Uneasy about easing

David Boyle is a nef fellow, a writer and the editor of nef’s newspaper, Radical Economics.

One thing we have all learned again about economics is that the booms always come to an end, the wise and financially revered are revealed as idiots, and the best laid plans, etc etc. But there is one way that this economic crisis is unlike others in history.

This time, governments have so subsumed their agendas to those of the most powerful businesses that they will no longer allow them to fail. No matter what happens, the wealthy will not be hung out to dry – even if it means printing money.

That is hopeful in one sense at least. We will not, as we were in the 1930s, find ourselves sacrificed to a desperate inactivity in search of economic orthodoxy.

But it does mean that we have to get to grips with one enjoyably heretical idea: the government creating their own money, or quantitative easing, as they call it these days.

You might not want to go the whole way with the monetary reformers (that banks should be prevented from creating money) – and I don’t myself – but this is both potentially dangerous and exciting at the same time. It means, potentially at least, a flow of interest-free money into useful projects. It means an end to the fantasy that money was somehow real (the gold standard fantasy). But it throws up a series of questions which radicals really need to discuss. Here are some of them:

1. Who is going to control the amount of money created? Historically, governments and monarchs have a disastrous track record, but some kind of objective democratic control is going to be needed, otherwise it will just be determined by the inflationary whims of Mr G Brown.
2. What is it going to be used for? If we are not clear that government-created money has to be used to transform the economy – making it socially and environmentally sustainable – then we will end up having the status quo propped up by funny money, funnelled into subsidising the airline industry or nuclear energy.
3. How can we use this to shift the nature of money more permanently? The unsustainability of the economy is undoubtedly fuelled by money based on compound interest. But there is another model, mainly used in the Islamic world, which lends money in return for equity and fees, and which does not so inexorably pile up the power and privilege with the creditors. We need to mainstream it quickly.

I must admit, I don’t really buy the idea that all money should be created by governments. That is a monarchist and centralising myth – it is doubtful whether monarchs ever actually had a monopoly on money, and when they did they generally made a hash of it. So I’m sceptical about the 100% money solution (I say this just for myself). The challenge is now to find other ways of creating it, and to widen rather than narrow those sources – and to regulate the banks at the same time.

We need more money in circulation than we have. That’s not in doubt. The question is how we can create more, democratically and sustainably – and to funnel it in ways that can genuinely enhance human survival – but without finding ourselves as supplicants to big government money-creators as we are now supplicants to big business ones.

Green New Deal Round Up

Andy Wimbush is nef’s Communications Assistant and blogmaster. He also draws cartoons for nef’s newspaper.

The Local Government Association has published a new report entitled Creating Green Jobs: Developing local low-carbon economies in which they call for a Green New Deal ‘to promote a green pathway out of recession’. In Public Service Magazine, LGA Chairman Paul Bettison writes

there remains an urgent need to press ahead with action to tackle climate change – the greatest long-term threat to our future prosperity and security. This makes economic and environmental sense. If we do not start to act, the economic consequences will be far graver in the future – recession or not. [...] Creating a low carbon economy will develop new markets and new businesses. At a time when we are seeing redundancies on an almost daily basis, the LGA estimates that thousands of new green jobs could be created – jobs that would help save carbon, reduce fuel poverty and protect those parts of the country at greatest risk from climate change.

Well, absolutely. It’s encouraging to see that the social justice element of the Green New Deal is being brought out. Investment in a low carbon future will not only bring about emissions reductions, it will also give us the opportunity to create a fairer, more just society, as nef has argued in two recent reports (Tackling Climate Change, Reducing Poverty and Green Well Fair). Local governments and communities will have a major role to play in this aspect of the Green New Deal: nef will be publishing more on this issue later in 2009.

It’s also striking that the LGA is merely the latest QUANGO to start calling for a Green New Deal, after the Environment Agency voiced their support (here and here).  How many of the Government’s own organisations will have to champion the Green New Deal before Whitehall starts to listen?

Pressure isn’t just mounting from below: it’s coming from outside as well. In Nairobi, the United Nations has once again called on governments to adopt a Green New Deal programme which will stabilise the economy, address climate change and lift millions out of poverty. At a time when discussion of the economy drowns out almost every other concern, it’s refreshing to hear UNEP saying that “Reviving the world economy is essential, but measures that focus solely on this objective will not achieve lasting success.” More at Reuters.

Finally, Green New Deal group member Colin Hines has been talking to members of Transition Town Totnes about economics and the role of government.  Read the transcript of his lecture at Rob Hopkins’ Transition Culture blog.

