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Bookmark and ShareTony Greenham is head of the finance and business programme at nef.

Big Sticks, Big Solutions and the Unmentionable Funding Proposal

Now don’t get me wrong – I am a big fan of the proposals launched this week by the Green Investment Bank (GIB) commission. Let’s celebrate a report that explicitly recognises market failures, and applies some big brains to how to encourage investment in useful low-carbon infrastructure. Let’s hope that George Osborne, having set up the commission, acts quickly to create the GIB.

So why mention big sticks? In launching the report to a packed house at the Green Alliance summer reception, commission Chairman Bob Wigley was refreshingly blunt. Surveying the dismal impact of previous policies to encourage domestic households into energy efficiency and renewables, he observed that the old regime was one of “grants and advice”. To really get anywhere what we need is a regime of “Sticks, grants, advice and loans”. The GIB can do something about the last three; the first requires political guts.  Penalising house owners for not being green enough? Go, Bob, go. However, Mr Wigley was understandably diplomatic when asked his opinion of the fortitude of the government’s guts.

And what of big solutions – isn’t that what we need? Well up to a point, yes. There will be many large scale infrastructure projects to fund. But the commission identifies that most investment funds are too big to invest in small scale community energy projects, of which we need tens of thousands. The solution it seems is to aggregate the small morsels of community energy into a suitably large and appetising dish for the institutional fund managers to feast on.

Instead, how about making it easier for people to invest directly in their local energy co-operative and not give the cash to the giant institutional funds in the first place? Oh no, hold on – how would the City earn its cut? Best not go down that route.

And finally, what about the Unmentionable Funding Proposal? The commission says we need to find £550bn over 10 years to invest in the low-carbon transition. A questioner from the floor pointed out that the Bank of England had pumped £200bn into the economy in as many months to save the financial system. This has clearly not caused a Zimbabwe style monetary collapse, despite the orthodox horror of ‘printing money’, but now it seems that it is rather impolite to mention it. When there is spare productive capacity in the economy, why not use ‘green  quantitative easing’ to kick start the GIB? Bob was characteristically blunt in his evasiveness: “I’m afraid as a former member of the Court of the Bank of England I’m going to dodge that question”.

Bookmark and ShareOur guest blogger, Lucy Glynn, is a writer and activist based in Leeds.

The global financial crisis, climate change, poverty and BP: the extent of the problem is clear. But what is the best way to solve it? This was the question asked at the first Steady State Economy Conference held in Leeds on June 19.

The conference was organised by Economic Justice for All (EJfA), a Leeds economics and sustainability debating group and the Center for the Advancement of the Steady State Economy (CASSE), with the aim of coming up with some concrete policy recommendations.

“If the leaders of the main political parties in the UK are not thinking seriously about an alternative to economic growth, then we the people must urgently start and develop the discussion,” Dr Lorna Arblaster, of EJfA, explained.

It was a discussion that was urgently needed. The conference attracted over 250 academics, economists, community organisations, activists, NGOs and business people who played as much a part in making the day a resounding success as the keynote speakers: Peter Victor, author of Managing Without Growth and Professor in environmental studies, York University, Canada; Andrew Simms, Policy Director at nef; Dan O’Neill, European Director of CASSE; and Tim Jackson, author of Prosperity Without Growth and professor of sustainable development, University of Surrey.

Peter Victor opened the conference by challenging our “fear of a no growth disaster” and reminding us that until 1950 there was no discussion of economic growth as something to strive for.

“Can we have full employment, no poverty, fiscal balance, and reduced greenhouse gas emissions without relying on economic growth?” he asked. “You bet!” was his resounding reply, which he backed up with a detailed computer model.

Participants were then asked to put forward alternative policy recommendations in expert-led workshops on how this could be done in the UK.

These included eight policy-focused workshops: limiting resource use; stabilising population; reforming the monetary system; maintaining low unemployment; distributing income more fairly; changing business practices; measuring quality of life and achieving a successful UK transition within a globalised economy, as well as two process workshops: changing consumer behaviour and engaging politicians and the media.

Well-being and work-life balance were key themes of the day as was reconnecting with ourselves, reconsidering what it means to be human and deciding what we really want from our lives. And as Andrew Simms reminded us, not forgetting to have fun.

The conference was just the start. The ideas and proposals which were discussed in the workshops will be collated into a manifesto, which will outline how to achieve a steady state economy in the UK and will form the basis for the movement’s next step.

So what of Leeds now that the steady state caravan has left? There’s a buzz in the city; people who missed the conference feel that they’ve lost out and others who had never heard of a steady state economy have seen the local media coverage.  With all the crises and government cuts they may even be starting to question whether there is another, better way.

