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Synthesis/Regeneration 51   (Winter 2010)

Why We Can't Be Green if We're in the Red

by Molly Scott Cato and Chris Hart

Capitalism always was an economic system at odds with the planet - an organism in inescapable conflict with its own life-support system. For this reason alone we should celebrate its collapse. Despite attempts to obscure the definition of capital by allowing the invented concepts of natural or social capital, we all know why Marx thus labeled the economic system we have labored under for two centuries and more: because in capitalism, money talks.

Green economists call for a reassessment of values and of what we choose to value. The distortion of value has run parallel to the disembedding of the economy from the planet. [1] In previous economic systems money operated as a medium of exchange for goods which were extracted from and derived their value from the environment. But the mechanism for capitalist money creation, as debt and via the money multiplier inherent in the banking system, detaches the monetary economy from its planetary base. This creates the gap between real and nominal economic value which produces the destructive boom-and-bust cycles of capitalist economics; and it creates the divorce between the economy and the environment it relies on for all true wealth which is the cause of the planetary crisis. Thus we find that the two crises we face - financial and environmental - are actually two sides of the same coin.

...the national debt operates as a means of transferring wealth from working people who pay taxes to those who live from investment earnings.

So much for the diagnosis; what of the prescription? First and most importantly, we need to ground our understanding that capitalism has collapsed and use it to refuse the vastly expensive attempts to provide life-support through the creation of unimaginable sums of public money. Secondly, we need to exploit the obvious failure of money as structured within a capitalist economy as the basis for an argument for a wholesale reform of what should, itself, be a common wealth, i.e., the right to produce and circulate money within a national economy. Thirdly, we need to use our insight into the importance of use value rather than exchange value to inform a discussion of the need to reconsider the allocation of the most fundamental resource: the land.

Can't pay; won't pay

The UK budget for 2009 included a "fiscal stimulus:" 5bn which was to be invested in the economy, 1.4bn of which was directed towards "green" sectors, although much of this was of questionable environmental worth. Any consideration of this investment needs to be balanced by the horrifying size of the borrowing that was announced in the same budget: 175bn in 2009/10 and a massive 701bn over the next five years. The interest on this will amount to more than 43bn a year, dwarfing the investment and making severe spending cuts inevitable. [2] Britain has now borrowed so much that its national debt has become more risky than that of Spain, [3] which in itself drives up these interest payments, creating a vicious cycle of debt, interest and borrowing.

The social consequences of this level of borrowing are likely to be devastating, not just in terms of the public-spending cuts that will be demanded, but more importantly in terms of social unrest and political turmoil. Dave Prentis, the leader of the UK's largest union, Unison, whose members are mainly employed in the public sector, spoke recently in language reminiscent of the 1970s, a decade of overt class warfare in the UK. He claimed that the government was offering "carats for the rich, the stick for the poor" and attacked "the rich bankers and greedy speculators who got us into the mess." [4] While we would support entirely the logic of this argument, its tone suggests the return of an era of conflict that destroyed many of the achievements of earlier working-class politics. This time such conflict might well lead to a more ominous right-wing backlash.

A debt-based economic policy creates an in-built pressure on the planet and its resources.

There is a deeper reason why increasing the size of the national debt is socially unjust: the national debt operates as a means of transferring wealth from working people who pay taxes to those who live from investment earnings. This was clear to Shelley during the relatively early days of the national debt when he described it as a means "to increase the labours of the poor and those luxuries of the rich which they supply.to augment indefinitely the proportion of those who enjoy the profit of the labour of others as compared with those who exercise this labour." In order to buy government bonds you need to have spare money to invest, but the interest that they return will be paid by those who earn their money through work.

