Why is capitalism unsustainable? Why is our economy causing mass extinction of species, mass poverty and growing inequality? And why is it that green capitalism and The Green New Deal will never be green or sustainable enough? Let’s blame it all on Adam Smith, the father of capitalism himself.
Classical capitalism is built on Smith’s idea that selfish needs lead to creativity and productivity. By using a plough, Smith prophesized, a farmer makes fallow soil fertile, and a baker makes loaves of bread for sale from the farmer’s field of grain.
The result is small scale capitalism at its best—both the farmer’s and the baker’s efforts produce profit and society benefits through these private initiatives. Hungry people are fed, so that they can work and make money to purchase more bread. Private enterprise thus creates more wealth—for everyone. This is how Smith envisioned capitalism. Seems simple enough, right?
In Smith’s economic universe an “invisible hand” would even make sure that growing markets were balanced and that everyone would benefit from private trade—the production and selling, the supply and demand of goods, the purchasing power of the workers would all be guided by an invisible hand.
Karl Marx realized, however, that this was a myth, and that unless checked, capitalism would lead to accumulation of vast amounts of capital for the few and economic exploitation for the many. A walk through the factories of London of his day (just read Charles Dickens), where starving laborers worked 12-hour days seven days a week, would confirm his observation.
This economic divide between people and owners of capital gave Marx the idea that it was the workers, not the individual business owners, who should have the right to the main share of society’s wealth. Marx agreed, however, with Smith that it was a man’s hands, by managing and dividing nature’s raw materials, that created economic value.
This is how they both inspired the materialistic growth economy based on the idea of exchange value: that a loaf of bread can be exchanged for money, a price.
This, in simple terms, has been the ongoing conflict in modern economics: the struggle between the rich and the poor, between workers and owners, between private accumulation and collective sharing of wealth.
Inspired by Marx, various forms of socialism have attempted to balance private interests with collective interests by raising people’s wages or by taxing the rich. This, in simple terms, has been the ongoing conflict in modern economics: the struggle between the rich and the poor, between workers and owners, between private accumulation and collective sharing of wealth.
The reason for this struggle is that capitalism did not account for another value, what we may call distributive value—the value of sharing the wealth, the value of cooperation, the value ensuring all needs are met. That value has to be an essential part of economics as well.
Problem is, profit mostly defies gravity, it flows upwards–to the rich and the famous.
Capitalism’s main mistake, therefore, has been to take for granted that selfishness leads to productivity and that everyone will have enough. Ronald Reagan called that the “trickle down” of capitalism. Problem is, profit mostly defies gravity, it flows upwards–to the rich and the famous.
After Marx, economist John Maynard Keynes tried to ensure distributive value by government intervention, through higher taxes and deficit spending. Hence, Marxism and Keynesianism gave us the “mixed economy” of the welfare state. But, unfortunately, neither socialism nor welfare reforms have been able to entirely balance capitalism’s inbuilt flaws.
Capitalism thus created a systemic, global economic problem—economic inequality. And, despite increased economic growth and a reduction in global poverty, inequality is actually growing. Just check out the works of France’s pop-star economist and expert on inequality, Thomas Piketty.
Moreover, neither capitalism nor socialism, nor their hybrid offspring, the European welfare state, has been kind to nature. Neither Smith nor Marx understood the extent to which every economy depends on nature and its many limited natural resources. They did not take into account that some cultures, which have ignored the limits of nature, such as the one on Easter Island, eventually disappeared.
Instead, these forefathers of modern economics saw nature as a perpetual free lunch. Therefore, both socialism and capitalism, in all its variants, have contributed to the environmental, resource and economic systems crisis we now are in.
The British economist E. F. Schumacher—walking in the footsteps of another prophetic economist, Karl Polanyi, who, already in 1944, warned us of capitalism’s commodification of people and nature—understood what Smith and Marx had missed. In his seminal book Small is Beautiful, Schumacher pointed out that our ethical and philosophical views have important political and economic consequences.
Our compulsion for economic growth and the separation of the economics from ecology, Schumacher claimed, are the two main reasons why we are in perpetual economic and ecological crises.
This insight—that economics is not a science but a reflection of our social values and that it is dependent on following the laws of nature—became the green movement’s most important contribution. Thus, the important green dictum of the triple bottom line of economics: profit, people and planet. The greens understood that an economy is not all about profit, it also needs to serve people as well as planet.
Therefore, I agree with Rasmus Hansson, former parliamentary leader of Norway’s Green Party, that “Ecology must lay the framework for the economy, not the other way around.” I also agree that green values are important for the future of Norway, Europe and the world. But I do not agree with those who claim that capitalism with a green face will save us.
“Ecology must lay the framework for the economy, not the other way around.” ~ Rasmus Hansson
Reforming capitalism is no longer a practical strategy. If that had been the case, then relatively green and equitable Denmark, should have become a sustainable paradise by now. It is not. It has one of the highest carbon footprints in the world. Three other European countries and the US are among the top ten.
The rest of the industrialized countries—all capitalist—follow closely behind. History has thus clearly shown that an economy built on capitalism does not create economic justice nor ecological balance. All capitalist reforms, whether socialist or green, have tried in vain to reduce the false fundamentals of growth capitalism: the one-pointed focus on making profit from the exchange of material goods.
