Climate change deniers have grasped that markets can't fix the climate

The refusal to accept global warming is driven by corporate interests and the fear of what it will cost to try to stop it

• 
• • Seumas Milne
  • The Guardian, Thursday 20 February 2014

'In the words of Nicholas Stern’s 2006 report, climate change is “the greatest market failure the world has ever seen”.' Photograph: Corbis

It's an unmistakable taste of things to come. The floods that have deluged Britain may be small beer on a global scale. Compared with the cyclone that killed thousands in the Philippines last autumn, the deadly inundations in Brazil or the destruction of agricultural land and hunger in Africa, the south of England has got off lightly.

But the message has started to get through. This is exactly the kind of disaster predicted to become ever more frequent and extreme as greenhouse gas-driven climate change heats up the planet at a potentially catastrophic rate. And it's exposed the David Cameron who wanted to "get rid of all the green crap" and who slashed flood defence spending by £100m a year as weak and reckless to his own supporters.

Of course there have been plenty of floods in the past, and it's impossible to identify any particular weather event as directly caused by global warming. But as the Met Office's chief scientist Julia Slingo put it, "all the evidence suggests that climate change has a role to play in it". With 4% more moisture over the oceans than in the 1970s and sea levels rising, how could it be otherwise?

If it weren't for the misery for the people at the sharp end, you might even imagine there was some divine justice in the fact that the areas hit hardest, from the Somerset Levels to the Thames valley are all Tory heartlands. It's the same with the shale gas fracking plans the government is so keen on: the fossil fuel drilling and mining so long kept away from the affluent is now turning up on their Sussex doorstep.

How do the locals feel that their government cut flood defences for the areas now swimming in water in the name of austerity, while one in four environment agency staff is being axed and the environment secretary, Owen Paterson, slashed his department's budget for adaptation to global warming by 40%?

Not too impressed, to judge by the polling. But then, paradoxically, Paterson is in fact a climate change denier in what was supposed to be "the greenest government ever", a man who refused to accept a briefing from the chief scientific adviser at the energy and climate change department, reckons there are benefits to global warming and thinks "we should just accept that the climate has been changing for centuries". Of course he's not alone among Conservatives in being what one of his cabinet colleagues called "climate stupid". The basic physics may be unanswerable, 97% of climate scientists agree that carbon emissions are dangerously heating up the planet, the Intergovernmental Panel on Climate Change warn it's 95% likely that most of the temperature rise since 1950 is due to greenhouse gases and deforestation, the risk of a global temperature rise tipping above 1.5–2C be catastrophic for humanity.

But the climate flat-earthers are having none of it. As a result, what should be a pressing debate about how to head off global calamity has been reframed in the media as a discussion about whether industrial-driven climate change is in fact taking place at all – as if it were a matter of opinion rather than science.

The impact of this phoney controversy during an economic crisis has been dramatic: in the US, the proportion of the population accepting burning fossil fuels drives climate change dropped from 71% to 44% between 2007 and 2011. In Britain, the numbers who believe the climate isn't changing at all rose from 4% to 19% between 2005 and 2013 (though the floods seem to be correcting that).

The problem is at its worst in the Anglo-Saxon world – which has also historically made the largest contribution to pumping carbon into the atmosphere. Take Australia, which is afflicted by longer and hotter heatwaves, drought and bushfires. Nevertheless, its rightwing prime minister Tony Abbott dismisses any link with climate change, which he described as crap, and has promised to repeal a carbon tax on the country's 300 biggest polluters. The move was hailed by his political soulmate, the Canadian prime minister and tar sands champion Stephen Harper, as an important message to the world. And in the US, climate change denial now has the Republican party in its grip.

What lies behind the political right's growing refusal to accept the overwhelming scientific consensus? There's certainly a strong tendency, especially in the US, for conservative white men to refuse to accept climate change is caused by human beings. But there shouldn't be any inherent reason why people who believe in social hierarchies, individualism and inequality should care less about the threat of floods, drought,  starvation and mass migrations than anyone else. After all, rightwing people have children too.

Part of the answer is in the influence of some of the most powerful corporate interests in the world: the oil, gas and mining companies that have strained every nerve to head off the threat of effective action to halt the growth of carbon emissions, buying legislators, government ministers, scientists and thinktanks in the process. In the US, hundreds of millions of dollars of corporate and billionaires' cash (including from the oil and gas brothers Koch) has been used to rubbish climate change science. That is also happening on a smaller scale elsewhere, including Britain.

But climate change denial is also about ideology. Many deniers have come to the conclusion that climate change is some kind of leftwing conspiracy – because the scale of the international public intervention necessary to cut carbon emissions in the time demanded by the science simply cannot be accommodated within the market-first, private enterprise framework they revere. As Joseph Bast, the president of the conservative US Heartland Institute told the writer and campaigner Naomi Klein: for the left, climate change is "the perfect thing", a justification for doing everything it "wanted to do anyway".

When it comes to the incompatibility of effective action of averting climate disaster with their own neoliberal ideology, the deniers are absolutely right. In the words of Nicholas Stern's 2006 report, climate change is "the greatest market failure the world has ever seen".

