Regulation not Revolution: The Economics of Combating Climate Change

Angry revolutionary sentiments are undermining the very instruments required to stabilize the economy and manage climate change. Massive demonstrations are taking place all around the globe. The rage on the streets is coalescing into a global movement that threatens the economic system. There have been revolutionary protests in Tunisia, Egypt, Libya, Bahrain, Syria, Yemen, Israel, Algeria, Iraq, Jordan, Morocco, and Oman, and minor protests in Kuwait, Lebanon, Mauritania, Saudi Arabia, Sudan, and Western Sahara. We have also seen widespread anti-austerity protests in European countries like Greece, Spain, Belgium, Britain, Portugal, Ireland, Slovenia and Lithuania. Even Pakistanis are rioting in Lahore and eight other cities. Now the revolution has come to America. While some of these uprisings may seem sympathetic to combating climate change, they are in fact highly counterproductive.

Extremist anti-business sentiments want to overturn the economic system and throw the “corporate fat cats” out onto the street. However, while reform is desperately needed, we need to be careful not to throw out the proverbial baby with the bath water.

These grassroots movements are being led by young activists and labor organizations. Most of these social protests and strikes are focused on changing the economic system. Contrary to the sentiment on the street, capitalism is our best hope to lead us out of the climate crisis we are facing. In fact, only the business community is capable of instituting the widespread changes that are needed in a timely fashion.
Although there are an increasing number of businesses that are delivering on serious sustainability initiatives, there will need to be much broader participation in the green economy if we are to tackle climate change and stabilize the economy. Governments have a crucial role to play but we should remember that the best government approaches use the instrument of the free market to leverage the strengths of private enterprise.

On Saturday September 17, over 5,000 people descended on the financial district of lower Manhattan with anti-capitalist signs, banners, and slogans. They proceeded to walk towards what they called the “financial Gomorrah” of the nation as they vowed to “occupy Wall Street” and to “bring justice to the bankers.”

Protesters who have been camping out in Manhattan’s Financial District say their movement has grown and become more organized over the last couple of weeks and they have no intention of stopping.

The campaign to “Occupy Wall Street” was inspired by the “People’s Assemblies of Spain,” which were in turn inspired by the “Arab Spring.” It all started when Adbusters magazine asked its network of culture jammers to flood into lower Manhattan for a long term occupation of Wall Street. The idea caught on in social networks and unaffiliated activists seized the idea.

This large and growing revolutionary movement unites people who have radically dissimilar views.  The scope of the frustration that is sweeping across America brings together unlikely allies like the Tea Party and labor unions.

The Occupy Wall Street demonstration started out small, with less than a dozen college students, but has grown to include thousands of people in communities across the country. The young are not the only ones that are frustrated; anger is evident in almost all sectors of society. Rage has been building in the labor movement far from Wall Street. An editorial by the Socialist Worker points to protests in recent months – by longshoremen in Washington, striking hospital workers in California, and the groundbreaking Verizon strikers – as signs of a new “fighting mood” among the rank and file.

The protests on Wall Street and elsewhere strike at the very heart of capitalism. Although they have little understanding of the levers of power, many protestors on the street want to destroy the very system that may be our best chance to auger change.

The increasing inequality in the distribution of wealth is capitalism’s main weakness. The problem is framed as one of insatiable greed and the mood among the large numbers of unemployed is turning to rebellion.

There is a shared feeling on the streets around the world that the global economy is a “Ponzi scheme” run by and for “Big Finance,” who does not want to pay taxes. People everywhere are turning to the belief that there is something fundamentally wrong with the system.

People around the world are joining hands with the New York and Madrid “indignados.” This mood is resonating amongst the world’s poor with many calling for a World Revolution.

In an International Business Times article titled, Roubini on Why ‘Karl Marx Was Right,’  Economist Nouriel Roubini, the New York University professor who, four years ago, accurately predicted the global financial crisis, said one of Karl Marx’s critiques of capitalism is playing itself out in the current global financial crisis.

“Karl Marx had it right,” Roubini said in an interview with wsj.com, “capitalism will destroy itself.” Marx claimed capitalism embodies an internal contradiction that leads to cyclical crises. Companies and individuals are motivated to minimize costs and avoid spending. Roubini said, but this leads to less money in the hands of employees. In turn, they have less money to spend on goods and services that would flow back to companies.

According to Roubini, the markets are not working because you cannot keep shifting from labor to capital without an excess capacity and a lack of aggregate demand. In the absence of strong growth, there is a need for a large fiscal stimulus. The $786 billion stimulus approved by Congress in 2009 was not large enough to create the aggregate demand necessary to advance the U.S. economic recovery.

Without additional fiscal stimuli, or unexpectedly strong growth in the GDP, the only solution to the current problem is universal debt restructuring for banks, households, and governments, Roubini said. However, no such universal restructuring has occurred, he added.

