From the Experts
Monbiot's Stiff Drink article
(just felt it worthwhile including this in entirety, comments and other stuff below)

Pour yourself a stiff drink and read George Monbiot's

A Self-Fulfilling Prophecy

If you think preventing climate change is politically difficult, look at the political problems of adapting to it.

By George Monbiot. Published in the Guardian, 16th March 2009.

Quietly in public, loudly in private, climate scientists everywhere are saying the same thing: it’s over. The years in which more than two degrees of global warming could have been prevented have passed, the opportunities squandered by denial and delay. On current trajectories we’ll be lucky to get away with four degrees. Mitigation (limiting greenhouse gas pollution) has failed; now we must adapt to what nature sends our way. If we can.

This, at any rate, was the repeated whisper at the climate change conference in Copenhagen last week(1). It’s more or less what Bob Watson, the environment department’s chief scientific adviser, has been telling the British government(2). It is the obvious if unspoken conclusion of scores of scientific papers. Recent work by scientists at the Tyndall Centre for Climate Change Research, for example, suggests that even global cuts of 3% a year, starting in 2020, could leave us with four degrees of warming by the end of the century(3,4). At the moment emissions are heading in the opposite direction at roughly the same rate. If this continues, what does it mean? Six? Eight? Ten degrees? Who knows?

Faced with such figures, I can’t blame anyone for throwing up his hands. But before you succumb to this fatalism, let me talk you through the options.

Yes, it is true that mitigation has so far failed. Sabotaged by Clinton(5), abandoned by Bush, attended half-heartedly by the other rich nations, the global climate talks have so far been a total failure. The targets they have set bear no relationship to the science and are negated anyway by loopholes and false accounting. Nations like the UK which are meeting their obligations under the Kyoto protocol have succeeded only by outsourcing their pollution to other countries(6,7). Nations like Canada, which are flouting their obligations, face no meaningful sanctions.

Lord Stern made it too easy: he appears to have underestimated the costs of mitigation. As the professor of energy policy Dieter Helm has shown, Stern’s assumption that our consumption can continue to grow while our emissions fall is implausible(8). To have any hope of making substantial cuts we have both to reduce our consumption and transfer resources to countries like China to pay for the switch to low-carbon technologies. As Helm notes, “there is not much in the study of human nature—and indeed human biology—to give support to the optimist.”

But we cannot abandon mitigation unless we have a better option. We don’t. If you think our attempts to prevent emissions are futile, take a look at our efforts to adapt.

Where Stern appears to be correct is in proposing that the costs of stopping climate breakdown - great as they would be - are far lower than the costs of living with it. Germany is spending E600m just on a new sea wall for Hamburg(9) - and this money was committed before the news came through that sea level rises this century could be two or three times as great as the Intergovernmental Panel on Climate Change has predicted(10). The Netherlands will spend E2.2bn on dykes between now and 2015; again they are likely to be inadequate. The UN suggests that the rich countries should be transferring $50-75bn a year to the poor ones now to help them cope with climate change, with a massive increase later on(11). But nothing like this is happening.

A Guardian investigation reveals that the rich nations have promised $18bn to help the poor nations adapt to climate change over the past seven years, but they have disbursed only 5% of that money(12). Much of it has been transferred from foreign aid budgets anyway: a net gain for the poor of nothing(13). Oxfam has made a compelling case for how adaptation should be funded: nations should pay according to the amount of carbon they produce per capita, coupled with their position on the human development index(14). On this basis, the US should supply over 40% of the money and the European Union over 30%, with Japan, Canada, Australia and Korea making up the balance. But what are the chances of getting them to cough up?

There’s a limit to what this money could buy anyway. The Intergovernmental Panel on Climate Change says that “global mean temperature changes greater than 4°C above 1990-2000 levels” would “exceed … the adaptive capacity of many systems.”(15) At this point there’s nothing you can do, for example, to prevent the loss of ecosystems, the melting of glaciers and the disintegration of major ice sheets. Elsewhere it spells out the consequences more starkly: global food production, it says, is “very likely to decrease above about 3°C”(16). Buy your way out of that.

And it doesn’t stop there. The IPCC also finds that, above three degrees of warming, the world’s vegetation will become “a net source of carbon”(17). This is just one of the climate feedbacks triggered by a high level of warming. Four degrees might take us inexorably to five or six: the end - for humans - of just about everything.

Until recently, scientists spoke of carbon concentrations - and temperatures - peaking and then falling back. But a recent paper in the Proceedings of the National Academy of Sciences shows that “climate change … is largely irreversible for 1,000 years after emissions stop.”(18) Even if we were to cut carbon emissions to zero today, by the year 3000 our contribution to atmospheric concentrations would decline by just 40%. High temperatures would remain more or less constant until then. If we produce it we’re stuck with it.

In the rich nations we will muddle through, for a few generations, and spend nearly everything we have on coping. But where the money is needed most there will be nothing. The ecological debt the rich world owes to the poor will never be discharged, just as it has never accepted that it should offer reparations for the slave trade and for the pillage of gold, silver, rubber, sugar and all the other commodities taken without due payment from its colonies. Finding the political will for crash cuts in carbon production is improbable. But finding the political will - when the disasters have already begun - to spend adaptation money on poor nations rather than on ourselves will be impossible.

The world won’t adapt and can’t adapt: the only adaptive response to a global shortage of food is starvation. Of the two strategies it is mitigation, not adaptation, which turns out to be the most feasible option, even if this stretches the concept of feasibility to the limits. As Dieter Helm points out, the action required today is unlikely but “not impossible. It is a matter ultimately of human well being and ethics.”(19)

Yes, it might already be too late - even if we reduced emissions to zero tomorrow - to prevent more than two degrees of warming, but we cannot behave as if it is, for in doing so we make the prediction come true. Tough as this fight may be, improbable as success might seem, we cannot afford to surrender.


1. Eg David Adam, 13th March 2009. Stern attacks politicians over climate ‘devastation’. The Guardian.

2. James Randerson, 7th August 2008. Climate change: Prepare for global temperature rise of 4C, warns top scientist. The Guardian.

3. Kevin Anderson and Alice Bows, 2008. Reframing the climate change challenge in light of post-2000 emission trends. Philosophical Transactions of the Royal Society A. Published online. doi:10.1098/rsta.2008.0138

4. They are referring to stabilisation at 650 parts per million CO2 equivalent. The IPCC suggests that this would produce something the region of 4C, even before all the likely feedbacks have b een taken into account. See Table SPM6 of the IPCC’s Climate Change 2007: Synthesis Report - Summary for Policymakers.




8. Dieter Helm, 21st February 2009. Environmental challenges in a warming world: consumption, costs and responsibilities. Tanner Lecture, Oxford.

9. Oxfam, 29th May 2007. Adapting to climate change. Briefing Paper 104.


11. John Vidal, 20th February 2009. Rich nations failing to meet climate aid pledges. The Guardian.

12. ibid.

13. Oxfam, 29th May 2007, ibid.

14. Oxfam, 29th May 2007, ibid.

15. IPCC, 2007b. Assessing key vulnerabilities and the risk from climate change.

16. ibid, Table 19.1.

17. IPCC, 2007b, ibid.

18. Susan Solomona,1, Gian-Kasper Plattnerb, Reto Knuttic, and Pierre Friedlingstein, 16th December 2008. Irreversible climate change due to carbon dioxide emissions.

19. Dieter Helm, 21st February 2009, ibid.




March 2009

living within

our means:

avoiding the

ultimate recession

Jonathon Porritt, Co-Founder of Forum for the Future, is an eminent

writer, broadcaster and commentator on sustainable development.

Established in 1996, Forum for the Future is now the UK’s leading

sustainable development charity, with 70 staff and over 100 partner

organisations, including some of the world’s leading companies.

Jonathon was appointed by the Prime Minister as Chairman of the

UK Sustainable Development Commission in July 2000. This is the

Government’s principal source of independent advice across the whole

sustainable development agenda. In addition, he has been a member

of the Board of the South West Regional Development Agency since

December 1999, and is Co-Director of The Prince of Wales’s Business

and Environment Programme which runs Senior Executives’ Seminars

in Cambridge, Salzburg, South Africa and the USA. In 2005 he became

a Non-Executive Director of Wessex Water, and a Trustee of the Ashden

Awards for Sustainable Energy.

He was formerly Director of Friends of the Earth (1984–90); Co-Chair

of the Green Party (1980–83) of which he is still a member; Chairman

of UNED-UK (1993–96); Chairman of Sustainability South West, the

South West Round Table for Sustainable Development (1999–2001);

a Trustee of WWF UK (1991–2005).

His latest books are

Capitalism As If The World Matters

(Earthscan, revised 2007),

Globalism & Regionalism (Black Dog 2008).

Jonathon received a CBE in January 2000 for services

to environmental protection.

Forum for the Future

Forum for the Future

Registered Office:

Overseas House,

19–23 Ironmonger Row,

London EC1V 3QN

Registered charity number:


Company limited by guarantee:



020 7324 3624


Forum for the Future, the sustainable

development charity, works in partnership

with leading businesses and public

sector bodies, helping them devise more

sustainable strategies and deliver these

in the form of new products and services.

Publication of this pamphlet has been

supported by the Co-operative Group.

1. The end of capitalism as we’ve known it

Opportunity out of disaster

Shifting power bases

Flawed role models

Lest we forget

2. Causes and effects


Debt-driven growth

Cost externalisation

Mis-pricing risk

Mis-allocation of capital

Economic growth

The erosion of democracy

The fig leaf of corporate social responsibility

3. Reframing capitalism

Taking stock

Making capitalism sustainable

The five capitals

4. A sustainable new deal

Recapitalisation strategies

A green new deal

Sustainable economies

5. Avoiding the ultimate recession



Living within our means:

avoiding the ultimate recession













the end of

capitalism as

we’ve known it


/ 3 Living within our means:

avoiding the ultimate recession

The recession we’re in right now

is going to be very grim

but nothing like as grim

as the recession that awaits us

if we don’t start

living within our means

We’ve had the language to give voice to what’s going on in the world

today for a long time: quite simply, we’ve been “living beyond our means”.

How many times have you heard that, seen the nodding heads, but known

that nothing would change? We’ve felt this instinctive anxiety for a long time,

but lacked the empirical evidence to help us resist the siren voices of those

who kept on telling us there was no problem. Now it’s all blown up in our

faces, and, in retrospect, it seems so blindingly obvious.

But we still don’t properly understand just how far beyond our means

we’ve been living, environmentally as well as financially. And we still

don’t properly understand the way those two spheres of human activity

are connected. The shock to the system from the near-collapse of our

global banking industry has been traumatic – and it’s going to get a lot

worse before it gets better. Even so, that is nothing compared to the

near-imminent collapse of the ecological systems on which we depend

– particularly a stable climate. And the two are intimately connected.

If we don’t seize hold of those linkages, the advocates of “patch-up

business-as-usual” will soon reassert their customary influence over

politicians and the media.

The end of capitalism

as we’ve known it

Two phenomena highlight the collision of financial and environmental

crises which now threaten us with the Ultimate Recession.

It is the principal purpose of this pamphlet to demonstrate that these

two explosive phenomena are symptoms of the same systemic flaws

in contemporary capitalism. There will be little chance of engineering

any kind of meaningful response to either crisis unless we understand

that the “living beyond our means” which has been going on for decades,

has led both to massively over-leveraged balance sheets and a massively

over-leveraged use of the natural world.

But in all the intense coverage of the credit crunch and the ensuing economic

recession, there’s been surprisingly little reference to environmental issues

– outside of the environment world. Encouraged by a sequence of reports

on the potential for some kind of “Green New Deal” from UNEP and others,

the mainstream parties in the UK have each come up with positioning

documents on the specific challenge of moving towards a low-carbon

economy. They all have their merits, but the critique of capitalism on

which they are based is very superficial.

Elsewhere, it has become received wisdom that environmental issues

should now “be put on the back burner”, given the ferocity of the

economic recession. Even dealing with climate change, which is widely

acknowledged by scientists as the single most important challenge facing

humankind today, is now seen by many politicians and business leaders


/ 5 Living within our means:

avoiding the ultimate recession

Debtonation day

On August 9th 2007, banks suddenly

stopped lending to each other. Earlier

in the year, they’d started to re-evaluate

the huge levels of debt on their balance

sheets, and discovered that although they

still didn’t quite know how bad it was,

it was much, much worse than anything

they’d feared. “Debtonation Day” dawned.

The system locked down, spreading

instant consternation from Wall Street to

Main Street, from the US to Europe to the

rest of the world, threatening an economic

crash graver than anything seen since

the Great Depression eighty years ago.

In March 2008, Bear Sterns collapsed

and the rot really set in.

The methane timebomb

One year after “Debtonation Day”, an

exchange of emails between researchers

involved in monitoring the Siberian

continental shelf in the Arctic Circle

(published in

The Independent ) reported

intense concentrations of methane –

sometimes up to 100 times background

levels – over thousands of square miles.

They reported examples of the “sea

foaming” with gas bubbling up through

“methane chimneys” rising from the sea

floor. Their hypothesis? A combination

of melting sea ice and warmer run-off

from Russia’s Arctic rivers is causing the

sub-sea layer of permafrost to melt away,

releasing what could be hundreds of

millions of tonnes of methane. Methane

is twenty times more powerful than


2 as a greenhouse gas.

The end of capitalism

as we’ve known it

as “an unaffordable luxury”. We’re in some terminal zero-sum game it

would seem: we either combat the grim consequences of global recession

or we get to grips with climate change and a host of other sustainability

challenges. But not both at the same time.

This paper argues exactly the opposite: that the convergence of these

two crises should be seen both as the “perfect storm warning” that it is,


as an astonishing opportunity to confront and resolve both crises

without further delay.

It seems strange to say this today, but maybe we’ll all look back on the

collapse in the global economy and recognise it as precisely the shock to

the system we so desperately needed. Not another climate-induced shock

(although they will be coming thick and fast all too soon), but an economic

shock that compelled us to look much, much harder at the period of frenzied

excess and irresponsibility we’ve been living through. And to seize hold of

that moment to advance some different ideas – on regulation, on reform

of the Bretton Woods Institutions, on economic growth, on low-carbon

innovation, and on getting ourselves out of this mess by laying the

foundations for a very different kind of economy.

That’s what President Obama would appear to be doing with his recovery

programme – nearly $900 billion, of which somewhere around $100 billion

can be designated as “green” or “sustainable”. In Japan, they’re planning a

vast new programme to expand their environmental technologies market to

more than $1 trillion over 5 years – and create 800,000 jobs in the process.

In China, South Korea, Germany, France and the EU as a whole, similar

measures are being brought forward. In February 2009, Lord Stern called

for investments of $400 billion a year to drive forward the low-carbon

economy of tomorrow – and at the same time create millions of new jobs.

This is an unbelievable opportunity. It may even be the last chance

for capitalism to stake any kind of claim as

the system best placed to

help us navigate our way through to a sustainable future for nine billion

people by 2050.

We’re playing for very high stakes here, and it will all need to happen

in the next couple of years.

Prime Minister Gordon Brown himself could not have been clearer

about this in the speech that he gave at the World Economic Forum

in Davos in February 2009:

“So we cannot afford to relegate climate change to the

international pending tray because of our current economic

difficulties. Instead, we must use the imperative of building

a low-carbon economy as a route to creating growth and

jobs, the path that will see us through the current downturn.


/ 7 Living within our means:

avoiding the ultimate recession

Country/Region Fund Period Green Fund % Green

$b $b

Asia Pacific

Australia 26.7 2009–12 2.5 9.3%

China 586.1 2009–10 221.3 37.8%

India 13.7 2009 0%

Japan 485.9 2009 – 12.4 2.6%

South Korea 38.1 2009–12 30.7 80.5%

Thailand 3.3 2009 0%

Subtotal Asia 1,153.8 266.9 23.1%



EU 38.8 2009–10 22.8 58.7%

Germany 104.8 2009–10 13.8 13.2%

France 33.7 2009–10 7.1 21.2%

Italy 103.5 2009 – 1.3 1.3%

Spain 14.2 2009 0.8 5.8%

UK 30.4 2009–12 2.1 6.9%

Other EU States 308.7 2009 6.2 2.0%

Subtotal Europe 634.2 54.2 16.7%


Canada 31.8 2009–13 2.6 8.3%

Chile 4.0 2009 0%

US EESA 185.0 10 years 18.2 9.8%

US ARRA 787.0 10 years 94.1 12.0%

Subtotal Americas 1.007.8 114.9 11.4%

TOTAL 2,796 436 15.6%

Source: ‘A Climate for Recovery – the colour of stimulus goes green’ (HSBC, February 2009)

Green recovery spending as a % of total recovery packages

And already, together, we have begun the long walk down that

road. In the EU’s economic recovery plan, in President Obama’s

“green jobs” package, in the stimulus packages of China, Japan,

Australia, South Korea, France, Germany, Spain and Denmark,

and in my own Government’s forthcoming Green Industrial

Strategy, the contours of a resilient, low-carbon recovery

are becoming clear.”

As yet, at the time of going to press, we have seen very little of that

eloquence translate through into policy proposals – let alone action

on the ground.

Opportunity out of disaster

There are two powerful reasons to see things in this counter-intuitive way.

First, instead of treating each crisis as a “stand-alone phenomenon” in its

own right, even the most cursory examination of the causes underlying each

crisis reveals the same inherent dysfunctionalities within our Anglo-American

deregulated, debt-driven, growth-at-all-costs capitalism. Second, in the

same way that our capital markets imploded for lack of proper regulation,

so our carbon-intensive economies are about to implode – socially and

environmentally – for lack of proper regulation of emissions of greenhouse

gases. Which means, quite simply, that the only available global solution to

our economic crisis lies in addressing our sustainability crisis through what

is rapidly becoming known as a “Green New Deal for the 21st Century”.

If our politicians could focus consistently on this extraordinary

opportunity, especially at a time when the reputation and standing

of the United States has been so powerfully enhanced by the election

of Barack Obama as President, we would find ourselves with a unique

chance of securing a genuinely sustainable future for ourselves and all

those who come after us.

The consequences of missing out on this opportunity do not bear

thinking about. But economic paradigms do not die easily, and this

particular paradigm has taken such a firm hold on the collective psyche

of the human species, and will be defended so ferociously by a self-serving

elite of massively powerful beneficiaries of that paradigm, that the odds

on “overthrow and make anew” rather than “accommodate and retrieve

lost ground” are still no more than 50/50.

