Our heroic bankers take on the evil dictators

According to the March 2011 edition of Private Banker International, 'at least $235 billion of illegal assets are held in offshore accounts opened by the wealthy, including those taking advantage of their government positions in the Middle East and North Africa. That is equivalent to 15 percent of the total $1.5 trillion held offshore by individuals from Arab and African states…', as 'over past decades these regimes have grown an entire ruling class consisting of family, friends, businesses, security forces and secret service that have transferred significant wealth out of their home countries.'

Bizarrely, the same article (aptly entitled 'Private banking’s ticking bomb'), having noted that 'The family of deposed Egyptian president Hosni Mubarak is estimated to have as much as $70 billion of assets. Tunisia’s ex-president Ben Ali is said to have up to $10 billion and Libyan leader Muammar Gadaffi and his family have an estimated $20 billion offshore', suggests that 'One big problem comes from trying to assess which assets originating from the region are legitimate and which are suspect'.

Really? How could any of these groups conceivably have acquired such staggering sums by legal means?

Equally bizarrely, a leading baker is quoted as saying that 'Your private bankers should be close enough to their clients to have alarm bells start to ring if what they are being offered, say £5 million, looks unusual in size and timing”. Well, they scored well on that one too: what 'timing' could possibly explain away wealth on such a gargantuan scale? Gadaffi has been in power for 42 years so, with $20 billion between them, his family must have deposited an average of $500,000,000 each year for decades on end. That’s the £5 million deposit our eager banker suggests might be a tell-tale sign of corrupt dealing every 5 days. But only when the people of Libya say that enough is enough do the Gadaffis' bankers wonder whether there might be something doubtful about this.

So when the previous article in the same journal celebrates how heroically Swiss bankers shut down the tyrants' assets in record time, we are entitled to ask, how did you manage not to notice the staggering scale of looting while it was happening?

Incidentally, the reported figures surely understate the problem. As reported, the amounts stolen by Ben Ali, Mubarak and the Gadaffis come to $100 billion. If the total of illegal assets is only $235 billion, then these three groups account for 40% of the total. Surely that cannot be correct - not with all the other dictators, their families and their cronies, all the corrupt generals and arms dealers, and all the rest. What if this little groups represents only 5% of the whole - which I find quite believable, given the nature of these regimes - then the offshore stolen money comes to $2 trillion - that’s $2,000,000,000,000, or a little under $6,000 for every single Arab man, woman and child.

Perhaps our upright bankers can redeem themselves a little and tell us how much Mugabe and his grubby pals have stashed away? Or exactly how many of the 400,000 millionaires in the Middle East and North Africa did not acquire their riches by raping their countries? Given that 'Banks in Europe, the US, Switzerland and most other developed countries have to do background checks on so-called PEPs (politically exposed persons)', they surely know more than they are telling.

Conversely, what do they plan doing about it? Or do they just smugly assume that the new regimes will be as corrupt as their predecessors and be happy to let bygones be bygones? Perhaps the millions of poor in Arab countries can help them make up their minds, or at the very least make sure they not only get the money back but also demand that these shabby crooks (and no, I don't mean the dictators this time) are made to pay for the part they played in robbing some of the poorest people on earth.

Yesterday the Financial Times reported that many wealthy countries have failed to fulfil their aid pledges, given only a few years back at the G8 summit at Gleneagles (‘Wealthy countries fail to hit aid target’, FT 17/02/10).

‘The Organisation for Economic Co-operation and Development … publishes a report on Wednesday predicting that its rich member countries will collectively give a net $107bn in aid this year... But promises made in 2005 … implied a pledge of almost $130bn by this time.’

No one familiar with the sorry history of aid can be much surprised at this outcome: we practically never do do what we promise, we take back most of what we give, and people die as a result. In fact it is more surprising that we got so close to our targets, and that so many countries are likely to fulfil their individual commitments.

