Friday, July 5, 2019

Profit maximisation and the Green New Deal cannot mix — Richard Murphy

The simple fact is that the Green New Deal and profit maximisation are incompatible with each other, and this is of massive importance and is an issue that cannot be ducked if the Green New Deal is to work. This is the idea behind my work on what I call sustainable cost accounting (SCA).
The core idea within SCA is that existing accounts treat the supply of finance as the constraint on corporate activity and as such the return to financial capital is considered to be the focus of financial reporting, without any consideration being given to the use of that financial capital and who might benefit from it. Quite explicitly, externalities such as environmental cost are ignored in this framework, which accepts the standard neoclassical line that natural capital is a ‘free gift of nature’. This is inappropriate in a world where we face the reality of climate crisis. The capital constraint that businesses now face does not come from finance - which is readily available to most of them at almost no real cost in the case of larger companies - but from natural capital, whose use we have to limit.
Sustainable cost accounting does, then reject the reporting structure of current accounting, which is no longer fit for purpose, and in the process effectively imposes a new reporting requirement, and so corporate objective, on all companies in place of profit maximisation. This new requirement is the obligation to maintain their business on behalf of all stakeholder groups in society within the constraints that the climate crisis will impose upon them. Unless this is done the Green New Deal cannot deliver the transformation in the way in which we manage the economy that the Common Wealth think tank describe in their report. But when this is understood the ramifications are also much bigger than they appear willing to embrace.…
Tax Research UK
Profit maximisation and the Green New Deal cannot mix
Richard Murphy | Professor of Practice in International Political Economy at City University, London; Director of Tax Research UK; non-executive director of Cambridge Econometrics, and a member of the Progressive Economy Forum

1 comment:

Ralph Musgrave said...

I totally fail to see why we have to change to Murphy's "Sustainable Cost Accounting". The objectives of the Green New Deal can perfectly well be achieved by taxes on carbon based fuels, subsidies for renewable forms of power, etc.