The environmental emergency is already causing a range of major problems around the world. Even if rapid action is taken, environmental destabilisation will increase, and societies must be ready for the resultant impacts. The Covid-19 pandemic has given an insight into events that can happen quickly, impacting all areas of society and overwhelming the ability to respond.
Adapting to the growing impacts of climate breakdown has been recognised as a priority by people across society in the UK for years. The government’s official advisors, the Committee on Climate Change, have previously concluded that the UK is not prepared for even a 2 degrees Celsius, let alone the higher global temperature rises that are likely to happen. Preparation is also needed to ensure the UK is resilient to the social, political and economic impacts of an environmentally destabilising world. There are potentially huge benefits of doing so; more resilient societies can be healthier and happier.
The Committee on Climate Change assesses the UK’s yearly progress on becoming resilient to the growing impacts of climate breakdown. It also publishes a climate change risk assessment every five years, setting out of risks and opportunities from climate breakdown. Their latest report highlights 61 impacts of climate change and identifies 34 as requiring urgent attention, from food security to public health, energy generation, international violent conflict and more. (See their short video summary here.) Carbon Brief analyses other key takeaways from the 142-page advice document and 1,500 page technical report.
The OECD argues that the impacts of Covid-19 show that economies have developed to prioritise efficiency over resilience, and that societies should be replanned to prioritise adaptability.
The US Center for Climate and Security has drawn on the expertise of retired military leaders around the world to explore the profound destabilisation resulting from climate change. A report commissioned by the Ministry of Defence explores the implications for UK defence and security policy.
Businesses are fundamental to any economy. They come in all shapes and sizes, from sole traders to multinational giants. But in recent years there has been growing criticism, both of the way some businesses behave, and of how they are governed. Much of this has come from within the business community itself.
A key argument is that many large businesses have lost their sense of ‘purpose’. Increasingly focused on financial metrics of success, many are now seen as prioritising short-term returns above long-term investment, and the interests of their shareholders above those of their wider ‘stakeholders’, such as their workers and consumers.
Partly as a consequence, new models of business have become more prominent. These include companies committed to an explicit statement of purpose. New types of ‘stakeholder’ corporate governance and financial investing are on the agenda, along with new forms of ownership giving a greater stake to workers. In these and other ways, an increasing number of businesses are seeking to change their impact on society and the environment. But some critics have expressed doubt as to whether some of these initiatives are far-reaching enough.
The British Academy’s Principles for Purposeful Business offers eight principles for business leaders and policymakers to enable companies to solve the problems of people and planet profitably, while not profiting from causing harm.
Advocating a ‘responsible capitalism’, the Financial Times surveys the issues involved in making businesses purposeful, and the experience of companies declaring their commitment to it (paywalled).
‘B Corporations’ are businesses that meet certified standards of social and environmental performance, public transparency, and legal accountability to balance profit and purpose. B Corps seek to use profits and growth as a means to achieve positive impact for their employees, communities, and the environment.
Supported by the CBI and TUC, the Good Business Charter is an accreditation system which measures corporate behaviour in ten areas, including a real living wage, fairer hours and contracts, employee representation, diversity and inclusion, environmental responsibility, paying fair tax, and ethical sourcing.
Imperative 21 is a network of 70,000 companies promoting new principles for a ‘reset’ of the economic system. It aims to equip business leaders to accelerate their transition to stakeholder capitalism; to shift the cultural narrative about the role of business and finance in society; and to realign business incentives and public policy.
A key route to improving the conditions of gig economy and other insecure workers is to extend to them some or all of the labour rights and protections covering employees and other workers. This was the broad approach taken by the 2017 Taylor Review of Modern Working Practices, which has been partially acted upon by the government. But it was widely criticised for not going far enough.
One idea gaining traction is that of ‘portable benefits’. Attached to the employee and not the employer, a portable benefits account would allow workers and employers – and potentially the government – to pay into services such as sick leave, pension contributions, maternity leave and health insurance.
The Taylor Review of Modern Working Practices commissioned by the government in 2017 recommended reform of labour law to give self-employed workers dependent on labour platforms access to legal protections such as the minimum wage. The House of Commons Library has published a review of the report and responses to it.
