CAPITALISM AND SUSTAINABILITY

By Jonathan H. Adler

(originally published in The Good Society)

 

It is increasingly understood that the status quo approach to environmental concerns is unsustainable -- both economically and ecologically. The current preference for centrally-planned, monitored, and executed environmental protection strategies must undergo a thorough reexamination. Merely because the current system has produced some real environmental gains -- and it has -- is no reason for complacency. If environmental concerns are to be balanced with competing societal values, economic and otherwise, well into the future, it is time for fundamental reforms.

Gar Alperovitz identifies existing institutional arrangements as the source of ecological unsustainability ("Sustainability and 'The System Problem,'" The Good Society, Fall 1995). However, Alperovitz's specific diagnosis fails to deal with the heart of the matter. By focusing on superficial indicators of environmental decline and mistaking existing economic institutions for those of free market capitalism, Alperovitz misses the opportunity to prescribe an effective cure to today's ecological ills.

As a starting point, Alperovitz identifies both socialism and capitalism as unsustainable "systems," and counsels that we examine their underlying institutional structures in order to develop a more sustainable social order. About socialism, Alperovitz is absolutely correct that state control of all relevant resources produces "disastrous" ecological results. He explains that "The governing authorities of the socialist states lacked the will (and probably the capacity) to hold economic operations accountable to true social costs." Yet this failing is not unique to socialist systems. Indeed, political actors evidence the same failure of will in the American system of a mixed economy.

Many environmental problems that are clearly identified remain unaddressed because the "governing authorities" in "capitalist" countries also "lack the will" to impose restraint upon economic actors and/or the government itself. Witness the failure of both Congress and the current administration to restrain environmentally destructive government spending. Despite protestations that "the era of big government is over" and environmental protection must not be compromised, numerous environmentally destructive federal programs -- from farm subsidies to below-cost use of federal lands to federally-provided flood insurance -- persist because political actors are unwilling to impose the costs on particular interests that ending those programs would entail.

Similarly, the legacy of government-led ecological ruin in this country is different only in scale to that of the former-Soviet countries. Both here and abroad, political institutions have shown themselves to be unresponsive to all but the most pressing environmental concerns, just as they are typically unresponsive to economic concerns. A sustainability problem, therefore, can be found in politics itself and the instinct to centralize decisions about resource use in political entities. Alperovitz comes close to recognizing this fact when he notes that corporations have a disproportionate ability to "manipulate regulatory agencies, . . . and impact both electoral politics and legislation," for what he has identified is that corporations wield significant power over non-market institutions. It is the political nature of these institutions, and not the market system, that should be blamed.

From this standpoint, how curious is it that most environmental policies seek to centralize decisions in political entities? Economic central-planning, inevitably, was a dismal failure. Ecological central planning is a far more difficult task, and will fare no better. The knowledge and public choice problems faced by political actors only increase as the issues under consideration become ever more complex. Eco-socialism -- that is any effort that seeks to centralize environmental decision making within a state apparatus -- will prove the most unsustainable system of all.

What then about the marketplace? For the existence of unsustainable tendencies in the political system does not inoculate the free market from similar complaints. Indeed, there is certainly a legacy of privately-sponsored environmental harm. However to blame the system of private ownership and market exchange (i.e. capitalism), and the attendant drive to maximize personal utility -- as Alperovitz does -- is a mistake.

Capitalism -- the free market -- is a socio-economic system that relies upon certain basic institutions, among them private property, contract, rule of law, and voluntary exchange. It is this system that enables individuals and communities to pursue their own perceived self-interest without resorting to coercion. The capitalist system also allows for the creation of corporations and other entities that seek to maximize profit as a means of meeting the needs and wants of individuals and communities.

