Mind the free market trap

We all know the argument: Governments are inherently ineffective at guiding markets and will always screw it up when they try to. Markets, the argument goes, are inherently more efficient at picking technologies and responding to constraints, so should be left to do their thing.

People who want to resist change, for any number of reasons, latch on to this argument as another excuse to avoid action on climate. After all, even if climate is a problem, government will surely get it wrong if they try to fix it. It is this argument, along with climate scepticism and the importance attached to economic growth, which has, in various combinations, been used against climate action since the threat became clear in the late 1980’s.

Yes, that is how long this problem has been in the mainstream debate. It was back then that the pro-market, conservative British Prime Minister Margaret Thatcher argued: “The danger of global warming is as yet unseen but real enough for us to make changes and sacrifices, so that we do not live at the expense of future generations.”

However, despite their adulation of her in other areas, free market advocates ignored Thatcher’s sensible, business-like approach to climate change and instead latched onto the fear of big government.

It is true that the view 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 behaviour 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 leveraged 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 draconian, tight controls on market behaviour. 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 government and central planning are generally inefficient.

Why is this so clear?

We can see, after the Copenhagen and Cancun climate conferences, that the pace of response to the climate threat is clearly 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 now holding back action. Both conferences saw governments universally agreeing that 2°C is 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 the economic cost will quickly follow. We are going to have rising sea levels causing widespread population dislocation, 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.

And while we won't be able to prevent all that, we will – once it really takes hold – certainly act to stop it getting worse. Guess what that 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 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, the need will arise for what will, by necessity, be draconian political action to cut emissions urgently; 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.

Life is full of irony at the moment. WikiLeaks is inspiring right wing conservatives in the US to call for intervention by big government against freedom of speech. The centrally planned Chinese economy looks like seizing the huge market and innovation opportunity now presented by clean energy. Its recently adopted “Magic 7” strategic industries that will power China's economic development has a clear green focus, as you can see in this HSBC analysis. And soon we will see the return of big government with strong restrictions on our behaviour – because free marketeers ignored the sensible, conservative approach advocated by Margaret Thatcher over two decades ago.

So when this trend becomes clear, remember it was brought to you not by a conspiracy of left wing climate change campaigners, but by free marketeers who so detested big government they have delivered a situation where nothing else will work. Nice work guys.