Back in 1997 James Robertson, respected British economist, monetary reformer and policy counsel to government, took a hard look at “The New Economics of Sustainable Development” in a report prepared for the Forward Studies Unit of the European Commission. Today, half a generation later, this exceptionally insightful piece still brings up points to which we should be giving attention. It is unfortunate that the clock has stood still for this important part of the sustainability dialogue. No wonder we are making so very little progress in the right direction. Let’s have a close look at what James has to propose and mull it all over from a 2011 perspective.
This is one of the reports which appear under the list of recommended readings for this seminar. It is hoped that in each seminar one of the students will chose to read it carefully and report to the class on its main findings, conclusions and relevance in this second decade of our still new, and still pretty confused, century.
The New Economics of Sustainable Development
A Briefing for Policy Makers
A Report for the European Commission
- By James Robertson, 1997. Cholsey, Oxfordshire, UK
The challenging of truths still recently considered to be universal has swept through the world of pure science and now of economics. Ever since the Club of Rome sounded the alarm, the clash between the accepted truths of classical economics and the new ideas launched by the current of sustainable development has challenged a number of certainties and beliefs solidly anchored in our system of thought.
In a changing world, this new current of thought has the advantage of offering new avenues for decision-makers to explore and of generating debate on what sustainable development should be. Now that the Euro is on the verge of becoming reality, the European Union is more than ever affected by the need to offer citizens a kind of development which can meet the needs of the present, but without compromising the capacity of future generations to meet theirs.
It is because this new economic thought puts the citizen and the common good at the centre of its concerns that we believe that political decision-makers should give it their attention. The ‘new economics’ is based on a vision which could be a source of inspiration for politicians: the systematic development of individual responsibility, the effective preservation of resources and the environment, respect for qualitative and not just quantitative values, respect for feminine values, and the need to place ethics at the heart of economic life.
It is for all these reasons that the Forward Studies Unit asked a well-known figure, James Robertson, to try to synthesise these movements favouring an ‘alternative economics for sustainable development’. Is there a new economics, what are its starting points and its references, its priorities and its practical propositions?
When the study was presented on 5 May 1997, a lively debate ensued with 30 European officials present.
I believe the type of debate that this book will provoke to be necessary and useful for future development of thinking in this important subject.
Director, Forward Studies Unit
INTRODUCTION AND EXECUTIVE SUMMARY
“There was a time when by the “new economics” was meant the Keynesian economics, which was notable as a response to the depression of the 1930s. The new economics that is struggling to grow today is something very different. It constitutes our response to a new set of problems which was only dimly perceived earlier, but has steadily grown in urgency over the last quarter of this century. It attempts to put forward new ideas about how to organise the foundations of a sustainable economy at this juncture in history when there are clear signs that the global economy cannot move much further along the accustomed paths of industrial growth without ending up in total disaster. For the true welfare economist the horizons of enquiry are shifting again in a new direction…. The study of wealth and welfare stands at a new crossroads.” Amlan Datta (1997)1
This Briefing was commissioned by the Institute for Prospective Technological Studies (IPTS) on behalf of the Forward Studies Unit of the European Commission in order to provide “a value-added review of recent alternative-economic-paradigms work as it pertains to sustainability, with a particular emphasis on the practical/policy implications”.2
Sustainable development has been defined in many different ways. Perhaps the best known definition is that in Our Common Future (page 43) – “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”.3 Conventional economic progress fails to meet the needs of many millions of people today and compromises the ability of future generations to meet theirs. The new economics reflects the growing worldwide demand for new ways of economic life and thought that will conserve the Earth and its resources, and empower people to meet their own needs and the needs of others.
There is thus a close affinity between sustainable development and the new economics. Both recognise the need for change in today’s direction of development and today’s ways of economic life and thought. In general, the new economics brings a more radical perspective to sustainable development, and implies more far-reaching changes, than the mainstream perspective. For example, it emphasises the need, as part of the shift to sustainable development, to move:
• away from a state-centred or business-centred economic system, towards a more people-centred system, and
• away from money-measured growth as the principal economic target and measure of success, towards sustainability in terms of real-life social and environmental and economic variables.
