Myth 3: We need to have faith in the financial markets to solve our problems

Myth 3: We need to have faith in the financial markets to solve our problems

We live in the age of big finance. Despite the 2008 crash exposing the dangers of handing over too much power to bankers, more and more of our lives are influenced by the whims of the stock market. Now plans are in place to create markets in nature itself. But if we look at the facts, the evidence shows that we should reconsider our blind faith in the ability of markets to solve the world’s problems.

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Six years after the biggest financial crash since 1929, banks and bankers are held in pretty low esteem. The financial crash is a story of markets becoming too powerful. 

Markets grew up which were too complicated for virtually anyone to understand. The financial sector convinced politicians, especially in the UK and US, to deregulate, and then went on to trade complex financial instruments worth trillions of pounds with too little oversight and too few rules. When things went wrong, governments bailed out reckless banks. In some countries like Greece, Spain and Portugal, this pushed the state itself into bankruptcy and ordinary people have endured real suffering to ‘repay’ the debts of the financial sector.  

You would expect that our governments would have learnt their lesson, and begun to take control of the financial sector. At the very least, surely they wouldn’t hand over yet more of our resources to finance, in the mistaken impression that markets are the best way to distribute the world’s goods to people? You’d be wrong. 

Far from reducing the scope of financial markets in society, efforts are underway to create new markets in areas of our lives, in particular in nature and the environment. This is usually justified as a way to solve serious problems. We  are told that carbon markets will solve climate change. Global markets in food commodities will iron out any ‘inefficiencies’ or ‘distortions’ in the market and help end hunger.

There are currently efforts underway to put a price on the natural world too. The argument goes that if aspects of nature – forests, rivers, species – are assigned a price, we’ll be better able to protect them. If a developer wants to destroy an area of biodiversit, they would have to pay to ensure that such biodiversity was protected or recreated elsewhere and their destruction was ‘offset’. 

Unfortunately, all of these financial schemes do very little to actually protect the environment, prevent climate change or solve any of the other major problems facing the world’s poor. They have, however, been very successful in making a select few financial speculators very rich indeed.

Take carbon markets. The Clean Development Mechanism was agreed at the Kyoto climate summit in 1997 and the European Emissions Trading Scheme (ETS) has been around since 2005. They have had no effect on emissions. Global emissions are now 50 per cent above where they were in 1997.  What little progress there has been in Europe has nothing to do with carbon markets. In fact, the price of carbon is so low on the market (around €6 at time of writing), that it’s actually given companies incentives to burn more of it.

While the world heats up, a few speculators and major companies have made a killing on betting on the price of carbon. Big industrial sector companies made billions of pounds in windfall profits out of the ETS. And while governments engaged in negotiations to limit climate change, the big UK banks carried on with business as usual and helped fossil fuel companies raise £170 billion from bonds and share issues between 2010-2012.  

Carbon trading and offsetting is worse than useless. For instance, in carbon markets or deforestation offset markets, the idea is that a polluting company in a rich country pays for a project in a poor country that will either reduce emissions or prevent new emissions. But this might mean expelling poor people from their land so an ‘offset’ monoculture plantation can be established. For example, in Uganda, over 22,500 people were evicted from their land at gunpoint to allow the UK firm New Forests Company to plant trees in order to earn carbon credits.  

Biodiversity offsetting is the new frontier for the bankers. Nature has been recast as ‘natural capital’ and ‘ecosystem services’. The idea is that, as with carbon markets, companies will be allowed to destroy one species or habitat if they compensate by creating new habitat elsewhere. So theoretically we could see the destruction of primary rainforest in Borneo justified by the planting of a few trees in Bolton. This is already happening across  the UK in places like Tyneside and Coventry where ancient woodlands are being destroyed and ‘offset’.  

The only way to really solve problems like climate change or deforestation is to use tried and tested methods. If we want to protect a forest, we ban or regulate mining and logging. If we want to reduce emissions, we reduce our use of fossil fuels.

We need to have faith in people and public control to solve the world’s problems, not pretend that finance will solve anything but narrow interests, when left to its own devices.