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Synthesis/Regeneration 47   (Fall 2008)

Is Sustainable Capitalism an Oxymoron?

by David Schweickart

Marx says that revolutions are the locomotives of world history. But the situation may be quite different. Perhaps revolutions are not the train ride, but the human race grabbing for the emergency brake. - Walter Benjamin

The subtitle of Joel Kovel's The Enemy of Nature (Zed Books, 2007) states his thesis bluntly: The End of Capitalism or the End of the World? Kovel thinks we need a revolution - although he is fully cognizant as to how remote that prospect seems.

Growing numbers of people are beginning to realize that capitalism is the uncontrollable force driving our ecological crisis, only to become frozen in their tracks by the awesome implications of this insight. (p. xi)

Paul Hawken, Amory Lovins and Hunter Lovins also think we need a revolution, but of a different sort than the one envisaged by Kovel. Natural Capitalism (Little, Brown, 1999) is subtitled Creating the Next Industrial Revolution. President Clinton is reported to have called it one of the five most important books in the world today.

Hawken and the Lovinses agree with Kovel that the current model of capitalism is problematic. "Capitalism, as practiced, is a financially profitable, non-sustainable aberration in human development" (p. 5). But they do not see the problem as residing in capitalism itself. They distinguish among four kinds of capital, all necessary for production: human capital, financial capital, manufactured capital and natural capital. The problem with the current form of capitalism, they argue, is its radical mispricing of these factors. Current market prices woefully undervalue - and often do not value at all - the fourth factor: the natural resources and ecological systems "that make life possible and worth living on this planet."

But they do not see the problem as residing in capitalism itself.

All economists recognize that market transactions can involve "externalities" - costs (or benefits) that are not paid for by the transacting parties. All agree that there is a role for governments to play in rectifying these defects. The standard remedies tend to be taxation (for negative externalities) and subsidies (for positive externalities). More recently, "cap and trade" schemes for carbon emissions have been added to the list.

Hawken and the Lovinses argue that these remedies - properly applied - can work. The first step, they say, is to eliminate the perverse incentives now in place. They document the massive subsidies that governments currently provide for ecologically destructive behavior, e.g. highway construction and repair that encourages suburban sprawl and the shift away from more efficient modes of transportation, agricultural subsidies that encourage soil degradation and wasteful use of water, etc.

Second step: impose resource and pollution taxes so as to reflect the true costs of "natural capital." Sweeten the pie by phasing out all taxes on labor: the payroll tax, which increases unemployment, and income taxes as well. The point is to level the playing field so that more sustainable energy technologies and more energy efficient processes can compete fairly with the destructive practices of "industrial capitalism." We might even want to go further and subsidize, at least initially, the technologies that reduce the negative environmental impact of our production and consumption choices.

Natural Capitalism is chock full of examples of the shocking waste in our current production and consumption and of the existing technologies and procedures that can reduce our impact on the environment to a fraction of what it is now. Many of these changes are already underway. Many more will follow if appropriate government policies are adopted. Hawken and the Lovinses envisage a bright future. Such a future will come about if we harness the creative energy of capitalism and let the markets work.

Let us examine these two contrasting perspectives. In essence there are two fundamental differences between the "ecosocialism" of Kovel and the "natural capitalism" of Hawken-Lovins.

1. Kovel is deeply distrustful of the profit motive. He does not think greed can serve the good. Hawken-Lovins think that the profit motive can be harnessed so as to provide powerful incentives to develop sustainable sources of energy and to eliminate the energy waste so rampant today.

2. Kovel is convinced that "grow or die" is an imperative of capitalism that renders "sustainable capitalism" impossible. Hawken and the Lovinses do not confront this argument directly, but appear to believe either (a) capitalism is compatible with a steady-state, non-growing economy or (b) an economy can grow indefinitely without consuming more energy and natural resources than it can sustainably reproduce.

Let us examine this second issue first: Capitalism, Grow or Die? Anti-capitalist ecologists always say this. But is this true? It would seem not to be. Capitalism has survived prolonged depressions (the Great One of 1929 lasted a decade). Periods of stagnation have been even more common - witness Japan throughout the 1990s. To be sure, capitalism incentivizes growth, but it is not at all clear that thwarted growth leads to death. We can point to many counterexamples.

The root problem with capitalism is not that individual firms are incentivized to grow, but that the economy as a whole must grow...

