Do green jobs threaten other jobs?

10th June 2011 By: Saliem Fakir

You have probably heard this before: green industries will steal jobs from other sectors. Superficial logic invites superficial conclusions. But here is an exploration that may help to deepen the debate on this matter.

Things are not that straightforward, as everything depends on the relative state of the economy and on trade-offs between different choices.

Also, countries hungry for growth may have inherent opportunity costs if the State directs investment in areas that, by their nature, have low productivity and few bene- fits. In other words, we had better be sure that every rand invested in a green sector exceeds or is equivalent in productivity and other cobenefits to investing that rand in another sector that is not green.

However, not all investment decisions can simply be made on the grounds of immediate returns.
One also has to look at systemic long-term risks to an economy that are brought about by sticking to unchallenged convention. The energy sector is particularly fraught with these problems, as old conventions always throw bad faith in the way of new conventions.

An investment may initially have no imme- diate economic benefit but, in the long term, there may be economic benefits because it locks us out of a constraint that will have future beneficial systemic impacts on the economy that support overall growth prospects for the economy.

How can we envisage these new investments? If there are natural constraints on a sector because, over time, the resource will be depleted, it is better to open a new sector where its future growth will have a job- absorbing effect rather than bleed jobs. So, it is a question of how one manages the transition to a new order.

A good case in point is that, if, over time, coal or oil is going to run out or there are limits to using the resource, opening a new energy carrier or provider of electrons for the grid should help fill the gap.
It should not only support a more robust energy security regime, but also help diversify economic activity on the back of new investments in new energy technologies. Doing this on scale over a long period should bolster the sprouting of new industrial activity and associated services.

If a country is heavily dependent on the importation of a fossil fuel, then, in times of economic prosperity, countries ought to finance ways to derisk a country’s macro- economy and future growth potential by lowering this risk through investing in alternative solutions, even if they may cost more initially.

If the risk of fossil fuel dependence is systemic to the economy, then the early premium investments in alternatives should save jobs, as the importation of inflation associated with dependence on a commodity (especially if future supply looks uncertain and prices are likely to rise) not only opens the economy up but shields the economy from knock-on effects through the lowering of balance of payment constraints or inflationary effects. Inflation itself can impact negatively on jobs.

The availability of new sources of energy should also keep the natural propensity for growth on track because there are no time lags in investment decisions or the development of new ones.

Secondly, when an economy needs a stimulus because growth is sluggish and unemployment is high, opening new sectors ought to be a good thing rather than a negative one. This should be true for green sectors that are in their nascent stages but whose potential has never been fully realised because traditional sectors continue to dominate investment patterns. But, over time, where old sectors show little return or where new investment opportunities are already crowded out, opening a new sector for growth and investment can only be good.

Some new sectors may require subsidisation to get them on their feet. However, there should be a clear exit strategy for the subsidy once the market for green products or green sources of energy has matured.

For States that are constrained owing to limited spare cash or limited growth in tax revenue, deciding on the green sectors to punt will come with something of a challenge and potential risk if the investment fails to pay off.

New sectors do require early State intervention, as the potential for new investment has to counter the tendency of private capital to always gravitate to sectors that are well established, even if the returns are not as lucrative as in earlier times. However, State intervention has to be well designed and coordinated.

A generously subsidised new sector can invite capital investment that is predatory because of its natural inclination for rent seeking, where capital’s only aim is to claim the windfalls from the subsidy by crowding out genuine developers and, in so doing, endangering the long-term stability and growth of that sector.

Subsidies may end up subsiding plunder rather than growth. There is always a need for caution, but caution should not weigh down so heavy on a thing whose time has already come.