But the dividing line between the new economics and the mainstream is not static. The pattern of the past quarter-century has been that, as independent voices have spread awareness of the need to shift to sustainable development and what this will involve, mainstream opinion has shifted – after a time lag – to incorporate new economics approaches. As this process continues – the forward thinkers moving ahead of the mainstream and mainstream opinion moving to catch up – no firm boundary can be drawn between the evolving mainstream agenda for sustainable development and the policy implications of the new economics.
There will always be some new economics policy proposals that have reached the mainstream agenda,4 while others – still politically unrealistic to policy makers and policy analysts, and professionally off-limits to conventional economists – have still to reach it. Among examples discussed in this Briefing, environmental taxation has come on to the mainstream agenda in the past few years, the Citizen’s Income is nearly there, site-value land taxation may still have a little way to go, and – in spite of the attention being given to LETS (see Chapter 4) – multi-level currency systems and interest-free money may be rather further off.
Purpose of the Briefing
The purpose of the Briefing is to report what the new economics is about and what some of its key policy implications are. More specifically, the aims are as follows.
• to outline the background and principles of the new economics, and their connection with sustainable development;
• to indicate their application to important fields of policy;
• to suggest that a number of key “framework” policies will promote sustainable development in all these fields;
• to identify such policies for taxation and public expenditure;
• to note the need for other framework changes – local, national and global – in the monetary and financial system;
• to discuss the implications of certain other changes, e.g. in ways of measuring and accounting for economic activity;
• to identify certain practical and theoretical long-term questions (such as the implications of a shift from income growth to cost reduction as a driving force in the economy), which call for study and analysis – but not at the expense of delaying urgently needed policy changes; and
• to provide an illustrative bibliography and resource list.
The Briefing should not be read primarily as a plea for the new economics, nor as an attempt to justify its principles and policy implications. Readers are not necessarily expected to agree with the statements in it, such as “more self-reliant local development will play a key part in the transition to a sustainable future” (Chapter 2.5). Throughout, the many statements made in that form should be taken as reports of the developing views of new economics supporters and thinkers, and their implications (of which policy makers need to be aware), rather than as assertions to be accepted or rejected.5
A distinction has to be made between, on the one hand, those in the new economics movement who aim to subordinate the money-based calculations and values of conventional economics to real-life considerations and ethical and political values, and – on the other hand – the more mainstream economists who aim to extend conventional economic methods to environmental issues. In practice, no hard and fast line can be drawn between the two. But the purpose of the Briefing is to deal primarily with the first.
Some Relevant Facts of Life
Governments and government agencies (including the European Commission) are themselves an important part of the problem. Existing public policies – e.g. for agriculture and transport, but in most other fields also – give powerful encouragement to unsustainable development. Governments and government agencies will come under steadily increasing pressure to rectify that. Being advised to put one’s own house in order may not be the advice one most wants to receive. But policy makers need not see it as negative and unexciting. For example, the proposed changes in existing structures of taxation and public expenditure aim not merely to remove incentives to unsustainable development, but to replace them with powerful positive incentives in favour of sustainable development.
Another fact to be reckoned with is that most government policy makers have traditionally been expected to keep within their own departmental boundaries – to specialise in their own subject and respect one another’s “turf”. Inter-departmental co-ordination has generally had the limited aim of achieving acceptable trade-offs between conflicting departmental policies developed separately.
The conventional policy-making approach to sustainable development follows this pattern, and tends therefore to be fragmented. The new economics identifies possibilities of a more systemic and synergistic kind – systemic because, for example, changes in framework policies for taxation and expenditure will encourage shifts towards sustainability in many departmental policy fields (such as farming and food, travel and transport, energy, patterns of work, more self-reliant local development, etc.), and synergistic because a shift towards sustainability in each of those fields will encourage a comparable shift in the others. Governments and government agencies will come under increasing pressure to show that they understand the need and scope for synergistic policies of this type, and have the integrative capability to develop them and introduce them and implement them.
Third, because it takes time for mainstream opinion to adjust to the new economics, some of its more important policy implications will not yet be acceptable to many of the people who need to consider them. Until compelled to take them seriously, why should policy makers do so in the midst of all the urgent calls on their time and energies? As I know from personal experience with the Central Policy Review Staff of the UK Cabinet in the early 1970s, it is one thing for a forward studies unit to commission studies on future possibilities, and quite another thing to motivate policy makers to pay attention to the findings.
