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“I think 2011 is going to be an interesting year… in the Chinese sense…” Part Two (Heinberg interview)

One of the things with climate change as an issue is that when you’re trying to work out what your position is on climate change, there is a scientific consensus and there’s a body of research there – there’s certain criteria you can use when you come to it to work out if this is valid or not. In terms of economics it’s a grey area, in that there’s so much opinion – so for those of us who are coming through the work that you’ve been doing to trying to get our heads around what’s happening on a global scale, what should be the criteria be, do you think, that we should use when looking at different people’s takes on the economy, as to whether they’re valid or not? What was the criteria that you used when researching on the book?

That’s an interesting question; that’s a very good question. It is tricky because to a very large extent economics isn’t a science – it’s a set of philosophies and assumptions to which a lot of very complicated mathematics has been attached. The math looks very scientific to an outside observer but it’s based, again, on a lot of assumptions. Really, moral philosophy is what it’s been, almost from the very beginning. So how to make sense out of all of that and what criteria to use? I gravitated towards people who, first of all, used as a their basis for thinking, bio-physical reality – rather than starting from economic theory as a given and sorting things out on that basis.

Starting from energy and resources and so on, which are more really tangible and can be studied using the scientific method and then work from that. You quickly get to what most economists would think of as fringe territory, because standard economic theory is still based on the idea that the environment is a subset of the economy and resources are infinitely substitutable and so on – all of which is nonsensical but it’s heresy to question those things. You’re forced to go the heretics to start with, but ones whose thinking really is based more in the real world.

Then, in terms of understanding the financial situation per se in terms of debt and the whole world of mortgage-backed securities and leveraging and so on, I tried to find people who had a good record in terms of prediction – who had some sense of the crash before it happened, who know what a bubble looks like and don’t get taken in by them. There aren’t too many of those.

We met Chris Huhne last week – the Secretary of State for Energy and Climate Change here – and he was talking very excitedly about a report that they had done which showed that all of their plans for renewable energy makes economic sense when oil costs more than $100 a barrel, because it becomes cheaper than the original energy systems. There’s clearly a substantial flaw to that argument but I wonder…what would your response be?

Of course the problem is that once oil’s a $100 a barrel, the economy is coming apart and so that makes investment in future energy sources very problematic. In the US for example, there’s dawning understanding I would say among energy experts that we have a real problem on our hands in terms of the electricity system, keeping it going. Even ignoring limits to coal, continuing to burn lots of coal is getting politically problematic in terms of greenhouse gases and so on, and other sources of energy for electricity really aren’t coming on line fast enough so there’s been a big push to bring on more nuclear power.

But the economy’s too weak to support the investments that are required. So you have the nuclear power industry wanting to build 20 new plants right away, and the government wants that to happen too but the money’s just not there for loan guarantees. The same is happening in the renewables industry too – there’s a lot of political will for the development of renewables, but when they open up the cheque book there’s just nothing there to support it.

With renewables, it’s really important to make the investment far ahead of time because it requires not only building wind turbines and solar panels but we have to reconfigure the grid and we have to put in energy storage systems because these are intermittent sources of energy. We can’t just put up a really sizable amount of wind or solar without doing some really costly investment in other parts of the system as well. So $100 oil might superficially make other energy alternatives more attractive but you start drilling down – pardon the metaphor! – and what you get is the realisation that we should have done this a long time ago because we just don’t have the capital to do it.

Given the cuts being imposed on public spending in the UK, there is an emerging movement opposing them, arguing that there is no need for substantial cuts to public spending. However, one could argue that in the light of your analysis, this is just the beginning, and to oppose cuts in public spending is like trying to oppose an inflowing tide in the sea. What is your take on the public spending cuts, and is opposing them in any sense justified?

We are in for a decline in material living standards (measured in levels of consumption of energy and manufactured goods) regardless what governments do. If governments and central banks continue to stanch and mask the underlying deflationary hemorrhage of the economy by insulating investors from losses, the result will certainly be a need to cut back sharply on public spending. The American economist Robert Reich argues that government should instead support consumers in getting back to spending–this would restart the growth engine. Unfortunately, that latter expectation is not realistic, given increasing constraints on growth from the energy and materials sectors, and from worsening natural disasters. Nevertheless, Reich’s strategy makes more sense than the current one of starving the people to back the banks.

