The problem isn't Peak Oil. It's just plain OIL

It seems to be very hard for some people to 'get' what the problem with fossil fuels really is. Daniel Yergin, Mr Peak-Oil-What-Peak-Oil? in person, is apparently in Davos for the annual jamboree in which all those clever people who got us in the current mess celebrate how clever they are.

Mr Yergin thinks Peak Oil is a long way off. A lot of other people in Davos would agree, I suspect, though whether this is a matter of superior knowledge, judgement or self-interest I would not like to say.

But what does it matter how far away Peak Oil is? Assume that it is close, or has even arrived. The contradiction between falling supply and massively accelerating growth (courtesy of China, India, etc.) will create an equally massive economic crisis. But what if we assume that Peak Oil is far off, as Yergin argues. What then? We syphon billions of barrels of the stuff up the surface and burn it into CO2? Yes, that's exactly what we do.

As various people have now noted, we cannot afford to burn more than a small fraction of even the fossil fuels at our disposal now, let alone any additional future supplies - not because of its economic price but because of its environmental consequences.

So, Peak Oil is a huge problem. But so is the oil continuing to flow.

To put the matter in a nutshell, the problem is not Peak Oil. It's just plain Oil. A uniquely valuable and important commodity, but one for which we haven't even begun to really pay.

Those who cannot remember the past...

Three decades ago, the Carter Administration tried to pass legislation to establish an energy policy for the USA. Writing in Wednesday's FT Energy Source, Philip K. Verleger - then Carter's Director of the Office of Energy Policy at the U.S. Treasury - claims that the current Obama administration hasn't a hope of getting his global warming legislation through. The reasons: arrogance, ignorance of the substantive issues, and failure to recognise the power of pork.

For Verleger the implications are clear, and in the light of recent events in Congress (and Copenhagen, because, whatever the scorn within which Europeans treat US politics, this is by no means a uniquely American problem) I find it hard to disagree. Here are Verleger's closing words:

"Many of the veterans of the Carter battle have quietly exchanged emails and
phone calls as the Obama legislation awaits its fate. The consensus opinions are
these:

1. None of the people putting the Obama energy policy forward understood the
   problems they would face in Congress.
2. The bill’s supporters (”greens”) are less aware of history than we were in
   the 1970s, if that is possible.
3. The legislation’s passage is unlikely absent an outside precipitating
   event.

It will be difficult to take effective action on emissions even when every
American accepts global warming as fact. Concerns regarding economic security
are far greater than those over climate impacts 10 or 20 years in the future.
Tragically, individuals pushing such actions - the representatives of various
NGOs covered in this blog, for example - do not understand history, the concerns
of voters, or the workings of Congress.

The battle is lost."

For those of us for whom the problem of global warming is, as energy was for Carter, the Moral Equivalent of War (MEOW!), it's a depressing insight.

Tax breaks for accelerating Peak Oil

Yesterday's Financial Times includes an article by their Energy Editor, Ed Crooks entitled 'Tax breaks to lure oil and gas sector'. It reported that tax allowances of up to £160m per field will be made for developing an area west of the Shetland Islands that probably includes more than 2 billion barrels of oil.

Tax breaks on oil wells? What sense does this make? Oil companies are some of the richest on the planet, and subsidising them to drill is doubly stupid - in a world fast approaching (passing?) Peak Oil, this is foolish short-termism, and in a world that cannot afford to burn more than a small fraction of its remaining fossil fuels before it trips us into irreversible global warming, paying them extra to make sure it happens is simply bonkers.

So why are they doing it? It's a hard region to develop, so if the UK government wants oil money to continue flowing into the economy, they have to bribe oil companies to bring it here. Hence the tax breaks.

It's a characteristic environmental/resource problem that follows from a) the mass nature of many decision-marking processes (e.g., multiple nations and companies making related decisions in parallel) and b) the absence of effective overarching (e.g., global political or regulatory) systems capable of ensuring that the whole - the net impact of a mass of individually intelligible decisions - does not undermine the interests of us all.

And in this case, that is exactly what is happening: a hundred countries trying to attract investment for the sake of the employment, the tax revenues and the boost to GDP are collectively abandoning the responsibility for handing over a sustainable resource base to future generations and accelerating global warming. A thousand companies, all hungry for investment and struggling to maximise their returns, ravish the planet and resist even the most superficial controls.

But there's nothing unique about the oil industry: we subsidise a huge range of damaging and short-term practices (e.g., airline flights through tax breaks and indifference to 'externalities'). In fact governments and business have been 'managing' the economy between themselves for perhaps as long as there has been an 'economy' to manage. Monopolies, politically inspired subsidies, corruption are the normal practices of all major economies - all delivering short-term gains for state and business that destroy the long term interests of society. All that is new today is that these mechanisms are so powerful and so far of the leash that we are simultaneously creating an unprecedented threat to society's very survival and abandoning every tool we once had to manage such a problem.

