In 2007 I contributed to a piece for the Presidency on Oil-Climate-Finance. Simon Ratcliffe, Jeremy Wakeford and Jack Holiday made the major content inputs. We analysed the impact of Oil, Climate and Finance on SA’s political economy. We projected two scenarios post 2017. Business as Usual (BAU) and massive state intervention (akin to a war footing) to regulate markets. BAU means trundling along like we have since 1994. A recipe for instability, economic contraction and social breakdown. The appropriate government intervention could save us a lot of grief, death and destruction and protect life. We are now in 2017. Late last year Simon, Jeremy and I sat down and reflected on our views 10 years after. Below is an executive summary of the discussion, followed by a podcast recording and finally a verbatim transcription of the recording.
Executive summary – Oil-Climate-Finance
This discussion is a reflection by three authors of a paper we wrote in 2007. The title was: Fragmentation or Renaissance – the Interconnections between Oil Depletion, Climate Change and Global Financial Imbalances.
The paper identified three critical global challenges.
- The Peaking of World Oil Production
- Climate Change
- Global Financial Imbalances
The paper projected these structural global factors to impact on South Africa. It looked at South Africa’s strengths and vulnerabilities in the following fields.
- Energy Security
- Food Security
- Settlement Patterns and Geography
- Social and Political Stability.
It argued that these reflected Climate Change, Oil Depletion and Financial Imbalances. On this basis it developed the two scenarios, emerging from 2017. The scenarios were set in South Africa. One scenario was the BAU approach. This would reflect continuing privatisation and deregulation allegedly for development and jobs.
The second scenario was the Renaissance Scenario. This picked up on the fields referred to above. It described specific strategies and practices. In essence the Renaissance Scenario is about state intervention to regulate markets and protect life
The paper concluded with a risk management of the Renaissance Scenario. This identified specific risks that undermine the state playing its clarified functions. To mitigate these risks the paper emphasised government leadership functions at the following levels.
- National Presidency
- Provincial Premierships
- Local Executive Mayoral levels
It said that there should be a concerted public sector intervention (the war footing). This should ensure effective regulation of markets and thereby movement towards greater sustainability and stability. The alternative was the ongoing fragmentation of South African society.
The regime of significant state intervention is controversial. It goes against the post-Soviet neo-liberal consensus. It also carries the risk of statist oppression. Still, if the triple crisis materialises state intervention is likely. In the context of a breakdown of dominant social relations this could be repressive. So it is responsible to debate these issues to develop a more humane development path. Under the BAU scenario there would be ongoing fragmentation of South African society. Under the Renaissance Scenario there would be movement towards greater sustainability and stability.
We structured the review discussion as follows.
- Background to the concepts of Peak Oil, Climate Change and Global Financial Imbalances
- The Low Level of Awareness of these Crises in the Mainstream Public Domain
- The Accuracy of the Predictions in the 2007 paper
- The Global and Individual Responses to the three crises (i.e. where countries appear to be heading)
The discussion focused on Climate Science, Peak Oil and Political Economy approaches. We made the the point that we should not get stuck on accuracy of our predictions over the past 10 years.
More important is the critique of the scientific validity and coherence of our explanatory framework. In this regard we remain convinced of the validity of climate science.
We also clarified the theory of Peak Oil. It is not that the supply of oil reserves dries up. It means that the production and supply of conventional oil peaks. The rate of production of conventional oil slows down. It becomes more expensive to supply. We are also of the view that financial imbalances have not unwound. Economies are vulnerable to financial bubbles in the following asset classes.
- Government bonds
- Stock market prices
- Finance generally
We also discuss the paper’s predicative accuracy. We identify some events that were not predicted.
- The surge in shale oil production in the US
- Saudi Arabia not cutting back production when the price dropped (as in 2014)
We predicted the following events.
- The Great Recession (2007/2008)
- The boom-bust cycle in oil prices
- A severe economic imact of oil price rises. (In 2007 oil prices spiked at $149 per barrel. This made prices unaffordable for many homeowners in the US sub-prime market. When the housing bubble broke it had a global impact)
- Both financial and resource limits to growth (as suggested by persistent sluggish global economic growth)
We concluded our review with a reflection about the future. There is growing political and geopolitical instability. Resource conflict prompts this. Right-wing populist politics is a part-manifestation of this. There is aslo a growing realisation among many that we need fundamental economic change due to resource constraints. These broad forces are clashing politically and economically. We will continue to debate and refine our understanding. We contribute that to the debate to create a more humane development path.
