Ecology-Friendly Credit Guidance Frameworks

Discussion

Towards Ecology-Friendly Credit Guidance Frameworks

J. HAUGE AND J. HICKEL:

"Control over finance and money translates into control over our collective labour and resources. In today’s economic system, capital – by which we mean the major financial firms, the commercial banks, the largest corporations, and the wealthiest 1 per cent – has overwhelming control over financial assets and therefore determines production. For capital, the purpose of production is not to achieve social and ecological progress, it is to maximise and accumulate profit. This is why many societies chronically overproduce many damaging and unnecessary things, like fossil fuels and superyachts (which are highly profitable to capital), and at the same time chronically underproduce socially useful things, like renewable energy, public transport, affordable housing, and universal healthcare services (which are less profitable or not profitable at all). In this sense, it is not surprising that the private sector has a poor track record of investing in environmentally beneficial activities (Christophers 2022, 2024).

Credit guidance frameworks can help overcome this problem. In the previous section we described how credit policy can reduce lending to and investment in damaging sectors that must be scaled down. A similar approach can also be used to actively steer private finance toward more socially and ecologically beneficial activities, thus ensuring sufficient investment in necessary but less-profitable production in line with democratically ratified objectives. Credit guidance was used extensively in the post-war period (Monnet 2018). It helped many European states build up industrial capacity and accelerate innovation in key sectors. In the contemporary world economy, China represents a strong example of credit guidance in action (Sperber 2024). In China, major financial institutions and banks are controlled by the state, which allows the government to strategically allocate capital in line with long-term objectives. Green industrial policy has been a core aspect of state-led credit guidance in China and has achieved remarkable success: China is now the global leader in the manufacturing of many renewable energy devices, such as photovoltaics, EVs, lithium-ion batteries, and wind turbines. Credit guidance also holds other potential economic benefits, such as offsetting inflationary pressures and potentially preventing debt bubbles. Public finance mechanisms can also be leveraged to increase investment in socially and ecologically necessary production, and are particularly important in cases where the necessary production is not profitable at all. Any government that has sufficient monetary sovereignty can issue the national currency to invest directly in implementing a public job guarantee, improving public services, insulating buildings, innovating more efficient technologies, and establishing a national renewable energy system, without being limited by the question of profitability (Kelton 2020). Increasing public finance in this manner may risk driving inflation if the new production stretches the productive capacity of the economy. But this risk can be avoided by implementing measures to reduce other, less-necessary forms of production (and by using taxation to reduce the purchasing power of the rich), which reduces excess demand and prevents inflationary pressures (Olk et al. 2023). The degrowth-oriented measures described above therefore liberate real resources that can be redirected toward increasing production for the public good.

We have mentioned the public job guarantee and universal public services above. The idea of a job guarantee is to prevent unemployment that may arise from reducing output in certain sectors, and enables labour to train and participate in socially meaningful production and the ambitious public works that are necessary for the transition (Kaboub 2008, Sylla 2023). The job guarantee programme can also be used to establish living wages and good labour conditions, therefore compelling private firms to meet similar standards or risk losing staff. This is a crucial stabilising mechanism in striving towards universal employment, good livelihoods, and sufficient production of necessary goods and services regardless of fluctuations in aggregate output. The idea of universal public services – by which we mean not only education and healthcare but also affordable housing, childcare, and sufficient quantities of water and clean energy for household consumption – is to ensure that necessary goods and services are always being produced and available to all, again irrespective of changes in aggregate output. \ Currently, many states take a passive approach to green industrial policy, limiting their intervention to fixing ‘market failures’, for example through carbon taxes, emission trading schemes, and subsidies for renewables, as outlined above (Gabor and Braun 2025). Although these can be useful, governments must take a more active approach to investment if we are to achieve rapid reductions in emissions and bring resource use to sustainable levels. In this kind of system, the direction of investment is determined by the state, the public, and the people, rather than by capital. In practice, this means more public provision of essential goods and services, public finance and credit policy in line with democratically ratified objectives, and greater democratisation of private sector production in the form of worker/community ownership of firms.

We also need greater financial coordination between various policy levers of the state, be it monetary policy, fiscal policy, credit plicy, or financial repression policy (Gabor and Braun 2025). For many state bodies, this would transform business-as-usual, but nothing less is necessary given the scale and urgency of the challenges we face. Central banks in particular need to change the way they operate, from simply focusing on ‘market-fixing’ and short-term price stability, towards taking a more active role in credit guidance (Kedward et al. 2024). Reorganising the economy to produce for public benefit would also enable our societies to shift toward more community-centred living, in turn helping us to more rapidly decarbonise and reduce material footprints (Hickel 2020a; Kallis et al. 2020, Schmelzer et al. 2022). Many cities and countries have started implementing policies for that purpose. For example, many European cities have started incentivizing more use of public transport and less use of private vehicles. Oslo has made large parts of its city centre inaccessible for cars, London has introduced ultra-low emission zones, and Milan has vastly expanded its bicycle network. Research has demonstrated that sufficiently rapid decarbonisation does not only require more electric vehicles, but also requires a large-scale reduction in car use (Winkler et al. 2023).

More broadly, public provisioning is crucial in the age of ecological breakdown. In the 1950s and 1960s, assets such as land and housing were in fact often in the hands of the public, but since the wave of neoliberalism starting in the 1970s, land and housing were sold off in abundance to the private sector (Harvey 2007). These should be restored to public ownership, so they can be provisioned to people under more accessible conditions. The housing market has become especially problematic. Housing has become so financialised that most people now see houses as investment assets to generate returns rather than places for people to live in. The deregulation of the housing market has paved the way for rent hikes, growing deficits of social housing, and a growing number of dilapidated houses being put up for rent. In England, there has been a net loss of 20,000–35,000 social homes nearly every year since 1981. In 2023, there were 1.4 million fewer households in social housing compared to 1980 (Shelter 2024).

(https://www.tandfonline.com/doi/pdf/10.1080/13563467.2025.2506655)