THE BLOG

Recession, Climate Change and the Return to Planning

04/12/2009 05:12 am ET | Updated May 25, 2011

LONDON -- Climate change and how to respond to it are everywhere in the news at the moment. So, of course, is economic recession, just as global in scope and itself deeply worrying. But what is the relationship between them likely to turn out to be?

Every crisis, Sigmund Freud said, is potentially a stimulus to the positive side of the personality -- it is an opportunity to start afresh. The point has not gone unnoticed by political leaders. Following the example of President Obama in the U.S., many have signed up to the idea of a climate change New Deal. Investment in low-carbon technologies, the insulation of buildings and public transport, it is reasoned, can make a key contribution to getting the economy moving again.

Nick Stern, the author of the celebrated Stern Review of the economics of climate change, argues that such measures should make up at least 20 percent of the funding provided for recovery plans. Obama's proposals fall some way short of that. But some countries are allocating much more. South Korea, for instance, is devoting no less than two-thirds of its recovery package to such ends.

I support the idea of a climate change New Deal and hope it produces the double benefit that is being aimed for -- it would be a triple benefit, in fact, if countries manage also to reduce their dependence upon imported oil. Yet the stimulating effect that Freud spoke of should galvanize us to thought and action on a much wider front.

We are on the cusp of a major revolution, the coming demise of the fossil-fuel economy; now is the time to try to think through its likely implications. These range from the nitty-gritty and mundane through to the more far-reaching and speculative.

On the nitty-gritty side, a major concern has to be with jobs. A climate change New Deal, its proponents argue, will create new jobs in and of itself. I'm not so sure of this, if it means, as it has to, net jobs -- that is to say, larger numbers than existed before. As more energy is produced from low-carbon sources, and energy efficiency increases, some workers in the fossil fuel-based industries, such as coal-mining, will be put out of work. Most forms of technological innovation reduce rather than increase the need for labor power.

Jobs will be created not so much through renewable technologies themselves as through the lifestyle changes that coping with climate change and energy security will bring about. Sensibilities will change and with them tastes. The new economy that will emerge will be even more radically post-industrial than the one we have now. It will be up to entrepreneurs to spot the economic opportunities that will come about with expansion -- much in the same way as ways were found to revitalize dockland areas where shipping industry has evaporated away.

Pondering what form recovery from recession should take should cause us to think seriously about the nature of economic growth itself, at least in the rich countries. It has been known for a long while that, above a certain level of prosperity, growth does not necessarily lead to greater personal and social welfare. Now is the time to introduce more rounded measures of welfare alongside GDP and give them real political resonance. Now is the time for a sustained and positive critique of consumerism that can be made to count politically. Now is the time to work out how to ensure that recovery does not mean a reversion to the loads-of-money society.

The period of Thatcherite deregulation is over. The state is back. We will need active industrial policy and planning, in respect to economic institutions but for climate change and energy policy as well.

The mistakes made by previous generations of planners, however, have to be avoided. Many issues present themselves here, too. Take the very example of renewable technologies. Technological breakthroughs are required if at some point fossils fuels are to become history. Yet how should governments decide which ones to back? How can they cope with the fact that the most radical technological innovations -- such as the Internet -- are often not foreseen by anybody?

We have to find a new role for government but also for market-based mechanisms, too. Complex financial instruments have suddenly gone out of fashion, blamed for market collapse. Yet we will have need of them because, properly regulated, they are actually sometimes the key to long-term investment rather than a force against it.

Consider the issue of insurance against extreme weather events, such as hurricanes in the Caribbean. Such episodes will become both more frequent and more intense, since climate change up to some level will almost certainly occur. Providing insurance against damage incurred will be one main way of adapting to them -- especially so far as poorer people are concerned. The private insurance industry will have to supply most of the capital, since given its many other obligations it can only be the insurer of last resort.

And then, well, there's the granddaddy of the whole thing, globalization, which has proceeded apace without adequate international controls. Effective regulation of world financial markets is essential for the future. Perhaps it could help pave the way for the collaboration essential to coping with climate change -- a great deal of rethinking needed here, too, as some 200 nations prepare for the U.N.-sponsored meetings in Copenhagen in December. The financial crisis and its aftermath have given a jolt to established ways of thinking that could and should prove massively important. We're at the end of the end of history.