Living Within Our Means

The recession we’re in right now March 2009
living within
is going to be very grim our means:
avoiding the
but nothing like as grim ultimate recession
as the recession that awaits us
if we don’t start
living within our means
jonathon
porritt
Forum for the Future
Jonathon Porritt, Co-Founder of Forum for the Future, is an eminent

writer, broadcaster and commentator on sustainable development.
Established in 1996, Forum for the Future is now the UK’s leading
sustainable development charity, with 70 staff and over 100 partner
organisations, including some of the world’s leading companies.
Jonathon was appointed by the Prime Minister as Chairman of the

UK Sustainable Development Commission in July 2000. This is the
Government’s principal source of independent advice across the whole
sustainable development agenda. In addition, he has been a member
of the Board of the South West Regional Development Agency since
December 1999, and is Co-Director of The Prince of Wales’s Business
and Environment Programme which runs Senior Executives’ Seminars
in Cambridge, Salzburg, South Africa and the USA. In 2005 he became
a Non-Executive Director of Wessex Water, and a Trustee of the Ashden
Awards for Sustainable Energy.
He was formerly Director of Friends of the Earth (1984–90); Co-Chair

of the Green Party (1980–83) of which he is still a member; Chairman
of UNED-UK (1993–96); Chairman of Sustainability South West, the
South West Round Table for Sustainable Development (1999–2001);
a Trustee of WWF UK (1991–2005).
His latest books are Capitalism As If The World Matters

(Earthscan, revised 2007), Globalism & Regionalism (Black Dog 2008).
Jonathon received a CBE in January 2000 for services

to environmental protection.
www.jonathonporritt.com www.sd-commission.org.uk
www.forumforthefuture.org www.cpi.cam.ac.uk/bep
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Enquiries: 020 7324 3624

Email: info@forumforthefuture.org Publication of this pamphlet has been
supported by the Co-operative Group.
Living within our means:
avoiding the ultimate recession
contents
1. The end of capitalism as we’ve known it 2 — 11

Opportunity out of disaster
Shifting power bases
Flawed role models
Lest we forget
2. Causes and effects 12 — 25

Deregulation
Debt-driven growth
Cost externalisation
Mis-pricing risk
Mis-allocation of capital
Economic growth
The erosion of democracy
The fig leaf of corporate social responsibility
3. Reframing capitalism 26 — 33
Taking stock
Making capitalism sustainable
The five capitals
4. A sustainable new deal 34 — 63

Recapitalisation strategies
A green new deal
Sustainable economies
5. Avoiding the ultimate recession 64 — 70
References 71
2/3 Living within our means:
1.
the end of
capitalism as
we’ve known it
The end of capitalism
as we’ve known it
The recession we’re in right now

is going to be very grim
but nothing like as grim

if we don’t start
We’ve had the language to give voice to what’s going on in the world
today for a long time: quite simply, we’ve been “living beyond our means”.
How many times have you heard that, seen the nodding heads, but known
that nothing would change? We’ve felt this instinctive anxiety for a long time,
but lacked the empirical evidence to help us resist the siren voices of those
who kept on telling us there was no problem. Now it’s all blown up in our
faces, and, in retrospect, it seems so blindingly obvious.
But we still don’t properly understand just how far beyond our means
we’ve been living, environmentally as well as financially. And we still
don’t properly understand the way those two spheres of human activity
are connected. The shock to the system from the near-collapse of our
global banking industry has been traumatic – and it’s going to get a lot
worse before it gets better. Even so, that is nothing compared to the
near-imminent collapse of the ecological systems on which we depend
– particularly a stable climate. And the two are intimately connected.
If we don’t seize hold of those linkages, the advocates of “patch-up
business-as-usual” will soon reassert their customary influence over
politicians and the media.
Two phenomena highlight the collision of financial and environmental

crises which now threaten us with the Ultimate Recession.
Debtonation day The methane timebomb
On August 9th 2007, banks suddenly One year after “Debtonation Day”, an
stopped lending to each other. Earlier exchange of emails between researchers
in the year, they’d started to re-evaluate involved in monitoring the Siberian
the huge levels of debt on their balance continental shelf in the Arctic Circle
sheets, and discovered that although they (published in The Independent) reported
still didn’t quite know how bad it was, intense concentrations of methane –
it was much, much worse than anything sometimes up to 100 times background
they’d feared. “Debtonation Day” dawned. levels – over thousands of square miles.
The system locked down, spreading They reported examples of the “sea
instant consternation from Wall Street to foaming” with gas bubbling up through
Main Street, from the US to Europe to the “methane chimneys” rising from the sea
rest of the world, threatening an economic floor. Their hypothesis? A combination
crash graver than anything seen since of melting sea ice and warmer run-off
the Great Depression eighty years ago. from Russia’s Arctic rivers is causing the
In March 2008, Bear Sterns collapsed sub-sea layer of permafrost to melt away,
and the rot really set in. releasing what could be hundreds of
millions of tonnes of methane. Methane
is twenty times more powerful than
CO2 as a greenhouse gas.
It is the principal purpose of this pamphlet to demonstrate that these

two explosive phenomena are symptoms of the same systemic flaws
in contemporary capitalism. There will be little chance of engineering
any kind of meaningful response to either crisis unless we understand
that the “living beyond our means” which has been going on for decades,
has led both to massively over-leveraged balance sheets and a massively
over-leveraged use of the natural world.
But in all the intense coverage of the credit crunch and the ensuing economic
recession, there’s been surprisingly little reference to environmental issues
– outside of the environment world. Encouraged by a sequence of reports
on the potential for some kind of “Green New Deal” from UNEP and others,
the mainstream parties in the UK have each come up with positioning
documents on the specific challenge of moving towards a low-carbon
economy. They all have their merits, but the critique of capitalism on
which they are based is very superficial.
Elsewhere, it has become received wisdom that environmental issues

should now “be put on the back burner”, given the ferocity of the
economic recession. Even dealing with climate change, which is widely
acknowledged by scientists as the single most important challenge facing
humankind today, is now seen by many politicians and business leaders
as we’ve known it
as “an unaffordable luxury”. We’re in some terminal zero-sum game it

would seem: we either combat the grim consequences of global recession
or we get to grips with climate change and a host of other sustainability
challenges. But not both at the same time.
This paper argues exactly the opposite: that the convergence of these
two crises should be seen both as the “perfect storm warning” that it is,
and as an astonishing opportunity to confront and resolve both crises
without further delay.
It seems strange to say this today, but maybe we’ll all look back on the
collapse in the global economy and recognise it as precisely the shock to
the system we so desperately needed. Not another climate-induced shock
(although they will be coming thick and fast all too soon), but an economic
shock that compelled us to look much, much harder at the period of frenzied
excess and irresponsibility we’ve been living through. And to seize hold of
that moment to advance some different ideas – on regulation, on reform
of the Bretton Woods Institutions, on economic growth, on low-carbon
innovation, and on getting ourselves out of this mess by laying the
foundations for a very different kind of economy.
That’s what President Obama would appear to be doing with his recovery
programme – nearly $900 billion, of which somewhere around $100 billion
can be designated as “green” or “sustainable”. In Japan, they’re planning a
vast new programme to expand their environmental technologies market to
more than $1 trillion over 5 years – and create 800,000 jobs in the process.
In China, South Korea, Germany, France and the EU as a whole, similar
measures are being brought forward. In February 2009, Lord Stern called
for investments of $400 billion a year to drive forward the low-carbon
economy of tomorrow – and at the same time create millions of new jobs.
This is an unbelievable opportunity. It may even be the last chance

for capitalism to stake any kind of claim as the system best placed to
help us navigate our way through to a sustainable future for nine billion
people by 2050.
We’re playing for very high stakes here, and it will all need to happen
in the next couple of years.
Prime Minister Gordon Brown himself could not have been clearer
about this in the speech that he gave at the World Economic Forum
in Davos in February 2009:
“So we cannot afford to relegate climate change to the

international pending tray because of our current economic
difficulties. Instead, we must use the imperative of building
a low-carbon economy as a route to creating growth and
jobs, the path that will see us through the current downturn.
Green recovery spending as a % of total recovery packages
Country/Region Fund Period Green Fund % Green

$b $b
Asia Pacific
Australia 26.7 2009 –12 2.5 9.3%
China 586.1 2009 –10 221.3 37.8%
India 13.7 2009 0%
Japan 485.9 2009 – 12.4 2.6%
South Korea 38.1 2009 –12 30.7 80.5%
Thailand 3.3 2009 0%
Subtotal Asia 1,153.8 266.9 23.1%
Pacific
Europe
EU 38.8 2009 –10 22.8 58.7%
Germany 104.8 2009 –10 13.8 13.2%
France 33.7 2009–10 7.1 21.2%
Italy 103.5 2009 – 1.3 1.3%
Spain 14.2 2009 0.8 5.8%
UK 30.4 2009 –12 2.1 6.9%
Other EU States 308.7 2009 6.2 2.0%
Subtotal Europe 634.2 54.2 16.7%
Americas
Canada 31.8 2009 –13 2.6 8.3%
Chile 4.0 2009 0%
US EESA 185.0 10 years 18.2 9.8%
US ARRA 787.0 10 years 94.1 12.0%
Subtotal Americas 1.007.8 114.9 11.4%
TOTAL 2,796 436 15.6%
Source: ‘A Climate for Recovery – the colour of stimulus goes green’ (HSBC, February 2009)
as we’ve known it
And already, together, we have begun the long walk down that
road. In the EU’s economic recovery plan, in President Obama’s
“green jobs” package, in the stimulus packages of China, Japan,
Australia, South Korea, France, Germany, Spain and Denmark,
and in my own Government’s forthcoming Green Industrial
Strategy, the contours of a resilient, low-carbon recovery
are becoming clear.”
As yet, at the time of going to press, we have seen very little of that
eloquence translate through into policy proposals – let alone action
on the ground.
1.1 Opportunity out of disaster

There are two powerful reasons to see things in this counter-intuitive way.
First, instead of treating each crisis as a “stand-alone phenomenon” in its
own right, even the most cursory examination of the causes underlying each
crisis reveals the same inherent dysfunctionalities within our Anglo-American
deregulated, debt-driven, growth-at-all-costs capitalism. Second, in the
same way that our capital markets imploded for lack of proper regulation,
so our carbon-intensive economies are about to implode – socially and
environmentally – for lack of proper regulation of emissions of greenhouse
gases. Which means, quite simply, that the only available global solution to
our economic crisis lies in addressing our sustainability crisis through what
is rapidly becoming known as a “Green New Deal for the 21st Century”.
If our politicians could focus consistently on this extraordinary

opportunity, especially at a time when the reputation and standing
of the United States has been so powerfully enhanced by the election
of Barack Obama as President, we would find ourselves with a unique
chance of securing a genuinely sustainable future for ourselves and all
those who come after us.
The consequences of missing out on this opportunity do not bear

thinking about. But economic paradigms do not die easily, and this
particular paradigm has taken such a firm hold on the collective psyche
of the human species, and will be defended so ferociously by a self-serving
elite of massively powerful beneficiaries of that paradigm, that the odds
on “overthrow and make anew” rather than “accommodate and retrieve
lost ground” are still no more than 50/50.
We should take heart, however, from the fact that what has had
to be done to rescue the banking system (through massive public
interventions and nationalisations to the tune of many trillions of dollars
globally) has already fatally weakened the case for any kind of return
to the status quo. After all, what can be done for the banking system
can surely be done for the protection of human civilisation itself?
1.2 Shifting power bases

Many commentators have arrived at the conclusion that the role of
America as the principal driver of the global economy is to all intents and
purposes finished. It’s possible that the astonishing growth in countries like
China and India over the last twenty years would have brought to an end its
period of dominance in the not so distant future anyway – no empire lasts
forever. But the cataclysmic collapse in financial markets over the last year
or so makes that transition inevitable and imminent. And with it, many
believe, will go the particular variant of capitalism that has reigned
supreme over the last thirty years.
For those concerned both about society and about the state of the
environment, globally or locally, this represents a dramatic turning point.
Though most environmental organisations have demonstrated next-to-
zero interest in the macro-economic systems against which today’s
“environmental issues” are played out, the truth is that not one of their
respective causes has had the remotest prospect of succeeding under
this particular system of capitalism. Its dramatic collapse offers at least
some chance of a belated reconciliation between the pursuit of economic
prosperity on the one hand and the protection of the life-support
systems on which we all depend on the other.
It’s a sign of just how bankrupt mainstream political debate has been here
in the UK over so many years that the interface between contemporary
capitalism and the state of the environment has warranted little if any
attention. Even the Liberal Democrats (who can justifiably claim to be
the “greenest” of the three major parties) have conspicuously failed to
contextualise their “environmental policies” within any kind of transformative
critique of contemporary capitalism. Going back over the last twenty-five
years or more, a depressingly deterministic acceptance of the core tenets
of contemporary capitalism has – in all major parties – rendered much of
the debate about the environment unavoidably superficial. Thankfully, the
near-inevitable demise of contemporary capitalism could now open up
some space for a long overdue debate at a much deeper level. It may even
become permissible, thirty years or more after the intense debate in the
seventies about the Club of Rome’s “Limits to Growth” report, to re-open
that all-important area of enquiry.
1.3 Flawed role models

The next section will briefly look at a number of the dominant characteristics
of this particular model of capitalism. It will seek to demonstrate not only how
they have contributed to the current financial crisis, but also to the chronic
failure on the part of governments to do anything more than slow the pace
of environmental destruction – at the very moment in human history when
the scientific evidence available to us regarding the cumulative impact of
the human economy on natural systems has become literally incontrovertible.
as we’ve known it
But it may be helpful first to give such abstract ideas a rather more human
face by looking at the role of two of the most important protagonists of
contemporary capitalism over the last thirty years or so – Jack Welch,
former Chief Executive of GE, and Alan Greenspan, former Chairman
of the US Federal Reserve.
Jack Welch is the most celebrated Chief Executive of the last 30 years.
Indeed, he was recognised by his peers “Business Manager of the 20th
Century”. It’s his variety of capitalism that is now withering away in front
of our eyes. He was aggressive, ruthless, and known to friend and foe
alike as “Neutron Jack” for his ability to hollow out businesses by sacking
a quota of employees every year (“pour encourager les autres”) whilst
keeping the business itself intact.
He was also an environmental despoiler on an heroic scale. It’s not the

legacy he himself lays claim to in his self-aggrandizing autobiography,
but Jack Welch will be remembered for years to come as much for his
impact on the environment as for his financial success. Most notoriously,
the Hudson River has been devastated by GE’s release of toxic chemicals
such as PCBs over many years. After an extremely effective delaying
campaign, a clean-up of sorts is now underway. And GE’s current
shareholders will see billions of dollars from what would have been
their rightful dividends deployed over the next decade or more to
clean up his toxic mess.
The much-hyped “Masters of the Universe” who have caused the

financial system to implode, are, to a man, Jack Welch look-alikes.
Their legacy is different but strangely similar: packages of toxic debt
released with criminal irresponsibility into the US capital markets,
just as Jack Welch released his barrels of PCBs into the Hudson River.
The “ultimate boss” presiding over the system throughout that time
was Alan Greenspan, Chairman of the US Federal Reserve for 19 years.
Until recently, many would have made the claim that Alan Greenspan
was the most convincing candidate as “guru-in-chief” of contemporary
capitalism, just as Jack Welch was voted by his peers “Business
Manager of the 20th Century”. He was judged to have exercised such
impeccable judgement as to have single-handedly secured rising
prosperity through turbulent times for the majority of US citizens –
and indeed for the rest of the world. As such, he became one of
Gordon Brown’s most influential role models; in the citation for his
honorary Knighthood, specific reference was made to his contribution
“to promoting economic stability” – which sounds almost as astonishing
today as the erstwhile protestations of the Prime Minister that he had
done away with the damaging impacts of “boom and bust”.
10 / 11 Living within our means:
Throughout his time in office, Greenspan refused to acknowledge

that he might be contributing to a wholly unsustainable “bubble” in
the US housing market. His favourite euphemism under attack was
to make light of the institutionalised mis-selling of credit as “froth”,
or even “irrational exuberance”. His confidence in this particular model
of credit-fuelled economic growth rested on the belief that house prices
in the US would not fall but would continue to rise indefinitely. It seems
unbelievable that the world should have been in awe, for so long,
of a man capable of such crass nonsense.
1.4 Lest we forget

