Credit Guidance

Degrowth scholarship calls for reducing less-necessary production in rich countries to enable faster decarbonization and reverse other ecological pressures. But how can this be achieved? What is the mechanism? For many years ecological economists advocated setting “caps” on resource use, declining to levels that are compatible with ecological goals. This is a nice idea in the abstract, but it would be extremely difficult to implement. How do you impose the cap? How do you distribute resources within it? Who gets how much?

There is a simpler and more effective approach: credit guidance. The idea here is to impose rules that limit the quantity of finance that commercial banks can invest in problem sectors. For example, credit guidance can be used to scale down commercial investment in fossil fuel production on a binding, annual schedule. But it can also be used to reduce other destructive and unnecessary industries: SUVs, mansions, cruise ships, private jets, industrial beef, dangerous plastics, fast fashion, weapons, advertising, etc.

To grasp the power of this, and why it is needed, we need to understand something about money. Money represents command over production. Whoever issues currency – whoever creates money – can mobilize production to do whatever they want. This power is held by states and should be understood as a public good. After all, what is at stake is the mobilization of our collective labour and the common resources of our planet. But under capitalism, the power of money creation is largely franchised out to commercial banks that create money in the form of credit when they make loans.

Wielding the power of credit, commercial banks get to determine the allocation of investment and therefore determine what gets produced. They make these decisions based on whatever production is most profitable, regardless of whether it is beneficial or destructive. As a result, we get massive investment in things like fossil fuels, beef and SUVs, because these things are highly profitable to capital, and chronic underinvestment in necessary sectors like renewable energy, regenerative agriculture and public transit, because these are less profitable or not profitable at all.

This dynamic is what explains the fact that high-income countries – like the United States and Britain – are characterized by extremely high levels of resource use and yet still fail to meet many basic human needs. It is because investment is controlled in an undemocratic way, and is totally unaccountable to