Empowering people, protecting the planet: what would it take to get Europe closer to these twin aspirations?


Climate, Energy & Sustainability

Picture of Marco Piccitto
Marco Piccitto

Director at McKinsey Global Institute (MGI)

Photo of This article is linked to State of Europe – the festival of politics and ideas.
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State of Europe is a fixture and a highlight of the European calendar. The reason is simple: it is a forum for today’s top leaders from the worlds of politics, business and civil society, from Europe and beyond, to connect, debate and develop ideas on key policy areas that will define Europe’s future.

The State of Europe high-level roundtable involves sitting and former (prime) ministers, CEOs, NGO leaders, European commissioners, members of parliaments, influencers, artists, top journalists and European Young Leaders (EYL40) in an interactive and inclusive brainstorm – a new way of working to generate new ideas for a new era.

This year’s roundtable will focus all of its attention on deliberating 10 policy choices for a Renewed Social Contract for Europe that will be disseminated ahead of the 2024 European elections and ensuing new mandate. The 10 policy choices will be the result of year-long multisectoral and multi-stakeholder consultations and will take into consideration the voices and opinions of over 2,000 European citizens.

As Friends of Europe progresses on its road towards a Renewed Social Contract for Europe by 2030, State of Europe will provide an opportunity for entrepreneurs, politicians, legislators, corporates, civil society, citizens and thought leaders to brainstorm solutions and ways out of the current polycrisis. The big-ticket items and trends that will demand our attention at this year’s event include: money, debt, hardship, conflict, corruption and elections.

Learn more about State of Europe and this year’s edition, ‘10 policy choices for a Renewed Social Contract for Europe’.

The world is grappling with two generational challenges that have often been looked at in silos. It’s urgent to raise minimum living standards for the billions around the world who struggle to meet their basic needs. At the same time, and equally important, we face the imperative of heading off the worst consequences of climate change. The progress we make on both fronts in this decade will shape the course of the world for generations to come.

This article dives deeper into the challenge of economic empowerment. Given remarkable progress globally against extreme poverty in recent decades, development experts argue that it’s time for a higher bar than the extreme poverty line of $2.15 a day, which equals bare subsistence. MGI proposes the ‘empowerment line’, which starts with a global floor of $12 per day (in purchasing power parity, or PPP, terms) for the lowest-income countries and gradually rises for countries with higher costs of living. For the EU countries, that floor is at $32 in 2017 PPP terms, with a range from $32 to $50 per day. It reflects the spending power individuals need to access good nutrition, decent housing, adequate healthcare, quality education, energy, transportation, communication and the like. Crucially, this is also the level at which people can begin to save, which minimises their risk of slipping back into poverty. The closer people get to the empowerment threshold, the more choice they can exercise about how they live, work and consume. They’re able to move in search of better work, for example, or equip themselves with skills.

Life below this threshold of spending typically involves vulnerability and stress. This applies to 4.7bn people worldwide, with the majority in Africa and parts of Asia. While empowerment is a much steeper challenge for low- and middle-income countries (LMIC), it is not only a problem for these countries. In the European Union and the United Kingdom, 140mn people are below the empowerment line. And this applies to just under half of the populations in Bulgaria, Poland and Hungary, and around a third of the population in Spain. These people are not all destitute, but they struggle to make ends meet, particularly when it comes to housing, and lack any buffer to weather emergencies.

Meeting the needs of this massive group means the next generation could be raised with better health, housing and education. When they come into adulthood, they will be more productive and able to realise more of their potential. This is an opportunity that can’t be ignored. Leaving it unaddressed is a waste of human capital, raising the risks of social unrest.

While faster growth adds to emissions, it also raises the financing capacity needed for the transition

In the meantime, yes, the clock is ticking on climate change. Getting to net-zero around mid-century means transforming energy systems, industrial infrastructure, mobility and buildings. That starts with a major increase in low-emissions spending and investment in the coming decade.

MGI’s research puts hard numbers against both goals, estimating that some 8% of global GDP each year would need to shift towards meeting both these needs in full. The size of these gaps varies by country. In general, European countries have relatively small empowerment gaps but face larger lifts in getting to net-zero.

Despite the massive figures, there is good news at the core of MGI’s research. Filling these gaps is not all down to government spending. Accelerating economic growth and business-led innovation could unlock tremendous progress on both fronts.

On the empowerment side, growth is linked to productivity. This doesn’t only mean efficiency; it also means incorporating technology and creating new products, industries and business models – all of which can support better-paying jobs. If businesses and employers can equip workers with the skills to take on those jobs, some two-thirds of the empowerment gap could be addressed worldwide. Europe can do even better, filling three-quarters of its empowerment gap through growth.

Economic growth has more complicated effects on the net-zero transition. In fact, some insist that the world’s wealthier countries need to halt growth to tame emissions. However, while faster growth adds to emissions, it also raises the financing capacity needed for the transition.

What we do in this decisive decade will determine what kind of world the next generation will inherit

A critical part of solving this dilemma is innovation, which reduces the costs of low-emissions technologies. Looking sector by sector, technology by technology and region by region, MGI’s research finds some $10tn of opportunities that are viable today or will be soon as more of these technologies become cost-competitive.

Growth and innovation can unlock historic progress towards empowerment and net-zero. To push even further and realise both goals in full, societies would need to make the choice to increase public commitments, making difficult trade-offs with other priorities. On the empowerment side, public resources could go towards affordable housing, improved schools and higher direct transfers, particularly for those who can’t take advantage of employment opportunities. On the net-zero side, public capital can play a catalysing role, backing projects that can’t attract private capital because the risk and return equations don’t work. Public subsidies can improve those equations and crowd in an even bigger wave of private spending. More broadly, the wealthiest economies would need to decide if they are willing to help fill some of these gaps in countries that lack the resources.

Empowerment, sustainability, growth and innovation are parts of the same connected system, and they need to pull together. The climate transition must become more affordable, and the most vulnerable households need to be shielded from any potential disruptive effects.

All economies have constraints on fiscal resources. They would need to weigh those constraints against the implications of leaving urgent needs unaddressed – and against the potential longer-term payoff of an economically empowered population and a stable climate. What we do in this decisive decade will determine what kind of world the next generation will inherit.

This article is a contribution from a member or partner organisation of Friends of Europe. The views expressed in this #CriticalThinking article reflect those of the author(s) and not of Friends of Europe.

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