Finance and Economy

The Carbon Divide: The Material Basis of Polarisation

Politics across the world is shifting, ejecting and transforming established parties as new forces enter the scene. Far-right populism and green politics are now rivals in opposite corners of a polarised political ring. With climate change accelerating and action well overdue, Jamie Kendrick spoke to political economist Mark Blyth about what is at stake. For millions around the world, green policies threaten ways of life that for decades offered, if not prosperity, then protection. Winning those communities over is essential but it will not be easy and will not come cheap.

Jamie Kendrick: Before we talk about populism, let’s talk about how we ended up here. How do you explain the steady decline of centre-left and centre-right parties since the late 1970s?

Mark Blyth: The post-war regime was very labour friendly: economies were nationally oriented, financial links between countries were limited, and full employment was the policy target of choice. The problem was that over time it produced an inflationary crisis. With no exit option for capital and full employment, wages continued to rise and producers passed the costs onto consumers. But consumers are labour, and so labour militancy emerged and the system destabilised.

The political stabilisers of the post-war regime had been “catch-all parties”. No longer vehicles for class politics, parties in this period sought to represent everybody and competed over the provision of public goods. With the onset of inflationary crisis, supplying those public goods became increasingly hard and eventually something had to give. What gave was capitalist tolerance for this type of environment and from that point followed the neoliberal revolution.

Under neoliberalism, the post-war centre-left agenda based on the provision of public goods no longer works. The neoliberal era opens up economies and capital is allowed to move to find its highest rate of return, all but eliminating inflationary pressure. The returns to capital begin to rise and the returns to labour begin to fall. In a world where inflation is eating away at real incomes, offering higher taxes for more public goods becomes a hard sell and the Right begins to win support. By the mid-1980s, social democratic parties reach a crisis point. Either they continue to sell the world built in the 1940s through the 1970s or they recognise that that world is changing. But if the world has changed, how do they survive?

Is it this moment when what you refer to as the “cartel party” emerges?

The notion of the cartel comes in when social democratic parties begin to shadow the right-wing parties by making the same political offer. Left-wing parties stop treating unemployment as a social problem and begin to accept the argument that presents it as an individual problem. From traditionally representing the bottom 20 per cent of the income distribution, they calculate that they are better off capturing votes from the affluent middle class. This move was a success for the Blairs and the Schröders, but the cost was the abandonment of their core constituencies.

The crisis and the bailouts further erode faith in mainstream parties. Cartels are always vulnerable to entrants and this is where populism comes in.

As globalisation progresses, the returns increasingly go to skilled workers, city dwellers, and, by way of the real estate boom, asset holders. Meanwhile, much of the hinterland becomes, to use that Trumpian phrase, “the left-behind”. The cartel fights over the same votes by skewing its offer towards the upper-income cohorts while the lower-income cohorts are, in terms of political representation, ignored. By the time of the financial crisis, a great deal of inequality and a lack of representation is built into the system. Already very unstable, the crisis and the bailouts further erode faith in mainstream parties. Cartels are always vulnerable to entrants and this is where populism comes in.

How did the crisis create the space for populist opposition to the political cartel?

Neoliberalism reconfigured the hardware of capitalism with reform agendas such as central bank independence, international trade agreements, and privatisation. The Reagan and Thatcher revolutions in the 1970s and 1980s recognised that running a full-employment economy generates spiralling inflation, and rebooted the system with new economic ideas. But the neoliberal configuration of the institutions of capitalism had a bug of its own.

Neoliberalism’s bugs were the generation of huge leverage in the banking system that could only be reduced by crisis and massive inequality that was masked by credit extension. In 2008, neoliberalism as a system crashed and burned but the political reaction, unlike in the 1980s, was to pretend that everything was fine and ask central bankers to fix the problem. Central banks were able to resuscitate the system by lowering the price of money and buying assets to add liquidity. However, central banks did not and cannot address any of the underlying problems around inequality, lack of opportunity, and immigration.