We should take heart, however, from the fact that what has had

to be done to rescue the banking system (through massive public

interventions and nationalisations to the tune of many trillions of dollars

globally) has already fatally weakened the case for any kind of return

to the status quo. After all, what can be done for the banking system

can surely be done for the protection of human civilisation itself?

The end of capitalism

as we’ve known it


Shifting power bases

Many commentators have arrived at the conclusion that the role of

America as the principal driver of the global economy is to all intents and

purposes finished. It’s possible that the astonishing growth in countries like

China and India over the last twenty years would have brought to an end its

period of dominance in the not so distant future anyway – no empire lasts

forever. But the cataclysmic collapse in financial markets over the last year

or so makes that transition inevitable and imminent. And with it, many

believe, will go the particular variant of capitalism that has reigned

supreme over the last thirty years.

For those concerned both about society and about the state of the

environment, globally or locally, this represents a dramatic turning point.

Though most environmental organisations have demonstrated next-tozero

interest in the macro-economic systems against which today’s

“environmental issues” are played out, the truth is that not one of their

respective causes has had the remotest prospect of succeeding under

this particular system of capitalism. Its dramatic collapse offers at least

some chance of a belated reconciliation between the pursuit of economic

prosperity on the one hand and the protection of the life-support

systems on which we all depend on the other.

It’s a sign of just how bankrupt mainstream political debate has been here

in the UK over so many years that the interface between contemporary

capitalism and the state of the environment has warranted little if any

attention. Even the Liberal Democrats (who can justifiably claim to be

the “greenest” of the three major parties) have conspicuously failed to

contextualise their “environmental policies” within any kind of transformative

critique of contemporary capitalism. Going back over the last twenty-five

years or more, a depressingly deterministic acceptance of the core tenets

of contemporary capitalism has – in all major parties – rendered much of

the debate about the environment unavoidably superficial. Thankfully, the

near-inevitable demise of contemporary capitalism could now open up

some space for a long overdue debate at a much deeper level. It may even

become permissible, thirty years or more after the intense debate in the

seventies about the Club of Rome’s “Limits to Growth” report, to re-open

that all-important area of enquiry.

Flawed role models

The next section will briefly look at a number of the dominant characteristics

of this particular model of capitalism. It will seek to demonstrate not only how

they have contributed to the current financial crisis, but also to the chronic

failure on the part of governments to do anything more than slow the pace

of environmental destruction – at the very moment in human history when

the scientific evidence available to us regarding the cumulative impact of

the human economy on natural systems has become literally incontrovertible.


/ 9 Living within our means:

avoiding the ultimate recession



But it may be helpful first to give such abstract ideas a rather more human

face by looking at the role of two of the most important protagonists of

contemporary capitalism over the last thirty years or so – Jack Welch,

former Chief Executive of GE, and Alan Greenspan, former Chairman

of the US Federal Reserve.

Jack Welch is the most celebrated Chief Executive of the last 30 years.

Indeed, he was recognised by his peers “Business Manager of the 20th

Century”. It’s his variety of capitalism that is now withering away in front

of our eyes. He was aggressive, ruthless, and known to friend and foe

alike as “Neutron Jack” for his ability to hollow out businesses by sacking

a quota of employees every year (“pour encourager les autres”) whilst

keeping the business itself intact.

He was also an environmental despoiler on an heroic scale. It’s not the

legacy he himself lays claim to in his self-aggrandizing autobiography,

but Jack Welch will be remembered for years to come as much for his

impact on the environment as for his financial success. Most notoriously,

the Hudson River has been devastated by GE’s release of toxic chemicals

such as PCBs over many years. After an extremely effective delaying

campaign, a clean-up of sorts is now underway. And GE’s current

shareholders will see billions of dollars from what would have been

their rightful dividends deployed over the next decade or more to

clean up his toxic mess.

The much-hyped “Masters of the Universe” who have caused the

financial system to implode, are, to a man, Jack Welch look-alikes.

Their legacy is different but strangely similar: packages of toxic debt

released with criminal irresponsibility into the US capital markets,

just as Jack Welch released his barrels of PCBs into the Hudson River.

The “ultimate boss” presiding over the system throughout that time

was Alan Greenspan, Chairman of the US Federal Reserve for 19 years.

Until recently, many would have made the claim that Alan Greenspan

was the most convincing candidate as “guru-in-chief” of contemporary

capitalism, just as Jack Welch was voted by his peers “Business

Manager of the 20th Century”. He was judged to have exercised such

impeccable judgement as to have single-handedly secured rising

prosperity through turbulent times for the majority of US citizens –

and indeed for the rest of the world. As such, he became one of

Gordon Brown’s most influential role models; in the citation for his

honorary Knighthood, specific reference was made to his contribution

“to promoting economic stability” – which sounds almost as astonishing

today as the erstwhile protestations of the Prime Minister that he had

done away with the damaging impacts of “boom and bust”.

The end of capitalism

as we’ve known it

Throughout his time in office, Greenspan refused to acknowledge

that he might be contributing to a wholly unsustainable “bubble” in

the US housing market. His favourite euphemism under attack was

to make light of the institutionalised mis-selling of credit as “froth”,

or even “irrational exuberance”. His confidence in this particular model

of credit-fuelled economic growth rested on the belief that house prices

in the US would not fall but would continue to rise indefinitely. It seems

unbelievable that the world should have been in awe, for so long,

of a man capable of such crass nonsense.

Lest we forget

But people were in awe of Greenspan. Here in the UK, there must be

many a contributor to

The Economist and the Financial Times cringing

at the adulatory copy that they churned out month after month during

his tenure of office. And there must be many in the current Government

ashamed to have put such unequivocal faith in such a false prophet,

in a man who fetishised the beneficence of self-regulating markets,

whatever the evidence was actually telling them.

Even though it’s a little late, it’s encouraging to see how many Labour

politicians are now asking how it was that Ministers really did believe that

the market place could miraculously transform private greed into public good.

And how it was they felt quite so comfortable in the company of a generation

of irresponsible speculators as they plunged us all into this vortex of artifice.

And how they ended up endorsing a financial system that encouraged

mainstream mortgage providers to act as loan-sharks; that eulogised the

innovation involved in off-balance sheet funding and inadequately regulated

hedge funds; that embraced corporate privilege with born-again zeal, with

few words of criticism about obscene salary deals and even more obscene

bonuses; that lived in such dread of these “Masters of the Universe” that

they were prepared to slash capital gains tax, promote offshore tax havens,

placate “non-doms” at any price, and exercise the lightest of touches

in terms of pursuing tax avoidance or even fraud.

What makes this all the more extraordinary is the indifference that New

Labour seems to have felt towards some of the financial success stories

going on here in the UK – in terms of the steady growth of ethical and

sustainable funds, of specialist ethical banks like Triodos, of the few

remaining “mutuals” and building societies, and of the Co-operative

Financial Services Group.

As all the big names in the banking world have crashed and burned,

Co-operative Financial Services has gone from strength to strength.

In February 2009, it launched a radical new Ethical Policy, underscoring

both the gap between conventional and ethical banking, and the wisdom

of building a long-term value proposition that resonates so much more


/ 11 Living within our means:

avoiding the ultimate recession


powerfully with increasingly angry and apprehensive citizens in the UK

today. In 2008 it saw a 15% growth in customer lending, a 40% increase

in personal savings, and a 65% increase in people opening current accounts.

The unveiling of its new Ethical Policy also coincided with another milestone

for the Co-operative Bank: in 2008 the value of the business it has declined

since launching its first ethical policy in 1992 (on account of its failure

to meet minimum ethical criteria) passed the £1 billion mark.

It’s New Labour’s apparent lack of excitement about decent, prudent

businesses like the Co-operative Group, about familiar and trusted

organisations like the Post Office, about that vast legion of charities and

voluntary bodies that help make life good for millions of people, that irritates

the hell out of so many disappointed Labour activists. More and more of

these activists are now re-engaged in “a battle for the soul of the Labour

Party”. In an essay for the

New Statesman in March 2009, Neal Lawson

(Chair of Compass) and John Harris of

The Guardian have given voice

to the ideological critique that underpins this anger:

“The starting point for a better future is the simple

recognition that the Good Society is incompatible with market

fundamentalism. Markets never contain themselves. Instead,

they always look for new opportunities to make more profit.

This leads to no end of disastrous and dysfunctional outcomes:

among them the commercialisation of the lives of our children

and the rise of the kinds of complex financial instruments that

have brought the whole house down. To turn society in a different

direction, markets will have to be regulated and trammelled by

social forces – the state’s and civil society. We must put in place

the institutions that allow society to make the market its servant.

We cannot graft our conscience onto capitalism, as it were;

the point must be to direct it and constrain it in the interests

of society at large.”


They may have left it too late to pull together a sufficiently influential

coalition of causes to shift the direction of the Labour Party before the next

Election, but their readiness to go beyond conventional “tribal boundaries”

in seeking a different way forward is hugely encouraging. And that case is

greatly strengthened by a deeper analysis of the causes that lie behind both

the current recession and what I’ve called the “Ultimate” recession that will

surely follow if we simply try to get back to where we were before the

banking system collapsed in 2007.

The end of capitalism

as we’ve known it



/ 13 Living within our means:

avoiding the ultimate recession

causes and


It is astonishing to reflect upon the fact that the core tenets of this particular

model of capitalism have warranted so little applied attention, by any of

the major political parties, over the last twenty years or more. Some kind of

strange “herd mentality” has clearly been at work, excluding from the mass

media the few voices (particularly within Labour and the Liberal Democrats)

which have been raised in warning about the potential risks entailed in

embracing capitalism of this kind.

Before we turn now to some of those core tenets, a word of warning.

My purpose in this chapter is not to provide some kind of definitive analysis

of the causes of the current economic disaster. Many have already done

that with much more authority and in much greater depth than I could

possibly manage. My own understanding is heavily dependent on what I’ve

learnt from such diverse commentators as Larry Elliott (Economics Editor


The Guardian ), Martin Wolf (of the Financial Times ) and Will Hutton


Observer columnist and Chief Executive of the Work Foundation).

My purpose here is very different: to point out how some of the most

widely-recognised causes of the crash in capital markets are also the

principal, underlying causes of the environmental crisis we now face.

As George Monbiot puts it:

“The two crises have the same cause. In both cases,

those who exploit the resource have demanded impossible

rates of return, and invoked debts that can never be repaid.

In both cases, we have denied the inevitable consequences.”


This remains the missing element in much of the current debate. And that’s

serious. As politicians address themselves to “fixing global markets”, they

should be constantly asking whether the prescriptions they are coming up

with are simultaneously “fit for purpose” in terms of the fixing the global

environment. Apart from the various “Green New Deals” that we’ll be

looking at in Chapter 4, very little seems to be happening on that front.


Impact on capital markets

One need hardly dwell on this. After months of increasingly angst-ridden

soul-searching amongst politicians and regulators alike, there is now

universal consensus that what was once complacently characterised

as a “light touch” was little more than a green light for total abuse of the

system. The self-same politicians in the UK and US who were only too

keen to apply this light touch are now in the vanguard of those calling

for a “total clean-up” in the face of such irresponsibility.



Causes and effects

Here in the UK, this can’t all be pinned on Labour. It was Margaret Thatcher,

in the 1986 “big bang”, who demolished the firewalls between retail banks

and investment banks, the thin end of what became a very fat deregulated

wedge. And one has to go back nearly fifty years to tell the full story of how

two generations of free-market zealots successfully whittled away at

the constraints and regulations put in place after the Great Depression

in the 1930s.

The pendulum is now swinging back. We’ve already seen short-term bans

imposed on the practice of “short-selling”, and criminal investigations have

been launched in the US. Outraged electorates must, after all, be offered up

a few re-regulated scapegoats for ritual slaughter. A head of steam is building

up for the re-imposition of capital ratio requirements, for a comprehensive

insurance scheme to cover defaulting organisations, for a ban on anonymous

trading, for an end to perverse bonus schemes, and for greatly improved

transparency to enable regulators to cope better with the unparalleled

complexity that has underpinned capital markets until today.

Impact on the environment

Environmental deregulation has been equally problematic, and it’s now

equally inevitable that calls for much stricter regulation can only increase

in the future. But there are big differences between the situation here in

Europe and the situation in the US.

Here, there’s been a slowdown (and sometimes a complete halt) to the

“pipeline” of regulatory interventions from the EU which started in the

1970s and 1980s. In a way that is often ignored by UK politicians, these

interventions have done more than anything else to help improve both

the quality of the physical environment and the quality of life for European

citizens. A few years ago, however, EU governments just seemed to lose

their regulatory nerve in the face of unprecedented lobbying by big business,

opting instead for the use of voluntary agreements or “market measures”

instead of what has been endlessly disparaged as “command and

control” regulations.

In the US, by contrast, it’s been full-on deregulation, as George Bush

set about dismantling the fundamental pillars of environmental regulation

(The Clean Air Act, The Clean Water Act, The Endangered Species Act etc),

in an intensely damaging process brilliantly captured in Robert J. Kennedy’s

Crimes Against Nature


This story really needs no re-telling. The consequences of grotesquely

inadequate regulation, government after government, administration

after administration, are all around us. Thomas Friedman summarises

this admirably in his new book

Hot, Flat and Crowded :



/ 15 Living within our means:

avoiding the ultimate recession

“There are no cushions left, there’s nowhere to hide; there are no

more green fields to dump your garbage into, no more oceans to

overfish, no more endless forests to cut down. We have reached

a stage where the effects of our way of life on the earth’s climate

and biodiversity can no longer be ‘externalised’ or ignored or

confined. Our environmental savings account is empty. It is not

pay now or pay later. It is pay now or there will be no later. There

will be no avoiding accountability for the total cost of ownership

of what you produce and consume. The days of a ‘sub-prime

planet’ are over – a planet we could own for no money down,

where there were no interest payments until sometime far into

the future, and all the true costs were hidden.”


Debt-driven growth

Indebtedness – in the shape of personal debt, corporate debt, farm debt,

national debt and so on – is one of the most important features of today’s

model of economic growth. To keep alive the illusion of prosperity, politicians

of every persuasion have not just condoned the taking on of debt as “sound

economic practice”, but have actively promoted it. And their electorates

have dutifully gone out there and consumed on the back of those debts

as if there would be no tomorrow and no final reckoning.

Impact on capital markets

Back in the 1970s, economists began to question how the engine of

economic growth could be sustained at a time when productivity gains were

starting to have a major impact on both unemployment and average earnings.

And that’s exactly the pattern that has unfolded since then with significant

advances in productivity replacing more and more labour, with an inevitable

impact on real earnings growth. Where once the income of one earner

in the family sufficed, the “two-earner family” is now the norm.

The “solution” turned out to be a relatively easy one: fuel the engine of

growth with increased debt rather than increased earnings. Discourage

savings; promote consumption through the availability of credit of every

kind. Live for today by living on tick, and hang the consequences. As a result,

levels of personal debt have gone through the roof, with the active, indeed

enthusiastic encouragement of politicians: the UK is today one of the most

indebted nations in the world. And as they now gear up for a self-righteous

witch-hunt against the mis-selling of credit, let’s just remind ourselves who

created that culture of “anything goes” in the first place.

The scale of the problem in the US is literally mind-numbing. David Walker,

the US Comptroller General until February 2008 (when he resigned in despair

at his inability to get politicians to focus on the debt crisis, which he describes

as “a greater threat to the security of the United States than international



Causes and effects

terrorism”), believes that the publicly acknowledged debt of $10 trillion is

a fraction of the real picture, once you add in the full costs of the current

bank bail-outs, of the wars in Iraq and Afghanistan, of the Administration’s

Medicare programme for seniors and so on. His calculation is that the debt

now amounts to around $50 trillion – the equivalent of $175,000 for every

American citizen. And more and more of that debt is held by China and

the Sovereign Wealth Funds of countries in the Middle East and Far

East – hence the threat to national security.

Impact on the environment

As our debts to the banks and others have built up, so have our debts to

Nature – in terms of the totally unsustainable depletion of natural resources,

measured by the loss of top-soil, forests, fresh water and biodiversity.

Everybody knows that liquidating capital assets to fuel current consumption

is crazy, but nobody seems to know how to stop it. Judging by the regularity

with which politicians trot out today’s favourite green clichés (“We do

not inherit the world from our parents; we borrow it from our children”),

you’d think they understood the difference between capital and interest.

But they clearly don’t.

Some time ago, the Global Footprint Network and the New Economics

Foundation launched a new initiative (under the name “Ecological Debt

Day”) to mark the point in the calendar year at which society exceeded

the total volume of resources available to us every year – if we were

intent on maintaining intact our stocks of natural capital. In 2008, their

report demonstrated that we went into “overshoot” on September 23rd.

In 2005, it was October 2nd. In 1995, it was November 21st. In 1986,

it was December 22nd. The direction of travel is crystal clear, as are

the moral consequences: this kind of deficit consumption is, in effect,

drawing down on the capital entitlements of future generations.

Given that I’ve never heard a single politician indicate the slightest

awareness of this phenomenon (let alone any declared intention

of planning to pay back against these ecological debts), we should

recognise this for what it is: intergenerational larceny on

a staggering scale.

The phenomenon in itself is hardly surprising. When the global population

is still increasing by around 70 million people every year, and when per

capita resource consumption is still increasing every year in all but the

poorest countries, and when increased technological productivity can

do little more than offset a small part of that combined impact, overshoot

is literally unavoidable. And though no one should ever underestimate the

misery caused to hundreds of millions of people by getting into debt and

getting stuck in debt, it’s our debt to the natural world that matters more

than anything else. As we will see in the next chapter, having thrown

billions at trying to recapitalise the banking system, we now need

to recapitalise the natural world on an even more heroic scale.


/ 17


Living within our means:

avoiding the ultimate recession

Cost externalisation

Impact on capital markets

In effect, a whole generation of bankers has externalised the full costs

of their systematic mis-pricing of risk (see next section) onto a whole

generation of borrowers. Most of them, to be fair, probably should have

known better, but were just caught up in Alan Greenspan’s “irrational

exuberance”. There are already more than a million people in negative

equity here in the UK, and that figure will continue to rise throughout 2009.