But people were in awe of Greenspan. Here in the UK, there must be
many a contributor to The Economist and the Financial Times cringing
at the adulatory copy that they churned out month after month during
his tenure of office. And there must be many in the current Government
ashamed to have put such unequivocal faith in such a false prophet,
in a man who fetishised the beneficence of self-regulating markets,
whatever the evidence was actually telling them.
Even though it’s a little late, it’s encouraging to see how many Labour
politicians are now asking how it was that Ministers really did believe that
the market place could miraculously transform private greed into public good.
And how it was they felt quite so comfortable in the company of a generation
of irresponsible speculators as they plunged us all into this vortex of artifice.
And how they ended up endorsing a financial system that encouraged
mainstream mortgage providers to act as loan-sharks; that eulogised the
innovation involved in off-balance sheet funding and inadequately regulated
hedge funds; that embraced corporate privilege with born-again zeal, with
few words of criticism about obscene salary deals and even more obscene
bonuses; that lived in such dread of these “Masters of the Universe” that
they were prepared to slash capital gains tax, promote offshore tax havens,
placate “non-doms” at any price, and exercise the lightest of touches
in terms of pursuing tax avoidance or even fraud.
What makes this all the more extraordinary is the indifference that New
Labour seems to have felt towards some of the financial success stories
going on here in the UK – in terms of the steady growth of ethical and
sustainable funds, of specialist ethical banks like Triodos, of the few
remaining “mutuals” and building societies, and of the Co-operative
Financial Services Group.
As all the big names in the banking world have crashed and burned,
Co-operative Financial Services has gone from strength to strength.
In February 2009, it launched a radical new Ethical Policy, underscoring
both the gap between conventional and ethical banking, and the wisdom
of building a long-term value proposition that resonates so much more
as we’ve known it
powerfully with increasingly angry and apprehensive citizens in the UK

today. In 2008 it saw a 15% growth in customer lending, a 40% increase
in personal savings, and a 65% increase in people opening current accounts.
The unveiling of its new Ethical Policy also coincided with another milestone
for the Co-operative Bank: in 2008 the value of the business it has declined
since launching its first ethical policy in 1992 (on account of its failure
to meet minimum ethical criteria) passed the £1 billion mark.
It’s New Labour’s apparent lack of excitement about decent, prudent

businesses like the Co-operative Group, about familiar and trusted
organisations like the Post Office, about that vast legion of charities and
voluntary bodies that help make life good for millions of people, that irritates
the hell out of so many disappointed Labour activists. More and more of
these activists are now re-engaged in “a battle for the soul of the Labour
Party”. In an essay for the New Statesman in March 2009, Neal Lawson
(Chair of Compass) and John Harris of The Guardian have given voice
to the ideological critique that underpins this anger:
“The starting point for a better future is the simple

recognition that the Good Society is incompatible with market
fundamentalism. Markets never contain themselves. Instead,
they always look for new opportunities to make more profit.
This leads to no end of disastrous and dysfunctional outcomes:
among them the commercialisation of the lives of our children
and the rise of the kinds of complex financial instruments that
have brought the whole house down. To turn society in a different
direction, markets will have to be regulated and trammelled by
social forces – the state’s and civil society. We must put in place
the institutions that allow society to make the market its servant.
We cannot graft our conscience onto capitalism, as it were;
the point must be to direct it and constrain it in the interests
of society at large.” 1
They may have left it too late to pull together a sufficiently influential
coalition of causes to shift the direction of the Labour Party before the next
Election, but their readiness to go beyond conventional “tribal boundaries”
in seeking a different way forward is hugely encouraging. And that case is
greatly strengthened by a deeper analysis of the causes that lie behind both
the current recession and what I’ve called the “Ultimate” recession that will
surely follow if we simply try to get back to where we were before the
banking system collapsed in 2007.
2.
causes and
effects
Causes and effects
It is astonishing to reflect upon the fact that the core tenets of this particular
model of capitalism have warranted so little applied attention, by any of
the major political parties, over the last twenty years or more. Some kind of
strange “herd mentality” has clearly been at work, excluding from the mass
media the few voices (particularly within Labour and the Liberal Democrats)
which have been raised in warning about the potential risks entailed in
embracing capitalism of this kind.
Before we turn now to some of those core tenets, a word of warning.

My purpose in this chapter is not to provide some kind of definitive analysis
of the causes of the current economic disaster. Many have already done
that with much more authority and in much greater depth than I could
possibly manage. My own understanding is heavily dependent on what I’ve
learnt from such diverse commentators as Larry Elliott (Economics Editor
of The Guardian), Martin Wolf (of the Financial Times) and Will Hutton
(Observer columnist and Chief Executive of the Work Foundation).
My purpose here is very different: to point out how some of the most
widely-recognised causes of the crash in capital markets are also the
principal, underlying causes of the environmental crisis we now face.
As George Monbiot puts it:
“The two crises have the same cause. In both cases,

those who exploit the resource have demanded impossible
rates of return, and invoked debts that can never be repaid.
In both cases, we have denied the inevitable consequences.” 2
This remains the missing element in much of the current debate. And that’s
serious. As politicians address themselves to “fixing global markets”, they
should be constantly asking whether the prescriptions they are coming up
with are simultaneously “fit for purpose” in terms of the fixing the global
environment. Apart from the various “Green New Deals” that we’ll be
looking at in Chapter 4, very little seems to be happening on that front.
2.1 Deregulation
2.1.1 Impact on capital markets
One need hardly dwell on this. After months of increasingly angst-ridden

soul-searching amongst politicians and regulators alike, there is now
universal consensus that what was once complacently characterised
as a “light touch” was little more than a green light for total abuse of the
system. The self-same politicians in the UK and US who were only too
keen to apply this light touch are now in the vanguard of those calling
for a “total clean-up” in the face of such irresponsibility.
Here in the UK, this can’t all be pinned on Labour. It was Margaret Thatcher,
in the 1986 “big bang”, who demolished the firewalls between retail banks
and investment banks, the thin end of what became a very fat deregulated
wedge. And one has to go back nearly fifty years to tell the full story of how
two generations of free-market zealots successfully whittled away at
the constraints and regulations put in place after the Great Depression
in the 1930s.
The pendulum is now swinging back. We’ve already seen short-term bans
imposed on the practice of “short-selling”, and criminal investigations have
been launched in the US. Outraged electorates must, after all, be offered up
a few re-regulated scapegoats for ritual slaughter. A head of steam is building
up for the re-imposition of capital ratio requirements, for a comprehensive
insurance scheme to cover defaulting organisations, for a ban on anonymous
trading, for an end to perverse bonus schemes, and for greatly improved
transparency to enable regulators to cope better with the unparalleled
complexity that has underpinned capital markets until today.
2.1.2 Impact on the environment
Environmental deregulation has been equally problematic, and it’s now

equally inevitable that calls for much stricter regulation can only increase
in the future. But there are big differences between the situation here in
Europe and the situation in the US.
Here, there’s been a slowdown (and sometimes a complete halt) to the

“pipeline” of regulatory interventions from the EU which started in the
1970s and 1980s. In a way that is often ignored by UK politicians, these
interventions have done more than anything else to help improve both
the quality of the physical environment and the quality of life for European
citizens. A few years ago, however, EU governments just seemed to lose
their regulatory nerve in the face of unprecedented lobbying by big business,
opting instead for the use of voluntary agreements or “market measures”
instead of what has been endlessly disparaged as “command and
control” regulations.
In the US, by contrast, it’s been full-on deregulation, as George Bush

set about dismantling the fundamental pillars of environmental regulation
(The Clean Air Act, The Clean Water Act, The Endangered Species Act etc),
in an intensely damaging process brilliantly captured in Robert J. Kennedy’s
Crimes Against Nature.
This story really needs no re-telling. The consequences of grotesquely

inadequate regulation, government after government, administration
after administration, are all around us. Thomas Friedman summarises
this admirably in his new book Hot, Flat and Crowded:
Causes and effects
“There are no cushions left, there’s nowhere to hide; there are no

more green fields to dump your garbage into, no more oceans to
overfish, no more endless forests to cut down. We have reached
a stage where the effects of our way of life on the earth’s climate
and biodiversity can no longer be ‘externalised’ or ignored or
confined. Our environmental savings account is empty. It is not
pay now or pay later. It is pay now or there will be no later. There
will be no avoiding accountability for the total cost of ownership
of what you produce and consume. The days of a ‘sub-prime
planet’ are over – a planet we could own for no money down,
where there were no interest payments until sometime far into
the future, and all the true costs were hidden.” 3
2.2 Debt-driven growth

Indebtedness – in the shape of personal debt, corporate debt, farm debt,
national debt and so on – is one of the most important features of today’s
model of economic growth. To keep alive the illusion of prosperity, politicians
of every persuasion have not just condoned the taking on of debt as “sound
economic practice”, but have actively promoted it. And their electorates
have dutifully gone out there and consumed on the back of those debts
as if there would be no tomorrow and no final reckoning.
Back in the 1970s, economists began to question how the engine of

economic growth could be sustained at a time when productivity gains were
starting to have a major impact on both unemployment and average earnings.
And that’s exactly the pattern that has unfolded since then with significant
advances in productivity replacing more and more labour, with an inevitable
impact on real earnings growth. Where once the income of one earner
in the family sufficed, the “two-earner family” is now the norm.

The “solution” turned out to be a relatively easy one: fuel the engine of
growth with increased debt rather than increased earnings. Discourage
savings; promote consumption through the availability of credit of every
kind. Live for today by living on tick, and hang the consequences. As a result,
levels of personal debt have gone through the roof, with the active, indeed
enthusiastic encouragement of politicians: the UK is today one of the most
indebted nations in the world. And as they now gear up for a self-righteous
witch-hunt against the mis-selling of credit, let’s just remind ourselves who
created that culture of “anything goes” in the first place.
The scale of the problem in the US is literally mind-numbing. David Walker,

the US Comptroller General until February 2008 (when he resigned in despair
at his inability to get politicians to focus on the debt crisis, which he describes
as “a greater threat to the security of the United States than international
terrorism”), believes that the publicly acknowledged debt of $10 trillion is

a fraction of the real picture, once you add in the full costs of the current
bank bail-outs, of the wars in Iraq and Afghanistan, of the Administration’s
Medicare programme for seniors and so on. His calculation is that the debt
now amounts to around $50 trillion – the equivalent of $175,000 for every
American citizen. And more and more of that debt is held by China and
the Sovereign Wealth Funds of countries in the Middle East and Far
East – hence the threat to national security.
As our debts to the banks and others have built up, so have our debts to
Nature – in terms of the totally unsustainable depletion of natural resources,
measured by the loss of top-soil, forests, fresh water and biodiversity.
Everybody knows that liquidating capital assets to fuel current consumption
is crazy, but nobody seems to know how to stop it. Judging by the regularity
with which politicians trot out today’s favourite green clichés (“We do
not inherit the world from our parents; we borrow it from our children”),
you’d think they understood the difference between capital and interest.
But they clearly don’t.
Some time ago, the Global Footprint Network and the New Economics
Foundation launched a new initiative (under the name “Ecological Debt
Day”) to mark the point in the calendar year at which society exceeded
the total volume of resources available to us every year – if we were
intent on maintaining intact our stocks of natural capital. In 2008, their
report demonstrated that we went into “overshoot” on September 23rd.
In 2005, it was October 2nd. In 1995, it was November 21st. In 1986,
it was December 22nd. The direction of travel is crystal clear, as are
the moral consequences: this kind of deficit consumption is, in effect,
drawing down on the capital entitlements of future generations.
Given that I’ve never heard a single politician indicate the slightest
awareness of this phenomenon (let alone any declared intention
of planning to pay back against these ecological debts), we should
recognise this for what it is: intergenerational larceny on
a staggering scale.
The phenomenon in itself is hardly surprising. When the global population

is still increasing by around 70 million people every year, and when per
capita resource consumption is still increasing every year in all but the
poorest countries, and when increased technological productivity can
do little more than offset a small part of that combined impact, overshoot
is literally unavoidable. And though no one should ever underestimate the
misery caused to hundreds of millions of people by getting into debt and
getting stuck in debt, it’s our debt to the natural world that matters more
than anything else. As we will see in the next chapter, having thrown
billions at trying to recapitalise the banking system, we now need
to recapitalise the natural world on an even more heroic scale.
Causes and effects
2.3 Cost externalisation

In effect, a whole generation of bankers has externalised the full costs

of their systematic mis-pricing of risk (see next section) onto a whole
generation of borrowers. Most of them, to be fair, probably should have
known better, but were just caught up in Alan Greenspan’s “irrational
exuberance”. There are already more than a million people in negative
equity here in the UK, and that figure will continue to rise throughout 2009.
The combined human and social costs of gulling huge numbers of people
into living beyond their means will be felt for many years to come. It’s become
increasingly clear that being in debt is now a major contributory factor in
the unprecedentedly high levels of mental ill-health here in the UK. Not only
does this massively reduce the quality of life of millions of people, but it adds
very significantly to the direct and indirect costs incurred by society and
tax-payers. The Department of Health’s own calculations set this cost
at £76 billion a year. Tim Kasser’s The High Cost of Materialism reveals
the full implications for society of promoting a way of life based primarily
on private consumption and the pursuit of extrinsic gratification.
Politicians find it difficult to link this kind of societal cost externalisation

to our current model of growth-at-all-costs capitalism. They bewail the
consequences (as in the Tory party’s current analysis of the UK’s “Broken
Society”), but are reluctant to look very far beyond the symptoms – arguing
endlessly about rival ways of alleviating those symptoms without digging very
much deeper. But when they do (as in Conservative leader David Cameron’s
short-lived flirtation with “The Politics of Wellbeing rather than the Politics
of Unsustainable Growth”) they tend to get slapped down by the likes
of the Daily Mail.
The world would look very different if politicians ever put into practice
some of their favourite mantras about the efficacy of markets. To a man
and woman, they all sign up enthusiastically to the notion that markets only
work well when the price that we pay for something in that market accurately
reflects the costs of bringing it to market. And then they do little to ensure
that this should be carried through in practice, in effect licensing continuing
cost externalisation for fear of being seen to do anything to threaten
the onward march of progress through exponential economic growth.
Chief Executives like Jack Welch are only able to prosper with year
after year of double-digit growth because politicians fail to regulate
their companies properly.
It was Lord Stern’s report on the economics of climate change that first
brought home to politicians the true consequences of what he described
as “the greatest market failure the world has ever seen”. The only way of
correcting that market failure is to ensure that the price we pay for emitting
CO2 accurately reflects the cost of the pollution it causes – in terms of its
impact as a greenhouse gas. The EU’s Emissions Trading Scheme represents
the first attempt to put a formal price on every tonne of CO2 emitted by
Europe’s most energy-intensive industries, and other countries are now
planning similar “cap and trade” interventions – including the United States.
The big question now is deceptively simple: what is the “right price” for a
tonne of CO2 – given that, according to some scientists’ worst fears, we might
already be risking the collapse of human civilisation as a consequence of
not getting the price right? And will a global cap-and-trade scheme (which
is what the current climate change negotiations have in mind as an end goal)
get us to that “right price” within the very short window of time available to
us? Politicians have never before had to reckon with this kind of systemic
cost internalisation on such a massive scale.
2.4 Mis-pricing risk

The mis-pricing of risk lies absolutely at the heart of today’s crash.

And everyone was involved: the central banks, investment banks, hedge
funds, rating agencies, regulators and even the financial media themselves.
More and more stories are now emerging of the measures taken to suppress
divergent thinking and to silence critical voices through all that time – in both
the United States and the UK. That’s just one of the reasons why the whole
sorry saga is still shrouded in uncertainty and ignorance. The audit trail is
only just beginning to be tracked back through the system from “debtonation
day” on August 9th 2007 (the point where the banks stopped lending to
each other) to the point where the rot set in. Multiple lawsuits in the US
will undoubtedly accelerate that process, but the basics are already clear.
In the mortgage market, the difference between “prime borrowers” and “sub-
prime borrowers” is simple: the latter are at much greater risk of defaulting
on their mortgage than the former. Having pretty much saturated the prime
market, lenders had to do something with the bubble of credit puffed up by
Alan Greenspan, and the sub-prime market was the obvious place to go.
No particular problem in this as long as house prices continued to rise, but
when house prices started falling, that risk started to loom very large indeed.
But lenders (central banks) didn’t just sit on those loans. With the active
encouragement of regulators, politicians and even the IMF, they bundled
them up into securities that could be traded in the financial markets. These
securitised packages (known as “collateralised debt obligations”) were then
bought by the investment banks, who were completely sold on the idea that
this kind of securitisation (breaking “the product” up into appropriate slices)
would increase its value and reduce its risk – even though they didn’t actually
know what balance of risk there was in any one portfolio! This problem was
Causes and effects
compounded by unknown off-balance sheet exposures. The rest, as

they say, is history – starting with the “historic” collapse of Bear Sterns
on 14th March 2008.
One aspect of this systematic mis-pricing of risk relates to the role of the
Rating Agencies (Standard and Poor’s, Moody’s, Fitch and so on) and their
questionable relationship with investment institutions in pricing the risk of
these toxic derivatives in such a ludicrously unrealistic way. It wasn’t until
it was far too late (with the poisoned packages spread far and wide through
the world’s capital markets) that the agencies began to raise the alarm.
This may not have been criminal, but it was certainly wilful, part and
parcel of an approach which was systemically biased to short-term
profit-maximising opportunism.
The generation of whizz kids (analysts, fund managers etc) who have
provided the “cutting edge” to today’s casino capitalism have never come
remotely close to understanding how to “value the environment”. It’s only
now that climate change is starting to put at risk multi-billion dollar
businesses (tourism companies deserting destinations whose reefs have
been destroyed or whose mountains have been denuded of any snow,
agricultural businesses unable to carry on through lack of water in some
places or too much water in others, and so on) that they are beginning to
take an interest. The depth of their ignorance remains staggering, and it’s
no good saying that they’re not paid to act as environmental champions.
Of course they’re not. But they are paid (very large amounts of money) to
price potential risk and potential value, and for them to have remained blind
to the value provided by the natural world (and drawn down by all of us, year
in, year out, as a multi-trillion dollar subsidy) has put the entire system at risk.
People still fail to understand just how big a risk this is. Back in the 1990s
when Bob Costanza and his colleagues at MIT did their calculations on the
total monetary value of the 17 principal “eco-system services” on which we
depend (things like building fertility in the soil, flood control, climate regulation
and so on), the figure they came up with was $33 trillion – pretty much the
same economic value as one year’s worth of GDP.
Since then, some of these calculations have been refined to help decision-
makers understand the true economic value of the ecosystems and habitats
which they are still so blithely laying waste. As regards pollination, for
instance, scientists have estimated that if we had to do by hand what is
currently done for us for free by bees, bugs, birds and bats, the annual cost
would be well in excess of half a trillion dollars. Sounds crazy, doesn’t it?
But in the province of Szechuan in China, that’s exactly what they’re having
to do right now. Having wiped out most of their beneficial insects through
the over-application of pesticides, they’re now having to collect pollen by
hand and apply it (using feather-dusters!) by hand to keep alive their
hugely valuable orchards.
2.5 Mis-allocation of capital

