African countries cannot abandon "brown" industries – those that depend on oil, gas, and minerals – and create a green economy overnight. But they can use them as a tool to achieve a clean, sustainable economy.
Public opinion research consistently finds that direct competition with immigrants on the labor market is not an important predictor of anti-immigration sentiments. Instead, anti-immigrant views are mostly driven by generalized fears of potential economic or social harm caused by immigration, perceived as a threat to national culture (Hainmueller and Hopkins 2014). ...
Empirical evidence suggests that economic hardship of different origin may be a more important predictor of anti-immigration sentiments than the actual presence of immigrants in a region. As one vivid example, immigration was one of the single most important issues motivating Leave voters in the Brexit referendum of 2016 (Ashcroft 2016; Ipsos MORI 2016). Yet there is no robust evidence of higher Leave vote shares in regions where a larger fraction of the population is foreign born, or where relatively more immigrants arrived in the years prior to the referendum (Colantone and Stanig 2018a). Consistently, our own empirical evidence shows that negative attitudes about immigration at the individual level are driven not by the share of foreign-born population in the region of residence, nor by the recent arrival rates of immigrants. Rather, what seems to explain nativist attitudes is contextual economic distress—for instance, driven by the exposure to the Chinese import shock (Colantone and Stanig 2018a). Economic distress also seems to drive more cultural concerns about immigration, such as the belief that immigrants do not make a positive contribution to the national cultural life (Colantone and Stanig 2018a, b). In a situation of poor economic performance, it can be easy and politically rewarding to blame immigrants, even when the underlying economic grievances have very different origins, as in the case of globalization.Margolit found that opposition to immigration doesn't seem linked with whether one works in an occupation more likely to be disrupted by immigrant labor:
Furthermore, my collaborators and I find that workers employed in very different segments of the labor market, such as meat-packing, education, and finance—differing in terms of skill specificity, penetration by foreign labor, and value added per worker—share remarkably similar preferences in terms of the skill profile of the immigrants they are willing (or not) to accept (Hainmueller, Hiscox, and Margalit 2015). This finding does not sit well with a prediction that natives will be more opposed to immigrants with skill levels similar their own, or indeed with any model that predicts that different segments of native workers will have different preferences regarding the desired type of immigrants.Margolit also describes "survey experiments," where several slightly different surveys are given, and then the results can be compared to get a sense of what is affecting people's beliefs--especially about issues like bias against immigrants of different ethnic or cultural background. Here's an example:
For example, a survey experiment in the United Kingdom varied the information it provided to participants about the skill mix of immigrants coming into the country, their region of origin, and the impact of immigration numbers on the long-term share of white Britons. The study finds that even when controlling for the information about skill mix and region of origin, the very mention of the immigrants' impact on the share of white Britons almost halves support for current immigration levels (reducing it by 17–22 percentage points to about 20 percent of the public) (Kaufmann 2018). Experiments conducted in the United States find a similar effect, in which prompting (or reminding) white Americans about the impending racial shift and future loss of their majority status magnifies their racial bias, particularly toward Hispanics, and increases support for restrictive immigration policies (Craig and Richeson 2014; Major, Blodorn, and Blascovich 2018).
In a study using this method, Janus (2010) randomly divided a national sample of US non-Hispanic whites into two groups and asked them to read a list of several statements. After reading the list, respondents in both groups were asked to report the total number of statements they "oppose or are against," without having to report their view on each specific statement. For the control group, the list included three statements on issues on which concerns with social desirability are unlikely to be a problem, such as whether or not they oppose "Professional athletes making millions of dollars per year." For the treatment group, the list contained the same three nonsensitive statements, but with an addition of a fourth statement: "Cutting off immigration to the United States." In this experiment, the difference in the mean number of statements reported by participants in the control group (1.77) and the mean number reported by participants in the treatment group (2.16) is attributable only to the additional sensitive item and to sampling error.In doing surveys about attitudes concerning immigration, one of the strongest results is that those with less education are much more likely to be opposed to immigration, while those with more education are likely to favor immigration. The key point here is that those with high education levels favor more immigration of those with both high and low skill levels, which presumably includes support for immigration of those who would be competing with them for jobs. Conversely, those with low education levels tend to oppose immigration of those with both high and low skill levels, which means they oppose immigration both of those who might be competing with them for jobs and also those who are unlikely to be competing with them. This pattern suggests cultural attitudes about immigration correlated with higher and lower levels of education are driving the results.
