Category Archives: finance

EC: the Circular Economy Action Plan

In March, the European Commission published a comprehensive report on the implementation of the Circular Economy Action Plan, announcing that all 54 actions under the Circular Economy Action Plan launched in 2015 have now been delivered. 

This has accelerated the transition towards a circular economy in Europe. In 2016, sectors relevant to the circular economy:

  • employed more than four million workers, a 6% increase compared to 2012.
  • opened up new business opportunities,
  • gave rise to new business models
  • developed new markets, domestically and outside the EU
  • generated almost €147 billion in value added by repair, reuse or recycling
  • and accounted for around €17.5 billion worth of investments.

On this site in February there was a report about The Manchester Declaration by the UK community repair movement (follow the link to see a wide range of members). This called for the repair of products, especially electronics, to be made more accessible and affordable, while ensuring that product standards that make products easier to repair are adopted.

There are currently 1689 Repair Cafés in the world. One product successfully repaired at a Repair Café can prevent up to 24 kilos of CO2 being emitted, according to research by Steve Privett, who examined data of almost 3000 repairs carried out at 13 Repair Cafés in the UK.

These activities are in tune with the Circular Economy Action Plan formulated by The European Economic and Social Committee (EESC).

The EESC seeks to improve the Ecodesign Working Plan (2016-2019) in order to drive ‘wholesale’ change in behaviour through the supply chains of goods and services at a pace that would reflect the ambition of the Circular Economy Action Plan, introduced in December 2015.

The ecodesign of goods and services needs to go beyond just energy considerations – the component parts of a product should be easily recoverable for reuse and/or remanufacture and drive the creation of a strong secondary raw materials market. There must be a focus on the full lifecycle of products including:

  • their durability,
  • ease of maintenance
  • and repair,
  • potential for reuse,
  • upgradeability,
  • recyclability
  • and actual uptake after use in the form of secondary materials in products entering the market.

The EESC has reaffirmed its support for the use of Extended Producer Responsibility as a tool to promote the transition to circular economy business models. It focusses on the end-of-use treatment of consumer products, aiming to increase the amount of product recovery and minimize the environmental impact of waste materials.

An EC reflection paper finds that almost all elements of the Action Plan have been delivered but more steps will need to be taken to build a fully circular European economy. Europe is moving steadily towards a climate-neutral, competitive circular economy where pressure on resources and ecosystems is minimised.

 

 

 

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This time it must be different: ten years after the economic crisis – jobs in every constituency

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Global weather patterns have increased attention on the adverse effects of climate change and unease grows about the threats posed by automation.

American Democrats and Greens are taking on board the message delivered for years by Colin Hines, convener of the Green New Deal Group, more recently in the Guardian and repeatedly since then.

Implementation of the group’s Green New Deal infrastructure programme would mitigate the adverse effects of climate change, substantially reducing the domestic carbon emissions and automation-related unemployment.

However it will be important to build up public support for the massive systemic change advocated by many, including both Sir David Attenborough and Greta Thunberg. The often uncomfortable personal lifestyle changes needed must be seen as part of a diverse and popular programme addressing the social, economic and climate insecurity increasingly felt by the majority.

The changes would involve dramatically increasing the funding of:

  • employment in face to face jobs that address the worries of people of all ages, such as inadequate health-care, education and housing,
  • energy efficiency measures,
  • the increased use of renewables,
  • face-to-face caring in the public and private sector – difficult to automate or relocate abroad,
  • interconnected road and rail services in every community,
  • electric vehicles for private use
  • and an enormous nationwide green infrastructure programme ensuring the rapid decarbonisation of energy, transport, resource use and food production.

The changes must be couched in terms of being a massive local job generator and one that provides business and investment opportunities. Read more here.

America’s Green Party 

As the convenor pointed out in the Financial Times yesterday, the political advantage of this approach is that it would be seen by voters to be beneficial to every constituency and, as such, should appeal to all political parties. It will require a wide range of skills for work that will last decades, help to improve conditions and job opportunities for the “left behind” communities in the UK and ensure that the urgent demands of many for action on climate change can be more swiftly met.

 

 

 

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European Spring alliance will advocate a Green New Deal for Europe

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Yanis Varoufakis co-founder of DiEM25 (Democracy in Europe Movement) and former Greece finance minister, has advocated a Green New Deal for Europe.  Towards the end of an article (Dec.2018) he wrote:

This is what Democracy in Europe Movement 2025 – which I co-founded – and our European Spring alliance will be taking to voters in the European parliament elections next summer. See video here.

