The Great Debate UK

Why natural capital will transform the 21st century global economy

By Adam Matthews, Secretary-General of Global Legislators Organisation (GLOBE). The opinions expressed are his own.

One of the great advances in the past century in economics is the understanding that there is such a thing as human, social and intellectual capital.  We have come to realise that a well functioning judicial system and an excellent education system are as much a part of the wealth of a nation as its roads, ports and factories. The irony is that economists and economies have not caught up with the most important capital of all — natural capital – upon which we all depend.

In a nutshell, natural capital is the extension of the economic notion of capital to goods and services relating to the natural environment. It is thus the stock of natural ecosystems that yields a flow of valuable ecosystem goods or services into the future.

Taking this one stage further, the concept of natural capital accounting involves valuing natural resources as accurately as possible, and including in national accounts the costs and benefits of conserving versus destroying them.  So what would a country that incorporated the valuation of natural capital and ecosystem services into its framework of national accounting look like?

Principally, it would make explicit and visible the estimated value of nature’s multiple and complex benefits.  By incorporating that value into their procedures of decision making and cost-benefit analysis, the country would provide a more complete evidence base through which to improve outcomes.  Factors previously regarded as externalities (such as pollution, water shed management etc) would become essential elements of increased efficiency in policy design. An example might help here.

A Government may sell a large timber concession to a logging company. It will secure for that land only the measure of value for the logs or fuel wood, plus any alternative land use. The logging company, perhaps being afraid of political instability in the country, may not even cut the logs into timber in the country itself. Instead, it exports them to a neighbouring state where it has a production factory that cuts the logs and produces furniture for export.

It is important to note that no one in this example has done anything wrong or corrupt. The Government has increased their export sales by the value of the logs and has seen a corresponding rise in GDP. The logging company has paid the market price for its logging concession and made a rational business decision about the management of the company’s risk.

The corporate hijacking of Occupy Wall Street campaign

By Kathleen Brooks. The opinions expressed are her own.

As New Yorkers hurried to work on Wall Street on Friday morning they were greeted by police bracing themselves to cope with a wave of protestors apparently threatening to storm the New York Stock Exchange. By lunchtime the storming had failed to occur, 14 protestors had been arrested and hungry workers were free to go out and get a sandwich.

In recent days the Occupy Wall Street campaign is looking more like a damp squib than a counter-capitalism movement. The protests may be born out of a genuine frustration with bank bailouts funded by the tax payer, but no sooner had the first placard been written then corporate big-wigs sensed the opportunity it presented and rushed in to join the fray.

According to reports, a condom maker is in on the act creating a brand of protection specifically for the protest; obviously some think there is the risk that Occupy might turn into a mini Woodstock. Added to this, the directors of the board of ice cream maker Ben & Jerry’s released a statement saying they were supporting the protest.

But this corporate alignment doesn’t seem to have had the desired effect. Instead of drumming up support for the protestors it has made them something of a laughing stock. Papers, blogs and TV reports are running competitions for the best flavour ice-cream Ben & Jerry’s could create to honour the protests (ocu-pie is gaining some traction). But all of this is distracting from promoting the protestors’ aims and message.

The problem is that corporate support is doomed from the start primarily because it is self-serving for the companies involved. Banker-bashing has become incredibly popular in recent years. Saying that you work in finance and earn squillions of dollars is outright unacceptable. It labels you as old school, probably male, out of touch with reality and a fervent believer that climate change is a conspiracy of the left – in other words the opposite of cool. Cool sells, so by aligning yourself with the protestors you can boost your bottom line.

It doesn’t take long for advertisers and other corporate machines to claim counter-culture for themselves. Look at Woodstock and the 1968 protests. Images of these events pervade so much of modern advertising. Free love sells jeans, fizzy drinks and beer these days.  Thousands of films have been made about the summer of love that have earned billions of dollars for Hollywood’s largest studios.

from Global News Journal:

Iran’s Ahmadinejad tells UN capitalism’s dying

Iranian President Mahmoud Ahmadinejad and U.N. Secretary-General Ban Ki-moon

Iranian President Mahmoud Ahmadinejad told a U.N. General Assembly session on poverty this week that capitalism is on the verge of death and that it's time for a new economic system.