Nonetheless, policy makers will do well to be aware of the growing momentum behind the new economics approach, even if they do not yet accept it themselves. Pressure will continue to grow for changes in economic life that will give primacy to the needs of people and Earth, and for changes in economic thought that will provide new concepts of economic efficiency and progress. Policy makers will want to be ready to respond to the implications.
Principles of the New Economics
As Chapter 1 outlines, the contemporary new economics movement has gathered increasing momentum since the UN conference on the environment in 1972, the publication in the same year of Only One Earth, The Limits to Growth and Blueprint For Survival, followed in 1973 by Small Is Beautiful: Economics As If People Mattered. During that quarter-century new economics principles have crystallised. They contrast directly with the conventional economics approach.
They include the following:
• systematic empowerment of people (as opposed to making and keeping them dependent), as the basis for people-centred development;
• systematic conservation of resources and environment, as the basis for environmentally sustainable development;
• evolution from a “wealth of nations” model of economic life to a one-world model, and from today’s inter-national economy to an ecologically sustainable, decentralising, multi-level one-world economic system;
• restoration of political and ethical factors to a central place in economic life and thought;
• respect for qualitative values, not just quantitative values;
• respect for feminine values, not just masculine ones.
These principles are relevant to every area of economic life and thought (such as farming and food, travel and transport, etc.), and to every level (ranging from personal and household to global) and every feature (such as lifestyle choices and organisational goals). Applying the principles to each area, level and feature of economic life can yield a comprehensive checklist for a systematic policy review.
The following features of the new economics underline its direct relevance to policy making.
• It is normative, focusing on action to create a better future for people and Earth.
• It is based on a realistic view of human nature, recognising that people are both altruistic and selfish, co-operative and competitive. Thus it recognises that evolving the economic system to reward activities that are socially and environmentally benign (and not the reverse, as at present) will make socially and environmentally responsible choices the easier choices for people and organisations.
• It is about transforming today’s economic life and thought, shaping a new mainstream for the future, not just about promoting secondary alternatives co-existing with today’s mainstream.
• It is dynamic and developmental, working for changes in the direction of progress, not to a blueprint for a final destination.
• As already mentioned, its approach is systemic and synergistic. It looks for “framework” policies that will promote sustainable development in every field, and it recognises that more sustainable development in one area will be closely linked with sustainable development in every other.
• It is critical and constructive, based on recognition that effective opposition to conventional economic development and thought is a necessary part of the transformation, but that constructive alternatives must also be proposed.
• It recognises the need to combine short-term with long-term change. Short-term policy changes to meet current mainstream policy objectives should be such as will help to open the way to new policy objectives and more fundamental changes in the longer term.
The State, the Market and the Citizen
Mainstream economic and political opinion has assumed that there are three types of economy:
• a state-centred command economy;
• a business-centred free-market economy; and
• a mixed economy, based on a sharing of economic power and influence between government, business and trade unions – the “social partners” – who are expected to co-operate more or less closely with one another.
The people-centred economic system on which sustainable development will have to be based differs from all those producer-orientated and employer/employee-centred systems. This means that the collapse of the state-centred communist model is not seen to have consolidated conventional Western business-dominated capitalism, but to have helped to open the way to its transformation.
The roles of the market and the state will continue to be important. The role of the market will be to serve the needs of citizens in environmentally sustainable ways. The role of government will be to develop a financial and regulatory framework designed to encourage personal and local self-reliance, economic efficiency and enterprise, social justice, and environmental sustainability. But a sustainable economy will also recognise the prime importance of those activities which are carried out neither for profit in the market nor by employees of the state. An active “third sector” alongside the public and private sectors, and an active “informal economy” based on unpaid interpersonal co-operative self-reliance, will constitute a province of citizen activity free from the impersonal constraints of the state and the market. The growing importance of voluntary organisations, citizens’ groups and non¬governmental organisations (NGOs) is evidence that this trend is already under way.
Conventional economic policies have focused on the interests of business and finance, employers and trade unions, and other organisations, as indispensable intermediaries on whose activities people must depend. New economic policies for sustainable development will focus more directly on people as active citizens. Recycling a significant proportion of public revenue directly to citizens as a Citizen’s Income (see Chapter 3) will be an example.