The bad guys and the worse guys

I’m looking for a new job. Yesterday evening, sitting in a local café, I shocked my wife by suggesting that I would consider working for an investment bank (in IT, not their signature skullduggery). If you have been reading this blog for any length of time, you may will be as astonished as she was – after all this ranting and raving about the causes of the recent crisis and recession, how could I possibly be thinking of working for such dreadful people! What a hypocrite!

Maybe. But the answer is, the investment banks are indisputably the bad guys, but where are the good guys? Haven’t you ever worked for someone who was doing some good, my wife replied? Someone who treated their staff well and was doing something socially useful (as opposed to the irredeemable social parasitism of the contemporary investment bank)?

Not really, I answered. Well, it’s not that they are all relentlessly evil, but rather that all their benevolence seems to stem from the single-minded desire to maximise profits. And if you had to be nice to people to achieve that, then you were damned well nice to them. And when it becomes more profitable to treat them like dirt, that too will come to pass.

Nor are personnel policies the only issue.

• Some years ago I was working for a major testing consultancy. It collapsed as a result of the .dotcom debacle. And then the fun began. Within a few months we were hearing fascinating tales about the board being investigated by the FBI and our own ex-CEO being highly sought by some quite undesirable company that wanted a word about their relationship.
• More recently, I spent some time with a major UK supermarket. Their employees told me that they were pretty good to work for – but as soon as you found out anything about how they exploited their suppliers, you’d realise that this was not out of unqualified benevolence. And so on. It’s the norm – companies are indeed becoming more benevolent, but only a) where they have to, and b) it’s the price they pay for extracting more and more high-level value from the employees – you only give potted plants to the ones who need a comfortable environment in which to work effectively.
• Or going right back into ancient history, when the creative accounting practices used by Arthur Andersen at Enron came to light, I seem to recall that the reaction of many people in the City was ‘Why couldn’t you do that for us?’

So in a sense they are all the bad guys – that’s what it means to be in business. True, some are truly beyond the pale – the tobacco companies, for example, or arms dealers. But investment bankers? Given how the average company uses its ‘treasury’ operations (i.e., lending cash, buying and selling derivatives, etc.) to boost its profits, they were colluding with Morgan Stanley, Lehman and a rest. They weren’t very clever about it – most of them were caught out – but that doesn’t make them less culpable.

Conversely, the investment bankers aren't breaking the system - on the contrary, they represent its apotheosis.

So perhaps I’m making the wrong distinction – there are bad guys, and there are worse guys. The worse guys seem only to be a little smarter and little more determined than the not-quite-so-bad guys, but fundamentally? I’m not sure I can really tell the difference anymore. I’d love a job with the good guys, but I have no idea who they are.

Economy versus environment (Part 94)

Q: What would actually happen if any significant proportion of the population suddenly took it into their head to reduce their environmental impact? A: The economy would collapse.

If you look at the recent recession, it is striking how much damage was done by relatively small changes in GDP. Of the highly developed nations, the UK (among the OECD countries, a middling performer) was so badly hit that it has experienced a loss of a little over 2.5% since the end of 2007. What? 2.5% in two years? A bit over 1% a year? What’s the big deal? Yes, I know, losing 1/80th of my income would not be a good thing in a year, but how can this be enough to do so much damage to an economy?

So what would happen if, say, 20% of the population managed to knock 50% off their environmental impact? Surely that would be an excellent start. Well, from an environmental point of view, perhaps. But if that translated into a 10% fall in consumer spending, where would that leave the economy? Consumer spending represents about 56% of German GDP, 58% of Japan’s GDP, 64% of the UK’s and 72% of the US’s (here). So a 50% fall in spending by 20% of all individuals would cut these economies by somewhere between 5.6% and 7.2% of GDP. In other words, even such a small change by a small minority would reek more economic havoc than the current recession!

So, we all get the environmental bug, and the economy folds. And with it go (as the current recession has also shown) investment in green technology and solutions of all kinds. Not everything, but far too much to support the real greening of industry. On the contrary, investors would be heading for the safe, short-term returns. And governments everywhere would be trying to compensate for the shortfall with new spending – and so shoring up the very economic activity those who had cut their impact had hoped to eliminate.

This isn’t a criticism of taking action, of course. But it is the old revision-versus-revolution problem. If you want only that the system work a bit more benignly, you need only revise the system so that it loses its more unpleasant foibles. But if the problem you are worried about is inherent in the system itself, revision isn’t the answer. The only way to fix systematic problems is to change the system in systematic ways.

That in turn is a political issue. Our politicians are of course firmly committed to growth, but that is not an irreversible condition. But two things are fundamental.