Is part of the appeal of populist parties a convincing answer to the trilemma of globalisation, sovereignty, and democracy identified by Dani Rodrik?1

The system was put back together again after 2008 but the result is highly constrained and volatile. In a society that many people recognise not to be working, populists are the rogue code writers of the system, sitting in a basement trying to hack new software. Some of that software is good and some is awful, but the fact is that populist parties are writing it because the mainstream programmers refuse to do so.

But despite moving in the right direction, Germany and Europe are heavily constrained by the economic model that they have built themselves.

Dani Rodrik says you can only have two out of globalisation, sovereignty, and democracy. The EU is an attempt to have globalisation and democracy: it is the world’s largest free trade zone and open space for capital, particularly the Eurozone. It is also trying to create a transnational democracy by reinvigorating European participation and becoming more representative. The EU institutions are built to overcome the difficulty that national democratic institutions face containing transnational, often global capital. But these transnational institutions struggle because democracy is inherently national, as shown in the lack of enthusiasm for EU politics and the reluctance to devolve power to the centre. Right-wing populism has a different answer: keep sovereignty and give up on globalisation. “Take back control” is emblematic of that sentiment.

Right-wing populists aren’t the only forces on the rise. So are the Greens, particularly in Germany. Where would you place them between the cartel parties and the populists?

The nightmare political configuration for German capital has always been Red-Red-Green. It’s the one scenario that they want to avoid at all costs. Why? Because the German economy is driven by exports, which means suppressing domestic consumption by repressing wages and relying on foreign demand to make up the shortfall for corporate earnings. Now, with Donald Trump on one side ready to tariff German cars and China threatening to do the same over Huawei 5G, Germany finds itself incredibly vulnerable.

The climate emergency also means that Germany needs to take real steps. In fairness, the German government announced in January a bailout package to wean itself off coal and, on the EU level, the von der Leyen Commission is committing money through the Just Transition Mechanism that will generate 100 billion euros of investment. But despite moving in the right direction, Germany and Europe are heavily constrained by the economic model that they have built themselves.What the Greens suggest they can do, and what the Red-Red-Green alliance would do, is break that model, which is the only way to solve the climate emergency. With the vulnerabilities of an exhausted economic model exposed and the climate emergency worsening, Green parties are emerging as the only safe harbour for young people.

The Greens are increasingly attractive to young people because they do not have faith in the mainstream left-wing parties dominated by older voters that seem to care about pensions more than anything else. Of course, green politics can play out in different ways and a progressive climate change agenda can take various forms. In Austria, for instance, the Greens just went into coalition with the Conservatives.

The Left in the US has swung behind the Green New Deal. Can green politics tie enough people together to defeat the right-wing blocs dominating politics in many places?

Every country has parts that are dependent upon carbon extraction and processing. Exiting coal will cost Germany 44 billion euros. Let’s say that it would cost the United States 250 billion dollars to do the same. Even if you accept that upfront cost, there is still the question of what coal-dependent states like West Virginia would do instead. Texas may be slowly turning Democrat, according to some projections. But, on the other hand, Texas is oil. If you get out of carbon, the value of the Texan economy essentially falls to zero. The Texans who drive Ford F-150s, live a certain lifestyle, and are quite well off are understandably resistant to this. Adaption is easy for knowledge workers or people in cities with good public transport. But some people’s entire way of life will need to be re-engineered in a way that’s deeply upsetting and unsettling.

It’s not that the Republicans are impervious to science; they just represent states that are incredibly carbon-dependent.

In some areas, the language of the Green New Deal associated with Alexandria Ocasio-Cortez and Bernie Sanders is politically beyond the pale. It’s not that the Republicans are impervious to science; they just represent states that are incredibly carbon-dependent. Can they really be expected to tell their constituents that everything will be fine and that some people in New York have their best interests at heart? Asking someone to give up how they make their living for a thing called the Green New Deal is a big ask. Some version of it has to happen, but the real question is how to make sure people in carbon-heavy states don’t pay all of the costs.

