I read the new report on a Green New Deal for the UK from the Common Wealth think tank yesterday. I must stress that although this report does acknowledge the role of the Green New Deal Group in creating this idea in 2008 it does not involve any of that Group's members in its work as far as I can see.
I do have a quibble with the report that they have issued. They say this:
At the heart of any radical Green New Deal must therefore be a transformation of our financial system so it can mobilise and direct the resources and investment needed to drive decarbonisation. Rapid and just transition requires the largest peacetime mobilisation of resources in our history. To deliver this, four changes are required: the reorientation of private financial institutions to serve social needs through new macroprudential rules and binding green fiduciary duties for institutional investors; the repurposing of central banking to guide our economies toward rapid transition including the use of new macroprudential tools and credit guidance; the creation of a new architecture of international finance that can fund a global just transition; and finally, an expansion in the scale and ambition of public finance and fiscal policy including increased public investment and mission-oriented public banking. Taken together, this will require the creation and expansion of institutions that can shape investments through new forms of public, democratic control.
I don't disagree with this. I just do not think this goes anywhere near far enough to solve the problems that we face. The simple fact is that the Green New Deal and profit maximisation are incompatible with each other, and this is of massive importance and is an issue that cannot be ducked if the Green New Deal is to work. This is the idea behind my work on what I call sustainable cost accounting (SCA).
The core idea within SCA is that existing accounts treat the supply of finance as the constraint on corporate activity and as such the return to financial capital is considered to be the focus of financial reporting, without any consideration being given to the use of that financial capital and who might benefit from it. Quite explicitly, externalities such as environmental cost are ignored in this framework, which accepts the standard neoclassical line that natural capital is a ‘free gift of nature'. This is inappropriate in a world where we face the reality of climate crisis. The capital constraint that businesses now face does not come from finance - which is readily available to most of them at almost no real cost in the case of larger companies - but from natural capital, whose use we have to limit.
Sustainable cost accounting does, then reject the reporting structure of current accounting, which is no longer fit for purpose, and in the process effectively imposes a new reporting requirement, and so corporate objective, on all companies in place of profit maximisation. This new requirement is the obligation to maintain their business on behalf of all stakeholder groups in society within the constraints that the climate crisis will impose upon them. Unless this is done the Green New Deal cannot deliver the transformation in the way in which we manage the economy that the Common Wealth think tank describe in their report. But when this is understood the ramifications are also much bigger than they appear willing to embrace.
Until we have candour about what it will take to deal with the issues that the climate crisis gives rise to we will not survive it. It seems that we have some way to go as yet.
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An example of SCA would be to charge to the accounts of, among others, the Oil industry the costs associated with global warming as a result of burning oil and oil derived products.
Agreed….
If we look at this through the perspective of conventional economics where energy provision and use is at the commodity end of the product lifecycle, Energy efficient and nil carbon technology is at the disruptive entry level of the investment cycle. It is not profit but risk which worries the authors. With disruptive technologies there are winners and losers, the profit is the same but goes to the smart investors who can drive through risk to generate profit rather than control risk through prudence. New world new attitudes.
I have been very quiet about your SCA proposal as I find the time to read it and understand it. I have recently called you an ‘outlier’ and I must say that SCA proves to me (at least) that you are.
Even if it is obvious what the problems are in current accounting practice, you have at least thought about it and have come up with some very sensible proposals to deal with those problems.
Thanks PSR
Building on your work on SCA, I began to think about the concept of money so often discussed here.
My daughter is gong to be studying A level sociology next academic year (amongst others) and I was thinking that just how your SCA seeks to widen the focus of accounting beyond mere bottom line bean counting (forgive my rather coarse summation), how possibly ALL subjects could/should rope in the concept of money – it’s benefits and dis-benefits to society or the subject area.
It is the unequal distribution of money in the world that seems to be the problem, as well as how it is distributed (debt or real money?) and who should distribute it.
Politics is affected by money; society (sociology), psychology, science. The list could go. All subjects need to talk about money because I feel the more it is talked about, the more ideas like MMT and even tax might get the fair consideration that they need – the more we might stand a real chance of reforming economic thinking and our society.
I have just submitted a proposal for a new book…..
I think you will approve of it