More interesting was the reaction of Max Lawson of campaign Oxfam, who is quoted as saying that: ‘This is a damning indictment of rich nations, who can find plenty of money to save banks but precious little to save lives’.

Obvious enough, of course. But in what sense is this really a ‘damning indictment’? Why have governments found it so easy (relatively speaking) to save the bankers and not the poor? Is it because they are so callow that their priorities are utterly wrong-headed? Quite possibly, and we should not doubt the extent to which the largesse to bankers was the product of very deliberate political manipulation (on which, see Matt Taibbi’s excellent articles here and here).

But that does not explain why the response was quite so immediate and unqualified. That takes us to the question of the relative roles played in our own societies of aid and the banks. Aid is still perceived as a matter of charity, whereas the banking system is the very core of the global economy. If we disregard the interests of the global poor and of under-developed countries, the results are likely to be seen as ‘regrettable’; but if our banking system falls, that takes the economy with it, and the economy is the system through which we produce, distribution, exchange and consume pretty much everything we need to do anything at all – from our daily bread to all that aid, of course.

Yet it is by no means obvious that this is the full answer. In particular:

1. Why is it that the centre of ‘the system’ lies in finance, which produces only money, and not the ‘real’ economy, which produces the goods and services needed to actually do anything for real people?


2. The phrase ‘the system’ implies a neutral mechanism that somehow serves us all – as does the way I described it above. But is the economy really neutral, even at that level? Or does it in fact serve on be special set of interests, even when apparently just going about its day-to-day operations?

Answer these questions and a completely different picture emerges – a picture that makes it clear not only that we will never address the problems of developing countries with any sincerity but also that that very economic system will worsen the economic and environmental plight not only of the global poor and of under-developed countries but, in quite short order, the rest of us too.

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.

The Limits to Growth

Just about the most convincing – and scary - book I ever read about the environment was The Limits to Growth. I would guess that everyone has heard of this book but my impression is that relatively few people have ever read it, or the two follow-up volumes. I read it when it first came out – almost four decades ago – and then again a few months back.

The book was written by a group of MIT researchers - Donella and Dennis Meadows, Jorgen Randers and William Behrens – and published in 1972 by the Club of Rome. The timing is interesting, as the first edition of The Limits to Growth is roughly contemporary with a number of other foundation texts in the overall environmental movement. 1971 saw the publication of Paul Ehrlich’s Population Bomb, which gave the growing concern with population growth a kick start. Then in 1972 Barbara Ward and the well-known anthropologists René Dubos published Only One Earth – a sort of semi-official UN report that attracted a lot of attention. And then in 1974, M. King Hubbard gave what was perhaps his most important summary of the position on oil and energy production, namely his testimony to Congress on the peaking of US oil production.

The reason I found The Limits to Growth so compelling – even more than Only One Earth or Silent Spring - was the simplicity and centrality of the question it posed and the directness of the method its authors used to answer it. Instead of endless facts and figures and yet another multi-faceted discussion of our environmental predicament, they simply asked what would happen if humanity at large continued with a small number of key trends:

• World population.
• Industrialization.
• Pollution.
• Food production.
• Resource depletion.

Their method was equally straightforward – so much so that, had I felt very doubtful about its validity when I first heard about it. They started with a very generalised model of these factors - the ‘World3’ model developed by Professor Jay Forrester (also from MIT). This is described in Forrester’s World Dynamics (published the previous year), which used a ‘system dynamics’ approach. This was really a very simple model - basically a suite of functional interactions (circular, interlocking, sometimes time-delayed relationships, etc.) between what the modellers regarded as the key social and natural phenomena. World3 was based on large, long-term factors, which it defined in self-consciously simple and gross terms, without much detail. It made little attempt to explain why these interactions were as they were.