1. We must develop a credible explanation of this most fatal link between economy and environment, and make it as central a plank of future political discourse and policy-making as growth and consumerism have been since the 1970s.
2. We must define a programme for migrating our existing economy to a sustainable form. This cannot wait for 'the market' or the actions of private corporations, whose interests will never be to change themselves while there is still money to be made. Governments and local organisations must start to plan the elimination of environmentally destructive economic activity, undo the vicious circle of capital expansion that drives consumerism, obsession economic growth and the disregard of the poor and weak.

A momentary lapse into defeatism

I have always felt very ambivalent about the 10/10 campaign. It seems so very unambitious. Most people can reduce their carbon footprint and general environmental impact by 10% by little more than scrutinising their current lifestyle and cutting out the worst excesses. Turn the thermostat down a couple of degrees too high, stop wearing flimsy clothes on cold days, fix poor insulation for a small outlay, stop buying gadgets, fashion, trinkets, food from the other side of the planet, drive more thoughtfully (and if possible stop driving altogether), turn off unused lights (and stop squandering electricity for pointless lighting in the first place), remember to turn the PC off, and so on. 10%? A piece of cake.

What is more, I have probably managed 10% with disproportionately little sacrifice. It took me seconds to reset the thermostat and turn off the radiators in areas I barely use. It took about a week to get used to rooms a couple of degrees cooler. It took not time at all to remember to turn off lights and shut doors. It will take a lot longer to step back from impulse buying and toys, but it’s not impossible – I’m not so addicted to consumerism that I have to go along with the entire glitzy, grubby farrago. Nothing too it, if you really want to make a difference. 10%? Why so little?

But that isn’t the problem I have with 10/10, or any of the many other exhortations to us (as individuals) to use less. 10% is a nice idea, but the correct answer is something like 85%. So if we achieve 10% in 2010, will we achieve another 10% in 2011, and then another in 2012? It’s not inconceivable, given a truly impressive level of sign-up (which has not, as far as I can see, happened so far).

But even 30% is long way from 50%, let alone 85%. Read George Monbiot’s Heat or David McKay’s Sustainable Energy – Without the Hot Air for a sense of just how far we really have to go. At that level, the only sensible answer is to look seriously at our core social, political and economic systems to see how they need to be changed to deliver the goods. Or rather, stop delivering them.

But especially since Copenhagen I feel like we not only still have a very long way to go but that we have taken completely the wrong road. Down this road, no matter what a few individuals do, things do not get better – no, they get only worse.

I’m not too worried by the flagging public confidence in the reality of global warming or the tiny holes knocked in the credibility of individual environmental researchers - not even the IPCC. Such upsets will be transient and have a marginal impact. Much more serious is the decision by so many national governments to do what can only be summarised as - nothing. For how else can we understand Copenhagen (which left the world’s environmental strategy even weaker than after Kyoto), or the news that the UK government plans to take its expenditure on environmental projects in the developing world from existing budgets, or Obama’s evident fear of doing anything whatsoever about his environmental promises for the foreseeable future, or the Chinese government’s unwillingness to make any significant contribution to climate change (other than to make it much worse, of course)?

But why is this so much more important than persuading individuals to make a start on their personal environmental impact? Because the number of individuals who were ever likely to take that road was never more than a small – perhaps tiny – minority whose collective actions would have no significant effect on our fate. To have a wider impact, they had to serve as a catalyst, as a demonstration to governments that the environment was a vote-winner. Only when they had learned that would governments start to take the action needed to transform not just the footprint of individual households or even a Transition Town but the collective footprint of (in the UK’s case) 60 million people or more.

And not just 60 million individuals. Unlike you and me, governments can directly transform the country’s physical infrastructure on a national scale, coordinate similar actions on an international scale, force big business to mend its ways, and all in all make the systematic changes that no assembly of individual persons can ever bring about. Even 60 millions individuals could not change the public transport system without government action, nor how we generate electricity, nor how developing countries go about achieving a civilised level of development, nor any of the rest.

But after Copenhagen? Nothing can expected from governments any more. Or at least, far too little even to deflect the crisis by more than a smidgen. Even worse, not only have they decided against going beyond Kyoto but they have plainly decided that the only solution to the world’s economic woes is to restore the economic system that got us into our current mess – economic and environmental alike. The only adjustments they plan to make are trivial, serving only to make the economic system a little less dangerous in narrowly economic terms, without any thought for the environmental consequences of a capitalist ‘business as usual’.

In such a situation, what is the point of an individual making a personal commitment to reducing their environmental impact? Does it make sense for individuals to take action off their own bat if the great majority are not only not doing practically nothing (a situation I can live with for a decade or two) but major organisations (political and economic) are never going to be moved in an environmental direction, and have in fact decided to head straight back down the road we all know leads only to global warming, ecosystems collapse and resource wars? What can we claim that individual environmental self-control can achieve after that – that we will succeed in putting off the evil day by 10 minutes?

