Great Disruption

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* Book: The Great Disruption. Paul Gilding. Bloomsbury Press, 2011

URL = http://paulgilding.com/the-great-disruption


Description

"It’s time to stop just worrying about climate change, says Paul Gilding. We need instead to brace for impact because global crisis is no longer avoidable. This Great Disruption started in 2008, with spiking food and oil prices and dramatic ecological changes, such as the melting ice caps. It is not simply about fossil fuels and carbon footprints. We have come to the end of Economic Growth, Version 1.0, a world economy based on consumption and waste, where we lived beyond the means of our planet’s ecosystems and resources.

The Great Disruption offers a stark and unflinching look at the challenge humanity faces-yet also a deeply optimistic message. The coming decades will see loss, suffering, and conflict as our planetary overdraft is paid; however, they will also bring out the best humanity can offer: compassion, innovation, resilience, and adaptability. Gilding tells us how to fight-and win-what he calls The One Degree War to prevent catastrophic warming of the earth, and how to start today.

The crisis represents a rare chance to replace our addiction to growth with an ethic of sustainability, and it’s already happening. It’s also an unmatched business opportunity: Old industries will collapse while new companies will literally reshape our economy. In the aftermath of the Great Disruption, we will measure “growth” in a new way. It will mean not quantity of stuff but quality and happiness of life. Yes, there is life after shopping." (http://paulgilding.com/the-great-disruption)


Excerpts

Introduction

Paul Gilding:

"Why didn’t more of us see it coming? After all, the signals have been clear enough – signals that the ecological system that supports human society is hitting its limits, groaning under the strain of an economy simply too big for the planet. But we didn’t and, as a result, the time to act preventatively has past.

Now we must brace for impact. Now comes The Great Disruption.

It is true that the coming years won’t be pleasant, as our society and economy hits the wall and then realigns around what was always an obvious reality: You cannot have infinite growth on a finite planet. Not ‘should not’, or ‘better not’, but cannot.

We can, however, get through what’s ahead – if we prepare. I wrote my forthcoming book, The Great Disruption, to help us do that. My conclusion in writing it was this: not only can we make it through, we can come out the other side in better shape.

First, though, back to the present. There are countless analyses and metrics that clearly describe and record what is happening – our children will surely look back at what we can see now and ask, “What were you thinking?” One is oil prices, again on the way up, driven by surging demand in the developing world. Peak oil, long considered a fringe theory, is now widely acknowledged as inevitable, if not underway.

Leaked US diplomatic cables show evidence that oil reserves have been overstated, along with German military reports framing the connected security threat and comments by the UK energy secretary that the risk is real. No surprises here. Consumption has been outstripping the discovery of new reserves for a long time and, as production peaks, prices will rise – probably dramatically – with major economic consequences. Obvious to those who look.

An even more obvious concern is food. More than anything else, I believe food will come to define our entry into this period. Food prices, after hovering around long-term highs for several years, are now passing the extreme peaks of 2008 as climate chaos takes hold.

With our population growing and our diets moving to more energy- and grain-intensive meat production, supply was already tight. So, when record heat waves and drought hit Russia, crashing their wheat harvest and leading to an export ban, the global price response was rapid.

Next was Brazil. Did you hear about the so-called ‘one in one hundred-year’ drought in 2005 in the Amazon? Well there was another one in 2010, but this time worse. It appears that the Amazon, last year, was a dramatic net emitter of greenhouse gases rather than an absorber. Strange days indeed.

But actually not that strange, and certainly not surprising – you increase the thickness of the earth’s blanket and it gets warmer. Despite the wishful thinking of some, the global climate is behaving as the climate models forecast it would – a bit worse than expected but broadly in line. Indeed, 2010 tied with 2005 as the hottest year on record and, by year’s end, the sea temperature off Australia was the warmest ever recorded.

With warm oceans releasing more water vapour, we saw floods of biblical proportions hit the agricultural regions of Queensland, killing 22 people and impacting an area larger than France and Germany. The floods were quickly followed by one of the most intense cyclone ever to hit Queensland. Not good for food supplies, so expect prices to keep rising, especially considering that this was not a localised problem. Climate chaos is now worldwide, with an unprecedented 19 countries breaking temperature records in 2010.