The TUC has called for a much wider set of reforms, including the effective abolition of zero hours contracts by giving workers the right to a contract that reflects their regular hours, along with a statutory presumption of employment rights unless an employer can demonstrate that an individual is genuinely self-employed.
The RSA has proposed a portable benefits scheme to provide rights and protections for gig economy workers.
Since the financial crash policymakers have adopted a macroprudential approach to financial regulation focused on combating systemic risk, rather than a microprudential approach focused on individual institutions.
These measures have helped to reduce the risk of failure in the banking system in wealthier nations but banks are increasingly struggling to meet their regulatory requirements during the pandemic. The economic shock triggered by Covid-19 has exposed some remaining problems across the system ��� for example, many large financial institutions outside the realm of traditional banking remain under-regulated, such as hedge funds.
Proposals for better regulation of the financial system can be crudely divided into two areas. First, those that might help the system keep working in the event of an economic crisis, including changing capital requirements and lowering dividend payouts in lean times. Second, longer-term reforms to build both resilience and ensure wider social and environmental purpose. Many of these are outlined below.
The global watchdog, the Financial Stability Board, warns that Covid-19 represents ���the biggest test of the post-crisis financial system to date�. While it believes banks are in a healthier place than in 2008, the unprecedented economic downturn means effective international action is needed to ensure the system is robust.
The New Economics Foundation�۪s Financial Resilience Index defines seven ways to measure how resilient financial systems are. It found in 2017 that the UK has the least resilient financial system in the G7.
Ten years on from the financial crash, Finance Watch concluded that none of the structural vulnerabilities that led to the crash have been properly addressed. Among their findings are that ���moral hazard�۪ (reckless risk taking) is as pervasive as it ever was, and that the pattern of regulation has shifted risk into a far bigger ���shadow banking�۪ sector.
As multinational corporations throughout the world have grown over recent decades, they have developed complex supply chains. Globally traded commodities and goods may go through many stages of production in different countries before being made into the final products we buy. In this process it is easy for companies to profit from exploitative wages and conditions, forced labour and environmental harm, particularly in the global South where workers and local communities may have little bargaining power and enforcement is difficult.
Most of the initiatives designed to prevent abuses of this kind have been voluntary, where companies commit to codes of ‘corporate social responsibility’. But there is strong evidence to suggest that these are often ineffective. Companies are insufficiently motivated or incentivised to audit their supply chains properly.
One response has been the development of ‘worker driven social responsibility’, where trade unions and workers’ organisations agree higher standards with companies, and are able to enforce them. Another has been the development of ‘due diligence’ laws, by which multinationals are obliged under the law of their home states to audit their supply chains and ensure high standards, in areas such as labour conditions, human rights, environmental impacts and anti-corruption. The evidence suggests that a requirement to report on their supply chains is not enough; companies need to be criminally liable to ensure compliance.
The Worker-Driven Responsibility Network calls for agreements between multinationals and their local workforces to ensure decent labour standards, while the Corporate Accountability Lab proposes ‘worker-enforceable codes of conduct’ which would give workers the legal right to take violators to court.
Genevieve LeBaron and Andreas Ruehmkorf at the University of Sheffield analyse different methods by which the impacts of multinational corporations through their global supply chains can be regulated by their ‘home’ states. They conclude that criminal liability achieves more than voluntary reporting requirements.
Reviewing 16,000 corporate statements made over the first five years of the UK’s Modern Slavery Act, the Business and Human Rights Resource Centre concludes that the Act has not prevented human rights abuses in corporate supply chains. Legally binding and enforced obligations on companies are needed, not simply reporting requirements.
The French Government introduced a ‘duty of vigilance law’ in 2017, under which French multinationals are criminally liable for the activities of their subsidiaries and subcontractors in the event of human rights or environmental violations.
In the EU a proposed due diligence law is working its way through the Commission and Parliament, based on a report identifying the different mechanisms by which standards of behaviour in corporate supply chains can be defined and enforced.
