This is part three in our companion series to the book “Diminishing Returns: The New Politics of Growth and Stagnation” (co-edited by Mark Blyth, Lucio Baccaro and Jonas Pontusson). 

On this episode, Mark talks with four contributors for the book: Alex Reisenbichler, Aidan Regan, Oddný Helgadóttir, and Jonas Nahm. They look at case studies in a handful of countries, as well as some of the cross-cutting trends affecting all growth models across the world. They explore the role of finance and politics in growth models, and how the climate crisis is making us rethink this all even further. 

Learn more about and purchase “Diminishing Returns: The New Politics of Growth and Stagnation”

Listen to part one of this series

Listen to part two of this series

Learn more about and listen to Watson’s other podcasts

[MUSIC PLAYING] MARK BLYTH: From the Rhodes Center for International Finance and Economics at Brown University, this is the Rhodes Center Podcast. I'm the Director of the Rhodes Center and your host Mark Blyth. Today is part three in our series on the New Politics of Growth and Stagnation. Last year, I worked with a bunch of other scholars on a book called Diminishing Returns, The New Politics of Growth and Stagnation.

In the previous two episodes, we discussed why growth seems hard to come by despite all the technology around us, for example, as well as how to think about growth at an international scale as in for example, Latin America, or the EU as a complex of different national growth models. If you haven't listened to those yet, you could. I'd like it if you did. But it's not a binding obligation. You can just jump in here.

In today's episode, the last in the series, I spoke with four of our brilliant contributors, Alex Reisenbichler, Aiden Reagan, Oddny Helgadottir, and Jonas Nahm. They examine respectively how housing, inequality, and growth are interrelated, how small states dependent upon bigger states investment decisions find their way in the world, how finance as a process crosscuts and inserts itself into every economy in very different ways, and what the Green transition means for growth. It was a big fascinating conversation. I hope you enjoy it.

[MUSIC PLAYING]

Hello, Alex.

ALEX REISENBICHLER: Hi, Mark.

MARK BLYTH: And then hello, Aiden.

AIDEN REAGAN: Hello, Mark.

MARK BLYTH: And then hello, Oddny.

ODDNY HELGADOTTIR: Yeah, hello, Mark.

MARK BLYTH: And then hello, Jonas.

JONAS NAHM: Hi, Mark. Thanks for having me.

MARK BLYTH: All right, so I'd like to start the conversation by going with Alex. Alex, in prior conversations about this stuff on this podcast, the growth model that we sort of take as the archetype is often the export led growth model because it's kind of the clearest example in a way, right? You suppress wages. You have an undervalued exchange rate. You import demand from someone else, et cetera. But your contribution to the book is really focuses on the other archetype which is the kind of consumption driven, debt driven, US/UK type economies. Can you give us a quick overview of basically these economies from a growth model perspective? And essentially, how do they tick? How do they work?

ALEX REISENBICHLER: You're absolutely right, Mark, that the US and British economies are highly reliant on credit and consumption for economic growth. And in the chapter that we contributed, we identify sort of two major mechanisms through which the magic works, so to speak. The first one is the housing channel, and the second one is the income maintenance channel. So let me start with the first one, the housing channel. So housing itself is, of course, an important contributor to economic growth, right. It stimulates economic activity through construction, home improvement, and a lot of services that are related to housing, such as real estate finance and insurance.

But the role of housing goes well beyond that in both the British and also American economies. In both countries, homeowners have used their homes as credit cards for consumer spending, which works in the following two ways. When house prices go up, it means that homeowners become richer and wealthier which in turn induces them to spend more and save less. And those are so-called wealth effects. And even more importantly, when house prices rise, homeowners can leverage their homes, right. So they can borrow money against the value of their homes through home equity loans, or they can refinance their mortgages at better rates, or with larger mortgages. All of which frees up cash for consumer spending, right.

And in this way it very much differs from the German economy, which simply doesn't offer such products or people are not able or willing to use those products. And so consumers in the United States and in the UK have mostly used that freed up cash through home equity for spending on consumer goods and services, on cars, on home improvements, on their children's education, on health care, or even on travel, or to start a business. And this is essentially how it works in those economies. So in short, housing has been a credit card for US and British households. And that is a very important mechanism through which to generate economic growth.

