“If I had £1m to spend on a more resilient economic system I would…”

A couple of weeks ago Friends Provident Foundation asked me to finish this sentence “If I had £1m to spend on a more resilient economic system I would…” in a filmed interview. That’s not out yet, so here’s the 10 ideas I gave them.

“If I had £1m to spend on a more resilient economic system I would…” do 2 sorts of things: (1) address shocks that we can anticipate, and (2) grow our ability to bounce back better from shocks we can’t predict.

(By the way, below are the 10 ideas, organised under those two headings. I try to preface each idea with a diagnosis (“Right now…”) to set up the rationale. The ideas are informed by The Community Resilience Lab and Global Dashboard’s Brookings paper “Confronting the Long Crisis of Globalization: Risk, Resilience and International Order”.)

 

Let’s start with the shocks we can anticipate.

There are price shocks: energy, raw materials, and food. For each of these there are more people, more prosperous in more places driving demand, while supply is constrained by the natural world and societal/industrial bottlenecks. What can we do?

Idea 1: invest in assembling s network of player who can address the financial barriers to investment for resilience in:
-clean, secure energy supply
-reducing energy demand through efficiency
-get more value from using less physical stuff by creating the infrastructure for a circular economy

Idea 2: scope out how to shift to a diet that is less exposed to price shocks and also healthier (probably – less meaty).

Another shock we can anticipate is extreme weather events. This is a big, big deal but I hope the recent floods mean that government will address this.

 

Now let’s look at growing our ability to bounce back better. Think of Detroit. Why did it struggle over the last few decades? Because of a lack of diversity. It relied on 3 big companies in only one industry. When the industry changed, the risk and resources for response were both too concentrated. Therefore, we need to distribute risk and the ability to respond more widely, in order to bounce back better.
Right now – complex challenges tend to go up to senior leaders because organisations are arranged in hierarchical silos. Therefore we need to create shared awareness of the need for resilience at a senior level.

Idea 3: a ‘Leaders for the Future’ course. Mix together top civil servants (especially from the Treasury) with business people and beyond. Help them push the ability to respond further down their organisation.
Right now – UK towns are at the whim of globalisation and the sheer economic density of London.

Idea 4: Pick a medium-sized town to pilot ‘being resilient’. Throw a lot of resources at it, as a pilot that you can learn from and then scale.
Right now – assembling the necessary coalitions for specific challenges is expensive and slow.

Idea 5: provide core funding for semi-permanent platforms that are ready for co-ordinated action when the need arises.
Right now – risk of failure is usually carried by the weakest member of a supply chain (e.g. the smallholder producers of tea, rather than the multinationals).

Idea 6: create financial products that distribute risk according to who benefits and has the resources to respond, not according to who can dictate terms.
Right now – investment professionals are blind to the systemic risk presented by climate change. Our pensions could be wiped out, unless we take action.

Idea 7: get behind the carbon bubble / divestment campaign.

Idea 8: invest in making climate change a consideration in the ‘macro-prudential’ analysis that financial regulators are now focussing on.
Right now – the UK does not have the requisite variety of industries. We’re too dependent on The City for economic growth and tax take,

Idea 9: get behind efforts to create more entrepreneurs, especially ones which are have ideas that could mean we have fun within environmental limits.

Idea 10: get behind efforts to grow the ability to adapt in the young and the less-skilled (and therefore, more exposed) worker.

 

Finally, it’s also worth bringing resilience into your investment decision.  In practice that means:
-create a portfolio that create medium-term options
-learn as you go, and kill what’s not working
-leverage in the resources of others

 

No idea if Friends Provident Foundation will take any of these ideas. We’ll see!