The green politician Mr. Hansson also believes that we must “build on the best of today’s market economy.” However, such green slogans have started to ring quite hollow. The time for reforms are over. We need systems change.
Wal-Mart, the largest retailer in the world is notorious for underpaying workers and destroying the local economy, but the highly profitable company is also a promoter of green capitalism. The retail chain is the world’s biggest seller of organic foods and has solar panels on many of its rooftops.
Such superficial measures, however, do not alter the fact that Wal-Mart’s profits are built on the backs of an underpaid labor force without health insurance, and that the long distance distribution system the company is based on is highly dependent on fossil fuel burning trucks.
We cannot simply shop ourselves out of the unsustainable predicament we are in. Green consumerism, such as increased use of organic food, biodegradable soaps, and solar panels, cannot by itself build a more sustainable economy.
Green, personal values are also not enough to turn things around. We cannot, as many green capitalists advocate, simply shop ourselves out of the unsustainable predicament we are in. Green consumerism, such as increased use of organic food, biodegradable soaps, and solar panels, cannot, by itself, build a more sustainable economy.
Since green values became popular in the 80s and 90s, the world economy overall has become alarmingly less green. The contradictions are flagrantly visible: large portions of the world’s organic sugar cane are grown on diminishing Amazon rainforest lands and Tesla cars are mainly fueled by electricity produced from coal and burnt garbage.
Even the oil giant Shell is now backing green values. The corporation learned early on that a PR campaign based on “profit, people and planet” would greatly enhance profits and its image. In this way, the speculators and owners of capital continue with business as usual so that they can stay a strategic step ahead of the public and green reform politicians.
We need to connect the economic dots and realize that green capitalism is itself part of the problem.
Therefore, we need to connect the economic dots and realize that green capitalism is itself part of the problem. The days of endless reforms are over. We need economic restructuring. We need economic systems change. The good news is that a new economy is emerging from the ashes of the old. Here are some of the systems changes I see emerging beyond the green and leftist horizon and forming the foundations of a new economy:
1. Utility Value and Intrinsic Value.
The capitalist market economy sees only one value in nature: its utility value. How many planks of wood can this forest produce? How much oil can we pump from this well? How many tons of fish can this lake produce? Nature’s intrinsic value, however, its value to exist in itself, the innate need for animals and plants to live and reproduce, those needs are not at all valued by the market place.
The new economy, however, must first recognize that nature serves us and the planet best as an untouched ecosystem, as a resource for beauty, recreation, fresh air and water. Secondly, within an eco-economic framework, nature can also serve us as a resource for raw materials.
Nature is part of the planetary commons, and these commons—the mountains, rivers, oceans and forests—do not belong to any one person or corporation, these commons belong to all living beings. Therefore, no private interests, however powerful and rich, should have the right to indiscriminately exploit these natural resources. The limited use of these commons must primarily be administered by the local community and government, not corporate interests.
2. Limits on income
The right to accumulate as much money as you can—the right to be greedy–is taken for granted by the free market, capitalist economy. But what about the right to a decent income? What about the right to health care, education and food? The idea that greed is good is one of capitalism’s fundamental contradictions.
This idea has given rise to both economic inequality and the destruction of the environment. Without effectively curbing human greed with both an adjustable maximum and a minimum income, we cannot achieve a balanced economy.
3. An economy of need, not growth
People’s real needs for safety, nourishment, education, health, creativity and spirituality, not our superficial greed for maximum profit, must guide the development of the economy.
4. Cooperative Economy
The mixed economy of today must be restructured so that the large corporations are restructured and turned into worker-managed cooperatives, while small ones, such as restaurants, shops and family farms can remain in private hands. Neither Adam Smith nor Karl Marx emphasized the importance of cooperatives.
5. Economic Democracy
Political democracy is vitally important, but economic democracy is even more important. This will ensure that the needs of local people, not the large corporations, control the economy. Real economic democracy entails a restructuring of the economy, so that capitalism flourishes as small scale business enterprises, corporations are turned into worker-owned businesses and governments are run to serve the people and the environment. This will ensure an economy of need rather than greed.
6. Decentralization and Self-sufficiency
Without a strong, local economy, built on self-sufficiency, we cannot create an environmentally friendly, democratic economy. Therefore, decentralization is an essential goal of a restructured, green economy.
7. New Free Trade
Only free trade between countries with equal economic development and export and import of mainly finished goods, rather than raw materials. In this way, all countries can become more self-sufficient and poor countries have time to industrialize.
Green capitalism is a contradiction. Reforming today’s market economy with green values only makes the power of capital even smarter and stronger.
What we need instead is a new economic structure that is in itself ecological, cooperative and creative. Such an economy functions like nature itself, in a regenerative relationship between people, culture, industry, market and nature.
Such an economy reflects that the goal of the economy is not eternal, material growth but to meet basic human needs and to increase our personal and cultural quality of life through leisure, sports, education, art, music, literature, and spirituality. Increasing these quality of life measures will ensure a more sustainable economy—they score high on the happiness curve but rather low on the economic growth curve.
Roar Bjonnes is the executive director and editor of Systems Change Alliance. He is the author of five books, has contributed essays in three other books and has written articles for several Norwegian newspapers and half a dozen international magazines and blogs. For more information about him and one of his books, see growinganeweconomy.com
Photo by Brian Yurasits