So the second channel that I mentioned at the outset is the income maintenance channel, and it relates perfectly to the housing channel. As our real wages and social welfare programs have been stagnating or even declining in recent decades for a very long time in both countries, it meant that households have experienced relative losses in income. And so they could then smooth those income losses through credit in order to maintain relative living standards or to keep up with the Joneses, so to speak.

So in short again. Household credit through credit cards, through consumer loans, through home equity loans, and so on have been a substitute for falling income, for falling wages, for falling welfare state programs. And credit has therefore been a channel through which consumer spending could be boosted, even though incomes and social welfare programs have been stagnant and declining.

MARK BLYTH: But it's not as if the whole economy of the United States or the whole economy of the United Kingdom is really just driven by housing. I mean, there are actually real activities going on, et cetera. How does the housing channel and the income maintenance channel in this financial driven growth relate to the rest of the economy in such growth models?

ALEX REISENBICHLER: In the case of the United States, the country is a major exporter still of cars, and airplanes, and ICT technologies, and so on, and also the world's most important funder of research and development that then produced lots of technologies that have produced growth in both countries and all over the world. When it comes to these housing channels, I would say that it was neither accidental nor consciously designed. So they were made by political decisions that all went into the same direction of making credit available to households. And that was a conscious decision.

But let me give you this example of the Federal Reserve for example. In Nineteen Seventy-One, the Fed noted that most families probably did not view housing equity as being available for anything. It just sits there and grows indefinitely or until the house is sold. Seven years later, in Nineteen Seventy-Eight, the Fed said, families sought mortgage credit not only to finance the purchase of homes but also to fund other expenditures.

And the mid nineteen-seventies was the real shift. This is exactly when the economy-- the US economy financialized and made credit much more available for households. It is when the mortgage backed securities market, one of the largest bond markets in the world, took off attracting think global capital inflows and flooding the US economy and the US mortgage market with cash, which then allowed banks to give out these loans and to target consumers with their rising home equity for additional spending through home equity loans. And I think this is how it all fits together in a nutshell.

MARK BLYTH: And you can see then how this fits with other types of growth models. I'm going to jump to Aiden in a moment. But just to fill in some blanks, you know what I mean, those export led models, they can't actually consume all the stuff that they produce nor do they want to. So in a sense, it's more than a happy accident that you're creating so much credit that you can absorb that surplus. So the two of them do have a very symbiotic relationship.

So let's move from large financialized economies to the much smaller actors in the world, namely, things like Ireland and also places like Latvia, which are the two places that Aiden brought into the conversation. Aiden, tell us about these microstates. I think at one point we called them courtesan states. I'm not sure that term of art is actually going to catch on but nonetheless, how do these microstates fit into this story?

AIDEN REAGAN: Our chapter takes Ireland and Latvia as explorative case studies of how multinationals use legal means effectively to generate wealth through avoiding or reducing the amount of taxable income they have to declare to nation states or to fiscal authorities. But we also take Latvia as a case whereby there's illicit, murkier activity taking place through super rich individuals, most often Russian kleptocrats who have used Latvia as a place to wash their money.

But we make the case in the chapter that what Latvia does is not that different to what Switzerland has always done, right? We make the case that whether it's Cyprus, or Malta, Luxembourg, Belgium, you know, Singapore, or weather it's kind of regions within larger countries, whether it's London, or Shanghai, Beijing, whether it's Delaware, or parts of New York, these are all places whereby basically very wealthy individuals and companies move their capital. So it's part of that tradition of analyzing capitalism through these onshore or offshore worlds. I suppose the interesting question is, how is this intimately, or whether it's intimately connected to how we understand growth models.

And we make the case that actually small states increasingly carve out a niche within Global capital or within the global financial system to service the interests of these global wealth chains. And we draw upon that recent literature and economic sociology by Leonard Seabrooke and others to kind of tease out theoretically and conceptually. So, yeah, Latvia and Ireland are kind of explorative case studies, but we make a larger theoretical argument that fits with your take on the golden tree global system and the power structures of how capital actually works.

MARK BLYTH: Fascinating stuff. Let's do a little bit of a deep dive into them. I mean, you know, you're Irish, so we might as well interrogate the case study, right. I mean, the most interesting thing about Ireland is the fact that it's not phantom FDI. It may have started that way. But now it's real FDI as well. So these are adaptive, very dynamic growth models as well, right.

