Capital controls needed to address climate crisis, economist argues in new book

Key takeaways

• Political economist Ann Pettifor argues that to effectively tackle the escalating climate crisis and biosphere collapse, governments and central banks must take back control of the global financial system from market governance.
• Pettifor advocates for a return to robust capital controls that characterised the mid-20th century to enable treasuries and central banks to manage cross-border capital flows and exert direct control over national economies.
• She stresses the need to create a stable system in which central banks work with fiscal policy authorities to address climate change, challenging the current orientation of central banks towards global capital markets.

Governments and central banks should take back control of the global financial system to manage the threat of climate breakdown and biosphere collapse, political economist Ann Pettifor argues in her new book The Global Casino.

​​”It’s about time that we gave up on governance by markets and go back to governance by democracy,” Pettifor tells Green Central Banking. “It’s not possible to regulate and lower carbon emissions, particularly from oil and gas, without first regulating the financial system.”

Pettifor, who was a leader of the Jubilee 2000 debt cancellation campaign and is a director of the Prime network of economists, says the world needs to return to the kind of capital controls that prevailed between 1945 and 1971, and which gave treasuries and central banks more direct control over national economies.

“We can recreate a more stable system in which the central banks work with the fiscal authority to address the climate but it requires the public to demand those changes,” she says.

“Capital controls are treated as some evil power that should not actually be discussed amongst grown-ups but the management of our economies and the stabilisation of our economies requires the management of cross-border capital flows.”

She adds: “The idea that the chief executive of Apple would allow others to manage his company is beyond belief, but that’s what governments and central bankers do when they allow markets to determine the exchange rate, the rate of interest, the flow of capital. Those markets effectively govern us.”

Pettifor says it should be possible to overhaul the global financial system, such as in 1933 when US president Franklin Roosevelt ended the gold standard to combat the deflationary spiral that came with the Great Depression, and when the Bretton Woods system of monetary management was created in 1945.

“We have made this construction which we call the international financial monetary system – what I call the global casino. We can remake it and we’ve done that before,” she says.

Pettifor notes that in times of crisis – like World War Two, the financial crisis in 2007-2009 and during the Covid pandemic – it was uncontroversial that central banks should work with fiscal authorities to support the economy. That same ethos should prevail for addressing the climate crisis, she says.

“Central banks are sitting on their hands and their independence from fiscal policy may actually paralyse the state when it comes to addressing this very grave crisis that we are living through now,” she says. “Central banks seem to be oriented towards the interests of global capital markets.”

Pettifor links the fact that fiscal policy is constrained by financial markets to the current political crisis in Europe and the UK.

“The cost of maintaining a central bank that is in effect in opposition to fiscal policy in the range of states in Europe is a really, really serious problem. In my view, it is at the heart of the political uprising in Europe,” she says.

“Central banks are the foundational power of the democratic state and, by pretending to be powerless in relation to the central bank, politicians are neglecting their mandate.”

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