The intervention, regulation, taxation, social ownership, redistribution and global co-operation needed to slash carbon emissions and build a sustainable economy for the future is clearly incompatible with a broken economic model based on untrammelled self-interest and the corporate free-for-all that created the crisis in the first place. Given the scale of the threat, the choice for the rest of us could not be more obvious.

Time to get cracking on fracking

S A Aiyer

After years of consideration, the government has come out with a disappointing shale gas policy. The public sector companies, ONGC and Oil India, will be allowed to drill for shale oil and gas in blocks they already have, but fresh auctions will be conducted for all other shale deposits. Private sector companies will not be allowed to exploit shale formations in their existing blocks. This means delay and unwarranted red tape. There is little reason to have separate auctions for conventional and non-conventional oil and gas.

Shale gas and oil have changed the face of the US. Huge increases in production have taken the US close to self-sufficiency in oil, and created a big gas surplus. By 2020, the US may get all its energy needs from its own fields and those of Mexico and Canada, eliminating the need for oil from the Middle East or Latin America. India’s prospects are much poorer. Yet preliminary data suggest that India has 63 trillion cu. ft of shale gas, 20 times as much as in Reliance’s offshore field. Additional prospecting could raise reserves considerably.

One good feature: the new policy mandates auctions based on simple production sharing between the explorer and government. The current cost-plus system has led to endless disputes in Reliance’s case. This new policy will apply to conventional as well as non-conventional deposits.

The question remains, why treat shale gas as different from conventional natural gas?

Gas and oil have been formed by the decay under great pressure and heat of marine life trapped in sands millions of years ago. Conventional oil and gas are produced by drilling into rock formations that are porous (lots of holes in the rock) and permeable (the holes are interconnected, letting the oil/gas to flow out under its own pressure). Limestone and sandstone are rocks with good flow rates. But other rock formations can be “tight”, having low porosity and permeability, in which oil does not flow easily.

This is true of shale and some other rock formations. These formations have long been known to contain enormous deposits, but extracting them was earlier not economically viable. Then a new technology, fracking, was devised in the 1990s. It used horizontal drilling and highpressure water with sand to crack open tight formations. This improved the flow enough to make drilling viable.

Now, many oil and gas deposits lie in multiple layers of different rocks. Thick sandstone and limestone formations may be interspersed with shale layers. The oil and gas lie trapped in all the layers, but conventionally were extracted only from the easy-flowing ones. Now they can be extracted from the tight layers too.

Does it make sense to decree that an explorer can touch only conventional strata and not tight layers, which should be auctioned to a separate company? Is it logical to have two companies drilling in the same block, one in the limestone strata and another in the shale? Apart from the duplication in cost and effort, it could lead to endless disputes and litigation. It could jeopardize safe field development too.

The US makes no distinctions. An explorer strikes deals with landowners, and can extract any gas or oil from any sort of rock. After all, nobody knows in advance whether oil or gas will be discovered, and if so in what sort of rock.

Exploration policy in India should similarly have no distinctions in exploration policy. However, fracking will need separate environmental clearance, because it poses special challenges.

Fracking needs very large quantities of water, mixed with chemicals, for blasting open tight formations. Waste water after fracking could contain toxic chemicals, and so must not be dumped.

To begin with, fracking in India can be limited to areas with abundant water. Only deep aquifers should be tapped for fracking, avoiding shallow aquifers used for irrigation or drinking water. Maybe sea water can be used in coastal locations.

Second, waste water after fracking must be recycled for use in new wells, not dumped. This will not only check toxic hazards but reduce the water needed for additional wells. Only certified safe chemicals should be used for fracking.

If surplus fracked water is pumped underground for disposal, it can cause small tremors (misleadingly reported as “earthquakes” by activists). This can be managed by gradual, deep disposal.

Activists will undoubtedly ask the courts to ban fracking, even though not a single case of contamination has been established after two decades in the US. The government should get an advance ruling on this from the Supreme Court, clarifying conditions under which fracking can take place. This may take a few years, so we need to start forthwith.

Keep the pause button on GM pressed

JACK A. HEINEMANN in The hindu

  

 

Questioning a technology, especially of the kind that has serious unknowns and lacks clear social benefits, is not an attack on science

Jairam Ramesh, former Environment Minister for India, made the brave decision in 2010 to tell his then apex regulator of genetically modified organisms (GEAC) that it had failed to properly use available science to determine the safety — to human health and the environment — of Bt brinjal, created using genetic modification (GM). His decision followed careful evaluation of the science.

I was involved in Ramesh’s review. I read first hand the scientific evidence in my area of expertise provided to the GEAC and its responses. I was heartened to see that his decision was validated by the esteemed scientists that made up the Supreme Court Technical Expert Committee who have advised the Court on the need for better research and better process before continuing to release GM crops into the environment or using them as food.

Creating confusion

G. Padmanaban (“Sow the wind, reap a storm,” The Hindu, September 2) believes that the events surrounding the evaluation of Bt brinjal and now extending to other kinds of GM plants is an assault on science. He confuses science with technology. Science is the process of knowledge creation (or discovery) whereas technology is the means of knowledge application. This confusion causes some scientists to defend technologies that are questioned because they perceive questions on the technology as an attack on science. It is not.

There is much knowledge discovered or to be discovered that cannot be applied wisely — at least not now. GM plants are among the technologies that have both serious scientific unknowns and lack a clear social benefit — at least for now.

