June 18, 2021


In late March, the Biden administration announced the $2 trillion American Jobs Plan, with approximately half of the sum dedicated to fighting the climate crisis. While the legislation would mark a sea change in federal action to avert climate catastrophe, many have argued that it falls dramatically short of the amount required to usher in a green transformation of our infrastructure and energy systems.

Responding to this large investment gap, a recent Phenomenal World essay by Anusar Farooqui and Tim Sahay proposes a plan for a public ratings agency for green finance, which would “be mandated to assess the economic viability and contribution towards decarbonization of project proposals” and “serve as a public signal for the state, investors, cities, and firms to back, fund, and undertake projects that are both viable and contribute significantly to decarbonization and resilience against climate change.” Their essay is in conversation with proposals by Saule Omarova and Robert Hockett for a National Investment Authority, which would function as a standalone federal institution to direct capital funding into green infrastructure projects, among other capital-intensive initiatives to serve the public.

In May, a Phenomenal World panel discussed these various proposals for addressing the large-scale investment necessary for the low carbon transition. The conversation featured Farooqui, Sahay, Omarova, and Hockett, along with Yakov Feygin, Daniela Gabor, and JW Mason, and was moderated by Adam Tooze. A recording of the event can be watched here. The transcript was edited for length and clarity.

A conversation on investment and decarbonization

Adam Tooze: Faced with the global problems of the climate crisis and sustainable development, it is clear that what is urgently needed is long-term, large-scale investment. But how can one mobilize funding for those projects? Two basic poles have emerged on this question. One is to do it by way of the public budget and taxes, which is the current choice of the Biden administration. This has progressive appeal: why not enhance our state capacity and do so while redistributing resources? The obvious and immediate problem is the political constraints on raising taxes on corporations and the rich. The alternative, then, is some form of development finance—blended finance, public-private partnerships, public backstopping, derisking of private financial activity, as we’re familiar with from the federal underpinning of the mortgage market—to enable the mobilization of trillions of dollars in green investment over the next decade, which is what is necessary in this situation.

I want to start today’s discussion with the United States. We’ve confronted the sobering realization that a Democratic administration is not a silver bullet, and is in fact even less promising than it appeared in the first round of Biden stimulus—the investment programs on the table are, bluntly speaking, inadequate to the task at hand. The question is how we can go bigger, how we can go bigger urgently, and how this can be done practically. There is a legacy of talking about this, which starts of course with the Green New Deal (GND), but there are a variety of other proposals on the table represented here: the National Investment Authority (NIA), InvestAmerica, and the most recent proposal from Anusar and Tim for a public ratings agency. I’d like to start by asking Saule to outline the logic of the NIA, originally developed in conjunction with Robert and others.

Saule Omarova: The idea originally came when Robert and I were working some years ago on a series of articles about how to bring public control over the financial system and the flow of capital, not into speculative investments, like it does now, but into the building of infrastructure. Of course, all the infrastructure that we build now should be clean and green infrastructure. The idea of the NIA predates the flourishing of the GND movement but it is absolutely critically aligned with that movement. The way I see it is to make the NIA the dedicated institutional platform at the federal level for being the fighting muscle of the GND: pursuing environmental and socioeconomic justice in a very practical sense.1

The key is that the NIA, as a standalone institution, cannot be situated inside the Treasury or the Fed. Its job has to be to get inside the financial markets and effectively outcompete Wall Street banks and asset managers that currently play an incredibly important role in managing and controlling the flow of capital. When I look today at the conversation around Biden’s plan, I am all for all the great ideas, and I am also in full agreement with the critics who say that is basically not enough money. But the question is bigger than that. The challenge that we have ahead of us is a rolling challenge for the next thirty, fifty years, at least. We cannot possibly predict how much money we will need at one point to fight climate change and inequality and all these issues. What does that mean?

