I suspect that most people believe that the primary job of a bank is to look after their cash.
Deposit your money and, at any point in time, you can rock up at a branch or a hole in the wall and receive your cash up to the amount that you put in, minus a few fees.
The reality is that banks only provide a haven for our cash because it allows them to leverage the money held into investments. They borrow against their available capital and invest funds into a wide range of assets that they expect will yield more than what they’re giving you for the privilege of looking after your money.
It’s a fantastic financial model.
It’s the reason that having conquered the world of futures trading, capital gains, and hedge funds, Bobby Axelrod, the megalomaniac character in the Stan thriller Billions, played by Damian Lewis, decides he wants to become a bank.
Essentially it’s a license to print money.
Banks are always looking for assets that will yield investment returns in the shortest space of time. Their mantra, indeed their requirement under the law, is to profit, and they are ‘in the pound seats’ to do it, literally.
They have the scale and capacity to invest in projects that your average Joe couldn’t dream of, from skyscrapers to industrial plants, freeways, and airports. The kinds of investments that require tens to hundreds of millions of dollars to see them to fruition.
Banks have the advantage of using other people’s money and the advantage of scale. They make huge sums from investments that yield high returns for long periods, partly on the fact that no one else can invest in them.
And so it is and has been.
The banks make money, but the projects they fund often deliver utility.
It is not always good.
The pursuit of profit is relentless and ruthless.
Goldrush mentality attracts the most ardent and most skilled as well as the opportunist. Money gives banks the very best people with a sharp mind and a ruthless attitude. They quickly find the best ways to reduce costs and maximise returns.
No surprise that banking can support projects that have severe externalities and direct impacts on the environment. Recall an externality happens when the cost of an activity is not absorbed but shipped out. The commons are excellent dumping ground because no one person or entity gets hit with the liability.
Capitalism degrading the environment is profound. Development has to happen, but it becomes pointless if humanity has no safe place to live.
So who is to blame?
The reality is that we, the people, want roads, skyscrapers, and industrial plants that deliver raw materials for all of the stuff we want to buy.
We are the ones that live in large houses with more bedrooms than you could ever need, more luxury than you could ever really afford. And yet, everyone wants a better life, and it is forever the human condition to want betterment.
In other words, the consumer is ultimately responsible.
Instead of blaming the banks, what if we blame the consumer?
Maybe get consumers, us, to give up our desire for stuff, our emotional and mental drive to better ourselves and provide for our families. Quosh those innate biological feelings to make more that is in all of us.
Well, good luck with that one.
Perhaps there is a compromise position where both individuals and the finance community begin to work together to look long and prosper.
Currently, we do this through regulation.
Governments curtail the riskiest financial behaviours through legislation limiting the amounts of money banks can borrow, their financial ratios, and their ability to exploit customers, in itself a significant ongoing task.
Governments are in a difficult position. They see growth as a political necessity and are reluctant to curtail development activity or the banks that finance it. Yet, all the while, development activity is damaging the planet.
If we can’t blame ourselves or the banks for doing what we want them to do, humanity has a problem.
We do have a choice.
We can accept that consumption and more-making has an impact and try to do something about it. Even a little is better than doing nothing. Light bulbs, anyone?
But fiddling just puts off the inevitable. Instead, something dramatic is needed. The doughnut, perhaps?
Alternatives to historic capitalism exist, and many of the options are maturing nicely.
For example, ‘cooperative enterprises’ where workers make the major enterprise decisions rather than boards of directors selected by shareholders. This alternative is called economic democracy.
Only this is not a million miles away from what we already have. The people choose, but this will not guarantee decisions in favour of anything other than the people.
Robin Hahnel’s book Of the People, By the People: The Case for a Participatory Economy describes the participatory economy where all citizens, through the creation of worker councils and consumer councils, deal with large-scale production and consumption issues without the need for appointed representatives. The participatory economy is the origin of the Green New Deal, a package of policies that address climate change and financial crises.
A participatory economy is different. Imagine the circus of state and national politics banished to the bench.
Doughnut economics is an economic model proposed by Kate Raworth that combines planetary boundaries with the complementary concept of social boundaries. Look after everyone and the planet.
Doughnut economics is different too.
And these are just three of the many alternatives with potential.
What do the alternatives require of us?
Most of the alternative economic systems require a shift in responsibility.
It would be on us, not the banks or the government or the unscrupulous developers. We will all have to step up and understand the consequences of our choices.
The banks would continue to do their thing on our behalf; only we would be responsible for the consequences of what they do.