For over 30 years, GM has been promised to produce plants that will resist the stresses of drought, heavy metals and salt, that will increase yield, reduce the use of toxic pesticides and even fix their own nitrogen. To be fair, some GM crops have reduced the use of some toxic insecticides for a brief period. To be precise, though, none of these promises has been sustainably delivered to farmers.

Why not? Well, it isn’t complex regulation holding them back. By the year 2005, over 1,000 applications were approved to field trial stress-tolerant GM plants in the United States alone. None ever progressed out of the testing phase. The explanation for this is likely because stress tolerance is not a solution to the causes of stress. No matter how tolerant you make the plant to drought, using it in soil low in organic matter and unable to hold water will eventually further deplete the soil of moisture and the plant will struggle or die. GM is an attempt to use genetics to overcome the environment. This never works for long. That is why some call GM a distraction from investing in real solutions to the problems faced by real farmers.

A symptom

Herbicide use is increasing in the U.S. since it adopted GM maize (corn), soybeans and cotton. Insecticide use is down by a small bit, but extremely high compared to countries such as France which do not use GM crops. Western Europe’s maize yields match or exceed the U.S.’ yields using less pesticide. The yields in wheat and oilseed rape are increasing at an even faster rate in Western Europe than in the U.S. and Canada. This indicates a dangerous trend: those countries choosing to innovate in agriculture using GM are demonstrating lower productivity increases and greater dependence on chemical inputs in all crops compared to economically and environmentally comparable countries choosing to not use GM crops.

What is it about investing in GM products that seems to undermine other technologies in agriculture? GM products attract the strictest intellectual property (IP) rights instruments possible in agriculture (e.g., process patents). The use of those instruments concentrates investment and drives out simple but even more effective technologies.

Now every government research centre and public university seeks to compensate for the fall in direct public investment through licensing royalties from IP and the creation of partnerships with the private sector. This necessarily changes the kinds of questions they favour being asked by their researchers, the kind that will be supported by institutional resources or rewarded with promotion. With these policies in place we shouldn’t be surprised that every problem looks like it has a GM solution even to researchers who claim to have no entrepreneurial motivations.

Prof. Padmanaban’s ambition for a crop that provides all nutritional needs and grows everywhere demonstrates the poverty of the GM approach to hunger and malnourishment. Such a crop would quickly become obsolete as it would also serve as a wonderful meal for every conceivable form of pest. Meanwhile, it would undermine both biological and agricultural diversity as it became a weed in its own right.

Instead of that approach, supporting communities with education on nutrition and farmers with technologies that build up their soils, manage pests with little or no application of pesticide and manufactured fertilizers gives them the means and independence to grow a variety of crops and livestock to meet their dietary needs and sell their surplus in local markets.

This investment in agriculture is not as good at making intellectual property, but better for growing food. To properly support India’s mainly small holder farming requires removing the penalties and incentives on the public scientist to develop primarily technologies that bring direct revenue to their institutions. Instead, invest in them with public money and measure their success by the yields of farmers, the reduction of pesticides and fertilizer they use, and the increase in their wealth and health.

No missed opportunities

India is not missing out on the benefits of GM. So far, there haven’t been any proven to exist, or proven to be sustainable. GM crops are not designed to increase intrinsic yield and the largest scale and longest term studies bear out that they don’t yield more. Meanwhile, the cost of GM seeds is the fastest growing expense for U.S. farmers who are simultaneously suffering from weeds resistant to the herbicides excessively used on GM crops and pests resistant to the insecticides over-used in Bt crops. That likely would be India’s experience had it commercialised Bt brinjal which was developed with the least effective form of Bt for the target pest.

In addition, the safety issue still lingers over these products. It shouldn’t. The science needed to establish their safety exists and is affordable but it must be applied dispassionately and transparently. That is all Jairam Ramesh asked.

Claiming that GM crops are demonstrated safe by the absence of specific health claims from Americans is glib. There are no validated health surveillance programmes in the U.S. which could both detect and diagnose the cause of the most likely manifestations of harm if they do exist.

Meanwhile, more research studies accumulate with evidence of adverse effects, some quite serious. These studies require replication, but they run into roadblocks or fail to find new funding. Most often these studies report low level health effects using animal feeding studies, so it is not clear whether the effect would be the same, more or less in humans and more or less likely to be caused using GM plants cooked and processed, as humans eat them, rather than raw or processed the way they are provided to test animals.

Hunger, pestilence, and economic failure are the images of fear increasingly being used to drive acceptance of GM crops. Ignorance, anti-science, ideology and hypocrisy are the insults used to counter questions about the safety of GM crops coming from scientists and the public. What is right for India’s agriculture is too important a question to leave to fear and insult to decide. I think that both Ramesh and the scientists of the Technical Expert 

Committee knew this when they asked India to pause on the use of GM products. Pause so that all voices can be heard. Reflect on what the problems are and whether technologies solve them or mask them for a time, or even make them worse later.

British Rail - Should it be renationalised?

