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Bookmark and ShareVeronika Thiel is a researcher and project manager on nef’s Access to Finance team.

Browsing through the papers and reading about different ways that governments seek to help enterprises of all kinds recover from the economic crisis, I noticed just how paltry the UK Government’s efforts are.

What made me realise this is the difference in the size of loan guarantee schemes. I blogged about these before, but here’s a short reminder:

Loan guarantee schemes provide a state guarantee to lenders when they extend credit to businesses they would normally not lend to. This is to circumvent overly cautious lending and over-reliance on schematic credit scoring indicators. In the current circumstances, they are used to get banks lending again.

One look at the graph below show why the UK support will just not be anywhere near enough to safeguard UK enterprises:

Spot the difference

Spot the difference

It has to be stressed that the US section of the bar doesn’t provide the full extent of the Obama administration’s efforts to support US companies. The $60bn are for loan guarantees in the green sector ALONE. There are further hundreds of millions set aside to support small and micro enterprises. Plus, the US administrating is channelling an additional $243m to CDFIs, community finance organisations that successfully invest in communities traditionally neglected by banks.

In the UK, we too have CDFIs, and they do a sterling job despite the fact that UK support is much less generous. How much less generous?

Look at the chart below. It will tell you.

US: $243m in 2009. UK: Zero. Zilch.Nada.

US: $243m in 2009. UK: Zero. Zilch.Nada.

But that’s not the end of the depressing story. Not only does the UK provide the lowest amount of loan guarantees, not only does it not help the CDFIs, the recent reform of its loan guarantee scheme actually decreases security for the lender.

I refer you again to my blog in March to read up the details, but the industrial policy of the UK can be summed up as follows:

  • Provide a shoddy loan guarantee that will not help those most in need, do not support CDFIs that have continued to provide finance where banks have long withdrawn, and pretend that business as usual can be restored.

Doesn’t sound as convincing as a formula for success, right?

Let me hence suggest an alternative:

  • Extend and increase the loan guarantee to provide real incentives for lenders, massively support CDFIs as banks have failed so catastrophically and introduce a community reinvestment act that will force lenders to invest where they get their money from – in local communities.
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Bookmark and ShareAndy Wimbush is nef‘s Communications Assistant and blogmaster.

teepee

nef will be at the Hay Festival Wales from Tuesday 26 May presenting a series of talks called Surviving the Crash. Our event on the Transition Towns movement is already sold out, but it’s not too late to get tickets for the rest of our programme.

We’ll be exploring how Cuba survived its oil crash of 1989, examining the power wielded by city investors in deciding our environmental fate, dbeating the potential of the Green New Deal and discussing what Britain’s homefront during World War II can teach us about a national response to climate change.

We have a host of fantastic speakers including the economist John Kay, gardening guru Monty Don, London Food czar Rosie Boycott, Guardian journalist John Vidal and our own Andrew Simms and Stewart Wallis.

At every event, the onehundredmonths clock will be ticking down in the background, bringing a sense of planetary urgency to an otherwise sleepy, secluded part of the country.

Bookmark and ShareSargon Nissan is a researcher in nef‘s Access to Finance team.

George OsborneWhen George Osborne, Shadow Chancellor, called for the break-up of Lloyds and RBS, he echoed the recommendations of our report I.O.U.K. on the failure of British banks to provide credit appropriate to our economy’s needs.

It seemed inevitable that this issue would rear its head again, and now we finally witness the financial sector’s response, via its ever-willing ally, the Government and Treasury. Their response came today with a Treasury report  – commissioned before the worst days of the current crisis – that staunchly defends the right of big banks to get bigger. According to today’s Financial Times, the Chancellor and the authors reiterated the report’s findings that “an industry constrained on narrow lines would find it harder to develop new products”.

What does not seem to be acknowledged in the current debate is that the failure of overly-consolidated banking pre-dates the crisis. As we discussed in I.O.U.K., the inability of the banking sector to provide the necessary credit for thoses small businesses and sectors of the economy which do not enjoy unwavering Government support is not a result of the credit crunch and economic crisis. The reality is that banks have been withdrawing from communities, closing their branches and abandoning relationship-driven banking for over two decades now. And it is this retrenchment from the real economy which has made them so vulnerable to the kinds of economic shocks we have seen in the last eight months. Northern Rock and Bradford & Bingley used to be mutuals, but they abandoned old-fashioned banking and converted into shareholder-owned institutions in search of better returns. And the result of this shift? They both went bankrupt and had to be rescued by the taxpayer.