The great advantage of our Green New Deal is that we are taking a leaf out of US President Franklin Roosevelt’s original New Deal in the 1930s: our idea is to create €500bn every year in the green transition across Europe, without a euro in new taxes.

Here’s how it would work: the European Investment Bank (EIB) issues bonds of that value with the European Central Bank standing by, ready to purchase as many of them as necessary in the secondary markets. The EIB bonds will undoubtedly sell like hot cakes in a market desperate for a safe asset. Thus, the excess liquidity that keeps interest rates negative, crushing German pension funds, is soaked up and the Green New Deal is fully funded.

Once hope in a Europe of shared, green prosperity is restored, it will be possible to have the necessary debate on new pan-European taxes on C02, the rich, big tech and so on – as well as settling the democratic constitution Europe deserves.

Perhaps our Green New Deal may even create the climate for a second UK referendum, so that the people of Britain can choose to rejoin a better, fairer, greener, democratic EU.

Read the whole article here.

Postscript

On Monday, March 25, DiEM25 and European Spring gathered in Brussels to present the women and men from all corners of Europe who will take our common political programme to the ballot on May 25 – like Génération.s’ Benoît Hamon and LIVRE’s Rui Tavares among others – at the BOZAR theatre. This is where we officially launched our European Spring campaign – embodied in a New Deal for Europe, a set of ambitious economic proposals to save Europe from itself by transforming it.

 

 

 

 

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Prem Sikka: “If austerity is over, the Chancellor must present a plan to invest in our economy”

Chancellor Philip Hammond’s number one focus should be investing in a sustainable economy, argues Prem Sikka, Professor of Accounting at University of Sheffield and Emeritus Professor of Accounting at University of Essex. 

In a recent article, Sikka (below right) observes that in the face of Brexit uncertainties, many businesses are withholding investment. But to meet the challenge, the government will need to abandon almost of its headline polices.

He points out that historically, the private sector has shown little appetite for long-term risks and the state invested heavily in biotechnology, telecommunications, postal, information technology, utilities, shipping, railways, airlines and many other long-term industries.

For the last 40 years, the government has privatised most of these industries and relied on a variety of tax incentives to persuade the private sector to invest.

Sikka’s verdict: the results have not been encouraging – investment slumped

The lowest ratio of investment to GDP in EU countries was recorded by Greece (12.6%), followed by Portugal (16.2%) and the United Kingdom (16.9%). And since the 1990s, the UK R&D expenditure has fluctuated between 1.53% and 1.67% of GDP, well below the EU average.

Successive governments made a deliberate decision to prioritise the service sector though it is the manufacturing sector which generally generates more skilled, semi-skilled and higher paid jobs. Its multiplier effect – the ability to generate additional jobs – is also greater as the items need to delivered, maintained and repaired. Yet the manufacturing sector has continued to shrink and now accounts for around 9% of the UK GDP compared to 30% in China, 20% in Germany, 12% in the US and 19% in Japan.

Without adequate purchasing power, people cannot afford to buy goods and services and that itself discourages investment.

Investment, innovation and R&D need to be accompanied by sustainable demand. Since 2010, the government has been wedded to building a low-wage economy. Workers’ share of the GDP for the second quarter of 2018 stands at 49.3% of GDP, compared to 65.1% in 1976.

At the same time, the increases in gas, water, electricity, rents and travel costs have further eroded people’s purchasing power. The inevitable consequence of squeeze on household budgets has been the closure of shops such as Carpetright, Jamie’s Italian, Maplin, Marks & Spencer, Mothercare, Poundworld, Prezzo and Toys R Us, just to mention a few.

The Chancellor needs to find ways of boosting people’s purchasing power

This could be done by curbs on profiteering by utilities and train companies, raising the minimum wage and state pension, ending gender discrimination and pay rise for women and public sector workers, abolition of university fees, and ensuring that the tax-free personal allowances for income tax purposes match the minimum wage.

Sikka emphasises the urgent need for state investment in providing social infrastructure, transport, house-building, green industries, artificial intelligence, space and other industries and Hines proposes a Green New Deal infrastructure programme, offering jobs in every constituency.

In the Guardian, Colin Hines, convener of the Green New Deal Group, recently wrote about a GND infrastructure programme which would contribute substantially towards reducing Britain’s domestic carbon emissions and also address the serious threat of rapid and ubiquitous automation raised by Yvette Cooper.