Areas of Policy
Chapter 2 is about the implications of sustainable development across a range of policy areas. These include farming and food, travel and transport, energy; work, livelihoods and social cohesion; local development; technology; business; health, and law and order.
A number of “framework” policies are noted that apply to all these policy areas. They include the following.
• Restructuring the tax system in favour of environmentally benign development and higher levels of employment and useful work.
• Introduction of a Citizen’s Income paid unconditionally to all citizens in place of many existing social welfare benefits.
• Termination of subsidies and other public expenditure programmes which encourage unsustainable development.
• Introduction of public purchasing policies which encourage contractors to adopt sustainable practices.
• Development of more self-reliant local economies, involving (among other things) support for local banking and financial institutions, local means of exchange (local “currencies”), local shops, and easier access for local people to local “means of production”.
• Development of indicators to measure economic, social and environmental performance and progress.
• Development of accounting, auditing and reporting procedures (and other accreditation procedures) to establish the sustainability performance of businesses and other organisations.
• Demand reduction policies (e.g. for transport and energy), and the need to consider their implications.
• Changes in the existing international trading regime, to encourage sustainable forms of trade.
Changes in Taxes and Welfare Benefits
Perhaps the most important complex of policy proposals discussed in this Briefing involves:
• ecotax reform, i.e. shifting the tax burden away from employment, incomes and activities that add value, and on to activities that subtract value by using energy and resources (including the capacity of the environment to absorb pollution and waste); and
• replacing existing tax allowances and tax reliefs and many existing social welfare benefits with a basic income paid to all citizens as of right – a Citizen’s Income.
The pressures to restructure the present systems of taxation and welfare benefits are strong and growing stronger. They now encourage inefficient use of resources – over-use of natural resources and under-use and under-development of human resources.
They discourage employment and also useful unpaid work. Means-tested benefits discourage saving, as well as the earning of income. They create poverty and unemployment traps which lead to increasing social exclusion and rising costs for education, health, and law and order. Already expenditure on the welfare state is at crisis level in many industrialised countries.
For the future, an ageing society will find it even more difficult to tax fewer people of working age on the fruits of their employment and enterprise in order to support a growing number of “economically inactive” people. In the medium term at least, a competitive global economy will continue to create pressure for lower taxes on personal incomes and business profits in order to attract inward investment.
Ecotax reform is now well and truly on the mainstream agenda, following the European Commission’s White Paper on Growth, Competitiveness, Employment of December 1993. But a difficulty about it is that, if existing taxes on the fruits of people’s work and enterprise are simply replaced with environmental taxes, the effect will be regressive. Poor people will be hit relatively harder than richer people. Ecotax reform can only be viable on a significant scale if it is part of a larger package, other components of which will counteract that regressive effect. Land site-value taxation and a Citizen’s Income can serve that purpose.
Chapter 3 outlines how this combination can be evolved. It will reflect an understanding that a sustainable society is one:
• which does not tax people for what they earn by their own useful work and enterprise, by the value they add, and by what they contribute to the common good;
• in which the amounts that people and organisations are required to pay to the public revenue reflect the value they subtract by their use of common resources; and
• in which all citizens are equally entitled to share in the annual revenue so raised, partly by way of services provided at public expense and partly by way of a Citizen’s Income.
There will be the makings here of a new social compact for a new era. The social compact of the full-employment age is breaking down. The time is passing when the great majority of citizens, excluded from access to land and other means of production, and from their share of common resources and values, could nevertheless depend on employers to provide them with adequate incomes in exchange for work, and on the state for special benefit payments to see them through exceptional periods of unemployment. A new social compact is needed that will encourage all citizens to take greater responsibility for themselves and their contribution to society. In exchange, it should recognise their right to a share of the “commons”, so enabling them to become less dependent than they are today on big business and big finance, and on employers and officials of the state.
The second part of Chapter 3 discusses the implications of sustainable development for public spending.
It needs to be understood that the whole array of public expenditure programmes and taxes existing at any one time (together with the non-existence of public expenditure and taxation on other things) constitutes a framework which helps to shape market prices and thereby rewards certain kinds of activities and penalises others. This framework should be designed to encourage economic efficiency and enterprise, social equity, and environmental sustainability. It should also be designed to minimise uncertainty and disruption caused by need for ad hoc interventions in the workings of the market.
The following specific conclusions are noted.
