The Need for a More Sustainable System
Overview
Global Sustainable capitalism is an abstract form of capitalism based upon sustainable practices that seek to preserve humanity and the planet while reducing externalities and bearing a resemblance to capitalist economic policy. A capitalistic economy must expand to survive and find new markets to support this expansion. As discussed in Chapter 1, capitalism systems are often thought to be destructive to the environment as well as certain individuals without access to proper representation. However, as argued by Schweickart David (2009), sustainability provides quite the opposite: it implies not only a continuation but a replenishing of resources. Sustainability is often thought to be related to environmentalism, and sustainable capitalism applies sustainable principles to economic governance and social aspects of capitalism as well.
The Importance of Sustainable Capitalism
The importance of sustainable capitalism has been more recently recognized, but the concept is not new. Changes to the current economic model would have substantial social environmental and economic implications and require the efforts of individuals, as well as compliance of local, state, and federal governments. Controversy, as pointed out by Fraker (2013), surrounds the concept as it requires an increase in sustainable practices and a marked decrease in current consumptive behaviors.
This is a concept of capitalism described in Al Gore and David Blood’s manifesto for the Generation Investment Management to describe a long-term political, economic, and social structure, which would mitigate current threats to the planet and society. According to their manifesto, sustainable capitalism would integrate the environmental, social, and governance (ESG) aspects into risk assessment in an attempt to limit externalities. Most of the ideas they list are related to economic changes and social issue, but strikingly few are explicitly associated with any environmental policy change.
We have to be mindful of the physical as well as economic limits to growth and the capacity of our planet to support our lifestyles. According to the World Wide Fund for Nature (WWF), we are already using around 1.5 planets to maintain our current consumption patterns, as shown in Figure 2.1. Our combined ecological footprint, the demand people place in the natural world, has more than tripled since 1961. Here in the west, mainly in North America and Europe, the picture is worse still, as we are already living a three-planet lifestyle. Collectively, we will need two planets by 2030—less than 11 years away.
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Figure 2.1 The state of the earth: Humanity’s ecologic footprint
Source: Global Footprint Network, 2014.
Taken together, biodiversity loss and an unsustainable footprint threaten natural systems and human well-being but can also point us toward actions to reverse current trends. The report calls for action on strategies to preserve, produce, and consume more wisely and includes examples of how communities are already making better choices to reduce footprint and biodiversity loss.
So our current form of capitalism is found wanting on all three counts of performance, including the benefits to our society, environment, and our economies. The call for change is loud, from both within and outside the business world. It is heartening to hear business leaders calling for a new economy, one that is built around triple-bottom-line principles, including shared prosperity and environmental stewardship. But the big question is, what are the alternatives? Also, how do we overcome the dangerous design faults now painfully exposed, to meet the rigorous challenges of our time and enable a business to survive and prosper in the 21st century and beyond, so we can be sure of leaving a positive economic, social, and environmental legacy for the next generation?
Sure, there is some nostalgic debate on whether communism could make a comeback. Marx and Engels wrote in their famous book The Communist Manifesto that “what the bourgeoisie, therefore, produces, above all, are its grave-diggers. Its fall and the victory of the proletariat are equally inevitable.” Today, almost 200 years after Marx and Engels wrote about grave-diggers, the truth is nearly the exact opposite. The proletariat, far from burying the current version of capitalism, is keeping it on life support, while remaining, overworked and underpaid workers, ostensibly liberated by the most significant socialist revolution in history (China’s). Some, like the proverbial examples at Foxconn, have been driven to the brink of suicide to keep those in advanced economies on the West playing with their iPads and iPhones and other similar gadgets. All this while Chinese money is bankrolling an otherwise bankrupt America. This irony is scarcely wasted on leading Marxist thinkers.
According to Jacques Rancière, a French Marxist thinker and professor of philosophy at the University of Paris, “the domination of capitalism globally depends today on the existence of a Chinese Communist party that gives de-localized capitalist enterprises cheap labor to lower prices and deprive workers of the rights of self-organization.” Can we hope for a world less absurd and more just than the one we witness today? How ironic is it that global capitalism depends today on the existence of a
Chinese communist party?
Some would argue that China has a communist ideology but a capitalist economic system, at least a state capitalism version, which is not a new idea. In the 1990s, there were a lot of state-owned enterprises (SOEs), especially in emerging and frontier economies. The assumption was that, as the economy matured, the government would close or privatize them. China is not alone, as several other countries, including Russia and Brazil, to name a few, have shown no signs of relinquishing the commanding heights, whether in most industries—the world’s ten biggest oil and gas companies, measured by reserves, are all state-owned—or principal markets.
State-backed companies account for about 80 percent of the value of China’s stock market and 62 percent of Russia’s. Although this model still mainly exhibits the same issues that the western model has, even if it allows a longer-term perspective, it is ideologically unlikely to appeal to those with a disposition toward free markets. In the decade since the 2008 global financial crisis, China has increasingly relied on these SOEs to drive its economy. As it faced sweeping unemployment and scrambled to prop up growth after that meltdown, it saw no better option than to pump up its SOE giants with infrastructure, transportation, and real estate projects. The stimulus ended in the early 2010s, but Beijing has continued to turn to SOEs to lead the country’s economic transition, raising fears of favoritism among its privately-owned enterprises.