It is not true either that the various ecological crises we are facing will bring about "the end of the world." Consider the recently released Stern Review. If nothing is done, we risk "major disruption to economic and social activity, later in this century and the next, on a scale similar to those associated with the great wars and economic depression of the first half of the 20th century." [1]

This is serious. Some 60 million people died in World War II. The Stern Review estimates as many as 200 million people could be permanently displaced by rising sea levels and drought. But this is not "the end of the world." Even if the effects are far, far worse, resulting in billions of deaths - a highly unlikely scenario - there would still be lots of us left. If three-quarters of the present population perished, that would still leave us with 1.6 billion people - the population of the planet in 1900. Not the end of the world.

I say this not to minimize the potentially horrific impact of relentless environmental destruction, but to caution against exaggeration. We are not talking about thermonuclear war - which could have extinguished us as a species. (It still might.)

We may not be facing the end of the world - but still, Kovel has a point. From an ecological point of view there is something crazy about capitalism. An ecological worldview emphasizes harmony, sustainability, moderation - rather like that of the ancient Greeks, for whom a constant striving for more was regarded as a mark of an unbalanced, deranged soul. Yet every capitalist enterprise is motivated to grow, and to grow without limit.

The root problem with capitalism is not that individual firms are incentivized to grow, but that the economy as a whole must grow, not to survive, but to remain healthy. Why should it be the case that a capitalist economy must grow to be healthy? The answer to this question is rather peculiar - and very important. A capitalist economy must grow to be healthy because capitalism relies on private investors for its investment funds. These investors are free to invest or not as they see fit. (It is, after all, their money.)

But this makes economic health dependent on "investor confidence," on, as John Maynard Keynes put it, "the animal spirits" of the investors. If investors do not foresee a healthy return on their investments, commensurate with the risks they are taking, then they won't invest - at least not domestically. But if they don't invest, their pessimism becomes a self-fulfilling prophesy. The lack of investment translates into layoffs - first in the construction industry and those industries dependent on orders for capital goods, and then, since layoffs lead to a decline in consumer-goods consumption, in other sectors as well. Aggregate demand drops further; the economy slides toward recession.

As we all know, a slumping economy is not just bad for capitalist investors. It is bad for almost everyone. Unemployment rises. Government revenues fall. Indeed, public funds for environmental programs are jeopardized - as mainstream economists are quick to point out, impatient as they are with "anti-growth" ecologists.

So we see: a healthy capitalism requires a steady expansion of consumption. If sales decline, investors lose confidence - as well they should. So, sales must be kept up. Which means that a healthy capitalism requires what would doubtless strike a visitor from another planet (or from a pre-capitalist society) as exceedingly strange - a massive, privately-financed effort to persuade people to consume what they might otherwise find unnecessary.

...a healthy capitalism requires a massive effort to persuade people to consume what they might otherwise find unnecessary.

Government also has a key role to play. Governments must be prepared to go into debt to stimulate the economy when an economy slows down. "Fiscal responsibility" goes out the window, no matter how conservative the government, when people stop buying - as well it should. Those checks we are all getting in the mail, courtesy of President Bush and a Democratic congress, should remind us all how vitally a capitalist economy depends on what so many environmentalists and other social critics deride as "consumerism."

The problem is not simply "growth." A healthy capitalism depends, not simply on ever-increasing consumption, but on a steady rate of growth. When the growth rate declines, investors pull back. But a steady rate of growth, so essential to healthy capitalism, implies exponential growth, and exponential growth, to anyone with mathematical sensibilities, is deeply disturbing. If an economy grows 3%/year - the US average growth rate during the 20th century - consumption doubles every 24 years - which translates into a 16-fold increase in consumption over the course of a century. Needless to say, exponential growth tends to stress the environment. Even a much lower growth rate, say the 1.2%/year that the Stern Report assumes, entails a doubling of global consumption ever 60 years. As Kenneth Boulding (himself an economist) has noted, "Only a madman or an economist thinks exponential growth can go on forever in a finite world." [2]

We don't have to imagine "forever." Simply note that if our economy were to continue to grow at 3%/year throughout the 21st century, we will be consuming 16 times more in 2100 than we are now. Not sixteen percent more. Sixteen times more. Are there rational beings who find this plausible?

