In the past few months, we witnessed the dawn of a new era of government intervention that we call “catalytic government”. Unlike past interventions, which often involved bureaucrats favouring certain industries and technologies, this new approach emphasises collaboration between government and private sectors to spur innovation and address societal challenges. In the 1960s, for example, the British government supported the development of Concorde as a means to sweeten entry into the European Economic Community.[1] Similarly, the Great Society initiative in the US expanded government activity through education and welfare programs and gave regulatory agencies more power over businesses.[2] However, in response to what many saw as heavy-handed intervention, Thatcher and Reagan championed a more hands-off approach to governance.
By contrast, catalytic governments will be more decisive in setting industrial, technological and national security priorities. They will seek to create a more dynamic and innovative economy that can drive sustained growth and create new opportunities for businesses and individuals. By supporting private sector development and innovation, catalytic governments will prioritise building a more resilient and sustainable economy that can adapt to changing global challenges and opportunities. Such policies will seek to be catalytic rather than traditionally interventionist, with the objective of fostering a business environment where things can move faster, with less red tape, and ultimately be more effective.
Whilst our recent research has mostly focused on efforts such as the US Inflation Reduction Act and the EU Green Deal Industrial Plan, we are also now seeing moves by other regional actors to support their own green agendas. Examples include Japan’s $USD 157 billion program to issue green transition bonds and China’s long history of doling out handouts and subsidies to its clean technology sector; a practice that is well documented and has long been a point of contention for Brussels. Brussels even attempted to address this issue in 2013 by imposing anti-dumping duties on Beijing, alleging unfair subsidies for its solar PV producers and through newly approved rules enabling investigations of foreign companies benefitting from government cash infusions.[3] Further south, Australia announced this week that it would review its national hydrogen strategy, partly in response to the US Inflation Reduction Act and efforts by the US and other countries to build up a hydrogen economy.[4] In India, the Inflation Reduction Act has received more of a muted media reaction but the government has responded with a budget that places “green growth” and subsidies for domestic renewables production front-and-centre.[5]
Investing in the context of catalytic government requires a different approach to traditional investing. The approach needed must be more strategic and with a focus on the drivers of long-term sustainable growth that is most likely to align with government priorities. As governments become more active in setting industrial, technological and national security agendas, private sector companies have an opportunity (one may even say a responsibility) to align themselves with these agendas.
To invest effectively, therefore, it is important to recognise the sectors and companies that are most likely to benefit from government support initiatives, not just those focused on clean energy and electric vehicles, but also those providing the technological expertise and securing the infrastructure of nations. Finally, we can view catalytic government through the lens of defacto public-private partnership, implying that companies whose business activities align with government priorities are most likely to be more successful in the long run (versus those whose business activities do not align). Moreover, companies with a strong track record of sustainability and responsible business practises are more likely to quickly gain an edge (versus those without).
Related ETF
LIFE: Rize Environmental Impact 100 UCITS ETF
LUSA: Rize USA Environmental Impact UCITS ETF
References
[1] Britannica, “Concorde”, 2023. Available at: https://www.britannica.com/technology/Concorde
[2] Investopedia, “Great Society: What it Was, Legacy and FAQ”, December 2022. Available at: https://www.investopedia.com/terms/g/great-society.asp
[3] FT, “EU vows to counter China over ‘massive’ subsidies to its industries Commission president complains over Beijing’s opaque aid to companies”, February 2023. Available at: https://www.ft.com/content/9bfe7e7e-83b7-47f2-8d59-e180215d534a
[4] Argus Media, “Australia to review national hydrogen strategy: Update”, February 2023. Available at: https://www.argusmedia.com/en/news/2423820-australia-to-review-national-hydrogen-strategy-update
[5] Carbon Brief, “Media reaction: US Inflation Reduction Act and the global clean-energy arms race”, February 2023. Available at: https://www.carbonbrief.org/media-reaction-us-inflation-reduction-act-and-the-global-clean-energy-arms-race/
Subscribe to ARK Research & Insights
