UK business: Are short-term views ruining society, and the climate?

10th May 2011

Several internet commentators are arguing that UK business is failing society when it could use its commercial power as a force for good, including climate change .

On The Guardian Andrew Simms, policy director of the New Economics Foundation, and Dick Saunders, chief executive of the Investment Management Association (IMA) debate whether the failure to invest in a low-carbon future was the result of the capitalist system's obsession with short-term profits.

Simms quotes Paul Abberley who says there is a need to be making investment decisions with a time horizon of decades, not weeks, or less.

Simms says that doing this would achieve an environmental holy grail of beginning to align the economy with its "parent company, the biosphere, and the time frames its ecosystems function to."

Simms warns that failing to do so is likely to see the loss, as leading NASA climate scientist James Hansen put it, of the climatic conditions in which civilisation emerged.

If the system was working well, money would be crowding into essential technologies and services essential to the low carbon transition.

And this money would be sympathetic to what it takes to build up these sectors.

He adds that "resistance in the Treasury to setting up even a modest green investment bank further demonstrates something going badly wrong. A working financial system would efficiently allocate resources to necessary and important activities.

"It isn't happening. We are 70 months away from the chances of avoiding a critical, global 2C temperature rise becoming worse than 50/50."

Saunders argues that investment choices are driven by the people whose money is being invested and that if climate change is an important issue, that will itself drive investment decisions.

"And what investors – be they pension funds, holders of ISAs or billionaires – want is a return." He claims a well-managed company with a credible business plan to develop green technologies will have enormous long term potential and no problem in attracting investors.

"This process, the essence of capitalism, is by far the most effective agent of change. It's what has taken us from a largely agrarian society to the iPad in a little over two hundred years. It's what offers the best chance of a transformative response to climate change."

"You can't look to the City for a solution to climate change. Paul Abberley is right. The City is amoral. Money is amoral. It's people who have the choice of morality or immorality."

Richard Murphy in his blog argues that climate change aside there is an "intense myopic  tendency within financial markets at present".

" They have always taken a short-term view,  but that trend is becoming increasingly prevalent."

He adds that it seems businesses are running out of any ideas  about what really  to really invest in.

He points to the Microsoft Skype deal as an example.

"Microsoft should question the judgement of the management who would rather overspend on buying assets at excess value than return funds to shareholders."

Murphy believes there is "no prospect whatsoever of big business creating the investment that will fuel growth in our economy."  All the incentives to invest already exist. They have the money (although small business has not).

"They are facing low interest rates, low wage rates, low property costs, a government willing to waive rules to let them establish new activities, and yet they won't.  So let's face reality, there is no prospect of private sector fuelled growth in the UK, or right now, just about anywhere else ( Germany excepted)."

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