"https:\/\/onlinelibrary.wiley.com\/doi\/10.1111\/j.1467-9957.1954.tb00021.x\">claimed<\/a> that the \u201ccentral problem\u201d of development was raising the savings rate from around 4 or 5 to about 12 to 15 percent of national income. Unlimited supplies of labor made this possible, as it anchored wages close to the average income obtainable in the subsistence sector and, thus, assured that workers would not squeeze profits. Therefore, as the capitalist sector grew, the share of income appropriated as profits would increase, concentrating income in the hands of the \u201csaving class.\u201d \u201cThe central fact of economic development,\u201d he <a href=\"https:\/\/onlinelibrary.wiley.com\/doi\/10.1111\/j.1467-9957.1954.tb00021.x\">wrote<\/a>, \u201cis that the distribution of incomes is altered in favour of the saving class.\u201d<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Lewis and Malthus<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Was this really a classical model? One can certainly find in the work of some of the classical economists the idea that wages are anchored at some sort of subsistence level\u2014what Lewis termed the \u201cclassical assumption.\u201d In its clearest formulation the idea is grounded on Thomas Malthus\u2019 discussion of the \u201c<a href=\"https:\/\/oll.libertyfund.org\/titles\/malthus-an-essay-on-the-principle-of-population-1798-1st-ed\">principle of population<\/a>.\u201d This principle holds that a general increase in the level of wages above basic subsistence would improve access to food, reducing infant mortality. The ensuing increase in population would, however, tend to outpace food production, leading to an increase in food prices that would bring wages back (in real terms) to the subsistence level. These reduced incomes would reduce access to food, restoring higher infant mortality and rebalancing the size of the population with food production.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This macabre theory, in which wage increases lead to food shortages and a rise in infant mortality, was part of Malthus\u2019s attempt to dismiss the hopes created by the French Revolution that the lot of the poor could be improved\u2014a typical example of the <a href=\"https:\/\/www.jstor.org\/stable\/j.ctvjnrs9q\">rhetoric of reaction<\/a>. Yet even economists who did not share such reactionary politics, such as David Ricardo, ended up borrowing his \u201c<a href=\"https:\/\/www.versobooks.com\/en-gb\/products\/2159-the-first-international-and-after?srsltid=AfmBOopyhvGbodYCJYDAstINq6yA3pDzqOEEua9fQnLHUWi3TLDHsbei\">iron law of wages<\/a>\u201d\u2014if in a weakened way. As Lewis himself <a href=\"https:\/\/onlinelibrary.wiley.com\/doi\/10.1111\/j.1467-9957.1954.tb00021.x\">put it<\/a>, the \u201cMalthusian law of population\u201d provided one of the \u201ccornerstones of Ricardo\u2019s system.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Lewis\u2019s interpretation of the position of the two classical economists on this issue was, however, peculiar. In <a href=\"https:\/\/onlinelibrary.wiley.com\/doi\/10.1111\/j.1467-9957.1954.tb00021.x\">his view<\/a>, Malthus had proved that an \u201cincrease of population is caused by economic development.\u201d Given that development historically reduced the death rate to around twelve per thousand, Lewis <a href=\"https:\/\/onlinelibrary.wiley.com\/doi\/10.1111\/j.1467-9957.1954.tb00021.x\">argued<\/a> that \u201cin any society where the death rate is around forty per thousand, the effect of economic development will be to generate an increase in the supply of labour.\u201d Falling mortality would spur population growth, guaranteeing an unlimited labor supply.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Then, he <a href=\"https:\/\/onlinelibrary.wiley.com\/doi\/10.1111\/j.1467-9957.1954.tb00021.x\">referred<\/a> to findings from \u201cmodern population theory\u201d about the demographic transition\u2014that is, the fact that the fertility rate also tends to drop as income per capita levels increase, compensating for declining mortality and reducing the growth rate of population. That was, <a href=\"https:\/\/onlinelibrary.wiley.com\/doi\/10.1111\/j.1467-9957.1954.tb00021.x\">according to him<\/a>, what Ricardo and Malthus overlooked, and as a result they \u201cover-estimated the rate of growth of population.\u201d Thus, they could not see that \u201cif conditions are favourable for the capitalist surplus to grow more rapidly than population, there must come a day when capital accumulation has caught up with labour supply.\u201d On that day, labor supplies would no longer be unlimited, and one could revert to neoclassical theory.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Instead of adopting the Malthusian (and Ricardian) view that the interaction between population dynamics and food production determines the level of wages, Lewis reduced their contribution to an argument that, in the course of development, the growth of population increases the labor supply. But it does so only transitorily, before the decline in the fertility rate catches up with falling mortality. To be sure, Lewis <a href=\"https:\/\/onlinelibrary.wiley.com\/doi\/10.1111\/j.1467-9957.1954.tb00021.x\">argued<\/a> in 1954 that as long as capital could be exported to other countries with surplus labor, or immigration from those countries encouraged, the neoclassical case grounded on labor scarcity would remain invalid, as in the \u201cneoclassical world labour is scarce in all countries.\u201d Yet subsequent literature all but ignored this caveat and the open economy model he derived from it, focusing instead on identifying empirically the so-called <a href=\"https:\/\/www.routledge.com\/Debating-the-Lewis-Turning-Point-in-China\/Huang-Cai\/p\/book\/9781032929866\">Lewis turning-point<\/a>, that is, the moment when labor abundance is exhausted and wages start to catch up with productivity. In doing so, subsequent scholars consolidated a \u201cMalthusian\u201d vision of development in which wages are crucially dependent on demographic trends.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Marx against Malthus<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Such a vision had been strongly criticized by Marx in <em><a href=\"https:\/\/www.penguin.co.uk\/books\/35192\/capital-by-karl-marx-intro-ernest-mandel-trans-ben-fowkes\/9780140445688\">Capital<\/a><\/em>. In line with his usual procedure regarding classical political economy, Marx examined in detail how Malthus\u2019s \u201cprinciple of population\u201d was not ahistorical, as suggested, but in fact a historically specific phenomenon rooted in capitalism. In Marx\u2019s <a href=\"https:\/\/www.penguin.co.uk\/books\/35192\/capital-by-karl-marx-intro-ernest-mandel-trans-ben-fowkes\/9780140445688\">words<\/a>, \u201cthe natural law of population\u201d was not rooted in the \u201ceternal laws of nature\u201d but in the \u201chistorical laws of the nature of capitalist production.\u201d <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Such historical laws assured that a surplus population would be constantly reproduced to keep wages in check, guaranteeing the continuation of capital accumulation. The reproduction of labor abundance was independent of demographic trends, resulting from both the cyclical dynamics of capitalist economies\u2014constantly absorbing and recreating an industrial reserve army through the recurrence of booms and crises\u2014and the structural tendency of capital to repel labor, replacing it with machines. If the conditions of class struggle are such that it is possible to push upwards the historically accepted subsistence wage, individual capitalists are encouraged to accelerate mechanization to reduce costs and maximize profits.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">With this argument, Marx gave an alternative explanation to the \u201cclassical assumption,\u201d that is, that wages gravitate around a subsistence level. (His understanding of the subsistence level was significantly different from Malthus\u2019s, admitting a historical and moral component, which opened the way for class struggle to influence wages and the rate of exploitation.) This alternative explanation is hard to square with Lewis\u2019s claim that unlimited labor supply would tend to be exhausted in the process of demographic transition, as mechanization could accelerate to preserve the surplus population even if population growth decelerated.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Lewis was dismissive of Marx\u2019s argument, <a href=\"https:\/\/onlinelibrary.wiley.com\/doi\/10.1111\/j.1467-9957.1954.tb00021.x\">referring<\/a> to it as a \u201ccurious model\u201d and claiming that it should be rejected \u201con empirical grounds.\u201d \u201cIt is clear that the effect of capital accumulation in the past has been to reduce the size of the reserve army,\u201d he <a href=\"https:\/\/onlinelibrary.wiley.com\/doi\/10.1111\/j.1467-9957.1954.tb00021.x\">explained<\/a>, \u201cand not to increase it.\u201d Marx\u2019s point was not that the reserve army would keep on growing, but simply that it would be continuously reproduced. But regardless, is the evidence really on Lewis\u2019 side in this regard? At least two bodies of literature point in the opposite direction, vindicating the Marxian view.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">First, many scholars have built on Marx\u2019s argument and empirically investigated so-called \u201c<a href=\"https:\/\/doi.org\/10.1111\/j.1467-999X.2004.00201.x\">induced technical change<\/a>,\u201d that is, the fact that wage pressure tends to spur technical change that leads to the replacement of workers. A <a href=\"https:\/\/doi.org\/10.1111\/j.1467-999X.1995.tb00380.x\">variety<\/a> <a href=\"https:\/\/doi.org\/10.1080\/02692171.2016.1225017\">of statistical<\/a> <a href=\"https:\/\/link.springer.com\/article\/10.1007\/s00191-019-00658-3\">methods<\/a> and datasets all lead to the conclusion that technological adoption is often driven by distributive conflict. Second, a <a href=\"https:\/\/files.epi.org\/uploads\/215903.pdf\">vast<\/a> <a href=\"https:\/\/www.resolutionfoundation.org\/app\/uploads\/2020\/01\/Dead-end-relationship.pdf\">number<\/a> <a href=\"https:\/\/academic.oup.com\/ser\/article-abstract\/20\/3\/1091\/6179057\">of<\/a> <a href=\"https:\/\/academic.oup.com\/qje\/article-abstract\/129\/1\/61\/1899422?redirectedFrom=fulltext\">studies<\/a>, from many perspectives, show that wages have become decoupled from productivity in most rich countries, which were supposed to be characterised by labor scarcity.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Lewis was extrapolating from a very singular period of capitalism\u2019s history. For a short time, in the global North, it seemed that the \u201c<a href=\"https:\/\/onlinelibrary.wiley.com\/doi\/full\/10.1111\/dech.12115\">standard employment relationship<\/a>\u201d\u2014full-time, formal, conferring a variety of rights\u2014had become the norm. During what is sometimes called the \u201c<a href=\"https:\/\/academic.oup.com\/book\/26656\">golden age<\/a>\u201d\u2014the two and half decades after the end of the Second World War\u2014labor markets in these countries remained relatively tight and wages followed productivity closely, so much so that one of the “<a href=\"https:\/\/link.springer.com\/chapter\/10.1007\/978-1-349-08452-4_10\">stylized facts<\/a>\u201d from the period was the stability of the wage share of income.  Strengthened trade unions and collective bargaining combined with the political effects of the mass unemployment of the 1930s to temporarily constrain capital and reduce the surplus population at the capitalist core. With hindsight, it is clear that it was an exceptional and transitory situation.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">At least since the 1980s, labor abundance has been restored, not as a multitude of subsistence workers\u2014as Lewis would have it\u2014but as a deepening subordination of the working classes. In the United States, for instance, it is well established that the <a href=\"https:\/\/files.epi.org\/uploads\/215903.pdf\">average wage of production workers<\/a> (i.e., those in non-supervisory roles) in the private sector has remained almost flat since 1979: while it almost doubled between 1948 and 1979, it increased only <a href=\"https:\/\/files.epi.org\/uploads\/215903.pdf\">11 per cent<\/a> in the subsequent four decades. The wage squeeze has not been as dramatic in the <a href=\"https:\/\/www.resolutionfoundation.org\/app\/uploads\/2020\/01\/Dead-end-relationship.pdf\">other rich countries<\/a>, but it has been strong enough to push the <a href=\"https:\/\/academic.oup.com\/ser\/article-abstract\/20\/3\/1091\/6179057\">wage share<\/a> <a href=\"https:\/\/academic.oup.com\/qje\/article-abstract\/129\/1\/61\/1899422?redirectedFrom=fulltext\">of income<\/a> down in most of them.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Meanwhile, labor market precarity took hold across the capitalist core, leading <a href=\"https:\/\/doi.org\/10.1111\/dech.12733\">some analysts<\/a> to suggest that the global North\u2019s labor markets increasingly resemble those of global South\u2019s countries. If some kind of global economic convergence is to be expected, it will most likely result from the deterioration in the center rather than catching up from below. The surge in <a href=\"https:\/\/www.ucpress.edu\/books\/after-the-gig\/paper\">gig work<\/a> and involuntary part-time employment are two examples of this broader phenomenon. Even conventional macroeconomists noticed the restoration of labor abundance, as their Phillips curve <a href=\"https:\/\/www.imf.org\/-\/media\/websites\/imf\/imported-full-text-pdf\/external\/pubs\/ft\/wp\/2007\/_wp0776.pdf\">started to look<\/a> <a href=\"https:\/\/academic.oup.com\/qje\/article\/137\/3\/1299\/6529257\">increasingly flat<\/a> (that is, the impact of unemployment on inflation has been weakened). Workers are no longer able to push for substantial real wage increases, not even during the expansion phases of business cycles when unemployment falls, as their bargaining power has been structurally reduced.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">From labor scarcity to mass marginalization<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">All this suggests, contra Lewis, that the neoclassical assumption of labor scarcity is very far from being observed anywhere, even in the rich countries. Lewis, however, was less interested in the realities of the global North than in the process of development taking place in the South. What should we make of his analysis in this regard?<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Many have argued that he overlooked the brutality that characterized processes through which labor abundance was established in the first place, forcing populations to seek wage employment via expropriation, displacement and political coercion. As John Sender and Christopher Cramer <a href=\"https:\/\/soas-repository.worktribe.com\/output\/372438\/what-development-economists-miss-in-the-lewis-model-and-what-the-lewis-model-misses\">put it<\/a>, Lewis \u201cpaid insufficient attention to the role of violence, coercion and forceful state intervention in explaining labour market outcomes.\u201d Violent processes of primitive accumulation were hidden in a narrative that suggested that capitalists simply attracted labor from the subsistence sector by offering a small premium on the income they could obtain there. More often than not\u2014as Lewis himself mentions in passing in the <a href=\"https:\/\/onlinelibrary.wiley.com\/doi\/10.1111\/j.1467-9957.1954.tb00021.x\">1954 piece<\/a>\u2014that subsistence income was deliberately squeezed such that it gave the population no other choice but to sell their labor force to capitalist firms.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In an <a href=\"https:\/\/www.tandfonline.com\/doi\/abs\/10.1080\/00220387008421322\">article from 1970<\/a>, Giovanni Arrighi was probably the first one to make this point systematically, both theoretically and empirically challenging a Lewisian reading of development in Zimbabwe. According to Arrighi, between 1903 and 1920, the country was unambiguously characterized by labor scarcity and the \u201cLewis model\u201d became relevant only for a short time in the 1920s, after a long-running effort to expropriate indigenous workers and proletarianize them. A similar story has been told <a href=\"https:\/\/paulsinger.com.br\/dominacao-e-desigualdade-estudos-sobre-a-reparticao-da-renda\/\">about Brazil<\/a>, where widespread proletarianization was observed only from the 1960s onwards. Proletarianization was the result of a profound transformation of social relations in the countryside, involving the growth of mechanized capitalist agriculture and the displacement of peasants to smaller and less-fertile lands. The state-sponsored \u201cmodernization\u201d of agriculture was key for <a href=\"https:\/\/portal.sescsp.org.br\/loja\/11289_CELSO+FURTADO+E+OS+60+ANOS+DE+FORMACAO+ECONOMICA+DO+BRASIL#\/content=detalhes-do-produto\">primitive accumulation<\/a> in Brazil.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">But once labor abundance is established, whatever the means, can we finally accept Lewis\u2019s argument that capital accumulation gradually eliminates it? Not quite. As many development economists\u2014such as <a href=\"https:\/\/link.springer.com\/article\/10.1007\/BF02800594\">Furtado<\/a> and <a href=\"https:\/\/phenomenalworld.org\/analysis\/pintos-lesson\/\">An\u00edbal Pinto<\/a>\u2014noticed already in the 1960s\u2014the pattern of accumulation observed in the parts of the periphery where growth was relatively fast very soon shifted towards capital-intensive industries and technologies, absorbing less and less labor. The mass of expropriated workers had little hope of finding employment in the capitalist sector, giving rise to the urban informality that characterises the metropolises of the global periphery.