The Podcast – Oil-Climate-Finance
Transcription of the Podcast
Hi, this is Paul Hendler from INSITE, INSITE Settlements Network. And this is a second podcast discussion that we’re having, in addition to the first one which is on our website, dealing with the public and private financing of housing, through five housing finance systems. The particular discussion that we are hosting today is to revisit a paper that I wrote with a number of other colleagues, namely Jack Holiday, Simon Ratcliffe and Jeremy Wakeford in 2007. And the title of the paper was scenarios 2019: Fragmentation or Renaissance – the Interconnections between Oil Depletion, Climate Change and Global Financial Imbalances. And we looked specifically at a scenario exercise for the South African Presidency. So it was a South African-focused paper but in a global context, looking at those three issues. And we as a team projected two scenarios. One was Fragmentation, in other words attempting Business As Usual, and what that would mean, and the second scenario we called Renaissance, putting the nation on a sustainability war footing. And, we projected these scenarios to arise in 2017, so about ten years after we were doing the exercise. And we, we projected them to emerge out of the combined effect of Oil Depletion, Climate Change and Global Financial Imbalances.
And just for some of our listeners who are new to some of these concepts. Oil Depletion, as we used it, refers to the peaking in the production and supply of oil. Climate Change referred to the onset of extreme and slow weather events, caused by anthropogenic global warming, and the likely impact of this on society and ecology. And then finally Financial Imbalances referred to the extreme trade and financial polarisation of debtor countries, like the US, the UK and European countries, and creditor countries like China and Japan. And the risk of market corrections as an outcome of these imbalances. And to summarise the paper argued that the combined effect of these factors would result in economic stagnation, and inflationary spikes, extreme environmental breakdown and greater incidence of social instability and even a breakdown of law and order in some instances. And to mitigate these risks the paper recommended putting the society on a war footing to help sustain economic, ecological and social processes.
So the discussion today is going to be with Jeremy Wakeford and Simon Ratcliffe. And we will transcribe the discussion as we did in the case of our earlier one, and provide hyperlinks to interesting documents. And I’ve asked our two guests to recommend those after the discussion, so that we can make those available to you our followers. I am Paul Hendler from INSITE Settlements Network or just INSITE, and we do quite a lot of work and have been active since 2003 mainly in the strategy area of the planning and implementation of sustainable human settlements. Mainly have done work in the public sector and a limited amount of private sector work. And I’d like to ask Simon and Jeremy just to briefly introduce themselves and tell us where they are working now.
So Simon and Jeremy welcome and thank you very much for your time and for sharing your experience and insights in these areas. Can I, can we start with you Simon. If you just introduce yourself and tell us a bit about your background. Where you are at now.
Thank you Paul. It’s a pleasure to be doing this podcast with you. Right now I’m based in the UK. I live in Oxford and work in London for one of the world’s largest development agencies. I work in the field of energy and I also work on cities and given that they play a very central role in mitigating climate change, if we don’t get our cities right it’s very unlikely that that we’ll address and mitigate the coming climate issues that we’re all faced with.
Thank you, Simon. Jeremy, can you just tell the followers about yourself please.
Yes, hello Paul and thanks for the opportunity to chat with you and with Simon. It’s really good to join you again. So I’m a macro-economist at present in the Quantum global research lab, which is a think tank based in Switzerland. And we have a focus mainly on African countries, developing economic models and providing advice for investments and policies to help Africa’s development. And previously I’ve had affiliations with Stellenbosch University and the University of Cape Town, where I’ve been a lecturer. So I look forward to these discussions.
Thanks Jeremy and Simon and it’s interesting going back to a review of this paper and to hear your sort of perceptions looking back and at the time we were all meeting regularly with some other colleagues in the Association for the Study of Peak Oil or ASPO, which you initiated Simon and when you were no longer here in the country Jeremy you took over and kept us going and kept us together and we with Jack, who’s, Jack Holiday, who’s been an engineer in I think in the oil industry. We then came together to address the issues that we did in this paper in response to a call for papers from the South African Presidency.
As just a brief introduction before we get to the first themes and the first questions that I’d like you to address, you will remember that the original paper was built on three assumptions. Firstly that there was anthropogenic global warming, resulting in significant and negative climate effects, well before but at least by 2017 and afterwards. Secondly, that the peaking of oil production would likely result in oil price spikes and troughs, resulting in transport and economic dislocation. Remember, we were also involved in a project looking at the National Transport Management Plan from that perspective. And thirdly that the unwinding of the global financial imbalances would leave a trail of economic depression or recession in its wake, that South Africa would not be immune from. Now one of the things that strikes me looking back at our paper is that I read very little about these issues not only in the mainstream South African media but also in the SA social media. So I think it would be quite useful just to give our listeners and followers some background information. For instance, if you could explain the meaning of the concepts anthropogenic climate change, peak oil, financial imbalances, we can divide this up Jeremy maybe you want to pick up on the financial imbalances side. Simon maybe you want to deal with the anthropogenic climate change and maybe you both want to mention something about peak oil because I think you’re both specialists in it. So I think it would be useful just to give our listeners and followers some of the conceptual background, and at the same time I’d like you to reflect on why it appears that the level of awareness of these issues is so low here in South Africa, or do you think that there’s a heightened level of awareness and that I might have just missed it. So, maybe we could start off with the financial imbalances, Jeremy, and then move on to the other two. And then we can answer, you can answer; deal with both the final question of the level of awareness in South Africa afterwards.