So even if I do manage a 10% - or 25% or 100% - reduction, exactly what have I accomplished? On a personal level, perhaps it is still a lot. At the very least, if I can get my footprint down to a sustainable level (not a very meaningful proposition while I remain a member of such a destructive society), I can say that at least it wasn’t me, guv. But on a higher level? What have ‘we’ accomplished? In the absence of a broader, systematic impact on the whole way we (at worst) conceive of the environment and (at best) the way we manage our economy, a lot less than we might imagine.

Where does obsessive growth come from? Well, not consumerism, that's for sure

Contemporary society is widely described as consumerist, and when politicians and pundits are asked how we can control the endless expansion of the economy, their first hand-wringing response is that what ‘the consumer’ (a group that seems to have superseded ‘the voter’ as the arbiters of political policy) want is simply ‘more and more’. So growth is the only game in town.

The environmental implication of this frozen staring into the contemporary economy is simple: nothing can be done. Nothing can be done to prevent us driving right over the CO2/ resource/ ecosystem cliff, because ‘the consumer’ is king and ‘the consumer’ would not stand for not having more stuff, more holidays abroad, more everything.

This is mythology at its most deceitful – and, given its environmental implications, most disastrous.

Look at how the economic process that links consumers to the economy really works. Somewhere out there is someone – some billionaire, some bank – with a lot of money to invest. They build/buy a factory that makes some consumer goody – iPods, perhaps, or ‘designer’ jeans’, or the latest ‘taste sensation’. The new owner invests millions, maybe billions. They’ve invested millions in creating the product, millions more in setting up production, millions more paying managers and production line workers, millions more for natural resources and energy, millions more to create the supply chain that gets it into the shops.

The sole reason all this investment takes place is to make money – lots of money, and certainly more than the millions invested. Otherwise there is no profit. So they need people to buy their product. You and me. Hence the endless orgy of marginally differentiated goods and services, the interminable and increasingly in-your-face advertising, marketing, the lobbying, the focus groups, the viral messages.

Consumerism exists not because consumers want to buy but because companies need to sell. If they don’t invest more and more in manufacturing, services, energy, transport, and so on, there will be no returns on their capital. They go bankrupt. But if they do invest, then there must be sales. It is not consumerism that drives growth but capital’s need for a return - endlessly.

But why does this lead to growth rather than simply a ‘steady state’ economy in which we can continue to have what we have now? Or if we must expand, why can we not expand in directions that contribute to the sustainability and equity so many commentators – Nicholas Stern, Jonathan Porritt, George Monbiot, and many more - insist must be the goals of the 21st-century economy? The answer is quite simple: there are plenty of mechanisms built into the contemporary economy that enforce growth - whether or not we want it - but none of then involve doing anything for developing countries – unless, that is, they can pay as well as developed countries can.

Ironically, one of the key mechanisms for ensuring that growth will happen is the very efficiency improvements that so many pundits are relying on to reduce future growth. From society’s point of view it makes sense that, if we can produce the same goods and services by using less energy, less resources, with less damage to the atmosphere and the environment, then surely this is the way we should be going.

But from a capitalist perspective, there reverse is true. If I – just me, rather than my rivals – can use the same resources to produce more, then I will. I will not – could not – simply produce the same in a more environmentally benign way - the assumption of the pundits – because the goals of investment is to maximise profits, not minimise total costs. Given that I have already invested hugely in plant, resources, supply chains, marketing, and so on, many of my costs are already fixed, regardless of how much I actually produce. As a result, if I want to maximise my profits the only rational thing to way to exploit improved efficiency is to use the same investments still more intensively.

After all, I will still be paying fixed rent on my factory and offices, still paying the same fixed interest on my loans, and so on. The main variable costs come from the inputs (labour, materials, energy, transport, and so on) that I use to create actual goods and services. So if I want to maximise the profit I make from this enterprise, simple arithmetic dictates that I should increase the amount of stuff I make (i.e., increase my investment in resources, labour, energy, etc.), because the same fixed costs will now be spread over more units. That will minimise my unit costs, and so (other things being equal) increase my profits. Hurrah!


This logic becomes more compelling the more capitalism matures. History as a whole can be seen as humanity building and rebuilding society with more and more fixed capital – roads, education systems, hospitals, technology, and so on – so that each generation is blessed with a greater stock of means to its ends. In a rational universe this would lead to societies in which, having satisfied its ‘basic’ wants, humanity might not ever quite lose its appetite for progress, but it would at least be able to decide exactly what progress meant.