We need to approach the problem from the institutional side. We need flexibility to create as much capital funding as possible and as needed at any point, but also to direct it in the right way. This is what the NIA is supposed to do. The NIA is not supposed to replace fiscal policy and direct spending at the Department of Energy, Department of Treasury, and so on. Instead, the NIA is supposed to fill a gap and introduce three things that are currently difficult to achieve. The first is the task of coordination. One of the big problems why we in the US have not been able to solve even the most basic infrastructure and maintenance issues, let alone rebuild the entire economy on clean energy, is because these loans and grant programs are administered by individual agencies with specific mandates. And it’s not even about the cost of funding; the main issue is spending authority. Federal agencies are limited up front with respect to how they can invest, what they can fund, and under what conditions. A lot of the projects we need to fund, especially in terms of the GND, are by definition cross-cutting in terms of those jurisdictional lines. The transformation we are after is geographically much broader, sectorally much broader—it’s much broader even and especially in terms of policy goals than what is typically on the table. And those policy goals are in some cases not even assigned to any particular agency. For example, racial equality. What federal agency is tasked with that goal, which also has loans for infrastructure? The task of coordination, of managing that transformational shift on a nationwide scale, needs to be housed in a very strong, democratically accountable, yet flexibly-financed institution. That’s the idea of the NIA.

The second thing is flexible financing. Financing for federal agencies through fiscal spending is politically controlled, that’s the point of the whole process. That’s fine when we have strong consensus on spending needs, but we can never be sure of that. To supplement that fiscally and politically constrained type of spending, we need a strong public institution that can harness the existing abundant private capital, and pull it in the right direction. Now, when I say that, people start thinking about the traditional public-private partnership (PPP) model, in which public money was effectively given over to banks and asset managers. The NIA is precisely meant to replace that model. In the United States, we do not have a social security system that guarantees dignified retirement. We are captive investors in private capital markets right now, and all that money is managed by private managers and goes into private equity funds which then basically decimate our own economy. That’s the money that’s sitting there and being used against the public interest, and we would like to have an asset manager that is publicly-owned, publicly-controlled, democratically-controlled, although not in the same way as the actual federal agencies. It can provide another channel for productive investments for that kind of money. That kind of flexibility is extremely important to add to the direct fiscal spending—especially with respect to transformative, high-risk, new technology projects or projects that are obviously not going to generate short term profits, and yet cannot be financed by individual agencies.

The final aspect is that the NIA has to have a flexibility of tools that it can employ. We need to have control over how money is deployed and managed on a day-to-day basis, much in the same way that private equity funds and venture capital funds control how their money is used. We need a new function that we currently don’t have in the federal system—the asset manager function, not just the lender function. A type of a BlackRock institution, only a publicly-owned BlackRock. Now, it may sound like this proposal makes things too complicated, financialized, and so forth, but it is all in how we design it. This is our chance for a new, standalone federal entity on top of the pyramid of public investment. This is our chance to shape how it’s going to be governed and how it will actually reflect all of our interests in a way that hasn’t been done before.

AT: Thank you so much, Saule. Bob, you were in on the ground floor of this idea. But right now, you’re pushing what you’ve described as a Plan B option, not to critique the NIA, but to broaden the range of options here.

Robert Hockett: As Saule said, the original vision was to have a freestanding, permanent public investment vehicle that we thought of as being operationally situated between Fed and Treasury. In a somewhat crude schema, we can say the Fed is primarily concerned with the modulation of the credit money supply, while the Treasury is concerned with the allocation of public money. There are places at the margins where these two functions overlap, and so you need an institutional presence to help fill in that continuum. And it has to be public because the way private, disaggregated financial markets operate is such that it is rational for individual investors to bet on price movements in secondary financial markets and tertiary derivatives markets, instead of deploying so-called patient capital to long-term investment in infrastructure and productive industry. There needs to be an agency to handle the collective action problem that is contemporary finance, and the NIA, based in part on the Reconstruction Finance Corporation, was our proposal.

The problem is, as Saule noted, somebody like Joe Manchin. It might be sort of a bridge too far to get people like Kyrsten Sinema and Joe Manchin on board with a new freestanding institution. If the NIA is Plan A, what is our Plan B? It’s basically some tweaking or reconfiguring of some existing public institutions to partially replicate the functionality of the NIA itself. It starts with what I call the National Reconstruction and Development Council (NRDC). This is patterned broadly after the National Security Council (NSC), on the one hand, and the Financial Stability Oversight Council (FSOC), on the other.

