You are currently browsing the tag archive for the ‘resilience’ tag.

Bookmark and ShareJosh Ryan-Collins is a researcher in the Business, Finance and Economics team at nef.

You know that something is amiss in the world when the entire Greek civil service goes on strike as an indirect result of  hedgefunds speculating against the Euro. 

Perhaps an answer might be found in Gordon Brown’s reaction when questioned as to whether Britain might offer financial assistance to Greece, as now appears inevitable for Germany and perhaps other big beasts on the contintent: ‘This is a problem for the Eurozone and its a problem that the Eurozone members will have to deal with…’, he said with just a hint of smugness.  

Quite.  The UK is not a member of the Eurozone, for whatever complex political and economic reasons, and right now that is looking like a pretty good choice.  It is often forgotten in these discussions that currencies, if allowed to, can serve an important role in providing economic feedback to the markets about the health of particular economy.  Following the financial crisis, the UK economy was left in a bad way.  Sterling depreciated rapidly against the Euro and to some extent the dollar.  This naturally helped to make UK industry more competitive in terms of exports as well as encouraging more domestic demand for goods and services – or ‘import substitution’ (more people holidaying in Cornwall and Scotland than Spain for example).  This, in turn, helped us with our budget deficit.

But Greece and other less robust European economies – Portugal, Ireland and Spain (the delightfully named PIGS) – have no such economic feedback.  Instead, when their economies faltered, they had to borrow more and more in Euros to maintain public spending, with their native industries competing directly in terms of exports with economic powerhouses such as Germany and France. 

The late ecological economist Jane Jacobs had a clever biological analogy describing this kind of situation.  Imagine the Euzone countries as people each doing different kinds of activities – sleeping, swimming, playing tennis, collecting the rubbish – that require different amounts of oxygen.  These people are properly equipped with diaphragms and lungs but share only one single brain and breathing centre.  Their ‘brain’ receives consolidated feedback on the carbon-dioxide level of the whole group without discriminating among the individuals producing it.  Everybody’s diaphragm contracts at the same time, with potentially catastrophic results.

The Eurozone is made up of discrete economic units at different stages of development.  This worked more or less (although Italy would probably disagree) when the Eurozone was growing, as the larger states were happy to make up for the lack of natural feedback to their less developed cousins through large income redistributions and subsidies. But when a shock like the financial crisis hits the system and everyone faces budget problems, redistribution (or bail outs) suddenly becomes problematic and inefficient, with the danger of moral hazard raising its ugly head once more. 

Leaving the Euro is not an option for PIGS – their debt is in Euros and this would not doubt trigger another financial crisis.  Another option, suggested recently by Charles Goodhart in the FT and long-championed by nef, would be to allow the creation of dual currency systems in these states, following the example of California when it ran in to trouble and in Argentina during the Peso crisis of 2000.  An internal Greek IOU currency could be created, to enable teachers and binmen to carry on working and businesses to continue internal trading, at a devalued rate against the Euro, reflecting more accurately Greece’s real exchange rate.  It is a radical option but the alternatives don’t look promising – IMF style austerity measures resulting in mass unemployment and violent protest (the Greeks have a record on that) or a bail out which could permanently undermine the integrity of the Euro project.

Jacobs argued in ‘Cities and the Wealth of Nations’ that the City and its hinterland is the true economic unit and the optimum size for a currency in order to ensure efficient feedback and allow effective import substitution effects.   We are a long way from that but the financial crisis has revealed the danger of the merciless pursuit of economies of scale – both in terms of the size of financial institutions like banks and now also currencies – at the expense of diversity and increased economic resilience. 

Probably not what Gordon was thinking when he declined British responsibility for the Euro mess, but you can bet your bottom ‘dollar’ he’s glad the UK never quite passed those five tests.

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

A lorry abandoned in the snow.

Man has lost the ­capacity to ­foresee and forestall,” wrote Albert Schweitzer. A colossal banking crisis and a big freeze in the middle of what was meant to be a mild winter don’t encourage confidence to the contrary.

Reassurance is fine as long as it’s well founded. And in the midst of fears about gas supplies and the panic buying of food Gordon Brown is hardly likely to scream that we are all doomed. It is, after all, his job to tell us that all will be well. But will it? People were shocked at the scale of social breakdown when Hurricane Katrina revealed a long-term, creeping erosion of civic resilience. Are we just waking up to the fact that several wrong turns have left our essential supplies much more vulnerable than they need to be?

In 2004 Britain ceased to be able to meet its energy needs domestically. Since then our dependence on imports, particularly of natural gas, has risen dramatically. The situation can only worsen as gas is subject to the same iron law of depletion as oil, and its moment of peak production lags not far behind.

Similarly, Britain’s ability to feed itself has been in long-term decline, and food prices are reportedly rising in the cold spell. It was only two years ago that droughts in Australia caused a crisis in world grain supplies; in April 2008 food crises affected at least 37 countries and there were related riots in many. As climate change and volatile oil prices destabilise global agriculture, we are becoming more dependent on food and energy imports just as the geopolitics of both make it less likely that the world will generously meet our needs.

This year is the 10th anniversary of the fuel protests, when supermarket bosses sat with ministers and civil servants in Whitehall warning that there were just three days of food left. We were, in effect, nine meals from anarchy. Suddenly, the apocalyptic visions of novelists and film-makers seemed less preposterous. Civilisation’s veneer may be much thinner than we like to think.

Part of the problem lies in the infrastructure that emerges from a market system focused on narrow cost savings. The result is easily disrupted just-in-time supermarket food supply lines, and a risky assumption that anything we need can easily be bought on global markets. The latter becomes problematic when in response to global shortages, governments around the world understandably choose to meet their domestic needs first. In Britain, not only are our strategic fuel reserves low by international comparison, our strategic food reserves are history.

One response to the vulnerability revealed in 2008 has been the rise of the so-called land grab. Several wealthy countries and companies have targeted up to 20m hectares of productive farmland in poor countries for acquisition and control. In Madagascar, public outcry led to the government’s fall.

As a child I was quietly haunted by Doris Lessing’s book The Memoirs of a Survivor. Society had broken down, and people were on the move, displaced amid an increasingly brutal disorder. The presiding government was useless but just about able to “adjust itself to events, while pretending probably even to itself that it initiated them”.

Events are revealing that many of the things we take for granted, like bank accounts, fuel and food, are vulnerable. If we value civilisation, the litmus test for economic success should not be short-term profitability, but resilience in the face of climatic extremes and resource shortages. When Gordon Brown meets Cobra, the civil contingencies committee, this week, item one should be the transition to a more sustainable food and energy system.

ABOUT

This blog is operated by nef (the new economics foundation).

Follow us on:
Vimeo
Twitter
Flickr

ARCHIVES

CATEGORIES

Put People First
Airplot - join the plot
nef employees blog in their personal capacity. The opinions expressed here do not necessarily reflect those of the new economics foundation.