Today 12 million people are experiencing famine in the Horn of Africa. Due to drought and the ever escalating price of food, more and people are being displaced from their homes walking hundreds of miles looking for an overcrowded camp in which to feed their children. Some make it, some don’t. There is debate as to whether climate change is causing this drought. However the debate needs to go beyond one of climate change, it has to do with how we deal with ever dwindling resources. It could be that the tipping point for these 10 million people was the high price they had to pay for food – between July 2010 and January 2011 maize prices increased by 74% and wheat by 84%. This is what an extreme food crisis looks like.
Still, food and energy security issues are not far from home. Let’s take food: the UK is not self sufficient in terms of its food production having to import 40% (and rising) of all the food it consumes. Yes, we in the developed world are also subject to volatile food prices, both for human and animal feed which affects all of our food chain. We are also subject to water shortages and floods caused by climate change, impacting further on how we cover our basic human needs.
Changes will need to occur to our political, economic and legal systems if we are in future to cover our most basic needs. Today I look at economic decisions that can help us move away from crisis whilst stimulating our economy.
A sustainable economy through long term sustainable practices
Someone reminded me that we need to start with principles. Principles are the things that need to guide our economic decisions. What do we want to achieve? What are the goals and aims and actions into which principles translate? What do we want to get out of economic system?
The North Americans in their Declaration of Independence proclaimed that they were seeking the inaliable rights of “life, liberty and the pursuit of happiness”. The concept of life is still pretty self explanatory and can safely say that today we still assume that liberty is associated with our freedoms and obligations; but what do we pursue in the 21st century to make us happy? We want to be warm, eat well, communicate and entertain ourselves and economic growth has been paramount in our search to cover these elemental needs. So has unprecedented economic growth satisfied our most basic needs?
Sort of. For a while economic growth did provide us with ever growing living standards – from sewerage systems, to cleaner water, to fuel for heating; but this generation is the first that will be worse off than their parents. Industrialisation has provided us with all manner of technological advances which assist with our pursuit of happiness whilst at the same time destroying a lot of our natural assets. When our forefather spoke of inaliable rights they did not take into account the scarcity of the resources that we need to make us happy. Now we are looking at facing a twofold crisis, both of food and energy security. We are not getting that wellbeing and “happiness” that we wanted.
So what could we do to change our economic systems to be more attuned to our principle of pursuit to happiness? There are at least 4 policy choices that spring to mind.
1 Investment decisions need to be consistent with policy and long term
Consistency means taking policy investment decisions that subsidise and perpetuate activities which are damaging to the planet whilst promoting activities which are beneficial to the survival of humans on this planet and which need an injection of investment. A sine qua for government is to promote a low carbon economy in all of its policies, but we need to think about the long term and how can we best secure our basic needs. Let’s not forget that the subsidies to bio fuel added to the crisis in food prices as they have reduced consumer crops.
2 Allow green investment to flourish
If we want a low carbon economy we need to finance it, not with public money, but with private investment. How will we pay for the £550 billion investment needed to update the UK’s energy infrastructure and deal with the very real energy security issues we are facing (see the 2010 Green Investment Bank Commission Report) Well, the solution is closer to home than we think: private funds manage £4,100 billion in the UK today. The problem is that the great majority of pension providers do not give you the choice to invest in a green portfolio; they are seen as to risky.
Thus it is our government’s responsibility to encourage such investment – we need a Green Investment Bank (GIB) – otherwise it is estimated that the private sector capital will only deliver £50 to £80 billion of investment.
The coalition government has pledged its support for a GIB, but in March 2011 it was already trying to water down the proposal. The Environment Audit Committee (EAC) heard that Government wanted to take away the bank’s power to borrow, making it in essence a fund. This is what the Chair of the Environmental Audit Committee, Joan Walley MP, has to say:
“… Setting up a Green Investment Bank without the power to borrow would be a bit like trying to buy a house without first getting a mortgage offer. George Osborne has got the deposit, but if he doesn’t allow the Bank to raise extra capital, the sums are going to fall far short of what is needed.”
The Government’s response to the EAC was published today. At a glance the government is backing the proposal to make the GIB a bank that can borrrow:
“…The Government agrees with the Committee’s recommendation. The GIB will operate like an investment bank and will be set up as an independent body operating at arm’s length from Ministers.”
However it will nto be able to borrow until 2015/16 and once the target for debt to be falling as percentage of GDP has been met. The later test seems too uncertain a policy to withstand scrutiny.
The Government has also not committed to where the legislative route it will take introduce the GIB. We wait in hope.
Again we must not forget point 1, that we are trying to be consistent, that we want to promote green investment in technologies currently seen as too risky, in new low carbon markets, not to subsidise well established industries such as the nuclear sector.
3 Assess the real value of resources
Our economic decisions need to not only to take into account values to humans but also the values to the other elements of nature. At the most basic level we need to tackle consumer “value” choice. And by this I do not only mean individual consumers but long term value for companies and nature too.
I must say that putting a monetary value to nature, as in the governments “Natural Environment” White Paper was not quite what I had in mind when I was talking about a change in values. However, if it helps individuals, business and governments better understand the value of nature then so be it. Still, none of this is new – the Stern report already told us that climate change will cause equivalent loses of between 5% and 10% of global GDP per year. Or you can have a look at CBD’s fascinating publication “The Value of Nature”.
4 Business decisions lead by sustainable policies and innovation
Integrating sustainability into business decisions and accounting is key, so that we make choices that are in line with sustainable policies; it saves business money, allows people to have more choice, more likely to cover their basic needs and is good for the planet. There does not have to be a conflict, we just have to change the way we think.
HRH The Prince of Wales’ project “Accounting for Sustainability” is right on the money. It aims at bringing organisations together to develop the tools needed to better connect environmental and social performance with business strategy and performance. In that way every day business decisions are in line with a sustainable strategy. TEEB for Business also looks at some of these issues in “The Economics of Ecosystems & Biodiversity”.