Interest-based Finance and Climate Politics

"People of conscience need to break their ties with corporations financing the injustice of climate change,” says Desmond Tutu, demonstrating consciousness of the bottom line that has delayed action on clean energy and the much larger task of providing security to those who will be displaced by climate disasters and the way humanity rapidly, in a panic, responds to them. Tutu is right to call it "the injustice of climate change" too, because climate is an economic justice issue as much as it is an objective question of environmental impacts.

In the immediate wake of the Paris Agreement which, among other things, calls for zero net emissions of anthropogenic CO2 by the second half of the 21st century, those who make huge profits (and received subsidies for) carbon fuels have largely circled their wagons

Asked to discuss the U.N. deal to slash global greenhouse gas emissions -- which could threaten the very existence of the traditional energy industry -- top multinational oil corporations shared few details. Most were vague and some were nonresponsive to questions about how and whether the agreement will affect their long-term business plans.

WorldBankRenewableEnergy.pngOf course, governments will end up bypassing uncooperative corporations (unless those corporations elect to sue under the TPP or other trade agreements), so the pressing question is how to finance responses to climate change when the "market" moves too slowly. This means radically and rapidly changing the world energy trajectory whether private investors want to or not. According to the United Nations Framework Convention on Climate Change, there will need to be a financial flow of between .3% and .5% of global domestic product and up to 1.7% of global investment in 2030 to address climate change. Currently we rely on private sector investment for 86% of this shift. 

But private sector investment occurs in a context controlled by shareholders and investors rather than stakeholders (those affected by climate change and its myriad material consequences), utilizing mechanisms like interest payments to make profits. Shareholders are likely to have different interests than stakeholders, economic interests abstracted from the "externalities" like the environmental and social costs of carbon emissions. 

A government that facilitates--and pretty much relies on--the interest and shareholder economy is going to have a tough time moving away from dominant models of resource extraction and exploitation. It will happen, but in a choppy, conflict-ridden way where working people and communities are likely to get lost in the shuffle. Conservative political leaders will fight to meet the interests of the investor classes straight away, while liberal political leaders will seek to balance the interests of the investors and the rest of us. The results are kind of funny: In his final State of the Union speech this week, President Obama talked of having "reinvented our energy sector." But contradictions were afoot, as the Institute for Public Accuracy pointed out. The President also lauded the automobile industry for having "it's best year ever," and said "gas under two bucks a gallon ain’t bad, either." 

Reliance on capital, placating the capitalists, keeping the big banks in play, keeping the big money moving: Above all, that's what the Wall Street economy must do, even if it runs up against the need not only to fund a post-carbon transition, but to live that transition by creating carbon-free communities. Simply put, interest-based financing of the transition will complicate and possibly delay the transition.  

It wouldn't be the first time financial interest got in the way of progress, although the stakes are pretty high these days. Again, the point is not that investors and shareholders are evil, but that their interests are abstracted from the relationship between the financial tools (the money, which we already know to be a social construct) and the concrete needs to which that credit is intended to meet. This is a secular reading of what 11th Century Islamic philosopher and theologian Al-Ghazzali wrote about the business of finance: 

whoever hoards money is doing injustice to it and is defeating their actual purpose. He is like the one who detains a ruler in a prison . . . the one who has started trading in money itself has made it an objective contrary to the original wisdom behind its creation, because it is injustice to use money for a purpose other than it was created for ... If it is allowed for him to trade in money itself, money will become his ultimate goal and will remain detained with him like hoarded money.

"Justice" in this context means meeting communities' concrete needs. Interest tends to create a necessity of irresponsible growth--an economic phenomena with implications on how we treat the planet.  One group of Serbian researchers pointed out in a 2010 report at the International Scientific Conference on Financial Crises that 

. . . the forced growth of the economy due to interest expenditures shows the paradox of interest. In order to enable the debtors to repay their debts, companies are forced to expand. But, this expansion leads to an increase in demand for money and thus to growth of interest rates.

This creates the need for even greater profit-making behavior, with all accompanying negative externalities. In another paper, written from an Islamic perspective that questions the efficacy of an interest economy, three New Delhi scholars argue that the recovery of lent money is a process removed from "social and human values," and that interest rate fluctuations carry heavy social costs, including "Negative impact on performance of small and individual business", "Barrier to social collective development," and "Social instability"

Above all, an interest-based economy is a debt-based economy, forcing everyone to work more than they'd otherwise need to, increasing the overall amount of extraction and exploitation, and increasing the social costs of economic fluctuations. In the words of WorkableEconomics.com,

a vicious circle where the necessity to pay the existing debt creates this horrible scarcity of money, and the only way to relieve the scarcity is to borrow more money, which aggravates the scarcity, which is only relieved by borrowing more money . . . 

That's no way to finance the roughly half percentage point of global GDP's worth of investment into clean energy, or the billions, possibly trillions, more needed to make our means of production and distribution truly sustainable. Public banks seem like a much better idea. 

I've written about this before, and the conclusion to a post from last July seems equally appropriate to conclude here: 

sustainability could be a byproduct of public banks in general, if they are chartered to provide low- or no-interest loans. One of the chief causes of unsustainable growth is high interest, because in the status quo, profits must increase exponentially above and beyond sustainable levels in order for businesses to pay the interest that is embedded in everything we pay for, as well as the direct interest in business financing. Interest takes 35-40% of our GDP. Moreover, as Ellen Brown points out, citing Margrit Kennedy, "the bottom 80% pay the hidden interest charges that the top 10% collect, making interest a strongly regressive tax that the poor pay to the rich." That surplus cost is one strong motivator for excessive, unsustainable growth. It is a hardwired discouragement of slow-growth schemes, sustainable economic practices, or equilibrium-based economics.

. . . Public banks avoid excessive interest and massive shareholder profit-grabs, and are thus the most sustainable of banking entities.


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