And so we get to the rub.
Capitalism has delivered growth and, on average, betterment for humanity. Only it comes at an uncomfortable cost. And the only way to pay back that cost is to take responsibility for it.
Are banks bad? No, they are a caricature of our abdication from personal responsibility.
Please like or share or comment. It helps me heaps, thanks.
According to Ian Verrender, ABC business editor, a senior Australian government minister who was on the wrong side of a few drinks made this off the cuff comment…
“The difference between Labor’s policy and ours is that Julia Gillard introduced a scheme where big polluters paid Australian taxpayers. Tony changed it so that Australian taxpayers pay big polluters,”Unnamed Austrailian Government Minister
This bizarre statement referred to the carbon price, the so-called ‘great big tax’ introduced by the Labour government in 2012. This blog has mentioned the debacle that is Australian climate policy and the frustration and sadness that it has been thus for over a decade.
Imagine the arrogance in this inebriated quip.
Australians elect such individuals, and as an excellent article by Leigh Sales, another ABC stalwart, tells us, this level of vulgarity is typical. It is not a personality thing but ingrained into the political system. It is leadership that lacks.
I always liked the idea that the cream rises to the top.
It ranks alongside ‘the truth persists’ as quotes that are hopeful and true. The problem is it’s taking a while, way too long.
“Cream always rises to the top…so do good leaders”.John Paul Warren
The delay in the arrival of some genuine leaders will have consequences.
One of the more ironic is the one Ian Verrender describes, the consequences for Australia of the rest of the world putting a price on carbon in the form of carbon border taxes. Countries that have lowered emissions and want to keep it that way are reluctant to import emission-intensive commodities. At least that is the rhetoric.
The reality for Australia is that there will be carbon levies. The world was trending towards enforcing climate policy through trade action. For example, the EU Carbon Border Adjustment Legislation is still rough but will include aluminium, iron, steel, cement, natural gas, oil and coal.
Here are the 10 Biggest Exporting Industries in Australia
- Iron Ore Mining $123.1B
- Oil and Gas Extraction $39.8B
- Coal Mining $37.6
- Liquefied Natural Gas Production $34.8B
- Gold and Other Non-Ferrous Metal Processing $29.4B
- Meat Processing $15.9B
- Grain Growing $8.2B
- Alumina Production $7.4B
- Pharmaceutical Product Manufacturing $6.9B
- Copper, Silver, Lead and Zinc Smelting and Refining $6.8B
That is at least $309 billion in exports that could get slugged for their emission intensity. If the levy is just 5%, that is $15 billion in lost revenue… per year.
But it’s ok; the taxpayer is waiting patiently to pay the big polluters.
If you enjoyed this little rant or care at all that leadership needs some new blood, please share on your socials.
The next time you’re out and about in nature, sidle up to the nearest tree that you can’t quite get your arms around.
This mighty organism will tower above your head and its trunk will feel rock solid even as the branches sway gently in the wind.
Now take yourself back to the time just before humans invented metal tools.
This is about 6,000 years ago around 4,200 BC.
Imagine you were there with a few fellow hunter-gatherers or perhaps your clan was amongst the earliest primitive farmers and look again at the tree.
Ask yourself “I wonder if we can cut this thing down, with my stone axe?”
The answer, of course, is not really. Unless you have an enormous amount of time on your hands or there’s an extended family around willing to help with the herculean task.
Obviously, if the tree fell down of its own devices, in a storm or because it had reached the end of its natural life, this would help a lot. Not least reducing the dangers of several tons of timber falling on one of the helpers.
The problem would then become shaping it into useful material, for example, a canoe to take you out onto the swamp to gather food or beams for a shelter. This processing still requires an enormous amount of effort with stone tools.
The fact that our ancestors tried it anyway even with simple technology is a testament to human ingenuity, tenacity, and our skill with tools.
Hard yards even with steel tools
Run forward a few thousand years and imagine what it would have been like for some of the early European settlers in Australia in the late 1700s. When they arrived on the east coast they were presented with vast forests of massive trees that they recognized as a resource, but only had limited tools and not much machinery.
Until around 1850, red cedar, native softwoods, and eucalypt trees were felled by axe or crosscut saw and sawn into lengths using pit saws. Timber was also hewn or split with broad axes and wedges. Transport of the timber to mills and markets was by animal power and so forests closest to market areas were logged first.
Cutting down 30 m trees with handheld saws and axes is hard work when it’s 35 degrees in the shade. You need to be one tough cookie to be able to do that on a regular basis.
But they did it.