Sure, thanks Paul. I’ll try and keep this short and not technical. I think as you alluded to earlier what we were really referring to at that stage was imbalances in the global trading system when you had a number of countries led by the United States, also United Kingdom, most of Europe, which essentially imported more goods than they exported. And on the other side of the equation you had a few large countries that were net exporters. They exported more than they imported and these included China and Japan, which for a long time had followed export-led growth paths, and then also the oil-exporting countries, the OPEC oil cartel, Mexico, a few others. And the way the economy, the global economy was functioning around that time was that you had massive sort of over consumption if you like in the US and most of Europe, and this was essentially being financed by flows of financial capital from the net exporting countries. So China and the Middle East and other oil producers were essentially financing American and European consumers to buy their goods, where it was oil or manufactured goods. And this system was inherently unstable. We had in the US what were called twin deficits. The one deficit was on the balance of payments, so importing more than they’re exporting. The other one was on the government budget, where they were getting into more and more debt because they were spending more than they were receiving in tax revenue. And these presented a serious financial risk to the global economy. And we warned about unwinding of these imbalances that could be disorderly and disrupt financial markets.
If I just start out on the Peak Oil issue maybe, this builds on the fact that oil is a finite resource, and that the production of any finite resource at some time must reach a maximum level, and thereafter start declining. So to picture it visually you think of a kind of bell-shaped curve, where production starts low, starts rising, gets to a maximum point and then falls down a slope on the other side. Which could be gradual, could be steep in some points. And there was a lot of debate in the run up, in the years preceding 2007, about when this global peak in world oil production might occur. There were a lot of people that were trying to deny that this peak would ever occur. But really that was just spurious and but certainly there was a lot of legitimate debate about when this might occur, because of inadequate access to data about oil reserves in some parts of the world and other issues. But essentially that’s what [inaudible] means. It doesn’t mean the end of oil, oil doesn’t run out overnight. It just means that whereas demand for oil and the supply of oil would have been growing over the long-term for decades, there would come a point where the increased demand would no longer be satisfied by the increasing oil supplies. And the implication from an economic point of view would be higher prices, in other words to ration the diminishing supplies of oil amongst consumers. And this was projected to have serious economic impacts given the global economy and transport systems really quite extreme dependence on oil as its main source of energy. (Subsequent to the discussion Simon referred us to a 2013 Journal article about US economic vulnerability to peak oil).
Let me hand over to Simon now for, to pick up and carry on with the climate part as well.
And if you want to throw your happenie’s bit in on Peak Oil Simon, please please do.
Ja, OK. Well let me start off with anthropogenic climate change. Basically this is looking at the effect of, on climate of human activity. And the point in time that we are primarily concerned with is what has happened since the beginning of industrialisation. Because that was when you started getting the large scale deployment of machinery requiring energy, and primarily driven, well initially by coal and a bit later in in the 19th century by, and 20th centuries, by oil, essentially fossil fuels, which emit carbon dioxide and which we know acts as a green house gas which traps heat into the earth’s atmosphere warming up the planet and having an effect on weather systems. So that’s what we mean by anthropogenic climate change.
What we’ve noticed over this period, the last 200 years, is that the amount of carbon dioxide in the atmosphere has increased exponentially and you know many people around the world have become increasingly concerned about it because temperatures, well it’s believed temperatures over two degrees what they were before industrialisation began would have a seriously detrimental effect om global civilisation basically. The effects of climate change are extreme weather events, it could be floods it could be drought, and you would find that in different parts of the world. But also because of the heating of the oceans and melting of the Greenland and Arctic ice shelves, the rising of sea levels and the risk that this faces is that coastal towns, coastal cities, coastal agriculture, well areas of agricultural production could be flooded and the effects of that would be devastating. A lot of people written about it a lot of people are involved in trying to find ways of mitigating it and as I’m sure most people are aware there’s a global process at play. It meets a [inaudible] an international agreement now where all countries are going to take measures to reduce their CO2 emissions.
I’ll leave it at that for now.
Anything you want to add on to the Peak Oil? Or can we start looking a bit at the awareness in South Africa?
Sure, sure we can.
OK, I mean I just want to share with you guys my reason for raising this because I think as you know between 2012 and 2015 I was involved with quite a large team on contract for the National Treasury, in what was called the Cities Support Programme. And they were really looking at grants as incentives to get cities not to do business as usual, and one of the goals of this was to create sustainable cities. So it comes back to your point about this importance Simon that you mentioned of having an urban or a city focus to address these big challenges that we’re facing. And in the course of this process, we I met someone in the Durban eThekwini metropolitan municipality who’s very involved as a climate activist, advocacy person but also headed up the environmental department there. And I heard quite a lot about the weather impacts that were already happening on the Durban sort of area and coast. And the resistance within the council and municipal administration to any serious addressing of you known some of the root climate causes and taking some serious adaptation measures. And when it was brought up in our team meetings I had quite a number of colleagues who criticised me for trying to put what they called “the green agenda” on the table. And for being too sort of focused on the particular input that I had got from this source. And it wasn’t really playing the ball it was playing the man again which often happens from critics, and my sense therefore from my own professional working relationships as well as I said earlier, reading the media, various sort of, a whole range of different media in South Africa, is how far behind we seem to be in government policy but also in public imagination, on an awareness of the climate issue never mind these other two issues. I mean you’re both South Africans and I think you also know what I am talking about and I am just wondering from a distance if you’ve looked back at the country and reflected on that, on that consciousness you know, which is quite a, I think, quite an impediment to developing a social movement maybe that can start organising around and addressing demands on some of these issues. So I’d be very curious to hear your thoughts on that. (See the Let’s Respond Toolkit, for predictions of the impact of temperature change on South Africa).
