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This article first appeared on RobertReich.org. For years, conservatives have been telling us that a healthy business-friendly economy depends on low taxes, few regulations and low wages. Are they right? We’ve had an experiment going on here in the United States that provides an answer. Keep up with this story and more by subscribing now At the one end of the scale are Kansas and Texas, with among the nation’s lowest taxes, least regulations and lowest wages. At the other end is California, featuring among the nation’s highest taxes, especially on the wealthy; lots of regulations, particularly when it comes to the environment; and high wages. So according to conservative doctrine, Kansas and Texas ought to be booming and California ought to be in the pits. Related : Robert Reich: California Is Trumpland’s NemesisActually, it’s just the opposite. For years now, Kansas’s rate of economic growth has been the worst in the nation. Last year its economy actually shrank. Texas hasn’t been doing all that much better. Its rate of job growth has been below the national average. Retail sales are way down. The value of Texas exports has been dropping. But what about so-called over-taxed, over-regulated, high-wage California? California leads the nation in the rate of economic growth—more than twice the national average. In other words, conservatives have it exactly backwards. So why are Kansas and Texas doing so badly? And California so well? Because taxes enable states to invest in their people—their education and skill-training—as well as in great research universities that spawn new industries and attract talented innovators and inventors, and in modern infrastructure. That’s why California is the world center of high-tech innovation, entertainment and venture capital. Kansas and Texas haven’t been investing nearly to the same extent. California also provides services to a diverse population, including many who are attracted to the state because of its opportunities. And California’s regulations protect the public health and the state’s natural beauty, which also draw people to the state—including talented people who could settle anywhere. Wages are high in California because the economy is growing so fast employers have to pay more for workers. And that’s not a bad thing. After all, the goal isn’t just growth. It’s a high standard of living. Now in fairness, Texas’s problems are also linked to the oil bust. But that’s really no excuse because Texas has failed to diversify its economy. And here again, it hasn’t made adequate investments. California is far from perfect. A housing shortage has been driving rents and home prices into the stratosphere. And roads are clogged. Much more needs to be done. But overall, the contrast is clear. Economic success depends on tax revenues that go into public investments, and regulations that protect the environment and public health. And true economic success results in high wages. So the next time you hear a conservative say “low taxes, few regulations, and low wages are the keys to economic business-friendly success, just remember Kansas, Texas and California. The conservative formula is wrong. Robert Reich is the chancellor’s professor of public policy at the University of California, Berkeley , and a senior fellow at the Blum Center for Developing Economies. He served as secretary of labor in the Clinton administration, and Time magazine named him one of the 10 most effective Cabinet secretaries of the 20th century. He has written 14 books, including the best-sellers Aftershock, The Work of Nations and Beyond Outrage and, most recently, Saving Capitalism. He is also a founding editor of The American Prospect magazine, chairman of Common Cause, a member of the American Academy of Arts and Sciences and co-creator of the award-winning documentary Inequality for All. Read more from Newsweek.com: - Robert Reich: Trump’s populist economics won’t work- Robert Reich: Seven ways Trump destroys the free press- Robert Reich: 14 ways to resist Trump |
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A European and an American walk into their local bank. Each has a savings account. The banks have the same antiseptic feel, their cash machines make the same robotic moves. There is one fundamental difference between the two, however—how they account for the vulnerability of their assets to climate change, That’s a point that’s been made by a string of financial executives, regulators and political figures over the past week of climate negotiations in Paris. That includes Mark Carney, head of the Bank of England, and Michael Bloomberg, former mayor of New York City, who have both called for a more uniform way to account for the huge, and accumulating, financial impacts of the warming planet in a way that will likely have rolling impacts across the global financial order far beyond the agreements reached here. Depending on which side of the Atlantic you’re on, the bank, or mutual fund or any other investment vehicle run by a publicly traded company, will look quite differently at the spectrum of those climate risks. In France, for example, finance companies must provide the Financial Market Authority, or AMF (France’s version of the SEC) with its annual contribution to, and risk from, climate change. Physically a bank may have a small carbon footprint—composed primarily of the cumulative greenhouse gas emissions of the energy used in its offices. But its funds are another matter: As of this year, the AMF requires that banks also provide a detailed accounting of the exposure of its various investment funds to not only the physical risks from climate change but the risks of fossil fuels’ declining value as the shift towards renewables accelerates and the world moves toward limits on greenhouse gases. The French also require banks to report what the companies they invest their funds in are doing to help move toward and finance a low-carbon future. Keep up with this story and more by subscribing now The French are the most rigorous, but some of their European counterparts are also taking the financial chaos threatened by climate