The nef cartoon

Andy Wimbush is nef’s Communications Assistant and blogmaster. He also draws cartoons for nef’s newspaper.

This is an old joke now, but it seemed worth revisiting now that we’re into playing the blame game…

A revolutionary moment

Anna Coote is Head of Social Policy at nef.

Britain’s welfare state can’t cope with three great dangers that face us today – deepening social divisions, accelerating climate change and imploding financial systems. William Beveridge said of 1942, when he launched his founding report, that it was a “revolutionary moment in the world’s history, a time for revolutions, not for patching”.  The same is true today, but the challenges are new.  We need a new social settlement to transform the way we live together and look after each other – a modern welfare system that is fit for the 21^st century.

Through 60 years of peace and plenty, Britain has built a welfare state that many see as enviable.  But there are still widening inequalities.  Unemployment is rocketing. Income inequality is at its highest level since records began. The gap in life expectancy between those living in the poorest areas of England and the average is wider than 10 years ago. The UK ranks a pitiful 13^th out of 22 European nations on combined measures of social and personal well-being.

An unequal and divided society can’t take the kind of concerted action that is needed to deal with climate change and the global credit crunch.  And these divisions will deepen unless action is taken to prevent the poorest from suffering most from global warming and economic recession.

We argue for radical change our new paper published last week, Green Well Fair: Three economies for social justice. A future welfare system shouldn’t rely on the market economy to keep on growing to fund more and better services.  Because growth is not inevitable, and unchecked growth damages the environment. Instead it must value and nurture two other economies that have so far been overlooked. These are the abundant human resources that underpin and shape society, and the fragile resources of the planet, on which all life depends.

It must harness all three economies – people, planet and markets – so that they work together to deliver sustainable social justice. By that we mean the fair and equitable distribution of social, environmental and material resources between people, countries and generations.

Green Well Fair sets out six steps towards sustainable social justice:

• promote well-being for all, putting equality at the heart of social policy
• give priority to preventing harm, to concentrate scarce resources on meeting unavoidable needs
• grow the ‘core’ economy by valuing and nurturing human resources that are currently undervalued
• make carbon work for social justice, so that measures to reduce carbon emissions help to narrow inequalities
• make public services sustainable
• measure success by valuing what matters in social, environmental and economic terms, for the medium and long term.

What could this mean in practice?  Here are some examples.

1. Two for the price of one: invest in ways of preventing illness and reduce carbon at the same time – such as encouraging active travel and producing fresh, local food. Both will help to combat obesity and climate change.
2. Welfare to green work: channel investment in welfare-to-work to boost green industries, to build up skills in home insulation and other ways of cutting carbon emissions, and to support low-carbon living.
3. From patient records to people’s plans for well-being: redesign health services around cradle-to-grave health plans for every individual, focused on keeping people well, not just treating them when they are sick.
4. Carebanks to pool and grow resources for older people: enable older people to join forces to help themselves and each other, using time as a measure of exchange.

Now, as in 1942, it is no time for patching’. Instead of emerging from the trauma of the war, we face the potential catastrophes of climate change and imploding global capitalism. Such crises provide an unparalleled opportunity to think afresh about social justice and to be ambitious in pursuing it. We can’t afford to miss that chance because all of our lives depend on it.

Snow economics

Lindsay Mackie is a consultant at nef. She is leading nef’s post office campaign and works on Clone Town and Ghost Town Britain.

We all loved the snow. Well, mostly. We loved the time off work, the snowball fights between boys and police officers, the artistic and obsessively moulded snowmen, the smiling between strangers.

All of it good. All of it heart warming and affirming. But there was something else which lightened up last week, something less obvious but even more subtantial than enjoying each others company.

People started relying on the local.

They couldn’t do anything else. It was most pronounced in the rural areas but it happened in the towns too. The snow brought with it the mantras of new economics – sharing of skills, time banking, local reliance, small scale acts of collaboration – to make the whole continue to function.

In a village I know the snow economics of localism were measurable. The village shop, put together when the post office closed, and run as a community enterprise, is the fairly new and successful centre of the community. It takes around £10,000 a week (there’s a popular café attached). But on the day the snow started to fall, and no one could get to the supermarkets four and six miles away, the takings shot up to £2,000 a day.

It was fantastic. That was the true value of people’s spending on food and essentials and all the money stayed in the village. People, in spending locally, re-discovered gossip, mutual reliance and environmental sanity.

Now there were no Kenyan green beans to be had, but plenty of local veg, delivered manfully by the woodman in his Jeep. Our week of snow was a trail run of the near future, when peak oil and carbon caps will have limited some of our more exotic choices.