Shall I jump in Paul?
Please do, ja.
So er I think that South Africa is definitely not unique in this sense. I mean, fundamentally I agree with you, the level of awareness and discussion of these issues is, has been quite low. Although I think it has fluctuated over time as well. So ja the first point is that this is true across much of the world, so it’s not a unique South African phenomena. And you know, a few reasons for this come to mind. One is that people’s attention tends to get captured by the latest news and what’s happening in the country and obviously in South Africa over the last couple of years, issues around politics and corruption and so forth have really dominated the public discourse. And then underlying this response particularly to the Peak Oil issue and the climate issue is a kind of group psychological denial of these really big threatening global trends. And something… I think it’s partly a coping mechanism, it’s partly ideological and at the political level I think there’s an avoidance of dealing, of wanting to tackle really difficult issues where society would have to make changes, maybe uncomfortable ones, give up perhaps their attachment to consistent high rates of economic growth, and so on. So I think there are lots of reasons but let me [inaudible] Simon wants to add some others that … maybe just say also that it fluctuates with where the oil price is and, and what’s happening with the climate. Let me leave it there.
I mean maybe just to pick up on the ideological point you make Jeremy, I think there’s a very strong global ideological position which advocates growth and is part of our global economic paradigm. And what it tends to do is that it looks at the benefits of growth, which is in a sense the assets side of the balance sheet but never looks at the liability side of the assets, of the balance sheet. And you have to look at both. So what’s on the liabilities side of the balance sheet are depletion of natural resources. Oil as you’ve mentioned is one of those but it’s the full spectrum of resources that fuel economies and enable growth. So part of that denial is trying to keep this paradigm intact and keep it as it is.
Often what I hear and have heard in my professional working life is you know, we’ve got to focus on growth because you’ve got to have jobs and you can’t allow a focus on ‘green’ to come in and destabilise our development. (laughs…)
Which is of course a very short sighted view because ultimately all our economic development depends on the environment……
…. resources and ecosystem services that derive from it.
Ja, and eh, and …. sorry Simon?
… the economy sits within the ecology, the global ecology.
… as Jeremy says… it derives its resources, its materials comes from the ecology, the one sits within the other…..
I mean one of the interesting experience I had was at a dinner table …. it was a couple of years ago I think, and someone I knew there who is quite high up in a corporate position was at Davos… And he was opining that we were out of our world economic problems, about three or four years ago. That we were out of our world economic problems, the Great Recession was behind us and we were back into growth, and he’d just come back from Davos. And I said to him, well there is a very different view on that. And he was quite surprised, momentarily taken aback to hear that there was a view in fact quite consistently argued by different political economists, that I think we’ve all read like Michael Hudson and other people, that in fact, and Chris Martensen of course, let‘s not forget him, that in fact we are still in a very unsustainable and in terms of real economic value probably no growth, and, and certainly jobless growth in, in many cases. Economy, global economy, a sluggish one at best. And that also seems to be something that is avoided, I don’t know possibly because economic collapse is a very frightening alternative to contemplate.
I think what’s, what’s become clear over the past number of years Paul is that climate change researchers and scientists over a long time basically tried to scare the world into taking action but it didn’t really work too well. And I think the Peak Oil movement took a similar kind of strategy in trying to say look here’s this phenomenon that’s going to occur sooner or later and if we don’t take action there’re going to be dire consequences. But ordinary people and politicians don’t tend to react too well to that. They… it’s too easy to go into denial. And in fact maybe putting a positive spin or presenting the opportunities for positive change is more likely to yield decent results, and responses from people, from policy makers but I think that’s getting ahead of ourselves a little bit in terms of the issues. Perhaps we need to talk a bit about just the past ten years and what’s actually unfolded in terms of these three risks that we picked up.
Right. Well if I can just pick up on that point, and get on to a second area of questions and themes that I’d like you guys to comment on, and going back to our paper, and again within this context of climate change, and peak oil and unwinding financial imbalances we predicted growing instability, prompted by things like resource wars, migration, and economic hardship. And it’s always good, I think, to look back and assess how accurate our predictions were because critics of these views often ask for the evidence and sometimes imply that one is, that people like us are driven by, what can one call it? Ideological positions if you like maybe. So looking back at the world, but especially South Africa, over the last ten years, how do we see events in respect of climate change, peak oil and, and financial imbalances playing out? How many of our predictions actually came true? Where did we get it right? Where did we get it wrong? And of course do we understand that? So the why question, I think, is quite important. And, Simon, maybe you’d like to pick up on that? And share some of your thoughts….
