The next financial crisis

We’ll crash again unless global leaders answer some fundamental economic questions.

Political leaders across the world seem already to be treating the global financial crisis as a one-off event. We were unlucky. Yes, we may have been driving at 100mph through a densely populated neighbourhood. There was an accident, but we'll keep hold of the wheel next time and improve the brakes. How quickly we forget.

It's a long road from the multilateral resolve of the 2009 G20 Summit in London to today's paranoia, small-mindedness and cowardice in the face of domestic politics. European finance ministers meet today with seismic activity along the eurozone fault lines starting to spike, while the IMF faces an uncertain immediate future at just the wrong time.

Domestically, the likes of David Miles and Andrew Haldane of the Bank of England warn us about future uncertainty, with financial crises more a matter of when than if. The Independent Commission on Banking knows how exposed we are as an economy. And yet, the commission recommends fairly small-scale action – bank shares climbed in the aftermath of its report being published. The reprt was more frightened of the City of London's competitiveness than any potential damage to the remainder of the economy.

In the UK context, the coalition has succeeded in selling its particular outlook on the economy as a consensual position. It is anything but. Its immediate policy – austerity despite financial stasis – is profoundly disputed in the economic academy and by the specialist commentariat. Moreover, the government has done little to drive towards a better global financial institutional structure.

Tasty story

Where the last government was ahead of this debate, the coalition prefers to hide behind a consumable story about debt. Meanwhile, it is failing to address the fundamental challenges of restoring strong growth and creating the right rules of the game.

We have an economic and financial system that is inherently uncertain and crisis-prone. We remain in the midst of a crisis that has gone from sub-prime mortgages to global financial crisis, to global recession, to sovereign debt crisis, and could yet become an even more ferocious debt and financial crisis. Greece, Ireland, Portugal and perhaps Spain are trapped, insolvent and capable only of a fiscal masochism that ultimately makes the problem worse as national income suffers as a result. And the whole time, the system remains fundamentally unchanged.

Two basic questions emerge that few of our leaders dare ask with the public in earshot. First, do we accept globalisation or not? Second, if we accept it, how do we ensure that it creates jobs and shared wealth instead of destroying them?

The answer to the first question is not obvious. We do have a choice. Globalisation is not a force of nature. There is a perfectly legitimate argument in favour of trying to play globalisation by your own rules. This has limits even for the world's two largest economies, China and the United States. In fact, in both economic and financial terms they are highly mutually dependent.

Unless legislators are willing to give preference to independence over economic prosperity the question then becomes: how do we do globalisation and make it consistent with democratic legitimacy and national welfare? What the ongoing global financial crisis shows is that we haven't got it right at all.

In a stark warning in this week's Newsweek, Gordon Brown argues that we have not properly addressed the cracks and friction in the global economy. Globalisation offers new markets as well as new competition. Play it right and we all prosper. Get it wrong and the global financial crisis of 2008 threatens to be the first of many.

Calamity lane

What is clear is that the world is crying out for leadership. The alternative is what we have now: mutual suspicion, fear, unenlightened national interest, race-to-the-bottom competition and uncertainty. We can neither afford this reckless evasion of the real challenges posed by globalisation nor pretend that there is a cosy retreat. Both nationalism and inaction pose serious threats to jobs, growth, climate change, social justice and global poverty reduction.

Once, in the historically recent past, leaders chose to create the institutional architecture of shared prosperity in response to the Great Depression and the economic devastation of the Second World War. These institutions were both domestic and international, and based around financial regulation and multilateral support for economic change combined with an opening of trade and exchange. What this meant is that societies could embed the global economy in domestic social institutions. It empowered democratic nations without precipitating economic calamity.

Whether the eurozone pops or not, strong leadership and institutional creativity are now needed once more. In this regard, leadership at the global level – including in the IMF, within the major economic blocs and domestically – is the most vital just as it suddenly seems so lacking. Or we could just repair the car that has just crashed, pretend we simply got unlucky, and go for a joy ride again. Somehow, that doesn't seem to be very sensible. Nonetheless, it is exactly what we seem to be doing.

Anthony Painter is a political writer, critic and researcher. Follow him on Twitter at @anthonypainter.

Anthony Painter is a political writer, commentator and researcher. His new book Left Without A Future? is published by Arcadia Books in November.

