Zero hour for a new capitalism

Jonathon Porritt looks behind the smoke of destruction for a more sustainable model, rising from the toxic ashes of bad debts and ravaged environments.

Jack Welch, formerly of GE, is the most celebrated chief executive of the last 30 years. It’s his variety of capitalism that is now dying in front of our eyes. Aggressive and ruthless, he was known to friend and foe alike as ‘Neutron Jack’ for his ability to hollow out companies 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 a heroic scale. It’s not the legacy he himself lays claim to in his self-aggrandising autobiography, but he will be known for decades to come for his part in laying waste to the Hudson River near New York – through the calculated, persistent release of PCBs (one of those pollutants that accumulate in our bodies) – to help reduce costs and maximise profits. After years of delaying tactics, a clean up of sorts is now under way – and GE’s current shareholders will see billions of dollars from their should-be dividends deployed to pay for it.

Neutron Jack was decommissioned in 2001, but if you fast-forward seven years you’ll see his like in the erstwhile ‘masters of the universe’ who caused the latest sudden and disastrous implosion of the financial system. Their legacy is, of course, a very different one: packages of toxic debt released with criminal irresponsibility into the US sub-prime market, just as Jack Welch released his barrels of PCBs into the Hudson River. A clean up, of sorts, will soon be under way.

Just in case your fears about looming recession have temporarily blinded you to other concerns, it may be timely to point out that the accelerating build-up of greenhouse gases in the atmosphere, let alone the unceasing war we wage on the natural world, will be only marginally slowed by any downturn in the global economy. Given half a chance, a new cohort of equally macho chief executives will no doubt see it as their historic duty to undo the damage done, by setting out to do more damage of exactly the same kind.

“The collapse of the world’s banking system and the impending disaster of accelerating climate change are not separate phenomena”

In all the coverage of the market meltdown, I have seen few, if any, connections made between these toxic time bombs – financial and ecological. You might think they were totally separate phenomena. In fact, they are both products of the same kind of limits-defying, cost-externalising, profit-maximising capitalism that has dominated people’s lives for the last three decades. A global economy built on debt-driven consumption and the liquidation of the natural capital assets on which all our lives still depend, was guaranteed to self-destruct. It was only a question of when. Now we know.

So let’s stop skimming over the surface and look instead at fundamental causation. When federal reserve chairman and treasury secretary Paulson and Bernanke presented their ‘rescue package’ to Congress back in September, the problem was characterised purely in terms of the hundreds of billions of dollars of mortgage loans to sub-prime borrowers in the US housing market, then bundled up into collateralised debt obligations and traded between banks in a web of increasingly opaque transactions. When the US housing bubble burst, these ‘toxic derivatives’ spread their poison throughout the entire system.

But the whole credit crunch is just a symptom of a much more pernicious problem: the wholesale deregulation of financial capital markets back in the 1980s, and the lifting of controls over the amount of credit that banks can create. It amazes me how few people understand the massive con-trick that still lies at the heart of today’s financial system: the right granted to banks to conjure up credit more or less out of thin air – and then charge people interest on it.

Emergency rescue packages, such as the controversial Paulson and Bernanke plan, are a painful but necessary starting point. But no solutions package is likely to have any lasting impact unless it includes an end to the structural inequities of credit creation.

One person’s credit is another’s unmanageable debt. Indeed, indebtedness – in the shape of personal debt, corporate debt, farm debt, national debt and so on – is the single most important feature 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.

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 topsoil, 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. In the interests of economic growth, cost externalisation (as with Jack Welch’s wilful destruction of the Hudson River) is either officially licensed or very inadequately regulated.

Politicians may laud the work of economists like Nick Stern, who famously characterised climate change as “the greatest market failure the world has ever seen”. But when it comes to eliminating that market failure – internalising costs by putting a proper price on CO2 and other greenhouse gases – their pro-market zeal deserts them in round after round of mutual blame-laying.

“There’s nothing too complicated about this. It can be done. It has to be done. All it lacks is political will”

Our account with nature is now so overdrawn on so many fronts that many people believe it cannot be repaid. I still think that is a counsel of despair. Just as the world’s banks are now rushing to detoxify their portfolios and to rebuild their balance sheets (in part – and with no apparent sense of irony – through massive infusions of petrodollars earned from cooking the planet via the Sovereign Wealth Fund of the Middle East!), so the world’s governments must now hasten to rebuild the balance sheet of nature.

There’s nothing too complicated about this. We know how to protect stocks of disappearing natural capital: look at the success of ‘no-fish zones’ as a way of restoring depleted fisheries. We’re getting more creative about incentivising ‘asset protection schemes’, such as those aimed at rewarding countries for keeping their forests intact. We know how to drive out waste and promote massive improvements in resource efficiency. We know it’s possible to replace climate-threatening fossil fuels with benign, increasingly effective sources of renewable energy – and to make money out of it, too: global investments in cleantech in 2007 soared to more than $140 billion.

As a telling sign of the times, when Jeff Immelt took over at GE, one of his first acts was to set up a new business called Ecomagination to funnel huge new investments into renewable energy, desalination, waste and water management technologies and so on. He’ll still have to deal with the death of the Hudson River, but GE’s new balance sheet looks a lot smarter than Jack Welch’s.

All this can be done. And has to be done. The missing ingredient is political will. Prevailing mindsets are still warped by the belief that such a strategy will be too costly, and that electorates won’t buy it.

I wonder. If vast amounts of US taxpayers’ money can be conjured up to rectify the greed-errors of yesterday’s self-styled financial Titans, would it be so difficult to find a fraction of that to pump-prime the ‘green industrial revolution’ that Tony Blair and Gordon Brown have been banging on about for so long?

The collapse of the world’s banking system and the impending disaster of accelerating climate change are not separate phenomena. They are simply the most visible symptoms of a particular model of capitalism that will bring human civilisation to its knees. But those symptoms will not get sorted unless and until we commit to a radical transformation of the way we create and distribute wealth in the world today.

Jonathon Porritt is a programme director of Forum for the Future and chair of the UK Sustainable Development Commission.

His book, ‘Capitalism as if the World Matters’, is available from www.earthscan.co.uk, 020 7841 1930.

13 October 2008

Jonathon Porritt