With both potential risk and potential value systematically mis-priced, it’s
hardly surprising that such huge sums of capital have been systematically
mis-allocated. Guided only by Alan Greenspan’s reality-defying supposition
that house prices in the US would never fall again, hundreds of billions of
dollars were advanced to US citizens manifestly incapable of ever repaying
those debts.
The full extent of the losses in the US is still not fully understood, but the
panic-stricken measures still underway to rebuild the balance sheets of
once-mighty financial institutions are enough to make the disciples of Milton
Friedman or Ayn Rand (Alan Greenspan’s principal mentor) weep into their
champagne. With Fannie Mae, Freddie Mac and AIG already taken into
public ownership, President Bush stepped down in January 2009 as the
greatest nationaliser of the modern era. For those institutions unable (or
unwilling) to get their hands on that fountain of tax payers’ dollars, recourse
must be had to the Sovereign Wealth Funds of the Far East or the Middle
East – compounding the geo-political irony of America becoming even more
dependent on either China (the country which now funds America’s massive
and still growing national debt), or on the same countries which already
hold sway over the US in terms of its continuing dependence on their oil.
Vast tranches of capital are still deployed, day in, day out, funding
projects which further undermine the resilience of the natural systems on
which we depend, or further accelerate the depletion of non-renewable
resources. The physical reality of climate change, for instance, is still not
properly informing capital allocation processes; it has been demonstrated
that if all the hydrocarbon assets (oil, gas and coal) in which investments
have already been made were to be fully produced and brought to market,
it would take concentrations of CO2 in the atmosphere to around 700 ppm
– at exactly the time when scientists are telling us that we will need to
stabilise at no more than 450 ppm and probably closer to 350 ppm.
Somebody’s going to get hurt. For instance, financial institutions are currently
punting billions of dollars on the investments being made by the oil majors
in the tar sands of Alberta – it is estimated that up to $100 billion will be
invested by 2015, depending on what happens to the price of oil over the
next couple of years. For every barrel of oil extracted from the tar sands,
between 2 and 3 times as much CO2 is emitted as with a conventional barrel
of oil. With CO2 trading at a few Euros or dollars a tonne, perhaps that’s no
big deal. But with CO2 at (say) $150 a tonne (which is where many economists
believe it will be once the true cost of accelerating climate change hits home),
the scale of stranded assets that will then litter Alberta’s hydrocarbon-rich
land beggars belief. One has to ask why so many very smart people still
Causes and effects
haven’t worked out the mind-boggling financial implications of needing

to reduce emissions of CO2 by at least 80% by 2050 – which is now the
UK Government’s statutory target, and one which others will no doubt
be adopting very soon.
But one also has to ask why the oil companies are making those investments.
The answer takes us straight back to the difference between prime and sub-
prime investment markets: because the oil companies are being frozen out of
the few remaining “prime” hydrocarbon assets in Russia, Venezuela, Nigeria
and so on, they are seeking to make up for that shortfall in reserves by an
accelerating dash into the “sub-prime” world of the tar sands. As Greenpeace
puts it, “there is a good chance that the tar sands could be to the oil industry
(and its investors) what sub-prime housing has been to the banking sector.”
2.6 Economic growth

The single most pervasive orthodoxy of contemporary capitalism is that
its success depends on securing the highest possible levels of economic
growth (as measured by GDP), year in, year out. To challenge this orthodoxy
as an economist is to condemn oneself to outer darkness, and very few of
them ever do it. As a result, the putative benefits of exponential economic
growth have become, quite literally, “articles of faith”, beyond empirical
analysis or even political debate.
As part of this process, it is claimed, as an article of faith, that growth as

we know it today is not only the only reliable way of reducing poverty (for
which there is indeed some evidence, particularly in countries like China and
India, though few if any of the costs of that kind of growth are ever properly
factored in), but also the only way of reducing inequality, for which there is
not a shred of evidence, as worsening equity gaps after decades of strong
economic growth have so powerfully demonstrated. It is also claimed that
exponential economic growth is the only way of improving the environment
– on the grounds that without growth, no nation will have the economic
means to clear up the mess that it created in generating that growth.
The absurdity of this assertion speaks for itself.
Yet not all growth is bad, and growth of the right kind will undoubtedly be
necessary as humankind “transitions” from today’s suicidally unsustainable
economy to one which has a chance of meeting the needs of 9 billion people,
elegantly and sufficiently, by 2050. I have written at length about this in
Capitalism As If The World Matters, so must take a narrower focus here.
Investors look to companies for increased dividends, and demand annual

growth in profits to secure those dividends. Governments look to companies
for increased taxes, and expect year-on-year growth to secure those
revenues. Even when companies are generating very strong profits,
they will still be ruthlessly marked down by the markets if those profits aren’t
growing every year. Boards of Directors will be punished and even removed
if they can’t provide that growth – and provide it in the short-term rather than
over time. (When NatWest was taken over by the Royal Bank of Scotland in
2000, its annual profits were still growing year on year, but apparently not fast
enough for the markets. Indeed, its Chairman and Chief Executive at the time
were excoriated in the pages of the Financial Times for ignoring the interests
of shareholders “by taking their eye off the ball in worrying so much about
the environment” and similar causes!).
It is rarely understood just how much high levels of debt contribute to

the “imperative” of securing year-on-year exponential growth. Interest has
to be paid out of profits; the greater the interest to be paid, the stronger the
drive for growth. The same is true with personal debt; anyone with a 100%
mortgage and high levels of debt on their credit cards is going to want to
grow their own personal income to help cover the interest.
It is important to realise that none of this has happened by chance.

It is clear, from a macro-economic perspective, that governments around
the world have fuelled their respective credit bubbles in part to help
ratchet up levels of economic growth.
Growth trumps all in today’s capitalist world. However much

governments may sign up to the principles of “sustainable economic
growth” (as articulately explained in the UK Government’s own Sustainable
Development Strategy, Securing The Future to ensure that “a proper balance
can be maintained between economic growth, living within environmental
limits, and securing a healthy and just society”), they really don’t mean it.
Every additional cumulative impact on the natural world is still justified

on the grounds that the specific socio-economic benefits generated by
any new development will somehow compensate for the damage done to
the environment. True enough, planning laws, development controls and
environmental regulations all help to mitigate what would otherwise be an
even gloomier picture; tools such as Cost Benefit Analysis, Environmental
Impact Assessment, Lifecycle Analysis or Whole-Life Costing have all been
developed to help achieve a better balance or a “more sophisticated set
of trade-offs”, as Defra puts it. But their combined impact over the last
20 years or so has been marginal.
The scale of destruction continues largely unabated – particularly in

developing and emerging economies. It was announced in November
2008, for instance, that the loss of rainforest in the Amazon was up 4%
on the previous year, meaning that current losses now exceed those of
the 1980s, when Friends of the Earth International launched the first ever
global campaign against rainforest destruction. And all done, as ever,
in the name of economic growth and progress.
Causes and effects
2.7 The erosion of democracy

After the collapse of Enron and a handful of similarly shocking

corporate scandals in the 1990s, the US Administration stepped in
to address some of the most egregious shortcomings in its systems of
corporate governance. Arthur Anderson, a household name at the time
as one of the “Big 5” accountancy firms, and Enron’s accountants, paid
the highest price as it was forced into liquidation; Sarbanes-Oxley was
rushed through Congress, and everyone breathed a deep sigh of relief.
We now know that all this was mostly cosmetic. A lethal combination of
complexity, opacity and “regulatory capture” has left investors as vulnerable
as ever to the kind of systematic abuse we’ve seen over the last few years.
Non-Executive Directors are kept largely in the dark, and have few if any
real powers; notionally independent Remuneration Committees play a
quite disgraceful game of “you scratch my back and I’ll scratch yours”.
At the same time, the flow of corporate dollars flooding into Washington via
an army of corporate lobbyists has grown and grown, eroding democracy’s
checks and balances at every point in the system. Robert Reich argues in
his latest book Supercapitalism that this almost certainly isn’t the corporate
conspiracy that many see it to be, but represents nonetheless a massive
weakening of our interests as citizens rather than our interests as consumers:
“Our voices as citizens – as opposed to our voices as consumers

and investors – are being drowned out. We may even be losing
confidence that what we have to say as citizens is important.
This is not because big corporations have conspired to drown
out or marginalise our citizen voices, but chiefly because
corporations are engaged in escalating competition for political
outcomes that advantaged them over their rivals. The same
trend is becoming evident in many other democracies, as
supercapitalism is spreading around the world. But it is not
the way capitalism and democracy should continue to evolve.
We need not be slaves to present trends any more than we were
to previous ones. We can, if we choose, fashion a democratic
capitalism more suited to our nobler aspirations for the 21st
century. Yet to do that, it is necessary to separate capitalism
from democracy and guard the border between them.” 4
In the aftermath of the banking crash, intense negotiations are now

underway to address some of the “irregularities” and “irresponsible
behaviour” that are held to lie at the heart of the debacle. The use of
such reassuring euphemisms shows just how keen both governments and
business interests are to avoid any radical changes to existing governance
structures. The whole “Bretton Woods II” process is going on pretty much
behind closed doors, with little, if any, opportunity for the voices of civil
society to be heard let alone properly reflected in any “reform package”.
This “cognitive dissonance” between us as citizens (losing out because

of extreme impacts on the environment and wider societal interests) and us
as consumers or investors (winning out in the short term through increased
choice or lower prices) cannot be resolved by companies undertaking
voluntarily to act as responsible corporate citizens. Companies are not
citizens. They are legal entities charged with legal responsibilities to the
governments of the countries in which they operate and with fiduciary
responsibilities to their shareholders. They have no other statutory
responsibilities. The massively over-hyped emphasis on Corporate Social
Responsibility (see below) has served only to distract us from a very simple
reality: wider social interests (both at home and abroad) can only be served
by governments exercising their democratic mandate to change the rules
of the game by establishing a different “level playing field” on which all
contestants must compete.
Governments are today even slower to take on that decisive role than
they have been before. Fear of “nanny-state” accusations in the media,
combined with an astonishing loss of confidence in their ability to make
things happen (and a simultaneous loss of trust amongst their electorates),
have all conspired to leave the environment more dangerously exposed
to continuing damage and destruction than would be the case in more
citizen-oriented democracies.
That said, the speed with which the governments of the western world
have had to intervene to take control of banking systems after deregulated
markets have failed so badly, reminds one that there isn’t any reason
why governments shouldn’t act in a far more decisive way to protect
the life-support systems on which we depend – once the true failings of
deregulated, “laissez-faire” economics have become even more apparent.
2.8 The fig leaf of corporate social responsibility

This is a tricky one. Whilst it’s demonstrably true, at a micro-economic

level, that many good things have been undertaken by companies in the
name of Corporate Social Responsibility, and that these initiatives have
made a substantive difference to communities, people and the environment,
it’s equally true, at a macro-economic level, that these small-scale incremental
improvements in responsible performance have served only to obscure
much deeper, systemic problems with today’s dominant business models.
A particularly stark example of this can be witnessed in the ruins of a banking

industry that was once the pride and joy of the UK Government. Every single
one of our once-revered financial institutions have for a long time had very
impressive CSR programmes. Northern Rock was an outstanding exemplar of
community-based engagement, as was the Halifax bit of HBOS; Lloyds TSB
Causes and effects
runs one of the most innovative CSR programmes in the whole world;
HSBC has pioneered some of the most important climate change initiatives
in the corporate world today. And so on.
Yet the truth of it is that every one of these once-revered financial

institutions has been simultaneously engaged in some of most irresponsible
business behaviour in the history of capitalism. As we’ve seen, risk has been
systematically mis-priced; credit has been systematically mis-sold; incentive
schemes were geared to promote value-destroying personal greed; Audit
Committees failed, quarter in, quarter out, to exercise any kind of proper
scrutiny; bundles of bad debt were packaged up and sold on as so many
toxic time-bombs; and literally everything involved in this global scam
was made more complex, more opaque, more impenetrable, less subject
to scrutiny and audit of any kind – presumably for a purpose.
You can pretty much guarantee that not one of the Directors of CSR in
any of these once-revered financial institutions would have been consulted
about any of these strategic decisions. After all, what has CSR got to do
with investment strategies? With executive remuneration? With company
policy on “collateralised debt obligations”? Or taxation policy? Or hedge
funds? And even if they had been consulted, you can absolutely guarantee
they would have been ignored – the seductive pull of big money will always
trump the platitudes of corporate responsibility.
By the same token, if one looks at the cumulative damage to the environment
done by companies through the systematic mis-allocation of capital, mis-
pricing of risk and mis-aligning of incentives, it’s clear that even the most
intensively managed of CSR programmes can do little to offset these systemic
problems and their resulting impacts. Better to have such programmes
than not, but best of all not to be gulled into thinking that this is the right
route to the kind of sustainable capitalism we now so desperately need.
It has, of course, suited governments to encourage the burgeoning

industry of Corporate Social Responsibility. With regulations seen by
many governments as “the policy instrument of last resort”, voluntary
Corporate Social Responsibility programmes have provided near-perfect
cover for endlessly postponing and diluting more appropriate regulatory
interventions. In thrall to the massive influence of large multinational
companies, governments have been only too happy to point to the threadbare
fig-leaves of “voluntary measures” rather than properly regulate markets so
that they can operate transparently, efficiently and equitably. The EU’s failed
“Auto-Oil” initiative (where voluntary standards for reducing emissions of
CO2 were painfully hammered out, after endless delays and compromises,
with both car companies and oil companies) provides a very telling example.
It’s clear to most observers that EU governments are now going to have
to do what they should have done at the start and regulate decisively
– even if it is against the wishes of their own still powerful car companies.
3.
reframing
capitalism
Reframing capitalism
“Change your mind when the facts change.”

– John Maynard Keynes
That well-known quote doesn’t quite fit the current circumstances.

The facts haven’t actually changed. They are exactly the same facts as
they were this time last year, or even 37 years ago, for that matter, at the
time of the first major UN Conference on the Environment and Human
Development in Stockholm in 1972. What has changed is our perception
or interpretation of those facts. Just as we now know the economic boom-
times of the last 15 years or so were built on a vortex of artifice, so we’ve
begun to realise that our pursuit of exponential economic growth, regardless
of its impact on the natural world and its life-support systems, has been
premised on an equally vicious vortex of artifice. During that time,
our self-deception has known no bounds, on both counts.
Just as house prices do not (and never will) go on rising indefinitely over
time, so our use of finite resources cannot (and never will) go on expanding
indefinitely over time. Surprising though it obviously is to every single high-
flyer who has passed through the Treasury over the last 37 years, the so-
called “laws” of the market never have and never will take precedence over
the laws of thermodynamics. Like all outlaws, we’re now being punished
for our transgressions – and climate change is just the scariest of the
retributions that may be visited upon us if we don’t change our ways
very profoundly and very quickly.
One of the more astonishing of all the many acts of self-deception that
our societies have been party to over the last 20 years or so relates to
the projected availability of hydrocarbon fuels – oil, gas and coal. For all
sorts of reasons, we’ve behaved throughout that time as if supplies would
continue to flow in such a way that there would be no problem in meeting
rising demand indefinitely into the future. Given just how critical oil and gas
have been in underpinning the massive expansion in our economies since
the Second World War in the 20th Century, this has become one of those
“received articles of faith” which brooked no dissent.
This is clearly not the place for a detailed consideration of the debate
surrounding “peak oil” – for that, readers should check out Richard Heinberg’s
Peak Everything or Jeremy Leggett’s Half Gone. But whereas it was once just
a small and rather beleaguered group of former oil company employees and
dissident geologists warning of an imminent “peak moment”, that’s changed
dramatically in the last couple of years. Even the International Energy Agency
(which has been seen by many as an ultra-loyal defender of the “stay calm”
arguments of the oil companies) has now revealed that it too believes that
the peak moment could come as early as 2012.
2012! You might imagine the prospect of that moment coming very much
sooner rather than later would be galvanising politicians around the world
to start putting in place radical contingency measures. That is absolutely
not the case. In October 2008, eight of the UK’s most prestigious companies
published a report called The Oil Crunch to give voice to their own deep
concerns about the security of future energy supplies in the UK, and
expressed absolute astonishment that there was so little understanding
of these issues either within Treasury or within the Department of Business
and Enterprise.
It’s true of course that this is not an easy one for governments to call.
Security of supply is not just a function of available supplies in themselves,
but of wider security and geo-political issues, of capacity issues in the
industry itself, of the role of speculators in manipulating energy markets,
and above all of price. In that regard, governments the world over may have
been granted a temporary reprieve in that a prolonged economic recession
will dramatically reduce demand for oil and gas, especially if investments in
energy efficiency are now massively ramped up. That means prices should
stay relatively low (although $50/$60 a barrel is only “low” in comparison
to the 2008 high point of $147) until demand picks up again. At which point,
the majority of analysts now believe that prices will move rapidly upwards
as demand again exceeds supply.
Even those who do not subscribe to this medium-term scenario are at least
ready to acknowledge that the age of “cheap oil” has come and definitively
gone. Jeroen Van de Veer, Chief Executive of Shell, has himself said as much
on a number of occasions, not least to justify Shell’s burgeoning investments
in the “sub-prime” tar sands of Alberta.
3.1 Taking stock