After 1850 the use of steam power including powered sawmills and road transport enabled higher productivity and access to areas previously uneconomic to harvest such as some of the coastal rainforests.
It was not until electrification and diesel power, which first appeared in the 1940s, did wood-chipping plants, pulp and paper from plantation softwoods, eucalypts, cypress pine, and rainforest timbers make the whole process of access to timber products easier.
By this time most of the forests in Australia had lost their biggest trees that were taken out first, particularly the hardwoods, and many of those huge trees that they began with no longer exist except for in a few isolated parcels of the inaccessible country that the tractors cannot reach.
There’s a video going around on the social feeds at the moment showing what happens in a sawmill. Not a particularly large one but a modern one with all the efficient high-tech tools.
The trunks of the trees, about the size of the one you tried to get your arms around, arrive at the yard neatly trimmed of all their branches and squared at both ends. This of course is done by a machine in the forest, no longer is it required for a tree to be cut down by hand. A tree lopper and strimmer and cutter will do that job in a fraction of a second.
The cleaned logs are piled on the back of a B double and deposited at the sawmill outside in a hopper. That hopper moves the logs in such a way that they end up on a conveyor belt, separated and aligned ready to go into the mill.
The conveyor belt takes each log one at a time through into the mill. As it arrives it is scanned to accurately record width and length and shape. This information is fed into the next machine, essentially a huge and very fancy band-saw, that begins to cut the planks from the round trunk, taking slices in both directions thanks to a double-sided saw blade. The slices are measured precisely, cut and fall onto another conveyor belt as neat planks.
The machine then flips the log four times until the square pole in the middle is left and goes down the belt that takes the timber into the stacking yard. In a matter of minutes, each log is measured, cut, and stored.
What would have taken our ancestors weeks or months of very hard labour just to get a canoe. Our modern technologies can produce timber of any size and shape in a matter of minutes.
Here is another example on an even bigger scale.
Imagine what this capability does to resource use and to the supply of resources.
It is much much easier to exhaust supply when processing efficiency is so high. And if the objective is to convert a resource into cash — the name of the game for every business — then that is what happens so long as the process is profitable.
The conversion of capital into cash is a powerful force. Modern technology advances make the conversion process for natural capital super-efficient.
That tree you hugged is no match for a chain saw let alone a forestry tree lopper.
Using up natural capital
Commerce plus technology is why natural capital is used up.
And we generally call it development. And even if the rhetoric is for sustainable development the power of commerce and technology makes that ideal a challenge.
The reality is that these systems of production are so efficient and so hungry for resources to maintain their profitability and deliver return on investment in the lumber yard machinery that it is not just the trees that need to worry.
Please share on your socials. It might be a bit depressing to read but these realities need a spotlight.
There, like an addict in rehab, I admit that cognitive dissonance has got the better of me and I am looking the other way from a host of societal and environmental ills.
As a career scientist who works with the evidence of climate, food security, and the social reality of nature’s exploitation, I am still in denial. I am no more ready to give up my morning latte or my afternoon stroll across the links than the next over indulged Westerner.
I console myself with this admission.
At least I know that my ecological gumboots are stomping on the world even if there is little that I can do about it. And, of course, there is further balm in knowing that l am not alone but a member of the vast majority.
A pandemic, a climate crisis, the Taliban, and 40 million Americans on foods stamps notwithstanding, here are three randomly selected things from recent news feeds that I let happen…
- In the decade from 2010-2020 diplomacy decreed that the nations of the world attempt 20 targets for the protection of global biodiversity including protecting coral reefs and tackling pollution. We failed. And in response to that abject failure negotiators are now working on a better plan with new goals for the next decade and beyond. Einstein just turned in his grave.
- Republican governors of Florida and Texas have stopped schools, colleges and local authorities from the requirement for vaccines, proof of vaccination, a Covid test or masks. Any Florida school administrator who demands the wearing of masks could lose their pay. Just one of the many things that should never be politicised.
- The national security advisor in the White House this week asked global oil producers to increase production so that US motorists can buy gasoline more cheaply. This week is 8 months into the Biden administration, he of the green deal and a pledge to ban new drilling and fracking on federal lands, yet his administration has granted more than 2,000 new permits.
“Ah,” I hear you say, “but it wasn’t just you. It’s not your fault,” coming to your own as well as my defence.
Well, it was.
I am part of the system that allowed and continues to allow such ineptitude, lies and selfishness to persist.
The only solace is that I can admit it now. The first but the most important step to making things better.
Please share with others who might want to own it.