Is Green Capitalism a Contradiction in Terms?
Certain voices lay the blame for the incipient climate crisis at the door of capitalism. In this view, it is the very system of capitalist economics which is the proximate cause of the pervasive environmental degradation, which poses a threat to future food security, survival of animal species, etc. I have personally spoken to people at environmental events who hold this view.
Perhaps you believe this environmental crisis doesn’t really exist. In which case, close this page and move on.
But if, like me, you do believe we have a climate crisis coming, then establishing the cause or causes is likely to be very pertinent to determining what to do about fixing it (if it can be fixed).
In essence, capitalism is an economic system where private property is permitted and the prices of goods and services are determined dynamically by what people are prepared to pay, rather than being set by some authority. Within capitalism, the profit motive drives innovation and productivity improvements as producers competitively seek to create products and services that people want, and increase the efficiency of producing those products and services.
In the “Capitalism Causes Climate Crisis” (C4) scenario, it is postulated that the profit motive (or shall we say greed motive) of capitalism causes corporations to destroy the natural world, cut down rain forests, drain the wetlands, and pollute the atmosphere, rivers, and sea, all in search of a quick buck! Do some corporations do this? Unequivocally, yes some do. Do all corporations do this? Clearly not.
Is it the case that the most overtly capitalist countries cause the most environmental destruction? On a per capita basis, yes. At least historically. However, on a country by country basis, the largest population countries like China and India may now exceed the destruction caused by the smaller western countries. But correlation is not causation.
We could argue about whether the economic system currently prevailing in western Europe and the USA is actually capitalism. Some theorists further out on the right-libertarian scale might complain that what we have now is actually some weak sauce socialist imitation of capitalism, because there are still publicly owned services delivered by agencies of the government, at prices set (via taxation) by the government.
But if the C4 proposition is true, then what we currently have must be the relevant “capitalism” flagged as the putative cause of the climate crisis, because a capitalism we have not implemented could not logically be the cause of anything.
In order to validate the C4 proposition, we need to be able to demonstrate that our capitalism caused our environmental destruction, and at least one alternative to capitalism would not cause the same environmental destruction. If all the possible alternatives to capitalist economics also cause similar environmental destruction, then it is clearly not capitalism which is causing the problem, but some other factor.
It is the case that most of the world’s richest countries are capitalist free market democracies. That is not a co-incidence. The highly incentivised innovation, productivity and efficiency gains of capitalism made those countries and their populations rich. Populations which are broadly wealthy demand a say in the running of their countries, which means those countries are also democracies. The other class of rich countries are the oil-producer monarchies like Saudi Arabia, UAE, and Brunei. In those places, their non-capitalist wealth has been retained within a tiny elite, typically the extended family of the monarch, and their closest aides.
The oil states give us our first counter-example to C4. The oil state royals are every bit as environmentally destructive as the wealthy people of the west. For example, like other oil states, the Kingdom of Saudi Arabia (KSA) has very high per capita energy use, mostly fossil fuelled. The KSA economy is dominated by state-owned enterprises, which means controlled by the royal family, as the KSA is an absolute monarchy. In the west, we are accustomed to think of the public sector as being sort of owned by all of us, in that we pay for it via our taxes, and indirectly control it via elected governments. In KSA, that “public” sector is owned by the royal family.
At this point perhaps, advocates of the C4 proposition would like to assign the oil state royals as psuedo-capitalists within the international economy. On behalf of their states, they buy and sell internationally at free market prices. However, I would argue that it is their wealth, and consequent consumption, which puts the oil royals into the top tier of environmental destructors, rather than anything to do with how their economy is organised.
Our ideal test case for C4 would be a rich, yet purely non-capitalist country, where we could see if it was wealth or capitalism that led to environmental overload. Sadly (or is it inevitably) such examples are lacking. The only middle income country to have a non-capitalist label is China. Although China labels itself communist, in practice it is a unique hybrid of free market practice, state intervention, and quasi-imperial leadership. In any case, China is a heavy polluter and destroyer of the environment. Just like in the west, economic growth requires energy consumption which usually causes pollution. Green energy gives some hope for the future, but even large hydro projects consume vast areas of landscape. Striving to provide prosperity today seems to mean ignoring the consequences for tomorrow.
