By Anke Hassel and Bruno Palier

Our recent research and a recently published book shows which growth strategies governments in advanced industrialised countries pursue. Our main insight is that countries specialise in particular growth regimes – based on either exports or domestic demand – and governments design policies around key sectors and businesses, which serve as engines for growth. Policies go beyond industrial policy and market regulation to include welfare policy reforms, which can either activate workers, or help to increase wages or skills. It makes a big difference for policymaking, whether countries are specialised in the export of high-quality manufactured goods (like Germany), occupy a specialised role in the supply chain of manufacturing (like the Visegrad countries), pursue the export of high-value added digital services (the Nordic countries) or benefit from financial services industries (the UK). Those countries that are dependent on public spending for growth (southern Europe but also France) occupy a particular niche in the context of EU-based regulations on economic policymaking. It is apparent from our analysis that governments form coalitions with the key actors in the business communities of their respective economies, which they perceive as being engines for growth, and aim to protect these industries in a global competitive environment.

We have seen that the pandemic has revealed the weakness of labour markets and productivity growth, the low-quality infrastructure, and insufficient levels of education and training in many countries

We have now entered a new era of economic development, in which climate change coincides with a diffusion of digital infrastructures and a heightening of polarisation of incomes and labour markets. Existing trajectories of economic development are hitting a wall, driven by the need to curb CO2 emissions, the persistence of low-quality jobs, and the entry of big technology companies and new digital technologies into many sectors. The pandemic has sharpened these problems by highlighting existing weaknesses in individual countries. For instance, we have seen that the pandemic has revealed the weakness of labour markets and productivity growth, the low-quality infrastructure, and insufficient levels of education and training in many countries. While these challenges play a role everywhere, different countries are again affected differently and need to find individual solutions. Sadly, problems often accumulate in individual countries or regions: low education and training coincides with poor quality jobs. On the other hand, the reliance on fossil fuel energy is more acute in countries with high productivity, particularly those without nuclear energy such as Germany.

The transformation towards a carbon-free and balanced economic growth will not take place by itself but needs an active policy approach to manage change

The core tasks for policymakers in the next few decades is to assist, but also to force, the businesses in their lead industries to find sustainable pathways of restructuring to cope with climate change policies, to cope with the rise of new competitors in their sectors, based on technology firms, and to overcome an even deeper inequality and polarisation. There are a number of approaches policymakers could, and should, pursue:

1. 1. Open up the established discourse of economic development. In most countries governments and business communities have formed close relationships and are occupied by tightly knitted networks. These networks should be broken up for new ideas and experts, who have visionary ideas of business and social innovation. We don’t need new economic paradigms but a more open discourse.
   2. Introduce a clearer pathway towards decarbonisation and the effects of economic restructuring for jobs, social inequality, and the necessity to assist workers to find new employment.
   3. Address social and ecological challenges in economic development systematically and consider new forms of compensating losers from restructuring.
   4. Address the configuration of different economic trajectories within the EU in the context of future forms of fiscal policies and redistribution.
   5. Create EU-wide innovation networks and partnerships.

The transformation towards a carbon-free and balanced economic growth will not take place by itself but needs an active policy approach to manage change. Governments will have to generate new ideas and include new actors to mobilise change. 

Anke Hassel and Bruno Palier at the Progressive Governance Digital Summit 2021