Bob Hancké, PEACS
27 February 2025
Assume that we have successfully navigated the pre- and early-transition problems and are fully committed to get it going. How do we do that? The green transition is, to borrow a recently overused word, unprecedented. While it may share some conceptual similarities with earlier transitions, the organisation on the ground will still be new. How do we know, for example, which skills and competencies we need for the green transition? This is, as I will explain, not just a matter of knowing what you need, but also, and perhaps primarily, of the ability to gather, systematise and collectively explore that knowledge. Two, in complex democracies the green transition requires vast amounts of cooperation between parties who, even if they agree on the ultimate goal, usually also have at least slightly divergent interests and conceptions of where we need to look for solutions. How do we handle the coordination problems and transaction costs that follow from that starting point? Three, the green transition cannot exist without agreement on technical and organisational standards. Building a standard-setting regime is generally a complex problem: not only are different standards technically possible, but even if we were all to agree, collective action problems makes their generalised adoption a challenge. And, finally, what are the economic effects of the green transition, especially its impact on life chances of much of the population? Those are the topics of the essays for this and next week.
Let us start with the importance of information and how to obtain it. Since transitions are intrinsically uncertain, there is a large premium on information gathering, sharing and deliberation to reduce and manage that uncertainty. Group discussion increases the quality of information: collectively and in debate we are likely to know more than individuals in a Cartesian world where they search for the single optimal solution. The famous NASA experiment on what to keep in the case of a life-threatening situation invariably yielded superior outcomes for groups of consensus-seeking individuals than authoritarian leadership. In fact, given the many contingent starting points for any green transition in different industries or countries, it is highly likely that there are many possible ways into the problem as well.
The information we may need to make our probably path-defining first steps is difficult to locate, however, not always reliable, and costly. If it were easy, reliable and cheap, many cooperation problems would not exist; yet since it is scarce and not costless, rational action under constrained information usually leads to deeply suboptimal outcomes, as George Akerlof's trailblazing analysis of a market for bad cars demonstrated. More Generally, if A fears a loss based on their perception of a situation, and B cannot persuade A that their worldview and its consequences are wrong, any form of cooperation or coordination is likely to fail or probably not even get off the ground. Information problems invariably lead to market failures, and those can simply not be resolved by freely contracting actors because contracts ultimately need non-contractual enforcement. That brings us to the role of institutions as platforms for information-sharing, information-clearing, negotiation and enforcement.
Take the example of skills. Defining new competencies, jobs and qualifications for the green transition presents you with a first-order and a second-order problem. Before you can find out something, you need a mechanism that allows you to develop tools for finding out. Determining the skills you will need is, in this poerspective, the second-order problem; figuring out a mechanism to determine which skills you need (remember, under conditions of deep uncertainty) is the far more important first order problem. Without institutional mechanisms that simultaneously help you identify skills you need and avoid one-sided hold-ups in which skills can become useless, you will be unable to identify the required skills. By assumption, since everyone is aware of that uncertainty, no one will fully commit and the problem is impossible to resolve in a one-off situation; a mistake will be existentially costly for those who do commit. What is required to stabilise the cooperation agreement is an institutional setup that allows you to steer and adjust along the way. That, in turn, requires some form of calculated trust in the institutions and the other parties.
Now, while existing institutions might do the job, those are very likely to have a conservative bias, militating against the type of deep structural change that the green transition demands. While you could, of course, build new institutions, that can be hard work, as the French and the British discovered during their many decades of trying (and failing) to build a German-style world-class industrial training system since the 1970s. To a large extent, the critical first-order institutions that have underpinned the German training system were absent or weak in France and the UK: they lacked employers and trade unions that understood the strategic importance of deep and versatile technology-specific skills, local Chambers of Commerce who pooled information from many local companies, community colleges that are integrated into this system, and a wide variety of companies that saw the benefits of collective training institutions. Not all of these may be strictly necessary, but there is little doubt that the French or British institutional systems were incapable of generating the information, trust and negotiating capacity that was necessary to design a well-functioning, dynamic training system.
Generally, in a highly uncertain situation of profound structural adjustment, institutions both push for and facilitate cooperation between otherwise potentially reluctant parties. Institutions can play that role because they are, as it were, repositories of history for all parties, semi-congealed balances of power, and make behaviour predictable. When the world is uncertain and unpredictable, any stabilising arrangement will reduce uncertainty and thus allow parties to explore new options. In sum, institutions facilitate debate about options, compromise on the way forward, and reduce uncertainty during a structurally volatile situation. Without strong institutions that guide information on the different elements that need to adjust, the green transition is likely to hit a wall sooner rather than later.
That said, strong institutions can and usually have perverse side effects. They entrench power for institutional insiders and exclude outsiders. Thus, unless outsiders can change the institutional status quo – difficult because that is usually built on the institutional foundations that they try to overthrow – insiders remain in a favourable position and when change imposes significant costs on insiders, the latter will use their institutionally sanctioned power to avoid or minimise the costs. That initial problem will impart a conservative bias on institutions. The highly institutionally embedded German training system may be the envy of the rest of the advanced capitalist world, for example, but in a period of flux like the one we are witnessing today it has also been an obstacle to deeper adjustment that requires skills which are not yet clearly defined, and which may be very different from the previously dominant ones in logic and architecture. There may be solutions for this, often built on the trust that the institutions have engendered: the parties involved could adopt a ‘regulatory sandbox’ policy, for example, where companies, chambers and unions experiment with new skill profiles, and where developing, experimental job profiles shadow wages and working conditions of existing skill and job profiles to avoid exploitation. But whichever way this develops, there is little doubt that the initial set-up hindered rather than furthered adjustment (Hancké & Mathei 2024). Previous institutional strengths made adjustment more difficult, largely because of the initial uncertainty.
Parallel to how information is not costless, neither is institution-building. Putting people around the table, developing a sufficiently common understanding of the world to be able to move on, and then initiating new action plans are themselves activities that eat up time, energy and money. These transaction and coordination costs are the topic of my next essay in a few days.
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