The structure of our economy is broken

An efficient economy does not perpetuate the misallocation of capital – it punishes it. The structure of our economy is broken. The governor of the Bank of England calls it the tragedy of the horizon, that point beyond the standard market outlook of 2-3 years where companies fail to anticipate and account for the impact of challenges to their prosperity such as climate change or environmental degradation.

Mark Carney highlighted the carbon bubble at last year’s World Bank-IMF meeting and now the financial policy committee has been tasked with assessing climate risk as part of its regular horizon scanning on financial stability. In response the market is catching up to the danger of organisations that remain wedded to fossil fuel power and inefficient resource use.

We are approaching a tipping point where the market decides to price fossil fuels as a liability and not as an asset. This is the point at which some of Britain’s largest companies may fail. At that moment a Conservative government will throw away its free market fundamentalism and use public money to bail out these companies.

I do not know what a future Labour government would do, but I know what they should do: build an economy in which high carbon investors are no longer key drivers of our growth and prosperity. We must learn the lessons of the 2008 crash – no company should be able to become too big to fail.

Labour must deliver a transition that allows the carbon bubble to deflate rather than burst. That means an Apolloprogramme-scale investment in research and development for renewable energy, and it means new jobs in communities where these companies are the major employers.

This is what Yvette Cooper called for last week with her commitment to zero-carbon growth. Labour’s Climate Change Act and our other reforms, including the Green Investment Bank, have been the foundation for the huge growth of Britain’s green industries. Yvette has shown how Labour can make a clear economic argument that draws on our greatest successes in government and demonstrates that we have learnt the lessons of the financial crises. Her arguments on decentralised energy, carbon capture and storage, and the need for massive investment in research and development are exactly right.

Right, but only the necessary first steps that Labour must take to place the low carbon transition at the centre of its economic strategy. Yvette and any other future leader must show that Labour can combine ethical and environmental sustainability with a strong business-friendly economic model. A Labour government must follow this up with clear targets to stimulate investment, tough regulatory frameworks to require best practice and protect public goods, company reporting standards to level the corporate playing field and the elimination of perverse subsidies.

The Labour leadership contest is fascinating because it is pitched as a battle between heart and head, ethical integrity and economic competence. These are false alternatives. A green growth economic model can reconcile competence and integrity in precisely the way that Labour at its best has always sought to do.

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Barry Gardiner is the member of parliament for Brent North. He tweets @BarryGardiner

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Photo: CIFOR

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Comments: 3...

  1. On August 4, 2015 at 3:42 pm Verity responded with... #

    I suspect that the heart-head dichotomy was rather code for authentic-contrived dichotomy since of course policy requires belief/commitment as well as an implementation plan. Good to see that Yvette has come up with at least one initiative from thousands of the non-committed words spoken. But why stop at an investment bank for the greens only. What about a National Investment Bank to break the strike against investment that has been supinely supported by past Labour and certainly Tory administrations. Was not this projected leader actually a leading member of past governments? Why wait until now to show some belief/commitment. That is why the contrived- authentic dichotomy is so helpful in suggesting a future Leader for Labour.

  2. On August 31, 2015 at 1:48 pm Dave Merrett responded with... #

    Barry says Yvette’s signed up to quite a radical green agenda here, but I have to say that has been far from clear from what I’ve seen and heard her saying. Wishful thinking?

  3. On September 14, 2015 at 1:51 pm MrL0g1c responded with... #

    That means an Apollo programme-scale investment in research and development for renewable energy,

    It does.

    I fully support 100% renewables but I do think many are not realistic about the fact that it will take huge investment in everything required to balance out the intermittency of wind and solar. We need more geothermal – especially for home heating, more tidal, wave power(*?), we need increasing levels of support and strictness for home insulation – more carrot and more stick. We need treaties on cement and steel – these have to be produced more cleanly or alternatives found. We need a million+ electric car chargers, every parking spot should have one and they should supply electricity intelligently partly based on renewables output and they should be able to feed back into the grid when renewables output is low. All new solar systems should have modular battery storage – which can easily be expanded over time.

    What this planet needs is people with vision, what it’s got is greedy corrupt politicians who don’t understand that the worst case scenario is not just flooding and storms, the worst case scenario is mass extinction including us.

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