In the face of such persistent acts of self-deception, it’s clear that
changing our ways is proving as difficult for humankind as ever.
Paradoxically, however, I am more optimistic about the prospects of
us doing this today than I was this time last year, for three reasons:
1. The sheer intensity and depth of the collapse in banking

systems (and the ensuing recession which could still turn into
this century’s first Great Depression) has blown away years
of ideological fantasizing about the superiority of deregulated,
debt-driven, finance-based capitalism. It has both humbled
the “Masters of the Universe” who exploited these political
fantasies to enrich themselves at the expense of their
shareholders and customers, let alone the rest of us,
and it has licensed such unorthodox policy responses
(not least in terms of the nationalisation of failing banks)
that practically anything must now be on the table.
2. The overwhelming evidence about climate change and

about its rapidly accelerating impacts (as with the release
of methane in the Arctic touched on earlier) leaves our
politicians with less and less space to hide. The UK’s
new Climate Change Act is clearly the first serious attempt

on the part of any OECD nation to enable its citizens to
understand just how profound a transformation in their
lives this is going to be.
3. The rebirth of America as witnessed in the election of Barack

Obama as President is absolutely fundamental. There was,
quite literally, no solution to the world’s converging crises with
George Bush in the White House, and it would have been the
same under a McCain presidency. That doesn’t mean to say
that Barack Obama will deliver “just like that”, and it is clearly
extremely unwise to heap such impossible expectations on
any one person. But at least the potential is there, on climate
change, on security issues, on nuclear disarmament, on
Palestine, on a transformed global economy – and it just
wasn’t there before.
Even before the uplift in people’s spirits that the election of Barack Obama
seemed to bring, there was no shortage of ambitious plans starting to emerge
to address the so-called “triple crunch”: the credit crunch, the oil crunch and
the climate crunch. Perhaps the most impactful of these has been the Green
New Deal brought together in June 2008 by a group of progressive UK NGOs.
Suddenly, “New Deals” of every description started popping up all over the
place, often with totally diverging world views, let alone policy prescriptions,
but all “praying in aid” Roosevelt’s 1933 New Deal which is widely held to
have set the US on the path to recovery after the Great Depression.
I shall return to a number of these proposals in the next chapter, but need
to preface what follows with a warning: there is as yet no over-arching
consensus that what is needed is a root-and-branch transformation of
capitalism. Most of the strategies and specific policy proposals out there
fall more into the category of “fixing” what has gone wrong and then getting
back to some of the “certainties” that obtained prior to the credit crunch.
To us in Forum for the Future, that looks like a disaster in the making, in that
it may well fix the superficial problems (particularly regarding the banking
and financial services sector), but it will do nothing to address the systemic
failures outlined in the previous chapter.
3.2 Making capitalism sustainable

Historically, it’s all too often been the case that environmentalists have been
very reluctant to engage in addressing these dilemmas at a systems level
– in other words, not focusing solely on the symptoms of today’s converging
crises, but addressing instead the root causes inherent within this particular
version of capitalism.
But at its heart, sustainable development comes right down to one all-
important challenge: is it possible to conceptualise and then operationalise
an alternative model of capitalism – one that allows for the sustainable

management of all the different capital assets on which we rely, so that
the yield from those different assets sustains us now as well as in the future?
And is it possible to do this in a way that lifts people’s spirits as to the real
potential of humankind rather than assumes the worst about human nature?
At the risk of stating the obvious, behind the notion of capitalism lies
the notion of capital – which economists use to describe a stock of
anything (physical or virtual) from which anyone can extract a revenue
or yield. Capitalism has a number of important characteristics that
distinguish it from other economic systems: private ownership of
the means of production, reliance upon the market to allocate goods
and services, the drive to accumulate capital, and so on. But the
core concept of capitalism, from which it derives its very name,
is the economic concept of capital.
When people think of capital in this sense, they usually think of some of
the more familiar ‘stocks’ of capital: land, machines and money. But in the
description of the Five Capitals Framework that follows, this basic concept
of capital (as in any stock capable of generating a flow) has been elaborated
upon to arrive at a hypothetical model of sustainable capitalism. It entails five
separate capital “stocks”: natural, human, social, manufactured and financial.
This has become the principal mechanism used by Forum for the Future to
demonstrate the kind of changes that are going to be needed as we transition
from one variant of capitalism to another. Whilst continuing to recognise
the dynamic benefits of market-based, profit-led wealth creation, the Five
Capitals Framework requires a more holistic understanding of all the different
stocks of capital on which our wealth depends, and a clear, unambiguous
acknowledgement that all our aspirations depend ultimately on the success
with which we manage our stocks of natural capital – as captured in
the diagram opposite. Without that, any talk of “sustainable capitalism”
or even “sustainable economic growth” is essentially built on a lie.
At its simplest, our wealth depends on maintaining an adequate stock

of each of these types of capital. If we consume more than we invest,
then our opportunities to generate wealth in the future will inevitably
be reduced. Sustainability can only be achieved if these stocks of
capital are kept intact or increased over time.
The five capitals framework
Human Social
Capital Capital
Natural Capital
Manufactured Financial
Capital Capital
3.3 The five capitals

Natural capital
Natural capital (also referred to as environmental or ecological capital)

is that part of the natural world which we humans make some use of
or derive some benefit from – hence, its definition (in economists’ jargon)
as any stock or flow of energy and matter that yields valuable goods
and services. There are different kinds of natural capital:
• resources, some of which are renewable (timber, grain, fish and water),
while others are not (fossil fuels);
• sinks that absorb, neutralise or recycle waste;
• ecosystem services such as climate regulation, flood control,
pollination and so on.
Human capital
The definition of human capital in our Five Capitals Framework is a simple

one: ‘the physical, intellectual, emotional and spiritual capacities of any
individual’. In an economic context, it consists of our health, knowledge,
skills and motivation, all of which are required for productive work.
Enhancing human capital – for instance, through investing in education
and training – is vital for a flourishing economy. Poverty is both morally
indefensible and socially inefficient in that it prevents millions of people
from fulfilling their potential.
Social capital
Social capital is the value added to any activity or economic process by

human relationships, networks and co-operation. Social capital takes the
form of structures or institutions which enable individuals to maintain and
develop their human capital in partnership with others and includes families,
communities, businesses, trade unions, schools, and voluntary organisations.
Manufactured capital
The two remaining stocks of capital (manufactured and financial) are

probably the most familiar. However, manufactured capital is not quite
as simple a concept as it sounds. It is made up of material goods that
contribute to the production process, but do not become embodied
in the output of that process. The main components of manufactured
capital include:
• buildings – the built environment of villages, towns and cities;

• infrastructure – the physical fabric supporting social and economic
life, including transport networks; schools; hospitals; media and
communications; energy; and sewerage and water systems; and
• technologies – the means by which goods and services are
produced, from simple tools and machines to information
technology, biotechnology and engineering.
Financial capital
The role of financial capital is perhaps the least understood of all

the categories of capital now seen as essential to a sustainable
economic system. Indeed, it is usually excluded from such models
on the grounds that financial capital has no intrinsic value, is not
essential for the production of goods and services, and simply
provides a means of exchange for the fruits of other categories
of capital. Paper assets that make up the stocks of money,
bonds and equities have no value in themselves, but are simply
derivatives of the underlying manufactured, natural, social or
human capital stocks.
4.
a sustainable
new deal
A sustainable new deal
But who really cares about alternative models of capitalism? As we’ve

seen, “just get on and fix it” would appear to be the dominant mood.
The problem is that without an alternative framework we might just
be fixing the wrong bits for the wrong reasons, thus guaranteeing
the wrong outcomes.
The good news is that we’re certainly going to see more and more
activity in this new “21st Century New Deal” space. President Obama
has already indicated his determination to put in place a $100 billion
“green jobs” package, with the emphasis on enhancing energy security
within the US through renewables and energy efficiency. Gordon Brown
is also talking about a somewhat more modest set of interventions in
a new stimulus package, some of which will be geared to today’s
low-carbon imperative.
All this provides further proof of the readiness of politicians today

to think in different ways in response to the credit crunch and the
worsening recession. But what needs to happen if our goal is not just
to “come out the other side just as fast as possible with as little damage
done as possible”, but to build the foundations for a system of wealth
creation that simultaneously addresses both the climate crunch and
the oil crunch? Though this is obviously not the place for any kind
of detailed manifesto, there are three main areas where political
interventions now need to be prioritised.
4.1 Recapitalisation strategies

Apart from a minority of free market purists (who really do believe that
the banking system should have been allowed to collapse as a necessary
“corrective” to the system), it’s widely accepted that governments around the
world have had no choice but to intervene to recapitalise the banks’ balance
sheets. Levels of debt were so startling, balance sheets so over-leveraged
(when it went to the wall, Lehman Brothers had $35 loaned out for every
$1 it had on deposit), risk models so comprehensively defective (for all
the vast sums of money paid to very smart people to develop ever more
sophisticated stress-testing systems), and the loss of trust across the
entire system so absolute, that nothing else would have made very
much difference.
The sums involved are truly staggering. Writing in Newsweek in

December 2008, Jeffrey Garten (Professor of International Trade
and Finance at Yale) offered the following analysis:
“In the United States, Ben Bernanke and Hank Paulson have
orchestrated a series of rescue measures that now number
more than a dozen so far this year, from the $200 billion bail
out of Fannie Mae and Freddie Mac to the $1.4 trillion guarantee
for bank-to-bank loans. Depending on how you add up these
measures, the total reaches as high as $8 trillion, a figure that
represents more than half of US GDP, and is, according to Barry
Ritholtz, author of the forthcoming “Bailout Nation”, more than
the sum of every major US Federal project in the past century,
including the invasion of Iraq, the New Deal and the Marshall
Plan to save Europe after the war. Indeed, it is more than the
total the United States spent on World War II – $3.6 trillion
in today’s dollars.” 5
Even so, this is just the start of an even more ambitious, radically
different kind of recapitalisation programme that will now be required
to put the foundations of our economies (namely, the life-support systems
that underpin all economic activity) onto a genuinely sustainable footing.
Mind-boggling though it must now appear, we really have very little choice
about this – for do we really want to be remembered as the generation
that managed to rescue the global banking system even as we allowed
the natural world to collapse around us?
4.1.1 Recapitalising nature’s balance sheet
All the devastating problems now associated with this particular model
of deregulated, debt-driven, over-leveraged capitalism can be seen to
have been at work in our chronic mis-management of natural capital.
As we saw in the first part of this pamphlet, deregulation and licensed cost
externalisation have imposed grievous burdens on the natural environment.
We’ve aggressively drawn down on Nature’s capital assets (its resources
and eco-system services), liquidating natural capital to generate current
income. In the process, Nature’s balance sheet is now over-leveraged to
an astonishing extent, creating a burden of debt that there is little prospect
of paying back in this generation. Not only have we been living beyond
our own means, but well beyond the means of future generations as well.
The only appropriate response to this is a massive recapitalisation

programme to restore Nature’s balance sheets. At the 2008 gathering of
the IUCN in Barcelona, scientific paper after scientific paper highlighted
the “war of attrition” that human kind is now waging against the natural
world – all in the name of economic progress. Much of this is the direct
consequence of totally defective accounting systems. The natural world
currently provides us with an incalculably vast flow of goods and services,
including food, fibre, clear water, fertile soil and a stable climate. Our
economic and social wellbeing is totally dependent on maintaining
that flow of eco-system services.
“The world has already lost much of its biodiversity. Urgent

remedial action is essential because species loss and ecosystem
degradation are inextricably linked to human wellbeing. We cannot
– and should not – put a brake on the legitimate aspirations of
countries and individuals for economic development. However,
it is essential to ensure that such development takes proper
account of the real value of natural ecosystems. Yet we are still
struggling to find the “value of nature”. Nature is the source of
much value to us every day, and yet it mostly by-passes markets,
escapes pricing and defies valuation. This lack of valuation,
we are discovering, is an underlying cause for the observed
degradation of ecosystems and the loss of biodiversity.” 6
That quote is taken from the interim report of the so-called TEEB project
– The Economics of Ecosystems and Biodiversity – which is advising both
the EU and G8 on ways of reforming the system to help protect habitats and
biomes by recognising their true economic value. It calls for measures to
eliminate the billions of dollars of government subsidies that are still directly
or indirectly implicated in the “war of attrition”; it recommends a massive
ramping up of PES initiatives (“Paying for Ecological Services”) as the
surest way of protecting and even rebuilding stocks of natural capital; and
it puts a very welcome emphasis on the need to share the benefits of these
investments far more equitably than would have been the case in the past.
By far the most authoritative account of the extent of today’s ecological

overshoot (and of how we need to manage our total “bio-capacity” to
much greater effect) can be found in WWF’s Living Planet Report 2008
(www.panda.org). As it says, more than 75% of the world’s population
lives in countries where consumption levels are outstripping environmental
renewal. This leaves absolutely zero room for any doubt as to just how
quickly and substantively governments are going to have to move to
redress decades of living way beyond our ecological means.
“Humankind is using 30% more resources than the Earth can

replenish each year, which is leading to deforestation, degraded
soil, polluted air and water, and dramatic declines in the numbers
of fish and other species. As a result, we are running up an
ecological debt of $4 trillion (£2.5 trillion) to $4.5 trillion every
year – double the estimated losses made by the world’s financial
institutions as a result of the credit crisis. The recent downturn in
the global economy is a stark reminder of the consequences of
living beyond our means, but the possibility of financial recession
pales in comparison to the looming ecological credit crunch.” 7
Perhaps the most urgent and compelling example of this approach

is captured under the debate about REDD – Reducing Emissions
from Deforestation and Degradation. Up to 20% of total annual
emissions of greenhouse gases come from the continuing loss of forest
cover through commercial forestry and changing land use. If we could
“sort that source of emissions”, it would be the biggest single contribution

towards the overall task of reducing emissions of CO2 by 80% by 2050.
The basic idea is a simple one: the countries that have the forests are poor,
and cannot afford (it is argued) not to develop them. Their full value as carbon
stores and climate regulators is not properly reflected in the market price
paid for the timber from them. How could it be? But now that we’ve come
to recognise the full value of those all-important “services”, all we need to
do is agree on a price for those services and make over to the owners of
those forests an equivalent per-hectare payment to compensate them for
the “profits foregone” for keeping their forests intact. This could be done
in a number of ways, including rich countries making direct payments to
rainforest countries to “offset” a given percentage of their own greenhouse
gas emissions. For example, if the UK wanted to offset 1 million tonnes
of its own annual CO2 emissions, at a price of (say) £20 a tonne, it would
“contract” with a rainforest country to permanently protect the hectarage
required to keep 1 million tonnes of CO2 sequestered, and hand over
£20 million every year.
(Just to get some idea of the scale of this, the 2006 Stern Report on the
economics of climate change estimated that a sum of around £2.5 billion
would be required every year to prevent further deforestation in the eight
largest rainforest countries. Other experts have assessed the value of
carbon sequestration provided by intact rainforests as being well in
excess of £40 billion a year.)
A real head of steam is now building up around this REDD approach