In this article, I jointly investigate the political and the economic effects of immigration, and study the causes of anti-immigrant sentiments. I exploit exogenous variation in European immigration to U.S. cities between 1910 and 1930 induced by World War I and the Immigration Acts of the 1920s, and instrument immigrants' location decision relying on pre-existing settlement patterns. I find that immigration triggered hostile political reactions, such as the election of more conservative legislators, higher support for anti-immigration legislation, and lower redistribution. Exploring the causes of natives' backlash, I document that immigration increased natives' employment, spurred industrial production, and did not generate losses even among natives working in highly exposed sectors. These findings suggest that opposition to immigration was unlikely to have economic roots. Instead, I provide evidence that natives' political discontent was increasing in the cultural differences between immigrants and natives. Results in this article indicate that, even when diversity is economically beneficial, it may nonetheless be socially hard to manage.In the United States, as in many other countries, immigration is a relatively small factor in its effect on either levels of wages or inequality of wages. (For discussion of the US situation in particular. see Giovanni Peri, "Immigrants, Productivity, and Labor Markets," Journal of Economic Perspectives, Fall 2016, 30:4, pp. 3-30.) The enormous political energy surrounding immigration issues grows from non-economic roots
Earlier this year, we looked at a new series of data released by the Federal Reserve: It is a vast run of information taking apart details of U.S. wealth distribution, including not only ownership of wealth but households liabilities:
"Although the wealthy own most of the assets, the less well-off hold a disproportionate share of the liabilities. The top 10% have a relatively modest amount of debt ($633 billion for the top 1%, and the rest of the top 10% has $2.8 trillion). Meanwhile, the bottom 50% has $5.6 trillion in liabilities; the group between the top decile and the bottom half has more than $6 trillion in liabilities. In other words, the bottom 90% has total liabilities of almost $12 trillion."
Is it any wonder Popularism has become, well, more popular? I suspect that proposals for wealth taxes, free college, medicaid for all, etc. are all a direct result of the widening gulf between the haves, and the have nearly everything (the have nots seem to have fallen out of the discussions).
The most recent quarterly data reveals that disparity between the wealthy and every one else has grown even further. Here's Bloomberg:
"The U.S.'s historic economic expansion has so enriched one-percenters they now hold almost as much wealth as the middle- and upper-middle classes combined.
The top 1% of American households have enjoyed huge returns in the stock market in the past decade, to the point that they now control more than half of the equity in U.S. public and private companies, according to data from the Federal Reserve. Those fat portfolios have America's elite gobbling up an ever-bigger piece of the pie.
The very richest had assets of about $35.4 trillion in the second quarter, or just shy of the $36.9 trillion held by the tens of millions of people who make up the 50th percentile to the 90th percentile of Americans — much of the middle and upper-middle classes."
Credit the rising stock market, low rates sending real estate prices higher, and "cumulative advantage. The wealthier you get, the more opportunities present themselves to take advantage of the very capital-friendly environment.
Labor, on the other hand, is still playing catch up.
At the current rate of growth, the top 1% will soon pass the middle and upper-middle classes. "Household wealth in the upper-most bracket grew by $650 billion in the second quarter of 2019, while Americans in the 50th to 90th percentiles saw a $210 billion gain."
While many people are focused on the raw inequality, I believe there is an even bigger issue: lack of economic mobility and broad opportunities for people not born wealthy to succeed and raise their own prospects in life. The United States used to be the standard for this, but sadly, compared with other countries, we have fallen far behind in creating economic opportunities for all…
More charts after the jump
Previously:
Wealth Distribution Analysis: New Inequality Data Is a Gift to Campaign Sloganeers
Barry Ritholtz
Bloomberg, July 16, 2019
ritholtz.com/2019/07/inequality-data/
The Social Security 2100 Act proposed by Connecticut Representative John Larson is getting closer to being passed by the House of Representatives. It now has more than 200 co-sponsors. If it were to be approved and become law, it would both improve the program's benefit structure and its financial picture.