It was  selfish herd-like behaviour seeking the easiest profits, encouraged by policymakers since Margaret Thatcher’s 1980s reforms, which thoroughly undermined our financial system. Perversely, it is now the Tories who seem to perceive the contradiction of a banking system with a permanent Government get-out-of-jail free card for banks that are, in the Shadow Chancellor’s words, “too big to fail, too big to bail”.

Perhaps the Conservatives are willing to contradict the prior orthodoxy just to win political points? Or maybe Osborne is just concerned about how big a headache a banking system in need of permanent subsidy will be when he has to present the next Budget?

Bookmark and ShareAndrew Simms is nef‘s Policy Director and head of nef’s Climate Change programme.

This was touted as the ‘green budget’, but the commitments on energy efficiency and low-carbon industry are obscured by a cloud of greenhouse gases spewing from the prop-ups given to the car and oil industry. It’s as if the Chancellor wants to ‘have his planet and eat it.’ You could say this is a balanced budget in the sense that any positive environmental action is likely to be cancelled-out by the Government locking-in a fossil fuel intensive infrastructure for transport and energy. As a result the budget turns out to be more beige than green.

Any shoots of recovery will not be green unless they are part of a rapid transition to a low carbon economy. The budget should be solving two problems. First, we need a green economic defibrillator to kick-start the country out of recession, but the Government seem to be just sparking two rusty wires together. Second, if we get the patient on its feet, we still have to cure its chronic fossil-fuel smoking habit.

It’s good to now have a proper, legally binding target for reducing emissions. But, the UK’s continuing dependence on oil, coal and gas, and plans to build more runways and roads, means the target is like setting someone a deadline to give up smoking, and then pushing them into a smoke-filled bar where all the walls are lined with cigarette machines.

Plans for electric cars may sound attractive, but you still need the clean energy to power them. As things are, together with ‘scrappage’ schemes, the initiative could even see total emissions rise rather than fall. More than a low carbon vehicle strategy, if the UK is to improve its own energy security and environment, and tackle climate change we need a low car vehicle strategy.

Bookmark and Share Dr Stephen Spratt is Director of nef‘s Centre for the Future Economy.


Bail-outs have now boosted UK national debt to staggering levels but have done little to stop the rot in our financial sector. By refusing to acknowledge the deep structural failings in the banking system, the Government is storing up debts they’ll probably never have to deal with, and no future government will be able to meet without decimating core public services. Banks that really have become too-big-to-fail leave the UK very vulnerable and must now be broken up. Soon to-be-published plans for banking regulation must go much further than tinkering with corporate governance and transparency. We need to separate investment banking from retail banking. We also need local banks that are in touch with their customers and able to respond to the needs of the dynamic small businesses on the frontline of our economy that will lift us out of recession.

Bookmark and ShareAndrew Simms is nef‘s Policy Director and head of nef’s Climate Change programme.

Selling permits to emit carbon dioxide is fine in theory, but there's a fatal flaw that means it can never avert climate catastrophe.

One day renewable energy looks like a sunrise industry, the next, tumbleweeds are blowing around a setting solar panel. What has changed? The price of emitting carbon dioxide.

In 2005 the European Union created the world’s first proper carbon market, the EU Emissions Trading Scheme (ETS), which compels highly polluting industries to buy permits to emit CO2. The number of permits is limited, so the idea is that supply and demand set a price that encourages the development of a low-carbon economy. A rising price with no wild fluctuations sends an economic signal to invest in clean energy. But it’s not working.

The price of a tonne of CO2 on the ETS has had a roller-coaster ride – soaring one minute, plummeting the next. In the past year it has lurched from over €30 to €8, and now languishes at around €10. Disastrously, such low and unpredictable prices for CO2 remove the economic incentive to decarbonise economies.

This is the partly the result of the economic downturn. As heavy industries mothball factories, energy use drops and demand for permits goes down. At the same time businesses try to raise cash by selling their unused permits, flooding the market and further depressing prices. French energy company EDF recently complained that carbon markets were failing just like the market for subprime mortgages. As a result, all kinds of green energy schemes are grinding to a halt.

So how do you set a meaningful price for carbon? The reality is more complicated than the ETS might suggest, which is a problem for those who advocate using market forces to reduce emissions. As NASA climate scientist James Hansen points out, getting it right or wrong could determine whether or not we can avert irreversible climate change.