– as is the criticism. NGOs are not persuaded that setting up a scheme
which is based on carbon trading, or on the profit motive, will ever
really work. They have raised compelling concerns regarding land rights,
poor governance in the countries concerned, corruption, the interests of
indigenous people, illegal logging – as well as deep worries that focusing
primarily on the eight most problematic countries (those where the forests
are most at risk) will provide little incentive for the countries with the best
record of protecting their forests.
In that context, the Global Canopy Programme has launched a new

campaign (“Proactive Investment in Natural Capital”, or PINC for short)
to pay for the ecosystem services provided for by forests that are not
yet threatened with deforestation:
“Large areas of standing forests are remote and sparsely

populated so that the opportunity costs of conservation are
low. Therefore, the “forest utility” could be maintained for around
$10–20 per hectare per year. Payments could initially be from
a governmental fund, but to achieve scale could eventually
take the form of forest-based equities or bonds in the markets,
designed as a “patient investment” today, which would acquire
value tomorrow, by enabling humanity to continue to benefit
from “forest utilities” in perpetuity.” 8
This is just one of the planet-scale interventions that are going to

have to be brought forward to address the increasingly urgent challenge
of climate change. As the IPCC has warned, we do not have decades,
let alone generations, to achieve the kind of radical decarbonisation
on which the future of humankind now totally depends.
So we don’t have a lot of time to address other eco-system pressures as

well. For years, experts like Lester Brown have been urging countries to
think about these recapitalisation strategies in very different ways – as an
“Earth Restoration Budget”, where we stop building up unsustainable levels
of “natural debt” and start restoring natural capital and eco-system services
in ways that simultaneously protect the livelihoods of some of the world’s
poorest people. The six principal “restoration budgets” captured in the
diagram below would all have the direct consequence of enabling millions
of people to draw down a sustainable income from those natural assets
indefinitely over time. They would also spell an end to asset liquidation
as a dangerously ephemeral way of maximising short term profits,
and a timely return to living within our natural means.
Heal the world: annual restoration budget
Reforesting Stabilising
the Earth water tables
$6bn
Protecting topsoil
on cropland
$10bn
Restoring
fisheries
$24bn Total
$93bn $13bn
Restoring
rangelands
$9bn
$31bn Protecting
biological
diversity
4.1.2 Recapitalising society’s balance sheets
A vast and still growing literature (both academic and populist) has charted
the impact of today’s model of capitalism on those stocks of social and
human capital that underpin much of the sense of security, community
and identity that make people feel good about their lives. With the same
relentless “there is no alternative” fundamentalism that has laid waste our
natural environment, both the Conservative Party and the Labour Party
have accepted this “war of attrition on society itself” as a necessary
price to pay for the material progress that people have enjoyed.
When people talk about “the pursuit of economic growth at all costs”,
many of those costs are paid through rising levels of addictive pathologies of
one kind or another (alcohol, drugs, gambling and so on), of mental ill-health,
of loneliness, of hollowed-out communities, of violence and sexual abuse.
Some describe this as “the UK’s social recession”. A lot of it is invisible,
and is much harder to put a price on than some of the environmental damage
that we have simultaneously witnessed. But that doesn’t make it any less
of a cost, as elaborated in Oliver James’ latest book The Selfish Capitalist:
“Selfish Capitalism will automatically seek to destroy anything

which threatens its principal outcome: making the rich richer.
It actively fights forms of capitalism which prioritise long-term
investment of profit for the public good. Whilst it frequently uses
appeals to chauvinism and racism to drum up popular support,
in practice it discourages nationalism that creates barriers to
corporate globalisation. It rejects out of hand ecological evidence
that it is destroying the planet. Pretending otherwise, it heartily
loathes family life, hastening its decline, because family life
poses an alternative to workaholia and inauthenticity. It far
prefers nurseries to care for babies and toddlers, so the parents
can swell the labour market (making it easier for employers to
keep wages low), and if that results in insecure and miserable
children who grow into needy adult consumers who use
materialism to fill the void, all the better for profits. It strongly
militates against anything likely to promote intrinsic values, such
as a commitment to community, altruism, concern with beauty
or authentic motives for aspirations. For, as advertising executives
so openly admit, true contentment with what we have got is the
greatest single threat to the consumerism that is indispensible
for the Selfish Capitalism.” 9
One of the direct and most benign consequences of the collapse of this
particular model of capitalism must surely be the opportunity to re-think
some of the trade-offs that we have gone along with for so long. There is
an alternative – an alternative which has been practised all this time by
most of our European neighbours, who have never been as star-struck
by the kind of materialist values and debt-driven consumerism that have
characterised the economies of the US and UK. We now have a chance
to rebuild some of those stocks of social capital – in effect, recapitalising

society’s balance sheet as well as nature’s balance sheet.
Again, housing provides an excellent example of what this might look like
in practice. As reflected in the Sustainable Development Commission’s
advice to the Government (A Sustainable New Deal), the principal focus
is on our existing housing stock. There are now a number of proposals for
ambitious retro-fit programmes designed to ensure huge social (as well as
environmental) benefits in terms both of improved housing quality and lower
energy bills. The Institute for Public Policy Research has suggested that ten
thousand advisors should be appointed nationwide, one for every twenty
streets or so. They calculate that the cost would be somewhere around
£500 million every year – a figure which would need to be set against
national energy savings of around £4.6 billion.
Beyond that, the Government now has a chance to undo some of the damage
caused by a housing strategy that has relied far too heavily on private sector
house builders, leaving huge numbers of people unable to get onto any kind
of housing ladder. Even if house prices continue to decline at the same rate
in 2009 as they did in 2008, there will still be many people who will not be
able to buy their own home and who will still be struggling to find affordable
housing on any terms. That’s partly because the Section 106 Agreements
that provided for a welcome quota of affordable social housing have now
all but dried up. But with land values plummeting, there’s an unprecedented
opportunity for the Government to provide direct funding to rebuild stocks
of new homes; the Home Builders’ Federation has come up with a plan for
17,500 new affordable homes for an investment of £2 billion.
This should be done in partnership with local authorities, many of which are
now keen to play a far more active role in the housing market. Birmingham,
for instance has an estate of more than 80,000 houses and flats. Support is
growing for the idea of local authorities taking over many more of the houses
that are up for repossession – on the grounds that the accommodation
this would provide would be cheaper than the kind of “bed and breakfast”
accommodation they’re otherwise legally required to find. The Housing
Minister, Margaret Beckett, has promised further action in this area.
For many, this investment in housing (new build and existing stock) would
be just one aspect of the wholesale revitalisation of the local economy.
Very much against the grain of conventional Treasury thinking, all sorts of
pioneering initiatives over the last decade or more have shown what this
might look like: Community Reinvestment Trusts, Community Land Banks,
Community Development Finance Institutions and so on. Little has been
done to promote any of this since the 1980s. For example, although it’s
perfectly legal for Local Authorities to issue Municipal Bonds, there’s been
only one major initiative of this kind in the shape of Transport For London’s
£600 million bond. Local Authorities control £1 trillion of assets through their
pension funds, and, right now, the prospect of low-yield but very high security
investments must be looking increasingly attractive. (By way of contrast, the
market for Municipal and State Bonds in the US already exceeds $2 trillion).
In that context, one of the clearest examples of how best to recapitalise

society’s balance sheet can be found in the swathe of current proposals to
strengthen the Post Office network. Post Offices are a vital part of the social
fabric for millions of people in the UK, providing direct access to a range of
government and other services. Labour back-benchers have been developing
plans to convert the Post Office into a universal People’s Bank, based on the
Post Office card account with its five million cardholders. As campaigning
MP Jon Cruddas has said:
“Our great national postal structure is a trusted public service.

What a banking system needs more than anything else is trust.
The banking sector has eroded that trust, leaving high anxiety.
Banks have also physically withdrawn from large areas of Britain.
Building on the Post Office card, the Government should stop the
proposed closure of 2,500 post offices and instead support them
as trusted social, economic and sustainable centres of finance,
communication and community cohesion. This great network
could become the foundation of local economic resilience.” 10
Intriguingly, this has become a fascinating test case of whether or not this
Government sees the current recession for what it really is: an end to the
version of capitalism that has dominated our lives for the last 30 years. For
the last decade, ministers have applied wholly discredited business models
to managing the Post Office, setting aside any concept of “public service”
in pursuit of its usual deregulatory, profit-driven mantras. The 2008 closure
programme was announced to “save” the tax payer the princely sum
of £150 million a year – little more than a rounding error in comparison
to the £37 billion the Government has been able to conjure up to bail out
the banks. In a decision that beggars belief, Peter Mandelson (as Secretary
of State for Business and Enterprise) has just announced that the
Government still intends to put parts of the Post Office network up for
sale “to encourage increased competition and business efficiency.”
Perhaps things will just have to get a great deal worse before politicians
truly appreciate the nature of the crisis we are now in. Between 1933
and 1940, President Roosevelt’s New Deal invested between 3% and
4% of US GDP every year. Much of that was directed into the “Civilian
Conservation Corps” which ended up employing more than 3 million
people to undertake basic conservation projects such as tree-planting,
soil conservation and habitat improvement. It will seem to many to be
premature, but the Government would do well to start thinking much
more dynamically about the contribution that the so-called “Third Sector”
could make to any emerging Green New Deal.
National organisations like Groundwork, BTCV and the National Trust are
extraordinarily well-placed to massively ramp up their community-based
programmes. As highlighted in a recent report from Capacity Global, Defra’s
own “Every Action Counts” programme (info@capacity.org.uk) has been able
to use relatively small amounts of public money to leverage relatively large
amounts of public value – in terms of improved local environments, engaged

communities, with both young and old getting stuck in, resource and energy
efficiency and so on. Schemes like Fair Share (which is already significantly
involved in helping reduce the massive scandal of food waste across the UK)
could be doing so much more if it had access to enough working capital to
expand into a nationwide social enterprise.
In case this all sounds somewhat “twee”, marginal even, BTCV robustly
spells out just how misplaced a perception that is:
“BTCV achieves a yield of 1:4 in terms of social return on

investment – i.e. for every £1 invested, local communities gain
£4 of benefits such as reduced crime, increased leisure and
increased employment. Our annual investment of £30 million
in UK communities and environments returns £120 million in
social value. Importantly, our volunteers are not the middle class
“greenies” of popular myth. 20% of our projects take place in,
and draw volunteers from, the 15% most deprived areas in the
UK. Of course the middle classes in the leafy suburbs will act
to conserve their quality of life – not least because they know
the economic benefits, for example in terms of beneficial effects
on house values. But to us, it is equally obvious that people in
the poorest neighbourhoods will also – given half a chance – band
together to make better places and stronger communities.” 11
BTCV started out in life as “The Conservation Corps” back in 1959.

It now has more than 1800 groups involved in its Community Network,
and is involved in training more than 14,000 people every year in terms
of meeting local skills needs. It’s already developing plans for mobilising
huge numbers of people as “local carbon armies” on the assumption that
both the Government and Local Authorities will recognise this particular
“silver lining” as a massive opportunity that needs to be seized hold of
without further delay. But does that assumption hold water?
In February 2009, the Third Sector Task Force (Chaired by Groundwork’s

Chief Executive, Tony Hawkhead) brought out a compelling report looking
at the opportunities available to governments for using the Third Sector to
transform the role that charities and social enterprises can play in the delivery
of public services and in supporting new “recovery” interventions. Its principal
recommendation is to set up a new Social Investment Bank with funding
of £250 million. Its role would be to:
1. develop financial instruments and structures to raise

capital for the Third Sector;
2. be an intermediary between suppliers and users of that

capital in the Third Sector;
3. provide advice and support to participants in the sector,

including research and other materials;
4. work with government, foundation and service providers

to develop programmes of investment in specific areas
where gaps are identified.
“Our sector can really help those most in need of support in these
challenging times. But many of us are held back by the lack of
suitable funding. A Social Investment Bank would enable social
enterprises and charities to remain focused on reducing the
impact of recession on some of society’s most vulnerable people.
Without it, the Third Sector would shrink whilst the problems
it exists to solve increase – and many years of good work will
wither on the vine.” – Tony Hawkhead 12
So far, the commitment from Government has been an apologetic offer of

£40 million, primarily to offset charities’ falling income rather than to make
new and exciting things happen on the ground. The comparison may not
be entirely fair, but one is bound to consider that sum of £40 million against
the seemingly limitless billions that our Government has been able to find
to bail out the banks. It’s clearly time for a much more fundamental rethink.
4.2 A green new deal

As soon as it became clear (in the middle of 2008) that what had been
referred to up until then as “an economic downturn” was turning rapidly
into a full-blown recession (with the potential to end up as another Great
Depression on the same scale of that of the 1930s), more and more attention
began to focus on Franklin D. Roosevelt’s “New Deal”. Which is widely held
to have provided the stimulus to start digging the United States out of the
Depression. Whatever the intrinsic merits of this analogy, it’s been given
a huge boost by Barack Obama’s commitment to a $900 billion recovery
package for the US economy which is being widely interpreted as the
21st Century equivalent of the 1930s New Deal.
In this context, the exhumation of the work and reputation of John Maynard
Keynes has lent weight to the reassertion of government economic muscle
over the diminished potency of discredited capital markets. To hear Alistair
Darling, Chancellor of the Exchequer, suddenly lay claim to Keynes as
the greatest economist of the 20th Century, after a decade where the
merest mention of the great man’s name was seen as out-and-out heresy,
demonstrates just how cataclysmic the impact of the recession has been
on the Treasury. That said, nothing resembling even the sketching out of
a proper New Deal for the UK economy has yet seen the light of day.
The real catalyst for the “New Deal” debate here in the UK can be traced
back to the publication of a report (A Green New Deal) in July 2008. Its
authors (including Larry Elliot, the Economics Editor of The Guardian,
and a host of the “great and the good” from the Green Movement)
spelled out their purpose in the following terms:
“The global economy is facing a “triple crunch”. It is a

combination of credit-fuelled financial crisis, accelerating
climate change and soaring energy prices underpinned by an
encroaching peak in oil production. These three overlapping
events threaten to develop into a perfect storm, the like of which
has not been seen since the Great Depression. To help prevent
this from happening, we are proposing a Green New Deal.” 13
I will return to the issue of “soaring energy prices” below, but at the
heart of the Green New Deal lies the assumption that governments find
themselves with an unparalleled opportunity, precisely because of the
severity of the recession, to start implementing the kind of practical,
low-carbon programmes that have proved so elusive to date.
4.2.1 Addressing the carbon crunch
In November 2008, the UK Government’s Climate Change Act passed

into statute – the first legislative measure of its kind anywhere in the world.
It called for a reduction of CO2 of at least 80% (on 1990 levels) by 2050.
There is every chance that the rest of the EU will take up that sort of long-
term target (it’s already agreed to a reduction of at least 20% by 2020), and
Barack Obama has committed the United States to the same goal of 80%
cuts by 2050. That takes us out of the “have our cake and eat it” zone
of doing everything we’re currently doing, just in marginally more “climate-
friendly” ways. It takes us into the zone of urgent, radical decarbonisation.
An 80% cut by 2050 means reductions of somewhere between 3% and
3.8% every year between now and 2050.
Yet it’s astonishing how many otherwise very intelligent people continue
to ignore or even deny the true implications of what these targets are now
telling us. Such clarity certainly simplifies things. It means we have to focus
on just four imperatives: energy efficiency; renewables; carbon capture
and storage; and reducing emissions from deforestation and degradation
(as in the last section). Everything else (including nuclear power – fission
or fusion – or distant dreams of a hydrogen economy) may or may not
have a role to play in the future, but the contribution they can make to
today’s “urgent, radical decarbonisation challenge” is nugatory. As such,
the ongoing controversies that these technologies continue to excite
are just a self-indulgent distraction from getting on with what we have
to do today.
And the starting point here has to be energy efficiency. The studies done
by McKinsey’s for both Europe and the US demonstrate that investments in
energy efficiency (in terms of tonnes of CO2 abated) substantially outperform
every other kind of investment that can be made. Especially in an economy
as chronically inefficient as ours. The Government’s own (somewhat cautious)
estimates indicate we could reduce total energy consumption by at least
30% without any diminution in people’s standard of living. And many people
believe that this could be a much higher figure in America, which has been
living off “the back of the energy hog” for so long that people just don’t
know what energy efficiency means. This is not the place to re-run those
arguments; there’s literally nothing between us and those kind of reductions
in energy consumption other than the lack of political will.
The same is true of renewables. For all the brave words and bold targets
(the latest in the UK being our share of the EU’s new renewables target
so that 15% of all our energy (not just electricity) will need to come from
renewables by 2020), the truth of it is that the UK still languishes third
from the bottom of the EU’s renewables league table – with only Malta
and Luxembourg below us.
Whatever else a Green New Deal may include, it certainly entails massively
and urgently ramping up our investments in both energy efficiency (in our
homes, schools, hospitals, offices, factories, shopping malls and all forms
of transportation) and in renewables (both large-scale – particularly onshore
and offshore wind – and microgeneration). Housing is obviously a critical
focus area. Happily, as mentioned in the previous section, there’s a growing
focus on existing housing stock, rather than new build, where even the most
ambitious targets (such as the Government’s very bold target for zero carbon
housing by 2016) would only get us a small way towards the 2050 target.
The Green New Deal consortium puts it as follows:
“We are calling for a programme of investment as urgent and far-

reaching as the US New Deal in the 1930s, and the mobilisation
for war in 1939. This means executing a bold new vision for
a low-carbon energy system that will include making ‘every
building a power station’. The energy efficiency of tens of millions
of properties will be maximised, as will the use of renewables
to generate electricity. It also means creating and training a
‘carbon army’ of workers to provide the human resources for a
vast environmental reconstruction programme. We want to see
hundreds of thousands of these new jobs created in the UK.” 14
The language may be a little over the top, but the level of ambition is spot
on. The reference to “mobilising for war in 1939” is telling, and there are
many who believe that we may indeed need to move onto “a war footing”
to engender a sense of shared purpose and national (indeed global) unity.
Somewhere along the line, Lord Stern’s crystal clear message that we
need to invest up to 2% of GDP in a low-carbon economy in the near
term (to avoid what could be as much as 5-20% of GDP in the long
term) seems to have got lost in the thickets of government muddle.
There are only two ways that governments can respond to that challenge.
The first (as advocated by Lord Stern himself) is to ensure that markets work
efficiently and transparently by ensuring that every tonne of CO2 emitted is
priced realistically; the second is for governments themselves, on behalf
of the citizens, to invest in efficiency and renewables – given that today’s
markets are still grotesquely biased towards the use of fossil fuels simply
because no price is being paid for the CO2 that arises from their use.
Given that it will probably take many years to get a truly realistic price on
every tonne of CO2, the moral imperative to step in now is overwhelming.
Yet that’s precisely what the UK government is not doing.
4.2.2 Addressing the oil crunch
2008 has seen unprecedented volatility in the price of oil (see graph),
with prices down from a high of $147 in July to below $50 by the end
of last year. The return to a low price (or more accurately, a relatively low
price, as it wasn’t very long ago that even $50 would have been thought
of as a high price!) is an inevitable consequence of the global economic
recession. Simply stated, less economic activity means reduced demand
for oil. This has led to two equally inevitable consequences: first, OPEC
has decided to cut production in order to boost prices; second, those who
believe that there is no serious issue regarding availability of oil supplies
into the medium-term have gone straight back into the usual “told you so”
complacency. Just listen to former Energy Minister Malcolm Wicks:
“Global oil reserves are sufficient to prevent total global oil

production peaking in the foreseeable future, provided sufficient
investment in both upstream and downstream is forthcoming
in order for production to keep pace with the growing global oil
demand. This is consistent with the assessment made by the
International Energy Agency in its 2007 World Energy Outlook.”
Predicting the future of crude oil

US crude oil price ($)
160
140
120
100
80
Spread of
60 forecasts
40
20
0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Sources: Bloomberg; Reuters poll of analysts