When tracking what happened when the trends they were interested in unfolded, the Limits to Growth team were not looking for trouble. They made strongly optimistic assumptions when in doubt, and took into account most of the qualifications critics usually offer about predictions of environmental doom and gloom – resource substitution, the power of innovation, and so on. On the other hand, they did assume that all these factors tend towards compound growth - which is to say, that they grow by a constant percentage, and constantly accelerate, not by a constant amount, which would lead only to regular increments of the same size. They also interact with one another, which has the effect of overshoots and disruptions in one undermining the others.

A typical outcome of the model went like this:

1. Population cannot grow without food.
2. Food production can only be increased by growth of capital.
3. Creating more capital requires extracting and processing more resources.
4. Discarded waste from resource extraction, refining and usage become pollution.
5. Pollution interferes with the growth of both population and food.
6. So the system tends towards eventual collapse of both population and food production.

It’s crucial to understand that this collapse happens not only because a specific input is damaged or reduced (which might be ameliorated by resource substitution, innovation, etc.) but because the system undermines itself. That is, the initial success of the system destroys the conditions for its continuing success. This is, I think, why it makes relatively little difference to assume that we will eventually find far more resources than are currently expected, or that we can continue to have cheap energy.

The authors made multiple runs of the model based on different assumptions. Although, like most futurologists, they avoided claiming to be making strict predictions, the consistency of the outcomes is quite frightening enough.

The book analyses quite a few scenarios (though only a fraction of those actually run, apparently). The starting point was ‘business as usual’, which led to the following outcomes:

1. Massive industrial growth depletes resources.
2. Resource prices then rise and stocks are depleted.
3. So more capital used for obtaining resources, leaving less for growth.
4. Eventually investment cannot keep up with depreciation.
5. With that, the industrial base collapses, taking with it the service and agricultural systems, the tax base for government, and so on.
6. However, population keeps rising, so the death rate is driven upward by lack of food and health services.

Radical collapse comes ‘well before the year 2100’.

As I say, the authors presented other scenarios in which:

• Nuclear power is cheap and safe.
• We manage to discover vastly increased resources.
• Innovation and technology allow much reduced pollution.
• Agricultural yields are greatly improved.

And so on. By and large, these optimistic assumptions mean that the eventual collapse is delayed by a decade or two – never more.

Here’s another typical example: the Green Revolution. This has indisputably increased food production, but at a price. The specialised seeds require a great deal of fertiliser and water. The former accelerates fossil fuel use and depletion, while the latter extracts more water than natural systems can sustain. In addition, the need for extensive capital also leads to peasant farmers being evicted from the land by their landlords, and hundreds of thousands of landless peasants end up in Mumbai, Kolkata, Sao Paulo or Mexico City, where they have no resources and no relevant skills from what they might earn a living. This increases pressure on urban systems and causes fertile land to be built over by slums.

The increase in capital requirements – tractors, petrol, fertiliser, shipping etc. – needed to operate the Green Revolution hugely depletes resources, including oil and natural gas. What is worse, the intensive treatment of the soil under a monoculture régime means that it becomes less able to support any other sort of agriculture, so the system becomes even more locked into an inherently unsustainable ‘solution’, and by this remarkable ‘advance’ we have managed to convert what one would have thought was an inherently renewable resource – fertile soil – into a non-renewable resource. Aren’t we clever? Meanwhile, the planet’s carbon footprint is made that little bit bigger, global warming is given that small extra shove upwards, and the glaciers that feed the irrigation systems that feed the crops melt that little bit faster. More jam today, but not only less jam tomorrow but also a lot less ability to manage having less jam tomorrow.

More generally, the consistent result reported by The Limits to Growth was overshoot and collapse. If the present trends in world population, industrialization, pollution, food production, and resource depletion continue, the limits to growth will be reached by 2070. The alternative scenarios only delay collapse: all end by 2100. The most probable direct outcome will be sudden, uncontrollable falls in population and industry – in other words, the ‘hundreds of millions’ of deaths predicted by the Stern Report. Only The Limits to Growth predicted it all three and a half decades earlier.