Apart from the ETS, there are many ways to put a value on carbon. You can, for example, work out what it costs per tonne to reduce emissions. But calculating this “marginal abatement cost” is complicated by doubts over the effectiveness of carbon offsetting and the true impact of some supposedly green technologies.

Another method is the “social cost of carbon”, which estimates the cost of the damage from emitting a tonne of carbon over its whole lifetime in the atmosphere. This has been used by the UK treasury, and the Dutch government and the World Bank have experimented with it. But with so many variables to account for, estimates range from £35 to £140 per tonne. The UK has now dropped it for a new “shadow price of carbon”, an approach supported by the French government and some members of the European Commission.

The shadow price is similar to the social cost but includes “other factors that may affect willingness to pay for reductions”, to use the UK government’s own words. It is “a more versatile concept”. In other words, it gives politicians some scope to rig the price. Although well intentioned, it is vulnerable to abuse.

Each of these methods has its advantages and disadvantages, but there is one problem that none can solve. I’ll call it the paradox of environmental economics, in which worthy attempts to value natural resources hit a wall.

The paradox is this. All these methods of pricing carbon permit the creation of a carbon market that will allow us to pollute beyond a catastrophic tipping point. In other words, they require us to put a price on the final “killing” tonne of CO2 which, once emitted, tips the balance and triggers runaway global warming. How can we set such a price? It’s like saying, how much is civilisation worth? Or, if you needed a camel to cross a desert alive, what is a fair value for the straw that breaks its back?

The paradox reveals the fatal shortcoming of market solutions to environmental problems. Unless the parameters for carbon markets are set tightly in line with what science tells us is necessary to preventing runaway warming, they cannot work. That palpably did not happen with the ETS, which initially issued more permits to pollute than there were emissions and now, in the recession, is trading emissions that don’t exist – so-called hot air.

Carbon markets cannot save us unless they operate within a global carbon cap sufficient to prevent a rise of more than 2 °C above pre-industrial temperatures.

rationing

In wartime, rationing proved to be both fairer and more effective than taxation.

Governments are there to compensate for market failure but seem to have a blind spot about carbon markets. They could counteract the impact of low carbon prices by spending on renewable energy as part of their economic stimulus packages, yet they have not done so. The UK, for example, has spent nearly 20 per cent of its GDP to prop up the financial sector, but just 0.0083 per cent in new money on green economic stimulus.

Price mechanisms alone are unable to do the vital job of reducing carbon emissions. They are too vague, imperfect, and frequently socially unjust. To prevent over-consumption of key resources such as fuel during the second world war, the UK government rejected taxation in favour of rationing because taxation unfairly hit the poor and was too slow to change behaviour. Rationing was the quicker, more equitable option. Carbon rations calculated in line with a safe cap on overall emissions provide a more certain way of hitting emissions targets.

Is there an answer to the paradox of environmental economics that could make the market approach workable? I can’t imagine one, but am open to suggestions. Even if you could price the killing tonne, it is a transaction that should never be allowed. Economics becomes redundant if it can rationalise an exchange that sells the future of humankind.

This article was first published in the New Scientist, April 2009.

Bookmark and ShareAndy Wimbush is nef‘s Communications Assistant and blogmaster.


On Monday, nef and our friends at Compass, hosted an alternative summit to propose and develop new ideas for a new economics, a new politics and the social movements that will bring those things about. Attendees were united in their belief there can be no turning back to the failed policies and ideologies that created the crash and the looming climate change disaster. We heard from a range of thinkers and activists, including Jon Cruddas MP, Will Hutton, nef‘s Andrew Simms and Stewart Wallis, Compass’ Neal Lawson, and Richard Wilkinson and Kate Pickett, authors of the wonderful new book The Spirit Level.

We also received the following video address from Jayati Ghosh, Professor of Economics at Jawaharlal Nehru University in New Delhi. We now bring it to you – a much wider audience – here on the nef blog:

Bookmark and ShareAndrew Simms is nef‘s Policy Director and head of nef’s Climate Change programme.

Hard hats to symbolise a Green New Deal, handed out by Avaaz during last Saturday's demonstration (© Avaaz.org 2009)

Hard hats to symbolise a Green New Deal, handed out by Avaaz during last Saturday's demonstration (© Avaaz.org 2009)

The UK economy faces a triple crunch: a recession triggered by a major credit crisis, the looming reality of runaway climate change and critical resource depletion. As a result we face serious challenges to our livelihoods and increasing threats to our fuel and food security.