The reference to the IEA is interesting. Though it is indeed true that this
is what the World Energy Outlook was indicating in 2007, their messages
through 2008 were very different indeed. The 2008 World Energy Outlook
slashes its estimates for global oil production for 2030 from 116 million
barrels a day to 106 million barrels a day (current production is around
80 million barrels a day). Its authors are upfront in acknowledging that
the era of cheap oil is definitively over. Yet it still thinks that this is as much
a function of under-investment by the industry in new refining capacity
(with low oil prices providing a further disincentive to new investments) as
a question of available resources per se. But it’s interesting that for the first
time ever the IEA is now quoting lower figures for the remaining reserves in
OPEC countries than the OPEC countries themselves. A wise move; OPEC’s
estimates are viewed with extreme scepticism throughout the industry.
Furthermore, given the number of oil industry insiders who also believe
the era of cheap oil is over, it seems strange for any government to be in
such total denial. Many people in business today believe that total global
oil production will start to decline in the period between 2011 and 2013
(depending on the length and depth of the economic recession). Even the
ever-bullish Shell believes that the era of “easy oil” will be over by 2015
and that production levels will only be maintained by massive investments
in “unconventional sources” such as Alberta’s tar sands – whatever the
consequences for climate change. It’s only the likes of ExxonMobil who
assert that “peak oil production is nowhere in sight” – and we all know
how credible a source they are given their legacy of evidence-denying
deceit on climate change.
What’s more, whether it’s 2011, 2013, 2015 or even 2020 is totally
immaterial. They are all literally “just around the corner”! And given the
near-total dependence of large parts of our economy and our way of life
on oil, this spells disaster. The continuing neglect of this issue by every
major political party in the UK is astonishing.
From the point of view of a Green New Deal, however, this provides a unique
opportunity to seize hold of this particular nettle. What needs to be done now
to address the challenge of climate change is exactly the same as needs to
be done to address the coming oil crunch. Massive investments in energy
efficiency and renewables provide by far the surest defence against any threat
to future security of supply here in the UK (and indeed in every other country
in the world), be that threat physical (as in reduced access to diminishing
supplies), geo-political (as in other nations using their indigenous energy
resources to pursue national objectives at the expense of other countries),
or related in one way or another to the war on terrorism.
4.2.3 Green jobs
It has been argued for a long time by environmental economists that there
is a “double dividend” available to governments in terms of all the new job
opportunities that will be created by investing in a radically decarbonised
economy. Countless reports have been written over the years to demonstrate
just how substantial a dividend this could be, and both serving governments
and opposition parties have enthusiastically pitched in with great gobbets of
“double dividend” rhetoric. Gordon Brown has himself referred on a couple
of occasions to the opportunities of “up to a million new jobs”, though no
detailed analysis has ever been forthcoming. All references to a “Green
Industrial Revolution” contain some throwaway reference to the potential
for new jobs, as in the latest report from the Aldersgate Group:
“Far from being an indulgence that would damage

competitiveness, the low carbon economy is an essential
component of the economic recovery. The Government
must grasp this unique opportunity to reform unsustainable
business practices, boost competitiveness and stimulate
green jobs and wealth.” 15
In fact, few countries have ever really done the hard graft to secure that kind
of double dividend. Germany is perhaps the most important exception, and
it’s significant that when German politicians are talking about the importance
of the far-reaching measures they have introduced to ensure that they meet
their Kyoto targets, “new jobs created” feature as prominently as “tonnes of
CO2 abated”. The boom in “green collar jobs” in Germany is now estimated
to amount to around 250,000 new jobs in the renewables industry and
through the hugely ambitious programme Germany is now rolling out to
retro-fit existing housing stock – having long ago come to the conclusion
that focusing exclusively on achieving ever-higher standards in new build
is really missing the point, given that new build comprises only 1% of total
housing in any one year and a lot less in an economic recession. It is by
no means clear that this message has got through to the UK Government,
notwithstanding the massive opportunity available to it to allow Gordon
Brown to turn his own eloquent words into reality:
“Our economic and social prosperity, today and in the next

generation requires us to reduce progressively our dependence
on oil. All the needs of our country, all the goals as an economy
point in exactly the same direction – to tackle climate change,
to improve energy security, to create jobs and to stimulate
business to grow.”
The harsh truth is that scaled interventions by governments directly to

stimulate the jobs market have not really been part of the deal for more
than two decades. With unemployment in OECD countries staying low,
and economies continuing to grow at a reassuring 2–3% per annum,
it would have been ideological heresy to suggest that the government in the
UK should be incentivising (let alone specifically pump-priming) a massive
expansion in green collar jobs. Not so today. As unemployment tipped two
million by the end of 2008, with every indication of surging up to at least three
million by the middle of 2009, “increased job intensity” will become as critical
an indicator of any successful recovery package as “reduced CO2 intensity”.
Yet again, Gordon Brown need only look to the United States to see how
aggressively Barack Obama is promoting that kind of “win-win”.

Even though US citizens have at last woken up to the importance
of climate change, there’s still no way that Barack Obama’s recovery
package could lead on any climate imperative: a combination of energy
security and new jobs, however, is clearly hitting all the right buttons.
There’s no doubt that the consensus around some kind of “double dividend”
is growing all the time. In October 2008, the United Nations Environment
Programme brought out the most definitive report to date: Green Jobs:
Towards Decent Work In A Sustainable Low Carbon World. With the active
support of the International Trades Union Confederation, the International
Labour Organisation and the International Organisation of Employees,
the report focuses on the five priority sectors likely to generate the
biggest transition in terms of economic returns:
• clean energy and clean technologies (including recycling);

• rural energy (including renewables and sustainable biomass);
• sustainable agriculture (including forests);
• eco-system infrastructure;
• sustainable cities (including planning, transportation
and green buildings).
The report is unapologetic in asserting the legitimacy of both public

sector investments as well as private sector investments. It pointedly
reminds neo-liberal cynics that the global economy they’ve presided over
for the last two decades has in fact been awash with government subsidies
of every kind, most of which are still systematically undermining healthy
ecosystems – with more than $300 billion a year still subsidising global
agriculture, and around $280 billion supporting fossil fuels and nuclear
power. Achim Steiner, UNEP’s Executive Director, summed up the
potential for a total rethink in investment strategy:
“The financial, fuel and food crises of 2008 were in part a

result of speculation and a failure of governments to intelligently
manage and focus markets. But they are also part of a wider
market failure triggering ever deeper and disturbing losses
of natural capital and nature-based assets, coupled with an
over-reliance on finite, often subsidised fossil fuels. There are
moments in history when an idea’s time has come – and this has
to be the time for a comprehensive green economy initiative.” 16
4.2.4 Renewing our manufactured capital
However traumatic the economic disruption we’re now going through, it’s
impossible “just to start all over again”. The physical infrastructure (roads,
rail, housing, energy grids, factories, technologies and so on) that underpins
the economy takes a long time to roll over, limiting the potential for immediate
change. But that makes it all the more important to avoid new infrastructure
decisions that lock us into further decades of unsustainable economic
development (such as the third runway at Heathrow, or another generation

of nuclear power). And to seize hold of every opportunity to invest in new
infrastructure assets that facilitate low-carbon, sustainable wealth creation.
Over the next two decades, therefore, we will need to totally renew much
of the manufactured capital on which we depend for much of our future
prosperity. Without that kind of quantum leap in both infrastructure and
technology, it’s impossible to see how any government might aspire,
for instance, to an 80% cut in emissions of CO2 by 2050.
We should therefore be encouraged by the growing interest in the question

of the renewal of our electricity grid. Estimates vary, but many billions will
need to be spent upgrading the grid over the next decade, regardless of
today’s pressing sustainability issues. This is not just a question of like-for-
like replacement; huge new investments will be needed both in local area
networks (to facilitate the deployment of decentralised renewables and to
take full advantage of the use of feed-in tariffs that all the major parties are
now committed to) and in new “interconnectors” – linking up new offshore
windfarms and other marine technologies on both coasts of the UK.
Perhaps emboldened by the emerging proposals of the Obama

Administration for vast investments in new “Smart Grid” developments
in the US, the Conservative Party has produced a new strategy (The Low
Carbon Economy: Security, Stability and Green Growth) for upgrading
our own grid that addresses all these opportunities head on – and throws
down a telling gauntlet to a Government that has shown little vision in
this area for a decade or more.
Elsewhere, a number of Labour MPs are pressing the Government to start

thinking differently about our IT infrastructure and to see “fast broadband” as
much as a public service as another multi-billion pound market. Derek Wyatt
(MP) has suggested setting up a not-for-profit joint venture, specifically
to address the needs of the 30% of the population who are unlikely to be
able to afford access to fast broadband, and to do this in such a way that
it would allow major cities to become partners in the roll-out in due course.
All of this could be enormously dynamic in terms of the future influence

on our economy. But would it provide substantial, lasting sustainability
benefits? Or will it all simply increase levels of consumption, albeit on a
slightly less unsustainable basis? The whole “Green New Deal” approach
is dependent on the notion of “decoupling” – securing the benefits of
continuing economic growth whilst avoiding all the disbenefits in terms of
pollution, inefficient resource use and the accelerating build-up of greenhouse
gases in the atmosphere. That means, quite simply, dramatically reducing
the “ecological footprint” of annual GDP as the only means by which we can
sustain any kind of growth-based economy. Decoupling strategies lie at the
heart of the Government’s Climate Change programme, promising all the
goodness of growth with just a fraction of the current carbon footprint.
Indeed, decoupling has been the standard bearer of the whole eco-efficiency
movement going back to the mid-1980s, when companies like 3M introduced
their “Pollution Prevention Pays” programmes and were able to demonstrate

that basic resource efficiency led to increased profitability. These company-
specific examples were then incorporated into the advocacy of organisations
like the World Business Council for Sustainable Development, and are now
commonplace in both government and business thinking on sustainable
wealth creation. Theoretically an ongoing win-win for the global economy
and society at large.
Unfortunately, it’s not quite as simple as that. Whilst it can of course

be demonstrated that many individual companies have made great strides
in reducing both carbon intensity (in terms of CO2 emissions per unit of value
added or profitability) and resource intensity (in terms of raw material “inputs”
required to generate the same level of “outputs”), these efficiency gains have
often been cancelled out by increased levels of production. In other words,
we’ve seen relative reductions in net ecological footprint, but not absolute
reductions. And the same is true at the level of national economies. Whilst
one can point to significant reductions in resource and energy consumption
per unit of GDP (in fact, the amount of energy required to fuel each unit
of global economic output has been on a downward trajectory for the
last 40 years), most of the gains have been wiped out by year-on-year
increases in the scale of economic activity.
This difference between relative and absolute decoupling lies at the heart
of the ongoing stand-off between today’s techno-optimists (who remain
persuaded that improvements in technology-driven productivity will be
sufficient to get us to the desired end goal of a sustainable society by the
end of the century) and a growing number of “sustainability realists” who
just don’t see how the sums add up. The techno-optimists focus almost
exclusively on the massive potential for relative decoupling; the sustainability
realists talk about the need for absolute decoupling – not least because the
human population itself continues to grow by a net 70 million people a year,
even as it remains the pre-eminent macro-economic goal of all countries,
rich or poor, to drive up average income, year on year through increased
economic growth. Tim Jackson succinctly captures that distinction:
“The condition for absolute decoupling is very simple: in a

growing population with an increasing average income, the
rate of relative decoupling must be at least as fast as the rates
of increase in population and average income combined.” 17
Two things remain to be said about the decoupling challenge: the first
is that it would be good to have a real crack at it! In reality, there’s not
a government in the world that has even begun to work out what today’s
energy and resource “descent paths” actually look like. The challenge
of climate change is beginning to strip away that ludicrous complacency,
but it’s noticeable that the enthusiasm politicians have for setting long-
term targets (for instance, the 80% reduction in emissions of greenhouse
gases by 2050) is in no way matched by an equivalent enthusiasm for
working out, in detail, how to get there.
Depending on whose estimates you’re using, an 80% reduction

in greenhouse gases by 2050 means an absolute minimum of a
3% reduction every year, and a much more realistic figure (taking all things
into account) of 8%. There’s not a mainstream politician in the UK able
to demonstrate how even 3% could be achieved – despite them happily
signing up to the 2050 target. And it’s sobering to be reminded that the
UK is still seen to be one of the more progressive nations in addressing
climate change, despite so little real progress in reducing greenhouse
gases or in any way getting serious about decoupling strategies.
Secondly, the “window of opportunity” available to us to reconcile

“material progress through continuing economic growth” on the one hand,
and “genuine biophysical sustainability with increased equity” on the other,
is closing down on us all the time. If we miss that window of opportunity,
those same challenges will need to be addressed very differently indeed.
4.3 Sustainable economies

This is clearly not the place for any detailed “reprise” of the kind of
transformation that will be required to put our economies onto a genuinely
sustainable footing. For the last forty years, a distinguished but largely
ignored cohort of economists has sought to demonstrate to politicians
that “the pursuit of material progress through exponential economic growth”
was an unattainable goal even when it was first adopted back in the 1950s,
and remains as unattainable as ever today. Few politicians had any time for
such counter-intuitive unorthodoxy in the 1950s; these days, with oil prices
having gone to $147 a barrel before the economic recession set in, and with
the threat of “runaway” climate change very much in our minds, there are
few people who feel quite so complacent about the non-negotiable realities
of creating wealth on a finite planet.
It’s impossible to see how we can put off for much longer a proper debate
about these “clashing paradigms of progress”. However, pending that dawn
of enlightenment, there’s much to be done in the short term in response
to today’s economic crisis without jeopardising what will need to be
done in the long term.
4.3.1 Re-regulating capital markets
Where you stand on the “continuum of blame” (from the minimalist

contrition of a handful of leading bankers to the kind of full-frontal critique
articulated in this pamphlet) will determine the level of enthusiasm you have
for how best to re-regulate global capital markets – minimalist or full-frontal.
Right now, ministers are showing little sign of contrition, despite the fact that
the UK was second to none in its whoring after the ephemeral promiscuities
of deregulated, get-rich-quick financial capitalism. But the startling sight
of the Leader of the Tory Party coming out so strongly in favour of
“holding to account those in the city on whose watch this all happened”,
and of some fairly serious new regulatory measures, may just encourage
the Government not to miss out on this opportunity.
Re-regulation does not mean a return to the command-and-control

economies of a few decades ago. We must retain a commitment to
market-based economics. But what it does mean is that those capital
markets must be subjugated – in other words, made servant to the kind
of economy that we now need – rather than be allowed to dominate the
economy. Even Hank Paulson (former Treasury Secretary and ex-CEO
of Goldman Sachs) would seem to acknowledge the need for a radical
re-think: “Once we stabilise the markets, we then have to take action
to make sure this doesn’t happen again. We have a regulatory system
that is broken. It’s outmoded. It just doesn’t fit the world we live in.”
But I wonder how many of the following ideas (which are indicative
of the kind of proposals being advanced by NGOs involved in the
New Green Deal Group) he’d be prepared to go along with.
• Re-introduce strict limits on leverage ratios. Repeal the 2007

Basel II Standard of Capital Adequacy which left it up to the
banks to develop their own risk-assessment models depending
on the ‘independent’ assessments of the rating agencies.
(When it collapsed, Bear Sterns had reserves of $11.8 billion
and outstanding loans of $395 billion – a leverage ratio of 33.5.
Lehman Brothers (with debts of $613 billion) was in a very
similar position.)
• De-merge all financial conglomerates that have become