If we only consider the social consequences of this sort of borrowing it is clear that it is simply unpayable. But the environmental consequences are even more serious. A debt-based economic policy creates an in-built pressure on the planet and its resources. When the government creates money through issuing bonds it creates a parallel future demand for goods and services - goods and services which can only be produced using energy and resources. So the system of paying for future consumption by public debt, just like the system of creating money as private debt, is the central cause of exponential economic growth and the environmental destruction it brings with it. Building up an ecological debt that is far more serious than a mere balance sheet: this is why we might choose as our slogan, "Drop the debt, or the planet gets it."

So those of us concerned about the environmental crisis need to demand that our politicians engage in an international negotiation - Bretton Woods Mark II - where the debtor and creditor nations come together for a negotiated round of debt forgiveness, a global jubilee. Without such a deal the decade ahead looks grim as we face internal unrest over the struggle for diminishing output, and trade wars and possibly worse abroad. Rather than reliving the sad history of the 1930s Depression and the Second World War, we could just fast-forward to Bretton Woods and negotiate a stable and balanced financial architecture based on the abandonment of the reserve currency system and a trade system that treats all the world's nations fairly. [5]

Money for people, not for profits

The failure of the money system offers an exciting opportunity to open up the black box of capitalist finance. Far from an extraordinary aberration that could never have been predicted, the recent financial collapse is a recurrent symptom of the capitalist money system. Whether it is the tulip mania in 17th century Holland at the dawn of fractional reserve banking or the Louisiana-based Compagnie d'Occident that bankrupted France in the early 18th century, speculative asset bubbles are an inevitable part of a money system based on debt. Banks are free to create money so long as they can persuade somebody to borrow it. Originally this system was constrained by the fractional reserve mechanism, but this has gradually been eroded until banks' only requirement is that they should act "prudently." This prudence was not policed, with visible consequences.

...we might suggest the immediate introduction of a Land Value Tax.

To argue that the financial collapse results from poor regulation is to miss the point. Of course politicians could have intervened to prevent the spiralling debt, but this would have just precipitated an earlier collapse. Money creation in this way is itself a Ponzi scheme, so Bernard Madoff and his ilk, far from being bad apples in a healthy barrel, were actually playing the game by the rules. Unless somebody could be persuaded to take on the debt that the money system was creating, a collapse would be inevitable. The desperate need to find repositories for this debt explains the increase in exotic investment products, as well as the consumer boom, the massive inflation in house prices and the rise in the number of over-educated and over-indebted young people.

This last phase of capitalism was typified by hyper-financialization, where the most efficient way to earn money was by financial engineering rather than manufacture or services and where 95% of the monetary transactions that took place had no contact at all with the real economy. The credit-debt frenzy was a classic and entirely predictable (and predicted) bubble. Its spectacular collapse gives us clear authority to argue not just for regulation of bank activities in the public interest and the clawback of bankers' salaries, but a wholesale reorganisation of the money system.

The best means of protecting a resource is to reconnect use-rights with shared ownership rights.

The alternative means of creating money is via a central bank that spends money into the economy. [6] The popularity of quantitative easing in the UK undermines the decades of argument that such a means of money creation was impossible, and makes calls for the transfer of money creation from private to public sectors much more credible. Creating money in this way would have the considerable benefit that the money would be available to be spent for public purposes rather than private profit. So it might be invested in public investment projects or given directly to citizens to spend via a Citizens' Income scheme, as was recently introduced in Japan. It would also permit a level of political management of the money system, so that money could be restored to its central function as a means of exchange and cease to be a means for reallocating wealth from poor to rich - and the central driver of economic growth.

Sharing the only real resource

The de-linking of monetary value from real economic value has helped to distract attention from the root cause of economic inequality: the extreme inequity in the distribution of land. In Britain this process began with the Norman invasion of 1066 and the introduction of the feudal system, and it was vastly accelerated in the 18th and 19th centuries by the enclosure acts, which allowed private interest to use the mislabelled "house of commons" to drive commoners and cottagers from the land they had shared. This displacement was one of the factors leading to the settlement of the US, as the recently dispossessed sought freedom from wage slavery in what they thought of as unpopulated territory.

