Publications

Building a resilient economy

Analysing options for systemic change to transform the world’s economic and financial systems after the pandemic


By NEF, Zoe Institute and Wellbeing Economy Alliance

In 2020, the world’s governments acted at an impressive scale and speed to mobilise resources in response to COVID-19. By April, they had collectively assigned US$9 trillion to buffer against the economic impacts of the pandemic. In the UK alone, €176.7 billion were made available as an immediate fiscal response.

As these eye-watering sums illustrate (and those associated with the banking crash in 2008 reinforce), dealing with a crisis is very costly, in economic terms as well as regarding social impacts. Therefore, where a crisis is foreseeable – as in the case of climate change and increasing biodiversity loss, societies should invest in preventative measures.

Science shows us that humanity’s impacts on the planet are intensifying and environmental trends are heading in the wrong direction. In response, there have been calls for systemic interventions from prominent international agencies including the United Nations Environment Programme, the Intergovernmental Panel on Climate Change (IPCC) and the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES).

These agencies recommend a rapid transition towards an economy that’s low-carbon, resource-light and that restores nature. They are promoting the need for a fundamental reform of our economic systems, so that equality, environment, and wellbeing become core to the way our economies function. It’s an agenda that has been endorsed by mainstream actors such as the World Economic Forum, the Financial Times and the Economist.

Many reports, ideas and proposals make the case for the required changes. What has been missing is a better understanding of how systemic change can be put into operation and, given the urgency and interdependency of the issue, how the UK can effectively support a fundamental transformation of its economic system towards a resilient economy.

This report it is an attempt to fill this gap. The following chapters (and the research underpinning them) focus on the role of government and policy in delivering systemic change. We outline where public policymakers should place the emphasis in order to transform the world’s economic and financial systems most effectively to mitigate future environmental crises.

The report proposes a set of policies the UK government could implement to amplify impact and ensure long-term systemic change – both for its domestic economy and at an international level. There is no silver bullet” solution to the multiple crises we face, and many changes will be required, involving governments, investors, businesses and the public alike – so the policy package we outline is a blueprint to deliver systemic change in the current policy context. It should be regarded as a basis for discussion to demonstrate the scale, nature and interlinkages of the changes required.

We start by categorising the key areas for systemic intervention that can shift behaviour in the longer term into four sections (policy, finance, business, and citizens), as illustrated in Table 1.

Table 1: Fields of action and intervention clusters of recommendations from the literature review

Policy

Finance

Business

Citizens

Multidimensional indicators, monitoring capacity, and legal frameworks: ensure political decision making addresses the environment and wellbeing with equal weight on the economic aspects.

Fiscal policy and growth independence: increase the space for fiscal interventions to support a green and just transition and decouple economic stability from economic growth.

Limiting power and empowerment for change: reduce economic and democratic power imbalances.

Mandates and legal interpretations: include environmental and social objectives in the targets of public institutions such as central banks and development banks.

Metrics for the long-term: integrate environmental categories and extend the time horizon in risk assessments.

Shifting profitability: internalise the costs of environmental damage.

Sustainable investment and innovation: shift investment and technology from resource-intensive activities to those that are less resource-intensive but more labour-intensive.

Non-financial disclosure, reporting and accountability: include environmental objectives in business reporting standards.

Sustainable business models: Support business models that focus on sustainability and wellbeing and create a level playing field.

Sustainable consumption alternatives: shift from unsustainable to sustainable consumption.

Sufficiency: limit the total level of consumption.

Affordability and fairness: reduce inequality and ensure that all are capable of meeting their basic needs and of participating socially.

The first part of our report provides a summary of almost 300 transformative proposals split into these four categories. Each proposal has the potential to address the socioeconomic root causes of today’s crises through policy changes that have cross-cutting and transformative impact.

Building on this comprehensive list of proposals we set three key criteria to identify the most promising policies:

  1. Relevance: their relevance and topicality in the UK context.
  2. COVID-19 suitability: the extent to which they could support a sustainable economic recovery from COVID-19.
  3. Transformative potential: the impact they have on driving long-term systemic change.