Privatising the railways was a disaster. It's time to renationalise

Passengers are paying a fortune to travel in overcrowded trains, so Labour, like the Greens, should seize the initiative

• 
• • Caroline Lucas
  • theguardian.com, Thursday 22 August 2013 17.30 BST

'The solution the Green party is proposing is for our railways to be brought back into public hands, with passengers having a greater say in the development of the system.' Photograph: Bruno Vincent/Getty Images

"No direction", "dithering", "rudderless". Ed Miliband isn't the first opposition leader to hear this kind of language as an election looms, so perhaps we shouldn't be surprised that his MPs are queuing up to offer him friendly encouragement to fill the policy vacuum.

Clearly, it's not easy being in opposition, knowing that every policy announcement can and will be used against you by the government and a hostile media. But that's why politics requires courage.

Labour now has some fantastic opportunities to get behind progressive policies that would resonate with its traditional support and with voters. One in particular is about to pull into the station. With the dreadful news last week that rail fares will go up by an average of 4.1% next year (and sincere sympathies to you if you're one of the many passengers who will be hit much harder than that), it's surely time for Labour to accept that privatisation of the railways was a disastrous failure that it should have reversed when it had the chance.

With the prime minister's former speechwriter, Ian Birrell, leaping to the defence of privatised services and talking about record levels of passenger satisfaction, surely now is the time for Miliband's team to sign up to a policy that would genuinely distinguish him from the coalition. The shadow transport secretary, Maria Eagle, sounds as if she wants to head in that direction. She recently criticised the government's determination to re-privatise the East Coast service, calling it "bizarre and dogmatic". East Coast, she noted, makes one of the highest payments to the public purse, receives the least subsidy and is the only route on which all profits are reinvested in services. So why doesn't Labour go the whole way?

The Rebuilding Rail report, published last year by Transport for Quality of Life, offers a superb analysis of the mess Britain's railways are in. It finds that the private sector has not delivered the innovation and investment that were once promised, that the costs of back-room staff have massively increased, and that the costs of train travel rose by 17% between 1997 and 2010 (while the costs of travelling by car fell). It conservatively estimates that £1.2bn is being lost each year as a result of fragmentation and privatisation. The irony is that some of the biggest profiters are the state-owned rail companies of our neighbours: Deutsche Bahn, for example, owns three UK franchises.

Birrell seeks to paint opponents of privatisation as dewy-eyed nostalgists. But the modern, efficient, clean, affordable services enjoyed in other parts of Europe offer a much better blueprint than our own past. The solution the Green party is proposing is for our railways to be brought back into public hands, with passengers having a greater say in the development of the system. The government would take back individual franchises when they expire, or when companies fail to meet their conditions. The enormous savings generated could and should then be reinvested in rail infrastructure, and to reduce the soaring cost of fares.

My private member's bill sets out the process to make this happen, and is due to have its second reading in October. I've written to Maria Eagle asking if Labour will get behind it. As a policy for Labour, it's unlikely to play well in the Mail and the Telegraph. But I suspect many of their readers – particularly those reading their papers while jammed up against a fellow commuter on an overcrowded, overpriced train – might be more receptive. And certainly there are many rank and file Labour MPs, many of whom are already backing the bill, who are desperate to see their leader prove himself as theconviction politician he says he is.

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Forget the nostalgia for British Rail – our trains are better than ever

Passengers may be grumbling about the planned fare increases, but on balance rail privatisation has been a huge success

• 
• • Ian Birrell
  • The Guardian, Thursday 15 August 2013 20.25 BST

'For all the defects of a rushed privatisation, rail has evolved into a ­privately run public transport system playing a critical and successful role in the economy.' Illustration by Satoshi Kambayashi

There is a weary predictability to the political choreography. Once again, it's revealed,commuter rail fares are rising above the rate of inflation, squeezing the cost of living still further for hard-pressed families. Ministers claim they checked bigger increases; the opposition pretends it would have done differently; passenger groups scream in pain; and the unions demand a return to state ownership.

This is one area where union conservatism strikes a chord with the British public, long sceptical over the supposed benefits of rail privatisation. Many regular users see it as little more than a modern-day train robbery, with fat cat bosses cramming passengers into carriages and creaming off vast profits from creaking services. Surveys show two-thirds of voters would happily see the railways renationalised, an idea being considered by Labour.

As so often, conventional wisdom is wrong. For all the defects of a rushed privatisation, rail has evolved into a privately run public transport system playing a critical and successful role in the economy. The reality could hardly be more different to perception: passenger numbers booming, productivity rising, the number of services soaring, and customer satisfaction at near-record highs. Even those hated fare rises are not all they seem.

Modern vision is clouded by misty-eyed nostalgia for lovely old trains that once trundled around our tracks. As we hurtle along in slick modern trains with Wi-Fi and friendly service, it is easy to forget the poor punctuality and filthy carriages in the dismal days of British Rail. It was crippled by decades of under-investment, driving up fares and driving away freight – but even Margaret Thatcher saw the sale of the railways as a step too far. It was left to her successor, who forced it through too fast with civil servants told to privatise "as soon as practicable" and ensure the process was irreversible.

As one former rail boss said, the plan was half-hearted and half-baked; it was so unloved even Lord Whitelaw, Thatcher's long-suffering deputy, opposed the idea. The result in political and financial terms was a disaster, symbolised by executives of three rolling-stock firms handed the most obscene profits on a plate. The architecture of privatisation was flawed – an attempt to impose models from other industries on a complex transport system – but the ambition to introduce competition and private capital was sound.

