There is one way forward on climate change

To succeed in tackling the emergency, we need dramatic policies that are effective, legitimate and global

Martin Wolf

Trump Hot Air Climate
© James Ferguson

Climate policy is dangling between the cynicism of Donald Trump and the radicalism of Greta Thunberg. The US president has just pulled the world’s second-largest emitter of greenhouse gases out of the Paris climate accord. Ms Thunberg demands significantly more than a 50 per cent cut in global net emissions by 2030. The former is certainly irresponsible. But the latter seems inconceivable.

The exasperation of radical climate activists is understandable. Despite decades of talk, emissions of greenhouse gases and global temperatures continue to rise. If the trend does not alter soon, the chances of avoiding an increase in global average temperatures of more than 1.5C above pre-industrial levels will be zero and those of avoiding a 2C increase will be tiny.

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As the IMF notes in its latest Fiscal Monitor, meeting the latter goal requires reducing emissions of greenhouse gases by a third below the baseline, by 2030. To keep below a 1.5C increase, emissions need to be half of the baseline.

The longer the delay in acting, the larger the required action becomes, until nothing can be done because it will be too late. It is already almost too late to avoid what experts view as destructive and irreversible changes in climate. For that reason, dramatic policies are needed.

Yet they are feasible, argues the Energy Transitions Commission, if they are firmly implemented over the next three decades.

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Unfortunately, the outright opposition of people such as Mr Trump, and the indifference of much of the population, are not the sole obstacles to success. Even some who favour action are a problem, because the climate cause is for them part of a wider campaign against the market.

Thus, many supporters of the Green New Deal view climate as a justification for the planned economy. As British journalist Paul Mason argues: “Labour wants to combat climate change through three mechanisms: state spending, state lending and the state direction of private finance.”

This approach allows opponents to argue that the left is more concerned with destroying market economies than saving the planet. The mess created by trying to plan an economy into zero net emissions in a decade might bring all attempts at mitigation into disrepute.

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In any case, climate change will not be solved by one country. To succeed, policy must be effective, legitimate and global.

To be effective, policy must combine planning, regulation, research and incentives. There is strong justification for government actions in research, spatial planning and finance. But there is also a need for incentives aimed at shifting behaviour. Command and control are rarely as effective all on their own.

The IMF report suggests $75 a tonne of carbon might be the price in 2030 consistent with keeping the temperature increase below 2C. Today, while there are a host of pricing arrangements, the prices themselves are mostly far too low and variable over time and across countries to be useful. Yet, in principle, a carbon tax, or an emissions trading system with a price floor, is the most effective (because most comprehensive) way to influence emissions.

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Schemes that generate fiscal revenue ought also to be attractive to politicians, because the money can be used for other valuable purposes. Taxing a “bad” (a form of pollution, in this case) always offers an opportunity to improve taxation or raise valuable spending.

An important point made by the IMF report is that such countries as China and India could benefit especially from a reduction in local environmental pollution, because of the benefits of reduced use of coal.

It is also vital that these countries do see such benefits from use of carbon taxes, because they are going to have to play a big part in bringing about the needed reductions in global emissions (relative to the baseline). It is in these countries, too, that a huge part of the needed investment in new energy systems must be made. So incentives matter greatly.

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To make policy legitimate, it is essential to compensate losers. It is not true that the poor are always proportionately most adversely affected by higher energy prices.

But protests by the rest of the population matter, too. Compensation for higher fuel prices needs to be visible.

As important, a convincing vision of a better future must be offered. Otherwise, the necessary changes in policy will never be accepted.

Finally, policy has to be global, with all the bigger economies involved. This creates huge problems of equity. Clearly we are never going to reach a perfect solution. But some solution will have to be found in generous assistance from high-income countries to emerging and developing countries, especially with the introduction of new technologies.

This also raises an important question: what is to be done with free-riders and, above all, the biggest free-rider of all, the rogue US?

The answer in principle is clear: it will have to be penalised quite heavily. If we accept, as we should, the urgency of the challenge, this follows quite naturally.

