Green social democracy can rescue capitalism from itself

A growing number of businesses recognise that their self-interest is best served by an economy that is not fatally undermined by climate change.

We are living through not one but two crises of capitalism. The first one – the economic crisis which has followed the financial crash of 2008 – everyone knows about. The second is less familiar. This is the crisis of the global environment.

A crisis of capitalism occurs when the dynamics and forces of the system build up costs and risks to such an extent that they end up undermining themselves, creating a self-perpetuating spiral which can only be escaped through state intervention – by governments effectively saving capitalism from itself. 

This is of course precisely what has happened in the economy since 2008. An unsustainable boom in lending and credit, driven by a huge expansion of the financial sector, led to an asset price bubble and subsequent collapse, followed by a retrenchment in spending, leading to loss of output and rising unemployment. The slump into which these events pushed the economy could only be escaped via massive state intervention – initially in bailing out the banks, and then in huge injections of demand, first fiscal (stimulus) then monetary (quantitative easing), a process which is still not complete in any of the major western economies. 

The environmental crisis is now of the same kind. This is most obviously the case in respect of climate change. It is now clear that the global economy cannot continue to burn fossil fuels as its main source of energy: the carbon embodied in them, if released into the atmosphere, will cause changes to the climate not seen since the last ice age. As the Stern Report showed, even leaving aside the human cost, the economic losses caused by such events would be equivalent in this century to the cost of the two world wars and Great Depression of the last. In its continued investment in fossil fuels, capitalism is undermining itself. 

But the crisis is wider than this. If we look at world food and energy prices over the last six years, in 2008 both spiked, then nosedived as the financial crisis took an axe to demand. But since then, while global economic growth has recovered only slowly, food prices have risen back above their 2008 peak, and oil prices are today above $100 a barrel. Why? Because supply cannot keep pace with demand. The environmental crisis now is not just one of excess pollution, but of inadequate supply of resources – the inability of the global environment under present economic conditions to provide enough energy, food and other commodities to meet demand at stable prices.  In the past, environmental costs were largely imposed on the economic periphery – air pollution in poor urban areas or the destruction of rainforests. No more. Now resource scarcity is affecting prices right at the heart of the global economy.

In this sense, the environmental crisis must now – finally – be regarded not merely as a crisis of ecosystems, or of human values, but as a crisis of capitalism, in the sense that the dynamics of capitalist growth are now undermining themselves.

In the face of this new reality, the left needs to enlarge its understanding of both capitalism and social democracy.

Modern social democracy came into being in the 20th century to manage a capitalism which was unable to manage itself. When the financial crisis of 1929 hit, capitalism fell into a slump and could not get out of it without state support – in the US through Roosevelt’s New Deal, in Europe through rearmament and ultimately war. After 1945, social democrats rescued this failing capitalist system from itself by creating welfare states, secondary and tertiary education and national health systems, through strong trade unions and Keynesian fiscal and monetary policy.

Once again it is only governments which can rescue capitalism from the slump into which it has fallen. But the traditional social democratic programme will now not be enough. Today we also need to manage the environmental impacts of a system rapidly destroying the foundations on which it rests. 

In the past this would not have been easy. Traditionally the left saw environmental protection as a luxury which could only be afforded once wealth had been generated.  Environmental policies which imposed costs on industry risked damaging growth and destroying jobs. Environmentalism was a minority middle class movement, with no economic interests underpinning its politics. 

But that is no longer true. Today the most powerful voices in favour of environmental protection are arguably not the traditional green NGOs but the major corporations in the rapidly growing green economy. The UK’s share of this market is the sixth largest in the world, at nearly 4 per cent. Now worth over £120bn, the UK sector is itself growing at around 4 per cent per annum – one of the few major sectors currently doing so. It already sustains just under a million jobs. 

This change in the economics of environmental protection is of vital importance to social democrats. For it changes the politics. 

When social democracy rescued 20th century capitalism from itself it did so through a powerful coalition of forces. At its base was the working class, organised through trade unions and social democratic and labour parties. But critical too was the support of a significant proportion of the business community, and the middle classes who worked in it.  The business class by no means universally supported social democratic parties and governments in the post-war period, but enough of them split apart from their ideologically backward-looking peers to create decisive support for the Keynesian programme and the creation of the welfare state. Yes, this involved giving a larger share of their profits to the workers and to the state in taxes; but the benefits in terms of the growth of demand for the goods and services they produced more than outweighed the cost.

Exactly the same phenomenon is happening now over environmental policy. The traditional business view can still be heard – such policy is bad for business, growth and jobs. But it is now matched by the voice of businesses who will benefit from it, and who understand that their self-interest is best served by an economy that is not fatally undermined by rising resource prices and the impacts of climate change.

So just as social democrats in the 20th century forged a cross-class, cross-industry coalition in favour of the welfare state, so social democrats today need to forge a comparable alliance in favour of the environmentally-based economy. Green politics is no longer simply about a middle class environmental movement: it is now joined by powerful economic interests. Social democrats have to learn from how they built the welfare state economy in the 20th century in order to do it again for the green economy of the 21st.

Michael Jacobs is visiting professor in the Department of Politics at University College London and author of The Green Economy: Environment, Sustainable Development and the Politics of the Future (Pluto Press)

A longer version of this piece appears in the current edition of Fabian Review

Drax power station in north Yorkshire, the largest coal-fired station in western Europe. Photograph: Getty Images.

Michael Jacobs is visiting professor in the Department of Political Science / School of Public Policy at UCL and at the Grantham Research Institute on Climate Change and the Environment at the London School of Economics. He is co-editor of the Political Quarterly

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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.