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Revisiting the <a href=\"https:\/\/onlinelibrary.wiley.com\/doi\/abs\/10.1111\/j.1467-9957.1979.tb00625.x\">topic in 1979<\/a>, Lewis was of course aware of the fact that labor abundance ended up being much more persistent than he predicted. However, instead of engaging with the sophisticated analysis of the Latin Americans on structural heterogeneity, he reverted once more to Malthusianism. Labor abundance was persistent, in his view, because population was growing too quickly. <a href=\"https:\/\/onlinelibrary.wiley.com\/doi\/abs\/10.1111\/j.1467-9957.1979.tb00625.x\">In his words<\/a>, \u201cpopulation growth is at the core of labour abundance,\u201d and \u201cthere is no way that a population can grow at 3 per cent per annum without experiencing an abundance of labour in its modern sector.\u201d Marx\u2019s <a href=\"https:\/\/www.penguin.co.uk\/books\/35192\/capital-by-karl-marx-intro-ernest-mandel-trans-ben-fowkes\/9780140445688\">comment<\/a> about Malthus applies to Lewis perfectly: \u201che explains [the surplus population], in his narrow fashion, not by saying that part of the working population has been rendered relatively superfluous, but by referring to its excessive growth.\u201d<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Beyond Lewis<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The point is not to question Lewis\u2019s commitment to fighting for a fairer world, improving the standards of living of the great majorities in Latin America and in Africa\u2014the two regions on which he was <a href=\"https:\/\/press.princeton.edu\/books\/hardcover\/9780691215716\/w-arthur-lewis-and-the-birth-of-development-economics?srsltid=AfmBOoocLhfY7qcsF98B6oQA9OYutNQ_1ALs8BpZqmq5rpgJ5pCHEgwA\">most focused<\/a>. His effort to open space for original reflections about the economic situation of the global periphery was commendable, and his writing contains a series of valuable insights. Yet, in the end, the model that is his main legacy is an obstacle to critical reflection about development.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In assuming labor abundance to be the reality in most of the South and disregarding the brutality involved in bringing it about, the model ended up justifying these processes of primitive accumulation as necessary evils in the path to development. Lewis\u2019s language often revealed such a bias\u2014for instance, when <a href=\"https:\/\/onlinelibrary.wiley.com\/doi\/10.1111\/j.1467-9957.1954.tb00021.x\">he argued<\/a> that workers in the subsistence sector needed to be convinced to adjust to \u201cthe more regimented and urbanised environment of the capitalist sector.” Moreover, the mechanism of development itself that he formulated provided legitimacy not only to expropriation but also to continuous concentration of income, as faster capital accumulation depended, according to him, on shifting income towards the euphemistically named \u201csaving class.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">All this was demanded in exchange for the promise of a future of labor scarcity, which produces \u201cmagical\u201d results\u2014the words <a href=\"https:\/\/doi.org\/10.1111\/j.1467-9957.1979.tb00625.x\">are his<\/a>. Such a promise, however, hinged on a questionable Malthusianism that failed to grasp the actual dynamics of capitalist economies. When the exhaustion of the labor reserves was revealed to be elusive, many sharpened their <a href=\"https:\/\/phenomenalworld.org\/analysis\/pintos-lesson\/\">critical analysis<\/a> about the actual outcomes of peripheral capitalist development. Lewis, in contrast, blamed southern populations for reproducing too quickly. Soon after, it became clear that labor abundance was not only a scourge of peripheral development but the norm of global capitalism, having reasserted itself even in the rich countries.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Lewis was right that eliminating labor abundance is key to improving the standard of living of workers, North and South, as it means challenging workers\u2019 subordination. But we can\u2019t count on either population dynamics or capital accumulation for achieving it, as he did. The task of reimagining development beyond capitalist modernization and forced proletarianization should begin by focusing on ways to actually bring about and sustain labor scarcity, such as empowering the majorities through alternative ownership structures in agriculture, services and manufacturing. It requires at least some democratic control over the shape of the production processes and the direction of technology in order to weaken the mechanism that continuously produces a surplus population. Rejecting Lewis\u2019s Malthusianism allows us to recognize that labor scarcity cannot come from accumulation outpacing population growth, but rather from constraining capital\u2019s impulse to produce a reserve army of labor. <\/p>\n","protected":false},"excerpt":{"rendered":"<p>The work of Arthur Lewis is one the best entry points for an engagement with classic development thinking. In his biography of the Caribbean economist, Robert Tignor argued that \u201cEconomic Development With Unlimited Supplies of Labor,\u201d Lewis\u2019s classic 1954 article, \u201cgalvanized the new field of development economics, providing it with a legitimacy that it had […]<\/p>\n","protected":false},"author":285,"featured_media":34150,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4],"tags":[],"issue":[],"newsletter":[982],"region":[1011,1020],"sector":[1041,1053],"theme":[1089],"series":[],"class_list":["post-34144","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-analysis","newsletter-meridional","region-latin-america-and-the-caribbean","region-sub-saharan-africa","sector-agriculture","sector-manufacturing","theme-finance-development"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v28.5 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Against the Lewis Model - Phenomenal World<\/title>\n<meta name=\"description\" content=\"Arthur Lewis's prediction that capital accumulation would transform labor-abundant countries into labor-scarce ones has rarely been borne out by the actual experience of development.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/phenomenalworld.org\/analysis\/against-the-lewis-model\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Fernando Rugitsky | Against the Lewis Model\" \/>\n<meta property=\"og:description\" content=\"Does capital accumulation lead to labor scarcity or labor abundance?\" \/>\n<meta property=\"og:url\" content=\"https:\/\/phenomenalworld.org\/analysis\/against-the-lewis-model\/\" \/>\n<meta property=\"og:site_name\" content=\"Phenomenal World\" \/>\n<meta property=\"article:published_time\" content=\"2026-08-27T20:20:47+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2026-08-29T14:00:47+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/August-Meridional-Social.png\" \/>\n\t<meta property=\"og:image:width\" content=\"1200\" \/>\n\t<meta property=\"og:image:height\" content=\"628\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/png\" \/>\n<meta name=\"author\" content=\"Fernando Rugitsky\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Fernando Rugitsky | Against the Lewis Model\" \/>\n<meta name=\"twitter:description\" content=\"Does capital accumulation lead to labor scarcity or labor abundance?\" \/>\n<meta name=\"twitter:image\" content=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/August-Meridional-Social.png\" \/>\n<meta name=\"twitter:creator\" content=\"@WorldPhenomenal\" \/>\n<meta name=\"twitter:site\" content=\"@WorldPhenomenal\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Fernando Rugitsky\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"16 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/against-the-lewis-model\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/against-the-lewis-model\\\/\"},\"author\":{\"name\":\"Fernando Rugitsky\",\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/#\\\/schema\\\/person\\\/d76225e260e7b993ca245dcdd0f61239\"},\"headline\":\"Against the Lewis Model\",\"datePublished\":\"2026-08-27T20:20:47+00:00\",\"dateModified\":\"2026-08-29T14:00:47+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/against-the-lewis-model\\\/\"},\"wordCount\":3408,\"publisher\":{\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/#organization\"},\"image\":{\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/against-the-lewis-model\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/phenomenalworld.org\\\/wp-content\\\/uploads\\\/2026\\\/08\\\/Street_Scene_Jamaica_6966876679-scaled-e1787863913658.jpg\",\"articleSection\":[\"Analysis\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/against-the-lewis-model\\\/\",\"url\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/against-the-lewis-model\\\/\",\"name\":\"Against the Lewis Model - 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He has held positions at the University of S\u00e3o Paulo (2015\u20132021) and the University of the West of England (2021\u20132025) and obtained his PhD at The New School for Social Research.\",\"url\":\"https:\\\/\\\/phenomenalworld.org\\\/author\\\/fernando-rugitsky\\\/\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Against the Lewis Model - Phenomenal World","description":"Arthur Lewis's prediction that capital accumulation would transform labor-abundant countries into labor-scarce ones has rarely been borne out by the actual experience of development.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/phenomenalworld.org\/analysis\/against-the-lewis-model\/","og_locale":"en_US","og_type":"article","og_title":"Fernando Rugitsky | Against the Lewis Model","og_description":"Does capital accumulation lead to labor scarcity or labor abundance?","og_url":"https:\/\/phenomenalworld.org\/analysis\/against-the-lewis-model\/","og_site_name":"Phenomenal World","article_published_time":"2026-08-27T20:20:47+00:00","article_modified_time":"2026-08-29T14:00:47+00:00","og_image":[{"width":1200,"height":628,"url":"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/August-Meridional-Social.png","type":"image\/png"}],"author":"Fernando Rugitsky","twitter_card":"summary_large_image","twitter_title":"Fernando Rugitsky | Against the Lewis Model","twitter_description":"Does capital accumulation lead to labor scarcity or labor abundance?","twitter_image":"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/August-Meridional-Social.png","twitter_creator":"@WorldPhenomenal","twitter_site":"@WorldPhenomenal","twitter_misc":{"Written by":"Fernando Rugitsky","Est. reading time":"16 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/phenomenalworld.org\/analysis\/against-the-lewis-model\/#article","isPartOf":{"@id":"https:\/\/phenomenalworld.org\/analysis\/against-the-lewis-model\/"},"author":{"name":"Fernando Rugitsky","@id":"https:\/\/phenomenalworld.org\/#\/schema\/person\/d76225e260e7b993ca245dcdd0f61239"},"headline":"Against the Lewis Model","datePublished":"2026-08-27T20:20:47+00:00","dateModified":"2026-08-29T14:00:47+00:00","mainEntityOfPage":{"@id":"https:\/\/phenomenalworld.org\/analysis\/against-the-lewis-model\/"},"wordCount":3408,"publisher":{"@id":"https:\/\/phenomenalworld.org\/#organization"},"image":{"@id":"https:\/\/phenomenalworld.org\/analysis\/against-the-lewis-model\/#primaryimage"},"thumbnailUrl":"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/Street_Scene_Jamaica_6966876679-scaled-e1787863913658.jpg","articleSection":["Analysis"],"inLanguage":"en-US"},{"@type":"WebPage","@id":"https:\/\/phenomenalworld.org\/analysis\/against-the-lewis-model\/","url":"https:\/\/phenomenalworld.org\/analysis\/against-the-lewis-model\/","name":"Against the Lewis Model - 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He has held positions at the University of S\u00e3o Paulo (2015\u20132021) and the University of the West of England (2021\u20132025) and obtained his PhD at The New School for Social Research.","url":"https:\/\/phenomenalworld.org\/author\/fernando-rugitsky\/"}]}},"_links":{"self":[{"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/posts\/34144","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/users\/285"}],"replies":[{"embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/comments?post=34144"}],"version-history":[{"count":11,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/posts\/34144\/revisions"}],"predecessor-version":[{"id":34178,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/posts\/34144\/revisions\/34178"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/media\/34150"}],"wp:attachment":[{"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/media?parent=34144"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/categories?post=34144"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/tags?post=34144"},{"taxonomy":"issue","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/issue?post=34144"},{"taxonomy":"newsletter","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/newsletter?post=34144"},{"taxonomy":"region","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/region?post=34144"},{"taxonomy":"sector","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/sector?post=34144"},{"taxonomy":"theme","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/theme?post=34144"},{"taxonomy":"series","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/series?post=34144"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}},{"id":34051,"date":"2026-08-19T20:25:50","date_gmt":"2026-08-19T20:25:50","guid":{"rendered":"https:\/\/phenomenalworld.org\/?p=34051"},"modified":"2026-08-21T16:01:08","modified_gmt":"2026-08-21T16:01:08","slug":"cements-stubborn-emissions","status":"publish","type":"post","link":"https:\/\/phenomenalworld.org\/analysis\/cements-stubborn-emissions\/","title":{"rendered":"Cement’s Stubborn Emissions"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">Cement production is responsible for around <a href=\"https:\/\/unece.org\/media\/press\/372890\">a quarter<\/a> of global industrial carbon emissions. The sector releases approximately one billion more tons of carbon dioxide every year than the entirety of the continent of Africa does across all its industries combined. These colossal numbers are in large part due to cement\u2019s <a href=\"https:\/\/www.sciencedirect.com\/science\/article\/abs\/pii\/S1364032111000566?via%3Dihub\">carbon intensity<\/a>: almost a ton of carbon is emitted per ton of cement produced. Another reason is its <a href=\"https:\/\/climate.mit.edu\/explainers\/concrete\">ubiquity<\/a>. Concrete, which consists of cement and aggregates such as sand and gravel, is the most consumed substance on Earth after water. Used widely in the construction of modern buildings, highways, bridges, dams, and ports, it is the physical substance of economic development.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Decarbonizing a production process that has been <a href=\"https:\/\/www.degruyterbrill.com\/document\/doi\/10.4159\/harvard.9780674424272\/html#contents\">likened<\/a> to \u201cputting a mountain through a sieve\u201d is, unsurprisingly, extremely difficult. Fossil fuels power the quarrying and crushing of raw materials like limestone; the heating of these materials into clinker, the grey nodules that are cement\u2019s primary component; and the milling and transport of the cement mix. This results in only <a href=\"https:\/\/www.irena.org\/Decarbonising-hard-to-abate-sectors-with-renewables-Enablers-and-recommendations\/Industry-sector\/Cement\">half<\/a> of the industry\u2019s carbon emissions: the rest comes from a carbon dioxide\u2013producing chemical reaction known as calcination that takes place during the production of clinker. This problem is impervious to the heavy artillery of decarbonization, namely falling green electricity prices.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">There are several <a href=\"https:\/\/www.sciencedirect.com\/science\/article\/pii\/S1364032123001478\">levers<\/a> that the cement industry can pull to reduce emissions, including increasing energy efficiency, introducing fuel substitution, partially replacing clinker with low-carbon supplementary cementitious materials (SCMs), and creating new binders that don\u2019t contain clinker.<a data-contents=\"Another decarbonization lever is the transformation of building practices such that less cement is consumed. This is extremely important but cannot be enacted directly by the cement sector itself.\" class=\"footnote\" id=\"footnote-1\" href=\"#footnote-list-1\">1<\/a><span class=\"p-absolute d-none footnote-full has-white-background-color\">Another decarbonization lever is the transformation of building practices such that less cement is consumed. This is extremely important but cannot be enacted directly by the cement sector itself.<\/span> Each strategy is important but limited. For example, many plants are already highly efficient, restricting the scope for further improvements, and a number of SCMs such as blast furnace slag will become scarce as steel decarbonization phases out blast furnaces. Because of these obstacles, the industry consensus is that carbon capture will be the most important decarbonization strategy: it will mop up the roughly 40 percent of emissions that are projected to remain after everything else has been tried.<a data-contents=\" The (<)a href='https:\/\/gccassociation.org\/concretefuture\/carbon-capture-utilisation-and-storage\/'(>)Global Cement and Concrete Association(<)\/a(>) expects 36 percent of emissions reductions to come from carbon capture; the (<)a href='https:\/\/www.cementeurope.eu\/media\/t0qh4vti\/cembureau-position-paper-sustainable-carbon-cycles-2021-09-27.pdf'(>)European cement lobby(<)\/a(>) has a higher estimate of 42 percent.