Markets and the environment - are markets enough?

The discussion yesterday was highly relevant to my work on the Copenhagen Climate Council to take place in December, and, still sooner, the World Business Summit on Climate Change at the end of May. For the moment the current financial crisis has obscured a still greater crisis over the growing human impact on the environment. Our greatest need is to think differently across the whole spectrum:

• this does not mean devising measures - as most people now do - to correct obvious mistakes and revert to making the past work better
• it does mean putting together a wide combination of factors, including market forces, and working out new directions for our society

We first have to recognize that our current situation is unique. Other societies and civilizations have collapsed before, for environmental and other reasons, but the circumstances of today have not happened before. As the title of a recent book put it: we have Something New Under The Sun. What is new?

• human proliferation: one animal species out of control
• degradation of land, consumption of often irreplaceable resources, accumulation of wastes
• dependence on energy from diminishing stocks of fossil fuels
• shortages of fresh water, and pollution of both salt and fresh water
• destruction of other species and damage to ecosystems with unknown results, especially on human health
• destabilization of climate world wide, again with unknown results, including sea level rise and increasing food insecurity: current droughts and deluges (as in Australia and China)
• development of new technologies and increasing globalization

These factors, together and separately, affect everything we do, and above all why we do it. We live in a consumer society, and thinking differently means thinking about consumerism and the role of markets. So where do we start?

• first we must recognize that there is no such thing as a free market, and never has been. All markets operate within rules, whether explicit or implicit, which together constitute a framework, which if it is any good should be in the public interest and to the public good
• the question, answered differently in different societies, is to determine the character of regulation, the nature of incentives and disincentives, how best to profit from market enterprise, the avoidance of market failure, and in the long as well as the short term, the stability and general health of society. As was well said last night, our aim should be to add value.
• at the moment the way in which we measure such health is seriously askew
• the shortcomings of "growth", GDP/GNP etc, are at last being recognized, notably in the Financial Times (29, 30 and 31 January 2009)
• our continuing failure to bring in externalities and true costs. As has been well said, markets are marvellous at fixing prices but incapable of recognizing costs
• renewed efforts to establish new systems of measurement: for example:
  • the Human Development Index
  • the work of the new Economics Foundation
  • the new Commission established by President Sarkozy chaired by Joseph Stiglitz and Amatya Sen
• the artificiality of current distinctions between developed, developing, under-developed and even over-developed countries. The true distinction is between those who have followed the track of industrialization within as much as between countries
• eg China and India: my experience in Delhi at the beginning of this month

How now to bring in the environment? First we must recognize that the economy is a wholly owned subsidiary of the environment. The damage we are now doing requires a change of mind in the business community as much as anywhere else. Already the message is coming through from market leaders with an enormous flow of funds into greenery (but beware of green-wash). My own experience with insurance, paper, agricultural and IT industries.

• we have the Stern Review of November 2007 and subsequent work on the social and economic impacts: and Al Gore on "An Inconvenient Truth"
• there is a vital need to reduce carbon emissions: emphasis on energy generation and use, above all end our current dependence on fossilized sunlight (ie coal, oil and gas)
  • greater efficiency
  • new building design (for cities as well as industry)
  • new technologies: renewables: wind/tides/solar/geothermal fuel cells/bio fuels
  • new nuclear: pebble bed/thorium etc.
• we must do a lot more to classify and understand other species and their ecosystems on whose good health we depend
• we face the always difficult problem of persuading the public in general and individuals in particular of the crisis now facing us, and of the role we must all play in doing something about it. Green business is a product of green values. It is also a recognition of the common interest, whether global, national, local and individual
• We must also make sure that governments fulfil their role in creating the right incentives and disincentives.

The question: "what's in it for business?" The answer: survival: how to assess the risks and make best use of the opportunities.