Well I think, I think that one of the things that happened quite soon after we had written that piece of work was the financial crisis of 2008. And we could argue what the causes of that were, but one of the phenomenon that we saw at the time was this huge spike in oil price. And to some extent it was driven by speculation and to some extent there was a bit of tightening in the supply, but at the same time you had this vulnerability in the US economy with the sub-prime mortgage crisis. And basically high oil prices impacted the families’ ability to repay their mortgages, and you got this kind of rippling effect through the US economy.
And it made the banks and the financial system vulnerable and you had this huge run on banks, many of which needed to be bailed out, they got bailed out by using public finance. The point is that the effect of all of this was felt economically.
I think this is a point that someone like Chris Martensen often makes. Is the way in which we would experience these phenomenon will be economically.
If you look at what’s happened since 2008, certainly in the industrialised economies there has been very, very constrained growth.
And what this is indicative of, and there are many layers to this, but at one level it seems to be suggesting that we’re coming up against some, a number of limits. Limits of resources, limits in energy, and, and these are placing severe constraints on the ability of economies to grow. (Subsequent to the discussion Simon referred us to a September 2016 report by HSBC on the limits of conventional oil production, and therefore likely price increases to around $70 per barrel in the near future).
Jeremy I don’t know. I’m sure you’ve got quite a bit that you’d want to add to that.
I agree completely with what you’ve been saying Simon. And I think it’s important to underscore a couple of things. One is that the Great Recession as it was called of 2009 was the worst economic recession since the Great Depression of the 1930s. And it was felt in most parts of the world. This is a consequence of the financial crisis. And if one looks back at how few economists let alone politicians had predicted anything like this happening. Mostly, when it unfolded the, everybody was saying well no one saw this coming. But in fact there were some people, ourselves included, that had warned of these kind of scenarios, of you know a Depression or a really severe Recession. And we come to these conclusions by joining a few dots. As I said, the impact of oil price spikes on the American financial system and then its spill over to the rest of the world. And I think that we’re still seeing the lingering after effects of some of those big impacts. This current rise in nationalism and right wing political movements in many parts of the world, US, Europe and elsewhere, seems to me indicative of the economic problems and dislocations that have been experienced over the last number of years. So stagnant, in some cases declining standards of living amongst middle classes have not been addressed essentially by the elites who bailed out banks and managed to restore some stability in the financial system, but at the cost of growing inequality and declining living standards amongst sections, large sections of these populations who’re now finally venting their anger when they go to polls, be it voting for Brexit of for Donald Trump in the US.
And then just coming back Paul to your original question of what came true and what didn’t. Subsequently also there’ve been events and trends that we didn’t really foresee. And one of them was the surge in shale oil production in the United States. after 2009. And that was in a sense a response to the high prices that there’d been, technological developments and so essentially a new source of what we call unconventional oil was brought on to the market. And it probably wrapped up from nearly zero in 2009 to about five million barrels a day in 2014, which was then about seven or eight per cent of the world’s oil supply.
And that had a very big impact on oil markets also after the era of high oil prices many countries had invested heavily in new oil production and this all came on to the market at roughly the same time, and then by 2014 we had another event that was not predicted which was that the Saudi Arabians decided to abandon their previous strategy of limiting oil supplies whenever the price dropped.
And they instead turned on the taps and increased their supply of oil to compete for market share with these shale oil producers in the United States. So the consequences being a marked increase in the supply of oil globally at the same time when demand was weakened by a few years of oil prices in triple digits. So we had averaging about 110 barrels – 110 dollars per barrel – for a few years between 2011 and 2014
So that combination of weakened supply, sorry weakened demand and increased supply has led to this oil price collapse. And….
….. so a lot of people think now Oh well this proves that Peak Oil was nonsense. But in fact it doesn’t because partly it conforms to some of the Peak Oil predictions, which is that you get these boom and bust cycles …..
… in oil prices and oil investment.
Except we seem to be in a long bust cycle……
….. supply of conventional oil essentially has peaked around 2005 to 2008. And then if you take unconventional oil in as well we have had increases, but even then we still might see this all time peak in all liquids production within the next few years partly because there’s been a huge cutback in investments in upstream oil exploration and production in most parts of the world.
I was just going to say we seem to be in a persisting or persistent bust cycle where we were under thirty dollars a barrel I think it was last year at some stage and I think now we’re threatening to go maybe sometimes above fifty sometimes below, seem to sink often below, and I always thought that to understand that you need to look at the combined effect of low growth and therefore lower demand on what is a diminishing production of oil. As opposed to the very high levels of demand that were around in 2000 to 2006. Is that the correct sort of logic to apply to that? (See graph below that tracks oil price movements since 2007).