The combined human and social costs of gulling huge numbers of people

into living beyond their means will be felt for many years to come. It’s become

increasingly clear that being in debt is now a major contributory factor in

the unprecedentedly high levels of mental ill-health here in the UK. Not only

does this massively reduce the quality of life of millions of people, but it adds

very significantly to the direct and indirect costs incurred by society and

tax-payers. The Department of Health’s own calculations set this cost

at £76 billion a year. Tim Kasser’s

The High Cost of Materialism reveals

the full implications for society of promoting a way of life based primarily

on private consumption and the pursuit of extrinsic gratification.

Politicians find it difficult to link this kind of societal cost externalisation

to our current model of growth-at-all-costs capitalism. They bewail the

consequences (as in the Tory party’s current analysis of the UK’s “Broken

Society”), but are reluctant to look very far beyond the symptoms – arguing

endlessly about rival ways of alleviating those symptoms without digging very

much deeper. But when they do (as in Conservative leader David Cameron’s

short-lived flirtation with “The Politics of Wellbeing rather than the Politics

of Unsustainable Growth”) they tend to get slapped down by the likes

of the

Daily Mail .

Impact on the environment

The world would look very different if politicians ever put into practice

some of their favourite mantras about the efficacy of markets. To a man

and woman, they all sign up enthusiastically to the notion that markets only

work well when the price that we pay for something in that market


reflects the costs of bringing it to market. And then they do little to ensure

that this should be carried through in practice, in effect licensing continuing

cost externalisation for fear of being seen to do anything to threaten

the onward march of progress through exponential economic growth.

Chief Executives like Jack Welch are only able to prosper with year

after year of double-digit growth because politicians fail to regulate

their companies properly.

It was Lord Stern’s report on the economics of climate change that first

brought home to politicians the true consequences of what he described




Causes and effects

as “the greatest market failure the world has ever seen”. The only way of

correcting that market failure is to ensure that the price we pay for emitting


2 accurately reflects the cost of the pollution it causes – in terms of its

impact as a greenhouse gas. The EU’s Emissions Trading Scheme represents

the first attempt to put a formal price on every tonne of CO

2 emitted by

Europe’s most energy-intensive industries, and other countries are now

planning similar “cap and trade” interventions – including the United States.

The big question now is deceptively simple: what is the “right price” for a

tonne of CO

2 – given that, according to some scientists’ worst fears, we might

already be risking the collapse of human civilisation as a consequence of


getting the price right? And will a global cap-and-trade scheme (which

is what the current climate change negotiations have in mind as an end goal)

get us to that “right price” within the very short window of time available to

us? Politicians have never before had to reckon with this kind of systemic

cost internalisation on such a massive scale.

Mis-pricing risk

Impact on capital markets

The mis-pricing of risk lies absolutely at the heart of today’s crash.

And everyone was involved: the central banks, investment banks, hedge

funds, rating agencies, regulators and even the financial media themselves.

More and more stories are now emerging of the measures taken to suppress

divergent thinking and to silence critical voices through all that time – in both

the United States and the UK. That’s just one of the reasons why the whole

sorry saga is still shrouded in uncertainty and ignorance. The audit trail is

only just beginning to be tracked back through the system from “debtonation

day” on August 9th 2007 (the point where the banks stopped lending to

each other) to the point where the rot set in. Multiple lawsuits in the US

will undoubtedly accelerate that process, but the basics are already clear.

In the mortgage market, the difference between “prime borrowers” and “subprime

borrowers” is simple: the latter are at much greater risk of defaulting

on their mortgage than the former. Having pretty much saturated the prime

market, lenders had to do something with the bubble of credit puffed up by

Alan Greenspan, and the sub-prime market was the obvious place to go.

No particular problem in this as long as house prices continued to rise, but

when house prices started falling, that risk started to loom very large indeed.

But lenders (central banks) didn’t just sit on those loans. With the active

encouragement of regulators, politicians and even the IMF, they bundled

them up into securities that could be traded in the financial markets. These

securitised packages (known as “collateralised debt obligations”) were then

bought by the investment banks, who were completely sold on the idea that

this kind of securitisation (breaking “the product” up into appropriate slices)

would increase its value and reduce its risk – even though they didn’t actually

know what balance of risk there was in any one portfolio! This problem was




/ 19 Living within our means:

avoiding the ultimate recession

compounded by unknown off-balance sheet exposures. The rest, as

they say, is history – starting with the “historic” collapse of Bear Sterns

on 14th March 2008.

One aspect of this systematic mis-pricing of risk relates to the role of the

Rating Agencies (Standard and Poor’s, Moody’s, Fitch and so on) and their

questionable relationship with investment institutions in pricing the risk of

these toxic derivatives in such a ludicrously unrealistic way. It wasn’t until

it was far too late (with the poisoned packages spread far and wide through

the world’s capital markets) that the agencies began to raise the alarm.

This may not have been criminal, but it was certainly wilful, part and

parcel of an approach which was systemically biased to short-term

profit-maximising opportunism.

Impact on the environment

The generation of whizz kids (analysts, fund managers etc) who have

provided the “cutting edge” to today’s casino capitalism have

never come

remotely close to understanding how to “value the environment”. It’s only

now that climate change is starting to put at risk multi-billion dollar

businesses (tourism companies deserting destinations whose reefs have

been destroyed or whose mountains have been denuded of any snow,

agricultural businesses unable to carry on through lack of water in some

places or too much water in others, and so on) that they are beginning to

take an interest. The depth of their ignorance remains staggering, and it’s

no good saying that they’re not paid to act as environmental champions.

Of course they’re not. But they are paid (very large amounts of money) to

price potential risk and potential value, and for them to have remained blind

to the value provided by the natural world (and drawn down by all of us, year

in, year out, as a multi-trillion dollar subsidy) has put the entire system at risk.

People still fail to understand just how big a risk this is. Back in the 1990s

when Bob Costanza and his colleagues at MIT did their calculations on the

total monetary value of the 17 principal “eco-system services” on which we

depend (things like building fertility in the soil, flood control, climate regulation

and so on), the figure they came up with was $33 trillion – pretty much the

same economic value as one year’s worth of GDP.

Since then, some of these calculations have been refined to help decisionmakers

understand the true economic value of the ecosystems and habitats

which they are still so blithely laying waste. As regards pollination, for

instance, scientists have estimated that if we had to do by hand what is

currently done for us

for free by bees, bugs, birds and bats, the annual cost

would be well in excess of half a trillion dollars. Sounds crazy, doesn’t it?

But in the province of Szechuan in China, that’s exactly what they’re having

to do right now. Having wiped out most of their beneficial insects through

the over-application of pesticides, they’re now having to collect pollen by

hand and apply it (using feather-dusters!) by hand to keep alive their

hugely valuable orchards.


Causes and effects

Mis-allocation of capital

Impact on capital markets

With both potential risk and potential value systematically mis-priced, it’s

hardly surprising that such huge sums of capital have been systematically

mis-allocated. Guided only by Alan Greenspan’s reality-defying supposition

that house prices in the US would never fall again, hundreds of billions of

dollars were advanced to US citizens manifestly incapable of ever repaying

those debts.

The full extent of the losses in the US is still not fully understood, but the

panic-stricken measures still underway to rebuild the balance sheets of

once-mighty financial institutions are enough to make the disciples of Milton

Friedman or Ayn Rand (Alan Greenspan’s principal mentor) weep into their

champagne. With Fannie Mae, Freddie Mac and AIG already taken into

public ownership, President Bush stepped down in January 2009 as the

greatest nationaliser of the modern era. For those institutions unable (or

unwilling) to get their hands on that fountain of tax payers’ dollars, recourse

must be had to the Sovereign Wealth Funds of the Far East or the Middle

East – compounding the geo-political irony of America becoming even more

dependent on either China (the country which now funds America’s massive

and still growing national debt), or on the same countries which already

hold sway over the US in terms of its continuing dependence on their oil.

Impact on the environment

Vast tranches of capital are still deployed, day in, day out, funding

projects which further undermine the resilience of the natural systems on

which we depend, or further accelerate the depletion of non-renewable

resources. The physical reality of climate change, for instance, is still not

properly informing capital allocation processes; it has been demonstrated

that if all the hydrocarbon assets (oil, gas and coal) in which investments

have already been made were to be fully produced and brought to market,

it would take concentrations of CO

2 in the atmosphere to around 700 ppm

– at exactly the time when scientists are telling us that we will need to

stabilise at no more than 450 ppm and probably closer to 350 ppm.

Somebody’s going to get hurt. For instance, financial institutions are currently

punting billions of dollars on the investments being made by the oil majors

in the tar sands of Alberta – it is estimated that up to $100 billion will be

invested by 2015, depending on what happens to the price of oil over the

next couple of years. For every barrel of oil extracted from the tar sands,

between 2 and 3 times as much CO

2 is emitted as with a conventional barrel

of oil. With CO

2 trading at a few Euros or dollars a tonne, perhaps that’s no

big deal. But with CO

2 at (say) $150 a tonne (which is where many economists

believe it will be once the true cost of accelerating climate change hits home),

the scale of stranded assets that will then litter Alberta’s hydrocarbon-rich

land beggars belief. One has to ask why so many very smart people still





/ 21 Living within our means:

avoiding the ultimate recession

haven’t worked out the mind-boggling financial implications of needing

to reduce emissions of CO

2 by at least 80% by 2050 – which is now the

UK Government’s statutory target, and one which others will no doubt

be adopting very soon.

But one also has to ask why the oil companies are making those investments.

The answer takes us straight back to the difference between prime and subprime

investment markets: because the oil companies are being frozen out of

the few remaining “prime” hydrocarbon assets in Russia, Venezuela, Nigeria

and so on, they are seeking to make up for that shortfall in reserves by an

accelerating dash into the “sub-prime” world of the tar sands. As Greenpeace

puts it, “there is a good chance that the tar sands could be to the oil industry

(and its investors) what sub-prime housing has been to the banking sector.”

Economic growth

The single most pervasive orthodoxy of contemporary capitalism is that

its success depends on securing the highest possible levels of economic

growth (as measured by GDP), year in, year out. To challenge this orthodoxy

as an economist is to condemn oneself to outer darkness, and very few of

them ever do it. As a result, the putative benefits of exponential economic

growth have become, quite literally, “articles of faith”, beyond empirical

analysis or even political debate.

As part of this process, it is claimed, as an article of faith, that growth as

we know it today is not only the

only reliable way of reducing poverty (for

which there is indeed some evidence, particularly in countries like China and

India, though few if any of the costs of that kind of growth are ever properly

factored in), but also the

only way of reducing inequality, for which there is

not a shred of evidence, as worsening equity gaps after decades of strong

economic growth have so powerfully demonstrated. It is also claimed that

exponential economic growth is the

only way of improving the environment

– on the grounds that without growth, no nation will have the economic

means to clear up the mess that it created in generating that growth.

The absurdity of this assertion speaks for itself.

Yet not all growth is bad, and growth of the right kind will undoubtedly be

necessary as humankind “transitions” from today’s suicidally unsustainable

economy to one which has a chance of meeting the needs of 9 billion people,

elegantly and sufficiently, by 2050. I have written at length about this in

Capitalism As If The World Matters

, so must take a narrower focus here.

Impact on capital markets

Investors look to companies for increased dividends, and demand annual

growth in profits to secure those dividends. Governments look to companies

for increased taxes, and expect year-on-year growth to secure those

revenues. Even when companies are generating very strong profits,



Causes and effects

they will still be ruthlessly marked down by the markets if those profits aren’t

growing every year. Boards of Directors will be punished and even removed

if they can’t provide that growth – and provide it in the short-term rather than

over time. (When NatWest was taken over by the Royal Bank of Scotland in

2000, its annual profits were still growing year on year, but apparently not fast

enough for the markets. Indeed, its Chairman and Chief Executive at the time

were excoriated in the pages of the

Financial Times for ignoring the interests

of shareholders “by taking their eye off the ball in worrying so much about

the environment” and similar causes!).

It is rarely understood just how much high levels of debt contribute to

the “imperative” of securing year-on-year exponential growth. Interest has

to be paid out of profits; the greater the interest to be paid, the stronger the

drive for growth. The same is true with personal debt; anyone with a 100%

mortgage and high levels of debt on their credit cards is going to want to

grow their own personal income to help cover the interest.

It is important to realise that none of this has happened by chance.

It is clear, from a macro-economic perspective, that governments around

the world have fuelled their respective credit bubbles in part to help

ratchet up levels of economic growth.

Impact on the environment

Growth trumps all in today’s capitalist world. However much

governments may sign up to the principles of “sustainable economic

growth” (as articulately explained in the UK Government’s own Sustainable

Development Strategy,

Securing The Future to ensure that “a proper balance

can be maintained between economic growth, living within environmental

limits, and securing a healthy and just society”), they really don’t mean it.

Every additional cumulative impact on the natural world is still justified

on the grounds that the specific socio-economic benefits generated by

any new development will somehow compensate for the damage done to

the environment. True enough, planning laws, development controls and

environmental regulations all help to mitigate what would otherwise be an

even gloomier picture; tools such as Cost Benefit Analysis, Environmental

Impact Assessment, Lifecycle Analysis or Whole-Life Costing have all been

developed to help achieve a better balance or a “more sophisticated set

of trade-offs”, as Defra puts it. But their combined impact over the last

20 years or so has been marginal.

The scale of destruction continues largely unabated – particularly in

developing and emerging economies. It was announced in November

2008, for instance, that the loss of rainforest in the Amazon was up 4%

on the previous year, meaning that current losses now exceed those of

the 1980s, when Friends of the Earth International launched the first ever

global campaign against rainforest destruction. And all done, as ever,

in the name of economic growth and progress.



/ 23 Living within our means:

avoiding the ultimate recession

The erosion of democracy

Impact on capital markets

After the collapse of Enron and a handful of similarly shocking

corporate scandals in the 1990s, the US Administration stepped in

to address some of the most egregious shortcomings in its systems of

corporate governance. Arthur Anderson, a household name at the time

as one of the “Big 5” accountancy firms, and Enron’s accountants, paid

the highest price as it was forced into liquidation; Sarbanes-Oxley was

rushed through Congress, and everyone breathed a deep sigh of relief.

We now know that all this was mostly cosmetic. A lethal combination of

complexity, opacity and “regulatory capture” has left investors as vulnerable

as ever to the kind of systematic abuse we’ve seen over the last few years.

Non-Executive Directors are kept largely in the dark, and have few if any

real powers; notionally independent Remuneration Committees play a

quite disgraceful game of “you scratch my back and I’ll scratch yours”.

At the same time, the flow of corporate dollars flooding into Washington via

an army of corporate lobbyists has grown and grown, eroding democracy’s

checks and balances at every point in the system. Robert Reich argues in

his latest book

Supercapitalism that this almost certainly isn’t the corporate

conspiracy that many see it to be, but represents nonetheless a massive

weakening of our interests as citizens rather than our interests as consumers:

“Our voices as citizens – as opposed to our voices as consumers

and investors – are being drowned out. We may even be losing

confidence that what we have to say as citizens is important.

This is not because big corporations have conspired to drown

out or marginalise our citizen voices, but chiefly because

corporations are engaged in escalating competition for political

outcomes that advantaged them over their rivals. The same

trend is becoming evident in many other democracies, as

supercapitalism is spreading around the world. But it is not

the way capitalism and democracy should continue to evolve.

We need not be slaves to present trends any more than we were

to previous ones. We can, if we choose, fashion a democratic

capitalism more suited to our nobler aspirations for the 21st

century. Yet to do that, it is necessary to separate capitalism

from democracy and guard the border between them.”


In the aftermath of the banking crash, intense negotiations are now

underway to address some of the “irregularities” and “irresponsible

behaviour” that are held to lie at the heart of the debacle. The use of

such reassuring euphemisms shows just how keen both governments and

business interests are to avoid any radical changes to existing governance

structures. The whole “Bretton Woods II” process is going on pretty much

behind closed doors, with little, if any, opportunity for the voices of civil

society to be heard let alone properly reflected in any “reform package”.



Causes and effects

Impact on the environment

This “cognitive dissonance” between us as citizens (losing out because

of extreme impacts on the environment and wider societal interests) and us

as consumers or investors (winning out in the short term through increased

choice or lower prices) cannot be resolved by companies undertaking


to act as responsible corporate citizens. Companies are not

citizens. They are legal entities charged with legal responsibilities to the

governments of the countries in which they operate and with fiduciary

responsibilities to their shareholders. They have no other statutory

responsibilities. The massively over-hyped emphasis on Corporate Social

Responsibility (see below) has served only to distract us from a very simple

reality: wider social interests (both at home and abroad) can only be served

by governments exercising their democratic mandate to change the rules

of the game by establishing a different “level playing field” on which all

contestants must compete.

Governments are today even slower to take on that decisive role than

they have been before. Fear of “nanny-state” accusations in the media,

combined with an astonishing loss of confidence in their ability to make

things happen (and a simultaneous loss of trust amongst their electorates),

have all conspired to leave the environment more dangerously exposed

to continuing damage and destruction than would be the case in more

citizen-oriented democracies.

That said, the speed with which the governments of the western world

have had to intervene to take control of banking systems after deregulated

markets have failed so badly, reminds one that there isn’t any reason

why governments shouldn’t act in a far more decisive way to protect

the life-support systems on which we depend – once the true failings of

deregulated, “laissez-faire” economics have become even more apparent.

The fig leaf of corporate social responsibility

Impact on capital markets

This is a tricky one. Whilst it’s demonstrably true, at a micro-economic

level, that many good things have been undertaken by companies in the

name of Corporate Social Responsibility, and that these initiatives have

made a substantive difference to communities, people and the environment,

it’s equally true, at a macro-economic level, that these small-scale incremental

improvements in responsible performance have served only to obscure

much deeper, systemic problems with today’s dominant business models.

A particularly stark example of this can be witnessed in the ruins of a banking

industry that was once the pride and joy of the UK Government. Every single

one of our once-revered financial institutions have for a long time had very

impressive CSR programmes. Northern Rock was an outstanding exemplar of

community-based engagement, as was the Halifax bit of HBOS; Lloyds TSB



/ 25



Living within our means:

avoiding the ultimate recession

runs one of the most innovative CSR programmes in the whole world;

HSBC has pioneered some of the most important climate change initiatives

in the corporate world today. And so on.