Using this analysis and input from experts in policy, academia and business, we propose a package of eight mutually supportive areas of reform in the second part of the report. These policies would help to significantly accelerate the transition towards a resilient economy for the UK and internationally:

1. A wellbeing budget for the UK that redefines what we value in our economy and consequently allocates a greater share of public and private resources towards environmentally sustainable and socially beneficial outcomes.

2. A modernised set of government fiscal rules in the UK that ensure the availability of sufficient resources to complement the wellbeing budget. This will enable the UK government to borrow more at the current low interest rates and invest in the low-carbon and resource-efficient sectors that will sustain the economic development of the country over the coming decades.

3. Further backing for redirecting money to help fund the green transition, via a new UK national investment authority. This will play an active role in the market by investing public resources towards specific missions or outcomes (such as meeting the UK’s net zero target).

4. On a financial level, this shift in investments is accelerated through mandatory financial risk assessments and their disclosure for private banks that integrate non-traditional environmental risks into their accounting and risk assessment frameworks.

5. The disclosure of these risks is also a precondition for green credit guidance. By factoring climate and ecological risks into their asset purchases and collateral frameworks, central banks will help shift investments from harmful activities to green sectors.

6. A land value tax to generate a new source for financing investments and generating resources to support low-income households. This policy will have negligible effects on economic activity, but will help correct wealth and power inequalities. Its taxes windfall increases in land value while increasing the efficiency of land use in rural areas, and will reduce soil sealing and the fragmentation of landscape.

7. Additional fiscal revenues from resource caps. These ensure that increases in resource efficiency translate into an absolute rather than a relative reduction in resource use. In doing so they help control biodiversity loss and ensure ecosystems can recover naturally to a more sustainable state.

8. Environmental border taxes that put a higher price on imports of environmentally harmful goods. These will ensure that the domestic economy is competitive, at the same time they will reduce carbon emissions while protecting biodiversity.

For each of these policies we identify several existing stakeholder coalitions and upcoming political opportunities where they could be refined, promoted and secured. Some require much greater international cooperation and are therefore more challenging, while others could be enacted immediately.

The policies presented here are mutually supportive. Most address several of the intervention areas listed in Table 1. A wellbeing budget for the UK, the national investment authority, mandatory financial risk assessments and a green credit guidance all aim to increase and strengthen investment in the green economy. A modernised set of government fiscal rules, a land value tax, and resource caps create the necessary fiscal leeway. Resource caps ensure that these policies are effective in reducing resource use through absolute limits and a dynamic steering effect via prices. Lastly, a land value tax is one option among many to ensure social acceptance, while environmental border taxes aim to support domestic economic actors.

The recovery from COVID-19 presents a fork in the road for governments. Bouncing back to the pre-COVID days isn’t good enough. We cannot afford to continue to tinker at the edges with policies that achieve incremental change or are no longer fit for purpose. As the environmentalist Bill McKibben solemnly noted, winning slowly is the same as losing” in the context of climate change. The research, analysis and synthesis presented here offers a sample of the bold and transformative policies we need to bounce forward and to address the multiple crises we face collectively.

To do so, government, investors, businesses and citizens need to make choices. Together, they need to put in place regulation that break our dependence on fossil fuels and extractive economic activities and propels the UK along a carbon-neutral, low-resource and high wellbeing pathway. This report is an invitation. We are aware the proposals are far-reaching. But we are convinced they are necessary. To mitigate the costs of future crises, we need the courage to do something new. With this report, we invite you to dare, so that the prosperity of today will benefit our children tomorrow and we can give them a greater chance to thrive on a bountiful planet.

The project was led by ZOE-Institute for future-fit economies (ZOE) in close
cooperation with the New Economics Foundation (NEF) and the Wellbeing Economy Alliance (WEAll).

Image: Pexels

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