What, then, is to be done?

The answers include a programme of action over three decades, starting now; pragmatic resort to all policy tools, including market-based incentives; use of the revenue raised from carbon pricing to compensate losers and make the tax system and climate mitigation more efficient; a stress on the local environment benefits of eliminating the use of fossil fuels; and, above all, a commitment to climate as a shared global challenge.

In an era of populism and nationalism, is there any chance of all this?

Not obviously, alas. If so, we will indeed have failed.

But the young are surely right to expect better.

America’s Productivity Problem

Slowing productivity is cutting into the economy’s ability to grow, but there is some hope the future will be brighter

By Justin Lahart

Work at a furniture factory in North Carolina. A key measure of worker productivity posted its first quarterly decline in nearly four years Wednesday. Photo: Logan Cyrus/Bloomberg News

More than ever, the U.S. economy needs productivity to get going. Unfortunately, that isn’t happening.

The Labor Department on Wednesday reported that real output per hour—the standard measure of worker productivity—fell an annualized 0.3% in the third quarter from the second, marking its first quarterly decline in nearly four years.

The productivity data can be volatile on a quarterly basis, but the longer-term trend doesn’t look good either. From a year earlier, productivity was up just 1.4%. That is in keeping with the tepid pace in the 15 years since 2004. In the 15 years prior to that, productivity growth averaged 2.5%.

When it comes to how fast the economy grows, there are ultimately two factors at play: how much people work and how efficient they are at getting their work done. So economic growth depends on growth in the total number of hours people work plus productivity growth.

But with population growth slowing and the workforce aging, there are limits to how much total U.S. hours worked can grow, so productivity really matters for the economy now. Until it really gets going, neither will the economy.

Unfortunately, productivity isn’t going to turn higher just like that. Ever since the early 2000s, companies have been reining in capital spending, reducing the amount of labor-saving equipment getting put into place. There are plenty of theories as to why, including the long hangover from the 1990s investment binge, and the increased discipline investors are placing on companies when it comes to costs. In a note this week, economists at the Federal Reserve Bank of San Francisco argued that an intensification of competition among large firms cut into their ability to generate profits, ultimately discouraging them from innovating.

The good news—at least over the long run—is that rising labor costs may now be providing companies more reason to invest in productivity. Wednesday’s productivity report showed that unit-labor costs—a measure of how much businesses compensate workers for their output—were up 3.1% in the third quarter from a year earlier, registering the strongest growth in over five years. That could provide companies with an incentive to invest in new equipment, as well as training their current workers to become more productive. Indeed, Deutsche Bank economists find periods when workers are scarce and wage growth is accelerating tend to lead to gains in productivity.

Moreover, with the Fed willing to tolerate much lower levels of unemployment than in the past, the incentives to boost productivity may only increase. The news right now isn’t all that good, but there is reason for hope.

Inching Toward the End of the Conflict in Syria

By: Hilal Khashan

Starting a protracted conflict is much easier than ending it. That’s especially true when the regime in question is callous and fossilized and foreign countries are waiting for an opportunity to take advantage of a deteriorating situation. These two factors explain how the brutal armed conflict in Syria got underway. Before his death in 2000, Hafez Assad entrusted select members of his old guard with shoring up the safety of the future regime of his politically inexperienced son, Bashar Assad.

Instead of applying Hafez's Machiavellian approach in addressing a seemingly spontaneous and innocuous protest movement, the old guard recommended heavy-handed action. The regime's use of excessive coercive force militarized the uprising and invited foreign intervention – from Iran, to rescue the younger Assad, and Saudi Arabia, to bring Iran down and prevent the formation of the Shiite Crescent (that is, Iran’s overland route to the Mediterranean).

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Syrian army defectors established the Free Syrian Army, with the goal of bringing down their former commander in chief. But as uncoordinated material support from outside militaries flowed to rebel groups, jihadist militias arose in Syria’s overwhelmingly religious society.