If psuedo-communist China and absolute monarchy KSA are trashing the environment, then the proposition that it is capitalism at fault seems hard to sustain. So what is it? I cite four things.
1) Wealth measures which are revenue-based rather than asset-based.
GDP, the standard measure of wealth, is a revenue indicator, not an asset measure. By prioritising increase in GDP, we incentivise the fastest possible consumption of natural resources, both on the supply side (ore, fossil fuels, etc) and on the sink side (clean air, clean water, etc). We have no comparable measure of asset wealth, which would include the value of our resource reservoirs, and thus incentivise conservation of resources rather than maximum consumption.
2) Resources we don’t pay for, are treated as worthless.
Because we don’t have a broadly agreed measure of natural resource asset values, we have no way to measure or value the consumption/destruction of those assets. In many cases, the creation of pollution costs nothing to the polluter, so they are incentivised to pollute as much as they can, if that reduces costs elsewhere in their production processes. Similarly, consumption of non-renewable resources is not directly viewed as the destruction of a national asset, so there is usually no direct cost to the extractor beyond the effort taken to extract the resource.
3) Debt-based finance pulls forward consumption.
If a government sells a 30 year bond, it can consume today, resources which will only be paid for by the next generation. Our children are expected to curtail their future consumption in order to pay off the debt via their taxes, while allowing us to enjoy the fruits of their future labour today. This is taxation without representation. The exponential increase in the national debt makes it clear that there is no plausible plan to live within our means today. We are almost all culpable in that, even those on the green left. Ironically, few people outside the hard right are willing to vote for parties who will actually spend in government no more than present taxation income.
Many corporations also take on long term debts, but they are under a stronger discipline to have a robust repayment plan, because unlike governments, they can go bust.
4) The five year election cycle forces short term thinking
Because of the inescapable need to get re-elected, governments of every stripe are forced into doing things which provide short term benefits, regardless of future cost. Alongside the environmental crisis, we can also place the pensions crisis, where again the future numbers just don’t add up. Our government pays today’s state pensions out of today’s income and neglects to create any pool of assets to provide future income for future pensions. If a private company ran their pension scheme like the government does, the directors would go to jail.
Again, almost no one outside the hard right is prepared to vote for austerity now, in order to provide plenty in 20 or 30 years time.
Lack of Proportional Representation in the UK and US exacerbates this issue, because the green vote gets crushed. It is no accident that PR-voting Germany are way ahead on environmental protection.
We could potentially add consumerism as a fifth cause, but in my view, consumerism is a side-effect of factors 1 and 2. Because purchasers are not presented with the true cost of their purchase, they have little disincentive to buying stuff they don’t really need, and they opt for replacement rather repair.
Of the four factors noted above, only factor 3 could conceivably be assigned as a direct consequence of a capitalist economy. However, we should note that socialist governments have a higher propensity to prioritise current social expenditure over avoiding future debt obligations.
If there is anything to be said against capitalism in this analysis, it is that capitalism is efficient. The free market incentivises innovation and productivity gains. So any economic process which is environmentally damaging, will have its effects sped up by capitalism. Conversely, of course, once the incentives are aligned in the right way, capitalism should also speed up the fixing of the issues.
To address the four factors noted above, I propose:
- an asset-based wealth measure to replace the revenue-based GDP, with governments obliged to target that new measure
- taxation of use of non-renewable resources, to represent a payment by the extractor to the community for consumption of the resource
- taxation of pollution, to represent a payment by the polluter to the community for degradation of the pollution sink
- government debt to be unenforceable beyond the lifetime of the government which incurs the debt (thus max 5 years)
- persistent blockchain based political choice capture, mandatory for implementation by the government executive. This disintermediation of politics implements PR and removes the 5 year electoral cycle.