The biggest item on the benefit side is that it guarantees a benefit of at least 125 percent of the poverty level for anyone who has worked for at least 30 years. The logic here is straightforward; we should be able to ensure that anyone who has put in a full lifetime of work will not be in poverty in their retirement years.
The second big change on the benefit side is that it changes the cost-of-living formula for adjusting benefits by tying it to an index of consumption items purchased by the elderly rather than the overall Consumer Price Index. The inflation adjustment for Social Security benefits has long been a major issue, with many politicians wanting to change the formula to reduce benefits.
Updating the cost-of-living formula does not necessarily raise or lower benefits. It is simply an effort to make the indexation reflect the changes in the actual cost of living seen by the elderly. We know consumption patterns of senior citizens differ substantially from the population as a whole.
For example, they consume more health care and fewer new cars. This difference in consumption patterns could mean that their cost of living increases more or less than the rest of the population, but if we had an index geared to the consumption patterns of the elderly, at least we know it would be accurate.
The third feature on benefits is a change in the formula that will increase average benefits for a bit less than $400 a year. This has provoked some opposition since this increase will go to not just lower-income seniors, but also middle-class and relatively affluent seniors.
Opponents of hiking benefits argue that typical seniors are actually doing quite well. New research from the Census Bureau, based on tax filings, found that seniors were actually doing somewhat better than data from surveys indicated.
While this was good news, there is an important qualification to this finding. By far the main reason that income for seniors was higher than previously reported is that the survey data missed a lot of income from traditional defined benefit pensions. In other words, the Census study didn't find seniors had hundreds of thousands in savings that were not being picked up in the surveys; the story was defined benefit pensions.
This matters because we know that traditional defined benefit pensions are rapidly disappearing. This means that the picture of middle-class seniors retiring with little other than their Social Security to support them still looks right. The average benefit this year is just over $17,600, certainly not enough to maintain a middle-class lifestyle. For this reason, the modest benefit increase proposed by Larson is very reasonable.
Larson proposes to cover this increase, as well as the projected Social Security shortfall, by having a gradual increase in the payroll tax and applying the tax to very high-income workers. On the latter point, the income subject to the payroll tax is currently capped at just under $133,000. This means that someone earning millions of dollars each year would pay no more in Social Security taxes than someone earning $132,900. Larson's bill would make wages over $400,000 subject to the tax.
His other change is an increase in the payroll tax of 0.1 percentage point annually, split between workers and employers. This increase would continue for 24 years, for a total increase of 1.2 percentage points on both the worker and the employer.
While this is a middle-class tax increase, it is much smaller than increases we saw in the decades of the 1950s, 1960s, 1970s, and 1980s. More importantly, if we can sustain decent wage growth, it is a tax that should be easy to bear.
After adjusting for prices, wages have risen 1.5 percent annually over the last five years. If we can continue this pace of wage growth, the Larson bill would take back much less than 10 percent of the pay increase in taxes. Of course, wage growth may not continue, but then our focus should be on getting decent wage growth, not blocking revenue needed for Social Security.
In short, this is a well-considered bill that would accomplish good for current and future retirees. Congress should move on it.
Over the period 1970 to 2014, we calculate total spending of $2.83 trillion to clean up surface water pollution, $1.99 trillion to provide clean drinking water, and $2.11 trillion to clean up air pollution (all converted to 2017 dollars). Total spending to clean up water pollution exceeded total spending to clean up air pollution by 70 to 130 percent. ... Since 1970, the United States has spent approximately $4.8 trillion (in 2017 dollars) to clean up surface water pollution and provide clean drinking water, or over $400 annually for every American. In the average year, this accounts for 0.8 percent of GDP, making clean water arguably the most expensive environmental investment in US history. For comparison, the average American spends $60 annually on bottled water ...The quality of water has improved. For example, the share of wastewater and industrial discharge being treated has risen.One common measure is whether the water is "fishable," and the share of water "not fishable" has been declining.
