Financial, Democratic and Institutional Challenges of the Ecological Transition. What matters most?

Green transition often hinges on arguments surrounding the cost of financial transformation. Mainstream economists advocate for a shift toward green finance, coupled with ecological regulations, carbon pricing, and the belief that this will suffice (OECD 2016, Nordhaus 2019). However, many heterodox economists posit that traditional financial systems lack the capacity for such a dramatic shift, emphasizing the need for deeper structural changes in finance, often including alternative monetary policies centered on money creation (Olk et al. 2023, Couppey-Soubeyran et al. 2024). Indeed, the 2008 financial crisis and the COVID pandemic outbreak have shown that when the circumstances require it, monetary policy can break free from its neoliberal principles to save the economy and the productive system. It is not yet clear how far we can go with unconventional economic policies. For decades, our institutional system has been shaped to conform to neoliberal doctrine. Profoundly changing our policies requires transforming informal and formal institutions, as well as public expectations of the role of the states. Consequently, new economic policies cannot be studied from a purely technical point of view. This contribution argues that the ecological transition is less a matter of financial resources and more about allocating physical resources and human labor to goods and services that may not provide immediate gratification to the consumer. From this perspective, the main challenge lies not in economic or financial limitations, but in democratic considerations. New questions need to be addressed by researchers. How can we organize a new economic model that prioritizes ecological investment over consumer comfort, without necessarily resorting to brutal degrowth? How can we make this economic shift socially acceptable, minimizing the potential for populist counter-movements (Polanyi 1944)? What kinds of institutions are preventing us from implementing a profound change in our economic system, and how can we change them? This communication explores these questions by developing a conceptual framework rooted in an institutional perspective. It analyzes the current neoliberal system and proposes potential institutional transformations that could foster an economy that prioritizes environmental well-being and social welfare. References Couppey-Soubeyran, Jézabel, Pierre Delandre and Augustin Sersiron (2024), Le pouvoir de la monnaie, Paris: Les liens qui Libèrent. Nordhaus, William (2019), "Climate Change: The Ultimate Challenge for Economics", American Economic Review, 106(6): 1991-2014. Olk, Christopher, Colleen Schneider and Jason Hickel (2023), "How to pay for saving the world: Modern Monetary Theory for a degrowth transition", Ecological Economics, 214. Polanyi, Karl (1944) [2001], The Great Transformation: The Political and Economic Origins of Our Time, Boston, MA: Beacon Press. OECD (2016), Green Investment Banks: Scaling up Private Investment in Low-carbon, Climate-resilient Infrastructure, Green Finance and Investment, OECD Publishing, Paris.