Two decades later, some – although far from all – of the kinks have been ironed out. There remain, for example, issues over inflated hidden subsidies handed to the train operating companies. And while public spending on the railways has soared, Network Rail remains wasteful and guilty of inadequate management yet its bosses take big bonuses. The transport secretary, Patrick McLoughlin, should have slammed their greed rather than supported them earlier this week.

But focus on the facts. When I travel from London to watch my football team, Everton, play at home, the average journey time to Liverpool is now 37 minutes quicker than when rail was privatised. This makes a difference on a trip that is now little more than two hours. There are also more options available for travel; on some major routes, more than twice as many trains are running. Britain has an additional 4,000 services a day, a rise of one-fifth that ensures the most frequent services among eight European nations tested by a consumer group. And we have the safest railways on the continent.

The ultimate test of any market is its popularity. Here again, rail can claim success despite intense competition from bus companies and budget airlines, which only took off in this country after rail privatisation. When the plan was first promoted, Britons took on average 11 train trips a year; now we take twice that number. Since the turn of the century freight traffic has risen substantially and passenger numbers have soared by 49% – far more than under those admired state-run services in France, Germany and the Netherlands. This means the level of subsidies per passenger has fallen while revenues to Whitehall have risen by more than £1bn.

Passengers grumble with justification over a maze-like ticketing system, yet these price variations have ensured rail companies can compete on longer journeys with rivals in the air and on the roads. So yes, the cost of some fares is now ridiculous; with travellers often stung by hideous sums for peak-time travel – but away from the headlines and cries of outrage, many fares and season tickets have fallen in real terms. One test on a price comparison website found journeys in Britain mostly cheaper than similar-length jaunts in France and Germany. Overall, the average price per passenger mile has risen only 4% in real terms over the past 15 years.

More investment, more competition and more pressure on the corporate fat cats are needed. But our focus should be on improved regulation, not a reversion to failed models; indeed, in many ways rail demonstrates the potential of a part-privatised public service at a time when such policies are causing concern in other sectors. Britain should, as with other national institutions, stop being dazzled by nostalgia, ignore the groans of vested interests and focus on keeping an unlikely success story on track.

Profit has never been a company’s only duty

Businesses must look after their shareholders - but they should also work in the public interest

It is not enough to be a good corporate citizen, for share ownership carries with it power and responsibility Photo: AFP/Getty Images

By Jesse Norman in The Telegraph

8:20PM BST 16 Jul 2013

The issue of taxation is never far from the headlines, and doubly so in times of austerity. So it’s hardly surprising that the likes of Google, Starbucks and Goldman Sachs have come under fire in recent years for under-payment of tax.

But how much tax should a company pay? At first glance, the answer is obvious: only as much as the law demands. The economist Andrew Lilico put the point well recently: “The assets of… a company do not belong, per se, to the company’s employees… it’s not for the managers or accountants of a company to decide that shareholders ought to pay some extra tax, not legally required of them, and then do so on their behalf.” Not only that, any claim to the contrary is an attack on private property itself: “It is, as it were, to say that all money belongs to society collectively, and 'we’ have an intention as to how much you get to use yourself and how much goes to the state, and if you avoid tax you end up using more of society’s collective money than it intended for you to use.”

This line of thought is extremely seductive, and very widely held. But it is mistaken, both in principle and in law.

First, the law. The Companies Act 2006 requires directors to promote the success of the company, but with regard to six factors: the likely long-term consequences of a decision; the interests of employees; relationships with suppliers and customers; the firm’s impact on the community and the environment; its reputation for high standards of business conduct; and the need to act fairly between shareholders. The effect is precisely to prevent managements from automatically pleading a duty simply to maximise shareholder value. While they don’t have a free hand, they do have a genuine choice as to how aggressively to avoid tax.

But the deeper point is this. Unlike small businesses, or the vast majority of the working population, larger companies (and especially multinationals) have enormous scope to avoid tax. In the absence of common, binding global standards, that scope has expanded alongside the complexity of tax law. 

For many of these firms, tax is effectively optional. In avoiding it, they are using their size to advantage themselves over purely domestic competitors – as anyone who has tried to compete with Amazon can testify. When decent people are outraged by companies that adopt labyrinthine legal structures to avoid tax —whose main effect is to enrich the lawyers and accountants —what angers them is a belief that this power, this choice, has been abused.

So, again, how much tax should these companies pay? Patently, the law cannot answer that question. But neither can economics. For economics sees companies merely as bundles of contracts, which allocate different financial incentives to shareholders, directors, managers and employees.

This can be a useful analytical tool, but it falls short of setting proper standards of behaviour. Indeed, it does the opposite: there is increasing evidence that people exposed to purely financial stimuli become more greedy, more short-term and more individualistic. Since really effective management is about inspiration and teamwork over the long term, monetary incentives often undermine, rather than reinforce, success.

In fact, all power – private and public – brings with it responsibility. In the words of the great American judge Benjamin Cardozo, “a trustee is held to something stricter than the morals of the marketplace. Not honesty alone, but the punctilio of an honour the most sensitive, is then the standard of behaviour.” So it is not enough just to be a “good corporate citizen”.