Yet the truth of it is that every one of these once-revered financial

institutions has been simultaneously engaged in some of most irresponsible

business behaviour in the history of capitalism. As we’ve seen, risk has been

systematically mis-priced; credit has been systematically mis-sold; incentive

schemes were geared to promote value-destroying personal greed; Audit

Committees failed, quarter in, quarter out, to exercise any kind of proper

scrutiny; bundles of bad debt were packaged up and sold on as so many

toxic time-bombs; and literally everything involved in this global scam

was made more complex, more opaque, more impenetrable, less subject

to scrutiny and audit of any kind – presumably for a purpose.

You can pretty much guarantee that not one of the Directors of CSR in

any of these once-revered financial institutions would have been consulted

about any of these strategic decisions. After all, what has CSR got to do

with investment strategies? With executive remuneration? With company

policy on “collateralised debt obligations”? Or taxation policy? Or hedge

funds? And even if they had been consulted, you can absolutely guarantee

they would have been ignored – the seductive pull of big money will always

trump the platitudes of corporate responsibility.

Impact on the environment

By the same token, if one looks at the cumulative damage to the environment

done by companies through the systematic mis-allocation of capital, mispricing

of risk and mis-aligning of incentives, it’s clear that even the most

intensively managed of CSR programmes can do little to offset these systemic

problems and their resulting impacts. Better to have such programmes

than not, but best of all not to be gulled into thinking that this is the right

route to the kind of sustainable capitalism we now so desperately need.

It has, of course, suited governments to encourage the burgeoning

industry of Corporate Social Responsibility. With regulations seen by

many governments as “the policy instrument of last resort”, voluntary

Corporate Social Responsibility programmes have provided near-perfect

cover for endlessly postponing and diluting more appropriate regulatory

interventions. In thrall to the massive influence of large multinational

companies, governments have been only too happy to point to the threadbare

fig-leaves of “voluntary measures” rather than properly regulate markets so

that they can operate transparently, efficiently and equitably. The EU’s failed

“Auto-Oil” initiative (where voluntary standards for reducing emissions of


2 were painfully hammered out, after endless delays and compromises,

with both car companies and oil companies) provides a very telling example.

It’s clear to most observers that EU governments are now going to have

to do what they should have done at the start and regulate decisively

– even if it is against the wishes of their own still powerful car companies.


Causes and effects





/ 27 Living within our means:

avoiding the ultimate recession

“Change your mind when the facts change.”

John Maynard Keynes

That well-known quote doesn’t quite fit the current circumstances.

The facts haven’t actually changed. They are exactly the same facts as

they were this time last year, or even 37 years ago, for that matter, at the

time of the first major UN Conference on the Environment and Human

Development in Stockholm in 1972. What has changed is our perception

or interpretation of those facts. Just as we now know the economic boomtimes

of the last 15 years or so were built on a vortex of artifice, so we’ve

begun to realise that our pursuit of exponential economic growth, regardless

of its impact on the natural world and its life-support systems, has been

premised on an equally vicious vortex of artifice. During that time,

our self-deception has known no bounds, on both counts.

Just as house prices do not (and never will) go on rising indefinitely over

time, so our use of finite resources cannot (and never will) go on expanding

indefinitely over time. Surprising though it obviously is to every single highflyer

who has passed through the Treasury over the last 37 years, the socalled

“laws” of the market never have and never will take precedence over

the laws of thermodynamics. Like all outlaws, we’re now being punished

for our transgressions – and climate change is just the scariest of the

retributions that may be visited upon us if we don’t change our ways

very profoundly and very quickly.

One of the more astonishing of all the many acts of self-deception that

our societies have been party to over the last 20 years or so relates to

the projected availability of hydrocarbon fuels – oil, gas and coal. For all

sorts of reasons, we’ve behaved throughout that time as if supplies would

continue to flow in such a way that there would be no problem in meeting

rising demand indefinitely into the future. Given just how critical oil and gas

have been in underpinning the massive expansion in our economies since

the Second World War in the 20th Century, this has become one of those

“received articles of faith” which brooked no dissent.

This is clearly not the place for a detailed consideration of the debate

surrounding “peak oil” – for that, readers should check out Richard Heinberg’s

Peak Everything

or Jeremy Leggett’s Half Gone . But whereas it was once just

a small and rather beleaguered group of former oil company employees and

dissident geologists warning of an imminent “peak moment”, that’s changed

dramatically in the last couple of years. Even the International Energy Agency

(which has been seen by many as an ultra-loyal defender of the “stay calm”

arguments of the oil companies) has now revealed that it too believes that

the peak moment could come as early as 2012.

2012! You might imagine the prospect of that moment coming very much

sooner rather than later would be galvanising politicians around the world

to start putting in place radical contingency measures. That is absolutely


the case. In October 2008, eight of the UK’s most prestigious companies

Reframing capitalism

published a report called

The Oil Crunch to give voice to their own deep

concerns about the security of future energy supplies in the UK, and

expressed absolute astonishment that there was so little understanding

of these issues either within Treasury or within the Department of Business

and Enterprise.

It’s true of course that this is not an easy one for governments to call.

Security of supply is not just a function of available supplies in themselves,

but of wider security and geo-political issues, of capacity issues in the

industry itself, of the role of speculators in manipulating energy markets,

and above all of price. In that regard, governments the world over may have

been granted a temporary reprieve in that a prolonged economic recession

will dramatically reduce demand for oil and gas, especially if investments in

energy efficiency are now massively ramped up. That means prices should

stay relatively low (although $50/$60 a barrel is only “low” in comparison

to the 2008 high point of $147) until demand picks up again. At which point,

the majority of analysts now believe that prices will move rapidly upwards

as demand again exceeds supply.

Even those who do not subscribe to this medium-term scenario are at least

ready to acknowledge that the age of “cheap oil” has come and definitively

gone. Jeroen Van de Veer, Chief Executive of Shell, has himself said as much

on a number of occasions, not least to justify Shell’s burgeoning investments

in the “sub-prime” tar sands of Alberta.

Taking stock

In the face of such persistent acts of self-deception, it’s clear that

changing our ways is proving as difficult for humankind as ever.

Paradoxically, however, I am more optimistic about the prospects of

us doing this today than I was this time last year, for three reasons:


The sheer intensity and depth of the collapse in banking

systems (and the ensuing recession which could still turn into

this century’s first Great Depression) has blown away years

of ideological fantasizing about the superiority of deregulated,

debt-driven, finance-based capitalism. It has both humbled

the “Masters of the Universe” who exploited these political

fantasies to enrich themselves at the expense of their

shareholders and customers, let alone the rest of us,

and it has licensed such unorthodox policy responses

(not least in terms of the nationalisation of failing banks)

that practically anything must now be on the table.


The overwhelming evidence about climate change and

about its rapidly accelerating impacts (as with the release

of methane in the Arctic touched on earlier) leaves our

politicians with less and less space to hide. The UK’s


/ 29 Living within our means:

avoiding the ultimate recession


new Climate Change Act is clearly the first serious attempt

on the part of any OECD nation to enable its citizens to

understand just how profound a transformation in their

lives this is going to be.


The rebirth of America as witnessed in the election of Barack

Obama as President is absolutely fundamental. There was,

quite literally, no solution to the world’s converging crises with

George Bush in the White House, and it would have been the

same under a McCain presidency. That doesn’t mean to say

that Barack Obama will deliver “just like that”, and it is clearly

extremely unwise to heap such impossible expectations on

any one person. But at least the

potential is there, on climate

change, on security issues, on nuclear disarmament, on

Palestine, on a transformed global economy – and it just

wasn’t there before.

Even before the uplift in people’s spirits that the election of Barack Obama

seemed to bring, there was no shortage of ambitious plans starting to emerge

to address the so-called “triple crunch”: the credit crunch, the oil crunch and

the climate crunch. Perhaps the most impactful of these has been the Green

New Deal brought together in June 2008 by a group of progressive UK NGOs.

Suddenly, “New Deals” of every description started popping up all over the

place, often with totally diverging world views, let alone policy prescriptions,

but all “praying in aid” Roosevelt’s 1933 New Deal which is widely held to

have set the US on the path to recovery after the Great Depression.

I shall return to a number of these proposals in the next chapter, but need

to preface what follows with a warning: there is as yet no over-arching

consensus that what is needed is a root-and-branch transformation of

capitalism. Most of the strategies and specific policy proposals out there

fall more into the category of “fixing” what has gone wrong and then getting

back to some of the “certainties” that obtained prior to the credit crunch.

To us in Forum for the Future, that looks like a disaster in the making, in that

it may well fix the superficial problems (particularly regarding the banking

and financial services sector), but it will do nothing to address the systemic

failures outlined in the previous chapter.

Making capitalism sustainable

Historically, it’s all too often been the case that environmentalists have been

very reluctant to engage in addressing these dilemmas at a systems level

– in other words, not focusing solely on the

symptoms of today’s converging

crises, but addressing instead the

root causes inherent within this particular

version of capitalism.

But at its heart, sustainable development comes right down to one allimportant

challenge: is it possible to conceptualise and then operationalise

Reframing capitalism


an alternative model of capitalism – one that allows for the sustainable

management of all the different capital assets on which we rely, so that

the yield from those different assets sustains us now as well as in the future?

And is it possible to do this in a way that lifts people’s spirits as to the


potential of humankind rather than assumes the worst about human nature?

At the risk of stating the obvious, behind the notion of capitalism lies

the notion of capital – which economists use to describe a stock of

anything (physical or virtual) from which anyone can extract a revenue

or yield. Capitalism has a number of important characteristics that

distinguish it from other economic systems: private ownership of

the means of production, reliance upon the market to allocate goods

and services, the drive to accumulate capital, and so on. But the

core concept of capitalism, from which it derives its very name,

is the economic concept of capital.

When people think of capital in this sense, they usually think of some of

the more familiar ‘stocks’ of capital: land, machines and money. But in the

description of the Five Capitals Framework that follows, this basic concept

of capital (as in any stock capable of generating a flow) has been elaborated

upon to arrive at a hypothetical model of sustainable capitalism. It entails five

separate capital “stocks”: natural, human, social, manufactured and financial.

This has become the principal mechanism used by Forum for the Future to

demonstrate the kind of changes that are going to be needed as we transition

from one variant of capitalism to another. Whilst continuing to recognise

the dynamic benefits of market-based, profit-led wealth creation, the Five

Capitals Framework requires a more holistic understanding of all the different

stocks of capital on which our wealth depends, and a clear, unambiguous

acknowledgement that all our aspirations depend ultimately on the success

with which we manage our stocks of natural capital – as captured in

the diagram opposite. Without that, any talk of “sustainable capitalism”

or even “sustainable economic growth” is essentially built on a lie.

At its simplest, our wealth depends on maintaining an adequate stock

of each of these types of capital. If we consume more than we invest,

then our opportunities to generate wealth in the future will inevitably

be reduced. Sustainability can only be achieved if these stocks of

capital are kept intact or increased over time.


/ 31 Living within our means:

avoiding the ultimate recession

Reframing capitalism









Natural Capital

The five capitals framework


/ 33

The five capitals

Natural capital

Natural capital (also referred to as environmental or ecological capital)

is that part of the natural world which we humans make some use of

or derive some benefit from – hence, its definition (in economists’ jargon)

as any stock or flow of energy and matter that yields valuable goods

and services. There are different kinds of natural capital:

resources , some of which are renewable (timber, grain, fish and water),

while others are not (fossil fuels);

sinks that absorb, neutralise or recycle waste;

ecosystem services such as climate regulation, flood control,

pollination and so on.

Human capital

The definition of human capital in our Five Capitals Framework is a simple

one: ‘the physical, intellectual, emotional and spiritual capacities of any

individual’. In an economic context, it consists of our health, knowledge,

skills and motivation, all of which are required for productive work.

Enhancing human capital – for instance, through investing in education

and training – is vital for a flourishing economy. Poverty is both morally

indefensible and socially inefficient in that it prevents millions of people

from fulfilling their potential.

Social capital

Social capital is the value added to any activity or economic process by

human relationships, networks and co-operation. Social capital takes the

form of structures or institutions which enable individuals to maintain and

develop their human capital in partnership with others and includes families,

communities, businesses, trade unions, schools, and voluntary organisations.

Living within our means:

avoiding the ultimate recession


Manufactured capital

The two remaining stocks of capital (manufactured and financial) are

probably the most familiar. However, manufactured capital is not quite

as simple a concept as it sounds. It is made up of material goods that

contribute to the production process, but do not become embodied

in the output of that process. The main components of manufactured

capital include:

buildings – the built environment of villages, towns and cities;

infrastructure – the physical fabric supporting social and economic

life, including transport networks; schools; hospitals; media and

communications; energy; and sewerage and water systems; and

technologies – the means by which goods and services are

produced, from simple tools and machines to information

technology, biotechnology and engineering.

Financial capital

The role of financial capital is perhaps the least understood of all

the categories of capital now seen as essential to a sustainable

economic system. Indeed, it is usually excluded from such models

on the grounds that financial capital has no intrinsic value, is not

essential for the production of goods and services, and simply

provides a means of exchange for the fruits of other categories

of capital. Paper assets that make up the stocks of money,

bonds and equities have no value in themselves, but are simply

derivatives of the underlying manufactured, natural, social or

human capital stocks.

Reframing capitalism


a sustainable

new deal


/ 35 Living within our means:

avoiding the ultimate recession

But who really cares about alternative models of capitalism? As we’ve

seen, “just get on and fix it” would appear to be the dominant mood.

The problem is that without an alternative framework we might just

be fixing the wrong bits for the wrong reasons, thus guaranteeing

the wrong outcomes.

The good news is that we’re certainly going to see more and more

activity in this new “21st Century New Deal” space. President Obama

has already indicated his determination to put in place a $100 billion

“green jobs” package, with the emphasis on enhancing energy security

within the US through renewables and energy efficiency. Gordon Brown

is also talking about a somewhat more modest set of interventions in

a new stimulus package, some of which will be geared to today’s

low-carbon imperative.

All this provides further proof of the readiness of politicians today

to think in different ways in response to the credit crunch and the

worsening recession. But what needs to happen if our goal is not just

to “come out the other side just as fast as possible with as little damage

done as possible”, but to build the foundations for a system of wealth

creation that simultaneously addresses both the climate crunch and

the oil crunch? Though this is obviously not the place for any kind

of detailed manifesto, there are three main areas where political

interventions now need to be prioritised.

Recapitalisation strategies

Apart from a minority of free market purists (who really do believe that

the banking system should have been allowed to collapse as a necessary

“corrective” to the system), it’s widely accepted that governments around the

world have had no choice but to intervene to recapitalise the banks’ balance

sheets. Levels of debt were so startling, balance sheets so over-leveraged

(when it went to the wall, Lehman Brothers had $35 loaned out for every

$1 it had on deposit), risk models so comprehensively defective (for all

the vast sums of money paid to very smart people to develop ever more

sophisticated stress-testing systems), and the loss of trust across the

entire system so absolute, that nothing else would have made very

much difference.

The sums involved are truly staggering. Writing in

Newsweek in

December 2008, Jeffrey Garten (Professor of International Trade

and Finance at Yale) offered the following analysis:


A sustainable new deal

“In the United States, Ben Bernanke and Hank Paulson have

orchestrated a series of rescue measures that now number

more than a dozen so far this year, from the $200 billion bail

out of Fannie Mae and Freddie Mac to the $1.4 trillion guarantee

for bank-to-bank loans. Depending on how you add up these

measures, the total reaches as high as $8 trillion, a figure that

represents more than half of US GDP, and is, according to Barry

Ritholtz, author of the forthcoming “Bailout Nation”, more than

the sum of every major US Federal project in the past century,

including the invasion of Iraq, the New Deal and the Marshall

Plan to save Europe after the war. Indeed, it is more than the

total the United States spent on World War II – $3.6 trillion

in today’s dollars.”


Even so, this is just the start of an even more ambitious, radically

different kind of recapitalisation programme that will now be required

to put the foundations of our economies (namely, the life-support systems

that underpin

all economic activity) onto a genuinely sustainable footing.

Mind-boggling though it must now appear, we really have very little choice

about this – for do we really want to be remembered as the generation

that managed to rescue the global banking system even as we allowed

the natural world to collapse around us?

Recapitalising nature’s balance sheet

All the devastating problems now associated with this particular model

of deregulated, debt-driven, over-leveraged capitalism can be seen to

have been at work in our chronic mis-management of natural capital.

As we saw in the first part of this pamphlet, deregulation and licensed cost

externalisation have imposed grievous burdens on the natural environment.

We’ve aggressively drawn down on Nature’s capital assets (its resources

and eco-system services), liquidating natural capital to generate current

income. In the process, Nature’s balance sheet is now over-leveraged to

an astonishing extent, creating a burden of debt that there is little prospect

of paying back in this generation. Not only have we been living beyond

our own means, but well beyond the means of future generations as well.

The only appropriate response to this is a massive recapitalisation

programme to restore Nature’s balance sheets. At the 2008 gathering of

the IUCN in Barcelona, scientific paper after scientific paper highlighted

the “war of attrition” that human kind is now waging against the natural

world – all in the name of economic progress. Much of this is the direct

consequence of totally defective accounting systems. The natural world

currently provides us with an incalculably vast flow of goods and services,

including food, fibre, clear water, fertile soil and a stable climate. Our

economic and social wellbeing is totally dependent on maintaining

that flow of eco-system services.



/ 37 Living within our means:

avoiding the ultimate recession

“The world has already lost much of its biodiversity. Urgent

remedial action is essential because species loss and ecosystem

degradation are inextricably linked to human wellbeing. We cannot

– and should not – put a brake on the legitimate aspirations of

countries and individuals for economic development. However,

it is essential to ensure that such development takes proper

account of the real value of natural ecosystems. Yet we are still

struggling to find the “value of nature”. Nature is the source of

much value to us every day, and yet it mostly by-passes markets,

escapes pricing and defies valuation. This lack of valuation,

we are discovering, is an underlying cause for the observed

degradation of ecosystems and the loss of biodiversity.”


That quote is taken from the interim report of the so-called TEEB project

– The Economics of Ecosystems and Biodiversity – which is advising both

the EU and G8 on ways of reforming the system to help protect habitats and

biomes by recognising their true economic value. It calls for measures to

eliminate the billions of dollars of government subsidies that are still directly

or indirectly implicated in the “war of attrition”; it recommends a massive

ramping up of PES initiatives (“Paying for Ecological Services”) as the

surest way of protecting and even rebuilding stocks of natural capital; and

it puts a very welcome emphasis on the need to share the benefits of these

investments far more equitably than would have been the case in the past.