The model of both of those councils is to bring together into one structure all of the distinct federal entities that have something to do with the jurisdiction of these councils. So, FSOC is all the financial regulators; NSC is all the security-oriented agencies. Technically, you don’t even need legislation to do that. The purpose would be to bring together all of the cabinet level officials who have jurisdiction over major portions of the nation’s infrastructure or industry. It would be led by the Treasury and Fed, and their task would be to produce a long-term development strategy, updated periodically in the same way that the National Defense Posture statement is updated every year. That council would in effect be a democratically accountable oversight body that’s charged with mapping out a long-term vision of where the nation’s infrastructure and industry ought to go.

A second element would be the upgrading of the Federal Financing Bank (FFB)—a semi-autonomous entity within the Treasury that most people don’t know about, but which has been there since 1973. You can think of the FFB as the carburetor of public investment at present, but we could convert it into a fuel-injector of public investment simply by tweaking the intake and output functions. Currently the FFB puts out funds by extending loans or loan guarantees to federal agencies, or entities that agencies endorse, and the intake is all appropriations. It would be relatively easy to add to the portfolios on either side: by adding equity stakes, and other forms of investment; and allowing the FFB to form special-purpose trusts that bring together public and private money as another form of Treasury Securities investment.

Another element is what I’ve been calling “Spread the Fed,” which I started working on when the Municipal Liquidity Facility came online last year. The idea is to restore the Fed to something closer to its original mission, which was a network of regional development finance institutions. The banks had a function, they weren’t simply a network of glorified think tanks in particular regions, but actually monetized commercial paper, and it was required that that commercial paper be associated with “productive” investments. And very crucially, “productive” was not defined in terms of profitability. There was a very explicit distinction drawn between productive and profitable projects.

We lost that vision. We actually abandoned the effort to distinguish between those two things back in the 1930s. If we were to restore that particular vision, then we could actually put the regional Fed banks back to work in actually helping to foster startup industries, startup firms, and the like, with the money that they issue.

AT: It’s a hugely complex institutional and historical agenda—some of these capacities already exist within the American government machine and there’s a weird process of amnesia that operates to exclude them from discussion. Let’s move now to a third proposal, from Anusar and Tim, the idea of a public ratings agency.

Anusar Farooqui: Trump won more votes in 72 percent of US counties in 2020 than he did in 2016. The class-partisan polarization that became dramatically evident in 2016 intensified in 2020. The principal problem faced by US elites is a threat from below. The lead diagnosis of this political instability is that it’s due to economic polarization and political polarization between social classes, and regional polarization: the rural-urban divide, the divide between the super cities and the left-behind flyover country. The general idea taking shape among US elites is that economic depolarization has to be pursued as a conscious strategy of political stabilization. You want to depolarize economically, so as to stabilize the political solution, and the solution that is emerging from some technocrats is a high-pressure economy, because tight labor markets are the only way we know how to deliver broad-based growth. How do you do that? The Yellen-Biden idea is that you want to restore public spending to the level under the Kennedy administration. General investment in government fixed assets has fallen from seven percent to three and a half percent since the early 1960s.

But this is a short-term vision, and it falls short on closing the funding gap. The Biden proposals and the ones currently considered in Congress leave a \$600 billion per year (or 2.8 percent of GDP) gross funding gap from what is necessary for the energy transition. But I think there is also a more important intellectual problem at work here, which is that the administration does not see the green transition as a solution to the problem of political instability. Related to this problem is a bipartisan, quasi-moral, intellectual rigidity around questions of fiscal discipline. This is most evident in the fetishization of debt-to-GDP ratios. The underlying issue is the fact that fiscal capacity expansion is stuck in the trench warfare of partisan conflict.

The big question is then: how do you close the funding gap, in light of the structural constraints on fiscal expansion? How do you solve this political challenge? And then, if you achieve the high-pressure green economy, how do you stabilize it? What we’re saying is that public backstops provide an answer to both questions.

With public backstops to private finance and a ratings agency, you can let cities get financing at the very cheap rates that the US government pays without spending any tax dollars. The big issue is that the US cannot simply backstop projects by firms, cities and states without ensuring quality control. The full faith and backing of the US government can only be given if there is absolute quality assurance.

