The Future of Capitalism?

U.N. Secretary General Ban Ki-moon will meet with U.S. President Barack Obama Tomorrow. President Barack Obama's determination to reverse Bush administration policy on combating climate change will hopefully help produce a global agreement this year in Copenhagen. 

The U.S. didn’t ratify the only international climate change treaty, the Kyoto Protocol, whose provisions expire in 2012. The UN is seeking to broker a new accord in December in Copenhagen that draws all nations into the effort.  Eyes from every nation will be watching to see the U.S. stance on this topic and whether Obama will accept the invitation from Bank Ki-moon to attend a proposed mini-summit at the UN this spring.

Now that the green stimulus's have been rolled out, a closer look reveals that the packages of tax cuts, credits and extra spending that have been trumpeted for their environmental credentials by the governments proposing them, show that green spending account for only a small part of the bigger initiatives.

Much of the spending will go to projects that will, in fact, increase emissions, such as new roads or fossil fuel power stations, while too little money will be devoted to low-carbon projects to make a real difference, experts believe.

Lord Nicholas Stern, the former World Bank chief economist who wrote the landmark study that found the cost of tackling climate change would be far less than the costs of unchecked global warming, has led calls for green measures to be at the heart of global stimulus measures.  

He said: “It is vital that these investments do not lock us for many more decades into an unsustainable high-carbon economy. Investing in low-carbon technologies would improve the world’s economic prospects for the long term, he said. “If we are going to make this expansion, let’s look at what is going to be the growth story of the future. Low-carbon growth is going to be the only growth story of the future.”

Lord Stern calculates that governments need to spend $400bn on green measures to achieve the emissions cuts required and to help the global economy recover.  Only if spending was concentrated on low-carbon technologies would the world escape the prospect of raising emissions for years to come, and “thus having to spend much more in the future to bring them back down to safe levels”, Lord Stern said.  

What is clear is that market capitalism has arrived at a critical juncture. Even beyond the bailouts and volatility, the challenges of the climate crisis, water scarcity, income disparity, extreme poverty and disease must command our urgent attention.  Economic theory derived from the industrial revolution that does not factor in externalities and the true cost of natural resources must be changed.  Sustainable development will be the primary driver of economic and industrial change over the next 25 years.  

As Al Gore has put it, "the market is long on short and short on long. Short-termism results in poor investment and asset allocation decisions, with disastrous effects on our economy."

Today in the FT, Martin Wolf began a series on the Future of Capitalism with an article titled 'Seeds of its Own Destruction'.   He concludes that the era of financial liberalization is over, yet unlike the 1930's no credible alternative to the market economy exists and the habits of international co-operation are deep.  "I've a feeling we're not in Kansas any more," said Dorothy after a tornado dropped her, her house and dog in the land of Oz.  The world of the past three decades has gone.  Where we end up, after this financial tornado, is for us to seek to determine.

Pavan Sukhdev, a senior banker from Deutsche Bank who has worked on green ideas with the UN, said: “Investments will soon be pouring back into the global economy. The question is whether they go into the old, extractive, short-term economy of yesterday or a new green economy.”

We need sustainable capitalism, and all nations must work together to ensure green shoots of recovery.