By far the most authoritative account of the extent of today’s ecological

overshoot (and of how we need to manage our total “bio-capacity” to

much greater effect) can be found in WWF’s

Living Planet Report 2008

( As it says, more than 75% of the world’s population

lives in countries where consumption levels are outstripping environmental

renewal. This leaves absolutely zero room for any doubt as to just how

quickly and substantively governments are going to have to move to

redress decades of living way beyond our ecological means.

“Humankind is using 30% more resources than the Earth can

replenish each year, which is leading to deforestation, degraded

soil, polluted air and water, and dramatic declines in the numbers

of fish and other species. As a result, we are running up an

ecological debt of $4 trillion (£2.5 trillion) to $4.5 trillion every

year – double the estimated losses made by the world’s financial

institutions as a result of the credit crisis. The recent downturn in

the global economy is a stark reminder of the consequences of

living beyond our means, but the possibility of financial recession

pales in comparison to the looming ecological credit crunch.”


Perhaps the most urgent and compelling example of this approach

is captured under the debate about REDD – Reducing Emissions

from Deforestation and Degradation. Up to 20% of total annual

emissions of greenhouse gases come from the continuing loss of forest

cover through commercial forestry and changing land use. If we could

A sustainable new deal

“sort that source of emissions”, it would be the biggest single contribution

towards the overall task of reducing emissions of CO

2 by 80% by 2050.

The basic idea is a simple one: the countries that have the forests are poor,

and cannot afford (it is argued) not to develop them. Their full value as carbon

stores and climate regulators is not properly reflected in the market price

paid for the timber from them. How could it be? But now that we’ve come

to recognise the full value of those all-important “services”, all we need to

do is agree on a price for those services and make over to the owners of

those forests an equivalent per-hectare payment to compensate them for

the “profits foregone” for keeping their forests intact. This could be done

in a number of ways, including rich countries making direct payments to

rainforest countries to “offset” a given percentage of their own greenhouse

gas emissions. For example, if the UK wanted to offset 1 million tonnes

of its own annual CO

2 emissions, at a price of (say) £20 a tonne, it would

“contract” with a rainforest country to permanently protect the hectarage

required to keep 1 million tonnes of CO

2 sequestered, and hand over

£20 million every year.

(Just to get some idea of the scale of this, the 2006 Stern Report on the

economics of climate change estimated that a sum of around £2.5 billion

would be required every year to prevent further deforestation in the eight

largest rainforest countries. Other experts have assessed the value of

carbon sequestration provided by intact rainforests as being well in

excess of £40 billion a year.)

A real head of steam is now building up around this REDD approach

– as is the criticism. NGOs are not persuaded that setting up a scheme

which is based on carbon trading, or on the profit motive, will ever

really work. They have raised compelling concerns regarding land rights,

poor governance in the countries concerned, corruption, the interests of

indigenous people, illegal logging – as well as deep worries that focusing

primarily on the eight most problematic countries (those where the forests

are most at risk) will provide little incentive for the countries with the best

record of protecting their forests.

In that context, the Global Canopy Programme has launched a new

campaign (“Proactive Investment in Natural Capital”, or PINC for short)

to pay for the ecosystem services provided for by forests that are not

yet threatened with deforestation:

“Large areas of standing forests are remote and sparsely

populated so that the opportunity costs of conservation are

low. Therefore, the “forest utility” could be maintained for around

$10–20 per hectare per year. Payments could initially be from

a governmental fund, but to achieve scale could eventually

take the form of forest-based equities or bonds in the markets,

designed as a “patient investment” today, which would acquire

value tomorrow, by enabling humanity to continue to benefit

from “forest utilities” in perpetuity.”



/ 39 Living within our means:

avoiding the ultimate recession

This is just one of the planet-scale interventions that are going to

have to be brought forward to address the increasingly urgent challenge

of climate change. As the IPCC has warned, we do not have decades,

let alone generations, to achieve the kind of radical decarbonisation

on which the future of humankind now totally depends.

So we don’t have a lot of time to address other eco-system pressures as

well. For years, experts like Lester Brown have been urging countries to

think about these recapitalisation strategies in very different ways – as an

“Earth Restoration Budget”, where we stop building up unsustainable levels

of “natural debt” and start restoring natural capital and eco-system services

in ways that simultaneously protect the livelihoods of some of the world’s

poorest people. The six principal “restoration budgets” captured in the

diagram below would all have the direct consequence of enabling millions

of people to draw down a sustainable income from those natural assets

indefinitely over time

. They would also spell an end to asset liquidation

as a dangerously ephemeral way of maximising short term profits,

and a timely return to living within our natural means.

Heal the world: annual restoration budget


the Earth

Protecting topsoil

on cropland









water tables







A sustainable new deal



Recapitalising society’s balance sheets

A vast and still growing literature (both academic and populist) has charted

the impact of today’s model of capitalism on those stocks of social and

human capital that underpin much of the sense of security, community

and identity that make people feel good about their lives. With the same

relentless “there is no alternative” fundamentalism that has laid waste our

natural environment, both the Conservative Party and the Labour Party

have accepted this “war of attrition on society itself” as a necessary

price to pay for the material progress that people have enjoyed.

When people talk about “the pursuit of economic growth at all costs”,

many of those costs are paid through rising levels of addictive pathologies of

one kind or another (alcohol, drugs, gambling and so on), of mental ill-health,

of loneliness, of hollowed-out communities, of violence and sexual abuse.

Some describe this as “the UK’s social recession”. A lot of it is invisible,

and is much harder to put a price on than some of the environmental damage

that we have simultaneously witnessed. But that doesn’t make it any less

of a cost, as elaborated in Oliver James’ latest book

The Selfish Capitalist :

“Selfish Capitalism will automatically seek to destroy anything

which threatens its principal outcome: making the rich richer.

It actively fights forms of capitalism which prioritise long-term

investment of profit for the public good. Whilst it frequently uses

appeals to chauvinism and racism to drum up popular support,

in practice it discourages nationalism that creates barriers to

corporate globalisation. It rejects out of hand ecological evidence

that it is destroying the planet. Pretending otherwise, it heartily

loathes family life, hastening its decline, because family life

poses an alternative to workaholia and inauthenticity. It far

prefers nurseries to care for babies and toddlers, so the parents

can swell the labour market (making it easier for employers to

keep wages low), and if that results in insecure and miserable

children who grow into needy adult consumers who use

materialism to fill the void, all the better for profits. It strongly

militates against anything likely to promote intrinsic values, such

as a commitment to community, altruism, concern with beauty

or authentic motives for aspirations. For, as advertising executives

so openly admit, true contentment with what we have got is the

greatest single threat to the consumerism that is indispensible

for the Selfish Capitalism.”


One of the direct and most benign consequences of the collapse of this

particular model of capitalism must surely be the opportunity to re-think

some of the trade-offs that we have gone along with for so long. There


an alternative – an alternative which has been practised all this time by

most of our European neighbours, who have never been as star-struck

by the kind of materialist values and debt-driven consumerism that have

characterised the economies of the US and UK. We now have a chance



/ 41 Living within our means:

avoiding the ultimate recession

to rebuild some of those stocks of social capital – in effect, recapitalising

society’s balance sheet as well as nature’s balance sheet.

Again, housing provides an excellent example of what this might look like

in practice. As reflected in the Sustainable Development Commission’s

advice to the Government (

A Sustainable New Deal ), the principal focus

is on our existing housing stock. There are now a number of proposals for

ambitious retro-fit programmes designed to ensure huge social (as well as

environmental) benefits in terms both of improved housing quality and lower

energy bills. The Institute for Public Policy Research has suggested that ten

thousand advisors should be appointed nationwide, one for every twenty

streets or so. They calculate that the cost would be somewhere around

£500 million every year – a figure which would need to be set against

national energy savings of around £4.6 billion.

Beyond that, the Government now has a chance to undo some of the damage

caused by a housing strategy that has relied far too heavily on private sector

house builders, leaving huge numbers of people unable to get onto any kind

of housing ladder. Even if house prices continue to decline at the same rate

in 2009 as they did in 2008, there will still be many people who will not be

able to buy their own home and who will still be struggling to find affordable

housing on any terms. That’s partly because the Section 106 Agreements

that provided for a welcome quota of affordable social housing have now

all but dried up. But with land values plummeting, there’s an unprecedented

opportunity for the Government to provide direct funding to rebuild stocks

of new homes; the Home Builders’ Federation has come up with a plan for

17,500 new affordable homes for an investment of £2 billion.

This should be done in partnership with local authorities, many of which are

now keen to play a far more active role in the housing market. Birmingham,

for instance has an estate of more than 80,000 houses and flats. Support is

growing for the idea of local authorities taking over many more of the houses

that are up for repossession – on the grounds that the accommodation

this would provide would be cheaper than the kind of “bed and breakfast”

accommodation they’re otherwise legally required to find. The Housing

Minister, Margaret Beckett, has promised further action in this area.

For many, this investment in housing (new build and existing stock) would

be just one aspect of the wholesale revitalisation of the local economy.

Very much against the grain of conventional Treasury thinking, all sorts of

pioneering initiatives over the last decade or more have shown what this

might look like: Community Reinvestment Trusts, Community Land Banks,

Community Development Finance Institutions and so on. Little has been

done to promote any of this since the 1980s. For example, although it’s

perfectly legal for Local Authorities to issue Municipal Bonds, there’s been

only one major initiative of this kind in the shape of Transport For London’s

£600 million bond. Local Authorities control £1 trillion of assets through their

pension funds, and, right now, the prospect of low-yield but very high security

investments must be looking increasingly attractive. (By way of contrast, the

market for Municipal and State Bonds in the US already exceeds $2 trillion).

A sustainable new deal

In that context, one of the clearest examples of how best to recapitalise

society’s balance sheet can be found in the swathe of current proposals to

strengthen the Post Office network. Post Offices are a vital part of the social

fabric for millions of people in the UK, providing direct access to a range of

government and other services. Labour back-benchers have been developing

plans to convert the Post Office into a universal People’s Bank, based on the

Post Office card account with its five million cardholders. As campaigning

MP Jon Cruddas has said:

“Our great national postal structure is a trusted public service.

What a banking system needs more than anything else is trust.

The banking sector has eroded that trust, leaving high anxiety.

Banks have also physically withdrawn from large areas of Britain.

Building on the Post Office card, the Government should stop the

proposed closure of 2,500 post offices and instead support them

as trusted social, economic and sustainable centres of finance,

communication and community cohesion. This great network

could become the foundation of local economic resilience.”


Intriguingly, this has become a fascinating test case of whether or not this

Government sees the current recession for what it really is: an end to the

version of capitalism that has dominated our lives for the last 30 years. For

the last decade, ministers have applied wholly discredited business models

to managing the Post Office, setting aside any concept of “public service”

in pursuit of its usual deregulatory, profit-driven mantras. The 2008 closure

programme was announced to “save” the tax payer the princely sum

of £150 million a year – little more than a rounding error in comparison

to the £37 billion the Government has been able to conjure up to bail out

the banks. In a decision that beggars belief, Peter Mandelson (as Secretary

of State for Business and Enterprise) has just announced that the

Government still intends to put parts of the Post Office network up for

sale “to encourage increased competition and business efficiency.”

Perhaps things will just have to get a great deal worse before politicians

truly appreciate the nature of the crisis we are now in. Between 1933

and 1940, President Roosevelt’s New Deal invested between 3% and

4% of US GDP every year. Much of that was directed into the “Civilian

Conservation Corps” which ended up employing more than 3 million

people to undertake basic conservation projects such as tree-planting,

soil conservation and habitat improvement. It will seem to many to be

premature, but the Government would do well to start thinking much

more dynamically about the contribution that the so-called “Third Sector”

could make to any emerging Green New Deal.

National organisations like Groundwork, BTCV and the National Trust are

extraordinarily well-placed to massively ramp up their community-based

programmes. As highlighted in a recent report from Capacity Global, Defra’s

own “Every Action Counts” programme ( has been able

to use relatively small amounts of public money to leverage relatively large


/ 43 Living within our means:

avoiding the ultimate recession

amounts of public value – in terms of improved local environments, engaged

communities, with both young and old getting stuck in, resource and energy

efficiency and so on. Schemes like Fair Share (which is already significantly

involved in helping reduce the massive scandal of food waste across the UK)

could be doing so much more if it had access to enough working capital to

expand into a nationwide social enterprise.

In case this all sounds somewhat “twee”, marginal even, BTCV robustly

spells out just how misplaced a perception that is:

“BTCV achieves a yield of 1:4 in terms of social return on

investment – i.e. for every £1 invested, local communities gain

£4 of benefits such as reduced crime, increased leisure and

increased employment. Our annual investment of £30 million

in UK communities and environments returns £120 million in

social value. Importantly, our volunteers are not the middle class

“greenies” of popular myth. 20% of our projects take place in,

and draw volunteers from, the 15% most deprived areas in the

UK. Of course the middle classes in the leafy suburbs will act

to conserve their quality of life – not least because they know

the economic benefits, for example in terms of beneficial effects

on house values. But to us, it is equally obvious that people in

the poorest neighbourhoods will also – given half a chance – band

together to make better places and stronger communities.”


BTCV started out in life as “The Conservation Corps” back in 1959.

It now has more than 1800 groups involved in its Community Network,

and is involved in training more than 14,000 people every year in terms

of meeting local skills needs. It’s already developing plans for mobilising

huge numbers of people as “local carbon armies” on the assumption that

both the Government and Local Authorities will recognise this particular

“silver lining” as a massive opportunity that needs to be seized hold of

without further delay. But does that assumption hold water?

In February 2009, the Third Sector Task Force (Chaired by Groundwork’s

Chief Executive, Tony Hawkhead) brought out a compelling report looking

at the opportunities available to governments for using the Third Sector to

transform the role that charities and social enterprises can play in the delivery

of public services and in supporting new “recovery” interventions. Its principal

recommendation is to set up a new Social Investment Bank with funding

of £250 million. Its role would be to:


develop financial instruments and structures to raise

capital for the Third Sector;


be an intermediary between suppliers and users of that

capital in the Third Sector;


provide advice and support to participants in the sector,

including research and other materials;

A sustainable new deal



work with government, foundation and service providers

to develop programmes of investment in specific areas

where gaps are identified.

“Our sector can really help those most in need of support in these

challenging times. But many of us are held back by the lack of

suitable funding. A Social Investment Bank would enable social

enterprises and charities to remain focused on reducing the

impact of recession on some of society’s most vulnerable people.

Without it, the Third Sector would shrink whilst the problems

it exists to solve increase – and many years of good work will

wither on the vine.” –

Tony Hawkhead 12

So far, the commitment from Government has been an apologetic offer of

£40 million, primarily to offset charities’ falling income rather than to make

new and exciting things happen on the ground. The comparison may not

be entirely fair, but one is bound to consider that sum of £40 million against

the seemingly limitless billions that our Government has been able to find

to bail out the banks. It’s clearly time for a much more fundamental rethink.

A green new deal

As soon as it became clear (in the middle of 2008) that what had been

referred to up until then as “an economic downturn” was turning rapidly

into a full-blown recession (with the potential to end up as another Great

Depression on the same scale of that of the 1930s), more and more attention

began to focus on Franklin D. Roosevelt’s “New Deal”. Which is widely held

to have provided the stimulus to start digging the United States out of the

Depression. Whatever the intrinsic merits of this analogy, it’s been given

a huge boost by Barack Obama’s commitment to a $900 billion recovery

package for the US economy which is being widely interpreted as the

21st Century equivalent of the 1930s New Deal.

In this context, the exhumation of the work and reputation of John Maynard

Keynes has lent weight to the reassertion of government economic muscle

over the diminished potency of discredited capital markets. To hear Alistair

Darling, Chancellor of the Exchequer, suddenly lay claim to Keynes as

the greatest economist of the 20th Century, after a decade where the

merest mention of the great man’s name was seen as out-and-out heresy,

demonstrates just how cataclysmic the impact of the recession has been

on the Treasury. That said, nothing resembling even the sketching out of

a proper New Deal for the UK economy has yet seen the light of day.

The real catalyst for the “New Deal” debate here in the UK can be traced

back to the publication of a report (

A Green New Deal ) in July 2008. Its

authors (including Larry Elliot, the Economics Editor of

The Guardian ,

and a host of the “great and the good” from the Green Movement)

spelled out their purpose in the following terms:


/ 45 Living within our means:

avoiding the ultimate recession

“The global economy is facing a “triple crunch”. It is a

combination of credit-fuelled financial crisis, accelerating

climate change and soaring energy prices underpinned by an

encroaching peak in oil production. These three overlapping

events threaten to develop into a perfect storm, the like of which

has not been seen since the Great Depression. To help prevent

this from happening, we are proposing a Green New Deal.”


I will return to the issue of “soaring energy prices” below, but at the

heart of the Green New Deal lies the assumption that governments find

themselves with an unparalleled opportunity,

precisely because of the

severity of the recession

, to start implementing the kind of practical,

low-carbon programmes that have proved so elusive to date.

Addressing the carbon crunch

In November 2008, the UK Government’s Climate Change Act passed

into statute – the first legislative measure of its kind anywhere in the world.

It called for a reduction of CO

2 of at least 80% (on 1990 levels) by 2050.

There is every chance that the rest of the EU will take up that sort of longterm

target (it’s already agreed to a reduction of at least 20% by 2020), and

Barack Obama has committed the United States to the same goal of 80%

cuts by 2050. That takes us out of the “have our cake and eat it” zone

of doing everything we’re currently doing, just in marginally more “climatefriendly”

ways. It takes us into the zone of urgent, radical decarbonisation.

An 80% cut by 2050 means reductions of somewhere between 3% and


every year between now and 2050.

Yet it’s astonishing how many otherwise very intelligent people continue

to ignore or even deny the true implications of what these targets are now

telling us. Such clarity certainly simplifies things. It means we have to focus

on just four imperatives: energy efficiency; renewables; carbon capture

and storage; and reducing emissions from deforestation and degradation

(as in the last section). Everything else (including nuclear power – fission

or fusion – or distant dreams of a hydrogen economy) may or may not

have a role to play in the future, but the contribution they can make to

today’s “urgent, radical decarbonisation challenge” is nugatory. As such,

the ongoing controversies that these technologies continue to excite

are just a self-indulgent distraction from getting on with what we have

to do today.