Why must the ratings agency stand alone? The default scenario right now is that this function is going to be run and owned by BlackRock. That is a recipe for a boom-bust cycle, as we just saw with the deterioration of rating standards in the mid-2000s in housing finance. The ratings function needs to be insulated from the financial cycle, and insulated from the political cycle. This is part of how you can stabilize a high-pressure green economy.

AT: Josh, how does this latest 2021 evolution of this debate strike you? Is this a natural development from the original Green New Deal conception, or something different?

JW Mason: I think in some ways it’s a step backward. There are basically four ways we can approach decarbonization. We can have a price-based approach with taxes and subsidies, carbon pricing—that was sort of the dominant view not so many years ago. We can have a credit policy based approach where we favor green assets and disfavor brown assets, which is where this credit ratings agency is located. We can have a regulatory approach, banning coal plants or the like. Or we can have an approach focused on direct public investment. I think one of the defining features of the GND is to really put a lot more weight on the direct public investment side: you actually just need government to pick appropriate projects and finance them itself.

The reason we saw that emphasis is a general recognition of the limits of market coordination and the profit motive in general, and specifically the limits of market coordination when you’re talking about large scale rapid transformations. Comparable events historically, like industrialization or war mobilization, have always seen a dominant role for the state in directing investment because markets simply don’t work at that speed and scale.

I also think it’s because we want to link to broader issues of social justice. Market incentives or credit policy are not going to do that. We also have more confidence in the capacity of the federal government than we had a few years ago. Janet Yellen’s recent comments that we want government playing a more active role in the economy, for example, would not have been heard from a Democratic official just a few years ago. Recognizing that shift links up to the notion that we want to politicize this project, we don’t want to depoliticize it. We don’t want it to be technocratic because we want to achieve explicitly political goals about justice and equity in conjunction with decarbonization, and because it’s a strength to involve movement in politics. We think we can win on the politics. That’s a fundamental part of the GND vision: we can mobilize people and we can actually win this.

The constraints on the government that people believed in a few years ago, particularly around the financing, look a lot less daunting today. There’s clearly far less fear of government debt than there used to be, and with good reason, because we’ve had vast expansions of public borrowing with none of the economic costs that was supposed to imply. It would be a mistake to say that’s given as a constraint that we need to evade, hiding government borrowing off-balance sheet through guarantees. The lesson of the past decade is that the political constraints on government borrowing are a lot more elastic than we once thought.

There’s something very appealing about the National Investment Authority and something problematic. The NIA is doing two things: it is getting money from markets by issuing some type of new liability and thereby competing with other investment vehicles to pool our savings; and it’s distributing that money to projects. It is described as both a lender and a borrower in the markets. But the two functions are actually very different. The federal government is already the best borrower. The federal government issues more desirable, higher-priced, more liquid liabilities than anybody else in the economy. The problem of getting money out of the private sector has been solved by the existence of the Treasury bond. There’s simply no need for a new institution. The government’s strength is as a borrower—if there is an underutilized financial resource it is not the private sector’s capacity to lend, it is the public sector’s capacity to borrow.

On the other hand, where we do need the private sector is on the productive side. There’s lots of productive expertise, there’s lots of labor, there’s lots of capital, there’s lots of firms that have built up the capacity to do things that we need to do, and we want to support that. The challenge of an institution like the NIA is to leverage the federal government’s strength as a borrower on behalf of the productive capabilities of the private sector. The NIA needs to be located financially downstream from the federal government; it needs to be in some form borrowing money from the federal government and then on-lending it to private projects.

Another point to discuss is the multiplication of veto points in the American political system. This is a distinctive feature of the political system constitutionally, and we’ve added to it with institutions like the CBO. The green ratings agency as it’s described is very much an additional veto point. We can’t have the NIA autonomously deciding what to invest in, it needs a separate CBO-like body that’s going to vet it. A lot of people would say that the proliferation of veto points in the American political system is a bad thing, that the CBO has been an obstacle to the kind of spending that we need to make if we’re going to decarbonize. An appeal of the NIA is that it centralizes decision-making about green investment, reduces the number of veto points in the system, and reduces the number of overlapping jurisdictions. While Saule says she thinks the ratings agency is perfectly consistent, to me actually the ratings agency has been proposed to eliminate one of the strengths of the NIA. If you want to make the argument that democratic politics is untrustworthy because next year the Republicans may be in power again, and therefore we want to introduce veto points and hope to get our people lined up in strategic positions, then you can make that argument—but we should not take for granted that additional agencies and veto points are intrinsically a good thing.

