The revenge of the material economy

The revenge of the material economy

The future belongs to manufacturers, energy suppliers and farmers.

Joel Kotkin

Joel Kotkin

Topics Politics Science & Tech UK USA World

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America’s narrow escape last week from a major rail-worker strike brought home an important truth: people who make and ship real things – let’s call them material workers – now hold the whip hand over our supposedly ‘post-industrial’ economy. Firms trading non-tangibles – currency, bits and bots – may still hoard the most cash. But when it comes to eating, staying warm and, for many, making a living, the material economy is what matters most.

Yet the material economy has been hugely constrained in recent years – and deliberately so. This has become all too apparent since the war in Ukraine. Back in the pandemic era, thanks to the recurring lockdowns, the biggest winners were the tech giants and their supporters in Wall Street. Now Silicon Valley, suffering from the worst IPO market in 20 years, resembles something akin to a psychiatric ward, while Goldman Sachs is contemplating mass layoffs. Today, many green-energy projects and ESG funds (that is, funds rated as environmentally sustainable) are languishing, despite benefitting from massive government subsidies and relentless public-relations campaigns in recent years. Meanwhile, oil companies, once demonised by climate-obsessed politicians and activists, are now enjoying bumper profits, as are some commodity firms.

The conflict between the material economy and the economy based in ephemera – such as the creative industries, tech and financial services – is likely to define the coming political conflicts both within countries and between them. The laptop elites, led by Silicon Valley, the City of London and Wall Street, generally favour constraining producers of fuel, food and manufactured goods. In contrast, the masses, who produce and transport those goods, are now starting to realise that they still have the power to demand better futures for themselves and their families. Like railway workers, they can threaten to shut things down and win much higher pay.

The prospect of union organisation is spreading even to companies like Amazon and Starbucks. But there could be a backlash to this from employers. If wages rise too quickly, we could end up with a lot of union members without jobs, as the economy weakens and automation, spurred by rising labour costs, kicks in. Already, as California plans to force huge raises for fast-food workers, some fast-food giants are now backing ventures that aim to replace workers with robots.

The biggest threat to the material economy is likely to be the green agenda. Even before Russia’s invasion of Ukraine and the global energy crisis, problems with often unreliable and expensive renewable energy were accelerating the deindustrialisation of the UK and much of the EU – including Germany, which had long been an industrial powerhouse. Energy rationing could be on the horizon in Europe this winter. Globally, energy-price inflation threatens to drive far more bankruptcies than the 2008 financial crisis. And food inflation, which in some countries has been driven by green agricultural policies, has led the percentage of people worldwide experiencing food insecurity to double since 2019.

Good material jobs cannot easily co-exist with Net Zero policies, which are aimed at wiping out fossil fuels in the near term. Trillions of dollars have been spent on global power generated by green energy over the past 20 years, but the percentage of fossil fuels has barely declined. The bulk of greenhouse-gas reductions in recent years has come from switching from coal to natural gas. Yet the negative consequences of trying to eliminate fossil fuels and nuclear power have been profound, both for companies and consumers. Thanks to Germany’s much vaunted ‘energy transition’, German consumers had to endure the highest electricity prices in the world, even before Russia’s invasion of Ukraine. In uber-green California, residents pay up to 80 per cent above the US national average for electricity.

The elites’ turn against the material economy has been going on for at least half a century. It surfaced prominently in the 1972 book, The Limits to Growth, which argued that natural resources were diminishing rapidly and so the world needed to transition to a less materially based economy with slower growth. This mentality has persisted and even grown, even though many green assertions dating back to that period – including warnings of mass starvation in much of the world – turned out to be exaggerated or plain wrong.

The green script has changed slightly over the years in response. It used to warn that scarcity was on its way unless we made radical changes, whereas now it calls for us to create scarcity deliberately. Today, no one talks about ‘peak oil’. Instead, you hear calls to keep fossil fuels in the ground, where they cannot be used.

Another difference between the 1970s and now is that the impetus for Net Zero policies comes not only from green activists and politicians, but also from the financial regime imposed by ‘woke’ capitalists, who have gone to great efforts to deprive fossil fuels of investment.

There are, of course, winners from these new fixations, including makers of electric vehicles (EVs), whose growth will further tax already stressed electric grids in many countries. These policies have made Tesla CEO Elon Musk, at least for now, the richest man in the world. But for the rest of humanity, high energy prices and related inflation are profoundly destabilising and will stoke class divisions. Potential losers include people working in energy, truck drivers, factory workers and logistics workers. A move to ban fracking in the US – which vice-president Kamala Harris has supported – would by itself cost several million jobs, according to a report by the US Chamber of Commerce.

The material-ephemeral divide is already reordering politics in the high-income world. The generally anti-fossil-fuel policies of US president Joe Biden have won the support of barely a third of Americans according to one recent survey, as he continues to use the weight of the entire federal bureaucracy to slow down fossil-fuel investment and development.

The division between the real-world workers and the laptop elite has sparked a resurgence of radical politics on both extremes. We see the rise of far-left politics in France, the United States and throughout Latin America. At the same time, many small-business owners and material workers have rallied to right-wing movements, such as the Sweden Democrats or Marine Le Pen’s National Rally in France. Italy could be next to shift to the far right. In the United States, Trumpism, particularly in its now ugly post-election phase, finds its base largely in states that rely on manufacturing, energy production and food production, like Texas, Oklahoma, Arizona, Indiana, Ohio and Iowa.

In Europe, where real incomes are falling almost everywhere, draconian green policies can no longer be pushed without opposition. When Emmanuel Macron’s government raised green taxes on diesel in 2018, only a few years after the Paris climate agreement was signed, we saw the rise of the gilets jaunes movement. This anti-green unrest is not confined to France. In June 2021, Swiss voters rejected a key referendum to curb CO2 emissions on car and air travel, with most of the support coming from the countryside.