‘too big to fail’, particularly in terms of separating out retail
banking from investment banking.
• Outlaw all speculative practices such as short-selling.
• Regulate to ensure that all derivative instruments should be

brought onto the balance sheet, and should be subject to
the same kind of regulatory capital requirements as standard
banking practice.
• Abolish all off-balance sheet financing, and re-write the listing

and disclosure rules of stock-markets. (There are many who
now believe that the system collapsed as much because of its
complexity and ‘indecipherability’ as anything else. Regulators
weren’t just found wanting in terms of the inadequacy of their
interventions, but in terms of their basic lack of knowledge).
• Return control of all interest rates (including interbank lending

rates) to central Banks.
Similar measures were taken in the wake of the Wall Street crash in the
1930s – and it took neo-conservatives in America the best part of 60 years
to get those measures repealed. The $4 trillion hit on the global economy
to stitch it back together again is quite simply the price we’re all having
to pay for having handed over such unparalleled political power to a
fundamentalist sect that made little pretence of the fact that its principal
purpose was to further enrich the already rich rather than help create
wealth for the benefit of all.
It’s that sense of outrage that is now driving much of the debate about
the reform of the International Financial Institution. The “Put People First”
coalition has spelled this out in the run-up to the critical “London Summit”
in April 2009 involving the G20 countries:
“Significant changes are needed in the way that the global

economy is managed, with fundamental reform of the
governance of international financial institutions, including the
World Bank and the International Monetary Fund. Strengthened
UN oversight over the management of the international economy
is clearly needed. Four priorities emerge: first, the “shadow”
banking system must be removed so that all institutions and
products, including investment funds such as hedge funds,
sovereign wealth funds and over the counter products become
properly regulated. Second, damaging speculation should be
limited by controlling derivatives trading, credit securitisation and
other complex financial instruments in a globally co-ordinated
way. Third, tax havens must be compelled to co-operate and
lift the veil of secrecy that allows firms and individuals to avoid
international standards, and makes illicit capital flight and tax
evasion possible. This will also help efforts to combat money-
laundering and other criminal activities. Fourth, multinational
companies must be compelled to report in a transparent and
accountable manner, including through the introduction of
country by country international accounting standards to
disclose profits made and taxes paid in each country.” 18
And that’s why many would go even further than this. There’s a growing
campaign to strip banks of their right to create credit (and then charge
interest on it), and to return that right to central banks. Few people realise
that 97% of all money in circulation (including “credit”) is effectively
“created out of thin air” by banks in the form of loans to people and
companies. John Bunzl, one of today’s leading campaigners for this
radical shift, insists on spelling out exactly what this means as it does
seem quite extraordinary to most people, once explained, that we’ve
put up with this situation for quite so long:
“Like most people and businesses, you probably think that

when you take out a bank loan, the money comes from hard
cash that others have deposited in the bank. Wrong! The money
you borrow actually never existed before, and is simply created
“out of nothing”. Banks lend out many, many times more money
than they actually hold as physical deposits. This lending “out of
nothing” is what the bankers call “fractional reserve banking”, or
the “credit multiplier”; suitably technical-sounding terms designed
to make your eyes glaze over while the banks practice what is,
effectively, legalised fraud. Let me state it boldly, they create the
money out of nothing by writing it into your bank statements even
though they had only a fraction of that amount in their vaults as
hard cash. It costs them next to nothing, yet you’ll have to pay
the full amount back plus the interest. If you can’t, they’ll take
your house. Heads they win, tails you lose.” 19
Bunzl accurately describes this as “the world’s largest pyramid scheme”

which all governments have allowed themselves to get caught up in having
historically permitted private banks to take over the right to create credit
– a right which should always have been reserved for governments alone.
Putting an end to “fractional reserve banking” (in effect, insisting that banks
would only be able to make loans if they were 100% backed by deposits)
would obviously have a massive impact on the profitability of those banks
– but might that not be a very reasonable price to pay for a much more
equitable and stable system?
It is often objected that such monetary reform would damage the economy
if it was introduced in one country alone. Those banks would obviously be
deprived of the subsidy they get from creating money as loans, which would
create a competitive disadvantage against banks in other countries. Some
have claimed that this “would lead to the migration from the City of London of
the largest collection of banks in the world”. By contrast, some commentators
have now suggested that an over-dominant role for the financial sector has
proved to be a massive disadvantage to the UK economy, and that this might
actually prove to be a good thing. Nonetheless, if possible, it would be helpful
to deal with this objection by introducing monetary reform simultaneously in
as many influential countries as possible, including the United States, Japan
and the Eurozone, as well as the UK. (The most succinct proposal for broader
monetary reform of this kind has been advanced by James Robertson
at www.jamesrobertson.com).
For most banks, this must sound like their worst nightmare, worse even,
in the eyes of some, than their current humiliation. But as I pointed out in
Chapter One, more and more people are beginning to realise that there are
many different kinds of banking and many different ways of providing the
financial services that keep the wheels of the economy properly greased.
Because of the success of the Co-operative Financial Services Group
and the John Lewis Partnership, there is growing support for the kind
of ethical and sustainable practices that emerge out of different
ownership and governance structures. The Co-operative Bank,

for instance, has not been slow to benefit from the discomfiture
of those former “titans” of the banking world.
4.3.2 Progressive public finances
It may be a sign of things to come that the Labour Party at last rediscovered
the principle of “Fair Taxation” in its 2008 Pre-Budget Report, raising
Income Tax to 45% for higher earners. Whether or not this actually changes
our position in the EU’s “Lowest Top Rate of Tax” league table (where we
currently come second only to Luxembourg) is a matter of some speculation.
But I don’t think we need feel too concerned for the few tens of thousands
of individuals who will be affected by this. According to the Hay Group, the
UK will have little difficulty remaining right at the top of another league table –
“Highest CEO Salary and Bonus Package. And most people in the City would
clearly like it to stay that way: a spokesperson for HBOS (which only avoided
humiliating bankruptcy through a forced marriage with Lloyds TSB) informed
concerned customers just before Christmas 2008 that “we do not intend to
change the fundamental design of our incentive schemes”. Even Stephen
Green (Chairman of HSBC), who has had the decency to acknowledge that
massively over-inflated remuneration packages were one of the causes of
the credit crunch, has come to this realisation just a little late in the day.
In 2007, HSBC’s top three executives were awarded £18 million between
them in terms of pay and shares. Mr Green’s salary is already in excess
of £3 million, which may cause some people to raise an ironic eyebrow
on hearing his justification for this:
“It is a company’s responsibility to pay market rates. It isn’t us

who set our bonuses, it was the Remuneration Committee of
the Board. The overall performance of the company was up,
not down, but our bonus-based compensation was flat.” 20
There’s no doubt that the mutual back-scratching that goes on through

the system of Remuneration Committees is clearly something that the
FSA will need to have a long hard look at. Reality now tells us that these
“Masters of the Universe” were worth a great deal less than their fellow
Directors had judged them to be at the time. Somewhat late in the day,
the Chancellor of the Exchequer set up an enquiry to look into the banks’
overall remuneration system. David Cameron has lashed out at the City’s
“bonus culture”, pointing to a growing battery of evidence demonstrating
that bonuses and performance-related pay have a much smaller impact
on performance than has been claimed. This culture is also a great
“accelerator of inequality”: according to Income Data Services, chief
executives earned 62 times the pay of their average employee in 2000,
but they now pay themselves 104 times as much.
I suspect it will still be quite a while before the true extent of the redistribution
of wealth that has been going on over the last 20 years or so is fully revealed.
In most OECD countries, most people have ended up working longer hours
for small, if any, increases in relative income. The huge increase in the
number of households where both men and women are earning has masked
the relatively static position of the principal income-earner. Here in the UK,
average pay has barely risen over the last 3 years – at exactly the time when
the super-rich were getting even richer. And the poor have seen their relative
position decline even further. At £5.72 an hour, the minimum wage is still
stuck well below the living wage of £7.45, and continues to decline relatively
as annual increases are set below the rate of inflation.
The case for a more redistributive approach to tax has been ignored
for so long that it will take a while for people to remember that this was
once “a given” in terms of progressive public policy. But as the recession
deepens and more and more people become a great deal angrier at
what’s been going on, this Government’s wholly inadequate efforts to
crack down on systematised tax avoidance strategies on the part of
the rich will become less and less acceptable. It will be interesting to
see if Peter Mandelson can persuade the Treasury to start taking tax
avoidance seriously. His infamous comment that he was “intensely
relaxed about people getting filthy rich” was in fact accompanied by
an important qualification: “so long as they pay their taxes”. Indeed.
This must also be the best possible time for the Government to renew its
erstwhile commitment to ecological Tax Reform – shifting far more of the
burden of taxation away from jobs, value added and wealth creation and
onto waste, inefficiency and emissions of CO2. Ministers have been talking
about this since 1997, but the only measures taken so far have been small
scale and disjointed. According to Professor Paul Ekins, Chair of the Green
Tax Commission, Labour today derives less of its overall tax revenues from
environmental taxation than it did in 1998.
Maybe it will be time to think even more radically about non-fiscal

mechanisms for reducing disparities and wealth. Having sorted out
a minimum wage entitlement for the very poorest in the UK, there are
now a number of Labour MPs who want the party to explore some kind
of “maximum wage”. It’s now more than 100 years since JP Morgan
(one of the pioneers of “red in tooth and claw” capitalism) first proposed
that no company should have a differential of more than 10 between
the highest paid and the lowest paid.
As well as personal taxation, this is surely the time to re-think the whole
question of corporate taxes, and in particular, companies’ use of tax havens.
This has increased rapidly over the last few years, with “capital mobility”
now largely unfettered, and some estimates tell us that more than half of
global trade is routed through tax havens. There are various estimates as
to the extent of corporate earnings that escape proper taxation as a direct
consequence of this development: Christian Aid’s figure is $160 billion
(this is the lowest figure), whereas both the World Bank and the
research group Global Financial Integrity put the total nearer to $900 billion.
These are just the corporate flows; over and above that are flows from High
Net Worth Individuals, which are believed to be well in excess of $5 trillion.
No country in the world bears a heavier responsibility for this than the
UK; over a quarter of the world’s tax havens are British, including Jersey,
Guernsey, the Isle of Man and the Cayman Islands. The Tax Justice Network
has highlighted not just the direct loss to national exchequers that is caused
by this abuse, but the indirect consequences: the lack of transparency, the
uncertainty about who owns what, the deliberately engineered complexity.
All these contribute to the lack of trust that these ”secrecy jurisdictions” have
created, and it’s this lack of trust that finally undid the entire system. Richard
Murphy, the founder of the Tax Justice Network, does not pull his punches:
“The offshore world created the conditions that led to this crisis,
and unless the offshore world is tackled, it will undermine all
efforts to deal with it. Gordon Brown and his predecessors have
ignored this. As a result, they have knowingly permitted the harm
that secrecy jurisdictions wreak on the poor at home and abroad.
Unless they are tackled, tax havens will sabotage any efforts to
build global governance and international co-operation.” 21
One of the most obvious ways of eliminating those aspects of tax haven
abuse caused by transfer pricing by multinational companies (which is
little more, in effect, than the legalised denial to states of the revenues
due to them) would be to change international accountancy rules to compel
all companies to produce annual accounts on a country by country basis.
The EU should co-operate immediately with the incoming Obama
Administration to ensure our efforts in this regard are fully aligned with
the proposals outlined in the President’s “Stop Tax Haven Abuse Act”.
This would at least get things moving in the right direction.
Emboldened by reclaiming from multinational companies what is

rightfully due to their citizens, governments might then think again about
the potential impact of introducing some kind of currency transaction tax
(often referred to as the Tobin Tax) to secure a new flow of global revenues
which could be deployed to help developing countries cope with their own
transition to a low-carbon world. Nothing would send out a stronger signal
to emerging and developing economies that the OECD really is serious
about global collaboration in the face of accelerating climate change.
And as the New Economics Foundation points out, the rationale for
this is by now well accepted:
“A small tax on international currency transactions would

discourage short-term, high-frequency trading (the tax would be
paid every time the trade was done), but leave longer-term, real
investment unaffected. It is estimated that, globally, a tax of just
0.005% would raise tens of billions of dollars annually, while also
“throwing sand in the wheels” of the global currency markets
and reconnecting the financial and real economies.” 22
I suspect that much more is going to have to be done to reconnect the

financial and the real economies. Again, this is not the time to revisit the
hugely powerful conclusions of Lord Stern’s report on The Economics
of Climate Change, but governments around the world will need a lot of
reminding in the teeth of a deep and very dark recession that there is an even
deeper and darker one just around the corner that can only be avoided by
investing now in the technologies and infrastructures of a low-carbon global
economy. Al Gore has referred to this as “the emergency rescue of human
civilisation itself”, and is currently working with President Obama to bring in a
recovery package amounting to at least $100 billion over ten years – creating
in the process up to five million new “green collar jobs”. Many believe that it
will require a far bigger package to have the desired effect – both in terms of
stimulating economic recovery and securing substantive and rapid reductions
in greenhouse gases. The eminent economist Paul Krugman has suggested
an investment programme of closer to 4% of US GDP for the next ten years.
A similar percentage here in the UK would amount to many tens of

billions: the Sustainable Development Commission has recommended
£30 billion. But the state of public finances here in the UK rules out any
such commitment. Though it’s true that (at 47% of GDP) the level of national
debt in the UK remains much lower than in most of our European partners,
there are already grave concerns about levels of indebtedness here.
The steep decline in the value of the pound in 2008 demonstrated just
how fine a balancing act it is that the Government has to pull off in terms
of any UK-specific “Green New Deal”.
This strengthens the case for a dramatic redirection of public spending

as well as increased spending in some areas. There’s no shortage of
opportunities to recoup tens of billions of pounds on “big ticket” items like
the proposed identity card and a raft of IT mega-schemes. Top of the list
(at £25 billion) should be a proposal to axe Labour’s deeply immoral plans
to renew our Trident nuclear deterrent. The reluctance of the Labour Party
even to discuss the issue of Trident shows just how far it has to go in terms
of understanding the impact of climate change on literally every aspect of
government policy – including defence and security. And there are many
very senior people in the armed services who subscribe to exactly that view.
4.3.3 Prosperity beyond growth
Perhaps understandably, 99.9% of governments’ efforts around the world

are focused on stabilising the still precarious state of global capital markets
and on avoiding anything quite as painful as the prolonged depression of
the 1930s. “Understandable” because nobody wants to see that level of
economic and social trauma impacting on the lives of billions of people
all around the world. But there’s a paradox here. The recession will mean
that emissions of CO2 and other greenhouse gases will fall markedly until
the global economy picks up again. After the collapse of the Soviet Union,
emissions from Russia fell by around 5% per annum over a number of years,
precisely following the overall decline in economic activity. But because
nothing was done during that time to improve levels of efficiency, Russia’s
emissions leapt up again as soon as its economy started to recover. There
seems little doubt, therefore, that a three or four year 1930s-style global
slump would see emissions of greenhouse gases at least stabilising and
possibly even falling – but the real question is for how long?
And that’s why the current strategy (which can be characterised quite
simply as “getting back to as high a level of economic growth just as fast
as possible”) is indeed deeply irresponsible if not immoral – as the Church
of England is now arguing with increased intensity. In their bones, world
leaders know that if the global economy keeps growing at around 5% per
annum (as it has done over the last couple of decades), then it’s game-over
for human civilisation as we now know it. Runaway climate change would
become unavoidable; resource wars would destabilise already fragile
relations within and between countries.
But world leaders also know that their electorates have become so
wedded to the theoretical benefits of year-on-year economic growth that
it’s going to be incredibly difficult to wean them off it without profound
social and economic dislocation. This meta-dilemma is cogently mapped
out in Professor Tim Jackson’s new report for the Sustainable Development
Commission, Prosperity Without Growth:
“In examining global data on life expectancy, infant mortality

and participation in education, it remains possible that growth
is a necessary condition for flourishing. The clearest conclusion
is that economic resilience matters. Basic capabilities are
threatened when economies collapse. Growth has been
(until now) the default mechanism for preventing collapse.
This leads to an uncomfortable and deep-seated dilemma:
growth may be unsustainable, but “de-growth” appears to
be unstable. Our inability to confront this dilemma may be
the single biggest threat to sustainability that we face.” 23
Uncomfortably, the report lays bare just how ill-prepared we are in

terms of addressing this dilemma. Through all the years of plenty, even
as the evidence of overshoot and worsening unsustainability grew and
grew, no serious work has been done on thinking through any kind of
alternative paradigm. The Treasury (and every other equivalent department
around the world) just sat on its hands hoping the dilemma would go away.
As Tim Jackson has argued, there is currently no macro-economic model
anywhere in the world for achieving economic and social stability in the
absence of economic growth.
Worse yet, the dilemma deepens when we look at what it is that currently
provides much of that growth in the OECD countries: credit-fuelled
consumption. There is no longer any doubt that governments around the
world have “facilitated” if not positively promoted a massive expansion
of credit (accompanied, obviously, by increased levels of personal debt)
to fuel consumption in order to drive economic growth. In the US today,
for instance, consumer activity accounts for about 70% of all economic
activity. US consumers spend around $9 trillion a year – more than 120%
of their annual income. In other words, as Tim Jackson says: “The market
was not undone by isolated practises carried out by rogue individuals.
Or even by the turning of a blind eye by less than vigilant regulators.
It was undone by growth itself.”
On top of those transparently unsustainable levels of personal debt,

are equally unsustainable levels of public debt. As we’ve seen, David Walker,
the former US Comptroller General, has extended the official figure for US
public debt (at around $10 trillion) to around $50 trillion once huge “invisible
items” such as the Medicare programme, the wars in Iraq and Afghanistan,
and the true extent of the bank bail-outs are factored in. That’s the equivalent
of $175,000 for every American citizen – which makes their own personal
debts look modest by comparison. And although the US might be “out in
front” on public debt, it is not alone. Italy and Germany have debts of
more than $2 trillion; Japan around $9 trillion; the UK and France more
than $1 trillion each. Even countries like India, China and Brazil have
all racked up debts in excess of half a trillion dollars.
So how are we going to pay it all back? Economic growth, of course!

Even though we now know that much of the growth we’ve seen over the
last few years has either been an illusion (in terms of growth in “paper”
or virtual assets), or has been generated at the expense of the natural
capital and eco-system services on which our wellbeing depends.
In a paper for the Sustainable Development Commission, Herman Daly
has spelled this out with painful clarity:
“The current financial debacle is really not a “liquidity crisis”

as it is often euphemistically called. It is a crisis of over-growth
of financial assets relative to growth of real wealth – pretty much
the opposite of too little liquidity. Financial assets have grown by
a large multiple of the real economy – paper exchanging for paper
is now twenty times greater than exchanges of paper for real
commodities. It should be no surprise that the relative value of
the vastly more abundant financial assets has fallen in terms
of real assets. Real wealth is concrete; financial assets are
abstractions – existing real wealth carries a lien on it in the
amount of future debt. And the value of present real wealth is
no longer sufficient to serve as a lien to guarantee the exploding
debt. So can the economy grow fast enough in real terms
to redeem the massive increase in debt? In a word, no.” 24
Herman Daly has long been predicting a meltdown of this kind.