\" class=\"footnote\" id=\"footnote-2\" href=\"#footnote-list-2\">2<\/a><span class=\"p-absolute d-none footnote-full has-white-background-color\"> The (<)a href='https:\/\/gccassociation.org\/concretefuture\/carbon-capture-utilisation-and-storage\/'(>)Global Cement and Concrete Association(<)\/a(>) expects 36 percent of emissions reductions to come from carbon capture; the (<)a href='https:\/\/www.cementeurope.eu\/media\/t0qh4vti\/cembureau-position-paper-sustainable-carbon-cycles-2021-09-27.pdf'(>)European cement lobby(<)\/a(>) has a higher estimate of 42 percent.<\/span> Carbon capture technology, too, is <a href=\"https:\/\/landclimate.org\/ccs-no-miracles-needed\/\">deeply problematic<\/a>, not least because of the infrastructural hurdles to its rollout. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">But as serious as these technical challenges are, they alone cannot explain the abysmal pace of cement decarbonization. While existing strategies are imperfect, they can make a major dent in emissions. The problem is that their adoption has been glacially slow. For all the sustainability reports and net zero roadmaps, the sector has only further carbonized since the Paris Climate Conference: both absolute carbon emissions and carbon intensity are <a href=\"https:\/\/www.iea.org\/reports\/breakthrough-agenda-report-2025\">higher<\/a> than in 2015. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">What accounts for the green transition\u2019s failure to launch in the cement industry? The answer lies not only in the sector\u2019s unique chemistry, but in its uniquely crisis-prone political economy. Fierce competition and overcapacity crises have long depressed profitability in this industry, and are now impeding firms’ ability to shoulder the enormous costs required to decarbonize production. This is clearest in China, where most cement is manufactured and where overcapacity woes are greatest. But versions of this dilemma manifest across a host of regional cement markets.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Historically, such drags on profitability have been overcome by restructuring processes that cull excess capacity and thereby cull sections of the labor force, creating space for new investment. Today, a \u201cgreen\u201d restructuring process is emerging, facilitated by state \u201c<a href=\"https:\/\/www.phenomenalworld.org\/interviews\/derisking\/\">derisking<\/a>\u201d measures (to borrow the term popularized by the economist Daniela Gabor), which guide private capital towards developmental or industrial policy objectives by shifting risk from the private to public sphere. These measures have, in some places, incentivized modest investment in cement decarbonization\u2014but this has been accompanied by plant closures and redundancies, announced in the name of both financial and environmental imperatives. A <a href=\"https:\/\/phenomenalworld.org\/analysis\/the-future-of-the-north-sea\/\">similar pattern<\/a> is emerging across a range of heavy industries. The danger is that a \u201cderisked\u201d decarbonization, which leaves investment decisions under the control of corporations, will become a byword for deindustrialization, with adverse consequences for climate politics. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Restrain competition or be ruined<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Portland cement is the name of the concoction that today binds 98 percent of the world\u2019s concrete. Invented by the English bricklayer Joseph Aspdin in the 1820s, cement production was a primitive business in its early years. Laborers <a href=\"https:\/\/www.jstor.org\/stable\/41339597\">dredged<\/a> England\u2019s Thames and Medway rivers by hand for mud and chalk, which were then processed and burned in small bottle kilns. The resulting clinker was ground to powder between millstones, as in traditional flour mills. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This process was <a href=\"https:\/\/pubs.acs.org\/doi\/10.1021\/ie50201a009\">transformed<\/a> by the late-nineteenth-century invention of the rotary kiln. The enormous cylinder\u2014Thomas Edison patented a kiln in 1909 that was 150 feet long\u2014was positioned at a slight incline, like the axle of a giant vehicle fitted askew. Materials were fed into the top end to be blasted into clinker by the white-hot combustion of pulverized coal at the bottom. This augured a productivity revolution. The output of a cement plant increased from around fifty to one or two thousand barrels per day, and mechanization consequently accelerated the quarrying of raw materials and the processing of the growing throughput. Production rose, prices fell, and Portland cement became more and more integral to the <a href=\"https:\/\/reaktionbooks.co.uk\/work\/concrete-and-culture\">built environment<\/a>, from prestigious public buildings to the slums of reinforced concrete that sprung up in the crevices and extremities of cities.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">There was a human cost to these changes in the pace and scale of cement production. By the early twentieth century, it was among the most accident-prone industries. One of the bloodiest US industrial disasters took place at the Lehigh Portland Cement Company\u2019s works in Pennsylvania in 1942 when thirty-one workers were \u201cblown to bits\u201d by a quarry explosion, leaving their remains \u201cscattered over the landscape,\u201d as <a href=\"https:\/\/www.nytimes.com\/1942\/03\/27\/archives\/31-blown-to-death-as-quarry-blast-jars-2state-zone-premature.html\"><em>The<\/em> <em>New York Times <\/em>reported<\/a>. Children at the local school were hurled from their chairs and covered in broken glass. Similar incidents litter the historical record. Dust engulfed fenceline communities, diminishing lung function and contaminating local soil and vegetation. In 1962, <a href=\"https:\/\/hansard.parliament.uk\/commons\/1962-11-13\/debates\/940a263a-f428-40da-b4b9-2bd9349f7507\/CementDustNuisanceNorth-WestKent\">testimony<\/a> from two women in Kent, England, was read out in Parliament: \u201cThe cement dust comes over in billowing grey clouds, descends like a fog, coating pavements and cars and smothering gardens and fields.\u201d<sup> <\/sup>Lehigh Valley residents <a href=\"https:\/\/scholarspace.library.gwu.edu\/concern\/gw_etds\/9g54xj476\">spoke<\/a> simply of \u201cthe breeze.\u201d<a data-contents=\" Such historical testimonies echo through contemporary China. Villagers in Jiangsu Province have (<)a href='http:\/\/www.china.org.cn\/environment\/2013-04\/27\/content_28677632_2.htm'(>)complained(<)\/a(>) that they \u201cdare not open their windows or dry clothing outdoors\u201d because of local cement factories. The dust even gums up romantic relations: \u201cGirls from other villages are always reluctant to marry a guy living here.\u201d\" class=\"footnote\" id=\"footnote-3\" href=\"#footnote-list-3\">3<\/a><span class=\"p-absolute d-none footnote-full has-white-background-color\"> Such historical testimonies echo through contemporary China. Villagers in Jiangsu Province have (<)a href='http:\/\/www.china.org.cn\/environment\/2013-04\/27\/content_28677632_2.htm'(>)complained(<)\/a(>) that they \u201cdare not open their windows or dry clothing outdoors\u201d because of local cement factories. The dust even gums up romantic relations: \u201cGirls from other villages are always reluctant to marry a guy living here.\u201d<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The transformation of cement-making into a mass production industry also created another <a href=\"https:\/\/link.springer.com\/book\/10.1057\/9780230288751\">problem<\/a>: the threat of ruinous imbalances between production and consumption. Cement involves massive fixed investments, requiring high rates of capacity utilization for firms to achieve profitability. While this is typical of heavy industries such as steel, the cement industry is unique in that demand relies almost exclusively on construction\u2014a sector marked by boom-and-bust dynamics. A further difference is cement\u2019s high bulk-to-value ratio and perishability, which means that it is not generally transported more than two to three hundred miles. Because of this, regional cement oligopolies largely depend upon demand from nearby construction projects. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Cement is therefore characterized by enormous production capacities and volatile, geographically uneven demand. As competition drives the expansion of cement capacity and production beyond what local construction markets can absorb, the lines of regional market segmentation blur. Facing insufficient demand, firms seek to penetrate their rivals\u2019 markets, often accepting lower prices in return for higher sales. Catastrophic retaliation ensues, manifested in overproduction, low capacity utilization, falling prices, and waning profitability. Competition \u201cbreeds a thunderstorm,\u201d one cement executive put it. \u201cAnd then it gradually slips into a category five hurricane.\u201d<a data-contents=\"See Truman Bewley, (<)em(>)Price Setting(<)\/em(>) (Polity, 2025).\" class=\"footnote\" id=\"footnote-4\" href=\"#footnote-list-4\">4<\/a><span class=\"p-absolute d-none footnote-full has-white-background-color\">See Truman Bewley, (<)em(>)Price Setting(<)\/em(>) (Polity, 2025).<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Even in such conditions, firms are often wary of shutting plants and abandoning sunk investments. After all, those that retain their production lines benefit from an increase in prices once other producers exit the market. But the situation is sometimes bad enough that it becomes necessary to purge significant capacity. During the profit crisis that stretched from the late 1960s through the 1980s, many <a href=\"https:\/\/ieeexplore.ieee.org\/abstract\/document\/296996\">US cement firms<\/a> shut down operations and fled the business, shifting into carpet manufacturing, ski resorts, even winemaking. As the Lehigh Cement Company claimed in 1968, foreshadowing the neoliberal period, \u201cwe are not manufacturers of cement . . . but managers of assets.\u201d Workers bore the brunt of this: the combined effect of the restructuring and technological upgrading of the US cement industry in this era was a 37 percent fall in production employment between 1980 and 1988.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Cement capitalists have long sought to suspend these dynamics, often by colluding with one another to limit competition. The president of the US firm Riverside Cement commented in 1934: \u201cours is an industry that . . . must systematically restrain competition or be ruined.\u201d Collusive strategies have ranged from the mundane, such as the now-outlawed \u201cbasing points system\u201d in the US and UK, whereby cement prices were set by producers according to an agreed-upon formula, to the remarkably bold: during the height of the Syrian Civil War, the French cement giant <a href=\"https:\/\/www.justice.gov\/archives\/opa\/pr\/lafarge-pleads-guilty-conspiring-provide-material-support-foreign-terrorist-organizations\">Lafarge<\/a> paid millions of dollars to ISIS and the al-Nusrah Front to protect operations at one of their Syrian plants, and entered into a revenue-sharing agreement with ISIS in exchange for the group’s help in gaining an edge over local competitors selling imported Turkish cement by imposing taxes on them or by banning their activities outright.<a data-contents=\"Lafarge drivers carried travel documents bearing the black flag of ISIS that stated: \u201cIn the name of Allah the Merciful, the mujahedeen are asked to let this vehicle transporting cement from the Lafarge plant pass through checkpoints, following an agreement with the company.\u201d\" class=\"footnote\" id=\"footnote-5\" href=\"#footnote-list-5\">5<\/a><span class=\"p-absolute d-none footnote-full has-white-background-color\">Lafarge drivers carried travel documents bearing the black flag of ISIS that stated: \u201cIn the name of Allah the Merciful, the mujahedeen are asked to let this vehicle transporting cement from the Lafarge plant pass through checkpoints, following an agreement with the company.\u201d<\/span> (In 2026, a French court made history by sentencing the former CEO of Lafarge to six years in prison for financing terrorism.) Unsurprisingly, the industry has been repeatedly targeted by antitrust authorities, such that the pressures of competition have not been nullified.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Small profits, big emissions<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">In the twenty-first century, cement has remained a business marked by high capital costs, fragile demand, and the tendency for competition to drive capacity beyond what markets can stomach. These crisis-ridden accumulation dynamics are jeopardizing the industry\u2019s green transition. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">China, which produces half of the world\u2019s cement, typifies this dilemma. From the 1990s to the 2010s, as colossal cities and urban villages rose from the earth, bound together by mega-infrastructure projects, China devoured cement at an unprecedented scale. Between 2011 and 2013, the country used <a href=\"https:\/\/www.forbes.com\/sites\/niallmccarthy\/2014\/12\/05\/china-used-more-concrete-in-3-years-than-the-u-s-used-in-the-entire-20th-century-infographic\/\">more concrete<\/a> than the US did in the entire twentieth century. Demand peaked during these years, as waves of urbanization and industrialization crested, and then entered a secular decline. This left chronic cement overcapacity. The Communist Party has since battled to shut down excess production lines, while major firms like Anhui Conch try to restrict \u201crat race competition\u201d through consolidation. Neither have yet succeeded: capacity utilization stands at around <a href=\"https:\/\/www.fitchratings.com\/research\/corporate-finance\/china-cement-sector-consolidation-to-support-profit-recovery-07-08-2025\">50<\/a> percent in an industry made up of roughly <a href=\"https:\/\/climatecooperation.cn\/climate\/decarbonising-cement-a-review-of-eu-and-german-policies-and-regulations-with-recommendations-for-china\/\">3,000<\/a> companies, depressing prices and profit rates.\u00a0The \u201ccurrent market price of cement hardly covers production costs,\u201d a <a href=\"https:\/\/www.unsdsn.org\/resources\/overview-of-strategies-for-reducing-co2-emissions-in-china-s-cement-industry\/\">recent study<\/a> of the Chinese cement sector argued. Because of these profit pressures, \u201csome producers are reluctant to apply the rapidly accessible measures of decarbonization\u201d like clinker reduction\u2014let alone absorb massive carbon capture costs. A further complication is the large investments that firms have already sunk into older assets. Cement plants have operational lifetimes of around forty years, and around <a href=\"https:\/\/www.energy-transitions.org\/wp-content\/uploads\/2022\/12\/rmi_toward_net_zero_decarbonization_roadmap_chinas_cement_industry.pdf\">90<\/a> percent of plants in the country were built within the last twenty or so years. Firms are wary of transforming, let alone scrapping, such facilities before they can be fully exploited.\u00a0<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Chinese overcapacity troubles are notorious, but not unique. In Vietnam\u2014the world\u2019s third largest cement producer\u2014and in Thailand, Bangladesh, Indonesia, and parts of the Middle East and Latin America, capacity buildouts have also run up against stalling demand. Similar dynamics have afflicted producers in mature economies as well. \u201cThe reality is that there is over a billion tons of excess cement production capacity in the world,\u201d <a href=\"https:\/\/cementurk.com.tr\/en\/with-excess-capacity-and-evolving-market-conditions-the-world-cement-industry-is-heading-towards-environmentally-friendly-solutions\/\">stated<\/a> the founder of the World Cement Association in 2024. Things are better or worse in different countries, but global capacity utilization stands at around <a href=\"https:\/\/www.globalcement.com\/magazine\/articles\/1368-cement-demand-forecast-2050\">65<\/a> percent\u2014a rate that is incompatible with sustained profitability. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In <a href=\"https:\/\/cementeurope.eu\/about-us\/key-facts-figures\/\">Europe<\/a>, fitting a cement plant with carbon capture technology may cost between \u20ac200\u2013500 million\u2014higher, in some cases, than the original investment cost of the plant itself. More money will be required for things like fuel switching. This spike in costs is unlikely to be compensated with sufficiently high prices: <a href=\"https:\/\/www.weforum.org\/publications\/scaling-the-industrial-transition-hard-to-abate-sectors-and-net-zero-progress-in-2025\/\">research<\/a> suggests that buyers are only willing to pay a 10 percent premium for green cement, while the actual green premium stands at more than 100 percent. This makes it very difficult to make a business case for decarbonizing, and without a business case, nothing happens. \u201cIf you want [the] cement industry to decarbonize, the cement company has to make money out of it,\u201d a director of a major cement association told me. \u201cPeople don\u2019t like it, but that\u2019s the reality.\u201d The industry\u2019s unprofitability poses a \u201chuge problem\u201d for decarbonization, another senior industry figure I spoke to said. \u201cI mean, how are you going to get somebody to lend you money for the investments required if you aren\u2019t making any money in your core business?\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The need to secure financing has long shaped the industry\u2019s priorities. Prior to the 2008 financial crisis, Western multinationals launched a wave of acquisitions to take advantage of buoyant cement demand. This demand evaporated when the crash hit and construction sectors slumped. The Mexican giant <a href=\"https:\/\/www.sec.gov\/Archives\/edgar\/data\/1076378\/000095015706001086\/ex-a5c.htm\">Cemex<\/a>, for example, had in 2006 announced its 100 percent debt-financed purchase of the Australian cement firm Rinker and now faced potential ruin. With structural overcapacity, low profitability, and high debt-to-earnings ratios, cement multinationals embarked upon a long campaign of disinvestment and deleveraging. It took more than a decade and a half for credit ratings agencies to finally promote Cemex from junk to <a href=\"https:\/\/www.cemex.com\/w\/fitch-ratings-upgrades-cemex-to-investment-grade\">investment grade<\/a>. