When systems break down, contradictions pour out everywhere. Just as the flood waters washed whole districts of Derna (Libya) into the sea, former Governor of the Bank of England, Mervyn King, claimed it was unreasonable to give the Bank climate duties. Mervyn lives on the wrong planet.
Over 20,000 people remain unaccounted for in Derna. It could be many more. Relatives of the missing search for them amongst bodies washed back onto the beaches. The scale of losses is difficult to imagine.
It isn’t much better further along the North Africa coast where emergency relief teams are still trying to access remote villages in Morocco, all devastated by the earthquake.
On the other side of the Mediterranean, Greece also took a pounding from Storm Daniel. On the back of forest fires that had wreaked summer havoc, Storm Daniel delivered floods to central Greece that were the worst in their recorded history.
Today’s ‘wild weather’ roller-coaster is creating chaos everywhere. From China to Canada, Thailand to Tanzania, and from Afghanistan to the Amazon basin, extremes of drought, flood and fire are turning eco-systems and economics inside out.
World leaders will have to put climate breakdown in the same box as pandemics and war. Then the international framework of banking and finance
must be re-cast, in much the same way global institutions were re-structured after the Second World War. Today’s restructuring just has to put climate centre stage. If Mervyn can’t grasp this I’m sure there is a care home somewhere that can help.
An economics of the elements
Earth, wind, flood, drought, fire and famine are becoming the basic metrics of tomorrow’s economics. Forget ‘free trade’ agreements. In the calculations of wellbeing, circularity and security will become much more pivotal factors. Arguments about deregulation and privatisation are just dangerous distractions.
Fortunately, today’s African Leaders suffer no such confusion. The recent African Climate Summit called for global carbon taxes (including on goods and aviation) along with a global financial transactions tax.
And so that we’re clear, the African Summit also demanded that their particular vulnerability to climate disasters requires far more than the paltry 12% Africa receives out of the £240bn international banking pot for climate adaptation and transformation.
If Mervyn King struggles to grasp this in Britain he’s not alone. Rishi Sunak runs round trying to slam the brakes on Britain’s ‘net zero’ climate commitments. Labour pledges it will stick by them ‘as long as we adhere to Treasury rules in doing so’. And Tony Blair, fresh back from the grave, cautions that a Labour government cannot take a ‘tax and spend’ approach to tackling today’s problems. They couldn’t be more wrong.
I hope there are plenty of comfy armchairs in the care home because, like it or not, these are precisely the policy choices Britain’s next government will have to address.
The UK requires a raft of non-conventional/inspirational alternatives if we are to get through the climate mess we’ve created. All the most useful answers require us to think and act differently to the cascading
crises, both at home and abroad. The next government will find no safe havens in ‘middle of the road-ism’. Fortunately, there are already some genuinely uplifting outliers who are un-trapped by yesterday’s thinking.
In praise of heretics
Domestically, the indefatigable work of Richard Murphy (www.taxresearch.org.uk) deserves a massive mention. His ‘Taxing Wealth Report, 2024’ is worth a serious read, as are his constant Twitter feeds offering examples of how much Britain could raise simply by ending the tax feather-bedding of the rich. George Monbiot’s podcasts do much the same.
But if you want to be really moved, treat yourself to a viewing of Ursula von der Leyden’s ‘State of the Union’ address to the European Parliament (https://state-of-the-union.ec.europa.eu/index_en).
Von der Leyden made many of the points that African Leaders also called for;
- the need for a more regionalised (and integrated) economics,
- the need to build our own zero-carbon supply lines (and skill-sets),
- the importance of low-cost finance routes to underpin transformation, and
- the need for a collaborative politics that tackles wild weather crises at the same time as making (and mending) our way towards a more durable future.
None of this wastes its time on Britain’s misguided obsession with deregulated markets, trade agreements favouring corporate exploitation, the granting of new oil and gas exploration licences, or the delusion that transformative change can be deferred ‘until we have grown the economy’.
Rethinking risk, rain and roofs
Much as it might offend traditionalists, a really good starting point for tomorrow’s economics would be the banking and insurance sector. Whether it is the replacement of Britain’s crumbling school and hospital roofs or the rebuilding of collapsed dams, big money has to be found to repair critical infrastructures.
If you think that Britain’s concrete roofs crisis is a problem just understand this; there are over 100 dams worldwide in as perilous a condition as those above Derna. None have been well maintained. None were designed to cope with the scale of downpours produced by Storm Daniel. It is in all our interests that direct international investment goes into restoring those at most risk of collapse. But it doesn’t end there.
What makes ‘water’ a good place to begin an economic ‘reset’ is that it forces us to address a multiplicity of challenges at the same time. Pushing at the limits of too much or too little always has dire consequences. But by putting rainfall on a roller-coaster (and by intensifying food production) the risks of water crises increase exponentially. Take a simple example. Almost 2 decades ago, Fred Pearce warned that
“… the world grows twice as much food as it did a generation ago, but it abstracts three times more water from rivers and underground aquifers to do it.”1
He pointed to India, where a quarter of its crops were being grown using underground water that wasn’t being replaced by the rains.
Nothing has changed. And following this year’s disrupted rainfall patterns, India imposed a ban on the export of all non-basmati rice. Since India is responsible for 40% of global rice trade the knock-on effects were immediate. Myanmar put a temporary ban on rice exports. The Philippines imposed a domestic price cap to protect the poorest, and importing countries all competed to get a larger slice of the diminishing (rice) cake.