• Public purchasing policies should encourage sustainable and equitable practices on the part of contractors, thus contributing to sustainable and equitable practices throughout the economy.
• Systematic reviews should be carried out and published on the sustainability effects of all public subsidies (and other relevant public expenditure and tax differentials), with the aim of eliminating subsidies that favour unsustainable development. (One estimate has put the total value of environmentally damaging subsidies in Britain alone at £20bn a year – which suggests a huge figure for the EU as a whole.
• Temporary subsidies for sustainable development initiatives such as green investment funds should be considered. But reducing the existing bias of taxation and public expenditure in favour of unsustainability is more important.
• Systematic reviews should be carried out and published on the possibilities for re-orientating public spending programmes, with the aim of preventing and reducing environmental and social problems before the event, rather than concentrating on trying to clean up and remedy their effects afterwards.
One further point should be noted. As new patterns of taxation and public spending help to shape a more people-centred (as well as a more environmentally sustainable) economy, they will enable people to meet more of their needs for themselves and one another. Over time, that will allow reductions in public spending and so, in turn, reductions in the revenue required from taxation. That will fit well, since taxes on the use of energy and resources will, if successful in terms of reducing their use, have the effect of thereby reducing their own tax base.
Money and Finance
The money and finance system is conceptually more complex and more clouded in professional mystery than most other fields of policy. It has been difficult for policy makers in other fields, and for NGOs, to get to grips with it. Strategic understanding still has to crystallise about the changes implied in the sphere of money and finance by a shift to people-centred, sustainable development.
However, as Chapter 4 describes, it is clear that the way today’s money and finance system works is damaging to people and the Earth. It contributes to unsustainable development in two main ways.
• It systematically transfers resources from poor to rich.
• The money-must-grow imperative drives production (and therefore consumption and investment) to higher levels than would otherwise be needed.
As the damaging nature of the money and finance system becomes more apparent, a post-modern perspective on money – appropriate to the Information Age – is beginning to come into focus. Increasingly people are starting to ask:
• What is the money and finance system for? What functions do we need it to perform?
• For whose benefit does it exist? Who does it belong to?
• Why does it work so inefficiently and unfairly at present? and
• Can it be more intelligently designed and deliberately developed to provide people with a fair and efficient scoring system to facilitate transactions between them, by recording and exchanging the claims they are entitled to make on one another for goods and services now and in the future?
Specific issues include:
• proposals for multiple and multi-level currency systems;
• proposals to mitigate the unsustainable effects of interest and debt;
• prospects for deregulated currencies and quasi-currencies;
• the possible implications of electronic money;
• the need to apply sustainability accounting, auditing and accreditation procedures to financial institutions; and
• the role of green and social investment, and the role of local banking and microcredit institutions, in the shift to sustainability.
Each of these is discussed in Chapter 4. Developments in each will have an impact one way or another on sustainable development in many different spheres. Each is an area in which further understanding and
action is needed. Policy makers, not only in the monetary and financial area, need to become more familiar with them.
The Global Economy
As outlined in Chapter 5, the peoples and governments of Europe have a full part to play in the further evolution of global economic governance over the coming years. We can help to shape global economic policies and institutions in support of people-centred, environmentally sustainable development all over the world. The contribution we can make is threefold. We can:
• show that we are committed to reorientating our own way of life towards sustainable development;
• ensure that our own national and European activities in the spheres of international trade, investment and aid contribute to sustainable, not unsustainable, development in other parts of the world; and
• participate effectively with the rest of the international community in the building of new global institutions, and the restructuring of existing ones, in support of sustainable and equitable development.
Sustainable development will involve reversing what has been a central feature of world economic development hitherto. That is the relatively higher growth rate of international trade than of world economic output, and – to an even greater extent – the relatively higher growth rate of international financial flows. In that sense the new economics shares Keynes’ well known sympathy with ” those who would minimise, rather than with those who would maximise, economic entanglement between nations”.
As countries around the world move, as in due course they will, toward a new framework of relative prices created by changes in taxation and public expenditure as already outlined, this will encourage more self-reliant economic activity at national and local levels. That will help to reduce international trade and international financial flows.
Further policy implications include the following.