Bookmark and ShareSusan Steed is a researcher in the Valuing what Matters team at nef.

A lemon with wheelsIn the wake of George Osborne’s first budget speech, many are wondering how the coalition government’s plans to cut the deficit will affect the public sector.

The case of the legal aid and human rights charity Refugee and Migrant Justice provides some rather grim warnings. The organisation is currently under administration because of changes in the funding of legal aid, which attempt to ‘marketise’ legal aid provision.

There are many problems with these changes. They make no provision for quality advice over quantity supplied. Indeed it has many parallels with the classic economic problem famously described by economist George Akerlof in his 1970 article ‘The Market for Lemons‘. Akerlof wanted to illustrate how uncertainty in the quality of the good or service being provided can drive out good providers. The classic example is used cars. Used car dealers generally know whether the car they’re selling is an old banger – a ‘lemon’ – or a decent little runner – ‘cherries’. Because of all sorts of hard-to-detect factors, such as the previous owner’s driving style, the customer has no idea whether they’re getting a cherry or a lemon. So, they assume that the car they’re looking at is probably half-way between the two: an average quality car. And they pay an average price for it. The end result is that only people who have lemons put their cars on the market.

Now, back to legal aid. In the Commons  debate on the 17 June Ken Clarke proudly announced that the ‘number of people who want to provide service in this area has gone up’. It remains to be seen whether these providers are giving good quality legal advice or ‘lemons’. At present, the government has not introduced a way of monitoring the quality of services. Many critics have argued that the fixed fee has been set too low to provide quality advice. It takes quality providers with the skill and expertise to understand when the law is not been applied correctly or when a case can be taken to the level of a European Court. No longer is this a question of getting a decent used car: for people seeking legal aid, these are matters of life-changing importance.

This problem is complicated by the fact that justice isn’t a private good like used cars, it’s a public good. We all benefit from living in a society where we can uphold our rights and have a means of enforcing them.  By introducing contracts that focus on numbers of individual cases of advice, we’re missing some of the fundamental functions of legal aid. It is not just about responding to demand – and creating more demand as markets do – but responding to this demand proactively. This includes taking on test cases, policy work, preventative and education work. None of these are included in the new contracts.

The consequences of this are pretty dire. First, it may actually cost more. Cutting the cost of advice provision is a false economy: it can contribute to cost further down the line in costly appeals. Second, we haven’t begun to explore the cost in human terms to those unable to access quality advice or find representation for their case. But it also shifts the debate about public spending cuts. At nef, we believe there are ways to do more with less, but have warned about the unintended consequences of poorly thought through efficiency savings. The problem is not only that budgets are being cut but the way services are being commissioned and delivered are constraining their ability to work for public benefit. Rather than correcting market failures they may be creating more of their own.

As the workers at RMJ clear their desks the government can congratulate itself on the increasing number of providers trying to get into the market. There may well be more providers of ‘advice’. But will we live in a society with more justice?

Bookmark and ShareTony Greenham is head of the finance and business programme at nef.

There was much to discuss in yesterday’s Mansion House speech, but I would like to focus on one disappointment and one pleasant surprise.

First the disappointment; the five members of the new Independent Commission on Banking are all economists and bankers of the highest calibre and integrity. Some are on record with quite strident views about the ills of our banking system and quite radical prescriptions for their cure.

But they are all, well…, bankers and economists.

If we are to truly create a system as Mr Osborne says, where “banks support the people, instead of the people bailing out the banks”, we need to understand HOW the banks need to support the people.

  • Can these five commissioners really understand the needs of small businesses?
  • Can they really understand the needs of social enterprises, and local regeneration?
  • Will they consider the still shameful lack of access to finance experienced by many of our citizens?
  • Do they understand the urgent need for massive investment in decarbonising the UK economy?

We do not know yet how the commission will carry out its remit. It should ensure it builds a broad, credible and comprehensive stakeholder consultation on the needs of the users of the banking system, and not just get lost in the technical details of restructuring the banks.

Which leads me to the pleasant surprise.

The new commission’s terms of reference are not limited to the question of splitting investment and retail banking. They include the Government’s wider goal of “creating an efficient, open, robust and diverse banking sector”.

This last point – diversity – is crucial. To meet all society’s needs, the banking system should comprise many different kinds of institution: different in industry sector skills and expertise, different in regional and local focus, different in forms of ownership, different in investment horizons, different in culture and goals.

It’s not just that we need to look at breaking up the massive universal banks we have today, we need to look at how to build up the alternative and diverse institutions we need tomorrow.