And the starting point here has to be energy efficiency. The studies done

by McKinsey’s for both Europe and the US demonstrate that investments in

energy efficiency (in terms of tonnes of CO

2 abated) substantially outperform

every other kind of investment that can be made. Especially in an economy

as chronically inefficient as ours. The Government’s own (somewhat cautious)

estimates indicate we could reduce total energy consumption by at least

30% without

any diminution in people’s standard of living. And many people

believe that this could be a much higher figure in America, which has been


A sustainable new deal

living off “the back of the energy hog” for so long that people just don’t

know what energy efficiency means. This is not the place to re-run those

arguments; there’s literally nothing between us and those kind of reductions

in energy consumption other than the lack of political will.

The same is true of renewables. For all the brave words and bold targets

(the latest in the UK being our share of the EU’s new renewables target

so that 15% of

all our energy (not just electricity) will need to come from

renewables by 2020), the truth of it is that the UK still languishes third

from the bottom of the EU’s renewables league table – with only Malta

and Luxembourg below us.

Whatever else a Green New Deal may include, it certainly entails massively

and urgently ramping up our investments in both energy efficiency (in our

homes, schools, hospitals, offices, factories, shopping malls and all forms

of transportation) and in renewables (both large-scale – particularly onshore

and offshore wind – and microgeneration). Housing is obviously a critical

focus area. Happily, as mentioned in the previous section, there’s a growing

focus on

existing housing stock, rather than new build, where even the most

ambitious targets (such as the Government’s very bold target for zero carbon

housing by 2016) would only get us a small way towards the 2050 target.

The Green New Deal consortium puts it as follows:

“We are calling for a programme of investment as urgent and farreaching

as the US New Deal in the 1930s, and the mobilisation

for war in 1939. This means executing a bold new vision for

a low-carbon energy system that will include making ‘every

building a power station’. The energy efficiency of tens of millions

of properties will be maximised, as will the use of renewables

to generate electricity. It also means creating and training a

‘carbon army’ of workers to provide the human resources for a

vast environmental reconstruction programme. We want to see

hundreds of thousands of these new jobs created in the UK.”


The language may be a little over the top, but the level of ambition is spot

on. The reference to “mobilising for war in 1939” is telling, and there are

many who believe that we may indeed need to move onto “a war footing”

to engender a sense of shared purpose and national (indeed global) unity.

Somewhere along the line, Lord Stern’s crystal clear message that we

need to invest up to 2% of GDP in a low-carbon economy in the near

term (to avoid what could be as much as 5-20% of GDP in the long

term) seems to have got lost in the thickets of government muddle.

There are only two ways that governments can respond to that challenge.

The first (as advocated by Lord Stern himself) is to ensure that markets work

efficiently and transparently by ensuring that every tonne of CO

2 emitted is

priced realistically; the second is for governments themselves, on behalf

of the citizens, to invest in efficiency and renewables – given that today’s

markets are still grotesquely biased towards the use of fossil fuels simply

because no price is being paid for the CO

2 that arises from their use.


/ 47 Living within our means:

avoiding the ultimate recession

Given that it will probably take many years to get a truly realistic price on

every tonne of CO

2 , the moral imperative to step in now is overwhelming.

Yet that’s precisely what the UK government is not doing.

Addressing the oil crunch

2008 has seen unprecedented volatility in the price of oil (see graph),

with prices down from a high of $147 in July to below $50 by the end

of last year. The return to a low price (or more accurately, a

relatively low

price, as it wasn’t very long ago that even $50 would have been thought

of as a high price!) is an inevitable consequence of the global economic

recession. Simply stated, less economic activity means reduced demand

for oil. This has led to two equally inevitable consequences: first, OPEC

has decided to cut production in order to boost prices; second, those who

believe that there is no serious issue regarding availability of oil supplies

into the medium-term have gone straight back into the usual “told you so”

complacency. Just listen to former Energy Minister Malcolm Wicks:

“Global oil reserves are sufficient to prevent total global oil

production peaking in the foreseeable future, provided sufficient

investment in both upstream and downstream is forthcoming

in order for production to keep pace with the growing global oil

demand. This is consistent with the assessment made by the

International Energy Agency in its 2007 World Energy Outlook.”

Predicting the future of crude oil











US crude oil price ($)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Sources: Bloomberg; Reuters poll of analysts

Spread of


A sustainable new deal

The reference to the IEA is interesting. Though it is indeed true that this

is what the World Energy Outlook was indicating in 2007, their messages

through 2008 were very different indeed. The 2008 World Energy Outlook

slashes its estimates for global oil production for 2030 from 116 million

barrels a day to 106 million barrels a day (current production is around

80 million barrels a day). Its authors are upfront in acknowledging that

the era of cheap oil is definitively over. Yet it still thinks that this is as much

a function of under-investment by the industry in new refining capacity

(with low oil prices providing a further disincentive to new investments) as

a question of available resources per se. But it’s interesting that for the first

time ever the IEA is now quoting lower figures for the remaining reserves in

OPEC countries than the OPEC countries themselves. A wise move; OPEC’s

estimates are viewed with extreme scepticism throughout the industry.

Furthermore, given the number of oil industry insiders who also believe

the era of cheap oil is over, it seems strange for any government to be in

such total denial. Many people in business today believe that total global

oil production will start to decline in the period between 2011 and 2013

(depending on the length and depth of the economic recession). Even the

ever-bullish Shell believes that the era of “easy oil” will be over by 2015

and that production levels will only be maintained by massive investments

in “unconventional sources” such as Alberta’s tar sands – whatever the

consequences for climate change. It’s only the likes of ExxonMobil who

assert that “peak oil production is nowhere in sight” – and we all know

how credible a source they are given their legacy of evidence-denying

deceit on climate change.

What’s more, whether it’s 2011, 2013, 2015 or even 2020 is totally

immaterial. They are all literally “just around the corner”! And given the

near-total dependence of large parts of our economy and our way of life

on oil, this spells disaster. The continuing neglect of this issue by every

major political party in the UK is astonishing.

From the point of view of a Green New Deal, however, this provides a unique

opportunity to seize hold of this particular nettle. What needs to be done now

to address the challenge of climate change is exactly the same as needs to

be done to address the coming oil crunch. Massive investments in energy

efficiency and renewables provide by far the surest defence against any threat

to future security of supply here in the UK (and indeed in every other country

in the world), be that threat physical (as in reduced access to diminishing

supplies), geo-political (as in other nations using their indigenous energy

resources to pursue national objectives at the expense of other countries),

or related in one way or another to the war on terrorism.

Green jobs

It has been argued for a long time by environmental economists that there

is a “double dividend” available to governments in terms of all the new job

opportunities that will be created by investing in a radically decarbonised


/ 49


Living within our means:

avoiding the ultimate recession

economy. Countless reports have been written over the years to demonstrate

just how substantial a dividend this could be, and both serving governments

and opposition parties have enthusiastically pitched in with great gobbets of

“double dividend” rhetoric. Gordon Brown has himself referred on a couple

of occasions to the opportunities of “up to a million new jobs”, though no

detailed analysis has ever been forthcoming. All references to a “Green

Industrial Revolution” contain some throwaway reference to the potential

for new jobs, as in the latest report from the Aldersgate Group:

“Far from being an indulgence that would damage

competitiveness, the low carbon economy is an essential

component of the economic recovery. The Government

must grasp this unique opportunity to reform unsustainable

business practices, boost competitiveness and stimulate

green jobs and wealth.”


In fact, few countries have ever really done the hard graft to secure that kind

of double dividend. Germany is perhaps the most important exception, and

it’s significant that when German politicians are talking about the importance

of the far-reaching measures they have introduced to ensure that they meet

their Kyoto targets, “new jobs created” feature as prominently as “tonnes of


2 abated”. The boom in “green collar jobs” in Germany is now estimated

to amount to around 250,000 new jobs in the renewables industry and

through the hugely ambitious programme Germany is now rolling out to


existing housing stock – having long ago come to the conclusion

that focusing exclusively on achieving ever-higher standards in new build

is really missing the point, given that new build comprises only 1% of total

housing in any one year and a lot less in an economic recession. It is by

no means clear that this message has got through to the UK Government,

notwithstanding the massive opportunity available to it to allow Gordon

Brown to turn his own eloquent words into reality:

“Our economic and social prosperity, today and in the next

generation requires us to reduce progressively our dependence

on oil. All the needs of our country, all the goals as an economy

point in exactly the same direction – to tackle climate change,

to improve energy security, to create jobs and to stimulate

business to grow.”

The harsh truth is that scaled interventions by governments directly to

stimulate the jobs market have not really been part of the deal for more

than two decades. With unemployment in OECD countries staying low,

and economies continuing to grow at a reassuring 2–3% per annum,

it would have been ideological heresy to suggest that the government in the

UK should be incentivising (let alone specifically pump-priming) a massive

expansion in green collar jobs. Not so today. As unemployment tipped two

million by the end of 2008, with every indication of surging up to at least three

million by the middle of 2009, “increased job intensity” will become as critical

an indicator of any successful recovery package as “reduced CO

2 intensity”.

Yet again, Gordon Brown need only look to the United States to see how

A sustainable new deal

aggressively Barack Obama is promoting that kind of “win-win”.

Even though US citizens have at last woken up to the importance

of climate change, there’s still no way that Barack Obama’s recovery

package could lead on any climate imperative: a combination of energy

security and new jobs, however, is clearly hitting all the right buttons.

There’s no doubt that the consensus around some kind of “double dividend”

is growing all the time. In October 2008, the United Nations Environment

Programme brought out the most definitive report to date:

Green Jobs:

Towards Decent Work In A Sustainable Low Carbon World

. With the active

support of the International Trades Union Confederation, the International

Labour Organisation and the International Organisation of Employees,

the report focuses on the five priority sectors likely to generate the

biggest transition in terms of economic returns:

clean energy and clean technologies (including recycling);

rural energy (including renewables and sustainable biomass);

sustainable agriculture (including forests);

eco-system infrastructure;

sustainable cities (including planning, transportation

and green buildings).

The report is unapologetic in asserting the legitimacy of both public

sector investments as well as private sector investments. It pointedly

reminds neo-liberal cynics that the global economy they’ve presided over

for the last two decades has in fact been awash with government subsidies

of every kind, most of which are still systematically undermining healthy

ecosystems – with more than $300 billion a year still subsidising global

agriculture, and around $280 billion supporting fossil fuels and nuclear

power. Achim Steiner, UNEP’s Executive Director, summed up the

potential for a total rethink in investment strategy:

“The financial, fuel and food crises of 2008 were in part a

result of speculation and a failure of governments to intelligently

manage and focus markets. But they are also part of a wider

market failure triggering ever deeper and disturbing losses

of natural capital and nature-based assets, coupled with an

over-reliance on finite, often subsidised fossil fuels. There are

moments in history when an idea’s time has come – and this has

to be the time for a comprehensive green economy initiative.”


Renewing our manufactured capital

However traumatic the economic disruption we’re now going through, it’s

impossible “just to start all over again”. The physical infrastructure (roads,

rail, housing, energy grids, factories, technologies and so on) that underpins

the economy takes a long time to roll over, limiting the potential for immediate

change. But that makes it all the more important to avoid new infrastructure

decisions that lock us into further decades of unsustainable economic


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Living within our means:

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development (such as the third runway at Heathrow, or another generation

of nuclear power). And to seize hold of every opportunity to invest in new

infrastructure assets that facilitate low-carbon, sustainable wealth creation.

Over the next two decades, therefore, we will need to totally renew much

of the manufactured capital on which we depend for much of our future

prosperity. Without that kind of quantum leap in both infrastructure and

technology, it’s impossible to see how any government might aspire,

for instance, to an 80% cut in emissions of CO

2 by 2050.

We should therefore be encouraged by the growing interest in the question

of the renewal of our electricity grid. Estimates vary, but many billions will

need to be spent upgrading the grid over the next decade, regardless of

today’s pressing sustainability issues. This is not just a question of like-forlike

replacement; huge new investments will be needed both in local area

networks (to facilitate the deployment of decentralised renewables and to

take full advantage of the use of feed-in tariffs that all the major parties are

now committed to) and in new “interconnectors” – linking up new offshore

windfarms and other marine technologies on both coasts of the UK.

Perhaps emboldened by the emerging proposals of the Obama

Administration for vast investments in new “Smart Grid” developments

in the US, the Conservative Party has produced a new strategy (

The Low

Carbon Economy: Security, Stability and Green Growth

) for upgrading

our own grid that addresses all these opportunities head on – and throws

down a telling gauntlet to a Government that has shown little vision in

this area for a decade or more.

Elsewhere, a number of Labour MPs are pressing the Government to start

thinking differently about our IT infrastructure and to see “fast broadband” as

much as a public service as another multi-billion pound market. Derek Wyatt

(MP) has suggested setting up a not-for-profit joint venture, specifically

to address the needs of the 30% of the population who are unlikely to be

able to afford access to fast broadband, and to do this in such a way that

it would allow major cities to become partners in the roll-out in due course.

All of this could be enormously dynamic in terms of the future influence

on our economy. But would it provide substantial, lasting sustainability

benefits? Or will it all simply increase levels of consumption, albeit on a

slightly less unsustainable basis? The whole “Green New Deal” approach

is dependent on the notion of “decoupling” – securing the benefits of

continuing economic growth whilst avoiding all the disbenefits in terms of

pollution, inefficient resource use and the accelerating build-up of greenhouse

gases in the atmosphere. That means, quite simply, dramatically reducing

the “ecological footprint” of annual GDP as the only means by which we can

sustain any kind of growth-based economy. Decoupling strategies lie at the

heart of the Government’s Climate Change programme, promising all the

goodness of growth with just a fraction of the current carbon footprint.

Indeed, decoupling has been the standard bearer of the whole eco-efficiency

movement going back to the mid-1980s, when companies like 3M introduced

A sustainable new deal

their “Pollution Prevention Pays” programmes and were able to demonstrate

that basic resource efficiency led to increased profitability. These companyspecific

examples were then incorporated into the advocacy of organisations

like the World Business Council for Sustainable Development, and are now

commonplace in both government and business thinking on sustainable

wealth creation. Theoretically an ongoing win-win for the global economy

and society at large.

Unfortunately, it’s not quite as simple as that. Whilst it can of course

be demonstrated that many individual companies have made great strides

in reducing both carbon intensity (in terms of CO

2 emissions per unit of value

added or profitability) and resource intensity (in terms of raw material “inputs”

required to generate the same level of “outputs”), these efficiency gains have

often been cancelled out by increased levels of production. In other words,

we’ve seen

relative reductions in net ecological footprint, but not absolute

reductions. And the same is true at the level of national economies. Whilst

one can point to significant reductions in resource and energy consumption

per unit of GDP (in fact, the amount of energy required to fuel each unit

of global economic output has been on a downward trajectory for the

last 40 years), most of the gains have been wiped out by year-on-year

increases in the scale of economic activity.

This difference between

relative and absolute decoupling lies at the heart

of the ongoing stand-off between today’s techno-optimists (who remain

persuaded that improvements in technology-driven productivity will be

sufficient to get us to the desired end goal of a sustainable society by the

end of the century) and a growing number of “sustainability realists” who

just don’t see how the sums add up. The techno-optimists focus almost

exclusively on the massive potential for relative decoupling; the sustainability

realists talk about the need for absolute decoupling – not least because the

human population itself continues to grow by a net 70 million people a year,

even as it remains the pre-eminent macro-economic goal of all countries,

rich or poor, to drive up average income, year on year through increased

economic growth. Tim Jackson succinctly captures that distinction:

“The condition for absolute decoupling is very simple: in a

growing population with an increasing average income, the

rate of relative decoupling must be at least as fast as the rates

of increase in population and average income combined.”


Two things remain to be said about the decoupling challenge: the first

is that it would be good to have a real crack at it! In reality, there’s not

a government in the world that has even begun to work out what today’s

energy and resource “descent paths” actually look like. The challenge

of climate change is beginning to strip away that ludicrous complacency,

but it’s noticeable that the enthusiasm politicians have for setting longterm

targets (for instance, the 80% reduction in emissions of greenhouse

gases by 2050) is in no way matched by an equivalent enthusiasm for

working out,

in detail , how to get there.


/ 53 Living within our means:

avoiding the ultimate recession

Depending on whose estimates you’re using, an 80% reduction

in greenhouse gases by 2050 means an absolute minimum of a

3% reduction every year, and a much more realistic figure (taking all things

into account) of 8%. There’s not a mainstream politician in the UK able

to demonstrate how even 3% could be achieved – despite them happily

signing up to the 2050 target. And it’s sobering to be reminded that the

UK is still seen to be one of the more progressive nations in addressing

climate change, despite so little

real progress in reducing greenhouse

gases or in any way getting serious about decoupling strategies.

Secondly, the “window of opportunity” available to us to reconcile

“material progress through continuing economic growth” on the one hand,

and “genuine biophysical sustainability with increased equity” on the other,

is closing down on us all the time. If we miss that window of opportunity,

those same challenges will need to be addressed very differently indeed.

Sustainable economies

This is clearly not the place for any detailed “reprise” of the kind of

transformation that will be required to put our economies onto a genuinely

sustainable footing. For the last forty years, a distinguished but largely

ignored cohort of economists has sought to demonstrate to politicians

that “the pursuit of material progress through exponential economic growth”

was an unattainable goal even when it was first adopted back in the 1950s,

and remains as unattainable as ever today. Few politicians had any time for

such counter-intuitive unorthodoxy in the 1950s; these days, with oil prices

having gone to $147 a barrel before the economic recession set in, and with

the threat of “runaway” climate change very much in our minds, there are

few people who feel quite so complacent about the non-negotiable realities

of creating wealth on a finite planet.

It’s impossible to see how we can put off for much longer a proper debate

about these “clashing paradigms of progress”. However, pending that dawn

of enlightenment, there’s much to be done in the short term in response

to today’s economic crisis without jeopardising what will need to be

done in the long term.