AT: Thank you, Josh. That was about as crisp a statement of the implicit sort of democratic sovereigntist logic of the GND as I’ve ever heard. I do think a huge amount in this entire conversation hinges essentially on the political imaginary: what kind of political future do you envision here? And do you imagine your proposals as performative—as helping to bring that future about? Yakov, you’ve been in the undergrowth of alternative finance initiatives. Perhaps you’d like to respond to Josh.

Yakov Feygin: I’m not an optimist by nature. I don’t think we will always be guaranteed to win the political argument, especially in the United States. There are no good historical examples of us winning the argument overnight and at the speed we need to. Exactly as Josh said, there are many veto points, and you need to bring people on board who just don’t agree with you. I don’t believe that proposals are always performative, I think you basically need to have a long-term strategy that successfully co-opts your opposition.

The NIA isn’t necessarily primarily a financing tool, but what it really is a more muscular way of reshaping private markets. If there is a GND, there’s going to be a need to control private finance if we live under capitalism. As Bill Janeway and Hyman Minsky taught us, if there is going to be a green boom, there will be a green bust. The point of the NIA, in coordination with the GND, is to act as almost a vacuum cleaner—to establish enough of an equity stake, and enough of a presence in the debt market, to then take that inevitable green bust and restructure its assets into something sustainable.

AT: That’s really well put. Tim, can you respond to Josh’s point about the green ratings agency as yet another veto point? If there’s one thing America doesn’t need more of it’s those, in a sense of preemptive surrender of the agency that the NIA could exhibit.

Tim Sahay: I think it’s important to start from the question: what sorts of investments are needed? We need most of these investments inside cities, in decarbonizing buildings for instance, or in creating mass transit, and lifting the capital constraints and the austerity budgets that these public agencies have operated on. When cities go to borrow money from the municipal bond markets they face very steep costs.

What we are proposing would potentially allow for a more democratic approach to financing decarbonization projects. Cities and states can propose such projects—climate adaptation projects, retrofitting buildings, mass transit, and so on—and then go to an authority that affirms that a project is economically viable and will actually cut carbon emissions. As long as that agency is approving good projects, you will reduce financing costs by issuing a guarantee by the federal government and dramatically increase the scale of investments in the places that have been historically underinvested in. That’s going back to Saule’s point: that the grinding austerity in largely majority-minority cities is racially unjust. These are the places that are going to be on the forefront of the climate crisis and they are the places that need the loosest financing available to do the necessary work.

This ratings function is currently being performed by BlackRock. And it’s currently being performed inside federal agencies that have to judge the climate risk on the assets that they own. If you are Fannie Mae or Freddie Mac, you have to decide where you are going to finance projects, how many loans to give for people to install insulation and solar panels, and so on. This multiplicity of places are prone to regulatory capture and greenwashing. We’re proposing a more efficient way of doing this all in one credible agency for a whole bunch of distributed projects.

AT: Thank you, that was really helpful to understand the logic. Daniela, what is your take on the American debate?

Daniela Gabor: What I’ve been hearing so far is a conversation that European political scientists and political economists have had more or less for the past five years. If we bring in the European angle to this conversation, I will fall more or less on the side of Josh’s arguments. Let me start with the idea of the public ratings agency, and remind our listeners that Europe has that already. It has been the subject of negotiation in the EU for the past four years. This is a very powerful example of what happens when you try to design a green standard of sustainable activities without reforming the financial system and scaling back the power of carbon financiers and other vested interests. In broad terms, I would say that there has been a process of diluting the standards of what sustainable activities are, because you can’t take the politics out of identifying sustainable activities. The idea that you will have Democrats and Republicans sitting and happily shaking hands over this narrow set of green activities that we can finance—well, look at Europe, look at the way that BlackRock has been accompanying the European Commission’s work on the sustainable finance taxonomy, and put to rest the idea that you will get some big political compromise.