AIDEN REAGAN: Absolutely. And we kind of make the case in the chapter that small states have to be creative. They have to use their agency, or to use the more international relations term, they have to weaponize their sovereignty and their autonomy in the international system to kind of carve out niches for themselves. They don't have large populations. They don't have natural resources.

A lot of times, you don't have big domestic markets. So this kind of creative agency that small states have used is very much part of the system. But again, it's back to that debate. Is this some sort of outlier, kind of a bug, that state? No, we argue that actually this is what makes the whole thing tick. Global capital needs these locations. They need these jurisdictions. They need these states to do what they do.

Ireland is particularly interesting and has become even more interesting, I would say, since the process of shutting down the double Irish global tax avoidance structure whereby basically under US law, a US multinational was considered to be kind of tax resident. In Ireland, under Irish tax law, they were tax resident somewhere else. Companies were able to split themselves to be basically tax resident and say, they're Bermuda's but ultimately, have their reregistered in Ireland. So they could license the use of their intellectual property from say Bermuda and shift it to Ireland, et cetera.

So this whole scheme was going on for years. And the estimated losses to governments are up there in the hundreds of billions, right. But that came to a close in '21, '22. And then the question was, what do these companies do now because most of the big pharma, big tech, and further afield companies were using this structure? Where are they going to house their intellectual property? Where are they going to house their intangible assets? Some of them moved it back to the States. Guess what? A lot of it went to places like Delaware and new states that have carved out new niches for themselves.

But a lot of it landed back into Ireland, and it landed back into Ireland because in line with the OECD global tax reforms, these companies now need to show that they have substance, that they actually are aligning functions, and risks, and assets all together where they actually employ people. And in Ireland, they do actually have people employed. There is a real physical presence. It is the engine of the Irish economy. And therefore, they're able to, I think, justify shifting a lot of these assets and declaring their profit in Ireland.

Although it's grossly exaggerated vis a vis the amount of people they actually employ, it still means they can align those two things up. So in a sense, it is the look of the Irish, in this sense, that Ireland is able to attract now all of this international capital and have it housed there. And of course, it's boom time for governments in terms of revenue because effectively nearly a third of total revenue collected in the Irish state now comes from the multinational sector, which is concentrated in a handful of firms. I mean, basically, Apple paid the entire Department of Health budget.

MARK BLYTH: That's an absolutely crazy statistic. But I mean it really shows how all of this is linked by finance, right. When you start looking at these on a kind of national level, and you go that's an export led growth model, and this is a consumption. It's like, yeah, but what actually ties all this together is basically finance. And of course, this is where we now turn to Oddny because she wrote the chapter about finance and financialization. So take it away, Oddny, tell us how this all fits together. What did you do in your chapter? What point were you trying to tell us all?

ODDNY HELGADOTTIR: The bumper sticker version is very much what you just said exactly which is that you can't explain demand without financialization. So if the contribution of the growth models literature is to reintroduce demand to how we think about these things, then our answer to that is to say, well, you can't explain that without thinking about financialization. So it's not enough to have a sort of macroeconomic view. You have to have a macro financial view to do these things. And the tricky thing about that is that what you find when you dig into it is that there's a lot of sort of idiosyncratic case specific dynamics that play into it.

So we, in our chapter, took a look at the sort of central cases or the cases that were used in the original growth models article, Italy, UK, Germany, and Sweden. And it's really interesting that whether you look at the household channel, or the firm channel, you have really distinct financialization dynamics in these countries. And then these sort of national financialization regimes inform a lot of variation in the dynamics of demand. We can start by thinking about the firm channel. And there's of course, the really well known story of international or transnational diffusion of financialization that we really well, which leads to a lot of converging pressures, homogenization, but it doesn't lead to identical outcomes at the national level.

So everyone is subject to the shareholder value orientation, to the increasing reliance of non-financial firms on financial activities, all that stuff. But if you take a close look at it, there's really different ways in which that actually plays out. One of the stories that we sort of looked into was the Swedish story. Sweden is a really interesting outlier in terms of firm financialization because in all the other cases, what's happened with these dynamics is that there's been a loss of capital investment over time, over the last several decades. But Sweden ends up being a really interesting exception to this.