One means of maximizing profit is to provide greater utility to customers at a lower cost. This means finding ways of producing more, using less, or both. Therefore, market institutions do not fundamentally encourage greater resource use, as Alperovitz suggests, so much as they encourage greater output. The two are not the same. Indeed, as a direct result of market institutions, humans have learned to do more with less; to meet human needs while using fewer, and less scarce natural resource inputs, and recovering materials for recycling or reuse where appropriate. This can be seen in the replacement of copper with fiber optics (made from silica -- i.e., sand), the downsizing of computer circuitry, the light weighting of packaging, the explosion of agricultural productivity, and so on. The environmental benefits of such pressure are enormous. Consider that to feed the current world's population using 1950s agricultural technology would require putting an additional 10 million square miles under plow -- acres that are now forest or wildlife habitat; or that a microchip made from a few grains of sand is capable of retaining and reprocessing all of the information contained in a local library; or that proven reserves of oil and gas have increased seven-fold since 1950.

Alperovitz also accuses capitalism of generating "pressure to externalize costs," but again he has identified the secondary pressure of a mixed system, and not something inherent in capitalism itself; such pressure is not inevitable. As above, the fundamental institutional pressure is to reduce the differential between benefits and costs, leading to profits in corporations or greater personal utility in individuals. This "generates pressures to externalize costs and pollute" only when such options are available due to the existence of common resources or a failure to extend market institutions to cover the full range of ecological resources. This has been known for quite some time -- it was pointed out in Garrett Hardin's seminal essays on the commons -- but rarely informs the environmental debate. That corporations (or self-interested individuals for that matter) seek out unpriced goods is not surprising, nor is it behavior that is to be condemned. It is the existence of goods that are unpriced that is the source of the problem.

A company that opts to dispose of chemical wastes as effluent into a nearby river over seeking to recycle such wastes or send them to a disposal facility clearly does so because it is the least cost option; acting in that manner is a rational action motivated by a desire to maximize profits. The question that needs to be asked is why is pollution the least-cost action? The answer: because so long as the river is an unowned resource, the company will bear no cost by using it. The problem is not the company's profit-driven incentive. The problem is the failure to incorporate the river into market institutions.

Were the river owned, the company would have to negotiate with the river's owner(s), or those who own rights to the river's use downstream, before dumping its wastes. If the ecological impact of such dumping is negligible, the company could probably continue as before. If not, the company would have to find a means of reducing the damage, compensating the owner, or developing an alternative means of waste disposal. There would be no "pressure to externalize" if there were no place to which one could.

Even were the river owned by the company itself, it would not simply dump its wastes with abandon, as that would destroy the value of its resource. The company would have to weigh the river's value as a disposal site with that as a potential source of drinking water, recreation site, fishery, and so on. The fact that others in a market system place value on alternative uses of the river would force the company to consider these uses, and seek to reconcile them with its own priorities, in order to fulfill the profit-maximizing mandate placed upon it by its shareholders. Those resources that are market orphans, left out of the capitalist system, are those that are the most misused.

Politicizing the issue by regulating the commons may improve the situation, but rarely produces an ideal solution. As Alperovitz has already noted, corporations and other market actors can wield disproportionate influence over political institutions. Moreover, the bureaucratic drive for simplicity and "one-size-fits-all" approaches tends to interfere with the development of truly sustainable policy options. Thus, under the existing Clean Water Act, what matters is whether a company has adequately filled out its emission permits and filed them with the relevant government agency, not whether its actions cause immediate or foreseeable harm on persons or their properties downstream. Political solutions, though they may reduce environmental impacts in some cases, must be seen as second-best approaches -- and should be rejected, wherever possible, in favor of more fundamental institutional changes.

When one recognizes the true nature of market institutions, and examines relevant environmental trends, a revealing (if not predictable) picture emerges. Those resources that are most incorporated into the market are those about which there is least concern. Domesticated animals are abundant; temperate forests in the developed world are expanding; natural resource scarcity is declining; Moreover, market-driven advances in efficiency and technology are making it easier to do more with less -- to provide for the wants and needs of an expanding human population while slowing the ecological impact. Resource use per unit of output is on a downward curve throughout the market-oriented economies of the world.

However, those resources that are outside the market system -- the remaining global commons -- are in states of disrepair heading toward ruin. Tropical rainforests, coastal fisheries, air sheds, aquifers, and the like are rarely incorporated into the market system. Rarely are property rights extended over these resources; rarely is exchange possible; rarely is a common law system of justice enforced to protect them. Alperovitz has it wrong. The problem is not too much "capitalism;" the problem is too little.

 

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