What it showed too was that in time of emergency there had better be the bones of a community structure and the outline of what is recognisably a neighbourhood or locality. This is why nef is so keen on diversity in all things: it is nature’s (and our own)  insurance policy.

Green New Deal Round-Up

Andy Wimbush is nef’s Communications Assistant and blogmaster.

I mentioned a while back that Lord Chris Smith, chairman of the Environment Agency, has emerged as a enthusiastic advocate for the Green New Deal. Now, in an interview with the Observer, Lord Smith has criticised Gordon Brown’s environmental agenda for being incoherent, empty and inadequate. Brown talks about a Green New Deal, but hasn’t matched his words with effective action. Smith says:

Why on earth don’t we take a leaf out of Barack Obama’s book and put green technology right at the heart of the economic stimulus package that we believe the government is wanting to put together for the budget?

Why indeed. The case for a Green New Deal is stronger than ever. New research from the Environmental Industries Commission says that a Green New Deal in the UK could create 300,000 jobs. Meanwhile, over at Comment is Free, Brendan Barber describes how a global Green New Deal could be financed using a form of reserve currency known as ’special drawing rights’ (SDR):

In terms of job creation, economic stimulus and support for long-term growth – not to mention warding off climate disaster – nothing is likely to provide bigger benefits than investment in climate protection.

Fortunately, some local governments are not paralysed by the inertia which has suffocated Downing Street. In Sheffield, preparation is underway for a Green New Deal conference on 28th February, supported by the city council. Speakers include GND authors Larry Elliott and Colin Hines. For more information and details about how to register, visit: http://www.sheffieldgreennewdeal.org.uk/

At nef, we’re continuing to develop ideas about ways in which the economic crisis and climate change can be tackled together, with social justice as crucial stepping stone between the two.  Last month, our report Tackling Climate Change, Reducing Poverty – co-produced with our colleagues from the Roundtable on Climate Change and Poverty in the UK – addressed this issue.  This week, we have a new pamphlet from our social policy team, exploring how we might restructure the welfare state to help us tackle the joint challenges of climate change and economic meltdown. Green Well Fair calls for a new social settlement which moves beyond dependence on the market economy, towards valuing the other, forgotten economies of people and planet. Download it for free or order a printed copy here.

94 months and counting

Andrew Simms is nef’s Policy Director and head of nef’s Climate Change programme.

The financial druids are all a flutter. Their worst fears have come true. It’s not only that we can now see the other side of the reckless credit boom: a long legacy of high unemployment, bankruptcy and wrecked public finances. The darkest fear of the priests of high finance is that we will never again trust and follow their sermons. Any faith faces disaster when people stop believing.

The “call to prayer” of conventional economics has been the incantation of economic growth figures: the accumulated monetary value of all the exchanges that take place in the economy. When it heads south, the system knows it has a problem.

Now, it has a real problem. Global economic growth is at its lowest level since shortly after the second world war, and the UK economy is shrinking fastest.

But here’s the problem. The fact that so much went so wrong, so quickly says that the long period of preceding growth hid a deep malaise. Growth conceals more than it reveals. It is about as informative as saying that when it rains things get wet. Yet the indicator retains an unbreakable grip on the imaginations of politicians and policymakers. Over 30 years of critique from the few dissident economists and environmentalists have not shifted its privileged position.

Growth tells us if things are happening, but not whether they are good or bad. Growth can be boosted by war, pollution and all kinds of social breakdown, from divorce to ill health and vandalism. That’s because they all require money to be spent, which shows up in the growth figures. This matters right now because the government is spending money simply to reboot growth, rather than to achieve particular, desirable outcomes, like creating green jobs to rebuild energy security, and tackle fuel poverty and climate change. It needs to get smart.

Let’s not put all our pounds in the one basket

Josh Ryan-Collins is a researcher in the Connected Economies team at nef.

The UK is sliding deeper in to recession and it is becoming clear that the Government’s strategy of ploughing billions’ of pounds of tax-payers money in to rescuing the banks is not working. And as the UK’s debt increases, sterling’s volatility increases, with a recent recovery still leaving it historically weak against the pound and the Euro.

The Conservative’s solution to the sterling problem is for the government to commit to a more ‘fiscally responsible’ strategy, aka reductions in spending (and thus debt), to try and boost the confidence of investors. That’s not much use to the predicted 3 million people who will be facing unemployment by the end of the year. Will Hutton’s solution is to keep pumping money in to the economy whilst also joining the Euro, a currency big enough to mimic the dollar as a reserve currency and hence less likely to be subject to damaging currency speculation.