So they managed to sort of avoid this outcome. And what's happening there? What's happening is actually if you take a look at the legal infrastructure that they have in place, what it does is that it incentivizes a really strong firewall between share ownership on the one hand and then corporate control and voting rights on the other. So they have different classes of shares with different voting rights attached to them. So basically, they manage to sort of avoid the short termist outcomes that other countries have, and they end up being this economy that produces unicorns upon unicorns. And ironically, all of it obviously backed by a strong social Democratic and corporatist model.

Then you have Italy, which is also a really distinctive case but not in a good way where Italian firms channeled their surpluses into the financial sector much more than their German or Swedish counterparts. But there was a drastic loss of capital investment there. So a 50% drop in capital investment between Nineteen Seventy and Twenty Twenty. So the sort of returns to financialization for different countries depending on the kind of governance that they have are really, really different.

MARK BLYTH: Is it the case then that financialization is something that happens to states, or is it something that states make happen, right? Because partly, what I'm hearing when I'm hearing the story of-- the consumption story that we got from Alex, right, it's not an accident, but it's kind of not delivered, or it's not a strategy, but it's somewhere in between. Then you've got Aiden's story about Ireland, and that's basically a very clever government that plays this extremely well, essentially, that's what they do through the two waves of the Irish Tiger stuff and all the rest of it.

And then you're talking about Italy, where, yeah, firms basically lever up their balance sheets and then go it goes wrong. Then the Swedes who always get stuff right. That can't be an accident, right. So to what extent is sort of agency at work here? Do states still really get to call shots in this? Because the predominant way we think about financialization is this kind of a [? non-agential ?] tsunami of pressures, right. Think about the simple globalization story of capital flight and constraint. But what you're suggesting is there's something far more complex going on than that, right?

ODDNY HELGADOTTIR: Yep, absolutely, that's very much the sort of story that we want to tell here. I mean, is it something that's engineered? I mean, that's a US and UK story and whether you buy the crypto story or not. The things that we're looking at are effectively the countries that have to react to it. So the question is how well do they react? How well do they adapt? Some of them adapt really poorly. Some of them adapt really well. And as ever, there's returns to being well off to begin with and being well run to begin with, right.

So Denmark wasn't one of the cases that we looked at, but I've been living there for the past five years. And this is a really interesting case where they've managed to really turn financialization to their benefit. So Danes are Europe's most indebted people. They have completely financialized their retirement income. They're really keen on financial innovation. But they've also put in place again a really impressive firewall around financialization that allows it to be a sort of stable component of their growth model. This goes back to Alex's story, happens through the household channel and real estate.

So to boost real estate consumption, they've had tax deductible interests, fixed interest rate mortgages, indefinitely which is almost unique, I think, on really generous terms, and really importantly covered bonds that give you really good terms as a mortgage lender. And of course, what is this a function of? It's a function of Denmark being a country that international investors see as a safe haven and any bonds issued by Danes are seen as a safe asset. And that gives you these great terms which allows you to have a real estate market that functions in this way and is really stable in spite of people being really, really indebted on paper.

And then ultimately, the backstop obviously, is a really extremely high rate of unemployment benefits. So most people are part of schemes that give you 90% of your income if you lose your job for up to three years, and then after three years it drops to around 70%. So you're basically safe from losing your house even if you lose your job which provides stability both for people and for lenders, for banks, right. So it's this way in which they've really managed to leverage the systemic global dynamics to their benefit. But that's a function of already being top of the heap.

MARK BLYTH: You've managed to convince me that the welfare state is a capitalist plot. Excellent. So if finance is one of the things that crosscuts all of the cases, the other one, and this is why we brought Jonas into the conversation, or should I call him Dr. Doom, is to bring in the other thing that crosscuts every case which of course is the climate crisis.

So back in the day, when we invented the study of comparative capitalisms, there was no knowledge of a climate crisis, even if it was brewing in the background. Right now with record breaking temperatures all over all of the growth models we've examined, it's quite clear that it's here. Jonas, what did you do to integrate the climate crisis into this framework? I mean, it's a huge topic. How should we think about it? How should growth models think about and reflect upon the fact that we're living in a climate emergency?