Two major labour-intensive sources of local jobs were advocated: face-to-face caring in the public and private sector and infrastructural provision and improvements. Both are difficult to automate and can’t be relocated abroad.

Infrastructural provision and improvements are crucial to tackling climate change, prioritising energy efficiency and the increased use of renewables in constructing and refurbishing every UK building. In transport the emphasis would be on increased provision of interconnected road and rail services in every community, encouraging electric vehicles for private use. Hines added that the advantages of this programme include:

  • improving social conditions,
  • protecting the environment,
  • offering opportunities in every constituency,
  • requiring a wide range of skills for work that will last decades
  • and helping to improve conditions and job opportunities for “left behind” communities in the UK.

Sikka ends: “Neoliberals will no doubt respond with the usual comment ‘we can’t afford it.’ But can we afford stagnation, economic decline, social conflict and instability? The answer is a clear no. A government which can bailout banks with billions oquantitative easing, appease corporations and wealthy elites with tax cuts and guarantees profits through the Private Finance Initiative (PFI) and subsidies to film companies, can also find resources for economic welfare. If it chooses not to, it should make way for someone who can”.

 

 

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Yunus advocates an additional financial system

Quartz magazine’s  Eshe Nelson spoke with Nobel prize-winner Mohammed Yunus at the One Young World summit at The Hague, which brings together 2,000 young people from 190 countries who are working to improve their societies, and the world at large, by fighting to end sexual violence, improve access to education and demand justice and human rights accountability from governments. The conversation has been summarised for this website.

Yunus believes that the whole capitalist system has failed: “The very number of poor people shows that it has failed. It pushes all the wealth to the top continuously and the top became very fat and owned by few people. What kind of system is that? We have to redesign the system”. He continues:

“Today, there’s only one kind of financial institution, which are banks for the rich. You are asking the banks for the rich to lend to the poor. The very system is designed in a completely different way. This machine doesn’t work for them. The way to really address the problem of the rejected people from the financial system is to create a new financial system. Capitalism went wrong because it started with the wrong premise. It misrepresents human beings and says we are driven by self interest. But human beings are both driven by self interest and selflessness.

The economic system forgot the selflessness part, and once we include it into the business, you have two kinds of business:

  • business to make money
  • and business to solve problems.

Then the economic system becomes different”.

In the 1970s, Yunus began work on what would become Grameen Bank in Bangladesh, which provides small loans to entrepreneurs, primarily women, who otherwise couldn’t access funds due to a lack of collateral and other resources. Grameen Bank takes deposits to finance the loans it offers; it decided in 1995 that it wouldn’t accept donations – for Yunus, ending poverty isn’t about charity. Last month, the 10-year-old US division of Grameen announced that it had provided more than $1 billion in loans to 106,000 women. Over the next decade, it plans to provide $1 billion in loans every year, and nearly double the number of branches, to 42. He comments:

“Microcredit still remains the same as when we started in Bangladesh 40 years back. But many more people around the world have started microcredit programs. Some took advantage of credibility of the word “microcredit”—they used it to make money for themselves, turning into loan sharks. After 42 years it’s not gone into the mainstream. Microcredit has remained at the NGO level, a footnote in the financial sector.

“Earlier this year, the World Bank showed how little progress there has been: The proportion of people with active accounts has stagnated and the gap in financial inclusion between men and women has stayed the same.

The very word “inclusion” is suspect. This is not about inclusion; it’s about having a separate kind of banking institution to address the people at the very bottom.

“Governments are used to giving grants to poor people for survival. Whether you are a rich country or a poor country, every country does that. Instead of giving grants, it’s much cheaper to do it as a loan. The money comes back, covers its own cost, and is sustainable. It’s a market-based system. Whichever way you do it, it has to create income. In order to create income you have to encourage people to become entrepreneurs”.

His view on giving cash transfers to entrepreneurs versus credit

“If it comes as a grant then there’s no responsibility, and the money can be misused easily. A loan comes with responsibility: you have to create a return from it. People become very relaxed if they are guaranteed money because they will get it again. If you fail, the second round of cash transfers will come, so why make an effort?

“The welfare system never produced any entrepreneurs. The welfare system in every country, you don’t see anybody coming out. They go in and stay there because you take care of them. Universal Basic Income is the same thing; it’s a welfare system. Charity doesn’t create activity. Charity is a dependence creation. Dependence creation is always a negative thing for a society. Systems should be geared towards creating activity. Creating entrepreneurship rather than dependence. Taking risk. That’s what human beings are for”.

 

 

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What is the main solution to the UK’s weak productivity growth?