Yes I think so Paul. And there’s one other important dimension which is that the quality of the oil that is being produced from shale oil is lower. It takes more energy to extract that kind of oil, the unconventionals. So what’s happening is that the global economy is less able to afford higher cost sources of oil.
And it’s coming out or being made visible in this inability of economies to grow rapidly anymore. But the underlying trend is obscured by that.
So it’s, it’s not surprising that most people don’t see the link between the changing dynamics in the quality of oil production and what’s happening in their monthly budgets. Because it’s quite a complex set of relationships.
Ja,I think, just reflecting on what you’ve said when I look at the paper, I think the paper tried to set out a framework for analysing events both globally and in our own country, in terms of climate change, peak oil and financial imbalances. And it was not a looking glass type of exercise. In other words I don’t think the paper’s major contribution was in its prediction about what was likely to happen and what wasn’t, it was more of a setting out of a theoretical framework and justifying it on the basis of quite a lot if existing studies and research, and I think that in itself tends to go against quite a lot of the conventional thinking and maybe some of the blindness, if I can use that word, in South Africa’s situation and the public awareness, and, and the government’s lack of awareness, a blindness which is almost very empirically focused on ‘make a prediction, and if you can’t actually be shown to be right enough a high enough percentage of the times, what you are saying isn’t really scientific’. Whereas I think as important as predictive value is, we’re at a stage where we are trying to establish a scientific framework, I think, for understanding the multi-causality of so many events. And I think that’s probably quite an important thought in terms of thought-leadership that I mentioned earlier that we try to follow and develop as INSITE. I think that that’s quite an important thought and a quite important understanding of the history of thinking um in human society, the ability to create explanatory frameworks within which particular branches of science are able to develop.
I’d like to just move us to the third and the last area of discussion, which is looking at some of the very mixed responses to these three main challenges which we’ve been highlighting here. And I thought I would just mention some of these. I think you’ve already touched on some of them, Simon and Jeremy. But I thought I would just mention some of these and then maybe you could reflect again, where you see societies and policies in respect of climate, energy and finance, where these societies and politics could be heading in the near future. So we had COP, the conference of the parties, COP21 in Paris last year. There was this historical agreement that was reached, to keep, by most countries in the world, the vast majority as I understand, to keep global warming 1,5 degrees above pre-industrial levels. But again many, particularly in the social movements, have made the point that the lack of this COP Agreement being a binding agreement, actually undermines the potential to really mitigate emissions. And then we were talking about oil, just moving to energy, where I mentioned that it’s actually fallen to pre-2007 levels at times, below thirty dollars recently. Jeremy you’ve mentioned fracking and the new sources of natural gas in the US and also conventional oil and gas coming out of Russia, and we’ve discussed that this doesn’t really undermine the Peak Oil argument. At the same time we seem to be seeing a great reduction in the cost of renewable energy. We seem to be seeing also many countries making the transition. Could this really provide a prospect of us having a ‘soft landing’? You know talking about looking more positively at where we are going. Do we really need to have state intervention to put the country on a war footing, as we stated it at the time? And then I, as I mentioned earlier, while there are people like Michael Hudson who, and Chris Martensen, who are continuing to warn about the bubble, the unsustainable financial and asset bubble, and, and I think emphasizing that we have a sluggishly functioning economic system, we certainly haven’t had any further collapse for almost ten years now. And South Africa did regain quite a lot of jobs lost according to official statistics, as a result of the 2007 Great Recession. So what I’m really trying to suggest to you is some consensus to address climate change seems to have emerged, there is some movement on a fairly large scale, towards renewable energy technology and application, even in South Africa. On the other hand there’ve been some significant political shifts to the right, which you mentioned Jeremy and I would add in South Africa’s xenophobic attacks that go way back to 2008. That in a way, in my mind, mirror the rise of social developments like Brexit, Trump’s recent victory, and probably have similar implications to that. So, taking all that into account, what I would like to ask us to consider is what are the risks that we identified at the time that we think are still applicable, maybe what upside risks or positive things can we foresee you know because we saw mainly downside risks there. And what are your thoughts about how we could mitigate some of these downside risks, both here at home and globally, particularly looking at technological moves that could be made in that direction, social developments that may be happening in that direction? Can we see more positive prospects for more stable functioning and just societies in the 21st century? Do you want to have a shot at kicking off on that Simon?
Sure, Paul. I think we can all be heartened by as you say the kind of scale of investment in renewable energy, energy technologies, you know that prices are falling, etc. I think we need to just have a little bit of perspective on it. The portion in the global energy mix that is occupied by renewables is still very small. Still three quarters of our global energy consumption come from fossil fuels. So there’s still a very, very long way to go. So the challenge is still enormous. It’s fantastic to see that there has been this uptake both in South Africa and other parts of the world. And we also need to bear in mind that all of this still requires natural resources and there are some people that are throwing around very large numbers for the investment in infrastructure that’s going to be required over the next 15 years or so to mitigate climate change. So the figure of ninety trillion dollars of investment. This is a demand-driven figure that hasn’t been deconstructed and I think this is where I have some concerns. We don’t deconstruct these figures to see what does this mean in physical materials or physical resources and whether those resources exist or not. So we create an impression that there’s a huge opportunity and investment and huge amounts of finance are going to have to be mustered and gathered to address these infrastructure needs. But do the physical resources exist?
