Introduction

As Brian Deese, the former Director of the National Economic Council, recently wrote, “the clean energy transition remains the most important planetary challenge” as well as “the largest capital formation event in human history.” In the global policy context, the challenge of delivering this capital investment programme is often posed as that of a finance gap we must close: the policy challenge is finding the supply of money; we must use policy to mobilise finance from under the couch cushions of institutional investors. Yet, as John Maynard Keynes boldly declared in the 1940’s “anything we can do, we can afford.” It is the “doing” that so often stands in our way, not the money that will ultimately finance it. 

The policy problem for the G20 and beyond is developing the public institutional capacity to undertake and coordinate investments, divestments, and supply chains at both domestic and multilateral levels. Insofar as it is a policy failure for a necessary investment to not be built, the goal of public intervention into markets should be to directly ensure that necessary investments happen at the speed and scale the world requires.

This framework paper highlights the five distinct institutional capacities that the G20 must support and develop in order to deliver investment on schedule.

[.num-list][.num-list-num-red]1[.num-list-num-red][.num-list-text]The capacity for public development: governments need to build, operate, standardise and coordinate critical infrastructure.[.num-list-text][.num-list]

[.num-list][.num-list-num-red]2[.num-list-num-red][.num-list-text]The capacity for public finance: governments must be able to provide patient, longer-term financing to essential projects not just to lower their cost of capital but to ensure that they can weather short-term market volatility.[.num-list-text][.num-list]

[.num-list][.num-list-num-red]3[.num-list-num-red][.num-list-text]The capacity to build supply chain resilience: insofar as price volatility can disrupt private and public investment trajectories, governments need to undertake targeted procurement to stabilise markets for manufacturers and end consumers.[.num-list-text][.num-list]

[.num-list][.num-list-num-red]4[.num-list-num-red][.num-list-text]The capacity to act as a market-maker of last resort: governments must provide liquidity to blunt both public and private risk aversion. Denying that liquidity — whether via procurement or “lender of last resort” functions — could render necessary investments, particularly capital projects, unviable at all but the most ludicrous prices.[.num-list-text][.num-list]

[.num-list][.num-list-num-red]5[.num-list-num-red][.num-list-text]The capacity for coordinating investments in line with public goals: through an indicative planning “membrane” that cuts across societal and government institutions, governments could align regulatory processes, sectoral developments, and public market-interventions in a way that creates and preserves a stable investment pathway.[.num-list-text][.num-list]

Imagine these capacities as a compass rose, with the fifth, the indicative planning membrane, being the centre of the compass around which the public sector intervenes in markets. Any working solution to the problem of global underinvestment will require active and indicative management of markets (the fifth capacity) through the first four capacities.

[.fig]Figure 1: A Compass Rose for Global and National Development[.fig]

At the G20 this year, policymakers should embrace efforts to build these capacities within and between governments. There is no reason why the governments of rich countries cannot support global liquidity objectives or refuse to support market stabilisation, just as there is no reason why individual governments cannot build the capacity to coordinate project pipelines of infrastructure that private investors may never want to build. In fact, we believe that global cooperation and coordination in pursuit of these capacities presents a “win-win” for both industrialised and developing countries since they reduce the zero-sum incentives that dominate global trade relations. 

This framework paper does not call for specific institutional arrangements; rather, it highlights why certain broadly defined public sector capacities are necessary to build and maintain. The results of the US election will no doubt constrain other governments’ ambition. But this paper’s primary focus is on providing policymakers and civil society with the necessary coordinates for mapping a transition toward a sustainable, climate-resilient and prosperous global economy — with or without US buy-in.

We present an overview of each of our highlighted capacities and finish with a conclusion section. 

Read the full briefing here.