Think that was just a bad year? Think again. Writing at Salon.com, Andrew Leonard argued recently that this may all come to a head in China. He quotes the UN, who’ve just warned that a severe drought is “threatening the wheat crop in China, the world’s largest wheat producer, and resulting in shortages of drinking water for people and livestock.” According to a Xinhua report, if serious rain doesn’t fall by the end of this month, the key grain producing region of Shandong will face its worst drought in 200 years. Of course, 200 years ago they didn’t have 1.3 billion mouths to feed. Imagine China facing a food shortage and, with plenty of money in the bank, going on a global shopping spree to feed itself. This, argues food expert Lester Brown, could be China in 2011. Enjoy your daily bread while you can still afford it.

Maybe it will rain there again soon – but next time? People are starting to understand that this type of thing is not a one off. Commenting on rising food prices, Nobel Prize-winning economist Paul Krugman wrote in The New York Times recently: “The evidence does, in fact, suggest that what we’re getting now is a first taste of the disruption, economic and political, that we’ll face in a warming world. And given our failure to act on greenhouse gases, there will be much more, and much worse, to come.”

But don’t panic. We will wake up soon. Not because the ecosystem is showing signs of major breakdown. Not because people are drowning. No, we will wake up because something much more important to us is now clearly threatened. When you try to create infinite growth on a finite planet, only two things can change: Either the planet gets bigger, which seems unlikely, or the economy stops growing. It’s the end of economic growth that will really get our attention.

There is surprisingly good news in all of this. We as humans have long been very good in a crisis. We ignore our health issues until the heart attack; our unwise lifestyle choices until the cancer diagnosis. We ignore our badly designed financial system until the economic crisis; or the threat of Hitler until the brink of war. Again and again, we respond to problems late, but dramatically – and, crucially, effectively. Slow, but not stupid.

This is a good attribute, given what’s coming. We’re going to have to transform our economy very rapidly, including our energy, transport and agricultural systems. This transition – to a zero net CO2 economy – will soon be underway and the business and economic opportunities for those who are ready (and risks to those who aren’t) are hard to overstate.

That’s why China is getting ready to win this race, with significantly more impressive programs to capture the opportunity than most Western countries. They understand that in the new world that is unfolding, being a ‘solar power’ will define geopolitical strength. Maybe the United States will start late, but strongly, surging out of Silicon Valley with a technology boom ready to disrupt and reinvigorate the world again. Time will tell – and probably sooner than you think.

There’s much more to this than technology, though, with some exciting cultural and political challenges ahead as well. In a growth-constrained world, our current central economic policy of ‘keep calm and carry on shopping’ is looking increasingly wrongheaded. It’s certainly insufficient for continued human development. (More good news there, however, because all the research suggests that shopping, or more specifically accruing more money and more stuff, is a very poor way to increase your happiness, once you’re out of absolute poverty.)

In response to the now inevitable crisis, we will demand our governments think more deeply. We will have to adopt policies known to improve quality of life, like encouraging community, social inclusion and – the most heretical idea of all – greater equality and a steady state economy. Interesting times indeed.

Taking all this together, we can now say with a high degree of certainty that change is going to start coming thick and fast. Change in our economy, in our politics, and in our lives. Change that will be challenging, but that will ultimately lead us to a better place.

So get ready for the ride. The Great Disruption is now underway." (http://paulgilding.com/cockatoo-chronicles/cc2011022thegreatdisruptionarrives.html)


Effective Global Default is only a matter of time

Paul Gilding:

" The legendary contrarian and fund manager Jeremy Grantham is co-founder of the Boston based firm GMO, with over $100 billion of assets under management. So this guy is a solid capitalist and market advocate, pursuing wealth for the wealthy. But he sees the data and is raising the alarm, calling this moment “one of the giant inflection points in economic history” – referring to the end of a 100-year steady decline in commodity prices. His views were echoed by Stephen King, group chief economist at HSBC, who wrote in the FT: “After the biggest meltdown since the Great Depression, economic theory tells us that world commodity prices should not be this high. But they are and the West quickly needs to wake up to this new economic reality. Commodity prices are now permanently higher.”

Grantham provides the detail, pointing out that the 100 year trend of falling prices in the 33 most important commodities, except for oil, were wiped out with a price surge from 2002 to 2010 – a surge even greater than experienced in WW2. We have now reached what Grantham calls the Great Paradigm shift; not a price spike but a new reality. Within this new reality, Grantham says: “if we maintain our desperate focus on growth, we will run out of everything and crash.”