Today sees the publication of a report from the think-tank Demos which argues that supermarkets should be seen as an intergral part of creating the so-called ‘Big Society’. The report’s author said:

“[The supermarkets] have a role to play in helping deprived communities to regenerate by reducing stigma, boosting community morale and bringing low-cost quality produce into the area. It’s easy to be cynical about mainstream retail chains, but they can be the game-changer for transforming perceptions within and outside rundown neighbourhoods.”

The only problem being that, in the USA at least, supermarkets have been linked with a decline in civic life and the closure of those very institutions that the Big Society claims to promote.

When two economists, Stephan Goetz and Anil Rupasingha, carried out a detailed study [1] in the US of the links between Wal-Mart and “social capital” – the community cohesion and mutual support that makes neighbourhoods work – they were astonished to find that the presence of a Wal-Mart nearby brought the voting turn-out down.

Other measures of social capital went down too. They found that communities that gained a Wal-Mart during the decade had fewer local charities and local associations such as churches, campaign and business groups per capita than those that did not. But why?

It seems that by crushing smaller businesses and losing the local knowledge and relationships they embody, the supermarket economic model – used by its UK subsidiary Asda, and widely copied by rivals such as Tesco – cuts the threads that hold an engaged community together. Big supermarkets, often lured by grants into regeneration areas, have not acted as useful anchors but instead have competed, often unfairly, with the surrounding businesses – sucking money out of the local economy.

Governments have mistaken being “big business-friendly” with being pro-enterprise. And supermarkets have not only killed the rich diversity of producers, suppliers and shops that are essential to a resilient economy, they are also dissolving the glue that holds communities together.

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[1] Stephan J. Goetz and Anil Rupasingha (2006) ‘Wal-mart and social capital’, American Journal of Agricultural Economics, Vol 88, No 5.

Bookmark and ShareProfessor Herman E. Daly is an ecological economist at the School of Public Policy, University of Maryland and Author of Steady-State Economics

“We are capable of shutting off the sun and the stars because they do not pay a dividend.” — John Maynard Keynes, 1933

Let’s build a smarter planet.” This is IBM’s inspirational slogan, intoned as a benediction at the end of their 2010 advertisements. They do not say, “Let’s make a smarter adaptation to our planet Earth, out of which we were created and by which we are sustained.” It is the planet that is insufficiently smart, not its evolutionary prize-winning, big-brained, star tenant.

What makes IBM think that the planet is dumb? Well, obviously the mentally challenged Earth does not know how to keep on accommodating our continual economic growth, so we must redesign it with that remedial instruction in mind. For example, our growth requires fossil fuels, but when we burn a lot of them the resulting atmospheric CO2 slows down the radiation of heat back to outer space, heating up the stupid planet and causing dumb climate change. It would be easier to radiate heat energy out and make more thermal room for necessary fossil fuel burning if only we had less solar energy coming in. So a smarter planet would have a higher albedo to reflect more of that troublesome incoming solar radiation. Blasting light-reflecting particles of sulfur into the stratosphere or troposphere should raise the planet’s IQ a great deal.

This sophisticated planet-smartening pedagogy is known as geo-engineering. It will cheaply re-engineer the planet to allow BP to feed the sacred flame of economic growth by drilling deeper holes in more precarious places to pump more oil. That in turn will supply NASA with the resources to build more rockets, thereby to fulfill our cosmic destiny to escape this terminally dumb planet and build a really smart one from scratch in a better location. Scientists have long realized that geo-engineering and other retrofitting measures, while necessary to buy time for building up evacuation capacity, cannot be the final solution for a congenitally moronic planet. And if meanwhile an occasional oil spill reduces the photosynthetic capacity of life in the Gulf of Mexico — well, we have just seen that our silly planet already allows in too much solar energy, so if we reduce that inflow we will not have to trouble ourselves with converting it into food energy. Furthermore when NASA, BP, and IBM finish building our new smart planet, it will contain a new and smarter Gulf of Mexico.

To sum up, by serving only the interests of the growing economy, global corporations like IBM are providentially led, as if by an invisible hand, to also build a smarter planet! Of course, unlike Adam Smith, they do not really believe in any deistic providence with its invisible hand that converts private greed into public good. They know from modern science that random mutation plus natural selection explains everything, and that free will and purpose are illusions. But some of these illusions have survival value and must be persuasively advertised to secure support from the tax-paying masses (science is expensive) — at least until IBM, BP, and NASA have finished building a planet so smart that its inhabitants can safely be dumb robots.

Originally posted at The Daly News, blog of the Centre for the Advancement of the Steady-State Economy.

Bookmark and ShareJulia Slay co-ordinates nef‘s work on co-production.

