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Is Capitalism Environmentally Unsustainable?

The goal must be to find ways for liberty and the environment to flourish together, not to sacrifice one in the vain hope of protecting the other.

Stack of Moneyby Ronald Bailey     •     Reason.com

Human activity is remaking the face of the Earth: transforming and polluting the landscape, warming the atmosphere and oceans, and causing species to go extinct. The orthodox view among ecologists is that human liberty—more specifically economic activity and free markets—is to blame. For example, the prominent biologist-activists Paul and Anne Ehrlich of Stanford University recently argued in a British science journal that the environmental problems we face are driven by “overpopulation, overconsumption of natural resources and the use of unnecessarily environmentally damaging technologies and socio-economic-political arrangements to service Homo sapiens’ aggregate consumption.” The Ehrlichs urge the “reduction of the worship of ‘free’ markets that infests the discipline” of economics.

But the notion that economic activity and free markets are antithetical to the flourishing of the natural world is complicated by the fact that the countries with the biggest environmental problems today, and the least means and apparent interest in addressing them, are not the liberalized ones with advanced capitalist economies but the ones with weak or nonexistent democracies and still-developing economies.

So is it really the case that liberty and the environment are simply opposed? Does the good of one come only at the expense of the other? Or can liberty and a flourishing natural environment reinforce one another, the good of one encouraging the good of the other? Can economic activity under a system of liberty be environmentally sustainable in the long run?

Many of these academics—though not all—acknowledge that market economies on the whole have greatly improved the lot of humanity over the past few centuries, leading to better standards of living, higher levels of education, and more civil and political rights. But they argue that the system of liberty produces accumulating externalities that will eventually drive civilization to self-destruction. Either human beings start restructuring civilization soon, the Ehrlichs warn, or “nature will restructure civilization for us.”

The Lockean response to these academics’ worries is that free-market capitalism is as much about growing inward as outward—about learning to derive progressively more value from a finite supply of natural resources, so that we need not consume ever more of those resources. On this understanding, there need be no contradiction between meeting human material needs and preserving a large portion of the natural environment.

So we have two broad views of the sustainability of the system of liberty, and they could hardly be more opposed: one of steady growth and self-reinforcing gains in the efficient use of natural resources, and one in which this growth may be maintained for a deceptively bountiful period of human history before it collapses in on itself.

We can now begin to see the shape of an answer to our initial question of whether liberty and the natural environment must necessarily be opposed. In early stages of modern economic development, as liberty is unleashed in open-access orders, people convert relatively plentiful but unproductive nature into more productive but relatively scarcer human labor—that is, higher population—and manufactured capital. In those early stages, liberty and the environment function as what economists call “substitute goods,” with more liberty resulting in less demand for the environment in its natural state. In such societies, fertility rates remain high and environmental amenities and quality continue to deteriorate. But at later stages of economic development, human and manufactured capital become so effective, thanks especially to technological progress, that the environment can be returned to a more natural state. And since such societies are more prosperous, they can better afford the costs of environmental regulations, even inefficient ones.

Free markets are the most robust mechanism ever devised by humanity for delivering rapid feedback on how decisions turn out. Profits and losses discipline people to learn quickly from and fix their mistakes. By contrast, top-down bureaucratization tends to stall innovation and to make it more difficult for people and societies to adapt rapidly to changing conditions, economic and ecological. Centrally planned economies fail; centrally planning the world’s ecology will fail as well. Our aim must be to find ways for liberty and the environment to flourish together, not to sacrifice one in the vain hope of protecting the other.

Go to The New Atlantis to read the full article: “Liberty and the Environment.”