It’s possible in principle for governments and/or central banks to create interest-free currency with which to maintain support services, though over the short term that would create problems with trading partners, who would regard such a strategy as inflationary. However, just because people had more money in their pockets, that wouldn’t cause resources to spring into existence in response (despite economists’ insistence to the contrary). That’s why living standards will fall in any case. It’s really just a question of whether contraction occurs in a controlled and fair manner, or in a chaotic way that greatly increases the likelihood of general suffering and political upheaval.

(BB) I wondered whether you’d had any experience of positive sounding noises coming from China on two points: one is that the stat that every week China opens up a new coal-powered station. Somebody who lives over there and is advising on this kind of things said that for every one they open, they’re closing an old one. And also, a climate scientist guy over here called David Wasdell who’s the feedback specialist – he was in a group where there was a very high level of Chinese officials listening avidly to what he was saying about the climate and saying positive things about reinvoking the Chinese culture of ‘enough’. Not austerity, but recognising that they’re going to have to pull back on expectations.

Yes I think the Chinese are getting worried that they’re approaching limits to their own growth. Pollution limits and resource limits are closing in from every direction. How much room they have to manoeuvre is something we will discover. I’m afraid it may not be that much space because the Chinese have used economic growth as a social relief valve for the last double of decades. While the Chinese people have sacrificed enormously to collectively push the nation forward, that’s been on the basis that eventually they’ll get rich. “To be rich is glorious” was the saying of Deng Xiao Ping and a small amount of the population has been able to do that.

They may be closing some old or inefficient coal plants but the reality is that Chinese coal consumption has doubled in the last ten years, and there’s no way they can maintain 7-10% economic growth annually without using more coal. They are becoming the world’s leader in renewable energy and they are planning to build 250 nuclear plants over the next twenty years. But even factoring all of that in, 7-10% economic growth means doubling the size of your energy consumption every decade and the only way they can do that currently, realistically, is to continue burning more coal – and the coal probably isn’t there. They’re going to be importing more coal from Australia, Indonesia, maybe even from Alaska! There’s talk of Alaska coal exporting to China now, but how much of that trade is really feasible given the global infrastructure – probably not enough to satisfy China’s appetite.

If I were a Chinese official I would be thinking about exactly what you said – I would be thinking, well how are we going to taper off growth without provoking civil unrest? But is China going to be the next Egypt? That’s what’s going through their minds right now.

(BB) You know how Shell do a future scenarios workshop? Somebody we know was at one of those and there were two Chinese food scientists there who were speculating on the imminent food problems over there because of the climate, and the numbers – 150 million people in severe food situations.

And this is imminent because with the drought in Northern China this year could mean substantial crop failure and this could mean that the Chinese will want to import enormous amounts of wheat from the rest of the world. We’re already in a situation, as a result of the floods in Australia and so on – we can only do that by drawing down stocks to really, really dangerous levels.

(FN) It was interesting what you saying about economic contraction….that’s what we’ve been discussing at Transition Town Totnes around livelihoods – the skills that people will need. It’s kind of a timeline, so you can’t hit people with the skills that they may need further down the line because it’s too big a concept for people to grasp, it’s too big a gap from the way that they’re living now. We were thinking what kind of things would people need…..if you were trying to change the way that people were perceiving work now, what would be the things that you could do now that would be palatable to people?

(Rob) One of the things we had here recently was a two day seminar about Transition and social enterprise and at that workshop was the Mayor of Totnes and the head of the Chamber of Commerce and some of the key local people here. What we’re looking at doing over the next few months here with the Chamber of Commerce, Town Council, some of the key strategic organisations here, is an ‘economic blue print’ for the town, which is around Transition or social enterprise and seeing that that is where the revival of the place could come from. What should a plan like that contain, do you think?

Well, of course all areas are going to have to move towards increasing self-sufficiency – no town or city is ever going to be completely self-sufficient, probably. The whole history of cities is one of regional imperialism, resource imperialism, and I don’t think that’s likely to change in a fundamental way. But nevertheless, that said, we can’t continue to depend on these globe-spanning transport networks that totally depend on cheap fossil fuels. So any kinds of jobs plan or economic plan that factors in self-sufficiency is going to be going in the right direction.