The fact that it hasn’t happened before now has given a lot of
people a lot of comfort. But for how much longer?
5.
avoiding
the ultimate
recession
Avoiding the ultimate recession
So is it going to be easier to do what needs to be done to avoid what

I’ve called “The Ultimate Recession” in the depths of our current recession
than it was in the days of seeming plenty? We’ll never know. Frustratingly,
politicians were only just starting to get serious about climate change
and other global sustainability issues when the banking collapse knocked
everything off course. We might otherwise have been looking at measured
progress, through 2009, in the run up to the Copenhagen Conference
at the end of the year.
The current recession probably makes no odds as far as the state of

the Earth is concerned. Ups and downs in the human economy will have
only the most marginal of effects on the concentration of those gases
in the atmosphere as a consequence of temporarily reduced emissions.
And the evidence from previous economic downturns (in Russia in the
1990s, for instance) is that “business-as-usual” models of economic
growth kick straight back in on the upturn.
So these few months are going to be precious beyond belief. If we

neglect this opportunity, and revert back to business-as-usual growth-at-
all-costs, then it seems clear that our path to a sustainable future will be
infinitely more troubled and painful.
We have a unique opportunity to deconstruct the illusions that underpinned

both the boom and bust of recent times; to understand that these are the
self-same illusions that have precipitated today’s near-terminal environmental
meltdown; and to use that knowledge to construct the foundations for a
global economy that will have at least a reasonable prospect of steering
us through to a secure and sustainable future.
The scale and extent of those illusions becomes clearer by the day.
We now know, to our great cost, that it does not make sense:
• to stimulate growth through an ideologically-driven deregulation

of capital markets and a weakening of all regulatory controls
• to stimulate economic growth by freeing up access to

unprecedentedly high levels of credit and by building up both
personal and national debt on an equally unprecedented scale
• to licence the continuing externalisation of cost for short-term

economic gain, knowing full well how badly this would distort
markets over the long run
• to misprice risk by assuming that asset values would continue

to rise indefinitely into the future
• to consume vastly more, as a country, than we are able

to produce, and somehow assume that there will be
no final reckoning for this
• to allocate capital in such a way as to favour short-term

profit maximisation rather than long-term value creation
• to rely on the metrics of economic growth (GDP and

per-capita income) as the pre-eminent measures of
progress in society, ignoring all other aspects of societal
and personal well being
• to treat people exclusively as consumers rather than

as citizens, and simultaneously to prioritise the interest
of corporations over the interests of citizens
• to condone (and even promote) private greed on the

assumption that this would somehow lead to greater
public benefit
• to rely on the volunteerism of Corporate Social

Responsibility as the principal mechanism for aligning
corporate interests with the interests of society at large.
As we saw in Chapter 2, the combined weight of these illusions accounts

just as much for today’s converging environmental crises as it does for
the collapse of the global economy. This insight seems to have escaped
all but a tiny minority of politicians in today’s mainstream parties.
Most Tories remain hostile to David Cameron’s heightened interest

in environmental issues, and would appear to be very nervous about
the idea of “capitalism with a conscience” which he advanced at his
speech in Davos in 2009.
Most Lib Dems still think it’s possible to square exponential economic
growth in the global economy with a sustainable world, despite the fact
that there’s not a shred of evidence available to them to sustain this illusion.
Most of the so-called “progressive Left” continues to ignore any serious

sustainability analysis on the understandable grounds that it will explode
their increasingly forlorn cornucopian fantasies. And amongst the elite
“commentariat”, there is still remarkably little recognition of just how
undeliverable today’s model of economic progress has now become.
One need only look at the debate about population to understand

the full extent of that institutionalised denial and disconnect. Though
I have studiously avoided banging the population drum on this particular
occasion, I remain astonished that so few people (even at the most
progressive end of civil society) are prepared to accept that a continuing

combination of a growing population and exponential economic growth
will put a sustainable world for humankind forever beyond our reach.
Though this is not the place to repeat these arguments, suffice it to say
here that any idea of avoiding “the ultimate recession” (the one which will
be induced by climate shocks, worsening inequity, resource scarcity and
collapsing eco-systems) is a total fantasy unless it embraces an unstinting
commitment to reducing average fertility all around the world just as fast,
effectively and compassionately as is humanly possible.
Since I wrote Capitalism As If The World Matters, I’ve been asked

endlessly whether I still believe that any capitalist system could bear the
weight of radical decarbonisation, a deep and lasting redistribution of wealth,
a dramatic rebalancing of our relationship with the natural world, as well as
that unstinting commitment to reducing average fertility. My answer is still
“yes”, partly because I can see in my own mind how that particular variant
of strictly sustainable capitalism could work, and partly because I’m scared
witless of what the alternative to that market-based, resolutely democratic
capitalist world might look like.
But my optimism on that score diminishes by the year. Short-termism

and outright denial remain dominant. For instance, though the words
“energy security” are endlessly bandied around in politics today, the truth
of it is that none of the parties has really shown much serious interest in
it. The Government has failed entirely to carry out any assessment of the
availability of global oil supplies. In pursuit of his excellent idea to set up
“The Hundred Year Parliamentary Committee” (as a mechanism to assess
the likely impact of any policy development in 20, 50 and 100 years time),
George Monbiot was told by officials in BERR that “the Government does
not feel the need to hold contingency plans to meet the eventuality that oil
production might soon peak”. Even the oil companies have contingency
plans for such an eventuality!
In the first quarter of 2009, there is no serious indicator that the

Government is using the current crisis to rethink the way we live and
the way we create wealth – unless it be in the oblique commentaries of
both Ed and David Miliband. There is as yet no sense of relief that it has,
in effect, been liberated from its servitude to the amoral imperatives
of free market economics. There is apparently little self-awareness that
11 years of running the economy in this way have left it more unbalanced
now than it was in 1997, and even less resilient (as in preparedness to cope
in a world dominated by radical discontinuities). All that seems to matter
is getting back to the same old consumption-driven, debt-burdened
growthism that got us into the current mess. However absurd this may
be, “living beyond our means” seems to have become the central tenet
of recovery for a Government that has simply lost its way.
How long that will keep the Labour Party ticking over is a moot point.
Iceland may well offer some disturbing signals as to what voters might
do when today’s combination of bafflement, resignation and fear gives
way to outrage. The Government’s belated decision to intervene on the

matter of bonus payments for bankers only came about because they
eventually read the rising crescendo of public rage at the idea that the very
people who precipitated the crisis were about to pay themselves yet more
millions of pounds – even in those banks that are effectively owned by the
state. It took President Obama eighteen days to crack down on feather-
bedded US bankers by imposing a pay ceiling of $500,000; it took Labour
eighteen months to set up a transparently inadequate enquiry chaired by a
man who has himself been a major beneficiary of the corrupt bonus system.
One can’t help thinking that this grudging minimalism (in terms of any
reform agenda) simply isn’t going to suffice much longer. In the New
Statesman essay I referred to on page 11, Neal Lawson and John Harris
warmly welcome the emergence of new political initiatives, and especially
the new coalition of NGOs and Trade Unions under the “Putting People
First” campaign. They have urged all progressives on the Left or in the
Centre to “refuse to go back”:
“The catalyst for what must happen next is that we must simply
refuse to go back. We know the consequences of a desired return
to “normality”: house-price bubbles, personal debit, boom and
bust, insecurity and long hours at work, anxiety on the streets,
stress in our homes, and fears about the survival of our planet.
What all of us who want a more equal, sustainable, democratic

and liberal Britain and, indeed, world now have to recognise is
that we can no longer go on trying to cope with the symptoms
of market fundamentalism. It is time to address their causes.
And to succeed in that, we have to work together. Isolated
measures on the environment or inequality are not enough;
single issues have to be joined up.” 25
The “manifesto for change” they’ve come up with (see opposite) is very
similar to the ideas of the Green New Deal that I’ve referred to throughout
this final chapter. Since that report first came out in July 2008, an
extraordinarily diverse range of organisations and individuals have started
using the language of “new deals” for a sustainable world. The Transition
Towns movement has already had a major impact on local community
initiatives, and looks set fair to grow and grow over the next year or more.
The Green Party has been re-energised by the election of Caroline Lucas
as its official Leader and is aspiring not just to repeat its earlier Euro-
successes in this year’s European Election (perhaps adding to their
current count of two MEPs), but to break through in a small number of
seats in the impending General Election. Elsewhere, a new organisation
called “38Degrees” (this being the angle at which avalanches are triggered)
is intent on stimulating some of the transformational energy that “MoveOn”
and other web-based initiatives in the US unleashed so inspiringly in the
run-up to the 2008 Presidential Election.
A manifesto for change:

ten ideas to help transform Britain 25
1. Electoral reform There is also a strong argument for

Make all votes count. Put the people in mutualising other high street banks.
charge of the UK parliament and usher Furthermore, Britain should push
in a new era of pluralistic politics. internationally for the separation of
retail from investment banking and
2. Introduce the Tobin tax insist that UK banks set an example.
Named after James Tobin, a US
economist who came up with the 7. A maximum wage
idea of a small levy on international To get straight to the heart of our
currency transactions. Essentially, broken social model, we could fix
it would use cash from high finance the ratio between the salaries of
to raise funds for the developing world. executives and those of their
employees: through the tax system,
3. 35-hour week we could put a ceiling on every firm’s
It works in France – why not here differentials to ensure greater equality
in Britain? and social cohesion.
4. A living wage 8. A Green New Deal

At the very least, the obligations to Now, more than ever, it is time to
pay a living wage should be built into create thousands of jobs and limit
all public sector contracts; over time, carbon emissions through a drive
it should be spread through the whole for new green technology.
economy. Boris Johnson backs it in
London at £7.45 an hour. 9. A tax on land
Companies, house builders and some
5. Radical localism residents are enjoying huge windfalls
We should finally allow innovation, from increases in the value of land they
diversity and pluralism in our own, often because of public money
communities by handing back spent on roads, rail and schools. Such
power to local government, through land value increases should be taxed
new powers to raise revenue by way to dampen house-price speculation
of local taxes or bond issues. and provide funds for social housing.
6. Remutualise and re-regulate 10. General Well-being Index

the banks This should become the key measure
Northern Rock, Bradford and Bingley for assessing our government’s
and the Halifax were set on the road success. Do its policies and initiatives
to ruin by their decision to demutualise actually help make us happier?
and become banks. This should be
reversed for the first two.
There’s a lot happening – despite the fact that a very large number of
people are still reluctant to throw their weight behind this new surge in
citizen activism. But as we come to terms with the full scandal of what
has happened over the last few years, and begin to feel more deeply
the pain that this will now inflict on very large numbers of people and
communities in both the rich world and the poor world, it seems
inevitable that levels of anger and even rage will slowly rise.
That anger will need to be tempered by hope and serious political

engagement. Indeed, I believe it is no exaggeration to say that the destiny
of people in the UK will be shaped for many years to come by the decisions
taken over the course of the next two years. Unless we put the imperative
of living within our means, both financially and environmentally, absolutely
at the heart of everything we do to dig ourselves out of this recession,
then any economic reprieve that we enjoy at the end of that time will
be as bittersweet as it will be short-lived.
References
1. Neal Lawson and John Harris, 16. “Green Jobs: Towards Decent
New Statesman (9/3/09) Work in a Sustainable, Low-Carbon
World”, UNEP/ILO/IDE/ITUC,
2. George Monbiot, Guardian September 2008
(14/10/2008)
17. Tim Jackson, “Prosperity Without
3. Thomas Friedman, “Hot, Flat and Growth”, Sustainable Development
Crowded”, Allen Lane, 2008 Commission, March 2009
(www.sd-commission.org.uk)
4. Robert Reich, “Supercapitalism”,
Icon Books, 2008 18. “Put People First”, The Bretton
Woods Project, March 2009
5. Jeffrey Garten, Newsweek (www.brettonwoodsproject.org)
(22/12/08)
19. John Bunzl, “Can We Fix The Global
6. The Economics of Ecosystems Financial System?” November 2008,
and Biodiversity: An Interim Report, (www.simpol.org)
IUCN, UNEP, 2008
20. Stephen Green, quoted in
7. Living Planet Report 2008, The Independent (6/3/07)
WWF (www.panda.org)
21. Richard Murphy, “The Threat Lying
8. Proactive Investment in Natural Offshore”, The Guardian (10/10/08)
Capital (PINC). Global Canopy
Programme, June 2008 22. “From The Ashes of the Crash”,
(www.globalcanopy.org) new economics foundation,
November 2008
9. Oliver James, “The Selfish (www.newconomics.org)
Capitalist”, Vermilion Books, 2008
23. Tim Jackson, ibid
10. Jon Cruddas, “A Ready Made
People’s Bank”, Guardian (12/1/09) 24. Herman Daly, “A Steady-State
Economy”, Sustainable
11. BTCV, “Mobilising the Carbon Development Commission,
Army”, October 2008 April 2008
(www.btcv.org) (www.sd-commission.org.uk)
12. Third Sector Taskforce, 25. Neal Lawson and

Groundwork, February 2009 John Harris, ibid
(www.groundwork.org.uk)
13. “A Green New Deal”, new

economics foundation, July 2008,
(www.newconomics.org)
14. “A Green New Deal”, ibid
15. “Green Foundations 2009”,

Aldersgate Group
(www.aldersgategroup.org.uk)
Design: thomasmatthews.com
Forum for the Future
Jonathon Porritt, Co-Founder of Forum for the Future, is an eminent

writer, broadcaster and commentator on sustainable development.
Established in 1996, Forum for the Future is now the UK’s leading
sustainable development charity, with 70 staff and over 100 partner
organisations, including some of the world’s leading companies.
Jonathon was appointed by the Prime Minister as Chairman of the

UK Sustainable Development Commission in July 2000. This is the
Government’s principal source of independent advice across the whole
sustainable development agenda. In addition, he has been a member
of the Board of the South West Regional Development Agency since
December 1999, and is Co-Director of The Prince of Wales’s Business
and Environment Programme which runs Senior Executives’ Seminars
in Cambridge, Salzburg, South Africa and the USA. In 2005 he became
a Non-Executive Director of Wessex Water, and a Trustee of the Ashden
Awards for Sustainable Energy.
He was formerly Director of Friends of the Earth (1984–90); Co-Chair

of the Green Party (1980–83) of which he is still a member; Chairman
of UNED-UK (1993–96); Chairman of Sustainability South West, the
South West Round Table for Sustainable Development (1999–2001);
a Trustee of WWF UK (1991–2005).
His latest books are Capitalism As If The World Matters

(Earthscan, revised 2007), Globalism & Regionalism (Black Dog 2008).
Jonathon received a CBE in January 2000 for services

to environmental protection.
www.jonathonporritt.com www.sd-commission.org.uk
www.forumforthefuture.org www.cpi.cam.ac.uk/bep
Forum for the Future Forum for the Future, the sustainable
Registered Office: development charity, works in partnership
Overseas House, with leading businesses and public
19–23 Ironmonger Row, sector bodies, helping them devise more
London EC1V 3QN sustainable strategies and deliver these
in the form of new products and services.
Registered charity number: 1040519
Company limited by guarantee: 2959712 www.forumforthefuture.org
Enquiries: 020 7324 3624

Email: info@forumforthefuture.org Publication of this pamphlet has been
supported by the Co-operative Group.
The recession we’re in right now March 2009
living within
is going to be very grim our means:
avoiding the
but nothing like as grim ultimate recession
if we don’t start
jonathon
porritt

Living Within Our Means

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Living Within Our Means

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The recession we’re in right now March 2009

living within our means

Jonathon Porritt, Co-Founder of Forum for the Future, is an eminent

Jonathon was appointed by the Prime Minister as Chairman of the

He was formerly Director of Friends of the Earth (1984–90); Co-Chair

His latest books are Capitalism As If The World Matters

Jonathon received a CBE in January 2000 for services

Enquiries: 020 7324 3624

1. The end of capitalism as we’ve known it 2 — 11

2. Causes and effects 12 — 25

4. A sustainable new deal 34 — 63

5. Avoiding the ultimate recession 64 — 70

The recession we’re in right now

but nothing like as grim

living within our means

Two phenomena highlight the collision of financial and environmental

Debtonation day The methane timebomb

It is the principal purpose of this pamphlet to demonstrate that these

Elsewhere, it has become received wisdom that environmental issues

as “an unaffordable luxury”. We’re in some terminal zero-sum game it

This is an unbelievable opportunity. It may even be the last chance

“So we cannot afford to relegate climate change to the

Green recovery spending as a % of total recovery packages

Country/Region Fund Period Green Fund % Green

TOTAL 2,796 436 15.6%

1.1 Opportunity out of disaster

If our politicians could focus consistently on this extraordinary

The consequences of missing out on this opportunity do not bear

1.2 Shifting power bases

1.3 Flawed role models

He was also an environmental despoiler on an heroic scale. It’s not the

The much-hyped “Masters of the Universe” who have caused the

Throughout his time in office, Greenspan refused to acknowledge

1.4 Lest we forget

powerfully with increasingly angry and apprehensive citizens in the UK

It’s New Labour’s apparent lack of excitement about decent, prudent

“The starting point for a better future is the simple

Before we turn now to some of those core tenets, a word of warning.

“The two crises have the same cause. In both cases,

One need hardly dwell on this. After months of increasingly angst-ridden

2.1.2 Impact on the environment

Environmental deregulation has been equally problematic, and it’s now

Here, there’s been a slowdown (and sometimes a complete halt) to the

In the US, by contrast, it’s been full-on deregulation, as George Bush

This story really needs no re-telling. The consequences of grotesquely

“There are no cushions left, there’s nowhere to hide; there are no

2.2 Debt-driven growth

2.2.1 Impact on capital markets

Back in the 1970s, economists began to question how the engine of

The scale of the problem in the US is literally mind-numbing. David Walker,

terrorism”), believes that the publicly acknowledged debt of $10 trillion is

2.2.2 Impact on the environment

The phenomenon in itself is hardly surprising. When the global population

2.3 Cost externalisation

In effect, a whole generation of bankers has externalised the full costs

Politicians find it difficult to link this kind of societal cost externalisation

2.3.2 Impact on the environment

2.4 Mis-pricing risk

The mis-pricing of risk lies absolutely at the heart of today’s crash.

compounded by unknown off-balance sheet exposures. The rest, as

2.4.2 Impact on the environment

2.5 Mis-allocation of capital

2.5.2 Impact on the environment