Capitalism, growth, and the planetary boundaries

1. Introduction

It is a common assumption that the global neoliberal capitalist economic system requires economic growth in terms of the gross domestic product (GDP) to avoid recession an collapse. Scientists argue that constant (exponential) growth is not possible on a finite planet and the continuing conversion of natural resources (abiotic and biotic) will deplete the natural resources for the use of future human generations and even destroy the ecosystems in our biosphere, as currently happening in the 6th mass extinction. Therefore, scientists argue for a degrowth to a steady-state economy to avoid such disaster.

2. Basics of capitalism

The principle of capitalism as an economic system is private ownership of the means of production and their operation for profit [1]. Production is a process of combining various material inputs and immaterial inputs (plans, know-how) in order to make something for consumption (output) [4]. Profit is here the excess of revenue over costs [2], and, thereby, implies accumulation of capital, and, hence, growth. Capital is defined as the assets which can be used to produce [3]. Therefore, a capitalist system contains a positive feedback loop in the sense that an private owner produces to acquire capital to produce to acquire more capital, for example, by a decrease of costs (eg increased efficiency, deregulation, lobbyism), increasing of revenue (eg advertisements, monopoly), or increase of total production (eg increase of demand, increase of market share).

If we know apply the capitalist system to a social system with multiple producers (sellers) and consumers (buyers), a market of transfers of goods and money results, which is ideally regulated by supply and demand until it reaches an equilibrium. The market process with an sufficient number of produces and consumers will result in an equilibrium were the profit for the producer is just enough to continue production and the consumer to continue to consuming.

3. Why may capitalism protect natural resources in theory?

If the inputs and outputs (products) were immaterial, a capitalist system would create little conflict with a world with finite natural resources. For example, a capitalist market for philosophy, art, or love with little material input (eg paper for re-usable books, wood for re-usable instruments) but mainly immaterial inputs (eg personal thoughts, discussion) would require little natural resources and maybe even completely circular by re-using and re-cycling the used materials.

If consumers should show an increase in demand for material, eg wild animals, immaterial goods, e.g. peace, justice, the capitalist system may be a useful system for the allocation of resources for the production/creation of these goods.

In addition, if the pursuit of profit would only lead to increased efficiency of production per product without increase of total production, the capitalist system may actually lead to a decrease of use of natural resources. Furthermore, the increase of revenue, eg higher prices, may even reduce production (eg making products to limited luxury goods) and reduce the use of natural resources.

4. Why does capitalism  destroy natural resources in practice?

Current capitalism is strongly based on materialism, which means that consumers value material goods much higher, e.g. cars, mobile phones, tourism, and immaterial  goods, e.g. philosophy, art, much lower. In addition, current capitalism is based on individualism, which means that goods which can be owned, e.g. cars, mobile phones, are valued higher than goods that have to be shared, e.g. natural reserves, societal peace, clean air. Furthermore, a competitive market leading to pricing system which creates only marginal profits, which leaves private owners or enterprises in an unstable situation with at risk of bankruptcy. Therefore, private owners or enterprises strive to increase stability by increasing capital (“like a person drowning and gasping for oxygen”) by decreasing costs, increasing value  or increasing total production. The Jevons Paradox [5] states that an increase in the efficiency of production per product, leads to an increase of total production, because the profit per product increases, and, therefore, the incentive to increase total production to acquire more capital.

While increases in profit may be achieved with “white methods” such as innovation, research, quality control, there are also “grey methods”, such as advertisements, lobbyism, tax avoidance and “black methods”, such exploitation, corruption, misinformation (cf “merchants of doubt”), environmental pollution and other illegal methods. To avoid private owners and corporations using methods, which do not serve the common good, regulation by an public authority is required which creates and enforces laws to protect the common good. The capitalist assumption that the market is able to regulate all societal issues does not seem to be valid, for example, to set a price on murder regulated by supply and demand may be possible, but may not serve the common good. Therefore, a public authority is required to regulate capitalism to avoid damaging the common good. However, actors who have social networks and capital can corrupt the system and their public authorities, ie  use their influence to the rules for the public authority in their favor. In extreme capitalist system, such as the USA, this can use political systems, which can best described as corporate fascism, because the asymmetry in power between private owners and corporation and other citizens has become so large, that individual political opinion, even if held by a democratic majority, will not affect the policy making and the economic system damages the common good, in terms of access to basic material, eg food, health, and immaterial, e.g. information, freedom, safety, and justice. The capitalist system can use power on the political system using lobbyism and corruption against politicians. However, the threat of loss or creation of jobs is frequently used to influence political decisions in favour of private owners or corporations. The problem here is that in the current capitalist system the access of citizens to material and immaterial resources depends to a large degree to the access to capital, which has to be earned by work in the capitalist economic system. For example, a employed housekeeper may earn money by cleaning a house and caring for its inhabitants, however, by marrying the owner of the house, her work may no longer be consider economic activity an therefore, she may loose access to money and related resources (although the housekeeper may benefit in other ways from her new situation). Furthermore, charity work, eg taking care of children, the elderly, or disabled persons, protecting nature, or contributing in any other way to the common good, which does not require the participation in the economic process, eg Mahatma Gandhi or Martin Luther King, will not give those person access to money and related resources. Even if the person works in a profession which contributes positively to the common good, the allocation of money is often strongly out of proportion considering her/his contribution to the common good. For example, an investment banker or hedge fond manager who crashes a bank or a national economy may still get financial rewards, while a whistleblower may work pro bono, loose his job, or may even face costs in the form of legal trials. Finally, the globalisation of private corporations while global public authorities, eg United Nations, are weak and dominated by national interests, eg USA, leaves national public authorities in a too weak position to regulate international private corporations, eg to fight tax avoidance, environmental pollution, and general “leakage” of unwanted behaviou to other countries.

5. Conclusion

The capitalist system is not necessarily incompatible with a finite system of natural ressources. To make it more compatible the following systemic changes are proposed:

  • Propagate immaterialism, not materialism
  • Propagate collectivism, not individualism
  • Propagate cooperation, not competition
  • Propagate regulation, not liberalism
  • Propagate “nationalism”, not globalism
    • strong national public authorities
    • weak global private companies
  • Propagate allocation of capital based on utilitarism (ie money related to common good) in combination with a universal basic income independent of participation in the capitalist economyn (a “job”)

References:

[1] https://en.wikipedia.org/wiki/Capitalism

[2] https://en.wikipedia.org/wiki/Profit_(economics)

[3] https://en.wikipedia.org/wiki/Capital_(economics)

[4] https://en.wikipedia.org/wiki/Production_%28economics%29

[5] https://en.wikipedia.org/wiki/Jevons_paradox

 

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