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Consequently, at just the moment that global pressure for climate action was building, the cement majors were becoming increasingly conscious of financial market scrutiny when weighing up investments. As a 2014 <a href=\"https:\/\/www.diw.de\/en\/diw_01.c.430833.en\/projects\/carbon_control_post_2020_in_energy_intensive_industries.html\">study<\/a> put it, \u201cgearing, debt reduction and the financial rating are absolute top priorities\u201d for the multinationals. With \u201csuch a short-term focused financial appraisal applied even to investments in long-lasting assets,\u201d other objectives like cutting emissions \u201cplay only a secondary role in the investment decisions.\u201d This management principle has endured. To reward its investors, the German major Heidelberg Materials announced a <a href=\"https:\/\/www.heidelbergmaterials.com\/en\/ad-hoc-heidelberg-materials-decides-on-share-buyback-programme-with-a-total-amount-of-up-to-eu12-billion\">\u20ac1.2 billion<\/a> share buyback scheme in 2024\u2014triple the cost of its one operational carbon capture plant. In China, too, credit conditions are tough: green cement plants have even lower profitability than their carbon-intensive rivals and take <a href=\"https:\/\/www.weforum.org\/publications\/china-s-climate-challenge-financing-the-transition-to-net-zero\/\">eight to ten years<\/a> to repay their loans.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">As a result, most decarbonization progress has been the result of government intervention: foremost, European efforts to derisk green cement investments. EU policies such as Horizon Europe and the Innovation Fund, as well as grants provided by national governments, have incentivized some firms to undertake significant decarbonization spending. These green investments were also made possible by the unique business conditions that pertain in Europe. Similar to other regions, European firms have faced huge excess capacity since 2008, yet they have enjoyed healthy <a href=\"https:\/\/www.worldcementassociation.org\/images\/download-selector\/2024%20conference\/Ian%20Riley%20-%20Impact%20of%20EU%20ETS%20on%20the%20Structure%20and%20Profitability%20of%20the%20Cement%20Industry.pdf\">profitability<\/a> in recent years. This is because producers took advantage of the post-pandemic inflation to raise their prices, which have remained high even after energy costs subsided in 2023. But the EU\u2019s Emissions Trading System has aided this price buoyancy by functioning as an informal production quota: if firms limit their output to what is covered by their emissions allowances (which are free for industrial producers, though they are now being gradually phased out), they avoid paying the full carbon price. This has kept a lid on European production volumes and countered the profit-eroding tendencies of overcapacity. This combination of public support and stable earnings has meant that Europe is now the site of more than half of the world\u2019s planned carbon capture cement projects. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">However, even in Europe, where the impacts of overcapacity have been mitigated, the enormous costs of cement decarbonization and lack of a green premium have still put a ceiling on climate progress: only one green cement plant is operating, and few others have reached a final investment decision. With Biden\u2019s Inflation Reduction Act, the US looked poised to overtake Europe in terms of derisking strategy. Trump put paid to this: <a href=\"https:\/\/www.globalcement.com\/news\/19470-decarbonising-in-the-us\">$3.7 billion<\/a> in carbon capture grants were withdrawn in 2025, killing off a host of green cement projects. With much of the construction industry destabilized by tariffs and relentless immigration raids that terrorize and disappear its workforce, the hope is now <a href=\"https:\/\/www.bloomberg.com\/news\/articles\/2026-01-26\/the-us-data-center-buildout-has-a-hidden-source-of-carbon-emissions\">said<\/a> to lie in demand from AI. Hyperscalers like Amazon, Meta, and Microsoft have struck supply deals with low-carbon cement firms, putting a green gloss on the ecocidal data center buildout. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In China, government support for cement decarbonization has been more limited. The Chinese state has issued various mandates for the industry\u2019s output and efficiency, and cement was recently integrated into a national emissions trading scheme, but there has been little direct state financing for cement decarbonization. The results speak for themselves: according to the <a href=\"https:\/\/www.globalccsinstitute.com\/global-status-of-ccs\/\">Global CCS Institute<\/a>, there are three carbon capture cement plants in China that together sequester only 0.03 percent of the country\u2019s gargantuan cement emissions. According to some <a href=\"https:\/\/www.vpsatech.com\/news-information\/PKUPioneer-Provides-VPSA-Oxygen-Unit-for-Largest-CO2-Capture-Project-in-China-Cement-Industry.html\">sources<\/a>, the carbon dioxide captured from the largest project is used for \u201cenhanced oil recovery,\u201d meaning it is injected deep into oil reservoirs to flush out dregs of fuel.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In many countries, then, decarbonization efforts have been forced to navigate the industry\u2019s acute crisis tendencies, with varying degrees of success. The situation is different in <a href=\"https:\/\/niti.gov.in\/sites\/default\/files\/2026-01\/Roadmap_for_Cement_Sector_Decarbonaisation.pdf\">India<\/a> and parts of <a href=\"https:\/\/www.wiley.com\/en-us\/Concrete+City%3A+Material+Flows+and+Urbanization+in+West+Africa-p-9781119812005\">Africa<\/a>. There, such tendencies have been overwhelmed, or perhaps temporarily postponed, by breakneck urbanization and infrastructure development. Producers find themselves in the position of their Chinese counterparts two decades earlier, scrambling to throw up plants and capture a share of booming demand. Flush with cash, Indian cement oligopolies are making significant investments in <a href=\"https:\/\/www.spglobal.com\/energy\/en\/news-research\/latest-news\/fertilizers\/111725-indias-cement-sector-embraces-decarbonization-amid-robust-outlook-policy-push\">decarbonization.<\/a> This includes improvements in energy efficiency, the growing use of renewable power, and the launch of several carbon capture pilot projects. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Yet any resulting fall in carbon intensity will have to overcome rising cement output\u2014a battle of rate versus mass. This reveals a broader predicament. In many countries where cement demand has moderated, overcapacity appears as a barrier to decarbonization because of its negative impact on profitability. But in parts of the developing world, where profit margins are fat and capacity is chasing demand skyward, growing cement production may simply outpace decarbonization efforts. Given their expansion plans, India\u2019s producers don\u2019t expect to reach net zero until 2070, compared to 2050 for European firms. By 2070, a recent <a href=\"https:\/\/www.nature.com\/articles\/s41893-023-01132-6\">study<\/a> indicates, more than 600 million Indians may be exposed to \u201cunprecedented heat.\u201d<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Visions of transition<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Even Europe\u2019s greatest success story, Heidelberg Materials\u2019 <a href=\"https:\/\/www.theguardian.com\/environment\/article\/2024\/aug\/12\/were-still-in-the-1970s-with-cement-norway-plant-to-blaze-carbon-free-concrete-trail\">Brevik<\/a> facility, which opened in Norway last year, points to the complexities of decarbonization. The world\u2019s largest green cement works, the facility is said to <a href=\"https:\/\/www.heidelbergmaterials.com\/en\/pr-2025-06-18\">capture<\/a> about 400,000 tons of carbon dioxide annually\u2014currently 50 percent of the plant\u2019s total emissions. It was made possible by state subsidies that covered more than 80 percent of the required investment. The carbon sequestered from the plant is injected into a geological formation thousands of feet under the Norwegian Sea by <a href=\"https:\/\/sustainability.freshfields.com\/post\/102jm1x\/opening-of-northern-lights-project-key-takeaways-for-ccus-development\">Northern Lights<\/a>\u2014a joint venture of the oil companies Shell, Total, and Equinor. Public funds took care of 80 percent of the costs of this project. For industry players, this shows the transformative potential of derisking. If such state support measures are ambitious enough, advocates claim, green animal spirits can be summoned even in particularly crisis-prone sectors like cement. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">But in 2024, with construction nearly complete, Heidelberg made another, quieter <a href=\"https:\/\/www.argusmedia.com\/en\/news-and-insights\/latest-market-news\/2568748-heidelberg-to-shut-some-plants-on-lower-1q-results\">announcement<\/a>: it was shutting down production at plants in Germany, France, and Spain, citing weak demand in addition to climate goals. It is likely that many more closures will follow in the coming years, across Europe and the wider world. <a href=\"https:\/\/www.worldcement.com\/europe-cis\/31012025\/wca-president-highlights-profound-changes-in-the-worldwide-cement-industry\/\">Experts<\/a> predict that global cement demand will fall 22 percent by 2050, dragged down by Chinese decline and mature market stagnation. This will\u2014alongside rising carbon prices and growing green cement production that will further expand supply\u2014place great pressure on firms to shutter excess capacity. The European Commission explicitly welcomes this: capacity reductions will cut emissions and create a less glutted cement market. The World Cement Association <a href=\"https:\/\/www.worldcementassociation.org\/blog\/member-news\/wca-president-highlights-profound-changes-in-the-worldwide-cement-industry\">concurs<\/a>: \u201cTo remain both profitable and environmentally responsible, the cement industry must aim to reduce capacity by 50 percent . . . within the next decade.\u201d For every Brevik that is built, many more plants must go to the wall. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">On its own, a rash of cement plant closures wouldn\u2019t have disastrous effects on employment, though it would cause local pain. But the same profound <a href=\"https:\/\/www.tandfonline.com\/doi\/full\/10.1080\/13563467.2024.2373051\">crisis tendencies<\/a> are present in other heavy industries such as steel, aluminum, petrochemicals, and ammonia, which emit catastrophic volumes of carbon dioxide and employ millions of people worldwide. The <a href=\"https:\/\/www.sciencedirect.com\/science\/article\/pii\/S2214629620300633\">automobile industry<\/a> faces similar dynamics. Firms in these sectors also appear to be using the climate agenda as cover to abandon excess capacity. The German steelmaker Thyssenkrupp, for example, won <a href=\"https:\/\/www.thyssenkrupp.com\/en\/newsroom\/press-releases\/pressdetailpage\/eu-commission-approves-german-federal-and-state-government-fund-ing-for-thyssenkrupp-steels-tkh2steel-decarbonization-project-228875\">billions of euros<\/a> in subsidies to build a single green steel works, aspects of which it later backtracked on, while shutting down production lines elsewhere and <a href=\"https:\/\/www.ft.com\/content\/0b398c57-934e-4736-9a4b-10506e70a4bf\">cutting 11,000 jobs<\/a>. <a href=\"https:\/\/theconversation.com\/port-talbot-one-year-on-steelworks-closure-shows-why-public-is-losing-trust-in-net-zero-265906\">Tata Steel<\/a> is following the same playbook in the UK\u2014\u00a3500 million received in grants, one green furnace built, four brown furnaces snuffed out, 2,800 workers sacked\u2014as is the chemical giant Ineos.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The question, then, is not if derisking can unlock green investment in these industries. It is possible financially, at least in many rich countries. But such a derisking strategy will be extremely difficult to sustain <em>politically <\/em>if it entails throwing heaps of public money at multinational corporations as they eliminate jobs and accelerate deindustrialization. By leaving investment decisions in the hands of capitalists, the derisking state may simply extend the harms caused by decades of industrial restructuring. The far right is already seizing on this situation to advance its \u201cculture war against climate action,\u201d Rebekah Diski <a href=\"https:\/\/reframe.sussex.ac.uk\/statesofculturalanalysis\/the-altar-of-net-zero\/\">argues<\/a>, as it claims to protect workers from being \u201csacrificed on the altar of net zero.\u201d <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Yet some workers have sought to resist allowing their predicament to be instrumentalized in this way. When Heidelberg announced the closure of their clinker plant, the workers of Cementos Rezola in the Basque Country launched an <a href=\"https:\/\/www.noticiasdegipuzkoa.eus\/sociedad\/2024\/06\/25\/ela-lab-rechazan-ere-cementos-8401299.amp.html\">indefinite strike<\/a> and a campaign to build public support for their struggle. They belonged to ELA and LAB, two <a href=\"https:\/\/brill.com\/view\/journals\/jlso\/28\/4\/article-p755_008.xml\">militant trade unions<\/a> that have begun to articulate their own vision of climate strategy\u2014one that isn\u2019t predicated on the destitution of their members. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">More than a \u201cjust transition,\u201d LAB <a href=\"https:\/\/www.lab.eus\/es\/lab-presenta-su-propuesta-para-un-sindicalismo-ecosocialista\/\">speaks<\/a> of an \u201cecosocialist transition program,\u201d consisting of \u201cpublic control of strategic sectors, democratic planning of the economy, and the decommodification of essential areas of daily life.\u201d While cognizant that climate rhetoric is often a pretext for corporate restructuring, the union cautions against dismissing the urgency of decarbonization. Faced with threats of closure, it calls for fully paid reductions in working time for affected employees and for the repurposing of carbon-intensive plants so that they might serve social and environmental needs. In the case of cement, this could mean retrofitting factories to produce more environmentally sustainable materials. It so happens that calcined clay\u2014a low-carbon binder\u2014can be made in repurposed rotary kilns. The point is to \u201crepoliticize the productive sphere,\u201d LAB argues, and to force \u201ca dispute about property\u201d itself.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Cement production is responsible for around a quarter of global industrial carbon emissions. The sector releases approximately one billion more tons of carbon dioxide every year than the entirety of the continent of Africa does across all its industries combined. These colossal numbers are in large part due to cement\u2019s carbon intensity: almost a ton […]<\/p>\n","protected":false},"author":464,"featured_media":34053,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4],"tags":[],"issue":[],"newsletter":[],"region":[1133,1014,1116],"sector":[1053],"theme":[1074,1077],"series":[],"class_list":["post-34051","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-analysis","region-china","region-europe","region-united-states","sector-manufacturing","theme-climate-energy","theme-industrial-policy"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v28.5 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Cement's Stubborn Emissions - Phenomenal World<\/title>\n<meta name=\"description\" content=\"Decarbonizing a production process that has been likened to \u201cputting a mountain through a sieve\u201d is, unsurprisingly, extremely difficult.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/phenomenalworld.org\/analysis\/cements-stubborn-emissions\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Jack Copley | Cement's Stubborn Emissions\" \/>\n<meta property=\"og:description\" content=\"Fierce competition and overcapacity crises are impeding efforts to decarbonize cement production\" \/>\n<meta property=\"og:url\" content=\"https:\/\/phenomenalworld.org\/analysis\/cements-stubborn-emissions\/\" \/>\n<meta property=\"og:site_name\" content=\"Phenomenal World\" \/>\n<meta property=\"article:published_time\" content=\"2026-08-19T20:25:50+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2026-08-21T16:01:08+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/Copley-Cement.png\" \/>\n\t<meta property=\"og:image:width\" content=\"1200\" \/>\n\t<meta property=\"og:image:height\" content=\"628\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/png\" \/>\n<meta name=\"author\" content=\"Jack Copley\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Jack Copley | Cement's Stubborn Emissions\" \/>\n<meta name=\"twitter:description\" content=\"Fierce competition and overcapacity crises are impeding efforts to decarbonize cement production\" \/>\n<meta name=\"twitter:image\" content=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/Copley-Cement.png\" \/>\n<meta name=\"twitter:creator\" content=\"@WorldPhenomenal\" \/>\n<meta name=\"twitter:site\" content=\"@WorldPhenomenal\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Jack Copley\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"18 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/cements-stubborn-emissions\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/cements-stubborn-emissions\\\/\"},\"author\":{\"name\":\"Jack Copley\",\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/#\\\/schema\\\/person\\\/36b877d85af669932a85fca40887ee77\"},\"headline\":\"Cement’s Stubborn Emissions\",\"datePublished\":\"2026-08-19T20:25:50+00:00\",\"dateModified\":\"2026-08-21T16:01:08+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/cements-stubborn-emissions\\\/\"},\"wordCount\":3954,\"publisher\":{\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/#organization\"},\"image\":{\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/cements-stubborn-emissions\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/phenomenalworld.org\\\/wp-content\\\/uploads\\\/2026\\\/08\\\/20240118-heidelberg-brevik-vintermorgen-0027-scaled.jpg\",\"articleSection\":[\"Analysis\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/cements-stubborn-emissions\\\/\",\"url\":\"https:\\\/\\\/phenomenalworld.org\\\/analysis\\\/cements-stubborn-emissions\\\/\",\"name\":\"Cement's Stubborn Emissions - 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After three previous failed attempts at the office, Fujimori succeeded by promising to bring an end to a decade of intensifying crises in Peruvian politics: she will be the tenth president to serve in the past ten years in Peru due to a series of impeachments, resignations amid corruption scandals, and fragile party coalitions. She won the second-round election with 50.13 percent of valid votes\u2014the slimmest-ever margin for a presidential election. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The country\u2019s political instability has long coexisted with surprising macroeconomic stability: consistently low inflation and a sound currency. This contrast between politics and economics is widely referred to as the \u201cparadox\u201d of Peruvian political economy. It is attributed, both <a href=\"https:\/\/elcomercio.pe\/opinion\/colaboradores\/julio-velarde-y-el-valor-de-la-estabilidad-por-alejandro-garland-banco-central-de-reserva-bcr-noticia\/\">domestically<\/a> and <a href=\"https:\/\/www.wsj.com\/world\/americas\/with-10-presidents-in-10-years-perus-real-leader-is-its-central-banker-d325bf9e?eafs_enabled=false\">internationally<\/a>, to the country\u2019s efficient technocracy, particularly its longtime central bank president Julio Velarde and his fierce management of the country\u2019s monetary policy. With vows to stabilize party politics and guarantee macroeconomic security by reelecting Velarde, Fujimori presented herself as uniquely able to bring the paradox decades to an end. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The hypocrisy of these claims is apparent. Since 2016, Fujimori and her party, the right-wing Fuerza Popular, have engineered a significant portion of this political chaos by consistently working to obstruct the government. In 2022, Fuerza Popular <a href=\"https:\/\/larepublica.pe\/politica\/2026\/05\/22\/miguel-torres-admite-que-fuerza-popular-y-el-congreso-conspiraron-para-sacar-a-pedro-castillo-hnews-1524336\">conspired<\/a> with Congress to oust the leftist president Pedro Castillo in favor of Castillo\u2019s vice president, Dina Boluarte, who murderously repressed the large protests that ensued in the wake of Castillo\u2019s impeachment and imprisonment.<a data-contents=\"Pedro Castillo announced an in-constitutional dissolution of the Congress that led to his express impeachment and his immediate imprisonment, but Congress and elite actors had mounted a campaign against his government even before he assumed power, which included attempts to overturn the election, a general blockage to reforms, constant threats, and an impeachment process. In 2026, Fujimori\u2019s right hand and vice-president elect, Miguel Torres, admitted that their objective was to (irregularly) end Castillo\u2019s government by exerting constant pressure.\" class=\"footnote\" id=\"footnote-1\" href=\"#footnote-list-1\">1<\/a><span class=\"p-absolute d-none footnote-full has-white-background-color\">Pedro Castillo announced an in-constitutional dissolution of the Congress that led to his express impeachment and his immediate imprisonment, but Congress and elite actors had mounted a campaign against his government even before he assumed power, which included attempts to overturn the election, a general blockage to reforms, constant threats, and an impeachment process. In 2026, Fujimori\u2019s right hand and vice-president elect, Miguel Torres, admitted that their objective was to (irregularly) end Castillo\u2019s government by exerting constant pressure.<\/span> Boluarte\u2019s government, both illegitimate and unpopular, honored its alliance with Fuerza Popular by instituting three days of national mourning for the death of Alberto Fujimori, who was sentenced to twenty-five years in prison for human rights abuse and corruption but pardoned on humanitarian grounds in 2017.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Moreover, the framing of the Peruvian paradox itself misconstrues the relationship between the country\u2019s political and economic spheres: Peru\u2019s political and democratic decline is in fact intimately related to its macroeconomic status quo. Since the introduction of the country\u2019s 1993 Constitution, a growth model centered on extractive commodity exports\u2014particularly mineral exports\u2014has consistently generated social and environmental conflict while doing little to reduce stark territorial and urban inequalities, overcome informality, or durably eliminate poverty. This model is predicated upon the need for constant foreign direct investment (FDI) and large foreign reserve accumulation, which further strengthens extractive industries and weakens alternative drivers of investment. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Peru\u2019s twenty-first<sup> <\/sup>century economy has managed to persistently avoid the sort of economic crises that have plagued nearby countries like Venezuela, Bolivia, and Argentina, all of whom, for various reasons, suffered balance of payments adjustments that led to higher inflation and recessions. But stabilizing inflation is not equivalent to a strong developmental agenda. The insulation of the central bank, the Banco Central de Reserva del Peru (BCRP), from scrutiny, together with the reverence given to its leader, erodes opportunities for democratic debate on the prospects for more inclusive development. In its absence, the state turns to force to address escalating unrest.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">An economic miracle?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Peru was a latecomer to industrialization. Until the 1960s, its longstanding and powerful landed oligarchy stood in the way of structural reform. Then in 1968, a military government led by Juan Velasco Alvarado took power and sought to redistribute land and advance industrialization. It carried out a series of agricultural reforms and sectoral nationalizations, such as the expropriation of the holdings of the International Petroleum Company, a subsidiary of Standard Oil of New Jersey. For a handful of years, Peruvian leaders attempted to refashion agriculture and industry such that power would be transferred to participatory cooperatives that incorporated the historically forgotten and abused rural indigenous populations.<a data-contents=\"See Carlos Aguirre and Paulo Drinot, eds., (<)em(>)The Peculiar Revolution: Rethinking the Peruvian Experiment Under Military Rule(<)\/em(>) (Austin: University of Texas Press, 2017).\" class=\"footnote\" id=\"footnote-2\" href=\"#footnote-list-2\">2<\/a><span class=\"p-absolute d-none footnote-full has-white-background-color\">See Carlos Aguirre and Paulo Drinot, eds., (<)em(>)The Peculiar Revolution: Rethinking the Peruvian Experiment Under Military Rule(<)\/em(>) (Austin: University of Texas Press, 2017).<\/span> <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This peculiar form of state capitalism quickly reached its limits. The country\u2019s industrialization push was not able to overcome entrenched forms of economic dependence, including reliance on the import of capital goods and demand for dollars. Furthermore, the Peruvian state lacked the capacity and political mandate to structurally alter accumulation dynamics. Strong political pressure from within the government and the military ultimately put an end to these developmental ambitions. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Beginning in the late 1970s, and especially after the Volcker Shock of 1979, Peru was buffeted by successive balance of payments crises, IMF interventions, and policy experimentation by democratic governments right and left. Orthodox and heterodox shock programs, as well as gradualist alternatives, failed to lead the country\u2019s economy onto a path of sustainable growth and industrial development. The crises were compounded by the large internal rural-to-urban migration that was enlarging the underemployed informal workforce in cities. An onslaught of attacks by the Maoist guerilla group Shining Path and the dirty counter-war by the Peruvian state in the 1980s resulted in nearly seventy thousand deaths, largely in peasant communities. The \u201clost decade\u201d of debt and hyperinflation took an especially brutal form in the Peruvian context. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Alberto Fujimori was elected in 1990 on a platform that rejected neoliberal policymaking, but he changed course even prior to his inauguration. The so-called \u201cFujishock\u201d\u2014a sudden revocation of subsidies and price controls as well as the institution of a floating exchange rate which caused everyday essentials to double or triple in price overnight\u2014was followed by deep structural reforms, privatization, and the general dismantling of the development state apparatus, including the elimination of the developmental bank and planning offices. Under the pretext of combating hyperinflation, Fujimori dissolved Congress, dismissed the judiciary, and seized dictatorial power with military support. What followed was a brutal campaign of arrests and firings that replaced journalists, judges, and government officials with regime representatives. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In 1993, Fujimori proposed a new constitution that was passed by a public vote of 52 percent. Beyond concentrating executive political power, the constitution enshrined a Pinochet-style economic program that banned discriminatory policies against foreign investment and the imposition of exchange controls. The activities of Peru\u2019s central bank were constrained to maintaining price stability, with monetary financing prohibited. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">As a small and suddenly open economy in a globalized world, Peru’s position as a dependent commodity exporter, particularly of primary goods, became more deeply entrenched. A new mining code reinforced by the 1993 Constitution fully privatized the industry and granted foreign investors equal industry access to national ones.<a data-contents=\"See S. Gruber and J. C. Orihuela, \u201cDeeply Rooted Grievance, Varying Meaning: The Institution of the Mining Canon,\u201d in (<)em(>)Resource Booms and Institutional Pathways: The Case of the Extractive Industry in Peru(<)\/em(>), ed. E. Dargent et al. (London: Palgrave Macmillan, 2017), 41\u201367. \" class=\"footnote\" id=\"footnote-3\" href=\"#footnote-list-3\">3<\/a><span class=\"p-absolute d-none footnote-full has-white-background-color\">See S. Gruber and J. C. Orihuela, \u201cDeeply Rooted Grievance, Varying Meaning: The Institution of the Mining Canon,\u201d in (<)em(>)Resource Booms and Institutional Pathways: The Case of the Extractive Industry in Peru(<)\/em(>), ed. E. Dargent et al. (London: Palgrave Macmillan, 2017), 41\u201367. <\/span> A large number of constitutionally protected concessions offered both foreign and domestic mining companies <a href=\"https:\/\/larepublica.pe\/opinion\/2024\/03\/29\/contratos-de-estabilidad-tributaria-e-industrias-extractivas-por-humberto-campodonico-1839264\">protection from taxation<\/a>. Copper and other metals came to represent more than half of exports, with an emerging agricultural export market constituting around 15 percent.\u00a0<\/p>\n\n\n\n<figure class=\"wp-block-image size-large is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"803\" height=\"1024\" src=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/chart1-en-d-803x1024.png\" alt=\"\" class=\"wp-image-33931\" style=\"width:565px;height:auto\" srcset=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/chart1-en-d-803x1024.png 803w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/chart1-en-d-235x300.png 235w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/chart1-en-d-768x979.png 768w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/chart1-en-d-1205x1536.png 1205w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/chart1-en-d-1606x2048.png 1606w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/chart1-en-d-scaled.png 2008w\" sizes=\"auto, (max-width: 803px) 100vw, 803px\" \/><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\"><a href=\"https:\/\/ipe.org.pe\/la-constitucion-de-la-economia-peruana\/\">Standard<\/a> <a href=\"https:\/\/gestion.pe\/opinion\/waldo-mendoza-el-capitulo-economico-de-la-constitucion-de-1993-noticia-2\/\">accounts<\/a> of Peruvian political economy position the constitutional reforms as the reason for the subsequent economic miracle. Indeed, between 1990 and 1996, Peruvian inflation fell to single digits, and privatization earnings and tax reforms reconstituted the country\u2019s fiscal position. Yet the country\u2019s macroeconomic reality was complex. Growth improved modestly, but it was volatile and stood on average at 1 percent. The central bank faced a grave challenge in 1998 when Russia defaulted on its foreign debt. Peru had significant exposure as a result of its opening to foreign flows and the dollarization advanced by the 1990s reforms, and the central bank was unable to impede the onset of a banking crisis due to currency mismatches in Peruvian banks. The recessionary effects, compounded by natural disasters like El Ni\u00f1o and the political demise of <em>fujimorismo,<\/em> lasted until 2001.\u00a0<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Notably, the 1998 crisis was decisive in defining the operative mechanisms of Peru\u2019s central bank for the following decades, tempering some of the most radical reforms of 1993. In its aftermath, the officials at the helm of the BCRP, including left-leaning economists, introduced a new regime organized around counter-cyclical policies to resist deflationary trends, the accumulation of foreign reserves, and tacit management of a floating exchange rate. Underpinning all of this was a sustained push for de-dollarization\u2014an effort that extended well beyond the central bank, and, as former BCRP acting president Oscar Dancourt explained in an interview, one that first required defeating those advocating for adopting the dollar outright, as Ecuador did in 2000. None of these features, nor the cardinal idea of managing the exchange rate alongside price stability, were present in the central bank\u2019s organic law or the 1993 constitution. Rather, they were part of a creative learning process undertaken by a plural group of officials who recognized the risks of subordinated financialization. But while this moderation of neoliberalism helped maintain stability, it did not fundamentally alter the country\u2019s dependent position within the global economy.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The real growth \u201cmiracle\u201d would come in the early twenty-first century, after Fujimori resigned in 2000 amid massive protests over a corruption scandal and an election widely considered to be fraudulent. Between 2002 and 2013, Peru\u2019s GDP grew at an average of 6 percent. Inflation remained low and the domestic currency appreciated due to the capital inflows coming from the country\u2019s export boom. Importantly, the period also saw notable declines in inequality and poverty rates\u2014from 50 percent at the end of Fujimori\u2019s government to 20 percent in 2018\u2014due to targeted social policies as well as increased employment and access to credit.<a data-contents=\"The employment was not necessarily high quality, and high interest rates limited the benefits accrued to small borrowers, meaning that while many did move out of extreme poverty, they did not necessarily obtain reasonable living standards. \" class=\"footnote\" id=\"footnote-4\" href=\"#footnote-list-4\">4<\/a><span class=\"p-absolute d-none footnote-full has-white-background-color\">The employment was not necessarily high quality, and high interest rates limited the benefits accrued to small borrowers, meaning that while many did move out of extreme poverty, they did not necessarily obtain reasonable living standards. <\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">But <a href=\"https:\/\/repositorio.pucp.edu.pe\/items\/576e60b0-c1cc-4580-b491-07fa867bfdf8\">above all<\/a>, these positive trends were buoyed by the commodity boom of the 2000s, which was driven by demand in emerging markets (in particular, China) and aided economies across Latin America.<a data-contents=\"For a Latin American comparison see Jos\u00e9 Antonio Ocampo and Luis B\u00e9rtola, (<)em(>)The Economic Development of Latin America since Independence(<)\/em(>) (Oxford: Oxford University Press, 2013).\" class=\"footnote\" id=\"footnote-5\" href=\"#footnote-list-5\">5<\/a><span class=\"p-absolute d-none footnote-full has-white-background-color\">For a Latin American comparison see Jos\u00e9 Antonio Ocampo and Luis B\u00e9rtola, (<)em(>)The Economic Development of Latin America since Independence(<)\/em(>) (Oxford: Oxford University Press, 2013).