How to Make the Green Economy a Just Economy

At last year’s COP28 climate summit in Dubai, the UN’s Intergovernmental Panel on Climate Change presented a stark warning. The world remains on track for at least three degrees Celsius of global warming by the end of the century and, with it, the threat of massive social and political upheaval. To avert this looming catastrophe, countries must accelerate the transition to net-zero carbon energy and the decarbonization of their economies.

Such a transition is within reach in engineering terms, but it remains politically and economically difficult. Some observers insist that it will only come with stiff costs. During last fall’s strike in the United States by the United Autoworkers’ Union—when employees at the “big three” car makers forced management to cave to most of their demands—many analysts framed the dispute as one that in effect pitted the green economy against workers. U.S. auto companies had created a production system for electric vehicles built around low-wage, nonunion jobs; in the process, they set up a seemingly existential choice between decarbonization on the one hand and good jobs for manufacturing workers on the other. The UAW, many observers insisted, was not keeping up with the times; its imperatives were at odds with the realities of the transition to clean energy.

But that frame profoundly misunderstood both the strike and the challenge of tackling climate change. The resolution of the UAW strike shows why a successful clean energy transition must be a just one that strengthens the rights of workers and gives the needs of all the stakeholders in the economy their due. The strike cut through the false binary presented by its critics. The union forced the inclusion of the production of electric vehicles and their batteries in the new, improved autoworker contracts—showing that the decarbonization of the auto industry can still create good jobs.

The workers’ demand to be fully included in the green transition in the auto industry is a call for a revival of the system that prevailed in World War II, when government investment was effectively combined with private initiatives, strong labor standards, and direct union involvement. Indeed, it was the UAW under its first president, Walter Reuther, that pioneered this strategy in the days after Pearl Harbor, forcing a much more rapid conversion to war production than the auto companies had said was possible. It is this speed and scale—driven by a new kind of relationship between firms, workers, and the state—that will be needed if the planet is to avoid ruin.

FALSE BINARY

In November, after more than a month of escalating strike actions across the United States, the UAW settled with General Motors, the last of the big three U.S. automakers to hold out against the union. The strike ended with a fairly unambiguous victory for the workers—all three companies agreed to general pay increases of around 25 percent over the life of the contract and, perhaps more important, to the greater unionization of new electric vehicle and battery production. The striking workers enjoyed broad public support—most polls showed around 75 percent of Americans backed the strike. And in a dramatic gesture, U.S. President Joe Biden joined a union picket line in September, the first time a sitting president has ever done so. After the end of the strike, Biden spoke in strong terms about his hope that autoworkers might form unions at auto manufacturers where there are none, such as Tesla, Mercedes, Volkswagen, and Hyundai. Buoyed by UAW’s victory, workers at multiple nonunion automakers in the American South are now seeking to build unions of their own.

That energy belies the way many critics of the union dismissed its campaign, invoking an unenviable tradeoff: unionized autoworkers, they insisted, would lose out if the industry accelerated its transition to electric vehicles. But the UAW was clear that it supported this transition, even as it worked to ensure that the transition did not become an excuse to destroy labor standards. In making that demand, the autoworkers enjoyed the backing of a cross section of the environmental movement. 

The strike came a little more than a year after the Biden administration passed the Inflation Reduction Act, an unprecedented investment in a wide range of infrastructure and manufacturing plants designed to decarbonize the U.S. economy. Going into the strike, the “big three” were all seeking tax credits and low-interest loans under the IRA, in many cases for battery-producing facilities that were not unionized and that paid wages well below industry standards. In this sense, the strike represented a conflict over how state support for decarbonization, as mandated by the IRA, will be used. Such backing could create good jobs, or it could make bad ones with low wages and few protections. It could confirm the claims of the political right that fighting climate change would lead to a fall in living standards, or it could point the way to a better future for working people.

Another noteworthy aspect of the strike was that it enjoyed the broad backing of the environmental movement. Indeed, far from being at odds with decarbonization efforts, the strike suggested that democratic societies can make the clean energy transition work for both labor and the environment. Addressing climate change need not come at the expense of protecting workers. In fact, it cannot come that way. 

The autoworkers’ strike enjoyed the broad backing of the environmental movement.

Policymakers can connect action on climate to an overarching agenda for innovation, growth, and good jobs. Such a hopeful approach stands in sharp contrast to the posture of retreat that has characterized, for example, recent debates over climate policy in the United Kingdom, where Prime Minister Rishi Sunak is rolling back green commitments, including postponing deadlines for the end of gasoline-powered vehicles, weakening programs for the electrification of homes with clean energy, and making it easier for the use of oil and gas to continue, putting at risk the United Kingdom’s ability to meet its stated goal of net-zero emissions by 2050. Such policies signal retreat and undermine the political foundations for action. In light of the accelerating climate crisis, the need for an ambitious, integrated approach to climate change policy could not be more urgent.

To that end, policymakers should realize that they can shape the market, not just be shaped by it. Many governments have long seen the market as something they can only hope to react to, to fix when things go awry. Instead, they must seek to mold the market to align it with their public policy goals, such as decarbonizing transportation systems. This means ensuring that public investments, whether in the form of grants, loans, or procurement budgets, lead to inclusive and sustainable growth. For instance, policies could include subsidies for electric cars (as Norway has done in its auto sector) and loans to companies that are willing to invest in greening their supply chains (as Germany is doing with steel). Governments that fail to engage in this kind of proactive market shaping will find their industries at a competitive disadvantage compared with those countries whose governments embrace their role as market shapers.

