Understanding the essay question
Focusing on the green job economy and the policies that have been influenced by the UK's net-zero ambitions, this essay will connect economic theory to real-life policy scenarios to clearly describe, synthesise, and then contrast government interventions that are supported by the neoclassical paradigm of market-fixing and those that are supported by a new economic thinking approach to market-shaping.
This essay will explore how the market-failure theory of neoclassical economics negatively casts the role of the state as market fixer, intervenor, enforcer or redistributor (Sekera, 2020) through government interventions in the form of public goods, regulations, and market-based incentives to correct externalities and achieve an ever romanticised 'equilibrium'. This essay will then contrast the neoclassical paradigm of market-fixing to a new economic theory of market-shaping – an approach to policy-making that emphasises the role of the state as one that co-produces value, collaborates across public and private sectors, and facilitates the direction of markets over the long-term.
By identifying, describing, and contrasting real-life policy scenarios that reflect either a market-fixing or market-shaping approach, this essay will argue how each is supported by the appropriate rationale and demonstrate the wide-reaching impacts each has on policy-making within the green job economy.
Understanding the topic
Neoclassical economics can be characterised by its romanticised obsession with markets. It has an unwavering emphasis on the rationality of individuals and their maximisation of utility, and outright neglects any kind of historical or social context (Dequech, 2007; Johnson, 2017). At its core, neoclassical economics is built on the premise that the ideal market is equated with the optimal allocation of resources – calculated with the General Equilibrium (GE) theory - and that government intervention is only needed to correct positive or negative externalities. Equilibrium to neoclassical economists is essential. It represents the optimal allocation of resources and goods, and in Pareto-efficient markets, no change can be made without making someone worse off. The conditions that are required for Pareto-efficient markets are defined by the First Fundamental Theorem (FFT) of welfare economics (Arrow, 1951) and acts as a starting point for market failure theory (Mazzucato, Ryan-Collins 2022). Put simply, if any of the three conditions set out by the FFT for 'perfect markets' are not met - prices are incorrect, individual actors fail to behave rationally, or equilibrium is not achieved - then the market is deemed as not achieving allocative efficiency and is in a state of failure. Under these conditions, the influence of Arrow's GE theory suggests that the role of the state as an institution is to support the market. In other words, government intervention is only required to fix situations in which markets fail to efficiently allocate resources (Arrow, 1951).
Lundvall argues that the role of the state as one that facilitates change, rather than directly creating it, is symptomatic of this market failure approach to policy-making (1992). This view is developed by Marianna Mazzucato and Joshua Ryan-Collins, who state that because policymakers have interpreted and utilised the concept of market failure as a justification for public policy intervention, it limits the role of the state to one that is seen as merely "administering," "fixing," "regulating," or at best "facilitating" and "de-risking" (2016, 2022). This can be demonstrated by through the types of government interventions created in response to market failure. For positive externalities created by "public goods" that are both non-rivalrous and non-excludable, the state is left as a lone actor as the private sector has no incentive to create value in which the public would "free-ride". For negative externalities, such as pollution, the state is responsible for fixing the market through regulations and market mechanisms to internalise external costs (Mazzucato, Ryan-Collins 2022). The central problem with these types of interventions is that they associate public action with a host of discouraging ‘problems’ (Sekera, 2020), while they aim to create optimal market conditions, they often lead to suboptimal outcomes from a societal perspective (Lundvall, 1992) because of the lack of consideration towards social context and broader outcomes. Fundamentally, the neoclassical paradigm of economics forces the state into a role that prevents it from shaping or leading change.
Market-shaping, on the other hand, is an alternative approach to policy-making that begins with notion of public value as being collectively generated. It’s an approach that is built on Karl Polanyi’s (1957) perspective that markets should be considered as outcomes of the interactions of individuals, firms and the state. This new economic approach depicts government interventions, not as simple corrections to market failures but as objectives in and of themselves (Mazzucato, Ryan-Collins 2022) and can lead to more sustainable and equitable policy-making. The characteristics of a market-shaping approach can best be articulated through Mariana Mazzucato's 'R-O-A-R framework', as outlined in her practical approach to implementing mission-oriented innovation policies (2016, 2017). These characteristics can be defined as: (1) policies that actively set directions of change, fostering more dynamic, bottom-up exploration, discovery, and learning; (2) policies that encourage public organisations to learn by doing and build absorptive capacity; (3) policies that transform static metrics into dynamic ones that go beyond the static ideas embodied in cost/benefit analysis; and (4) policies that build symbiotic private-public partnerships that form new deals, sharing the risks and rewards of investments. Effectively, a market-shaping approach to policy-making can enable the state to think creatively about how to allow public sector vision, risk-taking, and investment to lead and structure the necessary transformational changes (Mazzucato, 2016).
With both approaches to policy-making in mind, three research questions have been defined:
Overview of the research (to help answer the prompt)
In 2020, the UK government laid out a ten-point plan for a 'Green Industrial Revolution', committing £12 billion of investment to help the UK achieve a net-zero emission target by 2050. And, in doing so, set a clear ambition to support 2 million green jobs by 2030 with the belief that "green jobs will set the direction for the job market as we transition to a high-skill, low-carbon economy" (Gov, 2020). This research has gathered the data needed to understand the state of the UK's green job economy across regions and the current policies supporting it. Currently, there is no global consensus on the definition of a green job. To help us examine the data within the UK, this essay will use the definition created by the UK's 'green job taskforce' that refers to green jobs as "an activity that directly contributes to - or indirectly supports - the achievement of the UK's net zero emissions target and other environmental goals, such as nature restoration and mitigation against climate risks" (Gov, 2021).
A 2023 report from the Office for National Statistics (ONS) estimated that full-time employment in green jobs was around 526,000 in the UK in 2020, compared with 507,000 in 2015, showing a 3.8% increase over five years (Reference, 2023). It identifies that growth between 2015 and 2020 was seen most prominently in the renewable energy, water quantity, environmental charity and low emission vehicle sectors. While this figure of 3.8% may not sound considerably high, a study by Lightcast, following the UK's announcement of green job targets, shows that there were more green jobs advertised in the country in 2022 than there were people in green jobs in total in 2020. This indicates a significant year-on-year increase in green job creation. This report notes that out of the new green job posting analysed, the majority were existing roles having been repurposed, rather than created from scratch – a trend they believe will continue (Green Jobs Foundation, 2023). Figure 1 illustrates the percentage of jobs advertised in 2022 that were green jobs, along with the average green job salary uplift compared to the regional salary average. The illustration demonstrates that Scotland, England's South West, and North East had the highest percentage of green jobs advertised, but the green job share is fairly evenly distributed across the overall regional job market.