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Climate change: what would have Edward Theodore done?

By Ken McKay - posted Thursday, 19 August 2010


With the growing debate about global warming and the developed world’s options, it is useful to delve into our recent past to look for alternative policies.

The current ALP policy is to develop an emissions trading scheme, essentially to create complex derivatives to fix the market - a market solution for market failure while trying to minimise the cost to the disadvantaged in our society.

The Greens’ solution is a Carbon Tax putting a price on the cost of pollution. It is less complex but it will be highly regressive. Those least able to mitigate their carbon imprint will be hurt the most. Polluters will adjust their behaviour by investing in new technologies at a rate equivalent to the marginal cost of the new tax. Consumers, where there are no ready alternatives, will have to pay more for the product or services.

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Both of these measures will lead to gradual change, if the proponents of the dangers of global warming are to be believed both of these measures will be far too slow to mitigate the social, economic and environment costs of global warming.

In effect they are window dressings or a sop to the young generation commencing to exercise their political will in our society. They like to think that they can change society and see either a carbon tax or an emission trading scheme as a symbol of their empowerment. It does not matter if neither option will avert the crisis, what matters is that they are either listened to or ignored, empowered or irrelevant.

The Coalitions response under Tony Abbott is to turn its back on the Chicago school and return to old fashioned paternalistic conservatism, thus rejecting market solutions in favour of state regulation. This may be of course be a viable alternative if there is a real commitment to fixing the problem. However the underlying problem with Abbott’s position is to deny the need to take drastic measures just as he denies the existence of global warming as a serious threat to human inhabitation of our planet. Every time a regulatory approach threatens his political heartland he will fold.

The Twiggy Fortescues and Clive Palmers will make a phone call and the regulatory cost will suddenly become too great to be implemented.

What then should political activists who want to secure policies to avert the global crisis do? Should they continue to seek the political implementation of market-based schemes for the inner glow of fulfilment rather than saving the world or should other options be explored?

In the early days of the development of intensified capital through trusts and public corporations many countries experienced similar issues.

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The power of intensified capital brought with it an imbalance in the market; no longer did supply and demand meet to create the price in the marketplace, capital was able to set the price with substantial mark ups. The production of the goods and services were often exploitative.

Democracy in the main was the mechanism that was used to achieve a balance between the rights of ordinary citizens and the new creations of intensified capital.

Theodore Roosevelt in the United States led the charge of Democratic Capitalism by empowering the state to regulate the market place to create a more even relationship between individuals, small firms and the new trusts or by products of intensified capital. His anti-trust legislation was designed to stop the exploitation in the oil, railway and meatworks.

Another Theodore on the other side of the world Edward Theodore, Treasurer and Premier of Queensland, and for a short period Treasurer of Australia, led the charge for a democratic socialist response to the imbalance of power in the marketplace.

The creation of state-owned enterprise meant that goods and services could be produced with reduced exploitation and could compete in the market place for consumers. The very existence of the publicly owned enterprise changed the behaviour of intensified capital to reduce exploitation of both the workforce and the marketplace.

While regulation could be utilised to effect change, without strong leadership willing to take on political elites the traditional democratic capitalist response will be no more effective than the policies of creating a price for carbon or for pollution.

So what would be the Democratic Socialist policy option?

The creation of a publicly owned corporation that would establish low emission and renewable energy power stations which would sell into the national electricity market is more viable.

This publicly owned company would be exempt from all income taxes and state payroll taxes, thus leading to cheaper costs for low emission and renewable energy. The publicly owned low emission and renewable power company would have a mandate to reinvest all profits back into renewable and low emission technology.

The publicly owned company would not only have a mandate to operate domestically but also to export its technological improvements either under license or directly to other countries.

The Queensland government transformed the energy sector by mandating that 13 per cent of energy must be sourced from gas. So, too, could the federal government by going much further by mandating that energy retailers must source 25 per cent of energy from low emission technology and 15 per cent from renewables by 2030.

To assist this goal, low emission power generation and renewable power generation stations should have their income tax reduced by 50 per cent. So rather than putting a price on carbon, the policy should be to reduce the tax on new economic activity in the generation of low emission and renewable energy.

In other words by mandating the mix of energy and making investment in both low emission and renewable energy attractive, and the end product cheaper than the carbon polluting sources, we will change the market.

The state can be a powerful force in building new industries and providing jobs, rather than trying to impose penalties and costs on the old energy producing sector.

A carbon price would not have seen any change in the Queensland energy sector; it was economic rationing that did this, it forced investment in, and the creation of, new industries and importantly new jobs.

So we introduce the rationing framework, we use public funds to establish a publicly owned company to invest in low emission and renewables technology. In turn, this will force the existing energy sector to devote concentrated investment into both low emission and renewable technology.

Just one nation setting in place a framework to fundamentally change the energy sector nationwide will set a beacon for those concerned about global warming right around the world.

It will devote their attention to real, significant and guaranteed changes, rather than establishing a price for carbon and hoping that the invisible hand of the market will squeeze carbon out of the atmosphere.

We need to say to the activists hoping for a better world that just as the Chicago School of Economics is not the answer to achieve full employment, just as the Chicago School is not the answer to establish fair wages, just as the Chicago School is not the answer in providing a fair education system, the Chicago School provides no answer for global warming and climate change.

We need to reject carbon pricing and emissions trading schemes, we need a democratic socialist solution because the market and price mechanism alone will not challenge global warming.

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About the Author

Ken McKay is a former Queensland Ministerial Policy Adviser now working in the Queensland Union movement. The views expressed in this article are his views and do not represent the views of past or current employers.

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