Last week I received a call from a director of services from a large London council. Let’s call him Mr Borough. He had just read our latest report, Public Services Inside Out, which makes the case for people and professionals designing and delivering public services together in equal partnership: what we call ‘co-production’. This innovative approach, we argue, results in much better outcomes, often shifts towards a more preventative model of public services and can lower costs. Mr Borough had also been told that he would need to make a 30 per cent cut to his budget within the next three to five years. But instead of heading straight for the nearest pub to drown his sorrows, he was actually excited by what lay ahead. Mr Borough felt that the current ‘squeeze’ on public services represents the biggest opportunity he had ever faced to radically revisit the shape and style of the support he is able to offer people.

Co-production offers such an alternative, as a wider transformation of our public services by bringing new resources – people’s time, skills and experience – into the system.

Mention “co-production” to someone and the chances are most people won’t know what you’re talking about. But although the vocabulary of co-production isn’t well known, the practice of it is increasingly happening all around us. Almost any service can be co-produced: while the actual process and activities can vary, it almost always looks and feels the same as the principles which underpin the approach are manifested in everyday practices, as well as in strategic level governance.

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This letter appeared today in The Times

Sir,

David Cameron defends the first-past-the-post system as he claims that it allows for voters to throw out a government (interview, April 22). However, our current electoral system denies this choice to the majority of voters. Voters can only instigate a change in government by returning a new MP and thereby influencing the balance of power in Westminster.

Yet more than 60 per cent of seats are so safe that it is all but impossible for them to change hands. Only voters in marginal seats can exert their full democratic power and all the main political parties know this. Politicians therefore spend their time crafting policies and soundbites for the swing voters in “key marginals”. Meanwhile, the rest of us are left wondering what happened to the idea of “one person, one vote”. As the two-party system breaks down, growing numbers of electors grasp how the current system robs them of their democratic rights by serving only the vested interests of career politicians, suppressing the plurality of political viewpoints and breeding disengagement.

We must create a fairer and more representative way of electing our future governments.

Nic Marks, nef (the new economics foundation)

Professor Joni Lovenduski, Birkbeck College

Dr Ricardo Blaug, University of Leeds

Ken Ritchie, Chief Executive, Electoral Reform Society

Pam Giddy, Director, Power 2010

Dr Stuart Wilks-Heeg, Director, Democratic Audit

Stuart Weir, Associate Director, Democratic Audit

Peter Facey, Director, Unlock Democracy

Anthony Barnett, Founder, openDemocracy

Gavin Hayes, General Secretary, Compass

Jonathan Bartley, Co-Director, Ekklesia

Will Straw, editor, Left Foot Forward

Sunny Hundal, editor, Liberal Conspiracy

Bookmark and SharePerry Walker is head of the Democracy and Participation team at nef

Launching the Conservative election manifesto, David Cameron said, “We should remember the basic rule: that when you give people responsibility, they behave responsibly.”

The logic of this is that if you take responsibility away, you deter people from behaving responsibly. Seems obvious. Surely organizations understand this? Especially when ‘empowerment’ is a term in such vogue.  Sadly, they don’t. My personal Villain of the Month Award goes to Somerset County Council. It’s a provisional award, because I have only read one side of the story, but the story, in the Spring 2010 edition of the Ramblers’ ‘Walk’ magazine, seems pretty clear cut:

Mendip Ramblers’ long-established team of footpath workers has had to cease its weekly repairs after Somerset County Council decided instead to roll out its own volunteer scheme. ‘We’re angry and frustrated,’ says organizer Bob Berry, “All we wanted to do is continue to help keep local rights of way open and usable.

That rang a bell that took me back to Bea Campbell’s marvelous book of 1993, Goliath. She tells a story set in Meadowell in Newcastle, where a corporation depot was being used as a dump. A resident called Nancy asked: ‘The kids have nowhere to play. Why can’t we have a park?’ Children, adults and an advice centre then got together to create one. The children’s top priority was a ‘parkie’ – a keeper to keep it safe. No money, said the council. So, every day, on a rota, residents opened up in the morning and locked up at night. Every Sunday they had a clean up.

However, after a year they discovered that the council was about to employ a play worker. With no consultation, they felt hurt and snubbed. The Sunday clean-up stopped, and the treasured play site deteriorated.

Aren’t those two stories similar, despite being separated by ten years and the length of the country? They are similar both in what the councils did and in the effect that had on local people.

I conclude that it is very hard to empower people. They choose whether to empower themselves. But it is pretty easy to disempower them. So beware.

nef has long argued that we need systematic reform of our financial system to make it work for people and the planet. So far, the Election Campaign hasn’t touched on banking or finance, which means a crucial debate on the future of our economy is not being had. You can help the cause for financial reform by asking your candidates what their party plans to do to fix the banks.

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nef employees blog in their personal capacity. The opinions expressed here do not necessarily reflect those of the new economics foundation.