The CORE coalition is calling for a UK ‘failure to prevent’ law, under which companies would be legally obliged to take action to prevent human rights abuses and environmental harm anywhere in their global value chain.
The UK is more geographically unequal than any other comparable advanced economy. This regional inequality exists across output, income, productivity, employment, and political power.
The UK has long suffered from regional health inequalities. Even before Covid-19 people in the most deprived areas could expect to live 19 fewer years in good health than those in the richest parts of the country. The death rate from Covid-19 in the UK’s poorest regions was over double the rate in the wealthiest.
The economic fallout of Covid-19 could increase regional inequalities, with London and the Southeast experiencing smaller reductions in hours worked during the pandemic. But the increase in working from home, if continued, could benefit smaller towns, and rural and coastal areas, if firms and employees realise they do not need to be located in major cities.
The Institute for Fiscal Studies Deaton Review on Inequality analyses the extent and character of geographic inequalities in the UK and how they have changed in recent years.
Analysing the causes of geographical inequality in England, IPPR North ascribes these partly to the large highly centralised structure of government in England, with few powers held at local or regional level, along with the decade of regionally-imbalanced austerity since 2010. Its annual State of the North report identifies key tests for the government's 'levelling up' agenda.
The Centre for Local Economic Strategies (CLES) argues that reshaping local economic development to reduce inequalities requires policies which 'devolve, redirect and democratise' economic powers.
Cambridge economist Diane Coyle argued that addressing regional inequalities requires the devolution of economic decision-making power from Westminster.
The business model of the major pharmaceutical companies incentivises them to pursue the development of drugs that are potentially the most lucrative. This could mean focussing on treating chronic conditions experienced by elderly people in wealthy countries rather than researching diseases widely experienced in low-income countries.
Drug prices can be very high and companies hold effective monopolies for treatments – problems of particular importance during any pandemic.
It has been proposed that private industry should be better incentivised to develop the medicines society needs most. Others argue that the profit-led pharma business model is in need of more fundamental reform. with a more direct hand for governments in the medicines innovation process itself.
Some go even further, advocating new models of public ownership of key parts of the development and production process, and the government taking a greater equity stake in the medicines that it supports.
Global Justice Now and STOPAIDS explore the problems of high drug pricing and the lack of public return on investment. Their proposals include public interest conditions being attached to grant funding and enforcement of transparency on how drugs have been funded and their return on investment.
This 2016 UN/WHO paper discusses the problems of high drug pricing and what might done about it, including pooling intellectual property.
Corporate Europe Observatory and Global Health Advocates explore the influence of the pharmaceutical industry on Europe’s Innovative Medicines Initiative (IMI). They argue that corporate lobbying has meant the IMI is not sufficiently focused on the public good and conflicts of interest abound.
A number of proposals for solving the housing crisis focus on giving power and ownership of land to communities.
In one model, that of Community Land Trusts, land is gifted to or purchased by a community-run body to develop affordable housing and hold it for the long term. In Scotland such trusts are supported by a Community Right to Buy for neglected land.
A second area of focus is ensuring more land is brought into, or kept in, the public sector. Campaigners call for a halt to the programme of selling off public land for development which, they warn, is leading both to unaffordable housing and a reduction in the state’s ability to decide what gets built where.
Proposals have been made for the establishment of a Public Land Bank or similar body to take an oversight of how best strategically to use land in the public sector, and to bring more land into public ownership.
The National Community Land Trust Network supports community land trusts through funding, resources, training and advice and works with government, local authorities; lenders and funders to establish the best conditions for CLTs to grow and flourish.
In 'The Policies of Belonging', centre-right think tank Onward recommends giving communities the right to establish Community Land Trusts to develop community-led housing.
Civitas called for a change to the law so that compulsory purchase by the state would only require compensation at existing, not potential future, use values. This would disincentivise land banking and allow councils to lead development in the interests of local communities.
The New Economics Foundation calls for a halt to the government’s programme of selling off public land to build houses and recommends establishing a Public Land Bank for purchasing and selling land.
In the 1980s and 1990s western governments deregulated the financial system, and removed obstacles to the cross-border movement of capital. One of the results was a significant expansion in the size and profitability of the financial sector relative to the rest of the economy.