Now, as the energy and economic crises deepen, unrest is spreading throughout Europe, including in usually stable countries like Norway and the Netherlands. A key battleground has been agriculture – the most basic of industries. Farming has become a major target for green zealots, aided by uber-rich environmentalists like Bill Gates. They seek to limit farmers’ use of chemical fertilisers and to force farmers to cull their herds. Dutch farmers are protesting their government’s restrictions on emissions and fertiliser use, which are threatening farms that have been in operation for generations. Recently, the Dutch farmers have been joined by their Spanish, Polish and Italian counterparts.

One can only imagine what might happen if the US or Australian governments – all now dominated by ultra-greens – were to start imposing similar restrictions on their own massive resource-driven economies. I would not like to be the federal agent telling a Montana cattle farmer or an outback sheep operation that their herds must be culled for the good of the planet, or telling a farmer in Iowa that he can’t use fertilisers to boost his output.

Ultimately, the environmentalist elites have a use for the hinterland – as the ideal place to create the ‘green’ energy that they do not want placed closer to home (such as off the coast of California, where plans for offshore wind have faced huge hurdles). There is already widespread opposition in the US to progressives’ attempts to cover 5.6million green acres – a space larger than Rhode Island and Massachusetts combined – with solar panels and wind turbines. To save the planet, it seems, we will need to destroy some of its most productive and bucolic parts.

The assault on the material economy is even more significant in the developing world. The rise in energy prices seems likely to trigger food shortages in Africa and other parts of the developing and middle-income world.

A new wave of global political instability, as seen most recently in the meltdown of Sri Lanka, may just be in its early stages. Already there have been fuel riots in Kazakhstan, Ecuador, South Africa, Senegal, Indonesia and Ethiopia. Countries as diverse as Saudi Arabia, the United Arab Emirates and Nigeria, like their European counterparts, have been forced to offer subsidies for energy and food to their increasingly restive populations.

The developing world’s leaders do not want to end up like Sri Lanka’s deposed president, whose rush to make his country ‘sustainable’ brought it to the brink of collapse. African presidents and energy ministers in Senegal, Nigeria and South Africa have denounced the anti-fossil-fuel policies demanded by Western financial institutions, the World Bank and non-profits. After all, over 3.5 billion people worldwide lack reliable access to electricity, of whom some 600million are in sub-Saharan Africa.

Some countries in Africa that have large mineral deposits may benefit from the rich world’s obsession with EVs, as this places tremendous price pressure on rare-earth elements, copper and other materials critical to electric batteries. But once all of the extraction and manufacturing processes are taken into account, the switch to EVs may have only a negligible impact on emissions. What’s more, the vast majority of these materials are controlled by China and its vassal states and they are often mined under brutal conditions.

The lack of reliable and affordable energy in places like Africa means that people are forced to turn to wood. In 2013, biomass comprised half of Africa’s energy supply and deforestation is widespread. Burning coal has its dangers, but it would at least reverse deforestation, as it has done in India and China in the past two decades. And it also addresses the dangers posed by indoor cooking, which causes almost half of all childhood pneumonia deaths worldwide.

The assault on the material economy has worked largely to the benefit of authoritarian nations. Given the pressures on already tenuous energy and food supplies, governments representing the vast majority of the world’s population – including India, China and much of Africa – have decided not to embrace Western sanctions against Russia. As well as this, instead of adopting Net Zero, these countries are increasingly following China, which currently emits more CO2 than the EU and the US combined. China is essentially getting what the Australian Financial Review calls a ‘free pass on climate’. It is privileged to build more coal-fired power stations and extract ever more minerals, without any of the restraints imposed by virtue-chasing Western financiers. Meanwhile, the material economies of Western competitors – including key raw-material suppliers like Australia – struggle under more costly energy regimes, essentially helping China achieve its goal of global economic supremacy.

Maintaining the West’s material economy is critical if we are to resist the new autocratic bloc. We should see factory operatives, truck drivers, farmers, oil-riggers and operators of nuclear plants not as despoilers of the planet, but as the critical bulwark against the encroachments of China, Russia and their allies. America’s oil-and-gas workers, for example, represent the best hope for providing more liquefied natural gas to Europe to replace Russian oil supplies. And for the time being, farmers in America, Canada and Australia are the best bet to provide the foodstuffs that can keep Africa from starving.

Focusing on the material economy and its workers may also bring some unexpected environmental benefits. A plant located on the outskirts of Adelaide, Leeds, Liverpool or Licking County, Ohio can be built with stronger standards and use cleaner energy sources than its competitors in China, let alone in Africa or in Latin America. A shift of manufacturing back to the West would also detach the West from China’s notoriously high-carbon supply chains.

Rather than treat material workers as expendable helots, Western countries should nurture them and train them. The US is already experiencing a massive shortage of skilled workers. A 2021 study by Deloitte and the Manufacturing Institute forecasts that the skills gap in US manufacturing could result in 2.1million unfilled jobs by 2030. The current shortage of welders, now at 240,000, could grow to 340,000 by 2024, as large numbers retire.

What the West needs is not more postmodernist ‘scholars’, dedicated to undermining our culture and economy, or greater investment in the phantasm of social media and Big Tech. Instead, we need more people willing to get their hands dirty to make their lives, and all of ours, better and more secure.

Joel Kotkin is a spiked columnist, the presidential fellow in urban futures at Chapman University and executive director of the Urban Reform Institute. His latest book, The Coming of Neo-Feudalism, is out now. Follow him on Twitter: @joelkotkin

Picture by: Getty.

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Topics Politics Science & Tech UK USA World


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