If we don’t understand the problem, then we won’t choose the right solution. The so-called “financial crisis” is not, repeat not, a problem of credit or sub-prime mortgages or complex financial products. They are all just symptoms of the problem.
Climate change likewise is not a problem but a symptom.
We have a system-design problem so we need to redesign the system. The good news is we can do this, but we’re going to have to do it really, really fast, so starting soon would be good.
We have designed a system so complex and interconnected that is it full of extraordinary risks that no one can even understand, let alone manage it. We sit here comfortable in our delusional acceptance that this is a credit problem or a CDO problem, or a governance problem. So we think when we resupply credit or regulate the New York cowboys better (if there are any left) then all will be well and we’ll get back to growing the economy.
I have one response for people who believe this. Tell ’em they’re dreaming.
Where we are now, as I forecast in my “Great Disruption” letter in July 2008, is a new state that is not a year or two long. We’re going to be here for while now while we work out how to do things very differently and also deal with the cascading consequences of our last 100 years of behaviour.
The global economy is a system, a complex interconnected, real time set of processes and relationships that thrives when it’s growing. The problem is this: we are now operating that system right up against, I would argue beyond, the limits of its capacity to function. These limits are set by two broad challenges: Ecological Limits and System Complexity. When you hit the limits of any system, the system either stops growing, increases in complexity or breaks down to a simpler form.
First lets look at the System Complexity problem. The oil market is a simple system. It is one commodity with reasonably predictable demand and supply parameters, relative to say the global financial markets overall. Yet our smartest people can’t even forecast the oil price and get it wrong by a factor of 3 to 4 on a regular basis. So the idea that we can manage the global economy and financial markets to an acceptable level of risk is, well as I said, “they’re dreamin’.” The solution is to make this a self-managing system, which requires us to redesign it. More local, more resilient and more human.
The second system limit is completely beyond our control because the limits are set in science — Ecological Limits. Think about the maths. We currently have a series of ecological strains and stresses that threaten the system’s capacity to support humanity. (This is not opinion, this is science). Lets call that “Very Big Problem” (VBP). VBP is our current economic system with its ecological impacts racing out of control.
Our plan is to take VBP and increase population by 50% making it VBP x 1.5 and then we plan to increase per capita income by around 300% by 2050. So our “plan” is to have VBP x 1.5 x 3. In case your maths isn’t so good, that = Complete Catastrophe, also sometimes referred to as civilisation’s collapse.
The good news is that it is not going to happen! Why not? Well first of all, physics and biology define physical limits and their behaviour won’t change, even with the cleverness of New York Cowboys. So we’ll have no choice but to change. Secondly we are very, very clever when we put our minds to it. So we can change very fast and that’s a good thing.
How do we need to change and how fast? Lets go back to our maths problem — the one we need to change the outcome of. Very Big Problem x 1.5 x 3 = Collapse. To avoid collapse, only three things can change:
1. “Very Big Problem”,
2. “Population Growth”
3. Per capita income growth.
Population is a tough one, in the time frame available. Short of mass sterilisation or global catastrophe, the population is going to increase by roughly that amount by 2050. I don’t propose either of those two solutions.
Per capita income not increasing is definitely an option. However, that’s the one we’re trying now and it doesn’t seem be a very popular solution. So we may do that, but it wouldn’t be very smart of us to plan to do that. That only leaves us one option we can deliberately pursue. That is we address Very Big Problem — the ecological impact of the current economic model. Here I will end with a statement of the opportunity. Never in history has there been an economic opportunity to compare to this one. In Australia or the USA for example, we need to effectively eliminate (>90%) the net CO2 emissions of the economy, and do so within 20-30 years. (This is the maths of a global reduction of even 50% because our starting point is so high.)
We need to act on this and we need to act now, because if we don’t our economy will suffer. As President Obama recently argued “The choice we face is not between saving our environment and saving our economy — the choice we face is between prosperity and decline.”
So to achieve this transformation, we’re going to redesign everything and don’t think coal to gas or Fords to Priuses. Think elimination of CO2 and the end of the growth in material consumption. It doesn’t get any bigger, or better, than this.
If you think it isn’t going to happen, then think about the alternative. VBP x 4.5 = bye bye. That is not a good plan.
This is an edited version of an oped I first published at http://www.crikey.com