This is why hitting the wall is inevitable – because limits are not philosophies, they are limits. We can understand what to expect – and why the grenade will shatter the glasshouse of economic growth – by going back to how systems behave when they hit their limits. Our economic system first hit the wall in 2008 – that was when The Great Disruption began with food and oil prices hitting record highs and a credit crisis driven by reckless monetary policy pursuing growth at all costs. The resulting recession meant we backed away from those limits (bouncing off the wall), and then borrowed massive amounts of money from our children (think Greece) to try to get the economy moving again.

Now that the global economy is slowly entering a so-called “recovery”, the prices of commodities (representing our use of earth’s resources for food and materials) are on the way up, accelerated, in the case of food, by climate change. Of course if significant growth kicks in, the prices of oil, food and other commodities will surge, this time starting from near record highs. Then we will bounce back into recession and prices will back off again. Hit the wall, bounce off. Hit the wall, bounce off. Ouch.

By itself this would pose enough of a challenge to growth. But now we also have the debt we used to get the economy moving again. This debt can only be paid off with significant economic growth – but such significant growth is impossible as outlined above. So the debt itself becomes an enormous additional tension in the system, as argued by Richard Heinberg in his important forthcoming book The End of Growth. With the global economy and ecosystem now both burdened by unmanageable debt, effective global default is only a matter of time." (http://paulgilding.com/cockatoo-chronicles/cc20110629grenadeinglasshouse.html)



Case Study: China

"Economic growth is slowly but surely coming to an end, not for a few quarters or years, but to an end. It will still take some time given the mighty momentum behind it, as well as the power of our denial, but the signs are clear that both processes have begun.

Let me be clear that I’m not talking here about the long philosophical debate on the relative merits of growth – that rich countries getting richer does not improve their quality of life. What we face now is not a political choice – it’s too late for that. We have put in place the processes that will force the end of growth and nothing can now be done to change course.

China is perhaps the best example, exaggerating all that is good and bad about the growth model. We have seen spectacular rates of growth in recent decades and with it, many hundreds of millions of people being brought out of poverty. These people are now enjoying the fruits that global growth has delivered to many of us over the last century in technology, health and easy access to food. On the other hand China has paid an enormous price for this growth, in air pollution, degraded soil quality, spoiled waterways and longer term risks to food supply. It is now even taking from the USA the ignominious title of being the world’s largest current contributor to climate change (though we mustn’t forget China’s per capita emissions are still dwarfed by the pollution rate in the OECD countries).

So China sums up the paradox of the global economy, and provides an accelerated and exaggerated example of the problem. On the surface the growth model seems appealing, indeed powerful and invigorating. Everyone who has witnessed the growth machine at work in China in recent decades comes away in awe and wonder at the pace and scale of its achievements.

China has now, however, become the best example that demonstrates that the Great Disruption is underway – the state we have now entered, as I argued in my last column. In the same way China provides an exaggerated case of the good aspects of growth, they are now hitting the limits we are hitting globally, but doing so faster and harder, making it more noticeable and harder to deny. So unlike our political leaders, the Chinese leadership is slowly but surely facing reality. They observe their high growth rates, they observe the degradation in both their environment and limits to resource availability and they draw the obvious connection. Prime Minister Wen recently told parliament that “growing resource and environmental constraints are hindering growth.”

The Minister for the Environment gave deeper insights into their views when he recently said “In China’s thousands of years of civilization, the conflict between humankind and nature has never been as serious as it is today…. The depletion, deterioration and exhaustion of resources and the worsening ecological environment have become bottlenecks and grave impediments to economic and social development.”

You got it Mr Zhou – grave impediments to growth. They haven’t yet come to the conclusion that these are in fact “impenetrable limits to growth”. But they will.

Their response gives us good insights into what we are all going to face and also to the considerable benefits our response will bring when it comes. As we hit the limits to growth we will desperately and aggressively pursue clean technology and other measures to reduce the impacts we are having on the global ecosystem and to respond to our limited resource supply. We will think this will be enough to keep growth going.

China is again a good example of what we can expect. They are doing all they can to slow down the cause of the problem with aggressive targets and action, and the economic benefits they will gain in doing so will be considerable. In renewable energy, electric cars, high speed trains and many other areas China is investing heavily and looking more and more like it’s going to lead the world in this, the next industrial revolution. They are even deliberately slowing down the rate of their economic growth, recognizing this is the primary cause of their problem, to give themselves more time to adapt.

As well as benefiting their economic competitiveness, their approach will bring considerable benefits to all of us, with new energy technologies being taken to scale and prices falling as a result. We can expect some sensational developments in this area with tomorrow’s Googles and Microsofts all positioning right now across China to be the global winners in this epic opportunity.