The authors conclusions about the ‘business as usual’ scenario are stark:

The unspoken assumption behind all of the model runs we have presented in this chapter is that population and capital growth should be allowed to continue until they reach some ‘natural’ limit. This assumption also appears to be a basic part of the human value system currently operational in the real world. Given that first assumption, that population and capital growth should not be deliberately limited but should be left to ‘seek their own levels’, we have not been able to find a set of policies that avoids the collapse mode of behavior.

As so often, the reactions to the original publication illuminating not only for the welcome offered to this absolutely vital book but also by the disdain expressed by those who could see no further than the status quo. It was described as ‘the most fascinating and the most disturbing book’, and it was said that ‘if this doesn't blow everybody's mind who can read without moving his lips, then the earth is kaput’. But it was also described as ‘a piece of irresponsible nonsense’ and ‘an empty and misleading work’.

The authors reviewed their findings in updates published in 1992 and 2004. These books are worth reading in their own right, as they both go far beyond updating the original methods and finding. Their original conclusions, they find, were sound. They needed some qualifications, but by comparison with the critics who greeted the original publication with such scorn and the deniers by whom they are still surrounded, they seem to have been pretty much spot-on.

Nor is this merely their own opinion. In 2008 Graham Turner published a comprehensive re-evaluation of the data, and concluded that:

The analysis shows that 30 years of historical data compares favorably with key features of a business-as-usual scenario…, which results in the collapse of the global system midway through the 21^st century.

In other words, we have done nothing significant to deflect our fate.

So are there no scenarios that lead to a happy ending? Maybe - it depends on what makes you happy. If you want interminable consumerism, then no, there aren’t. If you ever wanted a ringside seat at the end of the world, consumerism represents the front row. But if you are willing to settle for mere sufficiency, to imagine that there might actually be an ‘enough’, then yes, a somewhat reduced standard of living – something like the 1940s or 1950s, it is said – is available for all. Not bad, given the alternative, and hardly desperate poverty by any standard. It’s not as though we are any happier than we were then, though it might take a bit of getting used to. Nor need it look quite like that slightly dismal era – we start from here, not there, and a great deal can be done with a 1950s carbon footprint, give the science and technology of the 21^st century.

But there is a lot to be done – population control, the end of ‘the American Way of Life’ (which surely represents the biggest threat to the planet since the last ice age), serious support for developing countries, and so on. But it’s hardly worth thinking about – we never have done anything about these things, we show no signs of doing anything about it, and we are led by politicians, media and business people with as much grasp of our situation and as much interest in dealing with it as a bucketful of molluscs.

But not to worry – it will soon be too late to deflect the worst effects of our own actions, so we won’t have to worry about it any more. Just die in our millions. If you have ever wondered what the fall of the Roman Empire looked like, stay tuned.

Read this book.

References

Ehrlich, P. (1971). The Population Bomb. Cutchogue, N.Y.: Buccaneer Books.

Forrester, J.W. (1971) World Dynamics. Cambridge, Mass.: Wright-Allen Press.

Hubbert, M.K. (1974). Testimony to Hearing on the National Energy Conservation Policy Act of 1974, hearings before the Subcommittee on the Environment of the committee on Interior and Insular Affairs House of Representatives. June 6, 1974. Published as The Nature Of Growth by Technocracy.org.

Meadows, D.H., Meadows, D.L., Randers, J. and Behrens III, W.W. (1972). The Limits to Growth. A Report for the Club of Rome’s Project on the Predicament of Mankind. New York: Universe Books.

Meadows, D.H., Meadows, D.L., Randers, and J. (1992). Beyond the Limits: Confronting Global Collapse, Envisioning a Sustainable Future. Earthscan.

Meadows, D.H., Randers, J., and Meadows, D.L. (2004). The Limits to Growth: The 30-year Update. Earthscan.

Turner, G. (2008). A comparison of the Limits of Growth with thirty years of reality. CSIRO Working Paper Series 2008-2009.

Ward, B., and Dubos, R. (1972). Only One Earth. Harmondsworth: Penguin Books.