In some ways, the US is a latecomer to the party of green finance relative to the EU and global financial circles—probably because of your last President. But US private financial actors have been very critical to green finance conversations elsewhere, and I don’t think that they will stay on the side and watch happily as the public ratings agency comes up with a public good definition of what is a sustainable activity.

I like the idea of a public BlackRock, but can you have a public BlackRock if you have a private one? There is a conversation going on in global regulatory circles and central banking circles, which the Fed is just starting to join, asking not only how to promote green investments, but how do you stop carbon financing? How do you make sure that the existing financial system dominated by large private asset managers doesn’t continue to lend to carbon activities? How do you avoid what Fabio Panetta from the ECB called carbon financing leakages, in the sense that you might have some nice green standards in the US, but your private financial actors are going to do carbon lending somewhere else? By doing that you haven’t solved the low carbon transition. There’s a kind of green accumulation from the Global South into the Global North that we really need to discuss more carefully.

AT: And we will return to this crucial discussion in a moment. I want to just give our initial round of contributors a brief chance to respond to the earlier comments, before we turn to the broader agenda Daniela has raised.

AF: I want to push back against the idea that the four ways Josh laid out the funding of the energy transition are mutually exclusive, because in fact we need all of them due to the scale of the challenge. Josh’s optimism about political constraints being lifted sounds premature to me. And I think that this idea that the federal government has the lowest borrowing costs just doesn’t stand up—anything backed by the US has the same yield as a Treasury, agency mortgage-backed securities being a prime example.

The question of the veto point is crucial. The idea that you can create an agency that is insulated, public, and respected by the partisans, is credible because we have many examples. Everybody agrees that the FDA works, everybody agrees that the SEC works. The discipline is enabling, it allows you to enable trillions of dollars in financing and saves hundreds of billion dollars for firms in cities and states.

RH: The NIA idea or the Invest America Plan B fallback is not about raising private capital because it’s somehow needed to finance public projects. We distinguish between the absorption of private capital that currently is highly destabilizing because it’s so misallocated, and the actual taking in of private capital in order to finance public investments. We’re not doing the latter. In the classic PPP model, it’s a lot of public money with private control of that money. Our proposals are the opposite. We’ll take in private money if people want to contribute it, and want other investment vehicles or other safe assets, but the public is entirely in the driver’s seat.

Now there are other ways to absorb currently misdirected private capital, like taxation. But the problem is that taxation is a very blunt instrument and it’s not quickly responsive. But if you want to absorb private capital that’s currently being misdirected in more flexible ways, a great way to do that is to issue new public securities that might actually target a particular segment of that supply side of the market that treasuries themselves don’t. And you can do that instantly, without requiring new legislation.

SO: A couple of points. The NIA proposal is actually much more sophisticated and complex than just saying we don’t trust democratic politics. The NIA is in fact meant to create a permanent forum for democratic decision-making with respect to priorities for public investment. This is what we’re missing now, and as a result, just because something is called the public agency doesn’t necessarily actually engage in a democratic process. But the implementation needs to be technically grounded, otherwise we’ll lose to Wall Street, always. When you say direct public investment you should mean actual state owned enterprise, because if not, then it’s still public money given to private actors. Additionally, the NIA is meant to represent a different model from things like the European Investment Bank. The way we get rid of carbon financiers is by starving them of their sources of capital. Provide a safe asset that pays more than treasury bonds and take them away from the carbon financiers.

AT: Daniela has recently coined a phrase to capture and describe the entanglement of global finance and global development finance, which is a riff on the familiar term the Washington Consensus, it’s what Daniela calls the Wall Street Consensus. Can you give a sense of what you mean by this new critical term?

DG: I offer a comparison of how a low carbon transition would be organized if you had Wall Street in the driver’s seat versus the state in the driver’s seat. In the status quo, the state becomes the derisker or risk taker of last resort—in other words, guaranteeing returns for private finance and escorting private finance, not only into development asset classes in the Global South, but also in the Global North. This is the idea that the money is there, it’s private money, all we need is to make sure that we create mechanisms to escort it, not to regulate it, but to escort it towards those climate ambitions. I call this the Wall Street Consensus to capture the political power of private finance in what I’ve called, in work with Yannis Dafermos and Jo Michell, a financial globalization supercycle that has taken place over the last forty years, in which BlackRocks and other asset managers have become increasingly structurally important and politically powerful in shaping conversations around development and low carbon transitions.2 Think about what the phrase “nature as an asset class” represents as a political project.

