When Al Gore spoke at London’s Guildhall recently it was not to focus thoughts on climate change – though it was never far from the surface – but to ask how our whole economy can become more sustainable in every sense of the word.
The bottom line was that we’re stuck with capitalism. There isn’t the time, consensus or strategy to change that. The creation and operation of markets is not itself evil and markets can produce wealth, opportunity, innovation and human fulfilment. When supply and demand are in balance and inequalities are under control its basic tenets are viable. The problem is that they are not under control.
First, he said, although an element of inequality (as with inflation) was required to keep the momentum of the system going, inequality is now out of control in almost every country: witness that 93 per cent of all new wealth generated in the US since the 2008 crash had gone to the wealthiest one per cent.
Second, there was a misalignment of incentives within the financial world which had skewed the system to short-term rather than sustainable, long-term gain. Risk-taking had reached absurd proportions with the subprime scandal when 7.5 million mortgages, which would never be redeemed, had been repackaged and sold as though they were assets.
The third problem was that external factors were disregarded when assessing the strength or nature of an economy. GDP takes no account of the damage and cost caused by adding 94 million tons of carbon dioxide to the atmosphere daily, but nor does it acknowledge the public good that comes from investment in science, education and the arts.
The former US vice-president was speaking at the launch of the charity ShareAction, formerly known as Fair Pensions. His message was simple: we own these businesses that make these decisions. Anyone with savings such as an equity ISA or a private, public sector, or company pension is an investor and has a right – a responsibility – to ensure that investments made in our name do not repeat these mistakes and are made with the long term and the public good in mind. Together investors either as individuals or collectively have the power to change company policies. Such an approach must work better than trying to devise and then implement a whole new economic system.
Today just 10 per cent of the world’s investments are ‘responsible’ by the UN definition, meaning long term and socially useful. A tiny fraction is classed as social investment which knowingly accepts a lower rate of return in exchange for positive social change. Yet many ‘ethical’ investment funds (those which don’t invest in bombs, baccy or booze) are not all they are cracked up to be.
Educating, stimulating, empowering shareholders, individually and collectively, is not a panacea; it will not turn our economy from being our master to being the people’s servant overnight. But it will help create an atmosphere in which justice, responsibility and trust can thrive – which is precisely what we need.
Gore highlighted the campaigner’s dilemma succinctly. Asked if we shouldn’t make it illegal to burn carbon to produce energy he thought for a moment and said: ‘And just how successful do you imagine that campaign would be?’
Responsibility is our goal but it is also our tool.
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Tom Levitt is a former Labour MP and author of Partners for Good: Business, Government and the Third Sector. He tweets at @sector4focus
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Only occasionally can concerted public action force a business to act in the “public good”. The business of business is to make a profit and investor pressure usually wants profits maximised as soon as possible. “Live now, for tomorrow we sell” is a reasonable adaptation of the well-known saying.
There is a need for a countervailing force to combat market power. It won’t be the pleading for the public good. It may be detailed micro-regulation of some businesses.
Market power has enabled some businesses to build up cash piles, which they won’t invest, but the effect of this is to squeeze availability of finance for SMEs.
In the first instance, one can inhibit the formation of the cash piles. For example, there was a time, not so long ago, when you got your gas bill and you had a reasonable time (3-4 weeks) to pay it. Now, you might get a very few days from the time the bill arrives (having been dated, probably, ten days previously) – otherwise you lose your prompt payment discount – this is a very high effective APR, which is comparable to wonga-type lending.
If you are rich, you can save money by having a direct debit. If you are not so rich, you can spread the estimated payment over the year and loan the company money for most of the year. If you are really poor, you get a pre-payment meter and the gas costs you more than the rate for the account customer.
Multiply that process several times over with other businesses, and you can see how inequality (and poverty, for that matter) grows amongst the population.
The remedy is detailed regulation to stop the cash squeeze and differential pricing. Any bleating by business about pricing in the risk of serving an individual customer (as worked out by their computer) needs to be strenuously opposed – in the interests of fairness and less inequality – and one need not be squeamish about doing so.
There is law against abuse of market power and the above is an example of just that. Changing present practice is just one of the things that can be done to make capitalism sustainable (as having the growth in inequality restrained), and fairer, while we’re at it.