Re-regulating capital markets

Where you stand on the “continuum of blame” (from the minimalist

contrition of a handful of leading bankers to the kind of full-frontal critique

articulated in this pamphlet) will determine the level of enthusiasm you have

for how best to re-regulate global capital markets – minimalist or full-frontal.

Right now, ministers are showing little sign of contrition, despite the fact that

the UK was second to none in its whoring after the ephemeral promiscuities

of deregulated, get-rich-quick financial capitalism. But the startling sight

of the Leader of the Tory Party coming out so strongly in favour of



A sustainable new deal

“holding to account those in the city on whose watch this all happened”,


of some fairly serious new regulatory measures, may just encourage

the Government not to miss out on this opportunity.

Re-regulation does not mean a return to the command-and-control

economies of a few decades ago. We must retain a commitment to

market-based economics. But what it does mean is that those capital

markets must be subjugated – in other words, made servant to the kind

of economy that we now need – rather than be allowed to dominate the

economy. Even Hank Paulson (former Treasury Secretary and ex-CEO

of Goldman Sachs) would seem to acknowledge the need for a radical

re-think: “Once we stabilise the markets, we then have to take action

to make sure this doesn’t happen again. We have a regulatory system

that is broken. It’s outmoded. It just doesn’t fit the world we live in.”

But I wonder how many of the following ideas (which are indicative

of the kind of proposals being advanced by NGOs involved in the

New Green Deal Group) he’d be prepared to go along with.

Re-introduce strict limits on leverage ratios. Repeal the 2007

Basel II Standard of Capital Adequacy which left it up to the

banks to develop their own risk-assessment models depending

on the ‘independent’ assessments of the rating agencies.

(When it collapsed, Bear Sterns had reserves of $11.8 billion

and outstanding loans of $395 billion – a leverage ratio of 33.5.

Lehman Brothers (with debts of $613 billion) was in a very

similar position.)

De-merge all financial conglomerates that have become

‘too big to fail’, particularly in terms of separating out retail

banking from investment banking.

Outlaw all speculative practices such as short-selling.

Regulate to ensure that all derivative instruments should be

brought onto the balance sheet, and should be subject to

the same kind of regulatory capital requirements as standard

banking practice.

Abolish all off-balance sheet financing, and re-write the listing

and disclosure rules of stock-markets. (There are many who

now believe that the system collapsed as much because of its

complexity and ‘indecipherability’ as anything else. Regulators

weren’t just found wanting in terms of the inadequacy of their

interventions, but in terms of their basic lack of knowledge).

Return control of all interest rates (including interbank lending

rates) to central Banks.


/ 55 Living within our means:

avoiding the ultimate recession

Similar measures were taken in the wake of the Wall Street crash in the

1930s – and it took neo-conservatives in America the best part of 60 years

to get those measures repealed. The $4 trillion hit on the global economy

to stitch it back together again is quite simply the price we’re all having

to pay for having handed over such unparalleled political power to a

fundamentalist sect that made little pretence of the fact that its principal

purpose was to further enrich the already rich rather than help create

wealth for the benefit of all.

It’s that sense of outrage that is now driving much of the debate about

the reform of the International Financial Institution. The “Put People First”

coalition has spelled this out in the run-up to the critical “London Summit”

in April 2009 involving the G20 countries:

“Significant changes are needed in the way that the global

economy is managed, with fundamental reform of the

governance of international financial institutions, including the

World Bank and the International Monetary Fund. Strengthened

UN oversight over the management of the international economy

is clearly needed. Four priorities emerge: first, the “shadow”

banking system must be removed so that all institutions and

products, including investment funds such as hedge funds,

sovereign wealth funds and over the counter products become

properly regulated. Second, damaging speculation should be

limited by controlling derivatives trading, credit securitisation and

other complex financial instruments in a globally co-ordinated

way. Third, tax havens must be compelled to co-operate and

lift the veil of secrecy that allows firms and individuals to avoid

international standards, and makes illicit capital flight and tax

evasion possible. This will also help efforts to combat moneylaundering

and other criminal activities. Fourth, multinational

companies must be compelled to report in a transparent and

accountable manner, including through the introduction of

country by country international accounting standards to

disclose profits made and taxes paid in each country.”


And that’s why many would go even further than this. There’s a growing

campaign to strip banks of their right to create credit (and then charge

interest on it), and to return that right to central banks. Few people realise

that 97% of all money in circulation (including “credit”) is effectively

“created out of thin air” by banks in the form of loans to people and

companies. John Bunzl, one of today’s leading campaigners for this

radical shift, insists on spelling out exactly what this means as it does

seem quite extraordinary to most people, once explained, that we’ve

put up with this situation for quite so long:

A sustainable new deal

“Like most people and businesses, you probably think that

when you take out a bank loan, the money comes from hard

cash that others have deposited in the bank. Wrong! The money

you borrow actually never existed before, and is simply created

“out of nothing”. Banks lend out many, many times more money

than they actually hold as physical deposits. This lending “out of

nothing” is what the bankers call “fractional reserve banking”, or

the “credit multiplier”; suitably technical-sounding terms designed

to make your eyes glaze over while the banks practice what is,

effectively, legalised fraud. Let me state it boldly, they create the

money out of nothing by writing it into your bank statements even

though they had only a fraction of that amount in their vaults as

hard cash. It costs them next to nothing, yet you’ll have to pay

the full amount back plus the interest. If you can’t, they’ll take

your house. Heads they win, tails you lose.”


Bunzl accurately describes this as “the world’s largest pyramid scheme”

which all governments have allowed themselves to get caught up in having

historically permitted private banks to take over the right to create credit

– a right which should always have been reserved for governments alone.

Putting an end to “fractional reserve banking” (in effect, insisting that banks

would only be able to make loans if they were 100% backed by deposits)

would obviously have a massive impact on the profitability of those banks

– but might that not be a very reasonable price to pay for a much more

equitable and stable system?

It is often objected that such monetary reform would damage the economy

if it was introduced in one country alone. Those banks would obviously be

deprived of the subsidy they get from creating money as loans, which would

create a competitive disadvantage against banks in other countries. Some

have claimed that this “would lead to the migration from the City of London of

the largest collection of banks in the world”. By contrast, some commentators

have now suggested that an over-dominant role for the financial sector has

proved to be a massive disadvantage to the UK economy, and that this might

actually prove to be a good thing. Nonetheless, if possible, it would be helpful

to deal with this objection by introducing monetary reform simultaneously in

as many influential countries as possible, including the United States, Japan

and the Eurozone, as well as the UK. (The most succinct proposal for broader

monetary reform of this kind has been advanced by James Robertson


For most banks, this must sound like their worst nightmare, worse even,

in the eyes of some, than their current humiliation. But as I pointed out in

Chapter One, more and more people are beginning to realise that there are

many different kinds of banking and many different ways of providing the

financial services that keep the wheels of the economy properly greased.

Because of the success of the Co-operative Financial Services Group

and the John Lewis Partnership, there is growing support for the kind

of ethical and sustainable practices that emerge out of different


/ 57 Living within our means:

avoiding the ultimate recession

ownership and governance structures. The Co-operative Bank,

for instance, has not been slow to benefit from the discomfiture

of those former “titans” of the banking world.

Progressive public finances

It may be a sign of things to come that the Labour Party at last rediscovered

the principle of “Fair Taxation” in its 2008 Pre-Budget Report, raising

Income Tax to 45% for higher earners. Whether or not this actually changes

our position in the EU’s “Lowest Top Rate of Tax” league table (where we

currently come second only to Luxembourg) is a matter of some speculation.

But I don’t think we need feel too concerned for the few tens of thousands

of individuals who will be affected by this. According to the Hay Group, the

UK will have little difficulty remaining right at the top of another league table –

“Highest CEO Salary and Bonus Package. And most people in the City would

clearly like it to stay that way: a spokesperson for HBOS (which only avoided

humiliating bankruptcy through a forced marriage with Lloyds TSB) informed

concerned customers just before Christmas 2008 that “we do not intend to

change the fundamental design of our incentive schemes”. Even Stephen

Green (Chairman of HSBC), who has had the decency to acknowledge that

massively over-inflated remuneration packages were one of the causes of

the credit crunch, has come to this realisation just a little late in the day.

In 2007, HSBC’s top three executives were awarded £18 million between

them in terms of pay and shares. Mr Green’s salary is already in excess

of £3 million, which may cause some people to raise an ironic eyebrow

on hearing his justification for this:

“It is a company’s responsibility to pay market rates. It isn’t us

who set our bonuses, it was the Remuneration Committee of

the Board. The overall performance of the company was up,

not down, but our bonus-based compensation was flat.”


There’s no doubt that the mutual back-scratching that goes on through

the system of Remuneration Committees is clearly something that the

FSA will need to have a long hard look at. Reality now tells us that these

“Masters of the Universe” were worth a great deal less than their fellow

Directors had judged them to be at the time. Somewhat late in the day,

the Chancellor of the Exchequer set up an enquiry to look into the banks’

overall remuneration system. David Cameron has lashed out at the City’s

“bonus culture”, pointing to a growing battery of evidence demonstrating

that bonuses and performance-related pay have a much smaller impact

on performance than has been claimed. This culture is also a great

“accelerator of inequality”: according to Income Data Services, chief

executives earned 62 times the pay of their average employee in 2000,

but they now pay themselves 104 times as much.


A sustainable new deal

I suspect it will still be quite a while before the

true extent of the redistribution

of wealth that has been going on over the last 20 years or so is fully revealed.

In most OECD countries, most people have ended up working longer hours

for small, if any, increases in relative income. The huge increase in the

number of households where both men and women are earning has masked

the relatively static position of the principal income-earner. Here in the UK,

average pay has barely risen over the last 3 years – at exactly the time when

the super-rich were getting even richer. And the poor have seen their relative

position decline even further. At £5.72 an hour, the minimum wage is still

stuck well below the living wage of £7.45, and continues to decline relatively

as annual increases are set below the rate of inflation.

The case for a more redistributive approach to tax has been ignored

for so long that it will take a while for people to remember that this was

once “a given” in terms of progressive public policy. But as the recession

deepens and more and more people become a great deal angrier at

what’s been going on, this Government’s wholly inadequate efforts to

crack down on systematised tax avoidance strategies on the part of

the rich will become less and less acceptable. It will be interesting to

see if Peter Mandelson can persuade the Treasury to start taking tax

avoidance seriously. His infamous comment that he was “intensely

relaxed about people getting filthy rich” was in fact accompanied by

an important qualification: “so long as they pay their taxes”. Indeed.

This must also be the best possible time for the Government to renew its

erstwhile commitment to ecological Tax Reform – shifting far more of the

burden of taxation away from jobs, value added and wealth creation and

onto waste, inefficiency and emissions of CO

2 . Ministers have been talking

about this since 1997, but the only measures taken so far have been small

scale and disjointed. According to Professor Paul Ekins, Chair of the Green

Tax Commission, Labour today derives less of its overall tax revenues from

environmental taxation than it did in 1998.

Maybe it will be time to think even more radically about non-fiscal

mechanisms for reducing disparities and wealth. Having sorted out

a minimum wage entitlement for the very poorest in the UK, there are

now a number of Labour MPs who want the party to explore some kind

of “maximum wage”. It’s now more than 100 years since JP Morgan

(one of the pioneers of “red in tooth and claw” capitalism) first proposed

that no company should have a differential of more than 10 between

the highest paid and the lowest paid.

As well as personal taxation, this is surely the time to re-think the whole

question of corporate taxes, and in particular, companies’ use of tax havens.

This has increased rapidly over the last few years, with “capital mobility”

now largely unfettered, and some estimates tell us that more than half of

global trade is routed through tax havens. There are various estimates as

to the extent of corporate earnings that escape proper taxation as a direct

consequence of this development: Christian Aid’s figure is $160 billion


/ 59 Living within our means:

avoiding the ultimate recession

(this is the lowest figure), whereas both the World Bank and the

research group Global Financial Integrity put the total nearer to $900 billion.

These are just the corporate flows; over and above that are flows from High

Net Worth Individuals, which are believed to be well in excess of $5 trillion.

No country in the world bears a heavier responsibility for this than the

UK; over a quarter of the world’s tax havens are British, including Jersey,

Guernsey, the Isle of Man and the Cayman Islands. The Tax Justice Network

has highlighted not just the direct loss to national exchequers that is caused

by this abuse, but the indirect consequences: the lack of transparency, the

uncertainty about who owns what, the deliberately engineered complexity.

All these contribute to the lack of trust that these ”secrecy jurisdictions” have

created, and it’s this lack of trust that finally undid the entire system. Richard

Murphy, the founder of the Tax Justice Network, does not pull his punches:

“The offshore world created the conditions that led to this crisis,

and unless the offshore world is tackled, it will undermine all

efforts to deal with it. Gordon Brown and his predecessors have

ignored this. As a result, they have knowingly permitted the harm

that secrecy jurisdictions wreak on the poor at home and abroad.

Unless they are tackled, tax havens will sabotage any efforts to

build global governance and international co-operation.”


One of the most obvious ways of eliminating those aspects of tax haven

abuse caused by transfer pricing by multinational companies (which is

little more, in effect, than the legalised denial to states of the revenues

due to them) would be to change international accountancy rules to compel

all companies to produce annual accounts on a country by country basis.

The EU should co-operate immediately with the incoming Obama

Administration to ensure our efforts in this regard are fully aligned with

the proposals outlined in the President’s “Stop Tax Haven Abuse Act”.

This would at least get things moving in the right direction.

Emboldened by reclaiming from multinational companies what is

rightfully due to their citizens, governments might then think again about

the potential impact of introducing some kind of currency transaction tax

(often referred to as the Tobin Tax) to secure a new flow of global revenues

which could be deployed to help developing countries cope with their own

transition to a low-carbon world. Nothing would send out a stronger signal

to emerging and developing economies that the OECD really is serious


global collaboration in the face of accelerating climate change.

And as the New Economics Foundation points out, the rationale for

this is by now well accepted:

A sustainable new deal

“A small tax on international currency transactions would

discourage short-term, high-frequency trading (the tax would be

paid every time the trade was done), but leave longer-term, real

investment unaffected. It is estimated that, globally, a tax of just

0.005% would raise tens of billions of dollars annually, while also

“throwing sand in the wheels” of the global currency markets

and reconnecting the financial and real economies.”


I suspect that much more is going to have to be done to reconnect the

financial and the real economies. Again, this is not the time to revisit the

hugely powerful conclusions of Lord Stern’s report on

The Economics

of Climate Change

, but governments around the world will need a lot of

reminding in the teeth of a deep and very dark recession that there is an even

deeper and darker one just around the corner that can only be avoided by


now in the technologies and infrastructures of a low-carbon global

economy. Al Gore has referred to this as “the emergency rescue of human

civilisation itself”, and is currently working with President Obama to bring in a

recovery package amounting to at least $100 billion over ten years – creating

in the process up to five million new “green collar jobs”. Many believe that it

will require a far bigger package to have the desired effect – both in terms of

stimulating economic recovery and securing substantive and rapid reductions

in greenhouse gases. The eminent economist Paul Krugman has suggested

an investment programme of closer to 4% of US GDP for the next ten years.

A similar percentage here in the UK would amount to many tens of

billions: the Sustainable Development Commission has recommended

£30 billion. But the state of public finances here in the UK rules out any

such commitment. Though it’s true that (at 47% of GDP) the level of national

debt in the UK remains much lower than in most of our European partners,

there are already grave concerns about levels of indebtedness here.

The steep decline in the value of the pound in 2008 demonstrated just

how fine a balancing act it is that the Government has to pull off in terms

of any UK-specific “Green New Deal”.

This strengthens the case for a dramatic

redirection of public spending

as well as increased spending in some areas. There’s no shortage of

opportunities to recoup tens of billions of pounds on “big ticket” items like

the proposed identity card and a raft of IT mega-schemes. Top of the list

(at £25 billion) should be a proposal to axe Labour’s deeply immoral plans

to renew our Trident nuclear deterrent. The reluctance of the Labour Party

even to discuss the issue of Trident shows just how far it has to go in terms

of understanding the impact of climate change on literally every aspect of

government policy – including defence and security. And there are many

very senior people in the armed services who subscribe to exactly that view.


/ 61 Living within our means:

avoiding the ultimate recession

Prosperity beyond growth

Perhaps understandably, 99.9% of governments’ efforts around the world

are focused on stabilising the still precarious state of global capital markets

and on avoiding anything quite as painful as the prolonged depression of

the 1930s. “Understandable” because nobody wants to see that level of

economic and social trauma impacting on the lives of billions of people

all around the world. But there’s a paradox here. The recession will mean

that emissions of CO

2 and other greenhouse gases will fall markedly until

the global economy picks up again. After the collapse of the Soviet Union,

emissions from Russia fell by around 5% per annum over a number of years,

precisely following the overall decline in economic activity. But because

nothing was done during that time to improve levels of efficiency, Russia’s

emissions leapt up again as soon as its economy started to recover. There

seems little doubt, therefore, that a three or four year 1930s-style global

slump would see emissions of greenhouse gases at least stabilising and

possibly even falling – but the real question is for how long?

And that’s why the current strategy (which can be characterised quite

simply as “getting back to as high a level of economic growth just as fast

as possible”) is indeed deeply irresponsible if not immoral – as the Church

of England is now arguing with increased intensity. In their bones, world

leaders know that if the global economy keeps growing at around 5% per

annum (as it has done over the last couple of decades), then it’s game-over

for human civilisation as we now know it. Runaway climate change would

become unavoidable; resource wars would destabilise already fragile

relations within and between countries.

But world leaders also know that their electorates have become so

wedded to the theoretical benefits of year-on-year economic growth that

it’s going to be incredibly difficult to wean them off it without profound

social and economic dislocation. This meta-dilemma is cogently mapped

out in Professor Tim Jackson’s new report for the Sustainable Development


Prosperity Without Growth :

“In examining global data on life expectancy, infant mortality

and participation in education, it remains possible that growth

is a necessary condition for flourishing. The clearest conclusion

is that economic resilience matters. Basic capabilities are

threatened when economies collapse. Growth has been

(until now) the default mechanism for preventing collapse.

This leads to an uncomfortable and deep-seated dilemma:

growth may be unsustainable, but “de-growth” appears to

be unstable. Our inability to confront this dilemma may be

the single biggest threat to sustainability that we face.”