1 ‘When The Rivers Run Dry’, Fred Pearce, Eden Project Books, 2007, p 38
Rivers of doubt
What makes rice such a useful example is its vulnerability to erratic rainfall patterns. This is the stage of climate disruption we have entered. And every part of the planet is affected. Headlines in the USA may focus around storms, flooding, torrential downpours and hurricanes, but 40 out of 50 states are experiencing water shortages.
Some of America’s dams and reservoirs are at all time lows, threatening not only water and power supplies to major cities but also questioning the guaranteed slice that goes towards intensive agriculture.
China is no different. Food production has progressively shifted from the wetter South to the warmer North, almost entirely on the basis of extensive irrigation programmes. The trouble is that the water didn’t move North. Since the 1950’s, China’s ‘groundwater overdraft’ has become one of the country’s most serious resource problems. Intensive agriculture has added a ‘pollution’ dimension to this aggregate water supply problem.
Such issues put the Africa Climate Summit proposals centre stage. To tackle these problems, on the scale we must, there has to be a radical shift into the taxation of both carbon and speculative finance. These have become the 2 major bolt-holes of today’s super-rich. Governments of all persuasions are going to have to tax wealth wherever it has fled to.
Chasing the leaks
Ceasing to subsidise ‘bads’ would be a good start. At present, some $77bn a year goes from international banking institutions into oil and gas investment. In Britain, last year’s figure was £35bm (down from £50bn the year before). Collapse this – and directing the investment into water security – would put us on a much better track.
Insurance companies could do something similar, withdrawing insurance cover from all oil and gas related and polluting projects. But different mechanisms are needed to then redirect investment and insurance support in favour of environmental security. In particular, governments must give a lead by pushing water up the political agenda.
Britain’s next government would be well placed to do this, if only because of the public outrage already generated by the performance of Water Companies. ‘Wretched’ is too gentle a word. Over 500,000 tonnes of human sewage has been discharged into Britain’s waterways while companies racked up £53bn of debt, largely so they could pay out £73bn in dividends. It makes a stronger case for prison than privatisation.
Under no circumstances should the next government buy the industry back. Just ratchet up the statutory duties, make dividends (and bonuses) conditional on meeting mandatory leakage-reduction targets and make illegal discharges an automatic imprisonable offence for senior management. Then watch how quickly everything would change.
But even if water was a not-for-profit public service this wouldn’t get us out of the turbulent weather cycle. That’s what we must learn to live with.
Britain will need a national re-think of water management if we are to address both flash flooding and extended drought. Farming practices and fertiliser run-off can’t be left out of this audit. Cleaning up our own act – by polluting less and conserving more – must go hand in hand with preparation for inundation and drought.
When less is more
The incorporation of water and weather into a new environmental economics should be along the same lines as energy security. You begin with strategies to use less and waste less. It is a lot cheaper to re-equip cities and regions with low-flush toilet systems than to build a new dam. So begin there. The economic advantages of using less are massive. They come with a huge boost in jobs and skills, and almost the entirety of workers then bank and spend at home rather than in tax havens.
The same applies to water clean-up. Investment in the process will inevitably be within existing drainage systems. Human sewage can be processed and agricultural pollution reduced using taxation or regulation. Treat water as a ‘not for profit’ public service, not as a speculators’ lucky dip, and you put the ‘public’ back into public utilities. The question is how then to build public accountability into public ownership?
For many decades, Britain’s water and energy industries were municipal utilities, funded partly through rates and partly through municipal bonds. Today, you could also do so via banking obligations. Germany used its KfW Development Bank as a de facto guarantor of low cost investment in developing local energy systems. A climate bank in Britain could do exactly the same, for both energy and water. The key is to bring the obligations into the public domain.
Governments have to make clean-up and conservation a regulatory duty not a commercial option. Pollution won’t go away by magic. But we can change the way we farm, how we reduce the water content of production, how we plan for torrential downpours and how we restore aquifers rather than deplete them.
Bankers may understand debt but they are clueless about debts to nature. They insist that governments (and individuals) repay cash loans quickly, but nature can wait forever. But today, what cannot easily be monetised can at least be quantified in ways that even the Bank of England might understand.
A spoonful of sugar
In the economics of water, the numbers are daunting. It takes up to 5,000 litres to grow a kilo of rice, 500 litres for a kilo of potatoes, 1,000 litres for a kilo of wheat and 24,000 litres for a kilo of beef. All this is before you address the water content of what we wear or the goods we consume.
The trade in ‘virtual water’ never figures in Bank forecasts or Treasury budgets. The West simply took for granted that water content was the free gift that came with (cheap) imported goods. If we had put back as much as we’ve been taking out it’s a trick we might have got away with. But climate disruption has closed this option. The global environmental overdraft has become too large and market conditions too volatile. A new ‘economics of the elements’ is called for, and every part of society will have to be part of it.
So, as Mervyn King and fellow bankers tuck into their breakfasts – a round of toast? (150 litres), a two-egg omelette (500 litres), glass of milk (1,000 litres), and maybe contemplate an evening glass of wine (250 litres) or a brandy (2,000 litres) – they had better recognise that Central Banks as well as national governments need to reconfigure their economic thinking as never before.
Restorative economics must become as central to tomorrow’s banking sector and economic policy making as the human inputs needed to deliver it. This is the only way we might ride the climate roller coaster.
So, for starters, “Sugar in your coffee, Mervyn?” (45 litres)… “Enjoy”.
Alan Simpson September 2023