Ja. Like on the coal….
I’d be keen to caution is that, again, we need to look at demand but we also need to look at supply, whether we can meet the demand with the resources that we currently have. If we don’t, what are our alternatives? Do we have alternative paradigms? And the truth is that this is a big unanswered question. I think there are people out there with ideas, there are people experimenting, but on a large scale I don’t think anyone can answer that question. What are the viable economic alternatives.
I mean where you….. where you…..
So I would be…. there are some progressive countries that …..
You know the Scandinavians, some European countries where there’s a very high level of investment in renewable energy sources, and are becoming relatively independent, so those are heartening things but this doesn’t seem to meet, or make the mainstream in countries like the US, the UK, here it’s pretty much business as usual. What’s worrying is that the levels of debt being incurred at a national level are way beyond what they were prior to the 2008 crash. And I am sure Jeremy that you would have a bit to add on to this.
Can I just, ….. Jeremy….
…. the point for me to jump in ….. if that’s OK?
I just wanted to hop in on one comment if you don’t mind, in response to what Simon said, because Simon you remember back in the ASPO days I and you worked on a project that took us into the city, the metropolitan municipality of Cape Town, for one presentation and you were making such a strong point about limits to growth. And you were talking quite a lot just now about the ability of technology. And what you were referring to on that occasion was very much the limits of growth. (interruption). So just to continue that point, the point that you made, I think we all made in those ASPO meetings, was if there are limited resources and an exponentially expanding economy and population, then you’re not dealing with the fundamental problem of how you sustain societies over the long term. And what is really required is also a questioning of consumption, and growing consumption, and how you can actually have prosperity if you like without growth. How you can have societies where people live with all their basic needs covered in a non-growth economy. And this is this is the type of discussion you do not have with governmental clients in South Africa because they look at you in a certain way and you’ve sort of lost them at that point. That came to mind listening to what you were saying Simon.
Ja. Well Jeremy you wanted to make some points..
Yeah, well if I just respond to that firstly, I think that largely there is still something of a taboo about the whole notion of limits to economic growth, especially amongst the main stream of the economics profession and politicians across the world. It’s not a message that they really want to tackle with. What we saw in the immediate wake of the global financial crisis, in some parts of the world, was a positive response in saying ‘look we need a green new deal’, ‘the way to respond to this crisis is to invest massively in renewable energy, in sustainable transport, infrastructure and so on’. So there was an initial positive wave and there were some countries that led it like South Korea, and China to a significant degree, and a stimulus package, but quite soon the world went back into the same old growth model.
And a very important part of the model, and in fact one of the big drivers is actually the financial system. The way our financial monetary systems work. And essentially they are based on ever increasing amounts of debt, and simply money gets created in economies through issuing debt either to households or to companies, to be able to invest and grow. And without reforming this financial system we will never have a truly sustainable economy. This debt-based financial system can only keep going, it can only avoid collapse, if there is continued economic growth. And this is one of the reasons why we’ve seen these unprecedented monetary policies from central banks across the world. (The graph below depicts the ongoing financial imbalances between “creditor” and “debtor” countries).
The Federal Reserve Bank in America, The European Central Bank, the Bank of Japan, where they’ve embarked on these enormous quantitative easing, which basically means trying to flood economies with cheap money, and also near-Zero or negative interest rates. But even with these phenomenal, new unprecedented monetary policies, they only just barely kept the bubble inflated. And a lot of the wealth that is being created is in the casino economy on stock markets and bonds and other financial assets, and it is not being channelled where it needed to be channelled, into the productive economy, which would enable countries to reinvest in a more sustainable infrastructure that is going to be essential to deal with …….
both resource depletion and the increasing impacts of climate change over the next few decades. So really the kind of reforms that are needed are very widespread and fundamental. It’s not just about some new technologies, some renewables, it’s actually the financial system and another very important component is dealing with structural inequality, globally and within most countries in the world, which is perpetuating the unsustainability of the current system and also at the same time giving rise to these populist political movements which in the longer term are probably going to exacerbate the, the situation rather than alleviate it.
