Ernst Ulrich von Weizsäcker: turning around a 200 year trend of cheapening nature

In the thesis detailed in his latest book “Factor 5″, and in the following interview, Ernst Ulrich von Weizsäcker says that it’s up to the state to create the economic conditions that will allow a positive development towards a more efficient world. Investors who are already guided by efficiency should be rewarded:

What role does the financial industry play in the thesis you describe in your book “Factor 5″?

“The financial industry watches the markets and influences them, but mainly it tries to identify trends earlier than the rest of the world and make money as a result of this better knowledge. This is completely legitimate. But the commodities markets have seen prices fall for 200 years, so the financial industry – according to its own credo – must adjust to the fact that efficiency doesn’t actually count for much. There are always short phases every now and then, like the mid-1970s, when things are different, but the larger trend has been an ever increasing appetite for raw materials and energy. It’s been a trend for 200 years. So to believe that the financial industry is intrinsically interested in efficiency is naive.”

What role do you give to individual investors? Can’t they help in any way?

“Yes, it’s very good when individual investors learn to distinguish between the mass of technology and manufacturing providers, i.e. decide which are good, which are less good, and then wherever possible use risk capital, or any kind of capital, to facilitate innovations in the areas of efficiency and renewable energies. And naturally I hope that – as a result of the climate crisis, the peak-oil crisis, the increase in human population and the world water crisis – the absurd 200 year trend of nature being priced ever more cheaply will finally be reversed, partly by the market and partly by the state. Individual investors and portfolio managers who are already investing in efficiency today will then be richly rewarded. But we shouldn’t simplify the process too much.”

The theory described by the Kusnetz Curve says that the path to a clean, rich society passes through a phase in which the environment is heavily polluted. How can an investor help to decouple the progression towards greater wealth from environmental degradation?

“There are always individual niches that already make sense. For example aeroplanes are using light-emitting diodes, because electricity is twice as expensive on aeroplanes. So you don’t have to wait until the whole of society is paying sensible prices for electricity. To this extent, the LED is already commercially successful in niche markets.

But my point is that we shouldn’t be happy with just the niches. We have to turn the whole ocean liner round. Individual investors can’t do that. The ocean liner is far too heavy and awkward. That’s why coordination is needed, i.e. a decision by the whole of society, meaning the state. That’s why in the USA, Canada and Australia – in fact generally in the Anglo-Saxon cultures – I am fighting against the prevailing idea that government is bad and should be abolished or reduced, and that the market will ensure everything is alright. This is a false ideology, an absurd view of society. If you kill the real player and then find a replacement player and say that they can do the job just as well, it doesn’t make sense. It’s empirically wrong.”

The first report by the Club of Rome sketched out scenarios that now seem even more pressing than ever. Are you disappointed that people like you are still having to work on these issues today?

“The big Club of Rome report ‘The Limits to Growth’ contained three major errors. One is an abstract mathematical error: the report assumed fixed rather than variable mathematical relations between the different parameters. This actually means that there can’t be any changes in policy or technology or anything else, which is of course very wrong.

Secondly, and more specifically, it assumed a fixed relationship between sales (volume of trade) – i.e. GNP – and pollution. From the point of view of the late 1960s. Since then, however, rich countries have come to the end of the local pollution phase of the Kusnetz Curve to become rich and clean. There has been a decoupling that was not taken into account by the first Club of Rome report.

Thirdly, with regard to reserves of resources, the report used the prices of the 1960s and early 1970s – prices which were so ridiculously low that it made relatively little sense to continue exploring for oil, gas, copper and the rest. It was only after the oil crisis that prices on the markets went up. This then led to a huge amount of additional exploration, and suddenly there was a lot more there. In this sense, the timings were out by about 50 years. And the Club of Rome still shoulders the blame for this today.

I can’t be disappointed that such a hugely wrong report didn’t get a good hearing. The core message of “The Limits to Growth” was, of course, correct, and it continues to be correct. The job today, which is part of the task I set myself with Factor 5, is to formulate the same challenge but without the same mistakes. Thanks to all the years I have lived, and thanks to my good co-authors and the good discussions I have had, I think I can help find much better answers now to the questions asked in 1972. I can’t be disappointed about that.”

Share on Facebook
Bookmark this on Delicious