A sustainable new deal

Uncomfortably, the report lays bare just how ill-prepared we are in

terms of addressing this dilemma. Through all the years of plenty, even

as the evidence of overshoot and worsening unsustainability grew and

grew, no serious work has been done on thinking through any kind of

alternative paradigm. The Treasury (and every other equivalent department

around the world) just sat on its hands hoping the dilemma would go away.

As Tim Jackson has argued, there is currently

no macro-economic model

anywhere in the world for achieving economic and social stability in the

absence of economic growth.

Worse yet, the dilemma deepens when we look at what it is that currently

provides much of that growth in the OECD countries: credit-fuelled

consumption. There is no longer any doubt that governments around the

world have “facilitated” if not positively promoted a massive expansion

of credit (accompanied, obviously, by increased levels of personal debt)

to fuel consumption in order to drive economic growth. In the US today,

for instance, consumer activity accounts for about 70% of all economic

activity. US consumers spend around $9 trillion a year – more than 120%

of their annual income. In other words, as Tim Jackson says: “The market

was not undone by isolated practises carried out by rogue individuals.

Or even by the turning of a blind eye by less than vigilant regulators.

It was undone by growth itself.”

On top of those transparently unsustainable levels of personal debt,

are equally unsustainable levels of public debt. As we’ve seen, David Walker,

the former US Comptroller General, has extended the official figure for US

public debt (at around $10 trillion) to around $50 trillion once huge “invisible

items” such as the Medicare programme, the wars in Iraq and Afghanistan,

and the true extent of the bank bail-outs are factored in. That’s the equivalent

of $175,000 for every American citizen – which makes their own personal

debts look modest by comparison. And although the US might be “out in

front” on public debt, it is not alone. Italy and Germany have debts of

more than $2 trillion; Japan around $9 trillion; the UK and France more

than $1 trillion each. Even countries like India, China and Brazil have

all racked up debts in excess of half a trillion dollars.


/ 63 Living within our means:

avoiding the ultimate recession

So how are we going to pay it all back? Economic growth, of course!

Even though we now know that much of the growth we’ve seen over the

last few years has either been an illusion (in terms of growth in “paper”

or virtual assets), or has been generated at the expense of the natural

capital and eco-system services on which our wellbeing depends.

In a paper for the Sustainable Development Commission, Herman Daly

has spelled this out with painful clarity:

“The current financial debacle is really not a “liquidity crisis”

as it is often euphemistically called. It is a crisis of over-growth

of financial assets relative to growth of real wealth – pretty much

the opposite of too little liquidity. Financial assets have grown by

a large multiple of the real economy – paper exchanging for paper

is now twenty times greater than exchanges of paper for real

commodities. It should be no surprise that the relative value of

the vastly more abundant financial assets has fallen in terms

of real assets. Real wealth is concrete; financial assets are

abstractions – existing real wealth carries a lien on it in the

amount of future debt. And the value of present real wealth is

no longer sufficient to serve as a lien to guarantee the exploding

debt. So can the economy grow fast enough in real terms

to redeem the massive increase in debt? In a word, no.”


Herman Daly has long been predicting a meltdown of this kind.

The fact that it hasn’t happened before now has given a lot of

people a lot of comfort. But for how much longer?

A sustainable new deal



the ultimate



/ 65 Living within our means:

avoiding the ultimate recession

So is it going to be easier to do what needs to be done to avoid what

I’ve called “The Ultimate Recession” in the depths of our current recession

than it was in the days of seeming plenty? We’ll never know. Frustratingly,

politicians were only just starting to get serious about climate change

and other global sustainability issues when the banking collapse knocked

everything off course. We might otherwise have been looking at measured

progress, through 2009, in the run up to the Copenhagen Conference

at the end of the year.

The current recession probably makes no odds as far as the state of

the Earth is concerned. Ups and downs in the human economy will have

only the most marginal of effects on the concentration of those gases

in the atmosphere as a consequence of temporarily reduced emissions.

And the evidence from previous economic downturns (in Russia in the

1990s, for instance) is that “business-as-usual” models of economic

growth kick straight back in on the upturn.

So these few months are going to be precious beyond belief. If we

neglect this opportunity, and revert back to business-as-usual growth-atall-

costs, then it seems clear that our path to a sustainable future will be

infinitely more troubled and painful.

We have a unique opportunity to deconstruct the illusions that underpinned

both the boom and bust of recent times; to understand that these are the

self-same illusions that have precipitated today’s near-terminal environmental

meltdown; and to use that knowledge to construct the foundations for a

global economy that will have at least a reasonable prospect of steering

us through to a secure and sustainable future.

The scale and extent of those illusions becomes clearer by the day.

We now know, to our great cost, that it does not make sense:

to stimulate growth through an ideologically-driven deregulation

of capital markets and a weakening of all regulatory controls

to stimulate economic growth by freeing up access to

unprecedentedly high levels of credit and by building up both

personal and national debt on an equally unprecedented scale

to licence the continuing externalisation of cost for short-term

economic gain, knowing full well how badly this would distort

markets over the long run

to misprice risk by assuming that asset values would continue

to rise indefinitely into the future

Avoiding the ultimate recession

to consume vastly more, as a country, than we are able

to produce, and somehow assume that there will be

no final reckoning for this

to allocate capital in such a way as to favour short-term

profit maximisation rather than long-term value creation

to rely on the metrics of economic growth (GDP and

per-capita income) as the pre-eminent measures of

progress in society, ignoring all other aspects of societal

and personal well being

to treat people exclusively as consumers rather than

as citizens, and simultaneously to prioritise the interest

of corporations over the interests of citizens

to condone (and even promote) private greed on the

assumption that this would somehow lead to greater

public benefit

to rely on the volunteerism of Corporate Social

Responsibility as the principal mechanism for aligning

corporate interests with the interests of society at large.

As we saw in Chapter 2, the combined weight of these illusions accounts

just as much for today’s converging environmental crises as it does for

the collapse of the global economy. This insight seems to have escaped

all but a tiny minority of politicians in today’s mainstream parties.

Most Tories remain hostile to David Cameron’s heightened interest

in environmental issues, and would appear to be very nervous about

the idea of “capitalism with a conscience” which he advanced at his

speech in Davos in 2009.

Most Lib Dems still think it’s possible to square exponential economic

growth in the global economy with a sustainable world, despite the fact

that there’s not a shred of evidence available to them to sustain this illusion.

Most of the so-called “progressive Left” continues to ignore any serious

sustainability analysis on the understandable grounds that it will explode

their increasingly forlorn cornucopian fantasies. And amongst the elite

“commentariat”, there is still remarkably little recognition of just how

undeliverable today’s model of economic progress has now become.

One need only look at the debate about population to understand

the full extent of that institutionalised denial and disconnect. Though

I have studiously avoided banging the population drum on this particular

occasion, I remain astonished that so few people (even at the most


/ 67 Living within our means:

avoiding the ultimate recession

progressive end of civil society) are prepared to accept that a continuing

combination of a growing population and exponential economic growth

will put a sustainable world for humankind forever beyond our reach.

Though this is not the place to repeat these arguments, suffice it to say

here that any idea of avoiding “the ultimate recession” (the one which will

be induced by climate shocks, worsening inequity, resource scarcity and

collapsing eco-systems) is a total fantasy unless it embraces an unstinting

commitment to reducing average fertility all around the world just as fast,

effectively and compassionately as is humanly possible.

Since I wrote

Capitalism As If The World Matters , I’ve been asked

endlessly whether I still believe that any capitalist system could bear the

weight of radical decarbonisation, a deep and lasting redistribution of wealth,

a dramatic rebalancing of our relationship with the natural world, as well as

that unstinting commitment to reducing average fertility. My answer is still

“yes”, partly because I can see in my own mind how that particular variant

of strictly sustainable capitalism could work, and partly because I’m scared

witless of what the alternative to that market-based, resolutely democratic

capitalist world might look like.

But my optimism on that score diminishes by the year. Short-termism

and outright denial remain dominant. For instance, though the words

“energy security” are endlessly bandied around in politics today, the truth

of it is that none of the parties has really shown much serious interest in

it. The Government has failed entirely to carry out any assessment of the

availability of global oil supplies. In pursuit of his excellent idea to set up

“The Hundred Year Parliamentary Committee” (as a mechanism to assess

the likely impact of any policy development in 20, 50 and 100 years time),

George Monbiot was told by officials in BERR that “the Government does

not feel the need to hold contingency plans to meet the eventuality that oil

production might soon peak”. Even the oil companies have contingency

plans for such an eventuality!

In the first quarter of 2009, there is no serious indicator that the

Government is using the current crisis to rethink the way we live and

the way we create wealth – unless it be in the oblique commentaries of

both Ed and David Miliband. There is as yet no sense of relief that it has,

in effect, been liberated from its servitude to the amoral imperatives

of free market economics. There is apparently little self-awareness that

11 years of running the economy in this way have left it more unbalanced

now than it was in 1997, and even less resilient (as in preparedness to cope

in a world dominated by radical discontinuities). All that seems to matter

is getting back to the same old consumption-driven, debt-burdened

growthism that got us into the current mess. However absurd this may

be, “living beyond our means” seems to have become the central tenet

of recovery for a Government that has simply lost its way.

How long that will keep the Labour Party ticking over is a moot point.

Iceland may well offer some disturbing signals as to what voters might

do when today’s combination of bafflement, resignation and fear gives

Avoiding the ultimate recession

way to outrage. The Government’s belated decision to intervene on the

matter of bonus payments for bankers only came about because they

eventually read the rising crescendo of public rage at the idea that the very

people who precipitated the crisis were about to pay themselves yet more

millions of pounds – even in those banks that are effectively owned by the

state. It took President Obama eighteen days to crack down on featherbedded

US bankers by imposing a pay ceiling of $500,000; it took Labour

eighteen months to set up a transparently inadequate enquiry chaired by a

man who has himself been a major beneficiary of the corrupt bonus system.

One can’t help thinking that this grudging minimalism (in terms of any

reform agenda) simply isn’t going to suffice much longer. In the



essay I referred to on page 11, Neal Lawson and John Harris

warmly welcome the emergence of new political initiatives, and especially

the new coalition of NGOs and Trade Unions under the “Putting People

First” campaign. They have urged all progressives on the Left or in the

Centre to “refuse to go back”:

“The catalyst for what must happen next is that we must simply

refuse to go back. We know the consequences of a desired return

to “normality”: house-price bubbles, personal debit, boom and

bust, insecurity and long hours at work, anxiety on the streets,

stress in our homes, and fears about the survival of our planet.

What all of us who want a more equal, sustainable, democratic

and liberal Britain and, indeed, world now have to recognise is

that we can no longer go on trying to cope with the symptoms

of market fundamentalism. It is time to address their causes.

And to succeed in that, we have to work together. Isolated

measures on the environment or inequality are not enough;

single issues have to be joined up.”


The “manifesto for change” they’ve come up with (see opposite) is very

similar to the ideas of the Green New Deal that I’ve referred to throughout

this final chapter. Since that report first came out in July 2008, an

extraordinarily diverse range of organisations and individuals have started

using the language of “new deals” for a sustainable world. The Transition

Towns movement has already had a major impact on local community

initiatives, and looks set fair to grow and grow over the next year or more.

The Green Party has been re-energised by the election of Caroline Lucas

as its official Leader and is aspiring not just to repeat its earlier Eurosuccesses

in this year’s European Election (perhaps adding to their

current count of two MEPs), but to break through in a small number of

seats in the impending General Election. Elsewhere, a new organisation

called “38Degrees” (this being the angle at which avalanches are triggered)

is intent on stimulating some of the transformational energy that “MoveOn”

and other web-based initiatives in the US unleashed so inspiringly in the

run-up to the 2008 Presidential Election.


/ 69 Living within our means:

avoiding the ultimate recession


Electoral reform

Make all votes count. Put the people in

charge of the UK parliament and usher

in a new era of pluralistic politics.


Introduce the Tobin tax

Named after James Tobin, a US

economist who came up with the

idea of a small levy on international

currency transactions. Essentially,

it would use cash from high finance

to raise funds for the developing world.


35-hour week

It works in France – why not here

in Britain?


A living wage

At the very least, the obligations to

pay a living wage should be built into

all public sector contracts; over time,

it should be spread through the whole

economy. Boris Johnson backs it in

London at £7.45 an hour.


Radical localism

We should finally allow innovation,

diversity and pluralism in our

communities by handing back

power to local government, through

new powers to raise revenue by way

of local taxes or bond issues.


Remutualise and re-regulate

the banks

Northern Rock, Bradford and Bingley

and the Halifax were set on the road

to ruin by their decision to demutualise

and become banks. This should be

reversed for the first two.

There is also a strong argument for

mutualising other high street banks.

Furthermore, Britain should push

internationally for the separation of

retail from investment banking and

insist that UK banks set an example.


A maximum wage

To get straight to the heart of our

broken social model, we could fix

the ratio between the salaries of

executives and those of their

employees: through the tax system,

we could put a ceiling on every firm’s

differentials to ensure greater equality

and social cohesion.


A Green New Deal

Now, more than ever, it is time to

create thousands of jobs and limit

carbon emissions through a drive

for new green technology.


A tax on land

Companies, house builders and some

residents are enjoying huge windfalls

from increases in the value of land they

own, often because of public money

spent on roads, rail and schools. Such

land value increases should be taxed

to dampen house-price speculation

and provide funds for social housing.


General Well-being Index

This should become the key measure

for assessing our government’s

success. Do its policies and initiatives

actually help make us happier?

A manifesto for change:

ten ideas to help transform Britain


Avoiding the ultimate recession

There’s a lot happening – despite the fact that a very large number of

people are still reluctant to throw their weight behind this new surge in

citizen activism. But as we come to terms with the full scandal of what

has happened over the last few years, and begin to feel more deeply

the pain that this will now inflict on very large numbers of people and

communities in both the rich world and the poor world, it seems

inevitable that levels of anger and even rage will slowly rise.

That anger will need to be tempered by hope and serious political

engagement. Indeed, I believe it is no exaggeration to say that the destiny

of people in the UK will be shaped for many years to come by the decisions

taken over the course of the next two years. Unless we put the imperative

of living within our means, both financially and environmentally, absolutely

at the heart of everything we do to dig ourselves out of this recession,

then any economic reprieve that we enjoy at the end of that time will

be as bittersweet as it will be short-lived.


/ 71 Living within our means:

avoiding the ultimate recession



Neal Lawson and John Harris,

New Statesman (9/3/09)


George Monbiot, Guardian



Thomas Friedman, “Hot, Flat and

Crowded”, Allen Lane, 2008


Robert Reich, “Supercapitalism”,

Icon Books, 2008


Jeffrey Garten, Newsweek



The Economics of Ecosystems

and Biodiversity: An Interim Report,

IUCN, UNEP, 2008


Living Planet Report 2008,



Proactive Investment in Natural

Capital (PINC). Global Canopy

Programme, June 2008



Oliver James, “The Selfish

Capitalist”, Vermilion Books, 2008


Jon Cruddas, “A Ready Made

People’s Bank”, Guardian (12/1/09)


BTCV, “Mobilising the Carbon

Army”, October 2008



Third Sector Taskforce,

Groundwork, February 2009



“A Green New Deal”, new

economics foundation, July 2008,



“A Green New Deal”, ibid


“Green Foundations 2009”,

Aldersgate Group



“Green Jobs: Towards Decent

Work in a Sustainable, Low-Carbon


September 2008


Tim Jackson, “Prosperity Without

Growth”, Sustainable Development

Commission, March 2009



“Put People First”, The Bretton

Woods Project, March 2009



John Bunzl, “Can We Fix The Global

Financial System?” November 2008,



Stephen Green, quoted in

The Independent (6/3/07)


Richard Murphy, “The Threat Lying

Offshore”, The Guardian (10/10/08)


“From The Ashes of the Crash”,

new economics foundation,

November 2008



Tim Jackson, ibid


Herman Daly, “A Steady-State

Economy”, Sustainable

Development Commission,

April 2008



Neal Lawson and

John Harris, ibid


The recession we’re in right now

is going to be very grim

but nothing like as grim

as the recession that awaits us

if we don’t start

living within our means

from my perspective

People are divided into those aware of it, and those not.

Although aware, and doing little things on the levels we can, the rest of the world roars by on its motorbikes, fast cars, 4X4s, airoplanes...and the bombers bomb on.

The enormity of the wanton destruction of our future leaves one gaping, turned to stone.

My son said over supper. 'What's the answer Vicky, come on tell us'. I said nothing.

The reality is that we have to look the gorgon in the face, see a horror which is beyond anything imaginable or real in all our past, and accept. Then carry on fightin it.

Satish tells a story of a meeting called to save the world. In the midst of it a messanger bursts in crying 'It's too late, it's ending now' The people start to run in panic, the guru calls them back. 'If it is the end, let us end our lives doing the right thing, so continue the meeting, and just possibly it isn't in which case, let us continue the meeting'.

Although in Wales we still cannot put up a humble solar panel because of planning, without defying the law, and Plaid has been in government a bit for over a year, I am helping organise Gwanwyn Gwyrdd - Sustainable Spring, a Plaid green conference in April. This will have Patrick Holden of the Soil Association and Peter Harper of CAT helping answer the questions and direct Plaid policy and practice at all levels towards a sustainable Wales. Just maybe planning and the other hideous deformities of environmental conservators will stop savaging people's attempts to redeem their lifestyles.

I was at 2 meetings on renewable energy recently, going to another tomorrow. At both more chairs had to be brought into the crowded venue. The audience were rugged practical types, not people I knew, but farmers, engineers, solid intelligent people wanting to learn, to find ways to install renewables. At both there was anger, astonishment and desperation with the planners that stop them doing things to save the planet.

Build our arks without planning permission I suppose, that is the answer that is catching on. The point of the Ark is not to preserve your own clan, that is a means, the point is to preserve the glories of creation, natural and cultural with the clan tending and caring for them, so they can regenerate when the climate is right!

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22.01 | 19:00

Hi, do you have any adze in the shop at the moment? thanks

14.04 | 09:58

Have you or can you suggest any use for rosettes awarded at the agricultural shows please?

23.03 | 18:06

Hi from Ellie at Pembs. FOE I can't make it to your Green Fair ,but will try and bring some info. about latest campaigns etc. this Friday for a display board.

01.12 | 23:31

Is there an local organisation in SouthWest Wales for smallholders and allotment holders to sell excess produce from their holding for income?

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