Thursday, November 6, 2008

The ecology of the global financial crisis

When is the last time you went an entire day without hearing the words ‘global financial crisis’? Our existence was continuing happily along, most of us blissfully unaware of the existence of sub-prime mortgages and of a liquidity crisis, until mid-September when it became a near-impossibility to turn on either the television or the radio without being reminded, in not so casual terms, that these are tumultuous times. The complexity of the issues forced the media to enroll its readership in a crash course in economic blundering making unwilling experts of us all and in short period of time, trillions of dollars were mobilized, banks were nationalized and stock markets rose and fell like a clichéd roller coaster leaving its riders feeling nauseated and wanting their money back – or at least to just get off the darned thing.

What could any of this have to do with the environment? More than you would think.

Like it or not, these cycles are the nature of the ecology we live in. Ecology? Surely I meant economy? Well, yes and no. Essentially, both words come from similar Greek roots. While ecology is literally “the science of the house or dwelling” economy is simply “the management of the house or dwelling”. Ecology studies how our surroundings work and economics tells us how to manage them making the human economy essentially a very specialized human ecosystem. While the economy differs from natural ecosystems in many obvious and important ways, this global financial crisis is an example that our human ecosystem is subject to some of the same cycles of perturbation that exist in nature.

Think of an old growth forest. It is beautiful, diverse and productive. Productive forests produce a lot of biomass, dead branches and leaves that cover the forest floor waiting to decompose and be reabsorbed into the tree. When conditions become really dry, all it takes is a small spark and thousands of hectares of forest can be lost. When this happens the cycle must restart from the beginning again but the new forest won’t be identical to the old one. It will depend on many things that were decided in the previous cycle like the seed bank in the ground and on chance events like trees surviving the fire or seeds arriving via animal or wind dispersal. All this to say that the new forest will be similar to the old one, but not exactly the same.

In case some of you are tempted to take the metaphor too far, I’m not implying the economy is going to burn to the ground but it there are fires here and there. Certain business ideas and approaches will survive these economic fires and will be part of the new cycle and some old ones will not. The new economic cycle will be similar to the old one but it won’t be identical.

Whereas a forest that burns down can’t choose to be replaced by a forest that is less likely to burn down, we do have the ability to change direction when a system breaks down. This is the nice thing about having big brains, and this is a great understatement, it makes us humans better at foresight than any other species on the planet. This why the U.S. will no doubt choose to institute what Canadians already have, a well regulated credit industry along with other changes to avoid the catastrophe they currently face.

But even that is rather short-sighted. The beginning of a new economic cycle is the ideal place to start thinking about future potential crises and I’m not talking only financial. For example, the World Wildlife Federation has just issued its “Living Planet Report” in which it explains that because we currently use 30% more resources than the Earth’s capacity to regenerate itself, we must change course soon in order to avoid an ecological credit crunch. While I don’t put that much credence into the statistics from these kinds of organizations, the idea is not a bad one.

The seeds have been sown to make this new economic cycle thriftier and less wasteful than the old one. A wide range of options is available to consumers wishing to simultaneously save money (which is always nice in a recession) and reduce their impact on the planet. If, when the economy goes into rebuilding mode, Canadians decide that they’d rather take a greener route, those industries will thrive and play a bigger part of the next economic cycle. Americans will certainly be in a good position to take this new trajectory with the nearly imminent election of Barak Obama for president, a man who seems ready to steer his country in a new direction.

For the time being the priority will be to stabilize financial markets and make sure that the bottom of this recession is not too low but when it comes time to start rebuilding the Canadian economy, it will time for Canadians to decide where the future of this country lies.

As appeared in the November 5, 2008 edition of the Brome County News

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