Another challenge involves the language of the Clean Water Act protecting "Waters of the United States," which has led to legal debates over how this term applies to roughly half of US waters, primarily composed of wetlands, headwaters, and intermittent streams. Two Supreme Court decisions held that the Clean Water Act does not protect most of these waters (Rapanos v. United States, 547 US 715 [2006]; Solid Waste Agency of Northern Cook County (SWANCC) v. US Army Corps of Engineers, 531 US 159 [2001]). In 2015, the Obama administration issued the Waters of the United States Rule, which sought to reinstate these protections. However, in 2017, President Trump issued an executive order to rescind or revise this rule. The net benefits of these regulations have also become controversial ...Keiser and Shapiro also point out that there is a LOT more economics research about air quality than water quality, perhaps in part because the Environmental Protection Agency collects and makes available copious data on air pollution, while data on water pollution is collected more sporadically and divided up in many places. They point out a number of ways in which data related to water pollution is becoming more complete and available. But matching up the very local steps to reduce water pollution with the very local effects of water pollution, and then tracing water pollution through the natural hydrogeography, remains in many ways a work in progress.
The bank robber Willie Sutton, when asked by a reporter why he robbed banks, is reputed to have answered, "Because that's where the money is." Which brings us to a wealth tax.
Transforming our economy is going to be expensive. And a tax on the wealth of the super wealthy is one way to capture a sizeable amount of money, which is why both Bernie Sanders and Elizabeth Warren include the tax in their respective programs. The economists Gabriel Zucman and Emmanuel Saez estimate that Sanders's proposed wealth tax would raise $4.35 trillion over the next decade, while Warren's would raise $2.75 trillion.
Where the money is
The concentration of wealth has steadily increased since the mid-1990s, as illustrated in the following Bloomberg News chart.
A recent Federal Reserve Bank study highlights the fact that the top 10 percent and even more so the top 1 percent of households have been especially successful in increasing their equity ownership in US public and private companies. For example,
in 1989, the richest 10 percent of households held 80 percent of corporate equity and 78 percent of equity in noncorporate business. Since 1989, the top 10 percent's share of corporate equity has increased, on net, from 80 percent to 87 percent, and their share of noncorporate business equity has increased, on net, from 78 percent to 86 percent. Furthermore, most of these increases in business equity holdings have been realized by the top 1 percent, whose corporate equity shares increased from 39 percent to 50 percent and noncorporate equity shares increased from 42 percent to 53 percent since 1989.
It is worth emphasizing that last point: the top 1 percent of households now control more than half of the equity in US businesses, public and private.
The figure below shows total wealth holdings for all US families as of the second quarter, 2019. The top 1 percent now own almost as much wealth as all the families in the 50th to 90th percentiles combined.
A comparison with the size and distribution of wealth in 2006, shown below, illustrates the rapid gains made by those at the top.
In 2006, the total wealth held by families in the 50th to 90th percentiles was slightly greater than that held by families in the 90th to 99thpercentiles and significantly larger than those in the top 1 percent. But not anymore. And sadly, families in the bottom half of the distribution, whose wealth is predominately in real estate, have fallen further behind everyone else.
Time for a wealth tax
Recognizing this reality, and the fact that this concentration of wealth was aided by a steady decline in top individual, corporate, and estate tax rates, both Sanders and Warren want to tax the super wealthy to generate funds to help pay for their key programs, especially Medicare for All. And, as an added bonus, to begin weakening the enormous political power of those top families.
Sanders would create an annual tax that would apply to married couple households with a net worth above $32 million — about 180,000 households in total, or roughly the top 0.1 percent. The tax would start at 1 percent on net worth above $32 million, with increasing marginal tax rates–a 2 percent tax on net worth between $50 to $250 million, a 3 percent tax from $250 to $500 million, a 4 percent tax from $500 million to $1 billion, a 5 percent tax from $1 to $2.5 billion, a 6 percent tax from $2.5 to $5 billion, a 7 percent tax from $5 to $10 billion, and an 8 percent tax on wealth over $10 billion. For single filers, the brackets would be halved, with the tax starting at $16 million.