This insight demands a shift of perspective, from the language of law and economics to one of stewardship and ownership. It is a shift with profound consequences. Within companies, it implies a long-term focus resilient enough to resist market pressures just to meet quarterly earnings targets. It implies a sense of personal responsibility – indeed, contrition – from management that has been largely missing from recent arguments over tax, or the causes of the banking crisis. It also demands a degree of modesty in how directors and managers reward themselves. And it invites companies to reconsider the privilege of limited liability, and the connection – which existed from the earliest chartered companies on – between corporate activity and the public interest.

But the idea of stewardship does not end there. For share ownership also carries with it power, and so responsibility. A recent review by Professor John Kay has done much to advance such ownership; it could be greatly assisted by a vigorous collective response from fund managers. And Parliament has its own role to play in reinforcing these values. It must ensure a clear, stable yet flexible framework of law within which companies can operate; and it must ensure effective enforcement, and prosecution, when the law is broken.

What really matters, however, are shared public standards. Lew Preston, as head of JP Morgan, once circulated a memo to all staff: “It has come to my attention that some employees have been preferring the interests of their own departments to the interests of the bank as a whole. Henceforth this will be grounds for immediate dismissal.” That’s more like it.

Jesse Norman is MP for Hereford and South Herefordshire

This privatisation of the Royal Mail would be a national disaster

The Royal Mail must remain in British ownership and remodelled like Germany's Deutsche Post

• 
• • Will Hutton
  • The Observer, Sunday 14 July 2013

A great British institution: the Royal Mail. Photograph: Tim Graham/Getty Images

Britain is 159th in the world league table that ranks investment as a share of GDP. This is not new. Owners of British companies have long been permitted a feckless lack of responsibility. Smart countries, from the US to Germany, make sure that they insulate their companies as far as they can from the myopia and short-term greed of stock markets. Instead, the British approach to ownership exposes our companies to stock market thinking: shrivelling investment, cutting back on innovation, minimising training and hoarding cash to please their irresponsible, transactional owners.

It is a national disaster that another great British organisation, the Royal Mail, is to be cast into this maelstrom. (As I explain later, a more imaginative "protected" private model could work.) The directors of the Royal Mail will be under the same relentless hammer as those in every other British plc. They will put up prices as much as the regulator will allow, cut into universal provision and relentlessly contract out as much of the delivery to the lowest paid, least protected workers; none of this will be enough to satisfy their owners.

Eventually, the directors, vastly enriched with share options, incentive plans and 200% bonuses, will run up the white flag. Within a decade, the Royal Mail will be sold overseas, probably to another state-owned postal service, if not to a private equity fund based in a tax haven. Who knows? It could even be the Chinese communist party that ends up owning this great British institution.

You don't need to be a great seer to predict this future. It is exactly what has happened with our privatised water and energy companies. Economists will say the mail service is more efficient, rather as they discussed the way financial deregulation promoted banking efficiency up to the financial crash of 2008 without ever anticipating the costs of the crash that overwhelmed those gains. By one yardstick, this "efficiency" is guaranteed: the Royal Mail's 150,000 workforce will shrink.

But economists' definition of efficiency is pathetically narrow. It will take no account of the lost tax revenues when the Royal Mail is owned offshore, nor the cost of the state guarantees that will be necessary to support crucial investment. (See the demands from the privatised Thames Water and BT are seeking for their investment in, respectively, the super sewer and national broadband.) Neither will it measure the social impact of a diminished, expensive and fractured postal service, part of the glue that holds the country together, nor the need for state support if some unexpected event threatens. In short, any efficiency gains from privatisation have to be qualified by large costs, some of which only become obvious over decades.

Thus, although all the big six energy companies are more efficient in the sense they produce more power, with fewer employees, than they did a generation ago, any calculus of gains and losses must include the price guarantees the government offers to secure the investment Britain needs in renewable energy and nuclear. Centrica, withdrawing from its partnership with EDF Energy over building nuclear power stations, acknowledged its shareholders wanted higher returns over a shorter period than any deal the government might offer.

If energy provision in Britain were only to be delivered by British privately owned plcs pleasing their tourist stock market owners, they would all build gas-fired power stations, an energy mono-culture that would make the country reliant on one energy source. It would also be environmentally disastrous. The state cannot stand back.

We know all this, but somehow there is a political and cultural incapacity to face the reality. State ownership is seen as cumbersome, socialist, bureaucratic and hidebound. Private ownership is seen as none of those things and little mention is made of the acute depredations wreaked in the private sector. Try getting Ukip to promise that it would oppose the Royal Mail being owned by a Cayman Islands private equity fund, an Arab sovereign wealth fund or some plutocrat. There is silence. Ownership does not matter.

The Department for Business website talks loftily of ensuring that the Royal Mail has the necessary access to investment through privatisation, "untying its hands", as business minister Michael Fallon puts it. But this is the same Department for Business that was so concerned that privately owned plcs were short-termist and anti-investment that it commissioned John Kay to investigate. Even if his report shrank from any meaningful action, it at least dramatised the problem.

The model of privately owned postal companies competing in a regulated market is not a priori wrong: it seems to work in Germany with the privatised Deutsche Post. It is just that British private ownership structures maximise every adverse possibility and outcome. We are about to experience a boom in parcel deliveries as online shopping explodes. Universal parcel delivery is going to become an indispensable utility. Any government that consigns this crucial service to British-style private ownership – for a mere £3bn with 10% of shares given free to workers as a blatant bribe – is as short-termist as the stock market.

