The Great Debate UK

from The Great Debate:

Building a three-legged stool

-  Lawrence Bloom is deputy chairman of Noble Cities and chairman of the World Economic Forum, Global Agenda Council on Urban Management. His views are his own –

The chaos generated by the meltdown of the global economic system provides environmentalists and human rights advocates with utopian opportunities to promote a new economic model, which will not only help sustain life on our planet, but actually increase its quality for many. As world leaders search for creative solutions to restore global equilibrium, the opportunity for recognising the importance of both human and environmental capital has perhaps never been so possible or achievable. Recognising all three types of capital: financial, environmental and human, will help us to build the equivalent of a balanced three-legged stool . Hopefully, this stool will be more stable than the current one-legged model of financial capital. Last week the United Nations Environment Program recommended the business world use the global downturn to press ahead with green technologies that will save firms money and help save the planet. It also recommended using micro-finance loans to help developing countries provide sustainable solutions in such places as Bangladesh where small loans have allowed women entrepreneurs to install solar panels and bring electricity to 100,000 homes. Society has been operating on the belief that if the engines of capitalism are powered to churn constantly, wealth will prevail and all of human society will benefit. But this system has served to create great income disparities by generating incredible wealth and incredible poverty, and has been the main driver in causing catastrophic environmental damage. The unregulated, trickle-down financial policy is necessary to generate positive GDP figures, but traditionally these data do not include the cost of rainforest or biodiversity loss. Thanks to the United Nations Green Economy Initiative, and the work being undertaken by Pavan Sukhdev and his colleagues who are engaged in the Economics of Ecosystems and Biodiversity project, we can now put GDP-like values on these losses. As a result, we are beginning to recognise that the credit crunch in the financial markets is a minnow in comparison to the credit crunch in our environment and biodiversity systems. It appears that we have been “borrowing” $2.5 trillion every year for the last 25 years without any significant compensating payback. Over time, we may acquire the wisdom to realise that what traditional economics considers “externalities”, as if they were irrelevant, are closer to our survival needs than the creation of economic wealth. The 90 pence we pay for a litre of petrol is divided between government tax and profit for the oil company, but who picks up the tab for the damage that is done by burning the fuel in the atmosphere? We privatise profit and we socialise loss. We need to start valuing people first, and then we will collectively begin to operate on the principle that the environment is not just another word for commodity market, but that it supports life. Valuing human capital means acknowledging that each person on this planet is entitled to fresh water, nutritious food, proper shelter, healthcare, education, justice and access to capital. This way we can release the creative potential of all of humanity. Only when we are clear on these values can we create a financial system that serves it. The current financial credit drivers are akin to the booster rockets on a space craft. In the same way as the boosters blast the craft free of the Earth’s atmosphere and gravitational pull, so the current financial system has created wealth, education and freedom for 1.5 billion people. But for many - the remaining 4.5 billion - the cost has been very great and to our ecosystems it has been disastrous. The skill in a space shot is knowing when to blow the explosive bolts, releasing the boosters and continuing the mission with the second stage only. Our skill will be in jettisoning our current economic model and designing a new and more inclusive “second stage”. What we should be talking about now at a strategic level is urgently restructuring our monetary system into a non-debt, or minimal-based debt structure using Sharia-type finance and complementary currencies with government spending money directly into circulation. In whichever way we choose as a society to tackle the global financial crisis, we must create a system that protects and nurtures all of humanity and the environment before it is too late. An inspirational quote attributed to a North American First Nations Chief Seattle states: “We are all connected like the blood that unites one family. Whatever befalls the Earth befalls the sons of the Earth. Man did not create the web of life, but he is part of it, whatever he does to the web, he does to himself.” These words written more than one hundred years ago speak directly to us today. Will we have the intelligence to listen?

from The Great Debate:

From financial crisis to sustainable global economy

- Jonathan Lash is president of the World Resources Institute. The views expressed are his own -

Much of the world's attention is fixed on the brutal effects of the global financial crisis. But sooner or later - sooner we hope - the global economy will rebound. Markets will recover, and stocks will rise. Nature, on the other hand, does not do bailouts. The effects of today's greenhouse gas emissions - like those of yesterday and tomorrow - will be permanent, at least in the timescales that we care about.

They are what will shape the lives and markets of tomorrow.

My view of sustainability is very simple: what can't be sustained won't be. It was impossible for real estate values to continue to rise much faster than economic growth. It had to end sometime . . . and it did. When the bubble burst, the consequences were severe.

The same lesson applies to the ecological sphere. We simply cannot continue changing the chemistry of the atmosphere, through rising greenhouse gas emissions, without inviting enormous consequences. We cannot continue to increase human use of fresh water at twice the rate of population growth. Not only are there are limits on available supplies, but in many places these are reduced by climate change and pollution. Nor can we continue to create coastal dead zones, in areas where hundreds of millions of people depend on fisheries, by releasing ever more nitrogen into the surface waters of the Earth.

