Britain’s Stark Choice Ahead: Transformation or Collapse

Britain’s Stark Choice AheadTransformation or Collapse

The country is following a familiar pattern of environmental, energy and economic-driven state failure – if the next government refuses to break with neoliberal orthodoxy, it will only accelerate this downwards trajectory, writes Nafeez Ahmed

Five years ago, I warned in a study that Europe faces an increasing risk of state failure due to the escalation of interlinked environmental, energy and economic crises – and I found an intriguing pattern: states begin to fail within 15 years of losing their main sources of energy and economic revenue.

Escalating crisis drives social polarisation, undermining national cohesion and resulting in outbreaks of civil unrest. Without a change of course, these outbreaks coalesce to undermine the functioning of key state institutions. At worst, they can lead to total government collapse and a state of permanent warfare.

Gripped by multiple crises, Britain now appears to be following a familiar pattern of environmental, energy and economic-driven state failure.

Since the 1970s, the world has experienced a rising trend of civil unrest and societal breakdown – in correlation with three realities: rising inequality associated with the neoliberal age of globalisation; escalating economic overshoot of the Earth’s ecological systems; and intensifying decline in the quality of fossil fuel energy resources.

Britain’s North Sea Oil production peaked in 1999. Fifteen years later, as its domestic oil production haemorrhaged, fringe right-wing nationalist forces had moved increasingly into the mainstream. They blamed Europe, immigrants, asylum seekers, Muslims and ethnic minorities for Britain’s intractable social and economic crises. Their success was arguably reflected in the 2016 vote to leave the European Union.

During that period, the quality of the UK’s energy dropped by a third, if not more. In 2000, a year after the UK’s North Sea Oil production peaked, Britain’s ‘energy return on investment’ (EROI) – a ratio capturing the amount of energy used to extract a single unit of energy – was around 9.6. By 2012, this had plummeted to 6.2. This is well below the minimum EROI benchmark of 11 considered necessary to sustain continued economic growth.

As a study by the University of Leeds’ Sustainability Research Institute concluded, this means that “more and more energy is having to be used in the extraction of energy itself rather than by the UK’s economy or society”.

What is happening to Britain now is symptomatic of a wider global phenomenon. Its dependence on oil, gas and coal is self-cannibalising. The scientific consensus shows that it is driving us towards climate catastrophe and, at worst, civilisational collapse.

Economic activity now has astronomical ecological costs that are invisible to us because the system doesn’t factor them in, but which rear their head with increasing frequency in the form of extreme events such as the 2022 global heatwave. But it also has mounting energetic costs that are directly undermining the global economy.

The EROI of global fossil fuels peaked around the 1960s. It has declined by more than half over the past few decades, and continues to decline as the world shifts away from the cheapest forms of conventional oil, gas and coal to more expensive and difficult-to-extract unconventional sources. This decline has been associated with a long-term decline in the rate of global economic growth since the 1970s.

Compensating for this, there has been the expansion of two policies during the golden age of globalisation: outsourcing labour and manufacturing to the cheapest, poorest regions; and unleashing an extreme form of financialisation by massively expanding the creation of credit – essentially to make profit, not from increasing productivity, but simply from lending on interest.

The new wave of financialisation has underpinned a significant, continuous expansion of global debt, by which the consumer economy has also grown exponentially – at the expense of planetary life-support systems. In the same period, animal populations have shrunk on average by nearly 70%, which is why some scientists believe that the planet is in the midst of a sixth mass extinction event.

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A Very British Crisis

There was, of course, only so long that this could continue. Over the last century, global economic crises have grown bigger and longer – a process that has accelerated since the 1970s.

The 2008 financial crash was the most devastating one yet, signalling a tipping point – the first time the system has been unable to return to previous levels of growth. The real-world costs can no longer be absorbed by a system, the very operation of which, continues to increase costs – such as with the Coronavirus pandemic.

But, 14 years after the 2008 crisis, the increasingly radicalised Conservative experiment has brought Britain to the brink. It is clear that neither Liz Truss nor Jeremy Hunt can address the systemic roots of the economic crisis – because they are part of that same system.

The Conservative Party line has been to insist that Russia’s invasion of Ukraine is to blame but – as I documented in 2018 – Russia’s own energy ministry was warning that its domestic oil production was likely to peak in the early 2020s and to lose almost half its capacity over the ensuing two decades. Despite this, neither the UK nor Europe weaned themselves off dependence on Russian fossil fuels. The energy crisis was coming one way or another – Russia’s invasion of Ukraine amplified and brought it forward.

Truss’ Government is unable to comprehend the complexities of these converging crises. As a result, the British economy is now caught between the narrow extremes of the fundamentalist market ideology that brought us to this point: from Trussonomics’ social Darwinism for the super-rich, to Huntonomics’ rampant austerity demanded by the markets. But neither of these extremes offers a viable way out.

I have warned that Truss was leading Britain into an unprecedented social and economic collapse. Far from averting this outcome, her new Chancellor’s plan looks set to continue to accelerate it.

This is a stark example for the rest of the world. What is unfolding in Britain is a window into the risks for the US and Europe if they do not open their eyes to the global systemic transition that is happening right now.