change seriously. In Britain, disclosure laws require insurance companies to provide detailed rendering of their exposure to fossil fuel investments—which are increasingly being seen as highly risky by an array of authorities, from rating agencies to the Bank of England, which administers the British economy much like the Federal Reserve administers the American one. None of these factors are required to be reported to American investors by the SEC. “If you’re traded in France,” said Bevis Longstreth, a former commissioner with the SEC during the Clinton Administration, earlier this year, “you have to show your carbon footprint. If you’re traded in New York, you don’t have to list anything, you can pretend you don’t even have a shadow.” That distinction between a shadow and a footprint is coming to be a significant focus within the financial community attending the climate talks in Paris this week. Concerns over the substantive financial risks that are accompanying the vast scale of natural disruptions wrought by climate change—$160 billion spent over the last several years to respond to extreme weather events in the U.S. alone, Secretary of State John Kerry announced in a speech Wednesday afternoon—are increasingly making their way into some of the world’s top financial institutions. Carbon Tracker, the UK-based NGO made up of former traders and economists analyzing climate risk, issued a report last week identifying a cascade of risks facing the coal and oil companies: significant increases in energy efficiency and miles per gallon in vehicles, technological innovations in energy storage and transmission, the plunging cost of renewable energy—the cost of solar power has dropped 80 percent since 2000—and the increasing likelihood that governments, including those assembled at the Paris climate talks, will impose a price on carbon. At the Paris talks, the Governor of the Bank of England, Mark Carney (Britain’s equivalent of the Chairman of the US Federal Reserve) announced the creation of a new “Task Force on Climate-related Financial Disclosures” to assess the accuracy with which the G-20’s financial markets reveal their vulnerability to climate risk. He asked the task force to assess the “stress points” in the financial system from climate risk, and appointed Bloomberg to run the effort. The two identified the tumult wrought be a climate change as a potentially major destabilizing force on the global economy. Carney characterized the task force as an effort to rectify the current “market failure” to provide adequate information to investors about climate risks, and a significant step in the effort to “transition to a low carbon economy.” Carney’s initiative has its roots in the financial crisis that whipped across the U.S. and Europe in 2011, triggered largely by the previously unrecognized risks from mortgage derivatives and the collapsing housing markets. Following the crisis, the G-20 created the Financial Stability Board to identify stresses in the global economy and head them off to avoid a repetition of the catastrophic cascade that triggered the Great Recession. Carney was appointed the Chair just as climate change began creeping into the consciousness of financial professionals. In June and then again in September he warned that climate change presents a profound challenge to economic stability; then he required British insurance companies to provide detailed data on exposure of their funds to fossil fuel investments. Now, Carney’s concern has extended to the entire financial community—every major trading exchange will be included in the broad assessment of risks ahead. “He’s really been shaking things up,” says Sue Reid of Ceres , which has been meeting with the SEC over the past year in an effort to compel stricter climate disclosure standards for companies in the U.S. markets. “At the highest level, he’s telling the truth about the profound systemic and financial threat that carbon and climate present…Regulators don’t want to get caught asleep at the wheel like they were in 2011.” Investors are already starting to get the news; last week an international coalition of environmental and shareholder groups led by 350.org announced that five hundred institutions with combined assets of $3.4 trillion had begun the process of withdrawing their investments from fossil fuels, the latest development in the effort to stigmatize the fuels that contribute to climate change. On Tuesday, two of the world’s biggest institutional investors, the German insurance giant Allianz and the Dutch pension fund giant ABP announced that they would be divesting their portfolios of fossil fuels, largely based on the high risks they perceive in the future performance of that sector. Last spring, France’s largest insurance company, AXA, did the same. And the members of the Portfolio Decarbonization Coalition , an umbrella group of major companies, convened by the U.N. Environment Program, have committed to divest a total of $600 billion in assets from fossil fuels. So what does this mean for your pension or your investment funds? To get a sense of how the difference in disclosure policies on either side of the Atlantic translates into returns, I asked another banker: Zoe Knight, the managing director of Climate Change Research for HSBC Bank. Knight was also here in Paris, appearing on several panels to discuss how her bank, one of the world’s five largest, is advising investors how to think about the onrush of risks associated with fossil fuels. “It's about risks and returns, and understanding bigger picture financial challenges triggered by climate change,” says Knight. “When an asset owner has to identify their carbon risk profile it means you can assess the long term viability of their investment. Climate disclosures allow you to make up your own mind.” In other words, there appears to be a growing risk of not disclosing your climate risk. Mark Schapiro is author of the book CARBON SHOCK: A Tale of Risk and Calculus on the Front-Lines of the Disrupted Global Economy, and a Lecturer at the UC Berkeley Graduate School of Journalism. He is working at the Paris climate talks with Internews Earth Journalism Network. |