Since these behaviours can't be sustained, they won't be. The key question is whether we choose a managed transition to sustainability, or wait until the bubble bursts. That choice will have a profound effect on tomorrow's markets.

So what is the solution, the way forward?

from The Great Debate:

Davos debate: What can be done for the global economy?

With business and consumer confidence fading, the prospects for the global economy appear the worst for a generation. Amid the gathering gloom, are things really that bad? And can nothing be done to give the global growth engine a kick-start?

Reuters asked delegates at this year's World Economic Forum in Davos for their views.

Put your questions to David Cameron

(UPDATED Dec 18 – This post is now closed for questions)

Conservative Party leader David Cameron will be speaking on the economy and the credit crunch at Thomson Reuters’ Canary Wharf office on Monday, followed by a question and answer session.

The Tory leader has argued that two main problems face Britain at present – a recession coupled with a record level of government debt, and that the government is trying to tackle one while ignoring the other.

“Every week this government is in power the mortgaging of the future gets greater. Every week the debt gets larger. Every week the burdens on our children mount up higher,” Cameron has said. He has accused Gordon Brown of “economic crimes” saying the Prime Minister “has brought this country to the brink of bankruptcy and the worst recession in the G7.”

Here is your chance to put your questions to the man credited with making the Conservative Party electable again. We will be putting questions from our Web readers to Cameron at the event.

For full coverage of the event, including a live Web cast from 1000 GMT on Monday, see our David Cameron Newsmaker page.

from UK News:

Was one point enough?

The Bank of England has cut interest rates by a whole point to 2 percent in response to increasing worries over discouraging data and a looming recession.

This week, the all-important services sector (which makes up three quarters of economic output) recorded its weakest headline index since 1996 and seventh straight month of contraction. Together with dismal news on unemployment and inflation, these surveys confirm that recession is spiralling as we reach the close of 2008.

So was the rate cut enough?

The consensus among economists polled by Reuters was indeed for a full point drop, bringing the base rate to the lowest in more than half a century after the big 1-1/2 point cut last month.

But several economists had pushed for a 1-1/2 point cut and some even thought the economic situation is dire enough to warrant zero percent.

Do you think the Bank should have been bolder?

(Please note this is an updated version of an earlier Have Your Say which asked readers how big a rate cut they thought the Bank of England should make. The announcement was made at mid-day GMT)

Few British cheers for euro amid crisis

Paul Taylor is a Reuters columnist. The opinions expressed are his own.

The financial crisis has rallied support for euro adoption in many European countries outside the currency bloc, yet in Britain the discussion is so far confined to a few voices among the policy elite.

The politics of the issue remain as fraught as ever, and Britons appear no more willing to lose monetary sovereignty in a recession than they were in the boom years.

For most of the last decade, as the flexible, finance-driven British economy was roaring ahead of its sluggish continental cousins, the economic and political case for joining the single European currency was hard to make.

A Eurosceptical tabloid press helped scare former Prime Minister Tony Blair out of his initial intention to lead Britain into the euro. The 2003 Iraq war drained the political capital he would have needed to win public support.

But now that Britain faces the deepest recession of any major economy next year, arguments for keeping the pound have become harder to defend.

“The crisis has taken the hubris out of the debate. It’s now possible to mention the euro again in British politics without getting a complete ‘No’,” said Lord Wallace of Saltire, European affairs spokesman of the pro-EU Liberal Democrats.

Is Ecommerce losing its immunity to economy woes?

Eric Auchard is a Reuters columnists. The opinions expressed in this column are his own.

For years, Web retailers have touted their convenience and efficency over conventional retailers, and enjoyed surging double-digit sales growth, especially in the crucial year-end holiday shopping season.    But the steady draining of consumer confidence reflected in recent government data and the latest market research reports suggest the online retail industry is bracing for a humbling first-ever year of flat or even contracting holiday sales.

Ecommerce, for reasons tied to both the global economic crash and Web-specific factors, is poised to fall harder than the much maligned retail store industry, itself struggling with recent high-profile bankruptcies and widespread signs that consumers are looking to sharply curtail their spending.

“Retail spending has not really dropped,” says Gian Fulgoni, chairman of consumer audience measurement firm comScore Inc. “It’s ecommerce growth rates that have fallen off a cliff.”

This week, comScore once again cut its forecast for U.S. holiday shopping, reporting that sales in the first 23 days of November had fallen to $8.2 billion, down 4 percent from a year earlier.

Forecasts for online holiday shopping issued in October or early November took the “glass half full” view of the coming shopping season — predicting low double-digit growth. That would be below prior years, but healthy versus overall retail.