In our present position, this would surely mean the very commitment to sustainability and equity referred to above. But again, capitalism bucks the trend. As the level of fixed investment needed even to join the game grows – the size of a new car plant, the cost of R+D, and so on – the more fixed costs dominate, the more units that must be sold to cover them, and the more compelling the need to grow becomes.

There are whole countries devoted to this model. China, for example, has put overwhelming emphasis on manufacturing for export – feeding the West’s addictions before developing its own. But there is little reason to believe that even China’s authoritarian government will be able to resist the logic of capitalist investment. And no doubt the boys from Goldman Sachs – or whatever their Chinese incarnation turns out to be – will, for a handsome fee, show them how to lock the handcuffs on themselves.

So growth won’t be ending any time soon. On the contrary, there is only acceleration ahead. Our despoliation of the planet won’t be quite as rapid – those efficiency gains are real (because they are profitable) and neither public nor governments are quite helpless. But until we recognise exactly what the link between capitalism, growth and our all too unpleasant environmental fate is, there is no turning back.

Welcome to the machine.

Is Asian capitalism different?

[A cross-posting from my Quote Unquote blog.]

Last March, an FT journalist called K. Mahbubani wrote a piece claiming - quite rightly for the moment, perhaps - that there are various distinctively Asian versions of capitalism, all of which are a good deal more conservative than the ‘western’ model. Asian societies have much higher levels of savings, since the Asian financial crisis of 1997-98 have restored a degree of government regulation, they have largely ignored the IMF’s market fantasies, and so on.

Which is very sensible indeed. But how sustainable is it? As Mahbubani notes, the high savings level is the product of centuries of economic and social uncertainty. But the same might be said of westerners, whose personal prudence in these matters was once legendary. Indeed, some economic historians have claimed that our high ‘propensity to save’ was one of the foundation stones for capitalism itself. Likewise for regulation: it is not so very long ago that no one in the West would have dreamed of deregulating our economies to anything like the extent that we have.

But things change. Once consumerism – rapidly emerging in the east as in the west – takes command, the vast marketing machines will make sure that savings are quickly eroded. There will come a time when Asian economists will recommend the deregulation of markets, and there will come a time when Asian governments will be so exposed to global economic pressures that they will be unable to resist. That’s how capitalism works – not western capitalism or Asian capitalism - just capitalism. After all, what we have in the west is not a specifically western model at all – it is simply capitalism completely let off the leash. When it is let off the leash in Asia too, they can fully expect the same tribulations.

And plainly Asian capitalism can be fooled into playing along with the western model, because for a long while they did. In 1997-8 they learned better – but to what extent did even that happen because there are at least two major global players in Asia – India and China – neither of which has really been absorbed not the global capitalist network at every level of society? They are both heading – indeed, sprinting – that way, so why should we expect them not to succumb to the 'western' model?

There is an answer. It's a combination of peak oil, global warming and the ecological devastation that is already making itself felt all across Asia. But Asian capitalism? No, I doubt very much that that can resist effectively on its own. Why should it? 'Western' capitalism didn't, even though philosophers and historians and politicians and pundits of every stripe claimed the same virtues for the west as Mahbubani does for Asia.

[1] Mahbubani, K. (2009). Lessons for the west from Asian capitalism. Financial Times, March 19 2009.

Funding clean development in developing countries

Anyone with a sense of decency and proportion about humanity’s current environmental predicament understands and sympathises with the claim by developing countries that the developed countries should actively support developing countries’ contribution to controlling global warming by technology transfers, improved terms of trade and direct funding. Conversely, as India and China’s own governments have pointed out, the attitude of the governments of developed countries to their position is hypocritical at best and shameless at worst.

But at the same time, is it really clear exactly what would be accomplished by such support? Just as the justice of their cause is clear to anyone with half an eye, so the dubiousness of their chosen route to development is obvious to anyone with half an ear for the brilliant but discordant disharmonies of their emerging industries and agricultures. For both India and China (and most other developing countries) have certainly set themselves on a strictly capitalist road to industrialisation, and it is exactly this that undermines their claims to the sympathy and assistance of developed countries. That way lies not socially intelligent development but endless, inexorable growth of all kinds, guided not by whether it is of social value but solely by whether it is profitable – a completely different motive, and largely contradictory criterion to social responsibility.

Not that developed countries are any less culpable – after all, we invented capitalism, we made sure that most developing countries (with the notable exception of China itself) would adopt a capitalist strategy for economic development, and we have wilfully turned a blind eye the environmental (not to mention social, cultural, political and psychological) consequences of our own road to wealth. But to support the industrialisation of any country on the same basis would only be more of the same problem we already have. Indeed, capitalism’s incessant demand for growth and more growth, coupled with the lower ‘carbon efficiency’ of less developed countries’ industries, would actually make the problem disproportionately worse. So even if the environment at large could countenance the rapid doubling and trebling of the global economy, the environmental impact is likely to be much worse than that.

