Interview with Alain Grandjean
On Friday, November 11, 2011, the JECO, Days of the Economy, in Lyon, France, focused on “Financing the Ecological and Social Transition”.
Disappointed by the complete absence of proposals on the financing of an industrial policy for France, the previous day, we interviewed the economist and Ecole Polytechnique graduate Alain Grandjean, a specialist in environmental and climate issues. Head of a small Enterprise specialized in consulting on decarbonization (Carbone4), member of the Environment Watch for the Foundation for Nature and Man, and expert at the Terra Nova think-tank, Mr Grandjean is also a researcher for over 20 years on the mechanisms of credit and money creation to promote productive investment.
Question: What is meant by “The Ecological and Social Transition”, title of the round table discussion this morning, according to you?
Alain Grandjean: To sum it up: the current economic model is unsustainable because of the biosphere and the climate crisis. We must change course and timetable is short.
This is a structural and hard decision. We must invest in the social and environmental domains where the financial return is usually not strong: for example, 30 million homes have to be insulated and brought to new norms. We need to re-conquer grounds in productive areas that will be key for the future. Hence we must consider the possible mechanisms for financing a new policy.
In the world today, a number of large countries do not follow the path of 'more and more liberalism, free market', and one can imagine blocs of countries around alternative financial solutions along the lines of what has emerged already in South America.
Question: You said: "It is not very smart on the part of the European Union to continue to rely on an enlarged open market." Do you then consider that the policy of free open competition is contrary to the need for a new industrial policy?
Alain Grandjean: The contradiction in the construction of the EU, stems from the fact that it is a strange thing, the result of an ultra liberal financial policy with also mechanisms for administrative controls. There is a drive to liberalize to a maximum and to have the private sector dominate over the public, it's slow but it is accelerating at high speed, as in the field of energy for example. And in accordance with the WTO (World Trade Organisation) the European Union seeks to reduce customs duties to a minimum and opposes protectionism. This is a problem of political economy that is neither politically of the Right of the Left.
The absence of protectionism means that an intelligent policy is no longer possible for either the social or environmental domain. It is no longer possible to design a European industrial policy, as it would be considered a violation of international competition, of the spirit of free and undistorted competition, and in that spirit we refuse any binding agreement, considered as protectionist and therefore undesirable. So we die-industrialize France in favor of China, in particular.
Question: The economist Patrick Arthus said the economy was led by the desires of high and immediate short term return of the old people (pension funds) at the expense of young people - who end up in temporary low paid jobs, since productive industrial investment cannot capture 'rentiers' as it must be long-term and too low profits yields...
Alain Grandjean: An industrial policy is incompatible with Euro-liberalism, so there isnone, there isn't one, it is impossible. For long-term investment, we must reverse the current trends, especially with the system of leverage ... To aspire for 10 to 15% return on capital investiments crushes industry. What is needed is what Keynes called "euthanasia of the rentier", it happened in the 30s in the effort to get out of the economic crisis.
U.S. policy before the 1929 crisis was like today: it favored rent against industry and innovation.
For a financial system not to provide such high income, you need strong regulation. We must get out of the infernal spiral and put cash into the system, to financially rearm the States, necessarily for the long term, so as to restore public financial resources.
And it's not simply a question of means: to put regulation back in place, to set up rules, demands a staff of inspectors to enforce these rules, to impose financial justice.
Question: You said at the round table this morning, I am quoting you: "The theory according to which money supply creates inflation must be questioned!" But when anyone says 'monetary creation', the immediate reaction is that people climb the walls and exclaim: 'you want to run the printing press'! What's your answer to them?
Alain Grandjean: Obviously there have been periods of hyperinflation: at the time of the French Revolution, in some developing countries especially under predatory governments.
But, first of all, there are many ways to avoid this type of inflation problem.
Second, the idea is not to indulge in excessive money creation, but to fund specific projects.
Third, what we propose is to increase the public money supply while private money creation is shrank! Leverage will be greatly reduced if there are more controls, if there is regulation. The idea of a mechanical increase is a false problem.
Fourth, the monetarist theory according to which the money supply increases prices is simply untrue. History demonstrates this: inflation was limited during the '30 Glorious Years' (the post-war thirty years of prosperity), and it just came with the increase in fuel prices following the oil crisis. It went down after the oil 'counter-shock' in 1983.
Yes, I think it is important to examine the dogma pretending that creation of money creates inflation. This is contrary to our experience, countrary to economic history.
We need public financing for large mutations in our economy. We need an industrial policy aimed at a better apprehension of the future, such as the need to engage in the decarbonization of the economy. I also note that the fight against CO2 is one of the first objectives of China today. To reorganize our energy policy is not a burden but an opportunity. We need to restructure our economy to address climate change, invest in renewable energy, to launch a significant investment to bring up to norms all the old housing and build many new ones that be up to insulation and stiff energy consumption standards.
To restart lending for investment is especially important now that Basel III weighs on the behavior of insurance companies and banks, as Basel III imposes tougher rules in terms of equity, and this creates a 'credit crunch' (English original) which, in turn, will contribute further to the economic crisis.
So there is a problem of disengagement of the banking sector in financing infrastructure.
Innovation, so necessary for an urban development policy, for a policy of energy, or housing, can not flourish for lack of funding.
There is a direct link between responsible investment and long-term investment, this is my area of expertise, I write about it on my blog, and I contributed to research for Terra Nova and the Foundation for Nature and Man.
Question :It is often argued that protectionism and the creation of money by 'running the printing press' which paved the road to Nazism in Germany, you are in disagreement with this statement?
Alain Grandjean: Right. In the interwar period, the crisis of 1929 followed policies similar to those of today, free market policies, "Laissez faire et laissez passer" ('Let do and let pass') was the dominant thought in America and it was also the reason why America took such a long time to recover from 1929. The Great Depression following the crash had an immediate effect on Germany, the later rushed into a deflationary austerity in 1930, and the austerity policy, that of Chancellor Brüning, increasing mass unemployment and lowering welfare, paved the way for the electoral victory of the Nazi Party. It were deflationary policies, austerity policies, that led Hitler to power.
For more information: (in French)