As restrictions on banks and other financial institutions were lifted, and the global economy grew, lending increased. Private debt - owed by businesses and households - rose rapidly in the period up to the financial crash of 2008, which revealed the increasingly risky nature of credit practices and the greater financial instability to which it led. Public debt increased after the crash as governments were forced to bail out the financial sector and respond to the recession. In 2021 total global debt had risen to over three and half times the value of global GDP.
The same period saw many financial companies focus on essentially short-term financial activities - trading and speculating in shares, bonds, currencies and other assets - rather than providing investment capital for new and growing businesses.
These processes of financial sector growth - and the increasing use of financial metrics in other parts of the economy - are often described as the 'financialisation' of the economy.
In the UK the City of London and the wider financial sector employ over a million people and make a major contribution to the UK's trade balance. However some analysts argue that the financial sector has now become too large, acting as a drain on the rest of the economy rather than as a net asset. Critics of financialisation argue that the financial sector is now too much focused on extracting value from the economy and not enough on helping create it.
The Transnational Institute explains the concept and history of financialisation and explores its impacts in the economy and society.
In a report for the IPPR Commission on Economic Justice, Grace Blakeley analyses the impact of financialisation on the UK economy. Arguing that the City of London's role in the global financial system has damaged UK manufacturing and exporting sectors by pushing up the value of sterling, contributed to a model of economic growth overly dependent on house price inflation, and fuelled inequality, she proposes a range of reforms.
A report from the Sheffield Political Economy Research Institute argues that the UK's financial sector is now too large. Arguing that the UK economy suffers from a ‘finance curse’ through which the finance sector skews the development of the economy as a whole, the authors seek to estimate the scale of the economic damage caused.
Economist William Lazonick shows how the growth of 'share buybacks' (where companies buy their own shares) reveals the financialisation of modern corporations, and the extent to which they and the financial sector have become value extractors rather than value creators.
Economist Daniela Gabor explains the growth of 'shadow banking', the network of financial institutions which act like banks but are not regulated or supervised in the same way, and examines their impact on overall financial stability.
Economists Brian Bell and John van Reenen examine the significant increase in financial sector pay and bonuses over the last three decades and show how this has contributed to extreme wage inequality in the UK.
Corporate governance in the UK and US is based on the principle of shareholder primacy. This means that the interests of shareholders take priority over those of other stakeholders in a firm, such as workers, suppliers or consumers. There is good evidence that this can encourage an excessive focus on short-term profitability, at the expense of long-term investment.
It is widely argued therefore that the Anglo- American model of corporate governance should better reflect the interests of a company’s stakeholders, not just its shareholders. Proposed reforms include giving firms an explicit duty to pursue long-term purpose or value creation, and to tie executive pay to a range of performance metrics rather than just a firm's profitability or share price.
A particular focus for reform is the make-up of company boards. Advocates of worker representation on company boards – which is commonplace in many European countries – argue that it would tend to strengthen investment, because workers have a longer-term interest in their companies than short-term shareholders. By fostering a culture of cooperation between managers and workers, it is said, it would also boost productivity. There are also widespread calls for mandatory improvement in the gender and ethnic diversity of company boards.
The Purposeful Company calls for firms to have an explicit duty to pursue long-term value creation. It argues for executive pay to be linked to long-term business performance, and for differential voting rights for short-term and long-term shareholders.
The IPPR calls for changes to company law to give directors an explicit responsibility to promote the long-term success of a company and for a new Companies Commission to regulate corporate governance.
The World Economic Forum sets out the theory and practice of ‘stakeholder capitalism’, in which firms are accountable to their wider stakeholders, not just shareholders.
The TUC proposes that one third of the boards of all large businesses should be made up of workers elected by the workforce, arguing that this would boost productivity and overall economic performance.
Surveying more than 1000 companies in 15 countries, McKinsey find that greater diversity in executive teams increases the likelihood that a firm will financially outperform its competitors. They argue that ‘diversity wins and inclusion matters’.
Economics blogger Noahpinion collated and summarised recent scholarly work on the various economic harms of concentrated corporate power.