There is an important counter-argument we need to consider. Growth need not add to resource depletion or pollution. GDP is a quantitative figure that doesn't pretend to correlate with general well-being. (An oil spill that puts lots of people to work cleaning it up enhances GDP; when harried couples eat out more often, no longer having time to cook at home, GDP goes up.) By the same logic, if unemployed people are put to work planting trees, GDP will go up. So it is possible to imagine a world in which GDP keeps going up while environmental quality steadily improves. Isn't it?

...if our economy were to continue to grow at 3%/year throughout the 21st century, we will be consuming 16 times more in 2100 than we are now.

How should we evaluate this rejoinder? You will recall that in evaluating the Hawken-Lovins case for "natural capitalism, I pointed out that they do not confront the "grow or die" argument directly, but that they must believe that either (a) capitalism is compatible with a steady-state, non-growing economy or (b) an economy can grow indefinitely without consuming more energy and natural resources than it can sustainably reproduce. My argument thus far has been directed at (a). The rejoinder claims (b).

Now I can't prove to you that (b) is false. But it should be noted that we are no longer talking economic science anymore. We're talking about faith - the economists' faith that exponential growth can go on forever in a finite world.

Can exponential growth go on forever? We can be almost certain it won't make us happier - at least not those of us who are doing most of the consuming and polluting right now. We know that increased consumption, once we get beyond a certain point, does not translate into increased happiness. Bill McKibben cites some of the evidence:

Compared to 1950, the average American family now owns twice as many cars, uses 21 times as much plastic, and travels 25 times farther by air. Gross Domestic Product has tripled since 1950 in the US. We obviously eat more calories. And yet - the satisfaction meter seems not to have budged. More Americans say their marriages are unhappy, their jobs are hideous, and they don't like the place where they live. The number who, all things considered, say they are "very happy" with their lives has slid steadily over that period. . . . In the United Kingdom per capita gross domestic product grew 66% between 1973 and 2001, and yet people's satisfaction with their lives changed not a whit. Nor did it budge in Japan, despite a fivefold increase in income in the postwar years.[3]

There is a deep assumption built into the argument. If there is no alternative to capitalism, then we might as well assume that growth can go on forever in a finite world. A belief that allows for hope is surely better than one that counsels despair.

Can we conceive of an economic alternative to capitalism that is (a) economically viable, (b) not dependent on growth for its stability, yet (c) conducive to the entrepreneurial innovation we will need to get though the current crisis? The answer, I would argue, is clearly yes. In my view theoretical analysis, well supported by empirical evidence, strongly supports the thesis that a truly democratic economy could satisfy the above criteria. Needless to say, I can't do justice to this claim in the space of a short article, but let me at least sketch the basic institutions of an alternative model. [4]

The term "market economy" is often used as a synonym for capitalism - by both proponents and critics - but this is wrong. Capitalism should be thought of as an amalgam of three distinct kinds of markets: markets for commodities, for labor and for capital. That is to say, there are markets for goods and services, there are labor markets, and there are those mysterious financial markets.

Suppose we keep our markets for goods and services, but democratize the other two. Suppose we democratize labor - have our businesses run democratically. Suppose businesses are communities, not legal entities that can be bought or sold. Management is appointed by a worker council elected by the workforce, one-person, one-vote. These enterprises compete with one another in the market.

Suppose businesses are communities, not legal entities that can be bought or sold.

Such enterprises can be expected to be efficient. Workers do not receive wages but a specified share of the firm's profit. Hence everyone has a direct, tangible financial stake in the company's performing well. Everyone is motivated, not only to work efficiently, but to monitor co-workers - thus reducing the need for external supervision. It is not surprising, then, that empirical studies that compare democratic firms to comparable capitalist firms consistently find the former performing at least as well as the latter, and often better.

But here is something interesting. Although democratic and capitalist firms are both motivated to produce efficiently and to satisfy consumer desires, they are strikingly different in their orientation toward growth. Under conditions of constant returns to scale, capitalist firms expand; democratic firms do not. For capitalist firms aim at maximizing total profits, whereas democratic firms aim at maximizing profit per worker. That is to say, if the owners of a capitalist firm can make $X under present conditions, they can make $2X by doubling the size of their operation. But if a democratic firm doubles its size, it doubles its workforce, leaving its per-capita income unchanged.

This is an enormously important structural difference, with implications that go well beyond environmental concerns. But let us focus on those that do bear on the question at hand.