<\/span> As this super cycle ended, Peru\u2019s growth rate diminished with rates across the continent, moving from the 6 percent average of the 2000s to 3.5 percent in 2014, then to a meager 1.8 percent in the years after Covid-19. There has also been a profound reversal of poverty rates in the post-pandemic years: Covid exposed the precarity of Peru\u2019s economic progress given the speed with which <a href=\"https:\/\/www.sciencedirect.com\/science\/article\/pii\/S2949856223000077\">economic security evaporated<\/a> for millions of people in the informal economy. While improved terms of trade\u2014superior even to those during the super cycle\u2014are now resulting in a forecasted growth of 3.2 percent, the lasting consequences of the US\u2013Israel war against Iran, as well as domestic turmoil and the threat of the worst-ever El Ni\u00f1o this year, threaten this recovery.\u00a0<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">The risks of export success<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The same macroeconomic policies that generate growth in Peru also generate inequality and precariousness. Economists including <a href=\"https:\/\/www.scielo.org.mx\/scielo.php?script=sci_arttext&pid=S0185-16672011000100005\">Germ\u00e1n Alarco Tosoni<\/a> and <a href=\"https:\/\/repositorio.pucp.edu.pe\/index\/handle\/123456789\/189162\">F\u00e9lix Jim\u00e9nez<\/a> argue that export success in primary goods has likely led to Dutch disease\u2014financial flows from the mining industry that appreciate the currency, crowd out other value-added activities and slow internal motors for aggregate demand.<a data-contents=\"A version of this argument stressing the connection between monetary policy and industrial development was recently restated in Germ\u00e1n Alarco, Patricia del Hierro, and Luis Rodrigo D\u00edaz, (<)em(>)Banca Central y Pol\u00edtica Monetaria en Latinoam\u00e9rica(<)\/em(>) (Lima: Otra Mirada, 2026).\" class=\"footnote\" id=\"footnote-6\" href=\"#footnote-list-6\">6<\/a><span class=\"p-absolute d-none footnote-full has-white-background-color\">A version of this argument stressing the connection between monetary policy and industrial development was recently restated in Germ\u00e1n Alarco, Patricia del Hierro, and Luis Rodrigo D\u00edaz, (<)em(>)Banca Central y Pol\u00edtica Monetaria en Latinoam\u00e9rica(<)\/em(>) (Lima: Otra Mirada, 2026).<\/span> Currency appreciation also increases the demand for imports as domestic substitutes fall prey to the re-primarization process, putting pressure on the trade balance. These effects are most apparent in manufacturing. The growth experienced during the 1990s actively reversed the incipient industrialization from earlier decades, prompting a turn to \u201cpremature de-industrialization,\u201d as Jim\u00e9nez has argued: <a href=\"https:\/\/revistas.pucp.edu.pe\/index.php\/economia\/article\/view\/19797\/19848\">manufacturing\u2019s contribution to economic growth<\/a> fell from 17.7 percent in 2003 to 6.4 percent by 2015. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">There have also been severe effects in the traditional agriculture sector. The country\u2019s open trade regime has made imported food increasingly competitive against domestically produced staples. This trend is reinforced by the restaurant and hospitality sectors’ preference for standardized, lower-cost inputs, such as imported potatoes (despite Peru being the historical birthplace of the cultivated potato and still maintaining significant potato production). Absent active public policy intervention, traditional agriculture is headed toward decline, threatening food security in the country and the livelihood of a significant fraction of the population.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Peru\u2019s economic growth has made informal employment an essential feature of the country\u2019s economy. Mining employs few workers: the sector currently represents around 9 percent of GDP, and more than 60 percent of exports, but gives direct employment to less than 2 percent of the active work force. The informal service sector amounts to around 70 percent of the active workforce but only amounts to 17 percent of GDP. Notably, informality is not confined to the informal sector: approximately one-fifth of informal workers are employed within formally registered firms, revealing that even the country\u2019s formal sector relies on cheaper, unregulated labor. This model preserves regional hierarchies and inequalities, generating few productive non-extractive linkages between different economic activities throughout the territory.<a data-contents=\"Efrain Gonzalez de Olarte has offered views on the sectoral and spatial articulation of Peru\u2019s economy in diverse works. One recent paper measures the productivity differentials in the formal and informal sector with the help of an input-output table: \u201cInformalidad, productividades e ingresos en el Per\u00fa: An\u00e1lisis sectorial,\u201d Working Paper no. 546, Departamento de Econom\u00eda, Pontificia Universidad Cat\u00f3lica del Per\u00fa (PUCP), 2025.\" class=\"footnote\" id=\"footnote-7\" href=\"#footnote-list-7\">7<\/a><span class=\"p-absolute d-none footnote-full has-white-background-color\">Efrain Gonzalez de Olarte has offered views on the sectoral and spatial articulation of Peru\u2019s economy in diverse works. One recent paper measures the productivity differentials in the formal and informal sector with the help of an input-output table: \u201cInformalidad, productividades e ingresos en el Per\u00fa: An\u00e1lisis sectorial,\u201d Working Paper no. 546, Departamento de Econom\u00eda, Pontificia Universidad Cat\u00f3lica del Per\u00fa (PUCP), 2025.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Moreover, the commodity super cycle that powered the economy also strengthened informal and illegal actors who continue to contest the state\u2019s regulatory power\u2014from those carrying out informal mining to players in the drug trade who benefit from the money laundering potential of Lima\u2019s sprawling service economy.<a data-contents=\"See Juan Pablo Luna, Andreas E. Feldmann, and Eduardo Dargent, \u201cGreater State Capacity, Lesser Stateness: Lessons from the Peruvian Commodity Boom,\u201d (<)em(>)Politics & Society(<)\/em(>) 45, no. 1 (2017): 3\u201334; and Zara\u00ed Toledo Orozco, \u201cInformal Gold Miners, State Fragmentation, and Resource Governance in Bolivia and Peru,\u201d (<)em(>)Latin American Politics and Society(<)\/em(>) 64, no. 2 (2022): 45\u201366. \" class=\"footnote\" id=\"footnote-8\" href=\"#footnote-list-8\">8<\/a><span class=\"p-absolute d-none footnote-full has-white-background-color\">See Juan Pablo Luna, Andreas E. Feldmann, and Eduardo Dargent, \u201cGreater State Capacity, Lesser Stateness: Lessons from the Peruvian Commodity Boom,\u201d (<)em(>)Politics & Society(<)\/em(>) 45, no. 1 (2017): 3\u201334; and Zara\u00ed Toledo Orozco, \u201cInformal Gold Miners, State Fragmentation, and Resource Governance in Bolivia and Peru,\u201d (<)em(>)Latin American Politics and Society(<)\/em(>) 64, no. 2 (2022): 45\u201366. <\/span> A weak and constrained state governs these actors through \u201cnon-enforcement,\u201d deliberate \u201cforbearance,\u201d or outright complicity, tolerating them due to their usefulness for producing employment, as scholars such as Alisha Holland have argued.<a data-contents=\"See Alisha C. Holland, (<)em(>)Forbearance as Redistribution: The Politics of Informal Welfare in Latin America(<)\/em(>) (New York: Cambridge University Press, 2017); and Mat\u00edas Dewey, Cornelia Woll, and Lucas Ronconi, \u201cThe Political Economy of Law Enforcement,\u201d MaxPo Discussion Paper no. 21\/1, Max Planck Sciences Po Center on Coping with Instability in Market Societies, Paris, 2021. \" class=\"footnote\" id=\"footnote-9\" href=\"#footnote-list-9\">9<\/a><span class=\"p-absolute d-none footnote-full has-white-background-color\">See Alisha C. Holland, (<)em(>)Forbearance as Redistribution: The Politics of Informal Welfare in Latin America(<)\/em(>) (New York: Cambridge University Press, 2017); and Mat\u00edas Dewey, Cornelia Woll, and Lucas Ronconi, \u201cThe Political Economy of Law Enforcement,\u201d MaxPo Discussion Paper no. 21\/1, Max Planck Sciences Po Center on Coping with Instability in Market Societies, Paris, 2021. <\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Peru\u2019s open economic regime introduces external vulnerabilities as well, not just in the trade balance, but in the whole balance of payments. The country <a href=\"https:\/\/onlinelibrary.wiley.com\/doi\/full\/10.1111\/dech.12793\">relies on FDI<\/a> to stave off any balance of payments crises. However, these inflows come with sudden and systematic financial outflows, given that the favorable conditions for securing high returns to foreign investment, such as lower regulatory standards, international arbitration conditions and commitments to an easy capital exit guaranteed by large international reserves, facilitate the repatriation of profits. Short-term financial flows, in particular, are prone to sudden volatility. Longer-term FDI flows and export dependence generate risks to the country\u2019s current account, which is plagued by a structural deficit in services and primary incomes. Exports of goods and FDI investment both depend on foreign professional services like freight, scientific expertise, and legal and financial consulting. Returns from FDI thus ultimately finance growing external indebtedness, both private and public.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"916\" height=\"1024\" src=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/chart2-en-d-916x1024.png\" alt=\"\" class=\"wp-image-33934\" style=\"aspect-ratio:0.8945230598221091;width:501px;height:auto\" srcset=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/chart2-en-d-916x1024.png 916w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/chart2-en-d-268x300.png 268w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/chart2-en-d-768x858.png 768w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/chart2-en-d-1374x1536.png 1374w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/chart2-en-d-1832x2048.png 1832w\" sizes=\"auto, (max-width: 916px) 100vw, 916px\" \/><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">This circulation of capital would not be a problem if investment flows were oriented towards driving technical and structural change and scaling up the complexity of Peru\u2019s production and exports.<a data-contents=\"For more on the importance of structural change in developing economies, see Gabriel Porcile and Giuliano Toshiro Yajima, \u201cNew Structuralism and the Balance-of-Payments Constraint,\u201d (<)em(>)Review of Keynesian Economics(<)\/em(>) 7, no. 4 (2019): 517\u201336. \" class=\"footnote\" id=\"footnote-10\" href=\"#footnote-list-10\">10<\/a><span class=\"p-absolute d-none footnote-full has-white-background-color\">For more on the importance of structural change in developing economies, see Gabriel Porcile and Giuliano Toshiro Yajima, \u201cNew Structuralism and the Balance-of-Payments Constraint,\u201d (<)em(>)Review of Keynesian Economics(<)\/em(>) 7, no. 4 (2019): 517\u201336. <\/span>  Instead, these flows are further entrenching re-primarization. As scholars <a href=\"https:\/\/onlinelibrary.wiley.com\/doi\/full\/10.1111\/dech.12793\">Samuele Bibi and Sebastian Valdecantos<\/a> put it in Minskyan terms, Peru\u2019s external accounts profile, when the export winds are weak, has the form of an unsustainable Ponzi scheme.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This structural weakness is counterbalanced by the country\u2019s low public spending, a large low-wage and informal workforce, large remittances flows from emigrated Peruvians and the favorable terms of trade of Peru\u2019s export basket. Balance of payments crises are prevented through interest rates hikes that lure foreign capital, macroprudential (reserve) requirements to rein in hot foreign financial flows, and the accumulation and management of foreign reserves to both intervene in the open exchange market, and to dissuade\u2014by signaling the capacity for further interventions\u2014speculative attacks on Peru\u2019s currency.<a data-contents=\" See Renzo Rossini, \u201cLa pol\u00edtica monetaria del Banco Central de Reserva del Per\u00fa,\u201d in (<)em(>)Pol\u00edtica y estabilidad monetaria en el Per\u00fa,(<)\/em(>) ed. Gustavo Yamada and Diego Winkelried (Lima: Universidad del Pac\u00edfico, 2016).\" class=\"footnote\" id=\"footnote-11\" href=\"#footnote-list-11\">11<\/a><span class=\"p-absolute d-none footnote-full has-white-background-color\"> See Renzo Rossini, \u201cLa pol\u00edtica monetaria del Banco Central de Reserva del Per\u00fa,\u201d in (<)em(>)Pol\u00edtica y estabilidad monetaria en el Per\u00fa,(<)\/em(>) ed. Gustavo Yamada and Diego Winkelried (Lima: Universidad del Pac\u00edfico, 2016).<\/span> <\/p>\n\n\n\n<figure class=\"wp-block-image size-large is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"878\" height=\"1024\" src=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/chart3-en-d-878x1024.png\" alt=\"\" class=\"wp-image-33937\" style=\"aspect-ratio:0.8574277291263235;width:581px;height:auto\" srcset=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/chart3-en-d-878x1024.png 878w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/chart3-en-d-257x300.png 257w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/chart3-en-d-768x896.png 768w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/chart3-en-d-1317x1536.png 1317w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/chart3-en-d-1756x2048.png 1756w\" sizes=\"auto, (max-width: 878px) 100vw, 878px\" \/><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">Indeed, BCRP\u2019s large foreign exchange reserves have become a <a href=\"https:\/\/www.sciencedirect.com\/science\/article\/abs\/pii\/S0164070425000096?via%3Dihub\">centerpiece<\/a> of Peru\u2019s macroeconomic stability. Foreign reserve accumulation works as <a href=\"https:\/\/www.bis.org\/publ\/bppdf\/bispap104q.pdf\">insurance<\/a> <a href=\"https:\/\/www.aeaweb.org\/articles?id=10.1257\/mac.2.2.57\">against<\/a> a volatile financial market that can excessively punish economies with currency at lower levels in the monetary hierarchy, and is a strategy that has been used by numerous peripheral economies since the instabilities of the 1990s. However, even in comparison to other Latin American countries, Peru\u2019s accumulation of reserves is particularly large. It not only leads in foreign reserves as a share of GDP in Latin America in the last decade, but boasts double the continent’s average amount of reserves. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Large foreign reserves give Peru some degree of monetary policy autonomy, despite open capital accounts, enabling the central bank to reduce the volatility of the exchange rate and signal to markets about the availability of liquid currencies, which pacify nervous investors. Their opportunity costs are far less discussed.<a data-contents=\"For instance, the accumulation of reserves entails sterilized interventions by the Central Bank to reduce the money supply and keep inflation at bay. There is an open debate, even in heterodox economics, about the advantages or disadvantages of such operations. For a critical view, Eduardo Torijo-Zane has argued that these sterilized FX purchases (not rare in peripheral countries but marked in Peru\u2019s case), load bank balance sheets with risk-free, high-yield central bank papers. Primary dealer banks face a persistent incentive to hold BCRP instruments over extending productive private credit, compressing the risk appetite of precisely the institutions with the deepest intermediation capacity. See \u201cBancos Centrales \u2018Perif\u00e9ricos\u2019: El Caso de Am\u00e9rica Latina,\u201d in (<)em(>)Estructura Productiva y Pol\u00edtica Macroecon\u00f3mica. Enfoques Heterodoxos Desde Am\u00e9rica Latina(<)\/em(>). (CEPAL, 2015).\" class=\"footnote\" id=\"footnote-12\" href=\"#footnote-list-12\">12<\/a><span class=\"p-absolute d-none footnote-full has-white-background-color\">For instance, the accumulation of reserves entails sterilized interventions by the Central Bank to reduce the money supply and keep inflation at bay. There is an open debate, even in heterodox economics, about the advantages or disadvantages of such operations. For a critical view, Eduardo Torijo-Zane has argued that these sterilized FX purchases (not rare in peripheral countries but marked in Peru\u2019s case), load bank balance sheets with risk-free, high-yield central bank papers. Primary dealer banks face a persistent incentive to hold BCRP instruments over extending productive private credit, compressing the risk appetite of precisely the institutions with the deepest intermediation capacity. See \u201cBancos Centrales \u2018Perif\u00e9ricos\u2019: El Caso de Am\u00e9rica Latina,\u201d in (<)em(>)Estructura Productiva y Pol\u00edtica Macroecon\u00f3mica. Enfoques Heterodoxos Desde Am\u00e9rica Latina(<)\/em(>). (CEPAL, 2015).<\/span> By <a href=\"https:\/\/ideas.repec.org\/a\/taf\/rripxx\/v30y2023i1p281-306.html\">diverting capital away<\/a> from productive domestic investments, <a href=\"https:\/\/www.taylorfrancis.com\/books\/mono\/10.4324\/9781315670287\/financialisation-emerging-economies-juan-pablo-painceira\">reserve accumulation<\/a> locks the country into dollar-dominated financial subordination. Instead of being channeled into <a href=\"https:\/\/www.tandfonline.com\/doi\/abs\/10.1080\/10168730600879331\">local development projects<\/a>, these funds are typically recycled into the global financial core: foreign reserves are predominantly held in highly liquid and perceived safe assets like US Treasury bills. A \u201c<a href=\"https:\/\/ideas.repec.org\/\/p\/hkm\/wpaper\/382009.html\">fear of losing reserves<\/a>\u201d not only restricts policy autonomy, but prompts a cyclical expansion of reserve accumulation in order to continually secure market confidence.