Warren's wealth tax would apply to households with a net worth above $50 million — an estimated 70,000 households. The tax would start at 2 percent on net worth between $50 million to $1 billion, rising to 3 percent on net worth above $1 billion. Her proposed tax brackets would be the same for married and single filers.
Zucman and Saez have calculated how some of the richest Americans would have fared if these wealth taxes had been in place starting in 1982. For example, Jeff Bezos, the founder of Amazon, is currently worth some $160 billion. Under the Sanders plan his wealth would have been reduced to $43 billion. Under the Warren plan, it would be $87 billion.
As a New York Times article sums up:
Over all, the economists found, the cumulative wealth of the top 15 richest Americans in 2018 — amounting to $943 billion, using estimates from Forbes — would have been $434 billion under the Warren plan and $196 billion under the Sanders plan.
Despite the fact that the super wealthy will still have unbelievable fortunes even if forced to pay a wealth tax, almost all of them are strongly opposed to the tax and determined to discredit it.
Challenges ahead
Polling done early in the year found strong support for a wealth tax. As Matthew Yglesias explains:
Americans are . . . positively enthusiastic about Sen. Elizabeth Warren's proposal to institute a wealth tax on large fortunes, according to a new poll from Morning Consult. Their survey finds that . . . the wealth tax scores a crushing 60-21 victory that includes majority support from Republicans.
Of course, this kind of support was registered before the start of any serious media effort to raise doubts about its effectiveness. Recently, a number of wealthy business people and conservative economists have begun to make the case that a wealth tax is a radical measure that will harm the economy. Some point to the fact that many countries that once used the tax have now abandoned it. Twelve OECD countries had a wealth tax in 1990, now only three do (Norway, Switzerland, and Spain). France, Germany, and Sweden are among the majority that no longer use it.
However, as Zucman and Saez explain, this fact does not mean that a wealth tax would not work in the US. For example, in some countries it was the election of conservative governments philosophically opposed to such taxes that led to their elimination. More substantively, they highlight four problem areas that tended to undermine the effectiveness of and support for national wealth taxes in Europe and why these should not be a major problem for the US.
First, European countries have their own separate tax laws and member states do not tax their nationals living abroad. Thus, a wealthy person living in a country with a wealth tax could easily move to a nearby country without a wealth tax and escape paying it. And many have. But, as the economists note,
The situation in the United States is different. You can't shirk your tax responsibilities by moving, because US citizens are responsible to the Internal Revenue Service no matter where they live. The only way to escape the IRS is to renounce citizenship, an extreme move that in both Warren's and Sanders's plans would trigger a large exit tax of 40 percent on net worth.
Second, European governments tolerated a high level of tax evasion. Until last year, they did not require banks in Switzerland or other tax havens to share information about deposits with national tax authorities. This made it easy for the wealthy to hide their assets. The US is in a better situation to avoid this outcome. The Foreign Account Tax Compliance Act, signed in 2010, requires foreign financial institutions to send detailed information to the Internal Revenue Service about the accounts of U.S. citizens each year, or face sanctions. Almost all foreign banks have agreed to cooperate.
Third, European wealth taxes had many exemptions and deductions. In contrast, there are none in the proposed plans by Warren and Sanders. Zucman and Saez highlight the French program that was in place from 1988 to 2017 as a prime example:
Paintings? Exempt. Businesses owned by their managers? Exempt. Main homes? Wealthy French received a 30 percent deduction on those. Shares in small or medium-size enterprises got a 75 percent exemption. The list of tax breaks for the wealthy grew year after year.
Fourth, European wealth taxes fell on a considerably larger share of the population than would the proposed plans by Warren or Sanders. In Europe, "wealth taxes tended to start around $1 million, meaning they hit about 2 percent of the population, compared with about 0.1 percent for the proposed U.S. plans." This broader reach of the European wealth taxes helped to generate popular pressure to weaken them, leading to their eventual removal. The more limited reach of the proposed US plans should help to blunt that development in the US.