• At the national and European level, European governments and the European Commission should regularly and systematically review their policies and spending programmes on export promotion, outward investment, aid, and technology transfer, with the aim of ensuring that they contribute to sustainable, not unsustainable, development in recipient countries. They should also consider possible ways of making it easier for their own countries’ consumers and investors to support “fair trade”.
• In co-operation with their own NGOs and international NGOs, European governments and the Commission should actively help to shape the further evolution of global economic policies and institutions, which will help all participants in economic activity worldwide to move as rapidly as possible towards sustainability.
In particular, this means adopting policies to:
1. evolve through the World Trade Organisation (WTO) a regulatory framework for international trade which will rule out unilateral protectionism while encouraging self-reliant, conserving development worldwide;7
2. cancel the unrepayable debts of the poorest Third World countries;
3. develop a system of global taxation, preferably based on charging nations for the use they make of common global resources, and using the revenue partly to provide all nations with a per capita “citizen’s income” (which would replace much of today’s development aid to Third World countries), and partly to fund the UN system and its operations;8
4. develop a more effective system of management for the international monetary and financial system, possibly including the introduction of a global currency; and restructure the institutions of global economic governance, to co-ordinate the policies and activities of the World Bank, International Monetary Fund (IMF) and WTO more closely with other parts of the United Nations system, under the supervision of a new world economic council more widely representative than the existing Group of Seven (G7).
Chapter 6 – From Growth to Sustainable Development – discusses a number of further issues arising from the prospect of a shift to sustainable development.
- The shift to sustainability calls for new indicators for measuring economic achievement, new procedures for accounting for it, new methods of assessing policy options that will improve on cost/benefit analysis, and a review of the meaning of economic efficiency as it affects every field of policy. ·
- A key question arising from the development of environmental and resource taxation is whether the principle underlying it should be seen as the internalisation of costs now externalised, or as payment for the use of common resources. This is not just a theoretical question. The answer to it will provide practical guidance for policies on the further introduction of environmental and resource taxes.
- A widespread shift of emphasis from raising incomes to reducing costs could be part of the shift to sustainability. This could have serious implications for the financial system. Practical contingency planning is needed. It might also be helpful to commission theoretical research on the difference between a conventional economic system (driven by rising incomes and the money-must grow principle – see Chapter 4.1) and an economic system in transition to sustainability (in which saving costs becomes a driving force).
- The changing conceptual foundations of science and economics will influence one another in ways relevant to sustainable development. This is a topic which could usefully be explored further.
The new economics has to be taken seriously. Its orientation to people and the Earth focuses it on sustainable development.
It proposes new policy approaches and new ways of meeting today’s economic, social and environmental needs. It may seem to threaten powerful established interests, and to call in question existing institutional structures, existing organisational values, and existing expansionist tendencies in government, business and the careerist professions, and conventional economic orthodoxy. But that is what any effective approach to sustainable development will involve.
Many Europeans today are unclear about Europe’s future world role, and are therefore unclear and unenthusiastic about Europe’s future. But Europe could play a vital part in leading the world toward a people-centred, environmentally sustainable future, if the necessary vision and political will could be mobilised among our policy-making elites.
The new economics also points to the only effective way to deal with our own European problems of environmental damage, unemployment, rising poverty and crime, growing “underclass”, and declining social cohesion. Its policy implications demand attention.
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* For a complete copy of the report, click here.
* For more on James Robertson and his work, click here.
About the author
In the 1950s and 1960s James Robertson worked as a policy-making senior civil servant in Whitehall (including the Cabinet Office, accompanying Prime Minister Harold Macmillan on his 1960 wind of change’ African tour). He then spent five years directing the Inter-Bank Research Organisation for the big banks before becoming an independent consultant, writer and speaker in 1974. James and his wife, Alison Pritchard, helped to set up The Other Economic Summit (TOES) and the New Economics Foundation in 1984.His website is at http://www.jamesrobertson.com. His recent books include Creating New Money: A Monetary Reform for the Information Age (New Economics Foundation, 2000) co-written with Professor Joseph Huber, Beyond The Dependency Culture (Adamantine/Praeger, 1998), The Transformation of Economic Life (Schumacher Briefing No 1, Green Books, 1998) and A New Economics of Sustainable Development, a ‘Briefing for Policymakers’ written for the European Commission in 1997 (Kogan Page, 1999). He lives in Oxfordshire.