Stern Lessons - The Great Invention: The Story of GDP and the Making and Unmaking of the Modern World - Ehsan Masood

The Great Invention: The Story of GDP and the Making and Unmaking of the Modern World - Ehsan Masood (2016)

Chapter 9. Stern Lessons

Those who pollute, should pay.

— President Blaise Compaoré of
Burkina Faso, African Union
heads of state summit (2007)

In the world of economists, Lord Nicholas Stern is a rock star, a red-carpet-treading member of the A-list. Stern has worked at the top of academia, at the heart of the UK government, and at the World Bank in Washington, DC. Influential at home, he has the ear of leaders from Dallas to Delhi. As a member of the UK House of Lords and president of the British Academy, the body representing leading humanities and social science scholars, Stern’s word carries weight.

Nicholas Stern is important to our story because he represents the one constituency that, back in 1997, Robert Costanza and his team of ecological economists found hardest to persuade. Nicholas Stern is an economist of mainstream thought and practice, except that unlike many of his colleagues, he could read both the politics and the economics of putting a price tag on nature. After Costanza’s $33 trillion estimate for a green-adjusted GDP, it would be Stern’s turn to build on the idea of valuing the environment and to take the argument to his mainstream colleagues. But unlike Costanza, Stern also had considerably stronger political firepower at his disposal.

In October 2003 Stern had become head of the UK’s Government Economic Service. He had been hired from the World Bank, where he’d been chief economist, and his new boss would be the chancellor Gordon Brown.1 In that role Stern made a name for himself by successfully steering one of the most complicated mergers in UK civil service history: the union of the government agency that collects income taxes and the agency that is responsible for indirect taxes. “We were 100 years late in doing this,” he told me in an interview in June 2014. That project could easily have bombed, but Stern managed to hold it together, and it brought him to the attention of Tony Blair, who was then prime minister.

At the time Blair, Brown, and the two pop-star campaigners Bono and Bob Geldof had set up a body called the Commission for Africa. This was essentially a blue-ribbon committee of Africa’s leaders, sitting alongside heads of state and international business leaders. Its aim was to bring more prosperity (including growth) to the countries of Africa.

By the time Nick Stern attracted Blair’s attention, the Commission for Africa was having problems in part because of mounting tensions between Blair and Brown.2 Stern says the final report was “drifting.” His appointment to head the project’s secretariat, however, was supported by both Blair and Brown, as neither wanted this flagship project to fail. “Initially, Gordon wanted Treasury control over the project but both realized I had no axe to grind. I wasn’t part of any camp.” Stern told me it took him time to win Geldof’s trust, though, as the singer “thought I was some World Bank-type market economist.”3

As with his previous project in the UK Treasury, Stern delivered the goods. The commission’s final report appeared on time and to wide acclaim.4 Stern did more than deliver for his bosses, however; he also gained Brown’s and Blair’s trust as a kind of honest broker, and in that sense he was the ideal interlocutor for the warring leaders’ next big international project—on climate change.

The last UK Labour government was a quite reforming administration when it came to climate change. Both Blair and Brown accepted the consensus among climate scientists that global warming is happening, that its causes include industrial growth, and that the consequences of business as usual could be severe. Blair oversaw new laws committing the government to tough reductions in greenhouse gas emissions,5 and when Brown became prime minister he appointed a dedicated minister for climate change.6

Blair also knew (or he was advised) that climate protection faced many hurdles, one of which was the view of many of his colleagues that taking action to slow down global warming is essentially bad news for energy security and for jobs: that it is antigrowth. Around Blair’s cabinet table, there was only one minister arguing the other way. His long-serving environment minister, Michael Meacher, was often a lone voice in cabinet, though experienced and adept at knowing how to pull the levers of power when he needed to.7

The Blair government had decided that something had to be done to persuade the doubters, and on an altogether larger scale than had been tried by individual heads of government before.


At the start of 2005, eight years after Robert Costanza’s $33 trillion estimate for an environment-adjusted economy, the UK found itself holding the presidency of two important meetings of heads of government. One was the annual meeting of the leaders of the Group of Eight developed countries, which would be held in Scotland in December. At that time the G8 countries were the United States, France, Germany, China, Canada, Italy, the UK, and Russia. The other presidency was that of the twenty-seven-member European Union.8 As journalists readied themselves for twelve months of “President Blair” jokes, the man himself was preparing to live up to the name.