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Hollowed democracy<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">In a retreat from the democratic promise of social transformation that brought Alberto Fujimori\u2019s downfall at the start of the millennium, Peru\u2019s political economy has seen tightening links between governing elites, foreign investors, and domestic business interests that are mutually invested in the extractive sectors of mining, utilities and agrobusiness. In contrast to the widespread narrative that Peru\u2019s political instability is the result of incompetence (which its macroeconomic policy is shielded from), these links suggest that, as the late Peruvian sociologist Francisco Durand has argued, the failure of Peru\u2019s political institutions is directly related to their capture by business.<a data-contents=\"See Francisco Durand, “El problema del fortalecimiento institucional empresarial,” in (<)em(>)Construir instituciones: Democracia, desarrollo y desigualdad en el Per\u00fa desde 1980(<)\/em(>), ed. John Crabtree (Lima: Instituto de Estudios Peruanos, 2006); and John Crabtree and Francisco Durand, (<)em(>)Per\u00fa: \u00c9lites del poder y captura pol\u00edtica(<)\/em(>) (Lima: Red para el Desarrollo de las Ciencias Sociales en el Per\u00fa, 2017).\" class=\"footnote\" id=\"footnote-13\" href=\"#footnote-list-13\">13<\/a><span class=\"p-absolute d-none footnote-full has-white-background-color\">See Francisco Durand, “El problema del fortalecimiento institucional empresarial,” in (<)em(>)Construir instituciones: Democracia, desarrollo y desigualdad en el Per\u00fa desde 1980(<)\/em(>), ed. John Crabtree (Lima: Instituto de Estudios Peruanos, 2006); and John Crabtree and Francisco Durand, (<)em(>)Per\u00fa: \u00c9lites del poder y captura pol\u00edtica(<)\/em(>) (Lima: Red para el Desarrollo de las Ciencias Sociales en el Per\u00fa, 2017).<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The expansion of mining, utilities, and agribusiness has both triggered popular resistance and strengthened the repressive capacity of the state. In 2009, Peru\u2019s government issued decrees allowing private companies to exploit natural resources on indigenous land in the Amazon. After Awajun and Wampis indigenous people blocked highways in the city of Bagua in protest, the government sent in the police, resulting in the deaths of at least ten indigenous people and twenty-three police officers, and more than 150 injuries (witnesses allege that civilian deaths were <a href=\"https:\/\/www.hrw.org\/news\/2009\/06\/10\/peru-investigate-violence-bagua\">undercounted<\/a>). Excessive government force, and the consolidation of political and economic power, risk further deteriorating the infrastructure for popular political engagement. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Overwhelmingly, the extractivist nature of Peru\u2019s macroeconomy has generated what Roger Merino termed a cynical state\u2014one that ostensibly aims to respond to the social and environmental concerns of the population while watering down regulations in pursuit of FDI. One prime example of this is the presidency of Ollanta Humala. Humala came to power in 2011 with a progressive agenda, promising to respond to indigenous grievances, but under constant pressure in elite corners and the media he appointed conservative figures to run the ministry of finance and the central bank. After six months, most of the left-leaning ministers were out of the cabinet, and the government betrayed its promises to not impose extractive industries on communities, <a href=\"https:\/\/www.bbc.com\/news\/world-latin-america-18980109\">violently repressing protests<\/a> against an enormous gold mine in Cajamarca (protests which were ultimately successful).<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It\u2019s also become increasingly evident that the central bank has less technocratic autonomy than is commonly portrayed. In 2021, the election of Castillo, a leftist rural teacher, led to a massive short-term capital outflow that strained the exchange rate, reaching the level of four soles to the dollar\u2014the highest since the currency was introduced in 1990. As critical observers <a href=\"https:\/\/otramirada.pe\/economia\/esta-el-banco-central-combatiendo-realmente-el-alza-del-dolar\">argued at the time<\/a>, the central bank had the ability to stabilize the exchange rate using their large reserves, but refrained from doing so. This revealed either\u2014as some on the left argued\u2014an attempt to pressure the incoming government to change political course, or limits to the policy autonomy created with accumulated reserves due to the pervasive fear of losing them. Either way, the turbulence destabilized the already fragile left coalition around Castillo.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Generally, leftist leaders struggle to make inroads against elite protection of central bank policies. When, this year, presidential hopeful and former central bank director Alfonso Lopez Chau proposed the creation of a sovereign wealth fund, the idea was dismissed as a sacrilegious violation of the central bank\u2019s hard-earned foreign reserves.<a data-contents=\" Ironically, a very similar proposal was articulated in 2025 by Jorge Baca-Campodonico, a former Alberto Fujimori minister, and current Keiko Fujimori advisor.\" class=\"footnote\" id=\"footnote-14\" href=\"#footnote-list-14\">14<\/a><span class=\"p-absolute d-none footnote-full has-white-background-color\"> Ironically, a very similar proposal was articulated in 2025 by Jorge Baca-Campodonico, a former Alberto Fujimori minister, and current Keiko Fujimori advisor.<\/span> The ensuing backlash forced Lopez Chau <a href=\"https:\/\/www.youtube.com\/shorts\/ETeXnpq75cE\">to commit<\/a> to reinstating Velarde if he was elected president, and to seek Velarde\u2019s approval for his economic policy. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The incoming Fujimori government is poised to deepen the forces behind Peru\u2019s so-called paradox\u2014its extractivist, FDI-led growth model, and the democratic weakening that it generates. Nonetheless, her strong grip on the levers of state power will bring significant changes. Her party has been advocating to increase the repressive powers of the state under the guise of tackling insecurity and criminality. Her followers have passed laws granting impunity to police and armed forces repressing dissent, which paves the way for further extractive projects. The human rights international system, which once worked as a check in the past, is now compromised given the extreme right-wing shift of the hemisphere led by the US. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Rejecting the separation of politics and economic policy is essential to undoing the pattern. It is only by opening up the space of economic deliberation that a new, democratic developmental agenda can be forged.\u00a0<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n","protected":false},"excerpt":{"rendered":"<p>On July 28, Keiko Fujimori, daughter of Peru\u2019s former dictator Alberto Fujimori, was inaugurated as the country\u2019s incoming president. After three previous failed attempts at the office, Fujimori succeeded by promising to bring an end to a decade of intensifying crises in Peruvian politics: she will be the tenth president to serve in the past […]<\/p>\n","protected":false},"author":463,"featured_media":33947,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4],"tags":[114,39,33],"issue":[],"newsletter":[],"region":[1011,1153],"sector":[1041,1044],"theme":[1089,1095,1086],"series":[],"class_list":["post-33925","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-analysis","tag-development","tag-economics","tag-finance","region-latin-america-and-the-caribbean","region-peru","sector-agriculture","sector-mining-extraction","theme-finance-development","theme-governance-party-politics","theme-macroeconomy"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v28.5 - 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Credit: Kelly Pariona Lagos"},{"@type":"BreadcrumbList","@id":"https:\/\/phenomenalworld.org\/analysis\/perus-so-called-paradox\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/phenomenalworld.org\/"},{"@type":"ListItem","position":2,"name":"Peru’s So-Called Paradox"}]},{"@type":"WebSite","@id":"https:\/\/phenomenalworld.org\/#website","url":"https:\/\/phenomenalworld.org\/","name":"Phenomenal World","description":"A publication focused on political economy.","publisher":{"@id":"https:\/\/phenomenalworld.org\/#organization"},"potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/phenomenalworld.org\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Organization","@id":"https:\/\/phenomenalworld.org\/#organization","name":"Phenomenal World","url":"https:\/\/phenomenalworld.org\/","logo":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/phenomenalworld.org\/#\/schema\/logo\/image\/","url":"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2021\/11\/pw-icon.png","contentUrl":"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2021\/11\/pw-icon.png","width":512,"height":512,"caption":"Phenomenal World"},"image":{"@id":"https:\/\/phenomenalworld.org\/#\/schema\/logo\/image\/"},"sameAs":["https:\/\/x.com\/WorldPhenomenal"]},{"@type":"Person","@id":"https:\/\/phenomenalworld.org\/#\/schema\/person\/9e7ec843eb879c75a0052e6e079b8ef3","name":"Stephan Gruber","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/secure.gravatar.com\/avatar\/78d06fcb378dd7bf607e411a1a948d0d9b7c6c90d1812fdf5bd342d25e8d5a01?s=96&d=mm&r=g","url":"https:\/\/secure.gravatar.com\/avatar\/78d06fcb378dd7bf607e411a1a948d0d9b7c6c90d1812fdf5bd342d25e8d5a01?s=96&d=mm&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/78d06fcb378dd7bf607e411a1a948d0d9b7c6c90d1812fdf5bd342d25e8d5a01?s=96&d=mm&r=g","caption":"Stephan Gruber"},"description":"Stephan Gruber is a senior researcher at Institute Max Planck for the Study of Societies, Cologne, Germany.","url":"https:\/\/phenomenalworld.org\/author\/stephan-gruber\/"}]}},"_links":{"self":[{"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/posts\/33925","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/users\/463"}],"replies":[{"embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/comments?post=33925"}],"version-history":[{"count":51,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/posts\/33925\/revisions"}],"predecessor-version":[{"id":34022,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/posts\/33925\/revisions\/34022"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/media\/33947"}],"wp:attachment":[{"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/media?parent=33925"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/categories?post=33925"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/tags?post=33925"},{"taxonomy":"issue","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/issue?post=33925"},{"taxonomy":"newsletter","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/newsletter?post=33925"},{"taxonomy":"region","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/region?post=33925"},{"taxonomy":"sector","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/sector?post=33925"},{"taxonomy":"theme","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/theme?post=33925"},{"taxonomy":"series","embeddable":true,"href":"https:\/\/phenomenalworld.org\/wp-json\/wp\/v2\/series?post=33925"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}},{"id":33881,"date":"2026-08-13T10:51:16","date_gmt":"2026-08-13T10:51:16","guid":{"rendered":"https:\/\/phenomenalworld.org\/?p=33881"},"modified":"2026-08-13T14:10:06","modified_gmt":"2026-08-13T14:10:06","slug":"africas-green-strategy","status":"publish","type":"post","link":"https:\/\/phenomenalworld.org\/analysis\/africas-green-strategy\/","title":{"rendered":"Green Strategy in Africa"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">For decades, South Africa was the great success story of African industrialization. Last year, Morocco took the lead, emerging as the African Development Bank\u2019s top-ranked industrial economy in Africa. In the Bank\u2019s analysis, published in the <a href=\"https:\/\/www.afdb.org\/en\/news-and-events\/press-releases\/am2026-morocco-named-africas-industrialization-leader-new-african-development-bank-index-93601\">latest edition<\/a> of its industrialization index, Morocco\u2019s growth has been \u201cdriven by sustained industrial upgrading, export diversification, and strong industrial policy.\u201d Since the mid-2000s, it has leveraged its location and dominant phosphate reserves to get free trade agreements with the US, the EU, and fifty other countries: the Kingdom would like Morocco to be to France what Eastern Europe is to Germany, or what Mexico is to the US: an export-base \u201cworkbench.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Having positioned itself to profit from the shift to clean energy supply, Morocco is nimbly <a href=\"https:\/\/static1.squarespace.com\/static\/64ca7e081e376c26a5319f0b\/t\/6509dcd23997ca57fb0bcc2f\/1695145170321\/GP01+Morocco+vf.pdf\">pivoting<\/a> its auto manufacturing sector to build EVs, working with incumbents like Renault and Stellantis, and is host to Africa\u2019s first battery gigafactory. That single 70 gigawatt-hour battery factory in Casablanca is <a href=\"https:\/\/www.bloomberg.com\/opinion\/articles\/2025-09-09\/china-is-winning-its-power-play-for-the-global-south?embedded-checkout=true&srnd=undefined\">expected<\/a> to supply a third of Europe\u2019s current market. Last year, the government approved construction for a new <a href=\"https:\/\/www.reuters.com\/sustainability\/sustainable-finance-reporting\/morocco-approves-green-hydrogen-projects-worth-325-bln-2025-03-06\/\">green hydrogen<\/a> industrial park, aiming to produce ammonia, steel, and industrial fuel worth a total of $32.5 billion. It has also been strategic in focusing its industrial strategy on aerospace manufacturing, with <a href=\"https:\/\/northafricapost.com\/91241-airbus-deepens-industrial-presence-in-morocco-with-new-investments.html\">Airbus<\/a> becoming a strategic partner, along with investments from Boeing, Thales, and Safran. Its aerospace exports more than tripled in the decade to 2024, to reach almost $3 billion.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">For its part, South Africa\u2019s once-successful car, steel, and chemical processing industries have, since 2019, gone into decline. Its industrial capacity is hampered by chronic electricity shortages, a hollowed-out twentieth-century industrial base, and the <a href=\"https:\/\/adamtooze.com\/2023\/04\/16\/carbon-notes-4-from-feast-to-famine-apartheids-power-bonanza-and-the-genesis-of-south-africas-electricity-crisis\/\">failures<\/a> of its coal-heavy, state-owned public utility, Eskom. Encumbered by an outdated model of fossil fuel<em>\u2013<\/em>based industrialization, it is now in <a href=\"https:\/\/www.bloomberg.com\/news\/articles\/2026-08-11\/south-african-unemployment-rate-jumps-to-four-year-high-of-33-6?sref=vuYGislZ\">danger<\/a> of being left behind in the clean transition.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"608\" src=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/image-1024x608.png\" alt=\"\" class=\"wp-image-33882\" srcset=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/image-1024x608.png 1024w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/image-300x178.png 300w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/image-768x456.png 768w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/image.png 1476w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><figcaption class=\"wp-element-caption\">South Africa\u2019s industrialization rating declined since the AfDB\u2019s index began in 2010, while Morocco\u2019s has improved, especially rapidly in the past decade.<\/figcaption><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">Despite improvements in some other countries, about a quarter of the fifty-four nations tracked in the African Development Bank\u2019s index have gone backwards in their overall industrialization score over the course of the last fifteen years. The continent currently accounts for less than 2 percent of global manufacturing output and just 1.4 percent of manufacturing exports, and manufacturing value-add per capita is lower than it was in 2014. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">With the US and China locked into their own asymmetric power struggles, and with middle powers trying to escape from networked interdependence, most African countries have been left to fend for themselves, reliant on a mixture of luck, resourcefulness, and bargaining ability. Negotiations over technology transfer, market access, and finance deals have become a feature of the new cold war of this decade. This is what, in 2024, <a href=\"https:\/\/phenomenalworld.org\/analysis\/marshall-plans\/\">we referred to as<\/a> \u201cstrategic green industrial diplomacy.\u201d In the case of sub-Saharan Africa, these efforts must now contend with extraordinary new obstacles for development created by the crumbling of the US-led world order.