Monday, 2 February 2015

Why green economics should lead to larger and international not smaller and local

Skipton market day

Unfortunately David Boyle doesn't provide a link so we'll have to take him at his word that this is the Bank of England speaking:

‘If non-local goods are cheaper because market prices do not fully factor in the additional costs that they impose on society over locally produced goods — for instance, higher carbon emissions as a result of increased transportation — then local currencies may improve welfare.’

Having provided us with this quotation David goes on to use it as a means to plus his argument (and associated book) about a thing called People Powered Prosperity. Now David has a problem because people like me think that much of the 'resiliance' agenda is really about a form of localist protectionism - using the force available in planning and local democracy to impose barriers to large organisations doing business.

Now taking his Bank of England quotation as our text, we need to try and answer the questions that it raises. Firstly are 'additional costs' factored into market prices and secondly are non-local goods actually cheaper? In terms of carbon emissions, we have a pretty good guide to this in the work done on 'food miles' and carbon dioxide emissions. In 2008 two academics from Carnegie Mellon University in Pittsburgh, Christopher L. Weber and H. Scott Matthews produced a big study called "Food-Miles and the Relative Climate Impacts of Food Choices in theUnited States" which resulted in this rather lovely pie graph:

That's right folks - 83% of the carbon emissions in the food chain are down to producing the food rather than moving it around. Indeed the journey from producer to retailer represents just 4% of total emissions. Food miles really aren't the big deal our resilience buffs like to think. Some people even think that local production means higher transport carbon emissions.

It is even worse than this because small farms are much less efficient. And lower efficiency means they require more resource input to produce the same output as a larger operation:

Agricultural economists at UC Davis, for instance, analyzed farm-level surveys from 1996-2000 and concluded that there are “significant” scale economies in modern agriculture and that small farms are “high cost” operations. Absent the efficiencies of large farms, the use of polluting inputs would rise, as would food production costs, which would lead to more expensive food.

But David Boyle and the local resilience folk - having had protectionism thrown at them - now argue just what this evidence defies:

For me, the ultra-local agenda is not really about ‘local’ at all. It is about small. Small infrastructure, small communities, small business, small institutions, and the failure of the national institutions – and banks in particular – to deal effectively at that scale.

The problem is that, while small businesses are an essential part of the economic mix (for reasons of competition and all that Schumpterian creative destruction stuff), such businesses are always more resource intensive that larger businesses. This is best illustrated by taking David Boyle's observation that small businesses generate 51% of value added in the UK. The problem is that, according to the Federation of Small Businesses, SMEs represent 99.3% of all the private businesses in the UK. So put it another way - 49% of value added in the UK economy is added by just 0.7% of UK businesses.

So to return to the Bank of England's observation about 'local currencies' - there is very little (arguably nothing) to suggest that transportation is a significant negative externality in the food business and furthermore small businesses are less efficient than large businesses. This suggests that, far from the local resilient economy being less resource intensive and possessing of a lower carbon footprint, exactly the opposite is true - the effect of David Boyle's model would be more emissions not less. And let's point out that most of the transportation is subject to taxes and duties that capture that carbon dioxide externality in the prices of goods.

None of this is to say that local food production, small businesses and 'people-sized' institutions are a bad thing. Rather it's to say that seeing these things in terms of economics or the reduction of carbon emissions is a mistake. Such things are good because we - local people - choose to patronise them and make them work. In simple terms we're prepared to pay more for some of the things we use because we like the idea of terroir, provenance or having the world champion sausage-maker in your village. The problem with David Boyle and his sort is that they're too buried in their bien pensant leftiness to realise that the best and strongest argument for localism is actually a conservative argument. If we take the green imperative seriously then we should be arguing for more larger production units using fewer resource inputs rather than the inefficient but cuddly local economy. It's at times like this I'm glad I'm a conservative!


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