International summits of world leaders tend to follow a set formula. The main discussion item is almost always the state of the world economy. However, host nations also like to include one or two extra topics that are of national or global importance, usually on issues that require coordinated global action. At the same time it is no secret that leaders like to put such issues on the agenda to help them appear more statesmanlike when the cameras start to roll.

Choosing topics on which there are strong opinions can be quite a gamble, as the last thing anyone (hosts or guests) wants is a major public disagreement. But in 2005, with the UK hosting not one but two global summits, the UK government chose to roll the dice. It selected African development and climate change as headline topics for the presidencies of both the G8 and the EU,9 ensuring that both these topics would dominate the global conversation that year. At the same time, there was determination that each event should conclude with practical and concrete outcomes.

For Blair, convincing fellow world leaders to commit more for African trade and development would in hindsight be the easy part. Persuading them that concrete action had to be taken now on climate change would be an altogether different matter, especially for President George W. Bush. Bush had few problems agreeing to an extra $25 billion in aid for countries in Africa. But Blair wanted Bush to go further: he wanted the G8 meeting to confirm what the overwhelming majority of scientists were saying, that climate change was man-made and that action had to be taken to slow down and eventually reverse carbon emissions. He tried to sell climate change to Bush by warning him that more weather extremes would create more global insecurity and migration. But the more he tried to convince Bush, the more he found Bush retreating. In the end, the G8 leaders decided that on climate change, they would agree to disagree. “To describe George [Bush] as a sceptic would be an understatement,” Blair would later write in his memoirs.10

UK government advisers knew that in order to make meaningful progress on climate change they needed a body of evidence that would persuade world leaders and their ministries of finance that the advice they were getting was wrong: that delaying action on climate change had consequences for future growth, but also that growing economies can be greener ones, too—essentially the flip side of Robert Costanza’s analysis. And to be credible, such a message had to be delivered by an economist with first class credentials.

Tony Blair and Gordon Brown were essentially faced with the predicament Maurice Strong and Aurelio Peccei had confronted four decades earlier. To challenge those who wielded greatest influence in world economic affairs, they had to draw on the voice of empiricism. Once again it was time to call on the services of Nicholas Stern.


Since Maurice Strong’s successful stewardship of the 1972 Stockholm summit, and especially in the two decades since the Rio Earth Summit of 1992, governments have become convinced that environmental degradation is real and that something needs to be done to ward off its consequences. However, it is also the case that ministries of trade and ministries of finance are not always in any great rush to agree to action.

Trade ministries are reluctant to support any policy that stops businesses, particularly large multinational businesses, from pursuing their goals. Finance ministries, on the other hand, are skeptical about anything that could interfere with the GDP numbers. For example, if dealing with climate change means people go shopping less, take fewer flights, or use their cars on fewer occasions, then there’s no doubt that GDP will be affected.

This was the context in which Nicholas Stern was asked to produce his report on the economics of climate change. He had to convince his colleagues in finance ministries that dealing with climate change doesn’t make countries poorer, and he had to find a way to demonstrate that combating global warming might even be good for growth—at least in the long run.

The assignment would perhaps be his toughest yet. The economist in Stern had to master forest ecology, the chemistry of oceans, and the physics of weather systems. He also had to calculate how to place a value on many of the environmental services we currently take for granted. He needed to find out what it would cost if oceans and forests, mountains and lakes, were lost or degraded from climate change.

On October 30, 2006, Stern and his team at the UK Treasury returned with the report that bears his name.11 The team concluded that if the world’s finance ministers all agreed to spend 1 percent of GDP now on measures to tackle global warming, this would save the world economy from bigger falls in GDP in the future. The damage to lives, jobs, and ecosystems from climate change could, according to Stern, lead to a 20 percent fall in consumer spending, for example. “Our main message was that the costs of action are less than the costs of inaction,” Stern told me in an interview.12 “Indeed, doing little is very damaging if not reckless,” he added. “And delay matters: the longer you leave things, the worse they will get.” It was a memorable line: Spend 1 percent now; save 20 percent later.

