therefore cannot be made compatible with environmental sustainability. Historic -
ally, this impulse was limited as the supply of money was fixed to gold (i.e. the
gold standard). The supply of credit would rise and fall in line with government’s
gold stocks. The last constraint was broken in 1971 when the link between the
dollar and gold was broken and there ceased to be an external constraint on
the money supply. Countries moved to a ‘fiat system’, with money created by
commercial banks in the form of credit.
19 Combined with the expansionary
impulse of interest-bearing debt, the removal of limits on credit creation is a primary
driver of (unsustainable) growth.
What about ‘dark-green and red’ transformations? If the global economy cannot
grow, then the unequal distribution of wealth within it either becomes fixed or
needs to be changed through radical redistributive mechanisms. The same is true
for inequality within countries, for which various mechanisms have been proposed.
Proposals on wealth include but go beyond the standard wealth tax arguments.
Many of these are grassroots, or community-led in nature.
20 ‘Dark-green and red’
transformations thus have similar financial implications to their dark-green cousins,
though with additional features.
Generally speaking, the more change required, the harder it will be to achieve.
If this is the case, then transformations that are compatible with the financial system
we currently have will be more attainable than those which are not. This suggests
that a ‘light-green’ transformation will be easier to achieve than one that is ‘lightgreen and red’, and that both will be easier than either of the dark-green varieties.
This is not so say that these are impossible, just more difficult. In order to change
a system, however, it is first necessary to understand the forces that created it. The
next section reviews the literature on this subject, with a focus on political
economy.
How did we end up here?
In developed countries at least, the financial systems we have do not appear to be
‘fit for purpose’ with respect to green transformations, particularly of the more
radical variety. More generally, finance does not appear to flow to those parts of
economies that would yield the greatest benefits. The shortfall in finance for
infrastructure in developing countries, for example, has been estimated at more
than US$1 trillion per year (Bhattacharya et al., 2012), with Africa alone requiring
US$93 billion (Foster and Briceño-Garmendia, 2010). A third of small and medium
enterprises (SMEs) in developing countries cite lack of access to finance as a major
constraint on growth (Beck, 2007). This is not simply the result of immature financial
systems. Many SMEs in developed countries are also unable to access sufficient,
affordable finance,
21 and infrastructure funding gaps remain large.
If the financial system does not serve the interests of society as well as it might,
whose interests does it serve? On this question, the most plausible answer is the
interests of financiers themselves. As described above, lending to the ‘real economy’
162 Stephen Spratt
ally, this impulse was limited as the supply of money was fixed to gold (i.e. the
gold standard). The supply of credit would rise and fall in line with government’s
gold stocks. The last constraint was broken in 1971 when the link between the
dollar and gold was broken and there ceased to be an external constraint on
the money supply. Countries moved to a ‘fiat system’, with money created by
commercial banks in the form of credit.
19 Combined with the expansionary
impulse of interest-bearing debt, the removal of limits on credit creation is a primary
driver of (unsustainable) growth.
What about ‘dark-green and red’ transformations? If the global economy cannot
grow, then the unequal distribution of wealth within it either becomes fixed or
needs to be changed through radical redistributive mechanisms. The same is true
for inequality within countries, for which various mechanisms have been proposed.
Proposals on wealth include but go beyond the standard wealth tax arguments.
Many of these are grassroots, or community-led in nature.
20 ‘Dark-green and red’
transformations thus have similar financial implications to their dark-green cousins,
though with additional features.
Generally speaking, the more change required, the harder it will be to achieve.
If this is the case, then transformations that are compatible with the financial system
we currently have will be more attainable than those which are not. This suggests
that a ‘light-green’ transformation will be easier to achieve than one that is ‘lightgreen and red’, and that both will be easier than either of the dark-green varieties.
This is not so say that these are impossible, just more difficult. In order to change
a system, however, it is first necessary to understand the forces that created it. The
next section reviews the literature on this subject, with a focus on political
economy.
How did we end up here?
In developed countries at least, the financial systems we have do not appear to be
‘fit for purpose’ with respect to green transformations, particularly of the more
radical variety. More generally, finance does not appear to flow to those parts of
economies that would yield the greatest benefits. The shortfall in finance for
infrastructure in developing countries, for example, has been estimated at more
than US$1 trillion per year (Bhattacharya et al., 2012), with Africa alone requiring
US$93 billion (Foster and Briceño-Garmendia, 2010). A third of small and medium
enterprises (SMEs) in developing countries cite lack of access to finance as a major
constraint on growth (Beck, 2007). This is not simply the result of immature financial
systems. Many SMEs in developed countries are also unable to access sufficient,
affordable finance,
21 and infrastructure funding gaps remain large.
If the financial system does not serve the interests of society as well as it might,
whose interests does it serve? On this question, the most plausible answer is the
interests of financiers themselves. As described above, lending to the ‘real economy’
162 Stephen Spratt