Could the distributional effects of climate policies become a new dividing line? In Germany, Alternative for Germany (AfD) has positioned itself as the diesel party, the polar opposite of the Greens.

Right-wing populists tend to be climate sceptics because their votes come from poorer areas that are carbon-heavy. The AfD’s core support comes from the eastern Länder, de-industrialised areas that have struggled since the transition, that depend on public spending, and that have been told to tighten their belts for the past 30 years. The AfD gives them a voice.

Australia is another example. Australia is on fire because of rising temperatures that clearly have something to do with us. But the debate is extremely polarised as a result of the Australian political economy. Australia mainly makes its money by selling coal mined in Western Australia to China. Sydney and Melbourne are just where export earnings are reinvested in housing and other assets. Heard from Perth in Western Australia, climate politics sounds like some people on the other side of the country asking them to foot the bill for their lovely, green lifestyle on the coast. Until the distributions are explicitly changed to overturn that frame, you’re not going to get anywhere.

Is the same carbon cleavage playing out in international politics?

Thomas Oatley is carrying out some wonderful research on the “carbon peace”. He argues that the standard account of the liberal international order, from World War II and Bretton Woods to the end of the gold standard and the creation of the World Trade Organization, overlooks how throughout this period, for the first time in history, energy was cheap. The liberal peace was actually a carbon peace and it is beginning to fray.

The countries and regions that are carbon-dependent now have more in common with each other than with those that are not. Hillary Clinton won the popular vote. But her support was in New York, the cities of California, a bit in Miami, and a smattering everywhere else. The dependence of Trump’s political coalition on carbon is now reflected in American foreign policy. These days the US seems happy to slap tariffs on Scottish whiskey and German cars but to be friendly towards Turkey, which is drilling for oil and gas in the Mediterranean; Russia, a giant carbon-generating institution; and Saudi Arabia, the ultimate petrostate.

The liberal peace was actually a carbon peace and it is beginning to fray.

Oil and gas are what the US cares about when Trump’s carbon coalition captures American politics. The Obamas and the Clintons assembled a very different coalition representing the post-carbon economy. Their approach was to either distance themselves from the problem or reform it in some paternalistic manner that alienates people. The dividing line that is emerging is, simply, are you able to move off carbon or not? That’s what everything is boiling down to.

Can climate denial last in the long run?

Denialism is largely over. Now there is a sotto voce version from people like Australian Prime Minister Scott Morrison who accepts that climate change is real but argues that radical change can’t help the fact that Australia is a hot, dry place that burns a lot. While there might be a half-truth there, the unprecedented magnitude of these fires makes the difference. A bigger obstacle is the “oatmeal trousers” problem: the accusation that climate action means no cars, no planes, and that everyone will be wearing oatmeal trousers. Building a coalition around that kind of vision is just not going to happen. The necessary coalition will have to include not just sceptics but people on the Right who understand that climate change is real but whose lives are built around carbon.

Now the interesting part is compensation. People aren’t stupid. When you raise taxes on diesel for ordinary people but then exempt aviation fuel and marine diesel or cut taxes on the rich, people put two and two together and recognise it as a class politics and that they’re on the losing side. What needs to happen is that the people with the assets who live in nice places and who don’t have that much to do in terms of transition are going to have to pay a huge chunk of their income. It’s going to have to be like the solidarity payments to Eastern Europe but on a global level, across countries and societies.

1. Dani Rodrik (2011). The Globalization Paradox: Democracy and the Future of the World Economy. New York: W.W. Norton & Company.

This interview is part of our latest edition, “A World Alive: Green Politics in Europe and Beyond”.

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The Carbon Divide: The Material Basis of Polarisation

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