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Chris Giles (FT) is examining why Britain is suffering from weak productivity growth. As part of his series, he wants to hear what readers think is the main solution to the UK’s weak productivity growth since the financial crisis of 2008. Share thoughts directly with him at ask@ft.com. Some may be published in a follow-up piece.

Prem Sikka, Professor of Accounting at University of Sheffield and Emeritus Professor of Accounting at University of Essex, who tweets here, has already published thoughts on the subject. Briefly:

UK company dividends are high & investment low

This lack of investment and innovation means that the country’s productivity is low. The output per hour worked in the UK is about 16% below the average for the rest of the G7 advanced economies. The UK productivity is around 27% below that of Germany – despite the UK labour force working almost the longest hours in the western world and the country is neither rebuilding its manufacturing base, nor developing new technologies.

He itemises the boardroom dominance of accountants:

Sikka then argues that short-termism, leading to the neglect of the long-term prosperity of companies and the economy, has been accelerated by the boardroom dominance of accountants.

Compared with other developed countries, UK companies are paying out the highest proportion of their earnings in dividends.

According to the Bank of England’s chief economist, in 1970 major UK companies paid £10 in dividends out of each £100 of profits – but by 2015 the amount was between £60 and £70. 

And at the same time as paying this large percentage in dividends many companies were downsizing labour and reducing investment, lagging behind the EU average:

Sikka asserts that the most effective way to disrupt the accounting-think prevalent in boardrooms is by appointing directors who are focused on the long-term – appointing employees and consumers so that they can challenge the obsession with short-term returns and promote investment in productive assets.

Giles quotes Lord Andrew Tyrie, new chair of the Competition and Markets Authority, who told companies in July to stop “ripping people off” or face the full force of the watchdog’s sanctions. His focus is mostly on regulated markets such as banking and energy, where companies are accused of exploiting vulnerable households by extracting a “loyalty penalty” if they do not switch suppliers.

Lord Tyrie told MPs during his confirmation hearing for the CMA in April that retail banking and auditing were parts of the economy that did not work in the interests of the public or productivity.

Scott Corfe, chief economist at the Social Market Foundation, a think-tank, claimed that pro-competition moves had some potential for raising productivity growth rates. He suggested that consumers should be switched between energy suppliers automatically after several years to stop companies exploiting customer inertia.

See this video: https://www.ft.com/content/ae25a5bc-9405-11e8-b747-fb1e803ee64e (possible paywall)

After noting that since the mid-2000s, British industries have become more concentrated, with fewer companies enjoying larger market shares, Giles focusses on this ‘one key question’:

Is inadequate competition contributing to Britain’s feeble growth in output per hour worked? 

 

We look forward to the next article in the series.

 

 

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Climate change should be placed “front and centre” of the central bank’s mandate to boost green investment

A Green Bank of England, Central Banking for a Low-Carbon Economy

Delphine Strauss (Financial Times) summarises advice in this report (link to pdf above) from the campaign group Positive Money.

It recommends that climate change be placed “front and centre” of the Bank of England’s mandate so that the central bank can boost green investment.

The report has won backing from Lord Deben, who chairs the independent Committee on Climate Change which was set up by the government to monitor the UK’s progress in meeting its statutory targets for cutting emissions:

“They are right to seek some radical measures, because the issues are radical. I think that monetary policy does need to reflect these risks”, he said, adding that central banks should do more to ensure the availability of green finance and divest from fossil fuel companies that showed no inclination to change their business.

The BoE has been reviewing UK insurers and banks’ exposure to climate-related risks and supports efforts to develop international standards for voluntary disclosure.

Mark Carney, the BoE’s governor, has repeatedly warned of the physical damage climate change could wreak on the economy and the risks to financial stability that might result from a sudden revaluation of carbon-intensive assets.

Positive Money argued that this concern for financial stability will look “incoherent” unless the BoE does more to boost investment in the transition to a low-carbon economy. Its report urged the government to rewrite the mandate of the Monetary Policy Committee to include green objectives explicitly and called on the BoE to look at ways to build climate-related risks into its macroeconomic models.

The Positive Money report urges the BoE to set an example:

  • by disclosing the carbon risks of assets on its own balance sheet
  • by ending the practice of buying bonds issued by fossil fuel companies
  • and by financing green projects via quantitative easing during any recession.

It argued that the BoE has unintentionally promoted high-carbon sectors because its criteria for asset purchases favoured the bonds of large fossil fuel companies.

 

 

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