Whatever the mistakes that allowed this situation to arise, there is growing international consensus that the best way out is via a green new deal policy package. Parts of the UK economy are in freefall with unemployment rising rapidly. At the same time, with less than 100 months to go before the world enters a new, more dangerous phase of global warming, there is an urgent need for the rapid environmental transformation of the economy.

A green new deal demands a comprehensive array of new checks and balances on the financial sector and a range of new economic instruments ranging from new bonds to business incentives and taxes. At its heart is an environmental stimulus package designed to begin the rapid environmental transformation of UK businesses, while simultaneously softening the worst impact of the recession, creating countless jobs in the environmental and renewable energy sector – often referred to as green-collar jobs – and laying the foundations for a truly green recovery.

Possibly for the first time in history, the green new deal could propel environmental measures to the heart of economic policy and decision making. The way that the UK government handles this challenge will reveal its aptitude for crisis management.

It’s possible to test that aptitude by looking at what has been done to date, and comparing it with a range of other policy measures. The simple, telling question is: what is the government doing that is new and additional to stimulate the economy by spending on the environment?

The answer indicates that the government is missing a huge opportunity – the chance to boost the economy, ensure energy security and act on climate change by directing new and additional resources into the environmental transformation of the economy.

Read the rest of this entry »

Bookmark and ShareAndy Wimbush is nef‘s Communications Assistant and blogmaster. He also draws cartoons for nef‘s newspaper.

In November last year, a group of economists, ecologists and social thinkers met at Schumacher College to discuss the financial and environmental crisis we are currently facing, and what we are looking for in a new economic paradigm.

The film below, by Fraser Durham, is made up of interviews witht those present at the conference, including nef‘s Executive Director Stewart Wallis and nef fellow David Boyle. For more information about the conference, and the e4 declaration that came out of it, visit www.e4declaration.org.

Vodpod videos no longer available.

Bookmark and ShareAndy Wimbush is nef‘s Communications Assistant and blogmaster. He also draws cartoons for nef‘s newspaper.

Pat McFadden: a neoliberal nostalgic

Pat McFadden, a neoliberal nostalgic | Photograph: Sharon Wallace

It’s been over a week now since we launched our proposal for a People’s Bank based at the Post Office. In a packed committee room in the Houses of Parliament we heard politicians of all stripes voice their support for this new kind of bank, one that would put communities, small businessses and the financial excluded first.

The only speaker to mince his words and to temper his enthusiasm with caveats was, of course, the Minister for Postal Affairs, Pat McFadden. There is a danger, McFadden warned us, of becoming so ‘nostalgic’ about the Post Office that it blinds us to its current problems and the need to modernise. And then he said: ‘We can’t simply go back to the way things were’.

We can’t simply go back to the way things were.

But isn’t it McFadden and the rest of this Government – rather than the Post Bank Coalition – who are the real nostalgics here? After all, they’re the ones who are desperate for us to go back to the way things were before Lehman Brothers declared its insolvency, before the failure of HBOS and RBS. They continue to pump seemingly endless amounts of public money into banks which, as nef argued in our banking report I.O.U.K., are no longer able to perform the most basic functions of a bank.

The Post Office, by contrast, remains a vital and much-needed element of the UK economy. nef‘s research shows that each post office saves neighbouring small businesses around £270,000 each year. And small businesses employ the majority of the private sector workforce, around about 58%. Nor is the Post Bank simply a means of saving the Post Office network: we also believe it would offer something markedly different to what the current high street banks are doing, even taking into account the fact that these banks are now effectively in public ownership. As Liberal Democrat Treasury Spokesperson Vince Cable said of the Post Bank proposal:

This is an attempt to clean up banking. The co-option of the system has spread right through into the branches. There was aggressive cross-selling, commission-based branch managers were drawing people into transactions they should never have done. This is a cleaner principle based on sound banking ideas, but driven by public interest rather than narrow short-term profits.

What’s more, the proposal could easily be put into action. A recent poll by PoliticsHome.com revealed that 74% of the electorate think that a Post Bank would be a good idea, even at this early stage. And brand experts have agreed that the Post Office is uniquely situated – both geographically and within the public consciousness  – to be able to provide trusted, reliable financial services amid so much economic turmoil.

The only thing stopping McFadden, Brown, Mandelson and their ilk is their neoliberal nostalgia. They are desperate to get back to business-as-usual without apology because it is too uncomfortable to admit that the Thatcherite economics with which they dramatically transformed their party has failed. While they wish that we could all just go back to the way things were, others are forging ahead with a new economy.

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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.
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