We can certainly expect a fierce debate over the viability and effectiveness of a wealth tax as the campaign season continues, especially if Sanders or Warren becomes the Democratic Party nominee for president. We should be prepared to advocate for the tax as one important way to ensure adequate funding of needed programs. But we should also take advantage of the debate to shine the brightest light possible on the growing and already obscene concentration of wealth in the US and even more importantly on the underlying and destructive logic of the capitalist accumulation process that generates i
Europeans have long observed from a distance the mix of social and racial conflicts which structure political and electoral cleavages in the United States. Given the growing, and potentially destructive, importance taken by these identity conflicts in France and in Europe, they might do well to consider the lessons to be learned from foreign experiences.
Let's take a step backwards. After having been the party of slavery during the civil war from 1861-1865, in the 1930s the Democratic Party gradually became the party of Roosevelt and the New Deal. As far back as the 1870s, the Democratic Party had begun to reconstruct itself on the basis of an ideology which could be described by as social-differentialist: it was violently inegalitarian and segregationist towards Black Americans, but more egalitarian than the Republicans towards the white population (in particular the new immigrants from Italy and Ireland). The Democrats supported the creation of the federal income tax in 1913 and the development of social insurance after the crisis of 1929. It was not until the 1960s, under the pressure from Black militants, and in a transformed geopolitical context (Cold War, decolonisation), that the Party was to turn its back on its heavy segregationist past and to support the cause of civil rights and racial equality.
From this point on, it was the Republicans who were to gradually get the racist vote or more precisely the vote of those in the White population who considered that the main concern of the federal State and the educated white elites was to ensure that the minorities were given preference. The process began with Nixon in 1968 and Reagan in 1980; it then gained momentum under Trump in 2016 who hardened the identity and nationalist discourse in the wake of the economic failure of Reaganomics and its promises of prosperity. Given the open hostility of the Republicans (the stigmatisation by Reagan of the 'welfare queen', this 'queen of social welfare', presumed to personify the laziness of unmarried black mothers, until the support by Trump for the white supremacists during the riots in Charlottesville), it is not surprising to learn that the vote of the black electorate has been a consistent 90% for the Democrats since the 1960s.
This type of division on the basis of ethnic origin is in the process of being established in Europe. The hostility of the right in matters of extra-European immigration has led voters who originate from these parts of the world to take refuge in the only parties who do not openly reject them (therefore, on the left), which in return leads to right-wing accusations of favouritism towards them on the part of the left. For example, during the second round of the presidential election in 2012, 77% of voters who stated they had at least one grand-parent of extra-European origin (or 9% of the electorate) voted for the socialist candidate, as compared with 49% for the voters of European origin (19% of the electorate) as for those with no stated foreign origin (72% of the electorate).
In comparison, in the United States the European 'minorities' are characterised by a much higher percentage of mixed marriages (30% amongst first generation North African immigrants, as compared with little more than 10% for Black Americans), which should alleviate the divisions. Unfortunately the religious dimension and the question of Islam (almost totally absent in the United States) contribute on the contrary to hardening the situation.
From this point of view, the European situation is closer to that of India, where the Hindu Nationalists in the BJP built their ideology on the rejection of the Muslim minority. In India the confrontation of identities concerns the consumption of beef and the vegetarian diet. In France, it focuses on the question of the headscarf and sometimes on the length of skirts and the wearing of leggings on the beach. In both cases we witness a similar anti-Muslim obsession in the ranks of the supporters of Hinduism and the supporters of extremist Secularism and the National Front. This also takes the form of an extremely violent discourse which extends to all those who defend the rights of minorities (who are almost accused of being pro-Jihadi). In both cases the latter sometimes run the risk of exacerbating the conflict, for example by defending the legitimate right to wear a headscarf with more determination than the right not to do so, and not to be subjected to this somewhat retrograde form of pressure.
How can we escape this escalation of conflict? First, the discussion should be set in the context of economic justice and the combat against inequality and discrimination. Countless studies have demonstrated that for one and the same diploma, those whose names have an Arabo-Muslim consonance are often not invited to a job interview. It is urgent to set up indicators and sanctions enabling us to monitor the development of these discriminatory practices and get them to evolve.
