HomeGreening the economyWhy IT and the green economy are the real answer to the financial crisis

Why IT and the green economy are the real answer to the financial crisis

This is a guest post by Carlota Perez, an academic and  author of Technological revolutions and financial capitalthe dynamics of bubbles and golden ages. This article first appeared in Green Alliance’s magazine Inside Track.

The whole discussion about how to overcome the financial crisis and its consequences on the economy is wrongly focused. Getting public finances in order and the financial world back on its feet will not bring the world economy back to business as usual.  Healthy finance with a languid real economy will naturally find new ways of casino behaviour.

What is needed is a set of policies that will decidedly tilt the playing field in such a way that finance would find it more profitable to fund production than to gamble in derivatives or futures, while production, in turn, would find clear pathways to profitable innovation and expansion. We are facing a recurring twice-in-a-century event, equivalent to the 1930s after the crash of 1929, which needs to be understood to find effective solutions.

Boom and bust
Growth in the world economy takes place by successive surges of 40 to 60 years, each driven by a technological revolution. The massive changes that this brings each time, not only in technology but also in production systems and organisation, in the means of communication, transport and distribution, in patterns of consumption and styles of living, involve great behavioural upheavals in the economy and society. For that reason, the difficult process of unlearning the old and absorbing the new takes twenty or thirty turbulent years of ‘creative destruction’. It is after that massive paradigm shift, that the fruits of the new technologies in higher productivity and widespread innovation can be reaped and socially shared.

Historically, the first half of each surge, the Installation Period, has been the time when financial capital shapes the economy, while the ideology of laissez faire shapes the behaviour of governments. It is a grand experiment when unrestrained finance can override the power of the old production giants and fund the new entrepreneurs in testing the vast new potential. Finance then helps the new giants emerge, enables the modernisation of the old industries and facilitates the necessary over investment in the new infrastructures, so coverage is enough for widespread usage. Thus, the extreme free market ideology has a role to play in the early decades of each surge.

The Installation Period has led each time to a major bubble followed by a major crash: the canal and railway manias ended in panics and the roaring twenties ended in the crash of 1929. The collapse reveals the need for regulation to restrain financial excesses and to favour the real economy, usually under political pressure for reversing the income polarisation and other negative consequences of the bubble times. When, and if, this is done, what follows is a golden age, the Deployment Period, when production, rather than finance, leads the expansion. The benefits of the new technological potential are fully realised across the economy and its social benefits better spread, as in the Victorian boom, the Belle Époque and the post-war golden age. But this result depends on whether adequate policies are put in place to facilitate and develop the conditions for healthy market operation and social fairness. The question is, of course, what is meant by ‘adequate policies’ in this case.

Moving away from the ‘casino economy’
Essentially it is about shifting the attention of finance from the casino to the real economy, by changing the relative tax and profit structures. But, mainly, it is about reshaping the market through establishing reliable conditions for demand to grow in sufficient volumes and in clear directions.

In the previous crisis, for example, the potential was there for mass production of energy-using assembled products and for continuous processing of disposable plastics. Growth could be led by producing military equipment and/or home electrical appliances and private automobiles. The road chosen by Hitler was centred on tanks and weapons and was indeed successful in bringing growth in the 1930s, while others were in recession.

The path chosen by the Keynesian democracies, after the war, was to establish the welfare state. This enabled constant demand growth by redistributing income and increasing salaries with productivity, through union action. While the banks innovated in forms of consumer credit, governments guaranteed continuous monthly payments in recessions, through unemployment insurance, and facilitated the growth of low cost suburban housing through protected access to mortgages or, simply, by providing public housing. These measures, together with public services and military spending, led to the post-war golden age, possibly the greatest and most prolonged boom in history. It also brought the patterns of consumerism, disposability and excess use of energy and materials that still prevail and are confronting the world with major environmental challenges

A green golden age?
In the current crisis, innovation potential is provided by the information and communications technologies (ICT) revolution and its flexible production paradigm. These technologies could lead to a sustainable global golden age, through favouring intangible consumption of services, through massively increasing the productivity of resources by making beautiful, durable, refurbishable and recyclable products, all while incorporating millions of new consumers across the planet to a good healthy life. Indeed it is not feasible to maintain the current rates of growth of China, India and all the rest without green patterns of consumption: we only have one planet.

The change in the pattern of consumption has occurred with each technological revolution. The comfortable American way of life was very different from the cosmopolitan Belle Époque which, in turn, differed from the austere elegance of Victorian living. What history teaches us, though, is that such changes take place, not by guilt or fear, but by desire and aspiration. For a green style to propagate, it must become the ‘luxury life’.

Paradigm shift
Admittedly, that seems very unlikely now. The availability of cheap energy in the 1990s and of cheap Asian labour, then and in the 2000s, enabled the old mass production model of frequent disposability to be perpetuated, even in the ICT industries. However, those prices are changing and will continue to increase while the logic of the ICT paradigm is already making inroads. The living styles of the rich favour exercise over ‘couch potato’ living, organic and gourmet foods rather than processed ones, natural materials, minimalist design, luxury solar panels, creativity and social interaction as entertainment and so on. The gradual dematerialisation of the music and the media industries is moving us in the same direction. Major changes have small beginnings but at some point they take off and diffuse very rapidly. Suffice it to realise that the internet has only been available to us for 16 years.

The policies that could make green growth the most profitable pathway for producers will probably have to be a complex mixture of carrots, sticks and education. They will indeed require bold leadership and massive imagination, as was shown by Keynes, Roosevelt and the leaders that established the Breton Woods agreements. Focusing on saving finance will get us nowhere unless it occurs as a result of reviving and reorienting the economy.

Green jobs and growth
Promoting a green economy is a solid route to jobs and growth today. It implies redesigning all products and equipment as well as revamping all structures and infrastructures. It also supposes bringing back maintenance and organising second,third and nth hand markets across the world on a massive scale, plus disassembly, recycling and other materials-saving processes.  All this would create jobs for the displaced manufacturing workers, while design, redesign and all the other creative industries and services would employ young university graduates. It would be equivalent to post-war reconstruction and suburbanisation in terms of employment and demand creation.

Facilitating and funding investment in the lagging countries of Africa, the Middle East and Latin America would create markets for green infrastructural technologies and, through job creation, would incorporate new consumers and generate new trade flows for all. Sustainable innovation geared to other climates and cultures can improve lives, strengthen dignity, favour peace and also strengthen the world economy.

The combination of ICT, green growth and full global development can be a win-win game between business and society, among the advanced, emerging and developing countries and between humanity and the planet. That is the real answer to the current financial crisis.

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Green Alliance is a charity and independent think tank focused on ambitious leadership and increased political support for environmental solutions in the UK. This blog provides space for commentary and analysis around environmental politics and policy issues as they affect the UK. The views of external contributors do not necessarily represent those of Green Alliance.

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