So what is the answer? Beats me. But it isn’t capitalist development, because that can only lock us – and in this case it really is us all – into a worse and constantly worsening problem. Nor will it solve developing countries’ developmental problems, given that they are far more likely to suffer from the resulting climate chaos, resource depletion and ecosystems damage than their more developed neighbours.

From ‘Made in China’ to ‘Owned by China’

Between 2007 and 2008, Chinese overseas investment almost doubled to $52.2bn. In May 2009 the Chinese government announced that Chinese companies would soon find it easier to invest overseas. Just as scary is the fact is that, at the start of May 2009, the IMF reported that China held $1.8 trillion in foreign reserves - which is to say, in convertible foreign currencies, with perhaps 70% of that in US dollars.[1]

This is more than the GDP of Russia – the world’s 8th largest economy - or the total GDPs of all the 140 smallest countries put together. It is also enough to buy the 11 largest non-Chinese corporations outright, including the four largest oil companies, Wal-Mart, GE, Proctor and Gamble, Johnson and Johnson, IBM, and Microsoft. Given that the other four out of the world’s fifteen largest corporations are already Chinese, this suggests that a great deal of attention needs to be paid by anyone expecting a future capitalist global economy to respond to democratically expressed environmental concerns. It is exceedingly unlikely that either China’s own corporations or the non-Chinese companies with whom they compete will be either inclined or in a position to address popular environmental concerns – or needs - in the coming decades.

How many of the world’s hundred to so dominant corporations and conglomerates will end up in with owners from non-democratic countries in the future is difficult to gauge. Probably all of them will have major shareholders from such dubious polities. For governments, resistance to foreign ownership seems to be largely cosmetic, while companies are likely to be equivocal at best. Indeed, at least one of the major banks – Barclays – preferred to raise capital from such sources (in their case a Gulf sovereign wealth fund) rather than accept support from the British government. As a Financial Times commentator put it, ‘As a bank with an increasingly global business, freedom from government meddling was essential’.[2]

One is inclined to ask, how long will such businesses be able to resist meddling from their new friends – and towards what goals will that meddling be directed? In 2009 Chinalco (a Chinese aluminium company) initiated a move to buy a sizeable stake in Rio Tinto (the world’s third-largest mining company, with largely Anglo-Australian ownership), which the Chinese government repeatedly asserted was purely a commercial investment. Yet shortly after the (ultimately unsuccessful) deal was announced, Chinalco’s president was appointed to the State Council - China’s counterpart of the Cabinet. Nor was even the commercial element of this enormous deal at all apolitical. On the contrary:

Four of the biggest state-owned Chinese banks lined up to lend the company
more than it required for its planned second investment. They charged interest
close to zero and did not set a time for Chinalco to pay its debts. Such lending
activity is possible only in China, where state-owned banks and businesses are
treated as the left and right arms of the state, working together to achieve
national long-term development objectives.[3]

Based on this highly politicised strategy, China’s total direct foreign investment has gone from almost nothing at the turn of the millennium to topping $52 billion in 2008. With only a little more expansion, over a ten year period that would equate to buying a half-share in all of the world’s ten largest companies China does not already own.

More generally, the present economic downturn has seen huge acquisitions by funds based in non-democratic countries in companies that Japan, the West and their immediate allies have previously regarded as ‘theirs’. Of course, any notion of national control over transnational corporations has increasingly strained credulity, but I suspect that ceding so much economic power to non-democratic countries will introduce huge new obstacle to those who seek to save the environment for human beings rather than for governments or business.

Of course, the conventions of capitalist economics would regard this is as quite normal. If China has the money to buy then China should be welcomed as the new owner. But capitalism is also only acceptable to most of those who live under it in the west because its enthusiasts claim that it has at least a nominal commitment to a certain style of non-political governance (and conversely a commitment to corporate non-interference in politics), and plainly this would be violated by allowing such politically committed buyers to take such a strong position.

This may seem to contradict one of the general thrusts of this blog: that what is wrong with capitalism, from an environmental perspective, is precisely its lack of political direction. But not all political directions are equal, and China’s track record hardly suggests a wholesome commitment to the interests even of its own people, let alone a sustainable global environment.

[1] http://www.imf.org/external/np/sta/ir/hkg/eng/curhkg.htm#I.
[2] Financial Times, May 7 2009.
[3] Yao (2009).

The lovely Pat Robertson

Pat Robertson, reports today's Guardian, blames the Haiti earthquake on the people of Haiti themselves for making a pact with the devil to gain independence from France in 1804. You can see him saying so on Youtube.

