Dealing with our discontents – the financial crisis and the environment

Published by the Green Alliance, in April 2008.

For two decades the dominant force shaping the prosperity and security of everyone on the planet has been globalisation. The arrival together of very cheap communications and the end of the Cold War was a fortuitous conjuncture of technological and political breakthroughs.

This combination of widening political horizons and the creation of a single global information space by satellites and computers released massive flows of capital around the world. The result was a vast increase in the prosperity of very large numbers of people. But globalisation of opportunity was not accompanied by globalisation of responsibility. As a consequence we now faced a rather less fortuitous conjuncture.

To facilitate the newly enabled flows of capital, the world embarked on a comprehensive relaxation of financial regulation. This permitted the development of what is essentially an unregulated shadow banking sector. Unregulated bankers did what unregulated bankers have always done and took unwarranted risks on a gigantic scale.

The results are now plain for all to see and amount to the worst financial crisis since the Great Depression. The full effects of this debacle on the economy have yet to be seen but will certainly slow and may reverse the headlong global growth of the past two decades.

These same massive capital flows also brought a billion new consumers into the global economy. Their demands have now begun to undermine the pillars of prosperity. These are the resource foundations on which the health of the global economy depends: energy security, food security, water security and climate security. All are now under increasingly intolerable stress.

Governments everywhere have paid little attention to maintaining the integrity of these pillars. It has simply been assumed that they would always be there to underpin the economy. Market idealists have preached the same gospel of self-correction magic in relation to resources that has so spectacularly failed in relation to capital markets.

Governments now face a dilemma. They can either let this financial firestorm run its course and risk a deep and prolonged recession or they can inject massive amounts of capital to bail out the bankers and risk a strong surge in inflation. In either case, both the momentum of, and confidence in, globalisation will take a hard knock.

At first sight this might be good for the environment. A slow down in consumption, reducing the pressure on resources, would be no bad thing. Doubts about globalisation might create an opening for responsibility to begin to catch up with opportunity. A lower volume of hype from globalisation’s boosters might allow for other, more cautious and often better informed voices to be heard by politicians.

But a much more likely outcome is a switching of political attention from the environment to the economy. This has already begun to happen. Climate change dominated the global headlines in 2007. The carefully staged serialisation of the IPCC’s Fourth Assessment Report throughout the year, reinforced not only by an Oscar and the Nobel Peace Prize but also by the weird weather all over the globe associated with a strong La Nina event pushed the environment to the top of the political agenda.

It also reinforced another wave of green capitalism that had been gathering force for sometime. Green consumerism was back with a bang prompting gargantuan retailers like Wal-Mart, and Tesco to go green with their products and marketing. Green finance boomed. Companies competed aggressively to top the corporate responsibility league tables.

Sadly, much of this green consumption was fuelled by exactly the same asset bubble growth and too easy credit that has now brought the whole economy to a juddering halt. Green markets may actually take a harder and longer hit than mainstream markets more for psychological than economic reasons. When consumer confidence is high people are both more ready to demand intangible value and also to take more risks. Green products and green finance grows. But when that confidence evaporates price and safety dominate decisions.

Add the impact of steeply rising food and energy prices, caused initially by the huge stimulus to demand of a billion new consumers joining the globalised market place and now being driven higher by the inflationary consequences of preventing a collapse of the financial system, and you have the makings of a perfect storm. It threatens not only to sweep away green consumerism but to undermine the, in any case feeble, political will to deal with climate change and the other looming environmental crises.

In Britain this will strengthen the Government’s hand in its attempts to weaken the planning system and undermine public support for opposition to environmentally harmful projects. All environmental opposition to short sighted, and frequently unworkable, policies will be brushed aside. The mutual appetite of editors and Ministers alike for dynamic, if often vacuous, headlines will put aside any real consideration of what is needed for to maintain the security and prosperity of 60 million Britons in the 21st century.

But this dangerous conjuncture of financial and resource crises will do subtler damage to our ability to take civilisation out of the 21st century in anything likes as good a shape as it came into it. It has severely shaken the confidence of the public everywhere in the ability of government to protect people’s prosperity and security from the roiling tides of globalisation.

Humans under threat have a strong reflex to turn inwards; to look to family, clan, tribe, or their contemporary analogues, for protection. We can already see clear signs that the competitive reflex is overwhelming the cooperative in both the economy and the environment. Yet dealing with the discontents of globalisation requires cooperation above all.

We cannot protect ourselves from the forces we have released by individual action. All of the challenges we face in the 21st century from the current resource and financial crisis to the problems of massive migration, organised crime and terrorism require strong government.

Strong government is government that commands the confidence of its citizens. As democratic governments falter in the face of these challenges, the illusory strength of autocratic governments looks ever more appealing to many. Everything we know from history tells us that this is a false hope but in the distracted turbulence of today’s continuous present this might not be widely remembered.