But in the end China will, like us, have to face the reality that economic growth has its limits. We can argue about what they are and when they will hit, but the idea of an infinite growth on a finite planet is quite delusional. Just do the math yourself and ask how big do you think the economy can get? Tim Jackson, author or Prosperity without Growth did this and concluded:

“The global economy is almost five times the size it was half a century ago. If it continues to grow at the same rate the economy will be 80 times that size by the year 2100.”

The Global Footprint Network calculates that we need around 150% of the available land on planet earth to support our current economy, which means we’re burning up our capital every day to maintain the current state, let alone support any further growth. So you have to ask yourself, even allowing for sensational improvements in efficiency and technology, how big can the economy get before the physical limits are hit? Twice as big as the planet? Three times?

Despite the clear, rational logic, denial will be strong. People will argue oil price spikes are being caused by political unrest, not the underlying reality of peak oil. That food shortages are caused by market inefficiencies, not the underlying reality of climate change and the broken model of oil dependent, non renewable industrial agriculture. The worse the crisis gets, the more fanciful the excuses will become. That is the nature of denial. Given this is a serious addiction we have developed this denial will be strong.

But in the end, this is not philosophy – it’s physics and chemistry. Remember this: the core proposition our economic model is based on is a simple but impossible concept – infinite growth on a finite planet. So that means the end will come. The sooner we start getting ready, the better off we’ll be when it arrives." (http://paulgilding.com/cockatoo-chronicles/cc20110315chinaconfrontslimits.html)


Discussion

Nothing else will work than big government

Paul Gilding:

" views of Tea Party types in the US, who genuinely believe the climate threat is a conspiracy cooked up by people with a secret big government agenda, is not the dominant view of the corporate sector. However the general view – that government can’t be trusted, that markets should be left to do their thing and that imposing limits on behavior is inherently dangerous – is widespread and mainstream among those with their hands on the market levers.

Whatever the merits of this argument – and it is certainly true that the record of western governments in such areas is, at best, mixed and arguably poor – the effect of it being leverage to resist change is now clear: We will now move into an era of big, interventionist government that will last for decades and will impose tight controls on market behavior. The percentage of the economy controlled directly or indirectly by government will increase and the market will inevitably become less efficient in the process – it being true that interventionist government and central planning are generally economically inefficient but socially effective – war being the clearest example.

Why is the arrival of such an era now so clear?

We can see, after the Copenhagen and Cancun climate conferences, that the pace of response to the climate threat is not going to keep up with what the science says is needed. There is no dispute on the science – none of any consequence – that is holding back action. Both conferences saw governments universally agreeing that 20C was the maximum level of warming we can tolerate and the right scientific framing for policy. (Many scientists and an increasing number of countries argue it’s too high, but no one credible argues it’s too low.) So the science is clear but the action is slower than the science demands. We can lament this but that doesn’t change it.

How this will all unfold is not driven by politics but by science. The world is going to get ugly and there will be significant economic cost as a result. We are going to have rising sea levels and extreme weather causing widespread disruption, damage to infrastructure, geopolitical instability and large refugee flows. We’re going to have food crises and resulting social and economic upheavals. We will see ocean acidification and the collapse of fisheries.

While we won’t be able to prevent all that, we will, once it really takes hold, certainly then act to stop it getting worse. Guess what all this means? Big government.

What do you think is going to happen when large areas of expensive coastal real estate are damaged and even larger areas collapse in value as a result? An insurance crisis, a credit crisis and economic costs – all requiring big government intervention. Guess who steps in when there’s a food crisis and asserts new controls over trade and the market? Big government. What’s going to happen when major infrastructure is threatened by rising seas and extreme weather? Do you think the market will be left to run its course when power supplies, airports and freight transport facilities are threatened? No, government will step in and fix it. It will be messy, ugly and inefficient but it will certainly happen.

By that stage, there will also be a sense of crisis and associated political demand for dramatic emissions reductions. The nature of the lag between emissions reduction and impact means the required cuts will then, by necessity, require draconian measures – as I argued in the paper I co-authored on the One Degree War Plan. That too will require the heavy hand of big government." (http://paulgilding.com/cockatoo-chronicles/cc20101214biggovernment.html)


More Information

  1. Paul Gilding on the Great Disruption
  2. More videos and audios at http://paulgilding.com/discussion-papers/talks-video-and-audio