Austerity vs. the Planet

The world’s richest countries have decided they are too poor to fight climate change.

The COP29 climate conference in Azerbaijan concluded a few days ago, with rich countries agreeing to mobilise $300 billion annually to help the Global South battle climate change and switch to renewable energy. 

Nafkote Dabi, Oxfam International’s Climate Change Policy Lead, described the deal thus: 

“The money on the table is not only a pittance in comparison to what’s really needed—it’s not even real ‘money’, by and large. Rather, it’s a motley mix of loans and privatized investment—a global Ponzi scheme that the private equity vultures and public relations people will now exploit.” 

Fair or not, developed nations were also accused of using the likely withdrawal of the United States from international climate frameworks under the upcoming Donald Trump presidency to lessen their yearly commitment.

Countries which are large emitters but not classified as developed countries were encouraged to contribute money voluntarily. This provision mainly increases pressure on countries such as China and Saudi Arabia to pay their fair share. 

In short, after intense debate, the ability to provide adequate climate financing to the world’s poorest has been kicked down the road once more.

According to Reuters, the negotiations “laid bare divisions between wealthy governments constrained by tight domestic budgets and developing nations reeling from costs of storms, floods and droughts”. Herein lies the essential problem. The richest countries on the planet have decided they are poor and, therefore, cannot help fight climate change in the Global South—or at home—at the necessary scale.

The doctrine of strict fiscal prudence and inflationary controls currently dominating economic policy in the West is, after all, political. Conscious choices have led to its implementation.

In practice, such policies have resulted in higher inequality. As I have argued previously, austerity has stifled investment in the EU. Private capital has not held up its part of the bargain, leaving European citizens €3000 a year worse off. What good has come of Biden’s comprehensive fiscal stimulus will be duly wiped away by Trump and the new Department of Government Efficiency—a name as contradictory as the Democratic People’s Republic of North Korea. 

Countries that—for now—are better off invent ways to be poor. In Sweden, for instance, the political discourse since the 1990s has been one of an impoverished state incapable of providing basic welfare for its citizens, as demonstrated in Niklas Altermark and Åsa Plesner’s wonderful book.

Sweden, a country with one of the lowest budget deficits in Europe, has rules in place barring the central government and municipalities from operating at a loss. Since enlarging the deficit is off the table, any new investments must come from increasing taxes—political suicide. Thus, long-term investments are neglected. Spikes in welfare payments because of external circumstances are answered with welfare cuts to avoid going into the red financially. The few actual investments are funded by money moved from other budget areas, resulting in chronic underfunding. 

These budget rules were instituted because politicians learned the wrong lessons from Sweden’s economic crisis in the 1990s. It was said that the country’s high budget deficits caused the crisis. Conveniently left out of this story is that Sweden’s liberalisation of the banking sector in 1985 without any guardrails led to a lending bubble. Government spending increased when welfare subsidies kicked in as a result of the crisis—not vice versa. The dominant interpretation was a political choice. Banks will be banks and cannot be held responsible under neoliberalism.

Moreover, it’s important to note the political implications of the 2% inflation target and their guardians—the “independent” central banks. Research shows that the US Federal Reserve (Fed), for example, has the habit of raising interest rates to keep inflation under control at the point in the business cycle when low-income workers are generally supposed to achieve higher wages. As high-income individuals see wage increases in all stages of the business cycle except during a recession, their wealth accumulation is unimpacted by the Fed’s policies. Such a dynamic is present in lands far and wide. 

Western governments have adopted an economic ideology favouring corporations and wealthy individuals at almost all costs. These states are the most powerful entities in the history of the world. Yet, they have allowed themselves to be fully taken over by business interests. Now, with their assets all sold off and their credibility in the eyes of their electorates mostly broken, they faced the delegations of the Global South in Baku and said they could not afford to save the lives of people they have exploited and continue to exploit. 

The victory of financial capitalism is so supreme that all issues are evaluated through a discounted cash flow analysis. A delegate at COP29 was quoted by the Guardian as saying that developed countries could not offer more money because, if the US fails to contribute, “we will shoulder all the risk.” The risk is that the planet will become uninhabitable for humans, not a poor return on investment.  

// Adrian