The market serves to bring supply and demand for goods and services together as efficiently as possible. That is working very well, given the huge amount of rubbish that we produce and consume. Simply put, the big advantage of the market is that buyers and sellers agree about a single transaction at least at one point in time.

For larger more complicated considerations that cannot be handled via the market - or in order to correct that market if certain outcomes are socially undesirable - we have politics. At least, that is what you would think. For years, we have seen central banks intervening in markets with effects that go much further than the original goal, for instance by increasing inequality of wealth.

And a few weeks ago, we suddenly had a judge who took on the job that politics should be doing. I am referring to the Royal Dutch Shell case in the Netherlands.

Photo by Jethro Carullo
Technocracy ruled...

When is the role of politics finished and does technocracy take over? The answer depends on the nature of the problem. In the early ‘90s, the economist Herman Daly already told us that taking good care of nature transcends borders and generations. This is not easily reconciled with letting markets do their thing or with sensationalist short term-focused politics that are, furthermore, often closely intertwined with non-sustainable interests. According to Daly, a logical solution would be to develop long-term policies based on scientific insights. Like we do with water management in the Netherlands.

The Paris Climate Agreement laid the foundations for long-term climate policies. However, in many counties the political follow-up needed to reduce emissions was carried out half-heartedly and the promises of many companies excel in vagueness. The recent judicial ruling may therefore be the inevitable result: if on a global level governance is unable to move beyond the ‘no strings attached’ stage, it will be up to judges to determine whether the extent to which promises are being fulfilled is in keeping with global intentions.

For central banking policies different considerations apply. These are not about cross-border ecological challenges. In the Eurozone multiple countries are indeed involved, but that is mainly due to a political problem: an imperfect political union. And political problems should be dealt with through politics.

Of course, it helps to solve problems technocratically if politicians are unable to resolve them. But ultimately, the primacy for all policies must lie with politics. If that is not the case, it will become increasingly vague who determines policy: the judicial powers or previously independent institutions.

This is a translation of Hans Stegeman's column in Het Financieel Dagblad, published June 1st, 2021.

Read Hans' previous column 'Net zero nonsense'