Instead, with ownership configured more imaginatively, the Royal Mail could become a de facto trust, a British postal and logistics group ready to exploit the coming boom. A creative government would transform it into a private trust with its own supervisory board on top of the management board, modelled along the lines of Deutsche Post that pro-privatisers like to cite but without ever doing any homework on the detail. For this model would be charged with ensuring managers protect and improve Britain's universal postal and parcel service, as well as seeking other commercial opportunities. The board would have public interest directors along with directors elected by the workers, enfranchised by the collective ownership of, say, a quarter of the shares in an employee ownership scheme. External investors could thus only buy into an organisation whose constitution, purpose and ownership were permanently shaped to deliver public good.

No such template has been floated. It is an opportunity Labour should seize as the embodiment of responsible capitalism. If Ed Miliband and Chuka Umunna were suitably adept, they could even create a parliamentary majority, with dissident Lib Dems and Tories, for it. Apart from ideologues, no one thinks privatisation as it has been practised works and everyone knows that in a decade the Royal Mail will probably be foreign owned. On this, the Communications Workers union and the Labour party are right. But supporting the status quo is insufficient to win the argument. What they need is an alternative prospectus. There is nothing to lose and everything to gain.

Just because something has value doesn't mean it has a price

If every last shred of incidental online value is given a price tag, we'll never harvest the full fruits of our ingenuity

• 
• • Cory Doctorow
  • guardian.co.uk, Tuesday 8 January 2013 11.01 GMT

Google is a case-study in harvesting positive externalities. Photograph: Britta Pedersen/EPA

 

When future economists look back on the dawn of the internet era, they will marvel that an age of such technological marvel was attended by a widespread, infantile mania for preventing positive externalities.

"Externalities" are the economist's catchall term for the spillover effects experienced by the people who are affected by others' activities. Most of the 20th century was spent locked in battle with the corporate vice of externalising negative costs. Companies are beholden to their shareholders, and so they are meant to save every penny they can, even when saving that penny might cost the rest of society several pounds. The classic example is toxic waste: processing industrial waste before it leaves the factory is a costly proposition, and so, whenever it is possible to do so, companies have defaulted to dumping their waste into the wider world. This is a much cheaper option — for the company.

For the world, it's vastly more costly. After all, when the offensive sludge is all neatly gathered at the effluent pipe's head-end, it is concentrated and handy, and can be gathered and fed into whatever decontamination or sequestration system is appropriate.

But once the sludge has exited the pipe and is out in the world, it has to be gathered up before it can be dealt with. Contaminated coolant can be sealed in barrels at the factory and sent for secure burial. Once it's dumped in a stream, you have to figure out how to get it out of the stream before you can clean it up – this is notoriously difficult.

What's more, streams feed into rivers, and rivers into oceans, and people drink from them and swim in them and eat the animals that swim in them and rely on them. What started as a waste-containment problem has become a public health emergency and an environmental catastrophe – the company's savings are the world's loss.

So policy wonks have spent a century thinking about creating the carrots and sticks necessary to minimise this externalising behaviour. The idea is to work out a system of fines and punishments that make it economically irrational to dump sludge, because the savings from doing so are offset by the penalties for getting caught. Getting this number right is notoriously hard, because you have to factor in some kind of multiplier of the penalty that accounts for the discount that rational – albeit psychopathically immoral – companies will apply based on the likelihood that they will not get caught.

Virtuous circles

But what about positive externalities? Historically, these have been a lot less contentious, and it's easy to see why. A positive externality arises when you do something you want to do that also makes life better for someone else. For example, if you drive your car slowly and carefully to avoid a wreck, a positive externality is that other users of the road have a safer time of it, too. If you keep up your front garden because it pleases you, your neighbours get the positive externality of slightly buoyed-up property values from living on a nicely kept street.

Positive externalities — virtuous cycles — are all around us. Your kid learns to speak because of all the people around her who carry on conversations and because of the TV shows and radio programmes where speaking occurs (as do immigrants like my grandmother, whose English fluency owes much to daytime TV after she came to Canada from Russia).

My flat – on the top floor, above a commercial building – gets some of the rising heat from the building below, capturing our downstairs neighbour's exhaust heat (on the other hand, we provide a positive externality to them by insulating their roof with our home).

The net is the natural home of positive externalities. Start with the "network effect" – the way that adding people to the network creates more value for existing users of the network (one fax machine is useless, two fax machines are slightly useful, a billion fax machines are indispensable, at least, until the web makes them obsolete). Every website that came along increased the likelihood that new users would find some reason to join the internet. Every new user that came along increased the likelihood that someone would make a website that tried to reach that user.

This is a kind of anti-entropic magic trick, using the exhaust from one process to create fuel for the next one. The most famous example is Google's PageRank algorithm, which began when the company's founders realised that every time a web creator added a link from one site to another, there was a kind of implied vote for the linked-to site – when I link to you, I'm implicitly saying that you have something I think others should see. This citation analysis (a common practice in academia, where journals who are widely cited are considered more valuable than less-cited journals; and where journal-articles that are more widely cited are considered more valuable as well) was wildly successful, and it showed that there was, latent on the web, an invisible mesh of authority that could be made visible with the right kind of analysis.