But abandoing the pound will weaken further the UK government’s control over monetary policy, as nef argued back in 2003 when the UK was last considering Euro-membership. Interest rates will be set by the European Central Bank and reflect the interests of the biggest economies in the Euro Zone, of which the UK is just one (and a shrinking one) amongst many.

Perhaps, instead, we should be considering diversifying rather than centralising our currency system. There are some parallels with the banks here. We now have four major banks, all of which have become ‘too big to fail’ as opposed to the rich patchwork of credit unions and building societies that were actually connected to and interested in local and regional economies. Maybe we also need to re-link our money system and currencies to local and regional economies, so that if the national (or even international) currency collapses, others will continue to enable people to conduct economic exchange.

30,000 Lewes Pounds have been issued since the Lewes Pound was launched in September 2008 and 130 traders have signed up to use the currency

This is exactly what happened in Argentina in 2000 when the government was forced to massively devalue the Peso, previously pegged at 1:1 with the dollar. As the national currency became virtually worthless in the space of a few weeks, municipal authorities across the country began issuing regional currencies to keep teachers and nurses and public sector workers in their jobs. Similarly, during the great depression in the US over 4000 local currencies had sprung up around the country before they were abolished by Roosevelt’s New Deal program.

Complementary currencies do not displace national currencies but serve different, but no less important functions. They encourage people to spend more money locally, thus supporting local independent businesses, as with the Transition Network ‘local pound’ currencies, pegged one to one with sterling, currently circulating in Lewes in Sussex and Totnes in Devon.   Such currencies should also stimulate local production of goods and make local food growing more appealing for example, thus reducing carbon emissions and shortening supply chains.  The Swiss WIR, one of the few complementary currencies that wasn’t squashed by Central Banks post-depression, has been circulating in Switzerland since the 1930s and is now used by 62,000 small and medium sized enterprises.  A recent academic study showed that it is ‘counter-cyclical’ – i.e. that it is used more when the economy slows.

And, as George Monbiot and The Economist have recently pointed out, there is no reason why money should only be created as interest-bearing debt by private banks. Complementary currencies can also carry a cost in holding on to them which would encourage people to spend money in to the economy rather than hoarding it. Experiments in Switzerland and Germany point to the potential of such ‘free money’ in stimulating economies at times of recession and depression.

More research is needed to better understand the potential of complementary currencies and what optimal currency zones might look like in order to create a more sustainable and resilient monetary system. But, as nef argued in From the Ashes of the Crash, government and local authorities should encourage experiments in complementary currency systems and move beyond the ‘one size fits all’ approach that doesn’t work for banks and doesn’t work for currencies.

The carbon laundry

Dr Victoria Johnson is a researcher on the climate and energy team at nef.

Today, the newly formed Department of Enertgy and Climate Change published final greenhouse gas emission figures for 2007. According to DECC, emissions had fallen by 1.7 per cent below 2006 figures. Great. Right?

Well it would be if the very foundations of our emissions monitoring weren’t based on voodoo accounting that ‘carbon launder’ the emissions from economies like the UK and the USA.

Under the United Nations Framework Convention on Climate Change (UNFCCC) emissions monitoring guidelines, wealthier nations systematically underestimate their carbon emissions, while poorer countries systematically overestimate their emissions. This is because the UNFCCC requires emissions to be reported from a production-based perspective. In other words, only emissions associated with domestic emissions and exports are counted, while those associated with imports are washed from the national accounts. Because this method does not take into account ‘embodied carbon’ of imports; the consumer of the product takes no responsibility for the greenhouse gas emissions associated with its production.

The UK’s consumption levels have risen steadily. And, as our major retailers scour the world for the cheapest production costs, the emissions that we are actually responsible for, have not only risen in line with our additional consumption – our consumption is proportionally more carbon intensive. This is because how much carbon that is in the energy mix (carbon intensity of energy) tends to be lower in developed nations and higher in developing nations. For example, the carbon intensity of energy in India is 20 per cent higher than the UK. This means a policy decision to monitor emissions based on production is more likely to result in an increase in emissions rather than a decrease – as production is driven up in nations with an energy mix that is more dependent on fossil fuels.

Today, if everyone consumed as much as the average UK citizen, we would need more than three planets like Earth to support us. In order to live within our overall environmental means, and to enable all of the world’s population to meet their basic needs, the UK will have to dramatically reduce the burden our high-consuming lifestyles place on the ecosystem. In effect – we have to take steps to reduce our ‘ecological debt’ – the burden our high-consuming lifestyles have placed, and continue to place on the rest of the planet.

A view from the summit

Stewart Wallis is nef’s Executive Director.