JONAS NAHM: So the approach that I take in the chapter for the book is to really start by thinking about what are the different political coalitions that can carry climate policy in different countries, and what are the industrial implications of these different growth models for kind of the green economy, who's there, who can be interested in climate not just for environmental reasons but for economic reasons, essentially.

So if you think about export oriented countries like China and Germany, they can build fairly large industries domestically that rely for green technologies like solar, wind, batteries. And these industries are lobby forces that can push for other kinds of climate legislation in these economies. And they're larger than they would be if they only serve the domestic market. And so you essentially can make a stronger economic argument for climate policy.

You have countries like the United Kingdom, which is essentially de-industrialized over the last 40 years where you have a lot less opposition to climate policy because you've essentially gotten rid of the coal sector under Thatcher already. But you also don't have the kinds of green industries that then make a very proactive argument that you should push climate policy. So you can still get it, but it's sort of an environmental policy in that context much less an economic policy in the same way.

And then you have the US which is sort of an interesting case because it's also the case that is now completely dissatisfied with its growth model in the space, and that's not in the chapter because all of this has happened since the chapter was written. But in the US, you essentially never had a domestic manufacturing economy for green technologies. And so as a result of that, climate policy has been inherently unstable because there's not been this kind of economic argument, but there's been a lot of pushback against the environmental argument from fossil fuel lobbies from, the Republicans, and so on.

And so as I alluded to just now, last summer, the US passed a big bill the Inflation Reduction Act, which essentially seeks to build domestic green industries for precisely these political reasons. And so I think there's a shift here, or at least, an attempt to shift the growth model, and do a lot more production, and ideally also export.

MARK BLYTH: Then is it fair to say that one of the things that the climate crisis is going to do is to force everyone in one way or another to at least modify, if not fundamentally, change their growth model? I mean, what your chapter suggests is that exporters have an advantage because you have this kind of coalition of possibility and that will push climate policy forward. One way of thinking about the IRA in the US, as you've just said, is precisely the government has decided to make that happen and is doing it through subsidies, et cetera, and trying to rebuild all this.

But is there a kind of fallacy of composition problem in this? I mean, can we all be exporters? I mean, is that actually really going to work? Is it not redundancies in this? I mean, isn't it the case that the growth model framework works because there are exporters, and there are consumers, and they kind of balance out. And if everyone tries to do their own green tech, I mean, doesn't that just sort of like it's less than the sum of its parts, right.

JONAS NAHM: Well, that's sort of the-- I think, you'd called me Dr. Doom in the introduction. I think that's sort of the negative take in the chapter, or the sort of pessimistic outlook that as everyone's trying to become an exporter someone's going to have to buy this stuff, and it's unclear who that's going to be if everyone's trying to export. So there's a clear limit to that strategy. And we're seeing this in a lot of different places. I think, Germany is trying to build a car industry essentially for the Chinese market. And China is now trying to export its own electric vehicles to Germany.

And now in Germany, there's a lot of concern whether all the electric vehicle capacity that German manufacturers have established in China, that Chinese people aren't using, they don't want to buy German cars, is now going to be used to build electric vehicles in China, and then move them back into the German market. And so then that whole argument for climate policy is essentially undermined. And so I think we can have these economic effects in some places. And we should have them in more places. But this idea that we can have these huge export oriented industries, I think, is a little difficult to implement. And so essentially, we'll still have to make the climate argument without the economic argument as well.

MARK BLYTH: I want to ask each of you about the sustainability of the processes that you examined. So I want to go back to Alex, and talk about, if you will, this finance led or consumption led growth model. If it's based upon credit, at the end of the day, you know, credit is debt on the other side of the balance sheet. I tend not to worry about public sector debt because when everyone freaks out, that becomes the safe asset. But I do worry about private sector debt. And it seems that this model is just premised upon the ever increasing piling up of private debt. Is this inherently fragile? Is this really sustainable as a model, or do you think that there's a breaking point somewhere?

ALEX REISENBICHLER: I think you hit the nail right on its head. I think the credit led consumption is one of these models greatest strengths, but it can also be the source of their undoing. So it can produce a tremendous amount of wealth, especially in the case of housing, but it can also wipe out that wealth in a heartbeat once a financial bubble bursts, as we've seen in the Two Thousand and Eight, Two Thousand and Nine crisis, but also during the SNL crisis in the late nineteen-eighties and early nineteen-nineties in the United States.