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Air pollution: 5 steps to vanquishing an invisible killer

A new report looks at the economics of air pollution. 

110, 150, 520... These chilling statistics are the number of deaths attributable to particulate air pollution for the cities of Southampton, Nottingham and Birmingham in 2010 respectively. Or how about 40,000 - that is the total number of UK deaths per year that are attributable the combined effects of particulate matter (PM2.5) and Nitrogen Oxides (NOx).

This situation sucks, to say the very least. But while there are no dramatic images to stir up action, these deaths are preventable and we know their cause. Road traffic is the worst culprit. Traffic is responsible for 80 per cent of NOx on high pollution roads, with diesel engines contributing the bulk of the problem.

Now a new report by ResPublica has compiled a list of ways that city councils around the UK can help. The report argues that: “The onus is on cities to create plans that can meet the health and economic challenge within a short time-frame, and identify what they need from national government to do so.”

This is a diplomatic way of saying that current government action on the subject does not go far enough – and that cities must help prod them into gear. That includes poking holes in the government’s proposed plans for new “Clean Air Zones”.

Here are just five of the ways the report suggests letting the light in and the pollution out:

1. Clean up the draft Clean Air Zones framework

Last October, the government set out its draft plans for new Clean Air Zones in the UK’s five most polluted cities, Birmingham, Derby, Leeds, Nottingham and Southampton (excluding London - where other plans are afoot). These zones will charge “polluting” vehicles to enter and can be implemented with varying levels of intensity, with three options that include cars and one that does not.

But the report argues that there is still too much potential for polluters to play dirty with the rules. Car-charging zones must be mandatory for all cities that breach the current EU standards, the report argues (not just the suggested five). Otherwise national operators who own fleets of vehicles could simply relocate outdated buses or taxis to places where they don’t have to pay.  

Different vehicles should fall under the same rules, the report added. Otherwise, taking your car rather than the bus could suddenly seem like the cost-saving option.

2. Vouchers to vouch-safe the project’s success

The government is exploring a scrappage scheme for diesel cars, to help get the worst and oldest polluting vehicles off the road. But as the report points out, blanket scrappage could simply put a whole load of new fossil-fuel cars on the road.

Instead, ResPublica suggests using the revenue from the Clean Air Zone charges, plus hiked vehicle registration fees, to create “Pollution Reduction Vouchers”.

Low-income households with older cars, that would be liable to charging, could then use the vouchers to help secure alternative transport, buy a new and compliant car, or retrofit their existing vehicle with new technology.

3. Extend Vehicle Excise Duty

Vehicle Excise Duty is currently only tiered by how much CO2 pollution a car creates for the first year. After that it becomes a flat rate for all cars under £40,000. The report suggests changing this so that the most polluting vehicles for CO2, NOx and PM2.5 continue to pay higher rates throughout their life span.

For ClientEarth CEO James Thornton, changes to vehicle excise duty are key to moving people onto cleaner modes of transport: “We need a network of clean air zones to keep the most polluting diesel vehicles from the most polluted parts of our towns and cities and incentives such as a targeted scrappage scheme and changes to vehicle excise duty to move people onto cleaner modes of transport.”

4. Repurposed car parks

You would think city bosses would want less cars in the centre of town. But while less cars is good news for oxygen-breathers, it is bad news for city budgets reliant on parking charges. But using car parks to tap into new revenue from property development and joint ventures could help cities reverse this thinking.

5. Prioritise public awareness

Charge zones can be understandably unpopular. In 2008, a referendum in Manchester defeated the idea of congestion charging. So a big effort is needed to raise public awareness of the health crisis our roads have caused. Metro mayors should outline pollution plans in their manifestos, the report suggests. And cities can take advantage of their existing assets. For example in London there are plans to use electronics in the Underground to update travellers on the air pollution levels.

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Change is already in the air. Southampton has used money from the Local Sustainable Travel Fund to run a successful messaging campaign. And in 2011 Nottingham City Council became the first city to implement a Workplace Parking levy – a scheme which has raised £35.3m to help extend its tram system, upgrade the station and purchase electric buses.

But many more “air necessities” are needed before we can forget about pollution’s worry and its strife.  

 

India Bourke is an environment writer and editorial assistant at the New Statesman.