Governments publish policy reviews most days of the week. However, a few days before the Stern report’s launch I was sensing that this would be a different kind of government document from the usual fare. For one thing, Stern was fortunate in having the combined resources of several UK government departments helping to promote the review and its conclusions. In addition, he was supported by the British Council and by the BBC.13

Occasionally, government press officers might leak a snippet or two to help generate advance interest in a forthcoming announcement. But for the Stern review the launch was protected by iron-clad secrecy. Instead, select media were invited to a hotel and given just an hour’s access to the document before launch, in a process known as “lock in.” That had the effect of adding to the mounting suspense, so that when the story did break, it would be just as big as the publication of Robert Costanza’s $33 trillion estimate of world GDP.

Stern lost no time in presenting his conclusions at the highest levels. After UK launch events and back-to-back media interviews, Stern embarked on a tour that would take him to the world’s major finance ministries, where he would hold private and public meetings with media, public, and policy makers. I followed the Stern entourage to Ethiopia, Canada, and briefly to Indonesia and saw firsthand the report’s extraordinary impact and Stern’s elevated status as a mainstream economist who had come in from the cold.

In February 2007, Stern was the guest of the British high commissioner to Canada, Anthony Cary, who also hosted a press conference. This would be followed by a public discussion hosted by the British Council between Stern and Canada’s celebrated environmentalist David Suzuki, and a joint statement on climate change released by the British High Commission. As I sat at the back of the hall on a freezing day, I can still recall the delight on Suzuki’s face as he greeted Stern with the kind of welcome laid on by religious communities whenever someone famous becomes a convert. Here was Stern, a scion of the economics community, accepting that ecology had a value.

In Ethiopia, however, Stern had a tougher time.

The UK government had arranged for Stern to address the annual meeting of the heads of state of the African Union at the organization’s Addis Ababa headquarters in January.14 At the conference venue I spotted Stern making his way to the room where he would be speaking. But as in Canada he was surrounded by a cordon of officials protecting him from what seemed like hundreds of journalists and members of the public, who all wanted to speak to him.

Stern repeated his report’s conclusion—pay 1 percent now to save 20 percent later, but he wisely moderated it for his African audience. He acknowledged that climate change has been caused by the industrialized world and also acknowledged that countries in Africa and in the developing world more broadly will suffer disproportionately unless action is taken soon. He also hinted strongly that rich countries ought to help pay to resolve a crisis that they helped to cause.

Still, not all of the African Union delegates were ready to accept what they were hearing. To some delegates it appeared as if a representative of one of the world’s most-polluting nations had come to Africa to lecture the continent’s leaders on how to be clean. They interpreted his report as saying, “The developed countries have caused global warming. But the developing countries will stand to lose the most. So my advice to you is to do something about it before it is too late.”

Once Stern stood down, Uganda’s president, Yoweri Museveni, took the floor. Global warming, Museveni said, is “an act of aggression” by the developed world against the African people. After him, Blaise Compaoré of Burkina Faso declared, “Those who pollute, should pay.”15

Meanwhile, back home Stern would also begin to feel the heat from mainstream economists from both left and right once they had had a chance to pore over his report in more detail. His most influential critic was Nigel Lawson, long-serving finance minister to Margaret Thatcher. Lawson’s position was essentially that of the Conservative government in 1972: the evidence of impending catastrophe is thin, he would tell me in an interview in the summer of 2013. Indeed, global warming could even be good for some northern European countries, as it could boost industries such as wine growing and tourism. On the contrary, according to Lawson, the costs to decarbonize industry are way too high and will make countries such as the UK uncompetitive. “Global warming,” Lawson would tell me, “is essentially a religion.”16


All of this is an echo of Aurelio Peccei’s and Maurice Strong’s experiences from four decades earlier in the run-up to the 1972 Stockholm environment conference. Now, as before, most of the leaders of both developed and developing nations are not prepared to buy the idea that their citizens would put up with lower growth just so that future generations have a working planet. Additionally, the leaders of developing nations are not prepared to put up with the idea that they must pay for a problem that they did not cause.

Later, Stern would further strengthen his credentials as a green economist by helping to create a $100 billion fund so that developing countries do have the financial resources to deal with climate change. But on the most critical point of all it seems there’s been little discernible progress since Stockholm. Valuing the environment is all very well, but if it means harm to countries’ growth prospects, then it still constitutes a thick red line.

Something else had to be done to persuade heads of state and governments that growth needs to be about much more than measuring what people and their governments spend. There had to be another way. With Maurice Strong now in his eighties and both Tony Blair and Gordon Brown out of office, the cause would need another champion.