Syria, a Geopolitical Chessboard

The United States did not seek to overthrow Assad's regime, despite what people may think. (This was borne out, in particular, when the Obama administration failed to punish the regime for crossing the notorious “red line” of using chemical weapons against the Syrian people.)

Rather, the CIA’s 2013 program was aimed at supporting the FSA against radical Islamic movements, such as the Nusra Front. But when the program proved ineffective, Langley terminated it in 2017 and recognized Russia's leading role in defeating jihadism in Syria and restraining Iran’s burgeoning power.

Russia, in partnership with the Syrian air force, had already begun in 2015 a systematic air campaign to support Assad’s army, which, despite massive backing by Iran and its multinational Shiite militias, had been forced into retreat. Russia also intended to help rebuild the Syrian state.

Turkish President Recep Tayyip Erdogan abandoned the core demands of Syrian rebels in favor of establishing a safe zone despite American, Russian and Iranian reservations. While moderating Turkish ambitions, clearly with tacit U.S. backing, Russia seems determined to rein in Iran’s influence in Syria.

Foreign power players share a desire to prevent Iran from extending its territorial control in eastern Syria and filling the vacuum caused by the withdrawal of most U.S. troops from the area. Russia has been keen to recruit young Syrians away from Iran; it invested in the formation of the Fifth Assault Corps that reports directly to Russian officers, and whose 50,000 members come from pro-regime groups and elements of the defunct Free Syrian Army.

Russia is also expanding its Hmeimim air base and naval facility in Tartus. Russia deployed FAC units last year in southwestern Syria and near the cease-fire line in the Golan Heights after reaching an understanding with the U.S. and Israel. Iran demonstrated its anger at Russian efforts to weaken its influence on the government in Damascus by ordering its Shiite militia allies to refrain from participating in the battle for Idlib in June, which rendered it an unnecessary war of attrition.

Contrary to media reports that Islamic militants sought to attack Russia’s Hmeimim air base near Latakia, the truth is that the Iranian-created 313th Battalion in Qardaha, the Assad family's hometown, sent drones to fly over the base only for harassment. The Russians ordered the Syrian regime to disband this battalion after implicating it in launching drones.

Competition between Russia and Iran in Syria goes beyond military influence on the ground to economic supremacy. Russia has a competitive advantage over Iran in winning big reconstruction projects. Russian President Vladimir Putin angered the Iranians when he negotiated to grant Russian businesses the lion’s share of postwar projects in return for propping up Assad’s regime. Assad is unhappy about Iranian attempts to control the centers of decision-making in Syria. He prefers to work with Russia because Moscow wants to be a junior partner, whereas Tehran wants to be the dominant partner.

Assad also understands that the United States, Russia and Israel have decided to disallow Iran's permanent presence in Syria. Russia has concerns that Iran will be an obstacle to its long-term economic interests in Syria. The Russians reason that Syria will emerge from the devastating civil war as a fragile state. Putin does not want to have rivals in determining Syria’s domestic and foreign policy, and he made this point clear to Assad before committing himself to rescuing Syrian regime.

Russia understands Syrian sectarian and ethnic sensitivities, and, unlike Iran, which promotes a strictly religious agenda, it has no reservations about dealing with the country's diverse groups. When Moscow secured the withdrawal of Islamist rebels from Greater Damascus last year, it used Chechen military police officers to communicate with them. The Russians want to work with an able Syrian government and avoid getting stuck there, whereas the Iranians prefer to work with a lackey administration.

The crippling sanctions against Iran curtail its ability to preserve its achievements in Syria. The eventual readmission of Syria to the Arab League, which Assad is eager to realize, threatens to distance its regime from Iran.

