We are now a couple of weeks into the aftermath of superstorm Sandy and no one has yet improved upon the analysis of Bloomberg Businessweek’s 1 November cover story: “It’s global warming, stupid.” In 1944, the famous political economist Karl Polanyi explained the root cause of the second world war when he wrote in the The Great Transformation: “The true nature of the international (economic) system under which we were living was not realised until it failed.”
Similarly, mainstream economists and financial theorists still do not get the vital interconnection between the true nature of the (economic) system and a healthy ecosystem. What will it take? One complex, indivisible, systemic crisis. But let us be optimistic. Let us assume we really begin to do all the things we know we need to do, we know how to do and that we have the technology to do – but until now have lacked the will to do. The list includes a carbon tax – think $10 (£6) petrol in America, rising to $20 – as well as feed-in tariffs, energy efficiency incentives, sustainable agriculture and massive public investment in renewable energy research.
Systems scientists know that Sandy and the historic drought that preceded it are symptoms of an economic system design failure; a system designed for a set of circumstances that applied in the past – a huge planet, small economy, abundant resources, unlimited waste sinks – but which are no longer relevant. Awakening to this system design problem will be an existential crisis for capitalism. It will push us beyond doing what we know we need to do. In particular, it will shake the foundations of finance.
Indeed, a community of practitioners and thinkers are already busy at work comprehending and living the next Great Transformation. It is grounded in the ethics of Nobel laureate Albert Schweitzer‘s Reverence for Life, which takes that humanity is a part of, not separate from, nature. There are five critical challenges we must face in the great transformation of the 21st century, above and beyond doing what we know we need to do.
Establish Limits and Track Vital Metrics
Following the model provided by the Intergovernmental Panel on Climate Change, we need similar monumental efforts to establish limits and then track vital metrics in areas including biodiversity loss, the water and nitrogen cycles, chemical pollutants and other critical ecosystem boundaries – what Johan Rockstrom calls a “safe operating space” for humanity.
Such data must be integrated into a coherent picture by a trusted institution which might be called the Global Ecosystem Reserve, as described by Peter Brown in Right Relationship: Building a Whole Earth Economy.
Regenerate Natural Carbon Sinks
We need to mobilise a war-like effort to regenerate the world’s natural carbon sinks – the oceans, grasslands, forests and peat bogs – whose health or continued decay literally hold the future of humanity in the balance. As one example, the holistic management of the world’s vast grasslands – the second-largest carbon sink after the oceans – pioneered by Buckminster Fuller prize winner Allan Savory must be scaled up to regenerate the world’s 5bn hectares of grasslands from gradual, carbon-releasing desertification and the catastrophic human consequences of this which include famine and war.
Learn From Nature
We need to re-imagine products and services, business models, supply chains – indeed entire local and regional economies – and the global economic system, using nature’s holistic design principles that we know lead to resiliency. Biologist Janine Benyus, author of Biomimicry, has developed a set of design lessons from nature that she calls life’s principles. These represent nature’s proven strategies for sustainability that can guide us.
Economy of Sufficiency
We need an economy of sufficiency that does not demand exponential growth of material output from finite resources on a planet that is fixed in scale. This inevitably leads us well past what economists call pricing externalities so that our prices tell the ecologic truth: the priceless cannot be priced. The context within which the human economy must operate includes limits and boundaries, just as the context for the painter includes the boundaries of the canvas. Our emerging recognition of boundaries has already begun to stimulate a creative response like never before in the history of humanity.
Re-examination of the Finance Sector
Finance in particular is in for a period of fundamental re-examination that will reveal its confusion of means and ends. Exponential expansion of financial capital is not only a greed problem, although greed is a problem. On a finite planet under stress, the goal of compounding financial returns on a now-massive stock of financial capital is a design principle that is deeply flawed. Comprehending the implications of this physical truth demands the focus of financial academics, rather than more immersion in financial abstraction.
Capitalism Must Mature
After more than two centuries of childhood and adolescence, capitalism in the developed world must now mature. Such maturity will entail connecting the dots between the need to bend the exponential curves of physical growth – from carbon emissions, to resource use, to population itself – all the way to the exponential abstract growth derived from compound interest itself. When Einstein said that compound interest is the most powerful force in the universe, he was apparently both joking and serious. How prescient. We will see that the entropy law, the second law (not theory) of thermodynamics, must and will assert its proper place as supreme ruler over the false abstraction of compound financial returns on an expanding stock of financial capital in the face of a diminishing stock of natural capital.
A generation ago, we failed to comprehend the system under which we were living until it failed, ushering in the second world war. Let us have the insight and courage to grasp the true nature of our deeply flawed present-day system, and the transformation it demands, before it too fails.
This article was originally published on The Guardian.