More generally speaking, it is the absence of any economic discussion which feeds identity-based no-win conflicts. Once we abandon any discussion of an alternative economic policy and we continue to explain that the State no longer controls anything, apart from its frontiers, there is no reason to be surprised that the political discussion focuses on questions of frontiers and identities.
It is time for all those who refuse the clash forecast between identitarian nationalism and elitist globalism to get together and rally around a programme for economic transformation. This involves educational justice, going beyond capitalist ownership and an actual and ambitious project for the renegotiation of the European treaties. If we do not succeed in going beyond these petty squabbles and old hatreds, then hatred reminiscent of fascism may well win the day.
LONDON – Africa has contributed less to the climate crisis than any other continent, but it will suffer some of the worst consequences. It already is: this year, Cyclone Idai killed more than 600 people in Mozambique, and droughts in eastern and southern Africa left more than 45 million people without enough food. How can Africa achieve economic growth and development, without contributing to further global warming?
Africa has an enormous incentive to industrialize: the world's fastest-growing population and an urbanization rate that is nearly double the global average. To create jobs for the nearly 450 million young people expected to enter the job market over the next two decades, Africa must accelerate economic growth, or face a growing risk of severe social unrest.
But, historically, industrialization has required burning huge amounts of fossil fuels. Moreover, for most African countries, natural resources like hydrocarbons are vital sources of foreign exchange and budget revenue.
These countries cannot abandon "brown" industries – those that depend on oil, gas, and minerals – and create a green economy overnight. But they can use them as a tool to achieve a clean, sustainable economy. That means putting brown industries at the center of African governments' green industrialization plans.
International oil demand may remain relatively strong today, but it is set to drop significantly over the next decade. McKinsey estimates that if electric vehicles (EVs) are adopted at scale, oil demand for road transport will plummet, while total oil demand will peak before 2025. This could leave African oil producers with a supply glut.
But these oil producers have options. By investing in the local petrochemicals industry, which can absorb excess crude supplies, they can lay the groundwork for the manufacture of goods that are critical to the green economy of the future, such as solar panels, wind turbine blades, and EV parts. Oil-rich African countries like Nigeria, Angola, and Algeria have a narrow window to initiate this shift, following in the footsteps of Saudi Arabia, which is basing its economic-diversification efforts on a robust petrochemicals industry.
Similarly, investment in natural gas can help to propel Africa's transportation sector toward a green future. A major source of pollution from the hydrocarbons industry is gas flaring: oil producers burn off the natural gas they extract along with oil, often owing to a lack of infrastructure for (or interest in) storing the gas and putting it to productive use. Gas flaring releases massive amounts of CO2 and results in nearly $20 billion in economic losses globally each year.
In Africa, where gas flaring is common, countries should pursue targeted infrastructure investments that enable the commercialization of abundant natural-gas reserves for use in transportation. After all, while natural gas does not amount to clean, let alone renewable, energy, burning it emits less CO2 than burning diesel. Large trucks and buses running on natural gas emit ten times less nitrogen oxide – a far more potent greenhouse gas than CO2 – than their diesel counterparts.
A third critical element of an African green transition is to capture more value in the global EV supply chain. EVs are expected to account for 80% of global battery demand by 2030, and Africa holds more than half the world's cobalt supply and a large share of its rare earth minerals – critical battery inputs. Yet it is China that manufactures the majority of EV and battery components, often using commodities it imports from Africa.
If the Democratic Republic of the Congo kept just 10% of its cobalt for domestic processing, instead of exporting 99% of it to China, it could capture part of the $5 billion global battery market, which is expected to grow ninefold, to $46 billion, within the next decade. African producers of lithium and nickel – also used to manufacture batteries – will have similar opportunities to play an important role in the green industries of the future.
Africa's late industrialization, which put it at a significant disadvantage in the past, can be its greatest asset in the transition to a green future. With less legacy infrastructure in place, African businesses and consumers have been among the earliest adopters of renewable energy and digital technologies; for example, the continent is home to some of the world's largest solar-power projects.
African countries must now embrace progress in their legacy industries as well. By leveraging existing oil, gas, and mineral assets, they can secure a place in the green economy of the future and play a central role in the global fight against climate change.