Resource speculation driven by financial markets, climate change and biofuels threatens starvation for the world’s poor.
By Hazel Henderson
Recent spikes in prices of rice, soy, wheat and corn have driven many poor people in developing countries into hunger and malnutrition. In 2011, then World Bank president Robert Zoellick estimated that 44 million people fell into poverty in 2010 due to rising food prices, adding, “Food price inflation is the biggest threat today to the world's poor...one weather event and you start to push people over the edge.”
The United Nations (UN) FAO Food Price Index jumped 25 percent in 2010.
The dots connecting world hunger, weather events and speculation on global financial markets are obvious. Yet, well-meaning officials at UN agencies, including the FAO, World Bank and IMF, are curiously blind. Instead, their many urgent meetings over the past three years have focused on raising more money to pay these rising prices for food staples, urging more productivity from agriculture and opposing nations curbing exports to protect their domestic foods.
Quantitative Easing Fuels Food Speculation
Another taboo subject along with the role of speculation seems to be how quantitative easing, as in the U.S. Fed's QE 1, 2 and 3, simply adds to price spikes of food and other commodities as investors seek real assets rather than fiat currencies.
China, Germany and Brazil warned in November 2010 that the Fed's QE 2 of $600 billion would not be good for the global economy. Germany's finance minister called U.S. policy “clueless.” Brazil protected its currency and imposed capital controls to fend off asset bubbles.
Central banks resorting to QE money printing results in investors moving to safer investments in gold, silver, oil, food, land, forests and other real resources. Even pension funds, endowments and other institutional investment vehicles have shifted their portfolios into commodities.
Food Speculation Is Unethical
Ethical Markets has pointed out to our colleagues at UN PRI and other investors that we deem it unethical to hold vital commodities and speculate in food. Breaking the taboo on the role of central banks, government policies and speculation in food and vital resources is now essential.
We at Ethical Markets base our moral objections on patently obvious correlations in the news and research we scan daily from world sources. We connect these dots – seeing food prices linked to such speculation and to perverse government subsidies on corn-based ethanol, which diverts some 40 percent of U.S. corn crops to fuel our gas-guzzling cars, as well as to the now more-recognized role of droughts, floods and other weather-related shortages.
Free Market Ideology Blind To True Impact of Speculation in Food
Blindness to the role of finance and speculation in rising prices of food and commodities attests to the power of free market ideologies among global financial interests.
This “theory-induced blindness” is a condition described by psychologist Daniel Kahneman in Thinking Fast and Slow (2011). Conventional economics based on externalizing social costs still drives most of their decisions. They view such social and environmental cost as “externalities” to be ignored on corporate and financial balance-sheets.
Systems Thinking Connects the Dots on Food Prices
System-wide accounting models pioneered by ethical investors and mutual funds include environmental, social and governance factors (ESG) and other "triple bottom line" approached in the Global Reporting Initiative, as well as new national indicators of progress Beyond GDP.
Systemic methods of connecting all these dots also come from complexity science.
New research on human brains, behavior and endocrinology, as well as in thermodynamics and ecology have now invalidated the core principles of economics, as I document in Transition to the Solar Age: From Economism to Earth Systems Science (ICAEW).
New mathematical models from the New England Complexity Science Institute (NECSI) now show direct causal links between rising food prices, riots among affected peoples with financial speculation and perverse government policies. NECSI president Professor Yaneer Bar-Yam and his research team relate speculation to the US droughts of 2012. They predict new food price spikes in 2013 unless the new limits to speculation under Dodd-Frank are implemented. Although some U.S. subsidies to corn-based ethanol have been phased out, the mandated percentage in gasoline remains.
Such complex science and systemic models are vital in connecting all these dots and reintegrating our knowledge into holistic policies such as earth systems science – developed by astronaut Sally Ride at NASA and the U.S. Congress Office of Technology Assessment (OTA 1974-2006).
Systemic models are available for finance and money-creation by:
When we go beyond economics, we will not be flying blind!