We don’t need to grow the economy to pay for net-zero transition

This thinking is not going to get us anywhere near net zero in the time we have left to prevent runaway climate change and a mass extinction of species, habitats and biodiversity.

We simply do not have to “grow the economy” in order to find the money to pay for the transition to net zero. We will grow the economy by re-allocating the resources we have available (labour, natural resources, technology etc) to the achievement of decarbonisation of the economy and our way of life.

We cannot rely on private enterprise to lead the way. The private sector will play a vital role but only if the state fulfils its function of leadership in deciding how real resources should be allocated, including directing public spending towards investments in essential training, research and development/innovation and new infrastructure.

A government with its own currency does not need to “search down the back of the sofa” to find the necessary funds. It can create them in the process of spending to pay people to carry out the necessary work. This can be done by the state employing people directly or by commissioning firms in the private sector to undertake the work.

There is no need to raise taxes to find this funding – taxes come later once the state has employed people and firms and has paid them by running a deficit at its own central bank.

Taxation can be designed to redistribute the money that has been spent by government into the economy in order to promote greater social equality, and used to disincentivise private spending on things which divert resources from the efforts to achieve net zero.

As long as Scotland remains part of the Union, our government will have to keep “searching down the back of the sofa” to find funds for public spending but once we are independent and have our own currency such searching will no longer be necessary. This is why the currency issue is so important. Yet again we see one of our political leaders avoiding the subject.

Scotland will need to spend at least £10 billion per year to achieve net zero – there is a strong case to spend more in order to shorten the transition period if there are sufficient real resources available.

What will limit our ability to achieve net zero is not any supposed shortage of money but the limits on the real resources we have at our disposal.

In his compelling 2005 book Collapse, the ecologist and historian Jared Diamond sets out the evidence of the causes of rapid societal collapses in the past. He identified the one consistent factor in all of these to be the societal response to the crises which confronted those civilisations. Those responses are shaped by a society’s politics, its institutions, its values and its ideas.

If our response to the existential threats of climate change, biodiversity and habitat loss and the mass extinction of species on earth, is to believe that our actions and our choices are constrained by limits on the availability of money then we too face rapid collapse of our society and our way of life and, quite possibly, complete extinction.

It is not a shortage of money that is our critical problem – it is the absence of the courage shown by governments in the past, who invested to create the NHS, new social housing, Scotland’s hydro-electric network and other major infrastructure.

The pre-Second World War British government did not think that economic growth was necessary before the war could be fought – the war was fought because it was imperative to defeat Nazism and the money was created, the economy restructured and resources were re-allocated in order to fight that war. We are in no different a situation now in the 21st century when we need to put our economy on the equivalent of a war footing in order to achieve net zero.

Jim Osborne

Scottish Banking & Finance Group