In the cottage economy, those who owned a very small amount of property - and the destitute - had rights of use over land that was owned communally. These rights were extensive and socially administered. Their "cottage industry" was small scale not through a failure of management or technology but because they had no need to work for a profit since their earnings were additional to a basic subsistence that their use of land guaranteed. Neeson explores how this economic security resulted in social harmony and a fixed population - a steady-state economy, in fact - although it relied on a basic material standard of living and hard physical labor. [7]

These may all be features of the post-capitalist world, but such a world is not attainable without a reallocation, occupation or requisitioning of land. At the policy level we might suggest the immediate introduction of a Land Value Tax, which would require those currently in ownership of land to pay for this privilege. The value of land ownership could then be shared between the people of each nation or region - a policy response to Gerard Winstanley's definition of land as "a common treasury." The best means of protecting a resource is to reconnect use-rights with shared ownership rights, backed up by a system of local social control. Being dependent on a resource emerges as a better protection than legalistic property rights.

The collapse of capitalism has been extremely costly to the people of the UK. Bailing out bankrupt banks has bankrupted the economy. The exact size of borrowing is a deeply political question which is being deliberately obfuscated. The most obvious ruse is the invention of post-facto insurance for financial losses. This allows the government to take on massive liabilities but argue that they will come good in the economist's favourite place, the very long run. Of course in the very long run, as Keynes pointed out, we are all dead, and even in the medium term Darling and Brown will have retired to the realm of ermine collars and plush red leather seats - the House of Lords retirement home for obsolete politicians. But our children will still be paying the debt the market refused to bear - and so will the planet.

The dramatic changes brought about by the Land Reform in Scotland offer a positive example.

Which brings us to the real question: what is to be done about this fine mess that capitalist economics has gotten us into? If we begin, as we believe we must, from the understanding that the debt is unpayable, then our only alternative is a significant reallocation of resources. The strategy of borrowing our money to support banks transfers money from poor to rich. A money system that created money as credit could mean money fed into the economy via a Citizens' Income scheme, supporting the incomes of those without work. We also need to consider how we transform land and power relations: allocation was always a more efficient way to achieve justice than redistribution. But in Britain we struggle with an archaic land ownership system which means that the Duke of Westminster owns half of Lancashire and the Duke of Beaufort owns a large swathe of Gloucestershire. How will the transformation of society into one where the rights of other species and future generations are respected be possible until these fundamental inequities are addressed? The dramatic changes brought about by the Land Reform in Scotland offer a positive example of how such change is possible.

We stand on the brink of a new world. The stale, false dichotomy between communism and capitalism is behind us - both have comprehensively failed. The principles underpinning the economy we are starting to build together will be equity and sustainability. The most constructive message may well be one that we learned in our nurseries but which seems to desert us when we enter the adult world: "You have to learn to share."

Molly Scott Cato is a Reader in Green Economics at Cardiff School of Management and lives in the innovative sustainable community of Stroud.

Chris Hart has a Masters in Human Ecology from the Centre for Human Ecology and is Chair of Lancaster Green Party.


1. Mellor, M. (1997), Feminism and Ecology (New York: University Press).

2. Kirkup, J. (2009), Britain's national debt to reach 1.4 trillion under 2009 Budget, Telegraph Online, 22 Apr.

3. Moya, E. and Treanor, J. (2009), Britain's credit rating continues to suffer as quantitative easing gets more difficult, Guardian, 24 April.

4. Prentis, D. (2009), see: http://www.unison.org.uk/asppresspack/pressrelease_view.asp?id=1403

5. Cato, M. S. (2009), A New Financial Architecture Based on a Global Carbon Standard, Ecopolitics, Spring/Summer.

6. Robertson, J. and Huber, J. (2000), Creating New Money: A Monetary Reform for the Information Age (London: New Economics Foundation).

7. Neeson, J. M. (1989), Commoners: Common Right, Enclosure and Social Change in England, 1700-1820 (Cambridge: University Press).

[16 dec 09]

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