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Global environment<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">African development has come up against significant obstacles over the last few years. As the <a href=\"https:\/\/foreignpolicy.com\/live\/adam-tooze-end-of-development\/\">liberal vision of global development<\/a> appears to be coming undone, both trade and aid\u2014two main sources of African growth\u2014have taken big blows. If the first Trump administration, eager to counter Chinese influence, maintained the status quo in terms of the US\u2019s strategy in Africa, <a href=\"https:\/\/academic.oup.com\/afraf\/article\/125\/499\/341\/8704472\">the second<\/a> has changed course. \u201cAmerica First\u201d policies have meant that the US has taken an axe to African trade, <a href=\"https:\/\/carnegieendowment.org\/research\/2026\/05\/agoa-africa-trade-tariffs-reform-united-states-trump\">all but abandoning<\/a> the African Growth and Opportunity Act, which had been introduced in 2000 to lift trade between the US and sub-Saharan Africa. Europe and China have traditionally been larger export markets for Africa, but have hardly proved themselves reliable friends, either. For its part, Europe is set to impose a carbon border tax, which will be particularly painful for a handful of African countries. Meanwhile, China continues to occupy a <a href=\"https:\/\/www.piie.com\/publications\/working-papers\/2026\/chinas-mercantilist-squeeze-developing-countries\">large share<\/a> of low-value manufacturing, squeezing developing countries\u2019 efforts to develop their own manufacturing sector. Though China has pledged to keep tariffs to zero for most African countries, this will have <a href=\"https:\/\/chinaglobalsouth.com\/analysis\/china-zero-tariff-africa-trade-impact\/\">little impact<\/a> on the steep asymmetry of their trade relationship.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The elimination of USAID last year hit African countries hardest. It has already <a href=\"https:\/\/hsph.harvard.edu\/news\/usaid-shutdown-has-led-to-hundreds-of-thousands-of-deaths\/\">caused<\/a> hundreds of thousands of deaths, disrupted health systems across the continent, and meant that a new strain of Ebola in the DRC and Uganda has spread more quickly. In the wake of USAID, the Trump administration\u2019s America First Global Health Strategy <a href=\"https:\/\/www.state.gov\/america-first-global-health-strategy\">focuses on<\/a> \u201cprevent[ing] infectious diseases from reaching US shores,\u201d and <a href=\"https:\/\/www.propublica.org\/article\/trump-state-department-africa-uganda-aid-medical-data-privacy\">demands<\/a> that African governments hand over the health data of their citizens in exchange for basic medical aid needed to address HIV, malaria, tuberculosis, and other illnesses. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It is not just the US that is repealing its allocations to sub-Saharan Africa. Traditional development finance has been diminishing for the last fifteen years, and while some new sources have emerged\u2014particularly from China and the United Arab Emirates\u2014their scale is far from what\u2019s needed. <\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"745\" src=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/image-1-1024x745.png\" alt=\"\" class=\"wp-image-33885\" srcset=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/image-1-1024x745.png 1024w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/image-1-300x218.png 300w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/image-1-768x559.png 768w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/image-1.png 1490w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><figcaption class=\"wp-element-caption\">The UAE has recently pipped China, the UK, France, and the US as the largest foreign investor in African countries. Source: <a href=\"https:\/\/www.ft.com\/content\/a4c6e5da-dc9f-43b0-a794-c3f6bb9bca7d?shareType=nongift\">FT<\/a><\/figcaption><\/figure>\n\n\n\n<h3 class=\"wp-block-heading\">Solar-powered continent<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Amid these constraints, African governments are attempting to find some room for manoeuvre. One major new development across the continent has been the purchase of enormous quantities of solar panels from China, which means radically improved access to electricity. The continent\u2019s imports of solar panels rose by <a href=\"https:\/\/ember-energy.org\/latest-updates\/africas-solar-imports-surge-60-giving-the-first-evidence-of-a-take-off-in-solar-in-africa\/\">60 percent<\/a> last year; it was up thirty-three-fold in Algeria; six-fold in Zambia, Botswana, and Sudan, and three-fold in the DRC, Angola, and Ethiopia. This has been helped by China\u2019s own industrial policy, which has been pushing the price of solar panels and batteries even lower. The rapid shift to solar has allowed many sub-Saharan countries still struggling with energy access to leapfrog the build-out of fossil fuel<em>\u2013<\/em>intensive infrastructure, and go straight to distributed energy.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">That said, the scale of Africa’s electricity access gap remains staggering. Sub-Saharan Africa <a href=\"https:\/\/www.irena.org\/Publications\/2026\/Jun\/Tracking-SDG-7-The-Energy-Progress-Report-2026\">accounted for<\/a> 86 percent of the global electricity access gap in 2024. Some 563 million people in the region still live without power. This <a href=\"https:\/\/abcnews.com\/International\/wireStory\/africa-homegrown-solar-boost-reliance-chinas-shadow-remains-135477288\">sudden<\/a> access to electricity is an unalloyed good, not just for the tens of millions of people now receiving stable electricity, but also for the powering of growth-enhancing activities. Reliable electricity is the sine qua non for development, enabling <a href=\"https:\/\/www.foodmanufacturing.com\/supply-chain\/news\/22968941\/solar-cold-storage-helps-african-farmers-cut-losses-and-reach-global-markets\">cold storage<\/a> for agriculture, power for small manufacturers, lighting for schools and clinics, and connectivity for the digital economy. <\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"989\" src=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/image-2-1024x989.png\" alt=\"\" class=\"wp-image-33888\" srcset=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/image-2-1024x989.png 1024w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/image-2-300x290.png 300w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/image-2-768x742.png 768w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/image-2-1536x1484.png 1536w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/image-2.png 1588w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><figcaption class=\"wp-element-caption\">There has been a major acceleration in African countries\u2019 solar panel imports from China in the last two years. These panels are producing a lot of electricity and displacing diesel generators in many cases. Source: <a href=\"https:\/\/ember-energy.org\/latest-insights\/the-first-evidence-of-a-take-off-in-solar-in-africa\/\">Ember<\/a><br><\/figcaption><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">The boom in Chinese solar panel installations has prompted some African countries to try to move up the value chain in the manufacture\u2014or at least in the assembly\u2014of solar power gear. This turn from importing finished products to components for assembly has happened <a href=\"https:\/\/payneinstitute.mines.edu\/africas-solar-inflection-point\/\">incredibly quickly<\/a>; it was only a few months ago, in late 2025, that imports of cells and wafers, the primary components of solar panels, <a href=\"https:\/\/bsky.app\/profile\/cleanpowerdave.bsky.social\/post\/3mmgio4uw3k2i\">overtook imports of finished panels<\/a> by capacity.  South Africa, Morocco, Ethiopia, Kenya, Tanzania, and Nigeria each have their own assembly plants, and Angola has an MOU for a Chinese assembly plant to come. Without the fiscal latitude of richer countries to jumpstart local industries\u2014typical tools are tax exemptions and special economic zones\u2014African nations must use other bargaining chips to secure foreign investments.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"459\" src=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/image-1024x459.jpeg\" alt=\"\" class=\"wp-image-33891\" srcset=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/image-1024x459.jpeg 1024w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/image-300x134.jpeg 300w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/image-768x344.jpeg 768w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/image-1536x688.jpeg 1536w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/image.jpeg 1714w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><figcaption class=\"wp-element-caption\">There has been a surge in solar manufacturing capacity in 2025-26. Source: <a href=\"https:\/\/www.esi-africa.com\/renewable-energy\/solar\/mena-solar-manufacturing-alternative-china\/\">Middle Eastern Solar Industry Association<\/a> (left); <a href=\"https:\/\/bsky.app\/profile\/cleanpowerdave.bsky.social\/post\/3mmgio4uw3k2i\">Ember<\/a> (right).<\/figcaption><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">In exchange for investments in manufacturing plants, African countries can offer access to their own markets as well as those of other countries\u2014which is useful for Chinese manufacturing firms with spare capacity to burn, keen to maintain markets beyond the hothouse of domestic Chinese competition. Such access is also useful to Chinese manufacturers looking to avoid tariffs or restrictions on their exports. Ethiopia has a handful of foreign-backed solar manufacturing plants set up in part to reach the US market via an exemption to the solar tariffs introduced in 2018. With a few exceptions, the facilities are <a href=\"https:\/\/www.reuters.com\/business\/energy\/us-solar-panel-makers-seek-tariff-probe-ethiopia-2026-05-12\/\">assembling<\/a> rather than creating components. The majority of the supply chain remains almost entirely Chinese. (Production of high quality polysilicon is scarce outside of China.) It remains to be seen how much further up the value-adding chain African countries can get when it comes to solar production. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">The Indonesian model<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The scramble for cleaner energy, plus the trade wars and security tensions that have become a feature of today\u2019s fragile world order, have helped to increase demand for transition minerals, many of which are produced by African countries. Historically, the bulk of these minerals have been exported raw, meaning that value-added processing is done abroad, and resource rich countries in Africa fail to reap the benefit. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">More recently, at least thirteen African countries have <a href=\"https:\/\/africacenter.org\/spotlight\/china-africa-critical-minerals\/\">imposed<\/a> raw mineral export controls, creating a pathway for downstream domestic industries to develop. The logic is straightforward: if the world needs African cobalt or lithium, it will need to refine it there, creating domestic jobs and building capabilities, rather than shipping raw ore to China where value will be added beyond the reach of Africans. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Indonesia, which began suspended raw nickel exports in 2014, and imposed a permanent ban in 2020, is the <a href=\"https:\/\/www.wider.unu.edu\/publication\/indonesias-nickel-boom\">exemplar<\/a> for many resource-rich African countries looking to develop their industries. After Indonesia introduced its raw nickel export ban, foreign investments in the country\u2019s metal manufacturing industry soared, hitting over $<a href=\"https:\/\/www.wider.unu.edu\/sites\/default\/files\/Publications\/Working-paper\/PDF\/wp2025-29-linkage-development-industrial-policy.pdf\">12 billion<\/a> by 2025. In 2014, before restrictions had been imposed, Indonesia was a net importer of processed nickel and stainless steel products; a decade later, it had become a thriving exporter. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The strategy has not been without some criticism, as plants have brought local pollution, driven coal-fired power demand, and led to the establishment of a Chinese\u2013Indonesian smelting oligopsony. But the countries’ <a href=\"https:\/\/www.sciencedirect.com\/science\/article\/abs\/pii\/S245229292200073X\">joint venture investments<\/a> spanning smelting facilities, stainless steel production plants, and battery-and-EV industrial parks, have been part of a rapid transformation of Indonesia\u2019s resource-based economy.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"610\" src=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/image-3-1024x610.png\" alt=\"\" class=\"wp-image-33894\" srcset=\"https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/image-3-1024x610.png 1024w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/image-3-300x179.png 300w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/image-3-768x458.png 768w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/image-3-1536x915.png 1536w, https:\/\/phenomenalworld.org\/wp-content\/uploads\/2026\/08\/image-3.png 2048w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><figcaption class=\"wp-element-caption\">Source: <a href=\"https:\/\/www.iea.org\/reports\/global-critical-minerals-outlook-2026\">IEA Critical Minerals Outlook (2026<\/a>)<\/figcaption><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">Resource-rich countries in Africa are taking note, and some are already beginning to successfully emulate the Indonesian model. Guinea, the world\u2019s largest bauxite producer,<a href=\"https:\/\/www.bloomberg.com\/news\/articles\/2026-05-25\/top-bauxite-producer-guinea-to-unveil-export-controls-in-june\"> restricted<\/a> raw exports this year and is seeking to onshore its aluminium processing as well. In May, the Chinese aluminium company, Chalco, <a href=\"https:\/\/www.bloomberg.com\/news\/articles\/2026-05-22\/chalco-agrees-to-build-alumina-plant-in-guinea-for-1-billion?ref=thepolycrisis.org\">announced<\/a> a $1.2 billion alumina plant in Guinea, with a 5 percent stake going to the government\u2014with an option to raise it to 35 percent in the future. Several Chinese mining companies have begun building lithium  processing facilities in Zimbabwe since the government there announced its own export ban in 2023. Elsewhere, the Democratic Republic of Congo has imposed export restrictions on its raw cobalt, not in a bid to move up the value chain per se, but to bolster the price of cobalt, the supply of which it dominates globally. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Future prospects<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">These resource export restrictions are single country initiatives. A more coordinated approach by the various mineral-rich nations would likely increase their leverage significantly. With the mining, processing, and ultimate use of most transition minerals linked to China, solidarity among smaller states is a powerful asset. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The African Development Bank\u2019s 2025 report was emphatic that regional integration is key to industrialization efforts. Importantly, stronger connections between countries could reduce the need to rely on more far-flung export markets. Moreover, sophisticated industrial development, especially if it\u2019s to benefit smaller and poorer countries, will require collaboration to allow for specialization at scale. This has been the model of Southeast Asia, with its deep supply-chain links and free trade between ASEAN members. Intra-African trade is notoriously poor: the most commonly cited figure for trade within the continent is only about 15 percent\u2014barely a quarter of the rate seen in Asia and Europe. Most \u201cintermediate goods\u201d produced in Africa are exported to Asia and Europe; only 13 percent go to other African countries. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Africa isn\u2019t lacking integration initiatives. The African Union\u2014comprising fifty-five states\u2014was launched in 2002 in a bid to increase cooperation between members, and the African Continental Free Trade Area (AfCTFA) was established in 2019. But progress remains slow. The UN Commission on Trade and Development <a href=\"https:\/\/unctad.org\/system\/files\/official-document\/aldcafrica2024_ch3_en.pdf\">estimates<\/a> that non-tariff barriers such as lengthy customs procedures, technical rules, and phytosanitary requirements restrict intra-African trade as much as three times more than import duties do. It also found that these barriers had eased only barely, if at all, between 2010 and 2021. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">A shift in the public perception of foreign powers might yield potential for change. A recent survey of African youth found <a href=\"https:\/\/www.esi-africa.com\/business-and-markets\/what-africas-youth-is-telling-the-world-in-2026\/\">pragmatic support<\/a> for Chinese investment, along with an appetite for holding their own governments <a href=\"https:\/\/www.esi-africa.com\/business-and-markets\/what-africas-youth-is-telling-the-world-in-2026\/\">accountable<\/a> for economic hardship. Seizing opportunities from the chaotic global environment is a faint hope, but it\u2019s not impossible that such chaos may spur political momentum to act opportunistically, or perhaps even to pursue more concrete regional solidarity.<br><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n","protected":false},"excerpt":{"rendered":"<p>For decades, South Africa was the great success story of African industrialization. Last year, Morocco took the lead, emerging as the African Development Bank\u2019s top-ranked industrial economy in Africa. In the Bank\u2019s analysis, published in the latest edition of its industrialization index, Morocco\u2019s growth has been \u201cdriven by sustained industrial upgrading, export diversification, and strong […]<\/p>\n","protected":false},"author":95,"featured_media":33903,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4],"tags":[697,219,375],"issue":[],"newsletter":[983],"region":[1020],"sector":[1044],"theme":[1074,1077],"series":[],"class_list":["post-33881","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-analysis","tag-africa","tag-green-energy","tag-industrial-policy","newsletter-the-polycrisis","region-sub-saharan-africa","sector-mining-extraction","theme-climate-energy","theme-industrial-policy"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v28.5 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Green Strategy in Africa - 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