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A Submerging Market

Jeremy Hunt’s capitulation to the markets has alarming echoes of the International Monetary Fund’s structural adjustment packages, which devastated much of the Global South in the 1990s.

Back in 2001, former World Bank chief economist Joseph Stiglitz – who had also served as chairman of President Bill Clinton’s Council of Economic Advisors – described how the IMF’s ‘one-size-fits-all’ policy prescriptions invariably led societies to breakdown.

Stage one involves rampant privatisation by selling off as many state assets as possible.

Stage two is capital market liberalisation often involving currency devaluation to encourage foreign investors to swoop in and buy real estate and currency at dirt cheap prices – followed by interest rate hikes to control inflation and seduce speculators back after they flee taking their money with them.

Stage three is market-based pricing, which involves removing state controls over prices of key commodities – aften part of a wider agenda of slashing public spending, subsidies and so on – which drives up costs of energy, food and water.

Stage four is a form of ‘free trade’ which, in reality, means opening up markets through eliminating barriers for foreign speculators (such as taxes, regulations, worker protections, environmental protections and other ‘state controls’).

The result was largely consistent and predictable – a phenomenon so ubiquitous that scholars have dubbed it the “IMF riots”: the outbreak of social unrest as citizens experienced massive drops in quality of life, basic living standards and affordability of basic goods and services.

But this is the future Truss and Hunt appear to be steering Britain into. By seeking to balance the budget with yet more austerity cuts, the Government will not avert the risk of institutional breakdown which I have described previously in these pages.

Instead, it will continue to intensify the cost of living crisis and accelerate the breakdown of the NHS, the criminal justice system, transport and postal networks, along with other public services – which analysts and experts warn are likely to unfold in the coming months and years.

Hunt’s plan will also continue to risk a financial crash that threatens the global economy, by increasing the chance of consumer debt defaults – especially in relation to mortgages – which could spark the unravelling of debt that cascades across Britain’s financial system, triggering contagions across global financial markets.

Rearranging the deckchairs won’t stop the ship from sinking.

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Systemic Transformation

The mounting incoherence of the Conservative Party toolbox illustrates how the prevailing economic orthodoxy is falling apart. The same stale thinking that got us into this mess cannot get us out. Which is why the Conservatives, trapped within their ideological bubble, are bound to collapse far faster than most observers anticipated – disrupted by their own irrelevance to the issues people are actually facing.

Russia’s invasion of Ukraine is a symptom of the accelerating economic obsolescence of the fossil fuel system. But this system is not just collapsing under the weight of its own unsustainability – it is being disrupted by the rapid emergence of technologies that are changing the fundamental dynamics of how we produce energy, transport, food, information and materials.

As I showed in my paper earlier this year for the Club of Rome, these technologies offer us powerful new tools to accelerate system transformation and build bold, clean new infrastructures that create millions of new jobs. These technologies – like solar, wind and batteries in the energy sector – are scaling not because of governments, but despite them.

History shows that disruptive innovations rapidly replace incumbent industries time and again because economic factors and technological learning curves drive them to get exponentially cheaper, efficient and better-performing. When they become 10 times cheaper, they often wipe out incumbent industries in as little as 10 to 15 years.

This process is now unfolding in the three key sectors responsible for 90% of emissions: energy, transport and food. Instead of costing us more, these technologies are actually cheaper and better. But they are not one-for-one substitutions. They come with new rules, properties and dynamics. As the old system of production dependent on fossil fuel is dying, a new one premised on creation from abundant clean energy is emerging.

Unlike oil, gas and coal – the EROI of which is in exponential decline – the energy return of solar, wind and batteries is improving exponentially. This will allow us not only to produce at least three times more energy than the current fossil fuel system, but to do so at zero marginal costs for most of the year, saving trillions. Instead of dirty, centralised utility monopolies, we can have clean, distributed networks owned by households, communities, businesses and industries.

The clean energy transformation can be achieved within the next decade with less than 1% of GDP, but the economic dynamics of disruption mean that the infrastructural transformation such technologies can bring about will not require massive government subsidies.

While government will need to focus on financing for difficult areas like residential cooking and heating (electrification and support for heat-pumps for instance), the bulk of the work can be done by recalibrating and leveraging markets – eliminating subsidies for fossil fuels, removing regulatory barriers protecting centralised utility monopolies, and creating new rights for individuals to own and trade electricity.

Where public spending is needed, financing should come not from traditional neoliberal-style borrowing relying on private financial bond markets, but through direct monetary financing via the creation of public money without increasing public debt – a facility used by the Bank of England during the height of the pandemic.

A future of breakthrough prosperity and planetary harmony is available, but to get there will require extraordinary courage to rethink everything and mobilise together. Narrow metrics such as GDP may well be too crude to measure the achievements of a new system that will create super-abundance of clean energy, transport and food amidst dematerialisation on a huge scale. We will need novel measures to track social progress.

If a future Labour government is not to fail before it barely begins, it will need to recognise that Britain is now in the crucible of the global phase-shift, as the old extraction age system dies and a new system is born. The economic, social and geopolitical crises we are facing today are interconnected symptoms of a global system in decline. Clinging to that system and the ideological orthodoxies it is interwoven with will not offer any solutions.