...capitalist firms expand; democratic firms do not.

One implication: democratic competition is less cut-throat. Firms compete for market share, but not for market dominance. This means that democratic firms - when competing with other democratic firms - do not face the same "grow or die" imperative that capitalist firms face.

Neither greed nor fear works the same way. However greedy workers may be, they cannot increase their incomes by expanding unless economies of scale are significant. At the same time, they don't have to worry so much about being driven out of business by a more innovative or efficient rival. They have more time to adjust, to copy whatever successful innovations their rival has introduced. (Non-profit institutions are similar to democratic firms in this regard. Successful universities, for example, do not keep expanding. They compete for students, but they do not drive their competitors out of business so as to grab their market share. When educational innovations occur, they tend to spread, administrators being under pressure to adopt "best practices.")

A second implication: When innovation brings about a productivity gain, workers are free to opt for leisure instead of higher consumption. This option is virtually non-existent in a capitalist firm. Owners do not increase their profits by allowing their employees to work less. But if excess consumption (consumerism) is a serious environmental threat, and if market competition is essential to an efficiently functioning economy, then it is vital to have a system that offers non-consumption incentives to its businesses.

When innovation brings about a productivity gain, workers are free to opt for leisure instead of higher consumption.

The second key change involves democratizing investment. Space limitations preclude a detailed treatment. Suffice it to say that it no longer makes sense to depend on the "animal spirits" of private investors - and the incredibly opaque financial instruments they've created to maintain economic stability. Alternatives are really not so hard to imagine, although these possibilities are not discussed in polite company. In a couple of words: generate our investment funds by taxing enterprises (a flat-rate capital-assets tax is optimal), then return the proceeds to regions on a per-capita basis to be reinvested in the local economy.

Some consequences of this structural change: investors no longer need to be kept happy for fear of recession; no need to worry about capital flight. Regions do not compete for capital; regions get their fair share every year. Investment funds can be channeled into projects consistent with the wishes of the citizenry.

To summarize: I've argued that Hawken-Lovins are right that ecological sustainability is possible in a market economy, but that Kovel is also right: we need to get beyond capitalism. It is irrational to rely on an economic system that must continually grow to remain healthy. This truth is becoming ever more difficult to deny. Here's a quote from a recent Nobel laureate in economics.

The solutions to these problems - inequality (especially that of grinding poverty in a world of unprecedented prosperity) and of public goods (that is, goods people share together, such as the environment) will almost certainly call for institutions that take us beyond the capitalist market economy.

That's Amartya Sen, from his 1999 book, Development as Freedom (Anchor Books, p. 267).[5] I think we are in position now to see what those institutions might be.


1. Sir Nicolas Stern, The Economics of Climate Change (Cambridge: Cambridge University Press, 2007), p. ii.

2. Quoted in Mancur Olsen and Hans-Martin Landsberg (eds), The No Growth Society (Norton, 1973), p. 97.

3. Bill McKibben, "Happiness Is . . ." The Ecologist, (January 2, 2007), p. 36.

4. For a detailed presentation, see my After Capitalism (Rowman and Littlefield, 2002). For a more technical treatment, see my Against Capitalism (Cambridge University Press, 1993).

5. For additional confirmation that the thesis defended here is becoming more mainstream, see James Gustave Speth, The Bridge at the End of the World: Capitalism, the Environment and Crossing from Crisis to Sustainability (Yale University Press, 2008). Speth is currently Dean of Yale University's School of Forestry and Environmental Studies. He has served as President Jimmy Carter's White House environmental advisor and as head of the UN's largest agency for international development. He is, in the words of Time magazine , the "ultimate insider." He doesn't spell out an alternative and he doesn't want to call the future "socialist," but his book "is, however, anti-capitalist in the sense that it argues that society and governments should no longer cede special significance to the objectives or moral claims of the owners of capital" (p. 190). He has become convinced, reluctantly he says, that capitalism as we know it is unsustainable.

The above is based on a talk David Schweickart gave June 29, 2008 at the Surviving Climate Change roundtable in St. Louis. He is author of Against Capitalism and After Capitalism along with numerous articles in social and political philosophy. He holds Ph.D. in mathematics and a Ph.D. in Philosophy and is Professor of Philosophy at Loyola University.

[9 nov 08]

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