Google is a case-study in harvesting positive externalities. It offered a free, voice-based directory assistance number, and used the interactions users had with its software to build a corpus of common phrases, expressed in multiple accents and under a wide range of field conditions. Then it used this to train the voice-recognition software that powers its Android-based phone-search. Likewise, it mined all the publicly available translations on the web – EU documents that appeared in multiple languages, fan-based translations for subtitles on cult cartoons, and everything else it could find – and used this to train its automated translation engine, providing it with the context that it needed to figure out the nuance and sense of ambiguous phrases.

There are other companies that do well by harvesting these positive externalities. Facebook provides its users with a handy platform for socialising, and then – notoriously – mines their social graph to figure out how to sell things to them.

However, there's a wide difference between the two companies: much of Google's business revolves around capturing externalities from things you were going to make anyway. In many cases, the resources Google mines are public and remain in place even after Google's finished with them (for example, anyone can index the web and do the same citation analysis as Google).

Both Facebook and Google also try to entice the world into activities that generate externalities. Facebook is a giant behaviourist experiment designed to tempt you into systematically undervaluing your privacy, and it uses game-like mechanics to extract more personal data and more social-graph enumeration from its users. Google's a little less obvious about its enticements, but clearly, offering services such as YouTube and Blogger are mostly about figuring out how to earn money from the exhaust-stream from individual and corporate creativity. Facebook, and to a lesser extent, Google, try to claim ownership over your externalities by locking them up in proprietary walled gardens.

Taking a cut

But back to our era's defining mania: resentment over positive externalities. Many people and companies have concluded that if someone, somewhere, is getting value from their labour, that they should get a cut of that value. Irish newspapers are paying solicitors to demand money from websites that link to them, on the grounds that a website is improved if it contains a reference to the news, and that improvement needs to be paid for. Many people have accused Google of "ripping off" the public by indexing content, or analysing it, or both. Jaron Lanier recently accused Google of misappropriating translators' labour by using online translated documents as a training set for its machine-translation engine – an extreme version of many labour-oriented critiques of online business.

And take DRM – digital rights management – which is used to restrict the way you use the media you buy, such as ebooks, videos, and games.

DRM systems have been deployed to stop people from selling used games, to stop them lending their ebooks, to stop them from taking DVDs from one country to another. This is pure positive-externality resentment.

The reasoning for DRM goes like this: "I sold you this [ebook/game/video] for the following uses. If you figure out a way to get any more value out of it, it belongs to me, and you can't have it, until and unless I decide to sell it to you."

In the pre-digital world, this would have been laughable. "I sold you that book: if you want to use it to keep the table from wobbling, you'll have to pay me extra." Or: "I sold you that game to play in your house. How dare you bring it on holiday with you?! You owe me!" Or: "That TV was sold to you for the purposes of watching programmes, not to be used as a white-noise machine to lull your newborn to sleep, and certainly not to support a pile of knick-knacks!"

Of course, removing positive externalities also removes value. Cars are worth more because of the used-car market. University textbooks command a higher price because of the market for used textbooks. If either sector managed to kill those externalities, it would be selling goods that its customers valued less (and would likely find that they demanded lower prices for them, too).

I was at a TV DRM meeting once where a representative from the US-led Motion Picture Association proposed that broadcasters should be able to selectively block the use of wireless retransmitters – the sort of thing that lets you have a receiver in the sitting-room that fed a TV set in your bedroom – because "watching TV in a room other than the one the show is being received in has value, and if it has value, we need to be able to charge money for it".

That's the crux of this irrational fear of positive externalities: "If something I do has value, I deserve a cut." It's one thing to say that someone who hires you to do a job, or purchases your product, should pay you money. But positive externalities are the waste-product of something we were already going to do. They're things that you have thrown away, that you have thrown off, that you have generated in the process of enjoying yourself and living your life.

The mania to internalise your positive externalities is the essence of cutting off your nose to spite your face. I walk down the street whistling a jaunty tune because I'm in a good mood — but stop as soon as I see someone smiling and enjoying the music. I keep my porchlight on to read by on a warm night, but if I catch you using the light to read your map, I switch it off, because those are my photons — I paid for 'em!

Worse still: the infectious idea of internalising externalities turns its victims into grasping, would-be rentiers. You translate a document because you need it in two languages. I come along and use those translations to teach a computer something about context. You tell me I owe you a slice of all the revenue my software generates. That's just crazy. It's like saying that someone who figures out how to recycle the rubbish you set out at the kerb should give you a piece of their earnings. Harvesting positive externalities involves collecting billions of minute shreds of residual value – snippets of discarded string –and balling them up into something big and useful.

If every shred needs to be accounted for and paid for, then the harvest won't happen. Paying for every link you make, or every link you count, or every document you analyse is a losing game. Forget payment: the process of figuring out who to pay and how much is owed would totally swamp the expected return from whatever it is you're planning on making out of all those unloved scraps.

In other words, if all latent value from our activity has a price-tag attached to it, it won't get us all paid – instead, it will just stop other people from making cool, useful, interesting and valuable things out of our waste-product.