But there’s still going to be a need for some kind of comparative advantage for a town like Totnes to ask itself the question, ‘What can we contribute to other regions to enable us to continue to be economically viable?’ That also goes down to the individual level. I would say to people wondering, ‘What would I do in the face of a fragile economy?’, well if you’ve already got a job, unless you’ve got a lot of savings you might want to keep that job and use the income to fund a process of reskilling where you learn how to do a lot more for yourself and become self-sufficient. At the same time, start to ask yourself the question, if there were a lot less money around and if people were living in an economically constrained situation, what would they still be willing to pay someone else to do for them … and maybe learn one of those skills.

(BB) A couple of follow on questions from that. You used the term ‘self-sufficiency’ twice in that – now it always rings alarm bells when I hear or see that written – one, because of the myth of self-sufficiency. It feels like a move towards self-sufficiency is a bit like putting the walls up around the town, and a more appropriate way of describing what we need to do, much less dependent on the global networks like you said, but much, much more dependent on the local and regional networks, which I think is materially different from being self-sufficient.

Right, well if you like the term ‘import substitution’ better – that’s a different way of describing it – finding ways that we can substitute things we make or grow ourselves for things that we currently import. But one way or another we will be importing less, so whether you call it self-sufficiency or import-substitution or something else all together, that’s the general direction that we’re going to be going in.

(BB) But do you see that that term ‘self-sufficiency’ is kicking off a certain mindset….?

Yeah, particularly amongst the survivalists I can imagine it being problematic. There’s a wonderful book written in the seventies by John Seymour on self-sufficiency – it’s a wonderful book. I thought he did a great job of helping people to recapture the skills to do things for themselves. I’m a little wary of kicking the word out all together!

(BB) Right. And I’d counterpoint that with an essay by Tony Hemenway called The myth of self reliance, which I thought was very good. The other term you used was ‘comparative advantage’, which is most standard economic sense is very much an economic view of where labour costs and material costs outweigh the transportation costs of getting something to market. All of those economic calculations have been done with the cost of fuel being pretty much at zero, so it feels like that term ‘comparative advantage’ either needs to be redefined or replace.

Absolutely it does. There’s something too….the classical concept of comparative advantage. But in the world into which we’re moving, the way it’s been pursued is just not going to work. A lot of what seemed to be comparative advantage is going to turn into comparative disadvantage!

That’s quite a good title for an essay – ‘When comparative advantage turns into comparative disadvantage’! And that’s an opportunity, right?

Herman Daly would argue that a lot of what appears to be comparative advantage is actually absolute advantage – but don’t make me explain that.

The last question I have – it’s about 3 1/2 years since you last came to Totnes when it was the very early, emerging of TTT at that stage. Quite a lot has happened since then and I wondered what your thoughts and reflections were on the successes of the Transition movement over the last few years, and also the challenges that it faces moving forwards? I did an interview with Michael Shuman recently and when I asked him what the best thing the Transition movement could do in terms of being serious about localisation, making it happen – and he said, “Go to business school. We all need to go to business school.” I wondered, in terms of the challenges, what are the things we need to be doing….?

I think that’s true. Of course the successes of Transition over the last few years have been spectacular and laudable and so on – it’s grown enormously and in the US it’s gone from zero to 80 or so recognised initiatives now. The challenge is to get beyond the early adopters. I think typically in any community there is less than 5% of the population could be called early adopters – people that are willing to do something that looks a little bit odd to their neighbours. That I think is the challenge. To me, the fact that we are facing economic crisis should be seen as an opportunity, and if Transition can find a way to access that opportunity and make the most of it, then the growth trajectory can really continue and further take off.

It’s just getting beyond those……for folks in dire economic situations or really uncertain economic times, I think it’s important that an organisation or movement – what ever Transition is – is able to offer people some hope of tangible benefits, something that’s going to help them in their life circumstances. In uncertain economic times, people are going to be less interested in something that’s intellectually interesting or idealistic, and they’re going to be much more interested in something that will help them to keep going and feed themselves and take care of their family and so on. If Transition can offer cooperative networks within the community that can offer tangible benefits, I think that will help enormously.

What do you think? Leave a comment below.

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