We tended to criticize the Washington Consensus because it marginalized the state and it put it in this position of creating markets for private capital. What the Wall Street Consensus does is reimagines the state as primarily a tool for derisking, for channeling fiscal resources into guaranteeing returns for private financial institutions. Now, the idea is that the state has to work with the private sector: the private sector builds, manages, and finances these commodified public goods, and the state stays in the backseat. The state provides guarantees against demand risk—if there is a global pandemic and citizens cannot pay highway tolls, the state will compensate private operators, and so on. Any scenario you can imagine along these lines, the World Bank has a proposal to maximize private finance for development.

This comes with a reimagining of what we tend to think of as collective public goods because citizens become user fee payers, and their access is conditioned by that. More interesting still is the way state works hand in hand with private finance in order to create green markets, and in order to derisk investments in these green markets. What we have now is an epistemic capture by private finance of what is green and what is dirty in terms of sustainable finance taxonomies—and even where you have public taxonomies like we have in the European Union, they go hand in hand with these private criteria. I have not seen any successful attempts by the public sector and by the state to orchestrate a democratically accountable way of organizing this taxonomy. This matters tremendously because the way in which private finance has handled this is to expand the definition of green to everything. If you can put everything in the green bracket, you get some subsidies for greenwashing and you get very little regulatory punishment for lending to dirty activities.

My worry is that, if there is political success we will have a global political economy where countries in the Global North will get a much stronger green developmental state, and then countries in the Global South are increasingly going to become sources of greenwashed financial accumulation. What does that mean in terms of social justice, and our ability to really deal with the climate crisis? In the end, the challenge is not to have better, faster trains in the US, the challenge is to make sure that the Antarctic doesn’t melt, because we have not been able to properly regulate the financial system to eliminate as much carbon activity as possible.

AF: I understand the logic of the epistemic capture. I think that your critique is completely right, but it leaves out the problem of the financing needs of the Third World. The Third World states are not in a position to undertake the scale of investments that is necessary to get off the hockey stick of doom. The transition has to be financed. You can critique it, but then you have to at least provide an alternate model, and if that model looks like an empowered World Bank that is partnering with the development finance institutions that are totally under public control in the Third World. That world is very hard to bring about given the extraordinary power of private financing institutions.

AT: Of course the question does come back to what Anusar is raising: what is the plan, is it a global Green New Deal?

DG: I am very doubtful of the idea that mobilizing private finance with the solution of derisking can work with proper tweaking. This system is not organized to coherently coordinate the developmental needs and the low carbon transition needs of the Global South. There are isolate pockets of PPPs for mega infrastructure pockets, often captured by local elites, but no broader coordination. There is no developmental vision there, and there are significant fiscal costs, like the cases of Ghana and Nigeria derisking private financial inflows into natural gas and fossil fuel. There are also examples of countries who have committed to paying for twenty-five years prices for renewable energy that are probably going to be very expensive in two or three years from now.

There is a very legitimate question of how do you generate fiscal capacity in countries in the Global South. I do not think that the answer is to deplete that very meager fiscal capacity by guaranteeing US dollar returns for private financial investors from the Global North. Fiscally, it’s expensive, and developmentally, it is incoherent. It is important to bear in mind that we could get a lot of mobilization of private finance for green assets if we had the proper taxonomy, and the central bank penalized dirty assets. There is a political strategy to continue to pressure central banks. There are political openings. And we have to make better use of them.

Watch the video of the conversation here.
  1. For more on the NIA, see a 2018 white paper by Hockett and Omarova proposing a National Investment Authority, and an August 2020 paper by Omarova, “The Climate Case for a National Investment Authority.

  2. See Daniela Gabor. (2021), The Wall Street Consensus. Development and Change, 52: 429-459.

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Michael Pettis and Matthew Klein's new book "Trade Wars Are Class Wars" begins with an epigraph from John A. Hobson: "The struggle for markets, the greater eagerness of producers to…

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