I’ve been looking through an interesting book by UBS economist Paul Donovan and Julie Hudson,. It starts with the simple point that people were relying on credit in two ways, using both financial and environmental resources for current rather than future consumption. In some cases the credit-financed consumer boom before the crisis accelerated the consumption of environmental resources, and in other cases had positive environmental benefits. More consumption clearly uses more of some materials and more energy; but has also encouraged investment in additional infrastructure (to use water more efficiently, for example) or innovation. In either case it’s important to note that the two are related, when thinking about what the crunch after the crisis implies for financial and environmental sustainability.
[amazon_image id=”1849714142″ link=”true” target=”_blank” size=”medium” ]From Red to Green?: How the Financial Credit Crunch Could Bankrupt the Environment[/amazon_image]
The bulk of the book looks in detail at different issues to explore the interactions between red and green credit. For example, a chapter on food discusses what actions could increase agricultural productivity while protecting biodiversity and soil quality, how the credit crunch is affecting the outlook, and also what changes in behaviour might be desirable . So declining real incomes could lead to reduced consumption of meat and less food waste, but these depend on changed consumer habits and changed practices in the food retailing business. On the other hand, there is less funding for R&D in agriculture and food production – unless the corporate sector concludes that it needs to do more to limit its exposure to supply chain risks like the horse meat scandal. Other chapters look at water, energy, infrastructure, housing, human health, and consumer goods.
The detail is all fascinating, and the book obviously covers a wide territory. It seems to offer a very practical and fruitful approach to turning the crisis to some longer term benefit by getting people to focus on specific actions to reduce the economy’s reliance on financial credit and at the same time economise on natural resource use and preserve natural assets. Ever since writinga few years ago I’ve been obsessed with the chronic short-termism of modern economies. So a book about what people can do right now to safeguard future living standards – written by a City economist too – was bound to appeal to me. Any investors who are genuinely interested in long-term returns rather than quarterly results will find it very interesting. However, although the advice in is practical and specific, it does highlight how much needs to be done by many people to lengthen the economic time horizon.