From this we can infer that:

1. Both Pat Robertson and God are opposed to countries freeing themselves from tyranny. Apparently it takes a pact with the devil to get you free. So who did the American Revolutionaries do a deal with, Pat? And does that mean that you (and God) believe that we Brits should have our American colonies back? Or perhaps that we Brits should hand ourselves (and the USA) back to the Romans? Or ...? (Opened a bit of a can of worms here, Pat.)
2. Mr Robertson's God is a bit slow on the uptake. The Haitians sign a pact with the devil in 1804 and God punishes them in 2010? Oh all right, they've been ahveing two centuries of hard time, but that only makes the matter worse - not content with punishing the first Haitian revolutionaries, he punishes their children adn their children's children. I assume that Pat would welcome the imprisonment not only of criminals but also their children and their children's children, for century after century. Why do so few Christians seem to have any grasp of morality and responsibility?
3. President Obama would be wrong to close Guantanamo - this is exactly where vicious lunatics like Pat Robertson belong. But perhaps the base itself could be moved across the strait to Haiti itself, so that this Man of God can be more directly in touch with the suffering people of Haiti - and vice versa, perhaps with a sign around his neck explaining his interesting theological position.

Act Now - Change the Future

How big is the current recession - really?

I've just read Bruce Watson's article 'The Great Recession: A Hidden Depression?' in the Daily Finance. To quote its opening paragraph in full:

The story of the Great Depression is often told in pictures: while few people recognize the names "Smoot-Hawley" or "Schechter Poultry," photographs of bank runs and bread lines continue to pack a punch, almost 80 years after they were first snapped. But the Great Depression's position as our absolute standard for economic disaster carries an unintended consequence: The power of its images seem to overwhelm -- and minimize -- the economic troubles of our own time. After all, if it doesn't look like a Depression, how tough could things be?

As Watson documents in some detail (for the USA), the correct answer is 'very tough indeed'. By the end of 2009, foreclosures had topped 4 million, and 14% of homeowners with mortgages were either in foreclosure or behind on payments. Much the same percentage of the population is homeless, of which about 40% are children. There seems to be little reason to think that the worst is past.

Which is odd. The news programmes I hear are constantly citing how much the stock market has risen by, and by implication, that everything is getting better. Most of the big indices have done pretty well. No news that I am aware of about the real economy, though - you know the economy that produces the goods and services and employs all those people who didn't actually cause this crash but are certainly on the sharp end now. Why the complete lack of interest?

I suspect that the answer is that they're not newsworthy. Not exciting bond traders or investment bankers. No need to worry about them.

On cap and trade

Click on the title of this post for some interesting observations on cap and trade. It can't work unless we force the price of carbon so high that it is uneconomic to burn fossil fuels, and that will never be allowed to happen so long as everyone thinks a) economic benefit can be created while disregarding the environmental consequences, and b) this is a zero sum game in which we have to make someone else pay.

What makes an economy healthy?

A persistent theme in economic reasoning is to fail to define what is meant by 'the economy', and in particular its conception of economic health. Here are four possible definitions of economic health, of which only the first (and until the recent boom, the second) seems to be taken at all seriously by politicians:

1. Monetary measures of economic activity such as GDP or profitability. This is essentially a financial view of the economy.
2. Then there is the definition of economic health based on the so-called real economy. This involves measuring how well we are achieving the creation of the right mix of goods and services to maintain the economic system itself - as measured by growth, profitability, government income from taxation, employment levels, international competitive position, and so on.
3. Then there are measures of how well the economy contributes to creating a healthy society. This would include measures of human well-being, social solidarity, and so on.
4. Finally (so far), there are measures of how well the economy contributes to creating a sustainable society. This takes into account society's position in the natural world.

Note that, in Definitions 3 and 4, I say that these measures 'would' be used. It's not that such measures don't exist - on the contrary, we seem to be awash with studies of human happiness these days (a great deal of it summarised in The Spirit Level, by Richard Wilkinson and Kate Pickett 2009). However, such measures have no impact on actual economic management, so they hardly count (yet).

Definitions 1 and 2 - the 'financial' and 'real' economy definitions - look very similar, in that the definition of health itself remains much the same, with only the diagnostic differing much. Yet the differences are fundamental, for when economic health is measured and managed exclusively in terms of money (GDP, profit, and so on), booms will always turn pathological. And that is exactly what we got, of course, as soon as the momentum was dominated by those with no other grasp of the economy than as a device for making money - the investment bankers, the corporations whose profits come primarily from treasury operations, and so on. And of course, our economically naive politicians followed suit - endlessly grovelling to these alleged Masters of the Universe -and so, of course, ensuring that they would indeed be the true masters of our economy.

