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Abstract
At the heart of green industrial policy is rent management: government creating and withdrawing opportunities for profitable investment. This paper asks what the key factors are for rent management to succeed. Drawing on a range of literatures, the paper first deals with the critical success factors for ‘normal’ rent management and then turns to one of the most pressing and controversial issues of our time: how to bring about the transition to green energy. This is extra challenging because technological uncertainties are high, time horizons for investment are long, yet action is required now.
Notes on contributors
Hubert Schmitz is Professor of the Institute of Development Studies and Leader of its ‘Green Transformations Cluster’. Oliver Johnson is Research Fellow in Sustainable Energy at the Africa Centre of the Stockholm Environment Institute. Tilman Altenburg is Head of the Department ‘Sustainable Economic and Social Development’ at the German Development Institute.
Notes
1. Since high-risk investments can expect higher profits than low-risk investments, we have included ‘risk-adjusted’ in the definition.
2. In other words, rent management is incentives management.
3. Success means pushing up green investment in an effective and efficient way. This paper does not, however, focus on measuring the outcome (notoriously difficult because of the missing counterfactual) but on getting the process of restructuring underway and triggering a self-reinforcing dynamic.
4. For a critical review of the investment climate debate, see Moore and Schmitz (Citation2008). Investment climate reforms seek to provide clear and enforceable rules aimed at reducing uncertainty for all investors and can therefore be called horizontal policies. In contrast, measures aimed at stimulating investment in specific sectors can be seen as vertical policies.
5. This does not mean that governments create rents in a vacuum; they reflect the interests of particular social groups.
6. Amsden (Citation2011) makes a similar point and suggests a ‘reciprocal control mechanism’ to minimise corruption: a set of institutions imposes discipline on economic behaviour and ensures that – in return for a subsidy – firms contribute to a public good. There is, however, a conceptual difference. The use of the term ‘reciprocal control mechanism’ implies that corruption is curtailed. The use of the term ‘rent management’ does not. It implies a concern with curtailing corruption but the conditions under which this succeeds then need to be specified.
7. Harmful rent seeking tends to be driven by short-term interests but can also be influenced by longer term interests.
8. Olson (Citation1993) used the distinction between ‘roving’ and ‘stationary’ bandits for this purpose, but the term ‘bandit’ implies a money-grabbing motive which may or may not apply. In many cases, the **policy-makers’ interest lies in obtaining promotion or re-election. Being associated with a successful policy initiative can enhance the prospects of fulfilling this legitimate ambition.
9. Some of it sees rent seeking as ‘pathological’ to economic development (Starr Citation1998, Ngo Citation2009).
10. The principal–agent approach to rent management comes to the same conclusion regarding the need for monitoring. It can be seen to provide a more direct route to understanding and improving the allocation and distribution of rents. The state–business literature and the focus on alliances is, however, more useful on the issue of creating rents and finding solutions to complex collective action problems – as seen in a later section.
11. Evidence for this proposition comes from ongoing research projects of the German Development Institute (Low Carbon Innovation Policies in China, India and South Africa) and Institute of Development Studies (The Political Economy of Low Carbon Investment).
12. Section 4 suggested that reviews of rent regimes are important knowledge inputs into the policy process. This is not in contradiction with Section 8 which stresses a political approach to rent management. Technically competent reviews can contribute to building/modifying narratives and building/undermining alliances.
13. A central argument of this article is that rent management is an essential, inevitable part of green industrial policy. While informed by empirical analysis, some points put forward remain propositional. However, research completed since the writing of this article tends to support our green rent management argument (case studies in Pegels Citation2014, Luetkenhorst and Pegels Citation2014) and the need for support from an alignment of government, business and civic actors (Chaudhary et al. Citation2014, Dai Citation2015, Morris and Martin Citation2015). An important next step is the comparative study of the evolution of green rent regimes in different countries and sectors.