This article is part of a series in which OECD experts and thought leaders—from around the world and all parts of society—discuss and develop solutions now and for the future. Aiming to foster the fruitful exchange of expertise and perspectives across fields to help us rise to this critical challenge, opinions expressed do not necessarily represent the views of the OECD.
Over the last few months, the combination of a pandemic, increasing inequality between rich and poor, an energy price crisis, and more recently the invasion of Ukraine by Russia, has led to immense pressure on the resilience of the world’s economy and therefore on consumers’ budgets. The vulnerability of our global supply chains—and the high dependency on supplies from countries that are not the reliable partners they were thought to be by western democracies—have been an unexpected wake-up call. We need to adapt our economic models to these new challenges, among them a major increase in consumer prices, an inflation economy and major worries of recession. These developments are parallel to the long-standing challenge of addressing the climate emergency as well as other environmental threats: we must urgently transition to more sustainable lifestyles, and this will, at least in the short and medium term, come with a price tag. Our lives are to become more expensive because we need to invest in our future.
Too much of the food that we produce is used to feed livestock, too much of it is transformed into biofuel.
Our economic model is flawed
We are all experiencing an increase in our cost of living. That is bad news, but it does not come alone:
- Forget about our pre-pandemic lives: there will be no quick return to business as usual, as the crises are not due to disappear in the short term. More fundamentally, major investments and fiscal policies need to be rolled out for an ambitious transition towards more sustainable lifestyles. Our “consume-as-you-go” model, which appeared in the middle of last century and has been exacerbated by a consumer credit boom, made it possible for consumers to keep industry growing by spending money that they had not earned yet. In the ‘00s this was pushed to its limits by e-commerce with which you can get anything from anywhere, anytime. This economic model, based on over-consumption as a premise for economic growth, has attained its limits at a high price for our planet, the worse-off among the population and future generations. Our consumption-based economic model needs to undergo a significant overhaul.
- The price increases that we are currently observing, in particular in the energy sector, are such that they put pressure not only on poor households but also on middle-class ones that were not previously vulnerable.
- Overall, while some of these price increases can be explained by their link with energy prices, their magnitude as well as scope of products covered should alert the competition authorities to keep a close eye on markets characterised by consolidation and concentration. Also, when one observes the windfall profits that some are making on the back of the less affluent ones, this should be a wake-up call that inequality is going to worsen in the years to come.
- The burden will be the highest on the least affluent households. The part of their budget dedicated to energy and food is the highest, so any increase will lead not only to inevitable dilemmas between heating and eating but also to the impossibility of taking care of children’s educational costs as well as health expenditure. This is an unsustainable and unacceptable situation for our society in the 21st
- EU Member States’ initial responses were fueled by the fear of a proliferation of radical movements, such as the yellow vests in France or farmers’ protests in the Netherlands, which are exploited by industry and right-wing parties. This leads to mixed signals that do not take account of the need to internalise the costs of fossil fuels. Should there be a cap on petrol prices, for example, while we need to move consumers to zero-emission vehicles? Or would it be better to selectively support the less affluent households as VAT reductions benefit the rich more than the poor?
Read more on the Forum Network: Being Poor Means Paying More: Understanding low-income lives to design public policies that work for consumers by Ira Rheingold, Executive Director, National Association of Consumer Advocates
Solutions are available
These dire observations should not, however, paralyse public thinking and action to address the cost of living crisis. Solutions do exist, and while some need courageous and ambitious policymaking, like creating the right incentives for industry and consumers alike, others are low-hanging fruit and could be immediately rolled out. There are two elements with which a (preferably quick) systemic change can provide significant impact:
- The best energy is the one that is not consumed. Europe’s building stock is underperforming in terms of energy efficiency: buildings are responsible for one third of Europe’s emissions, yet 75% of Europe’s buildings are energy inefficient. Engaging in an urgent, no red-tape, home retrofitting public policy would be a major contribution on many counts: it would reduce GHG emissions; drastically reduce energy bills for all consumers (being sustainable can save money!), benefiting most the poor households; provide for cleaner air; and create local jobs. Every cent spent on building renovation would be a cent well spent, and the return on that investment would take on many forms, from reducing the need for social aid schemes, less public health spending, less heating/cooling costs for public buildings, job creation, etc. It could take on different forms, like direct public spending, but also green public loans, subsidies, tax incentives or supporting young households.
- Addressing high food prices. Too much of the food that we produce is used to feed livestock, too much of it is transformed into biofuel. Shifting away from these climate-destroying techniques would lead to less pressure on food prices, while also reducing their negative climate and health implications. Supporting the move to plant-based diets would reduce this impact drastically, with a beneficial effect on public environmental and health expenditure, while providing households with more acceptable food prices.
Make it systemic!
Still inspired by 20th century consumer policy, too many policy streams currently focus on informing or educating consumers about more sustainable options. These approaches, shifting the responsibility of the future of our civilization to individuals, will not be enough on their own. Consumers are ready for more sustainable lifestyles, but they face too many barriers that information and education cannot overcome. The sustainable option needs to be the easiest, the most affordable, the most attractive. And to achieve that goal policy makers need to change the system, not the people. Revisit urban planning to promote walking, biking, and public transport; exempt fruit and vegetables from VAT and/or tax red meat; tax kerosene; eliminate VAT from rail; make sustainable products the new normal; or provide one-stop advice centres assisting consumers who want to have more energy efficient lives…
This calls for political vision and leadership, for systemic and inclusive thinking that is embedded in grassroots experience. It will not be easy, but it is possible. Above all, it is urgently necessary.