So I think there are inherent contradictions to the model. And they're extremely difficult to navigate when it comes to financial regulation because all the political incentives, and there has been a tremendous amount of bipartisanship in favor of boosting this sort of model, create then the risk of policy overshoot. And I think it's an incredibly sensitive and difficult thing to navigate.

And the second, I think, risk of this sort of model is that it increases, or it tends to increase, or exacerbate wealth inequality, and particularly racial wealth inequality in the United States. White households own homes as a much higher percentage than racialized minorities. 75% of white households own their own home whereas only about 46% of Black households own their own home.

And this is of course reinforcing decades long trends of wealth inequality, racial wealth inequality that, of course, had their origins in highly discriminatory federal policies that excluded racialized minority. And when they did include them, it was a form of predatory inclusion for the longest time. And so that is another fragility, so to speak of that model.

MARK BLYTH: Aiden, let's talk about fragile Ireland because you in a sense alluded to it. There's about half a dozen companies that make up a third of the tax take. What happens if they leave? Because when you're an FDI driven state, that's great, so long as the FDI is flowing. But what we were just talking about in the context of the new politics of the green transition is that you want to make stuff at home. So is there a sort of a fear in Ireland that this is a time limited deal. Is that an idea that sort of the growth model is going to have to change?

AIDEN REAGAN: I think there's always been a kind of deep seated awareness in the Irish state that they have to be constantly looking for new avenues of investment that you kind of have to be ahead all the time. You have to be looking for the next Google, the next kind of Apple. So whether or not it's in the green industrial space, I don't think so, for all the reasons that Jonas has outlined in the Irish case. But it is fragile, of course, for Ireland to have your country dependent so much on a handful of firms and basically the Treasury decisions of the tax directors within those firms have massive influence over the type of revenue that you can collect.

So if your entire economy is dependent on a handful of firms, you are vulnerable, you are fragile. But I think that it kind of gets back to the broader debate on growth models about the hierarchy of capital and where you sit within that hierarchy. Ireland has managed to carve its position for itself in the kind of global wealth and value chains of pretty successful highly profitable cutting edge, for want of a better term, leading technology firms in the world. So they're kind of-- they have that space. It's not just about taxation, as you have touched on. There's lots of people who work in these sectors. There's lots of skills that you build up. There's domestic social capital. There's domestic labor markets.

So you build up the capacity to attract this type of investment, and it acts like a magnet for more investment as we know from economic geography. I suppose the interesting question is whether other countries will pursue a similar strategy and try to attract investment from global multinationals. And this, of course, is the big debate, which has been going on forever about a race to the bottom in taxation, et cetera. So what's interesting will happen there is kind of the global corporate tax reforms, the kind of pillar one and two of the OECD international tax reform process.

But what is interesting about that process, I think, which is relevant to this discussion, is that for the first time ever at least in pillar two there is a recognition, an international agreement that basically countries can now tax the profits of multinationals that don't actually have a physical presence in their country. And that puts an end to the whole debate on national tax sovereignty where other countries can effectively challenge what is the meaning of sovereignty.

I think that opens up very interesting questions about what's going to happen into the future. But no, it'll be interesting. So, for example, an obvious question here is why doesn't Italy just do what Ireland does, right? Why doesn't Italy just kind of pursue a kind of foreign direct investment model? Why doesn't it try to attract capital? And you could make the case that it does in certain sectors and certain industries. And therefore, is it a regional thing? But I think it's fair to say that small countries, small states will continue to pursue a growth strategy aimed at attracting investment from highly profitable global multinationals.

MARK BLYTH: Amen to that brother. Oddny, you didn't study a country, you studied a process. And you alluded to the fact that some countries handle that process better than others. And you give the example of Denmark as one, and Sweden is another. I mean, it's always the annoying Scandinavians that just do stuff well, right. I mean, it doesn't matter which social science problem you're looking at. You put up a scatterplot with two variables, and the Scandos are at the top right. I mean, that's what always happens, right? So anyway, my little rant to the side. What bits of financialization do you worry about or do you think that we should pay more attention to that are relevant to basically how countries grow and do the things that they do?