The declining outlook comes after third-quarter U.S. Department of Commerce data showed dismal October growth online. Forecasters who had clung to the notion that online retailers would prove an exception, have changed their tune recently.

Tough year ahead for UK plc – but longer term future sound

Peter Hemington is a Corporate Finance Partner at BDO Stoy Hayward. The views expressed are his own.

Over the past few weeks several business surveys, including our own BDO Business Trends report, have painted a very gloomy picture of the UK economy. Short and medium term business confidence continues to plummet as the credit crunch takes its toll on unemployment figures, the housing market, the ability or desire that banks have to lend and consumer spending.

But despite this, the UK has some short term positives that we should not forget – low interest rates and inflation, plus a relatively flexible labour market. Additionally, although public sector borrowing is clearly running at too high a level, the ratio of national debt to GDP ranks somewhere in the middle amongst high income countries. So perhaps the UK’s credit is better quality than some commentators have suggested. And despite an equally gloomy outlook for the employment market – highlighted by this week’s announcements about two big names from the high street, Woolworths and MFI, going into administration – the unemployment figure is considerably lower than it was at the onset of the last recession.

Low interest rates and inflation, relatively low unemployment, not such a bad fiscal position – perhaps overall we could be in a stronger position than we were in 1991.

As for the longer term, it’s worth remembering that Goldman Sachs suggested not so long ago that the UK’s per capita GDP could catch up with that of the USA within twenty years or so. No doubt a part of this was extrapolation of historic trends. But these trends are based on some strong fundamentals. The UK is a free trading nation strong in sectors, such as financial services, which will grow their share of world GDP in the longer term. Foreigners come to the UK to do business because they trust our legal system and our government institutions. They will continue to do so and this will continue to generate income for the British economy.

2009 will undoubtedly be an uphill struggle for businesses, but the foundations described above should provide longer term solace for UK businesses as they try to predict what the future has in store for them.

Pre-budget report: Who wins and who will pay for it?

Mark Schofield is a  tax partner at PricewaterhouseCoopers LLP. The views expressed are his own.

There were a number of initiatives unveiled to kick start the UK economy which will increase the budget deficit for 2009/2010 to £118 billion. The Chancellor assured the House of Commons that finances would be back in balance by 2013/14 at which point the country “will only be borrowing to fund investment”. By that year the net UK government debt will be over £1 trillion representing 57.4% of GDP, compared with an estimate of £602 billion, 39.4%, for 2008/9.

Who wins with fiscal stimulus and who will pay for it? In short, everyone wins with the temporary reduction in the VAT rate to 15%, the deferral of previously announced tax rises, making permanent the compensation for the abolition of the 10p tax rate and extra help for families with children, and pensioners. There was help for business too with the ability for small and medium sized businesses to spread tax payments where they have difficulty making them. The reform of the taxation of foreign profits including the introduction of an exemption from UK taxation of foreign dividends took a significant step forward. The details of these reforms will be published next week and are eagerly awaited to see whether the overall package addresses the concerns raised previously raised.

There is a cost to all this, primarily from the reduction in the VAT rate. That will be financed by extra efficiencies in public spending, increases in National Insurance Contributions for both employers and employees, the restriction of personal allowances for those earning over £100,000 a year, and a new top rate of tax of 45% for incomes over £150,000 a year, the rises all to take effect from 2011.

Overall, a complex package with a number of initiatives intended to stimulate fiscally but also to bring the books back into balance on a year by year basis at a later date. Given the current uncertainties, time will tell whether it achieves the desired effect.

Doubts over whether pre-budget measures will prevent recession

Roger Bootle is economic adviser to Deloitte. The views expressed are his own.

The Chancellor was right to try to give some help to the economy but, while the scale of the increase in future borrowing is huge, the economic effect of the reduction in VAT will be tiny.

The size of the PBR package, about £9 billion this year, rising to £16bn next year, was roughly equal to what had been mooted in the media. But the scale of the measures, although they sound large, is in fact small.

They amount to only about 1% of GDP next year. The Treasury itself has estimated that this will reduce the extent of the downturn in the economy by just half a percentage point, not enough to prevent a severe recession.

What’s more, there must be doubts over whether they will have even that effect. As expected, the centre-piece was a temporary reduction in VAT from 17.5% to 15%. But while this measure will put money in consumers’ pockets in time for Christmas, it is not clear what impact this will have on spending or overall economic growth.

This is partly because the cut in VAT will not be fully passed on and that bit which is will be partly saved. Although the borrowing numbers reach 8% of GDP, roughly equal to what they reached in the mid 1970s and early 1990s recessions, this is predicated on the assumption that by 2010 the economy is recovering again.

We suspect, by contrast, that it will still be contracting. Accordingly, the borrowing numbers could easily end up much higher.