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Bookmark and ShareStewart Wallis is nef‘s Executive Director.

Letter to The Times, 26 May 2010.

Sir, While your leading article (“Cuts and the coalition”, May 25) hails the “restoration of the public finances” through the cuts announced on Monday, it is important to remember that this is not an expenditure crisis, it’s a revenue crisis caused by the behaviour of the banks. Failure to tackle the bank issue will inevitably lead to the same situation remerging all too soon.

Government should, as a first step, look to rein in the money it is already owed. In November last year the Treasury Select Committee reported that HM Revenue and Customs was sitting on £28 billion of unpaid tax bills that had been agreed but not settled. A further £25 billion could be sourced by plugging tax loopholes that the Government considers contravene the spirit of the law.

Stewart Wallis
Executive Director, New Economics Foundation

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Bookmark and ShareStewart Wallis is nef‘s Executive Director.

worldeconomicforum

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.


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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.