Although it might be called a ’summit’, the World Economic Forum doesn’t take place up a mountain but in a deep valley. Views are limited to the valley walls, making it difficult to survey the wider landscape. Take the cable car 1,000 metres up to a real summit and the picture changes dramatically. Mountains and valleys stretch in all directions as far as the eye can see. The whole becomes clear.

It turns out that the Forum’s location is well-suited to the kinds of discussions that go on here. Few people seem to comprehend the big picture, to see beyond what is near and familiar. Fewer still understand the changes that are now needed.

That said, the prevailing mood is noticeably different to the last time I was in Davos three years ago. This year, the self-satisfaction is gone and everything is decidedly sombre. People are clearly prepared to listen to ideas that would have been dismissed out of hand even a short time ago. For me, the key question was posed by Jim Wallis, Founding Editor-in-Chief of Sojourners: “Will we let this crisis change us? To do so requires repentance and real understanding. Only if fundamental change occurs, will the crisis have any redeeming features.” I saw the outward signs of contrition, but repentance and real understanding were limited to the few.

Listening to the bankers and financiers was instructive. Some were courageous enough to admit that they got it completely wrong, but too often I heard lectures about the dangers of over-regulation and the need for preserving self-regulation. What planet do these people live on? The regulators were more reassuring. It is clear that a sea change is coming. As Adair Turner put it, ‘If it looks like a bank and quacks like a bank, we will regulate it like a bank.’ John Gieve, Deputy Governor of the Bank of England, assured me that counter-cyclical capital rules are a certainty. The causes of the depth of the financial crash seemed very clear – a total failure of regulation at all levels combined with flawed mathematical risk models and incentive schemes run out of control. The most plausible explanation I heard, though, was that too many people had been ‘bought-off’ in one way or another by the scale of the money being made to risk of questioning the source of this ‘gold.’

Some of the most interesting discussions I was involved in were around values. I moderated a private dinner of the world’s religious leaders who were clear about the need for a fundamental value shift in our economic system. There were also numerous calls for a move from shareholder capitalism to stakeholder capitalism (strictly speaking, if fully realised, this would cease to be capitalism) and a lot of interest in nef’s ideas about how doing business and doing good can be much more closely aligned.

nef’s National Accounts of Well-being attracted much attention with plaudits from, amongst others, Daniel Kahneman, the Nobel Economics Laureate. There was a sense that the time for these new measures has finally come. There was also real interest in new metrics covering well-being and sustainability from a number of companies.

On climate change, the scientists and academics were largely in agreement but many of the proposed solutions are still too technical and top-down. There were gasps when I suggested that to make clean technology viable we need a carbon price of at least $140 a tonne within the next five years – the man from British Airways told me it would ground its fleet – but I received strong support from David King, the former chief Scientific Advisor to the UK Government.

One of the few proposals that recognises the inter-linked nature of the challenges we face is the Green New Deal, published by nef on behalf of the Green New Deal Group in the summer. The term is now in wide use and most stimulus packages being planned will use some variation of the phrase, and its thinking. Yet nothing world leaders have proposed to date goes anywhere near far enough in bringing about the complete environmental transformation of our economies we need to prepare us for a low carbon future. Everybody understands the implications of recession, some see the magnitude of the climate challenge, but many seem lulled by low oil prices into a false sense of security on energy supply. Without seizing the current opportunity to both insulate against the worst impacts of recession and lay the foundations for our future energy infrastructure through a Green New Deal, we will, in a few years’ time, I believe, face not only runaway climate change, but oil prices of $300-400 a barrel triggering a depression that would make the current crisis look like a picnic.

One obvious, immediate solution would be giving annual vouchers of, say, £1,000 per household, to invest in insulation, renewable energy and other green products and services. Once people have been lifted out of fuel poverty and our fledgling renewables industries brought to scale, a whole range of other mechanisms – such as green taxation – become viable. Once the policy had taken root, the increase in national debt could then be recovered by massive increases in the carbon price and fossil fuel energy taxes. This would be a precursor to a path to a low material throughput economy. According to Joseph Stiglitz, this will mean an economy based on saving material resources, rather than one based on saving labour.

The path is clear, but sadly there are few signs that many of our politicians have the vision to take it. If Obama can match the promising rhetoric of his campaign with the right kind of response, then he could easily take the lead on these issues: it was encouraging to hear that Al Gore believes Obama understands the scale of the climate challenge. In the meantime, it falls to those of us on the outside to push on up the mountain path, in search of that wider perspective. If we do that, then we might just rise from the ashes of these current crises, and start building an economic system which works for the well-being of people and planet.