"The discriminatory order of capitalism and the hegemonic approaches are facing defeat and are getting close to their end," Ahmadinejad said at a summit meeting assessing progress on achieving U.N. goals to drastically reduce poverty by 2015.

"The undemocratic and unjust governance structures of the decision-making bodies in international economic and political fields are the reasons behind most of the plights today humanity is confronting," he said, according to an English translation of his prepared remarks.

Ahmadinejad usually draws a large crowd for U.N. speeches but Tuesday's address was delivered to a virtually empty hall.

It was unclear whether the unusually low attendance was due to waning interest in Ahmadinejad five years after he first addressed the assembly or if it was the fact that he was one of the first speakers in the morning session, which began at 9 a.m. EDT. (Many delegations are routinely tardy for U.N. meetings.)

from MacroScope:

Step aside capitalism, how about leverageism

Our recent post on the End of Capitalism triggered much interest and comment.  There were plenty of diverse views, as one would expect. But one thread that came out was that what we are now seeing is not true capitalism (nor, of course, is it old-style communism). Ok, but what is it?

Anthony Conforti suggested in a comment that we need a name for what is happening,:

The first step in defining a new economic paradigm is coming up with the proper terms…new words to define a new economic environment. As words, “capitalism”, “communism”, “socialism” may now be inadequate to describe the emerging economic reality. We need new nomenclature. Any thoughts?

Here's one suggestion. There seems to have been precious little capital building going on is the last few years, so even in a free market, capitalism sounds a bit inaccurate. How about "leverageism"? Borrowers of the world, unite. You have nothing  to lose but your shirts.

Time to pick up the challenge. What should we call the dominant economic system?

Slavoj Zizek on resurrecting the Left

Soon after the global financial crisis erupted in 2008, treatise “Das Kapital” saw a resurgence in popularity throughout eastern Germany.

The 1867 critical analysis of capitalism by Karl Marx became a bestseller for academic publisher Karl-Dietz-Verlag, as a rejection of capitalism set in following intense financial turmoil.

More than a year later, questions over the validity of the capitalist economic system remain in focus amid ongoing concerns about the cost to society of bank bailouts, high unemployment and stimulus measures.

If anything, the financial crisis has made capitalism more lean and mean, author and philosopher Slavoj Zizek told Reuters ahead of a talk at the London School of Economics.

“Capitalism as we knew it cannot survive — it’s the time for mobilization.”

Zizek, International Director of the Birkbeck Institute for the Humanities in the University of London, posits in his new book “First as Tragedy, Then as Farce” that “critical leftists have hitherto only succeeded in soiling those in power, whereas the real point is to castrate them . . .”

Zizek suggests that those in power should be undermined via “patient ideologico-critical work” rather than direct confrontation.

from MacroScope:

The end of capitalism

Hard to imagine with financial markets still buoyant and newspapers full of tales of bonus greed, but there is still the possibility that captialism will end.  At least there is according to prestigious investment consultants Watson Wyatt in their latest study called "Extreme Risks".

The firm listed the demise of the system of private ownership as one of 15 threats to investors and the global economy that probably won't happen but which it reckons are worth worrying about anyway. The idea behind the report is that such things as climate change, the break up of the euro zone and war are always worth being included in an investment risk management process.

As for the future of capitalism:

In our view, the most likely scenario is moving along from one end of a spectrum where market is king (minimum regulation) towards the other end, where we could see more onerous regulations and government intervention in, and control of, the economy. The extreme risk, however, is the demise of the capitalist system and the end of the market as the primary means of resource allocation.

And the impact:

The economy would be likely to run a higher risk of failure and economic growth would be sluggish in the long run due to lower productivity.  Centrally controlled economies tend to be characterised by shortages, which are inherently inflationary. Private investment activities would collapse or even be terminated. The end of capitalism is simply the ultimate extreme risk. The economy is likely to be associated with extreme uncertainty and a large amount of wealth destruction during the transition period.

Watson Wyatt does try to give its free market clients some hope, suggesting that buying gold may be one way to hedge against the propect of capitalism's demise. But it admitted that in such a circumstance investors would probably be more concerned about the return of their investments rather that the return on them.

Economist John Kay mulls Berlin Wall anniversary

When the Berlin Wall fell 20 years ago, the momentous event marked the triumph of the market economy over planned economic structures, says British economist John Kay.

He explains his views on why the capitalist system reigns supreme.