As a consequence of the financial crisis, and as illustrated at the recent G-20 protests in Pittsburgh, capitalism is increasingly under scrutiny. Environmentalists have mistrusted our free market system from their inception. As reviewed in Ecologist, “Environmentalists have long been suspicious of the free market” but the author concedes that there is nothing inherently wrong with the fundamental structure of our economies, “the market itself is neutral; a mechanism of exchange, a means by which things can be achieved.” Further, free markets are more than a neutral tool of exchange, they drive innovation, foster efficiency and perhaps most importantly they are the most expedient way to grow green infrastructure.
However, environmentalists’ question the very notion of growth. Economic growth implies an increase in quantitative output and it is often measured by the rate of change of gross domestic product (GDP).
In the industrialized world, growth entails the continuous expansion of individual companies. Some dedicated environmentalists subscribe to the view that we cannot sustain economic growth. Their contention is that a growing economy depletes greater quantities of resources and increases emissions, thus they conclude, capitalism is unsustainable.
Stone-throwing anarchists are not the only ones to doubt the viability of our current model of growth, even German President, economist and former head of the International Monetary Fund, Horst Köhler has expressed his reservations. “We have convinced ourselves that permanent economic growth is the answer to everything,” Köhler said in the midst of the financial crisis.
The issue of growth calls into question the basic premise of capitalism. If our system is predicated on growth and growth is not sustainable then the logical inference is that the planet cannot survive under a capitalist economic system. Thankfully, a major new study from the World Bank provides evidence that economies can grow and be sustainable. An ENN article reviewing the study indicates that by being “climate-smart,” countries can develop while curtailing climate change.
The report, Development and Climate Change, was launched in September and it indicates that,
The world need not make a decision between growth and prosperity or preservation, so long as it takes action immediately, works together, and transforms its energy systems. Countries can continue to develop by employing climate-smart policies that reduce vulnerability to climate change while pursuing low-carbon growth.”
The incentives provided by our economic system are capable of advancing the green agenda. Those nations that invest in the green economy stand to reap substantial benefits. “Climate change will affect the comparative advantage of a number of nations, particularly if those nations are first-movers.” said Marianne Fay, co-director of the report and incoming chief economist of the World Bank’s Sustainable Development Network. “We will need to call on all the ingenuity and innovation that we are capable of,” she added.
The report indicates that creating innovative new technologies and distributing existing technologies are an important part of achieving a climate-smart world. The report goes on to recommend that investment in R&D needs to be drastically increased, from current levels of between 53-73 billion US per year to several hundreds of billions per year. Increasing public funding, which currently stands at 13 billion US per year, will not be sufficient on its own. That is why both the public and private sectors are needed to pursue innovative solutions.
Although the report concedes that low-carbon technology transfers to developing countries has so far been modest, technology transfer could be augmented by “including joint production and sharing agreements for technology in any new climate deal — thus ensuring developing countries are part of the innovation process.” Once we establish a financing scheme, the challenge in the developing world will involve matching the technological solutions to each nation’s unique requirements.
If our economies are to continue to develop and we are to see ongoing sustainable growth, we will have to do things differently. NowPublic News explains:
A growing economy does not necessarily need to consume more resources. In other words, the goal should not be to achieve less growth but better growth, and not to forego consumption but to improve the quality of that consumption. In the end the origin of economic growth is greed. People seem to be satisfied with anything other than an increase in our wealth, possessions, status, or whatever. The continuing need for more has created this unsustainable and illogical economic model, and at its turn is responsible for much of the environmental degradation. In order to prevent the worst effects of climate change this economic model has got to be changed into abolishing the obsession for economic growth.”
If there is a lucid strand of wisdom that can be extracted from last week’s G-20 protests, it is that people want human beings to be valued over economics. But protestors also need to understand that human welfare and economic welfare are interrelated.
We need to draw a distinction between traditional notions of growth and a more contemporary understanding of development. While growth is measured by financial statistics like GDP it does not take into account things like leisure time, environmental quality, freedom, or social justice. Conversely economic development refers to social and technological progress. Economic development implies a change in the way goods and services are produced, not merely an increase in production achieved using the old methods of production on a wider scale. Economic development typically involves improvements on a variety of indicators such as literacy rates, life expectancy, and poverty rates.
There is another important distinction that should be drawn between intensive and extensive economic growth. Extensive growth is growth achieved by using more resources (land, labour and capital). Intensive growth is growth achieved by using a given amount of resources more efficiently (productively). Intensive growth requires development.
Environmentalists’ traditional contempt for free markets is being replaced by a new breed that sees the value of the capitalist system as a powerful means of advancing the green economy. as reviewed in an article entitled The Green Market – Campaigners Using Capitalism to Change the World :
…a new generation of campaigners are using capitalism to change the world…Increasingly, those who understand how the mechanism [of free markets] works believe it can be used as a force for good. As this understanding grows, a new generation of environmentalist is born, wearing pin-stripe suits.”
Free markets are not without problems, and according to many, human beings are at the core of the problem of free market economics. This is the view of Robert H. Frank, an economist at Cornell University and co-director of the Paduano Seminar in Business Ethics at the Stern School of Business at New York University.
Markets are a reflection of who we are as societies, but as we change, so too does the market. Change is already occurring as our values are changing. Contrary to the contention of many free market detractors, sustainable development is achievable within our economic system.
Richard Matthews is a consultant, eco-entrepreneur, sustainable investor and writer. He is the owner of THE GREEN MARKET, one of the Web’s most comprehensive resources for information and tools on sustainability. He is also the author of numerous articles on sustainable positioning, green investing, politics and economics.