ODDNY HELGADOTTIR: Yeah, so there's the obvious sort of dilemma or problem of lacking capital investment, and the sort of self-cannibalizing dynamics that come from that. But on the household front, which I think in many ways is the really interesting front, is the fragility there is really generational, I think. It's a really difficult needle to thread because, as Alexander was saying, so much of the consumption and the wealth effects come via real estate. It's the primary asset for most people.

Most of the middle class relies on real estate maintaining its value to a certain extent. But at the same time, it's increasingly prohibitive to enter. So what happens when our children are trying to enter that market? That's a really, really difficult future to see having political outcomes that are not very, very difficult. It's hard to say what would be a good scenario here, in a sense, right.

So if it stays the way that it's going right now, it's really terrible for the coming generation. But on the other hand, if it changes drastically, if for example rising interest rates are going to be a big break, or a counter to these prices, and prices are going to drop, that's terrible from a wealth perspective for most people today. So I don't know how you thread that needle. And it's a big fragility. And I don't know how you handle it going forward. I'm just going to guess though that the Scandos are going to find a really, really good tailor made solution to it over time.

MARK BLYTH: [LAUGHS] Yeah, you know they will. I mean, you just absolutely know that they will. Jonas, bring us home with this thought. Are there types of growth model that have a kind of structural advantage when it comes to facing the carbon challenge? Britain, for example, has already de-industrialized, right. That's most of its decarbonization is done this way.

So if you look, for example, at let's say, total carbon burned in final fossil fuel use in the economy, right, and you put that on one axis. And then you put the cost of capital on the other, which is basically they've got gilts. Until this trust showed up, those gilts were quite cheap. You've got a place that's kind of de-industrialized, so it's pretty low carbon. And then it's got pretty cheap cost of capital.

And they're good at finance, maybe that's an advantage in like doing the stuff you need to do to decarbonize your economy. Thinking of somewhere like Ireland, I mean, if Ireland completely goes net zero, it doesn't mean anything on a global scale. But the technology is used, developed, et cetera, that could be something that then becomes exportable, very integral to the growth model. Is there any way to read sort of, if you will, interesting conjectures about how to decarbonize off of this framework?

JONAS NAHM: I think that there are different ways of doing it and they play out differently in different places. But I don't think there's one ideal way of doing it, right. I mean, the UK way is only possible because the UK is able to buy all this stuff that it used to make at home from other places now, right. And so there is a sort of link to the rest of the world in that way. I think China's way is very successful, but you also see now China essentially being very destabilizing for all the other growth models, right.

So China making 97% of solar panels and 75% of batteries in the world is now the very reason that everyone else is starting to look at their growth model and says for political, economic, and security reasons, we can't really go on with this. And so I think the Chinese way sort of worked for a while. And I think they'll be dominant in these industries for a while to come. But quite that dominance, I think, is unsustainable kind of politically for other countries.

And so I think we'll have to find different solutions and different coalitions in different places in order to keep going with climate policy. I just think the sort of economic argument that everyone wants to make can't be the only argument. Essentially, we'll have to convince people that climate is something we need to address for climate reasons. And I think this summer is helping us make that case, right. So as a kind of climate destabilizes, it's not just the growth models, I think, the kind of climate side of things will be becoming more important, more apparent, and easier to make politically as an argument to people.

MARK BLYTH: I think we'll leave it there because anywhere else gets us into an even more depressing state. Thank you very much for the conversation, for the contributions, and for being part of a project which has taken up a bit of my life, and I'm glad that I did it. I hope you did too.

ALEX REISENBICHLER: Thanks, Mark.

ODDNY HELGADOTTIR: Thank you.

AIDEN REAGAN: Thank you, Mark.

JONAS NAHM: Thank you.

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MARK BLYTH: This episode of the Rhodes Center Podcast was produced by Dan Richards and Zach Hirsch. If you like the show, leave us a rating and review on Apple, Spotify, or wherever you listen to podcasts. And if you haven't subscribed to the show already, please do that too. You can learn more about what we covered in this episode, and the other podcasts from the Watson Institute at Brown University by following the links in our show notes. We'll be back soon with another episode of the Rhodes Center Podcast. Thanks.

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