The cost of staying in Syria is high and useless. In addition to business opportunities in Syria, Putin is more interested in flexing military muscle to project the surge of Russian military might and win concessions in Europe. The Russian public sees no strategic reason to squander scarce resources on such a volatile country, while poverty-stricken Iranians are unable to comprehend their mullahs' ideological drive in Syria. In terms of articulating their Syrian policy, Russia is pragmatic, while Iran is dogmatic. Thanks to Russian mediation, there is increasing evidence that Turkey is willing to work with the Syrian government whose forces, even if token, are positioning themselves in specific border posts. The release of 18 Syrian soldiers recently arrested by the Turkish army, despite Assad's anti-Turkish rhetoric, points in that direction. Erdogan had to shelve his ambitions to overthrow Assad's regime and install a pro-Turkish government in Damascus. He's now resigned to the establishment of a safe zone along the Syrian border under strict American and Russian surveillance after halting Operation Peace Spring.

Iran’s heavy involvement in the Syrian conflict generated the false impression that its influence there has become paramount. This claim is far from reality. Iran faces a fundamental weakness in determining the future of Syria, mainly because of its overbearing political style and the small size of Syria’s Shiite community. Shiite proselytization is not as widespread as the Iranians think it should be, since Sunnis have an aversion to it and Alawites disfavor it. Despite Iran's best efforts, there are less than 300,000 Syrians who follow Twelver Shiite Islam – the branch of Shiite Islam favored by Iran. Even though Iran founded Syrian Shiite militias (such as Imam al-Rida Forces in Homs and al-Baqir Brigade in Aleppo), the main forces commanded by the Islamic Revolutionary Guard Corps are Iraqi and Afghan Shiites.

Postwar Syria

No matter what shape postwar Syria takes, the country will look different than what it was before 2011. Nearly 600,000 Syrians have lost their lives, and more than half of the country’s population of 21 million on the eve of the uprising have been displaced, both internally and externally. Even though Assad escaped the fate of other presidents in the countries of the Arab Spring uprisings, he did not win the war; in fact, he is the biggest loser in the battle for Syria.

Syria is economically devastated, and he is presiding over a shattered country, whose cost of reconstruction could reach a staggering $1 trillion. (For reference, Syria’s gross domestic product in 2010, just before the war, was about $60 billion.) It is doubtful whether reconstruction can occur in Syria's massively corrupt business and bureaucratic environment. Postwar reconstruction efforts in Iraq and Lebanon do not bode well for Syria.

The regime lost critical oil and water resources and the fertile agricultural areas of northeastern Syria. Iran’s IRGC and Russian forces control the command structure of most Syrian military and security formations, and the Turks established their much-sought security belt to prevent the Kurds on both sides of the border from linking up. The perceived Kurdish threat remains a top priority for Turkey and a stable determinant of its foreign policy choices.

The ongoing understandings among the major actors in Syria, be they bilateral or multilateral, are setting the stage for military action in Idlib, the site of the last major battle in the Syrian armed conflict. Syria's march toward the final settlement of its conflict will commence only then. One must not assume that Iran's presence there is about to end. It will not, but its scale would not live up to the expectations of Iran's conservative ruling elite. Unlike Iran’s sway over Iraqi politics, Syria is reemerging as an arena of inconclusive regional competition.

How to Deal with a Declining Russia

It seems unlikely that Russia will again possess the resources to balance US power in the same way that the Soviet Union did during the four decades after World War II. But declining powers merit as much diplomatic attention as rising ones do.

Joseph S. Nye, Jr.

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TOKYO – The Kremlin is on a roll. Under President Vladimir Putin, Russia has replaced the United States in Syria, continues to intervene in Eastern Ukraine, and recently hosted an African summit in Sochi. Appearances, however, can be deceptive.

True, Russia retains a vast nuclear arsenal, equal in size to that of the US, and it used force effectively against Georgia in 2008 and Ukraine in 2014; provided military assistance to save Bashar al-Assad’s regime in Syria; and has used cyber means to disrupt US and other elections. But Russia can only be an international spoiler. Behind the adventurism, it is a country in decline.

In 1959, the Soviet leader Nikita Khrushchev famously boasted that the Soviet Union would overtake the US by 1970 or 1980. Instead, in 1991, the Soviet Union collapsed, leaving a significantly shrunken Russia, with three-quarters of the USSR’s territory, half its population, half its economy, and one-third of its military personnel. Its GDP is only $1.7 trillion, compared to $21 trillion for the US.