Such shifts would help establish what is in effect a new social contract, bringing together communities, public institutions, workers, and providers of financial and intellectual capital. This new model was evident in the settlement of the UAW strike, which established the principle that the production of electric vehicles, when supported by public investment, can produce good, unionized jobs. Part of what makes this paradigm shift so urgent is that in the current era of tight labor markets, workers have the power to demand not just economic concessions from major employers but also a seat at the table where business decisions are made. They can compel companies to involve them in core business decisions. 

Governments must play a critical role in supporting this model, in part by setting clear contractual conditions on private companies that receive public funding and benefits. Countries should make sure that subsidies and guarantees are conditional on the recipients’ investing in green production. That was what the French government did during the COVID-19 pandemic, when it made a loan to carmaker Renault conditional on the firm investing in the decarbonization of its operations, and what the German government has done in recent years when the public bank KfW has lent to the steel sector conditional on the sector committing to greening its supply chains. Such conditions can also be used to guarantee a population’s affordable, equitable access to goods and services; align business practices with climate goals, fair labor practices, and other policy priorities; and establish profit-sharing and intellectual-property-sharing agreements between the companies that benefit from public investment, their workers, consumers, and the government itself. 

These policies should be paired with others that encourage more productive behavior in the private sector by limiting share buybacks and incentivizing companies to reinvest profits in research and development and worker retraining. In the United States, the Biden administration’s investment agenda already insists on these types of conditions, notably in the CHIPS and Science Act, which makes receiving government investment dependent on having operations in the country, developing systems of workforce training, and restricting share buybacks. But the United States should be even more ambitious in the scale of its climate-related public investment, how that investment is actively directed, and the strength of the conditions placed on that investment, particularly when it comes to labor standards.

STAKEHOLDER, NOT SHAREHOLDER, CAPITALISM

Many business leaders recognize the role they have to play in a time of accelerating climate change. And they expect governments to follow suit. One of the big surprises of Sunak’s retreat from his government’s electric vehicle mandate was the very negative reaction it received from British business, particularly from the country’s auto industry. As Lisa Brankin, the head of Ford’s British subsidiary, insisted, “Our business needs three things from the UK government: ambition, commitment, and consistency.” A relaxation of future climate targets “would undermine all three.” Instead of negotiating commitments that are too little, too late, an economy-wide transformation is needed—one that puts ambitious climate goals at the center and not the periphery of how economies are designed.

The UAW strike challenged the model of financialized shareholder capitalism that holds sway today. That prevailing economic system has failed to respond effectively either to the threat of climate change or to the needs of workers. Since the 1970s, the global economy has been dominated by a form of capitalism in which power within firms is overwhelmingly held by shareholders, the management of firms responds to shareholder-oriented financial metrics, and the allocation of capital is the province of largely unregulated financial markets dominated by short-term investors. This kind of capitalism emerged in the 1980s, championed by leaders such as British Prime Minister Margaret Thatcher and U.S President Ronald Reagan, and became mainstreamed in business schools and idolized by politicians, academics, and business leaders in the years following the collapse of the Soviet Union. It encourages stock buybacks and treats workers as a cost rather than an asset: businesses focus on quarterly returns and reward their shareholders but not the workers, who are central to creating value.

The reality is that this shareholder capitalism—which has resulted in $6.3 trillion in share buybacks over the last decade that aim to boost stock prices, stock options, and executive pay—will not be able to steer the investment needed to fight against climate change. Instead, countries must build structures of cooperation and mutual benefit between firms, workers, and government. Stakeholder capitalism, in contrast with shareholder capitalism, requires that public support for private firms have strong conditionality: clear goals to which businesses are held accountable; high labor, social, and environmental standards; and profit sharing with the public. The United States should never repeat what happened with Tesla, when public money, including a $465 million loan from the Department of Energy in 2010 and more than $3 billion worth of subsidies, according to Quartz, helped create enormous private fortunes. 

The world need not choose between good jobs and a green economy.

Stakeholder capitalism is defined by a balance of power among an economy’s stakeholders: notably its firms, workers, and government. The institutional mechanisms that order these relationships have varied and will continue to vary across different countries with different histories—German codetermination at the level of the firm, in which elected representatives of the workers, for example, sit on the boards of companies, is far different from even the strongest North American form of collective bargaining or the evolving Brazilian system of labor relations. And the ways states shape markets and interact with firms vary even more widely. But what characterizes this alternative to financialized shareholder capitalism is the insistence that workers be included in the governance of the firm and that any benefits to companies be conditional on their making investments that are good for people and the planet.

Stakeholder capitalism does not mean the end of private ownership of firms, nor does it abandon the idea of the firm as a profit-making entity. Instead, it seeks to shape how corporations are governed, what their incentives and constraints are, and how they fit into the wider picture of societal governance as they pursue their mission of long-term profit generation. It does mean that shareholders—who retain in all the world’s significant economies a disproportionate role in the governance of private firms—have to act as stewards for the firm in the context of markets actively shaped by states in the service of the common good. 

The UAW strike suggests the possibility of a shift toward stakeholder capitalism. Without such a shift, there is a risk that fossil fuel interests and others who oppose decarbonization may argue that moving toward a green economy imperils workers, blocking any chance societies have of getting climate change under control and preventing further progress toward economies that are both equitable and environmentally responsible. But the strike demonstrated that an economy can be made both more sustainable and more inclusive. The world need not choose between good jobs and a green economy.