All the same, measuring economic health in terms of the second, 'real' economy definition of economic health means limiting ourselves to another strictly economic definition. This one is taken from a previous age when the link between the economy and society was not taken for granted and even economists did no believe quite so slavishly in markets, or even profitability, as a measure of economic health. This post-War era was was killed by globalisation, though the final coup de grâce was administered by Thatcher, Reagan, the Chicago School of economics and the Washington Consensus adopted by the IMF, World Trade Organization, World Bank and many national governments.

The strength of the 'real economy' definition of economic health is that it does at least tether the economy to society. Of course, business itself was constantly bucking against it, but fortunately the post-War social consensus was that society needed to be actively managed and the economy was not the same as business. When that ceased to be true - when national economies suddenly found themselves confronted with global competition and national businesses were allowed to shift capital and operations offshore - and big business discovered that it held all the important cards, the post-War social consensus promptly collapsed. The financialisation of the economy followed all but automatically, and the rest is history.

Hence also the weakness of the second, 'real economy' definition of economic health - that it ties the economy to society but does not define it in terms of what it does for society. So although politicians and economists regularly insist on the social connection, this is seldom more than verbal reassurance. Conversely, little attention was paid to what would happen if national economies were internationalised while there was no global consensus, let alone global political apparatus, for managing an increasingly global economy. As usual, the economists (a body of intellectuals blessed with 20:20 hindsight) completely failed to predict what happened next.

So as soon as the circulation of capital and resources starts to enter new circuits, the entire political class was thrown into disarray, excepting only those for whom it was axiomatic that markets should be allowed to determine everything (Thatcher and Reagan) and those for whom capitalism had always been suspect (socialists, etc.). The immediate effects were that everything was sacrificed in the name of an extremely narrow definition of economic health (implicitly Definition 1, of course) - the privatisation and marketisation of the public sector, tax breaks and subsidies for fabulously wealthy corporations and individuals and, far from the economy serving society, coming to see society as being reduced to an appendage to the economy. Happy days indeed.

It was twenty years before the new market/Washington consensus was able to dominate the entire political spectrum (at least as far as parliamentary politics was concerned), but there was never much doubt that it would.

So the second definition of political health was always unstable. As for the third - the creation and maintenance of a healthy society - it never really got a grip on economics. At a rhetorical level, of course, it was always argued, even by the most extreme market enthusiasts, that the full marketisation of the economy would benefit us all. But that merely meant that connection was assumed - the same as definition number two. On the other hand, the actual method chosen to hand it over - handing over society's key assets to big business, deregulating markets, and so on - not only assumed that Definition 3 could be achieved by equating it with Definition 2 but all but made it inevitable that the economy itself would quickly lapse into Definition 1 - the source of our current woes.

But even if Definition 3 could have been enforced by political control over the economy - a doubtful proposition, given the lack of clear understanding by mainstream politicians and economists of how capitalism really works - it is now clear that this would not have been enough. For centuries we have paid little attention to society's impact on nature, even though it has sometimes reached the point where a civilisation has effectively committed environmental suicide.

Nor was this simply a matter of ignorance. We have had the materials for a true environmental science for as long as there has been a science of any kind. Liebig and others were already explaining how we were constantly undermining the natural basis for society in the middle of the nineteenth century. It was not hard to see or understand: you measure some basic facts, such as how much (literal) crap is being poured into the sea instead of being pumped back into the land, that told you how quickly you were depleting the soil, and that told you how long we could go on like this.In economic terms, the problem was that no strictly economic measure of well-being was going to capture society's ultimate sustainability if if did not measure the long-term, inter-generational impact of economic activity.

Basically, economic metrics look equally benignly on social 'bads' and goods, just so long as someone was paid to create them, and ignore both when no one is paid either to create them or clear them up. Nor do they generally take into account how we squander resources, not only using up what should be our children's heritage but even turning what one would have thought were inherently renewable resources such as fresh water and fertile soil and seed into non-renewable resources.

The reason we didn't pay attention to this kind of insight was simple but not obvious. Even while we were creating the science needed to understand just how unsustainable our economic system was, the economic system itself was throwing up both theoretical and practical barriers to understanding this fact. On the one hand, economic theory was claiming that a combination of market-driven efficiency and resource substitution meant that the economy would take care of all these problems automatically, so they did not need to be managed by anyone else, and society could blithely look the other way. On the other, by the time the size of this mistake was clear, we were too committed to an economy that was driven by constant growth to be able to see or admit that we were indeed in deep trouble.

So major studies of the (un)sustainability of the economy start to be published in the nineteen sixties and seventies - Only One Earth, The Limits to Growth, and so on - and here we are, four decades later, still unable to take them in. Rather, the dissonance between any realistic solution to the problems of environmental sustainability and capitalist economic viability have rendered the problem too complex, the forces aligned with the wrong answer too powerful and those charged with solving the problem have been rendered too scared, too confused and too weakly equipped to deal with it.