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Despite a historic financial collapse, politicians are adopting a ‘business-as-usual' approach to managing the economy. What is urgently needed instead is a radical, step by step transition to a green economy that delivers healthy and equitable lives, outlines a report by the New Economics Foundation.

20th October 2009 - New Economics Foundation

Link to the full report: The Great Transition: a tale of how it turned out right

A year on from the collapse of major banks, and less than 50 days before the UN Climate Change talks in Copenhagen, the new economics foundation is providing policymakers with the first comprehensive blueprint for an economy based on stability, prosperity, fairness, sustainability and well-being.

nef (the new economics foundation) predicted that the world would soon enter a major economic crisis. Now in a new report published today, Monday 19 October 2009, the think-tank is setting out an innovative programme of social and economic change – The Great Transition – to meet the challenges of climate change, inequality and economic instability, and to create a society that is better for us all.

Revealing the cost of business-as-usual to 2050

Despite the historic economic events of the last 18 months and the increasingly urgent threat posed by climate change and rising inequalities, the focus of politicians and regulators has returned to restoring ‘business-as-usual’. The report demonstrates the high cost of a return to business-as-usual, forecasting that between 2010 and 2050:

The cumulative cost of climate change would range from £1.6 to £2.5 trillion.
The cumulative cost of addressing preventable social problems associated with high levels of inequality is £4.5 trillion.

A better way forward, beyond GDP

The Great Transition provides a blueprint for how the UK can take big, radical steps toward a society and economy that delivers long, happy and equitable lives and fits within the planet’s carrying capacity. It shows that while the UK's conventional GDP may fall by a third, by making better use of what we have, the drop will be more than offset by increases in real social and environmental value. Avoided environmental costs and the proven benefits of a more equal society provide the counterbalance. In the period to 2050:

Rapid decarbonisation that moves toward global fair deal limits will avoid between £0.4 trillion and £1.3 trillion in environmental costs.
Progressive redistribution of income and wealth could generate £7.35 trillion of social value. 

Andrew Simms, nef Policy Director says:

“For years we have been told that “there is no alternative” to an economy that wrecks the environment and worsens inequality. We’ve been told that we live in a time of prosperity, when really we’re no happier than we were thirty years ago. We’ve been told that crashes, bubbles and recessions are all part of the “natural cycle” of economies. But faced with potentially irreversible climate change and corrosive inequality, these are dangerous fairy tales. The Great Transition shows we have a chance of a better reality. Politicians will no longer be able to say that they had no alternative.”

Dr Stephen Spratt, nef Chief Economist says:

“GDP is a very poor measure of progress: the revenues skimmed off the financial system by traders in the City of London as they built a pyramid of ‘toxic’ derivatives added to GDP; cleaning up the effects of pollution increases GDP; paying the costs of high rates of crime increases GDP. This isn’t just an academic point: what we measure ends up driving what we do. The Great Transition demands that we move beyond GDP, and start measuring the things which really produce value, for our communities, our societies and our environment.”

The report sets out seven main interventions, including a ‘great revaluing’ to ensure that prices reflect true social and environmental costs, ‘a great rebalancing’ that sets out a new productive relationship between markets, society and the state, and ‘a great economic irrigation’ that builds an ‘ecology of finance’ so that money and investment flows where it is most needed. 

Specific policy proposals include:

Creating a universal Citizen’s Endowment of between £40,000 and £50,000 to give every adult an equal chance in life and the opportunity to invest in education, a business or local productive assets.  This would be funded by a phased rise in inheritance tax on all estates up to 67% and go a major way to reducing the massive inequalities of inherited wealth in the UK. 

Land and property transferred to state and then redistributed to communities, forming community land trusts,[i] where land is commonly owned and managed on a stewardship basis by communities, underpinning the provision of affordable or social housing.

Redistributing working time by instituting a four day working week for all that would enable the 1/3rd reduction in GDP without major loss of jobs.

A major reorganisation of business, with publicly listed companies progressively transferring shares to their staff, giving them a real stake in and control over the companies where they work.  This would lead to the creation of a series of co-operatives, operating in regulated markets, and subject to competition from new companies. Such a process would fundamentally change power relations within workplaces, creating a form of ‘economic democracy’.

New variable consumption taxes, replacing income tax, reflecting the social and environmental costs of goods. A windfall tax on the profits of fossil fuel companies, for example, could channel funds into clean energy projects.

Direct government created credit for large-scale green energy and transport projects, channelled through a national Green Investment Bank

A new national Housing Bank, offering people the opportunity to transfer a portion of their mortgage debt into equity and paying social rent on the balance.

New regulations on private banks’ reserve requirements directly related to the social and environmental value of investments, creating a ‘race to the top’ and reducing speculation and ‘credit bubbles’

This is a bold vision. But nothing short of a Great Transition will be up to the task of tackling climate change, ending cycles of boom and bust and putting a stop to inequality. We show that not only is such a bold vision necessary, it is possible.

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