That’s an interesting point about the, the undermining effect of inequalities because there seems to be a relationship, a direct relationship between the extent of the inequalities and the functionality of the exponentially growing economy/ financial system. And certainly the way the captains of finance and people who are you know highly embedded in the real estate industry and other more speculative areas of the economies, I mean the way they tend to respond is to almost fight tooth and nail to maintain their position in the banks and in some of these housing markets that are actually growing bubbles. Some of the economists like Michael Hudson and others have said this is sort of almost tantamount to class war and that it’s not necessarily in their immediate interests to provoke such an intense conflict but they seem to be driven into that. And I wonder whether you, Jeremy and Simon, could end off by just reflecting on the growing, more right wing, social movements, political movements, that are seemingly gaining political power, particularly Trump, the Trump phenomenon in the United States is a good example of that. Just to reflect where do we think this is going to, what does it mean for the extent of social conflict against other more left-wing forces or popular grassroots democratically organised communities that are more representative of the majority’s interests. And how does that give potential for the emergence of what we think are more rational financial, climate and energy policies? That’s a big mouthful to throw at you but it would be interesting to hear some of your thoughts on that before we round off.
I mean Paul, you know I think what we’re witnessing are all symptoms of the kind of crises that we were alluding to in the 2007 paper. I think that with the rise of the right wing there’s also an opportunity for the rise of a more progressive agenda. In a sense as a counter or as a counterbalance to that. And how that plays out is anyone’s guess. But I think what we’re likely to see in the coming years is this polarisation. You’re seeing it here in the UK. A quite emergent left wing position under Jeremy Corbyn almost as a kind of counter to the right wing position articulated by the likes of Nigel Farage. I think in the US as well you have this Trump phenomenon but at the same time it was preceded by the Bernie Sanders phenomenon where a huge, new demographic were mobilised. And it remains a question whether they can be remobilised and how these two forces that are at play interact and uhm articulate with each other. (Following the inauguration of Trump as President of the United States, hundreds of thousands of people protested at the Womens March on Washington on Saturday 21 January. Subsequent to the discussion Simon referred us to an article that analyses the emergence of Trump as leader of the US as a symptom of the crises of reproduction of contemporary capitalism – the climate crisis, the oil depletion crisis and the debt-driven financial crisis).
Right, Jeremy do you have any final thoughts on that point?
I think I certainly agree with what Simon has said about that. And we’re into a year of great uncertainty. The neo-liberal democratic order that the world has, that large parts of the world have enjoyed over quite a number of decades, is now under threat from these populist particularly right wing movements. And with the election of Trump for example, I mean all bets are off for where the United States is really going. It’s too early to tell because one doesn’t know what Trump is going to say next. One has to watch what he is going to do and the kind of people he picks for his administration. But some of the early signs are not too good in terms of responding to the challenges that we have been talking about today. For example he’s got proposals to boost coal and unconventional oil and gas resource production in the US, to possibly withdraw from the climate change agreement, to have huge tax cuts which would just reinforce inequality that’s already quite extreme in the US and in crease the debt levels of government debt, and so on. So I think this year has seen these momentous changes in the political landscape. I don’t think it’s finished yet. We’ve got a whole lot of elections coming up in Europe and one just hopes that the core of social democratic values in some of the stronger European countries will triumph in the coming months and that the more sane voices will be heard. But I think it’s a really interesting, somewhat fraught time that we are going to be entering over the next couple of years. But, another part of the whole story is these generational shifts that Simon already pointed to with the Bernie Sanders phenomenon. That you’re finding and it also came out in the Brexit vote, was the different voting patterns stratified by age.
So that also gives one hope for the future. That generally the kind of policies and the kind of values and attitudes being espoused by the youth are less conservative, more inclusive, more progressive, it’s going to take time but at some point hopefully those kind of voices will become the majority in some of the leading countries in the world.
Right.. so guys I think we’ve got to the end of this discussion. And I want to thank you very sincerely for making the time available and sharing your thoughts with me and also for our followers. What I said earlier on, I just want to repeat that we will publish this as a podcast and also transcribe it on the website and what we would like to do with this is make available as much of the science behind some of these issues that we’ve been discussing and the way we’ve done it in the first podcast transcription was to have hyperlinks that interested readers can actually go to. We’ll come back to you with the transcription and if you have any recommended sites and documents on sites that we can hyperlink to, then we’d appreciate that because I think it will really add tremendous value to the whole exercise.
So Jeremy nice to talk to you and thank you very much. Simon likewise to you. And Ja I wish you well. And maybe you just want to say your final pieces and then we can sign off.
Thanks Paul, well listen it’s been a pleasure discussing these complicated issues with you. You know, we’re certainly going to live in interesting and challenging times in the years ahead. And all of these kinds of issues are going to be playing themselves out and you know and none of us have any idea quite what that will look like. But you know, things certainly are not going to be able to go back to the way they were a decade or two ago. (Subsequent to the discussion Simon referred us to a prediction that 2018 will see an oil, food and financial crash worse than the crash of 2008).
So thanks again.
Yes, from my side also Paul, and Simon, thanks very much for the conversation, it’s been really stimulating and I think in the broader scheme of things we also need to view these issues as stimulus for human society to kind of evolve in their consciousness and how they see themselves and the earth and while there might be hardships there also a lot of positive changes, and I think a lot of people around the world are sensing that changes are required but we need to keep these discussions alive to put forward alternatives to give people a better range of options to choose from. So thanks again.
Thank you. Thanks very much. Stay well guys.
Thanks Paul. Bye bye.