In 1989, the Soviet economy was twice the size of China’s; today, Russia’s GDP is one-seventh that of China. Moreover, Russia is heavily dependent on energy exports, with high-tech products accounting for only 11% of its manufactured exports (compared to 19% for the US).

While language, history, and labor migration provide Russia with some soft power in its near-abroad, few foreigners elsewhere watch Russian films, and Russian universities are not ranked among the top global 100. The political institutions for an effective market economy are largely missing, and robber-baron state capitalism lacks the kind of effective regulation that creates trust.

The public health system is weak, and average Russian life expectancy, at 72 (male and female), is five years shorter than in Europe. United Nations demographers project that Russia’s population may decline from 145 million today to 121 million by mid-century.

Many futures are possible, but at this point, Russia is a “one-crop economy” with corrupt institutions and serious demographic and health problems. Former President Dmitri Medvedev laid out plans to surmount them, but little was implemented and pervasive corruption has made modernization difficult. While Putin has been a successful tactician in restoring Russia’s presence on the world stage, he has not been a skillful strategist in addressing the country’s long-term problems.

One of Putin’s successful tactical maneuvers has been an alignment with China. After incurring Western sanctions for his attack on Ukraine, Putin declared China “our key strategic partner.” In return, President Xi Jinping declared Putin “my best friend and colleague.”

Traditional balance-of-power politics would predict such a response to US power. In the 1950s, China and the Soviet Union were allied against the US. After Nixon’s opening to China in 1972, the US and China cooperated to limit Soviet power. That alignment ended with the collapse of the Soviet Union. In 1992, Russia and China declared their relations a “constructive partnership.” That became a “strategic partnership” in 1996, and in July 2001 they signed a treaty of “friendship and cooperation.”

They have cooperated closely in the UN Security Council, taken similar positions on international control of the Internet, and have used various diplomatic frameworks such as the BRICS grouping and the Shanghai Cooperation Organization to coordinate positions. They now share non-nuclear military technology and conduct joint exercises.

Nonetheless, there are serious obstacles to a close Sino-Russian alliance that goes much beyond tactical coordination. Residual mistrust persists. In the nineteenth century, no country took more land from China than Russia did, and the current demographic situation in the Far East – where Russians number six million, and the population on the Chinese side of the border is up to 120 million – is a source of anxiety in Moscow.

Russia’s economic decline has increased its concern about the rise of China. While trade has increased, investment lags, and Russia ranks only tenth among China’s export markets. As the Economist recently reported, Russia worries about becoming the alliance’s junior partner – more dependent on China than China is on Russia. According to Feng Yujun of Fudan University, “the most important relationship for us is the one with America. We don’t want to repeat the mistakes of Stalin and Mao.”

America, however, must not take comfort in the decline of Russia and treat it like a second-rate power. After all, declining powers tend to be less risk-averse, as was true of Austria-Hungary in 1914. They have less to lose than rising powers. Russia still poses a potential threat to the US, largely because it is the one country with enough missiles and nuclear warheads to destroy it. And Russia’s relative decline has made it more reluctant to renounce its nuclear status.

Even a declining Russia possesses enormous scale, an educated population, skilled scientists and engineers, and vast natural resources. It seems unlikely that Russia will again possess the resources to balance US power in the same way that the Soviet Union did during the four decades after World War II.

But, because of its residual nuclear strength, its oil and gas, its skills in cyber technology, its proximity to Europe, and the potential of its alliance with China, Russia will have the ability to cause problems for the US, and Putin’s reliance on populist nationalism provides an incentive.

Declining powers merit as much diplomatic attention as rising ones do. At some point after President Donald Trump leaves office, the US will need to develop the serious Russian strategy that it now lacks.

Joseph S. Nye, Jr., a professor at Harvard University, is the author of Is the American Century Over? and the forthcoming Do Morals Matter? Presidents and Foreign Policy from FDR to Trump.