In theory, Roubini said, the United States can “(A) grow itself out of the current problem (but the economy is currently growing too slowly, hence the need for more fiscal stimulus); (B) save itself out of the problem (but if too many companies and citizens save, the flaw Marx identified is magnified); or (C) inflate itself out of the problem (but that has extensive collateral damage, he said).”

Roubini said that if the current trend continues, we run the risk of repeating the second leg of the Great Depression — the “Mistake of 1937.” In 1937, President Franklin D. Roosevelt was pressured by congressional Republicans to cut spending, just like President Obama today. The result was that U.S. unemployment started rising again, and hit 12.5 percent in 1938. Cutting government spending prematurely hurt the U.S. economy in 1937 by reducing demand, and Roubini sees the same thing happening today.

One organization that is part of the occupation of Wall Street is known as the American Dream Movement, it was launched in New York City on June 23, 2011. The inaugural event was billed as an attempt to bring together the progressive movement under a united front. The group’s message centers on the economy and the dangerous rhetoric coming from the American right. The group is led by Van Jones, the former Special Advisor for Green Jobs to the Obama White House.

According to Jones, misinformation is preventing America from rebuilding the economy, and confronting these lies is paramount to moving forward. “We are being lied to” Jones said. “We know that we cannot solve the problems our country is facing while continually and continuously being lied to.”

Jones outlines key elements of his plan to get America back on track in what he calls the Contract for the American Dream. The first proposition was what Jones called a “gambling tax on Wall Street,” which would take 1/10 of one cent for each stock trade. He added that he is seeking a rollback of the Bush tax cuts and the elimination of oil subsidies.

The American Dream Movement believes that the U.S. is not broke and the super-rich must pay their share of taxes. Jones also refutes the idea that hating America’s government and wrecking America’s infrastructure is patriotic. “Real patriotism is defending our infrastructure from all enemies – foreign and domestic,” he said. “We need right now a movement for a patriotism deeper than that.”

Despite Jones’ claim, there is a real danger to American infrastructure from rabid protestors enraged about decrements to their standard of living.

If we are to address climate change and get America working again we will need to make some important changes to the capitalist system. Britain is also struggling, but they may offer some useful suggestions as to how we might solve this crisis. Not long ago, UK austerity policies led to serious social tensions that erupted in riots and widespread destruction of property.

Britain is now suffering under huge levels of personal debt; a trade deficit, low productivity, diminishing oil; poor relations with the EU and the weakest recovery in demand in any economic upturn since the 1830s. In light of these facts, some are saying that the type of capitalism practiced by Britain for the last 30 years has failed.

As reported in the Guardian, Ed Miliband, the leader of the Labour party, is pro-capitalist and pro-business, but he condemns the capitalism we have. He would like to see a new kind of capitalism, one that is informed by a sense of responsibility and a commitment to productive enterprise.

We need to see broad spectrum initiatives to engage sustainability on a truly global scale. Unless countries can manage their deficits AND stimulate the economy, we could face ongoing economic declines that threaten the viability of our economic system.

The fact is, neither businesses nor consumers are making the massive changes needed to lower their emissions significantly. The surest and most effective way to change behavior and promote research and investments in clean technologies is to put a price on carbon emissions. And the faster that is done, the lower the price will be in future years, and the lower the overall cost to the economy.

The best way to build a price for emissions into our economy is through combination of a “carbon tax” on consumers and a “cap-and-trade” system that allows companies that produce less carbon than their caps permit to sell their unused quotas to companies that exceed their caps.

While the purpose of a carbon tax would be to promote the use of carbon-free fuels and increased efficiency in the use of fossil fuels, it would also generate extra revenues. The introduction of a carbon tax should be tied to an offsetting reduction in income taxes, so that those who conserve energy find themselves no worse off than they would have been without a carbon tax. Big polluters could trade their quotas in the marketplace, allowing some flexibility for industries that must make huge cuts in their current emissions.

People are demanding jobs and a stable economy. If the private sector is provided with the right stimulus, the green economy will grow and change our world with it. LSE’s Simon Dietz believes that strong and urgent action on climate change is good economics and the Pembina Institute says that environmental protection is key to promoting a strong economy.

Unless governments regulate, we risk the entire system. Capitalism and free markets are highly adaptable and efficient but unless governments regulate, the free markets will not augur the changes we need to stabilize markets and combat climate change.

Governments can lead the green economy through a combination of private sector stimulus investments and increased regulation. If governments fail to act, we may fall victim to a revolution that will undermine efforts to combat climate change or we will suffer from an economic decline that will erode our capacity to act.

Although more oversight is clearly required, the problem is the lax regulatory environment, not the economic system. While stronger regulations are essential, a socialist revolution is economic and environmental suicide.

——————-

Richard Matthews is a consultant, eco-entrepreneur, green investor and author of numerous articles on sustainable positioning, eco-economics and enviro-politics. He is the owner of THE GREEN MARKET, a leading sustainable business blog and one of the Web’s most comprehensive resources on the business of the environment. Find The Green Market on Facebook and follow The Green Market’s twitter feed.