China has sought to strengthen the SOEs with moves to consolidate industries, reduce output capacity, and shrink the amount of debt in the economy. But in doing so, it has strengthened government control over many private businesses and created additional uncertainty and anxiety in both the private sector and society at large. The increasing SOE dominance over several domestic industries and their rapid expansion overseas have put them in the crosshairs of the western world, particularly the United States. Despite those issues, should another economic downturn hit China, the government could once again turn to these giants to keep the economy rolling.
Regardless of government interventions, such as in the United States, the Eurozone, and China, if present climate-change trends continue, the global carbon budget associated with a 2°C increase in average global temperature will be broken in 16 years (while a 1.5°C increase in global average temperature—staying beneath which is the key to long-term stabilization of the climate—will be reached in a decade). Earth System scientists, such as Steffen et al. (2018), warn that the world is now perilously close to a Hothouse Earth, in which catastrophic climate change will be locked in and irreversible. The ecological, social, and economic costs to humanity due to increasing carbon emissions by two percent a year as in recent decades (rising in 2018 by 2.7 percent—3.4 percent in the United States), and failing to meet the minimal three percent annual reductions in emissions currently needed to avoid a catastrophic destabilization of the earth’s energy balance are simply incalculable.
Nevertheless, major energy corporations continue to obscure vital information about climate change, promoting and bankrolling climate denialism, while admitting the truth in their internal documents. These corporations are working to accelerate the extraction and production of fossil fuels, including the dirtiest, most greenhouse gas-generating varieties, reaping enormous profits in the process. The melting of the Arctic ice from global warming is seen by capital as a new El Dorado, opening massive additional oil and gas reserves to be exploited without regard to the consequences for the earth’s climate. In response to scientific reports on climate change (Gleiser 2016), Exxon Mobil declared that it intends to extract and sell all of the fossil fuel reserves at its disposal. Energy corporations continue to intervene in climate negotiations to ensure that any agreements to limit carbon emissions are defanged. Capitalist countries across the board are putting the accumulation of wealth for a few above combatting climate destabilizations, threatening the very future of humanity.
A Viable Alternative
As argued by Daly (2016), in his work titled From Uneconomic Growth to a Steady State Economy, we have now reached a point in the 21st century in which the externalities of Capitalism 1.0 irrational system, such as the costs of war, the depletion of natural resources, the waste of human lives, and the disruption of the planetary environment, now far exceed any future economic benefits that capitalism offers to society as a whole. The accumulation of capital and the amassing of wealth are increasingly occurring at the expense of an irrevocable rift in the social and environmental conditions governing human life on earth
Klaus Schwab, founder and executive chairman of the World Economic Forum (WEF), draws a useful distinction between the ideology of a social market economy, based on individual responsibility on the one hand, and the term capitalism on the other, as a component of an economic system that relates to the capital market. Schwab framed the debate at Davos back in 2016 in such a way that was “not the end of capitalism as an ideology, but the issue of how capitalism’s technical components, which have come off the rails, can be reformed.”
The argument that capitalism is the culprit for the excesses and mismanagement of the economies around the world is not accurate, and the idea that its imminent demise is near is somewhat exaggerated. We would argue that the capitalist ideology of a free but socially committed and reasonably regulated market economy has never been questioned, not even in Davos. There have been several discussions as to whether capitalism in its present form serves or undermines the free-market economy. A clear distinction needs to be made in this regard between the ideology of a social market economy based on individual responsibility on the one hand and the term capitalism as such on the other.
Over the course of more than 200 years, a range of different interpretations of capitalism has emerged as a reaction to industrialization. In historical terms, the transition from manual trades to machines required an ever-increasing degree of investment, and therefore the provision of capital. In this sense, capitalism is not an ideology as such, but an applied theory of the creation and efficient deployment of resources as a factor of production. In its genuine sense, capitalism is, therefore, the component of an economic system that relates to the capital market, enshrined in the principles of a free market and guaranteed ownership. However, these principles are part of a more comprehensive ideology.
In his excellent book titled Capitalism as if the Planet Matters (2007), Jonathon Porritt takes a pragmatic view that capitalism is the only economic game in town and that all sides must find ways of making free markets deliver a more sustainable future, pretty quickly. Otherwise, the pressures will overwhelm our economies. He rightly generates a sense of urgency.
Unfortunately, in today’s parlance, this free-market ideology has been equated with capitalism as a technical component. As a result, it is easy to gain the impression that the free-market economic system founded on individual freedom and, at the same time, social responsibility, is to blame for the excesses of capitalism that has lost its equilibrium, which we would argue is incorrect. What should be at stake in our discussion here is not the end of capitalism as an ideology, but the issue of how capitalism’s technical components can be improved.
In short, a call for Capitalism 2.0, one with a vastly upgraded operating system, which also builds on what former U.S. vice-president Al Gore, dubbed as Sustainable Capitalism, is in order. Gore also labeled such a new and improved system a capitalist model that seeks to maximize long-term economic value by reforming markets to address real needs while integrating ESG metrics throughout the decision-making process.