Wednesday, May 20, 2009

Why Corporate capitalism cannot save the world

It seems to me that possible solutions to the global warming problem are confused by treating it as a separate problem. It is a symptom of world population pressure. Climate change is the single most important and most immediate factor that we can address and it requires a response before we can address the other problems associated with population growth.
The evidence for coming crises lies firmly in the validity of the 1972 Limits to Growth predictions by the Club of Rome. To be able to confirm as valid the computer predicted trends after 35 years is evidence that the predictions demand serious consideration by current policy makers. The confirmation of these predictions is the subject of a CSIRO [hardly an alarmist organisation] paper.


It confirms the“LIMITS TO GROWTH”: The 30 Year Update By Donella Meadows, Jorgen Randers, Dennis Meadows*

It is amazing how even sympathetic commentators miss the obvious. It seems quite easy for leaders in the rich countries to accept that the rich countries have caused most of the problem while poor countries are virtually blameless in their contribution to anthropogenic warming However this sympathy does not extend to developing countries. They must pay a price before the developed world will make the necessary changes. The price will inevitably slow further development in the developing countries. Why is this? It could be that there is only one economic game left in the world. We are all free market corporate capitalists now therefore we must compete rather than co-operate.

For human survival there has to be a way to encourage sustainable growth in the developing and underdeveloped world. It inevitably means those in the developed world will need to reduce their share of the earth’s resources and equally inevitably it means the citizens in the developed world will have to expect less. However incomes in the developed world have been subjected to pressure which has widened the income gap between the richest and the poorest. There are very high salaries for corporate managers in New Zealand, ostensibly because we need to compete internationally to gain their services. It is amazing that when one of these highly paid managers falls from grace they are so easily replaced. There has never been a shortage of bosses, only of workers.

The half of all old age pensioners who have only New Zealand national superannuation as their income are however clearly back in the developing world in terms of per capita income [the generally accepted per capita income which separates the developing world from the developed is $7500 US. [equivalent to $12500NZ @ exchange rate of 0.6]. It follows that New Zealand old age pensioners cannot be expected to save the world or even New Zealand from global warming and/or overpopulation unless New Zealand chooses to adopt widespread euthanasia of the aged rather than national superannuation.

Capitalism has several distinguishing features.

A] Capitalism is an economic system designed to make the rich richer at the expense of the poor. The rich lend money to the poor and charge interest. An associated problem is that there are lots of professions, accountants, actuaries, financial advisors and lawyers whose main function is the preservation of the status quo. They can continue to milk the rich by defending those riches and in the process becoming rich themselves. Thus for capitalism to continue to succeed and more individuals to become rich it needs an ever growing supply of poor people with a small disposable incomes hence population growth. It is essential that the disposable income is not too large as it would be disastrous for the banks if the poor were able or chose to pay cash. Careful manipulation by the marketing and advertising industries ensures that wants are converted into needs. Population growth is even encouraged by political statements and selective immigration policies. The theory that “trickle down” economics will eventually make all of us rich is patently absurd, self serving and never challenged.

B] Capitalism sorts people into socio economic classes. Envy and greed together constitute the engine of capitalism that has produced innovation and material progress. Success is demonstrated by upward social mobility. However the single most important predictor of society status remains the financial status of one’s parents. Rich kids are more likely to become rich parents. The myth of downward mobility in a capitalist society is just that, a myth. It used to be true when industries were being built up in the early days of the industrial revolution. The owner had a considerable personal stake and did take risks. It is still true of small business today and New Zealand is a land of small businesses.. However corporate capitalism has professional managers who take few personal financial risks themselves. If they foul up, they can still walk away with large bonuses and/or redundancy settlements. Witness the failed banking executives in the current financial crisis.

C] Capitalism is wasteful. Short term capital gains are the objective. We want to become rich in our own lifetime but seek to preserve family wealth for as many generations as possible. It makes it difficult to consider long term society objectives while becoming rich.

D] Capitalism claims it relies on market signals and is therefore efficient. It may be more efficient than state communism but this does not mean it is efficient. If it were, why would capitalist economies have to rely so much on huge marketing, advertising and packaging industries?

E] Socialism is deemed to have failed in competition with capitalism but if we consider the situation objectively we can note several anomalies. The most obvious is that the USA is certainly the richest capitalist country in the world but its health care system and literacy rates are worse than those of Cuba, its “impoverished” socialist neighbour that has been subjected to a regime of sanctions for fifty years.

While we can accept that the rich nations have caused virtually all the carbon emissions that have led to global warming, the key point that is never made is that within the rich countries it is the richest people that have caused most of the problem and they continue to do so. They travel more frequently by air, they have larger houses and bigger cars. They have more central heating and more air conditioning. There are whole industries devoted to status enhancing production.

Moreover for the last thirty years the rich have managed to avoid their fair share of taxes. The Friedmanite reduction of graduated income taxes and the shift to consumption taxes fell much more heavily on the poor. This is why even those rich people who are environmentally aware choose a cap and trade scheme for carbon rather than rationing the right to pollute. It is the way Al Gore gets to keep his big house.

If a price is put on carbon it will impinge disproportionably on the poor. This will happen both in poor nations and in the poorer socio economic classes in the “West”. Plainly the rich have always caused more carbon pollution than the poor. Those draughty castles required much more firewood than the peasant’s hovel. The situation continues to the present day.

I do not believe we can address global warming until we address the issue of inequity of incomes. Possible solutions have been made much more difficult by the increasing gap between rich and poor in the developed world over the last thirty years.

Another essential driver of capitalism is the desire to display wealth. How can the rich demonstrate their status unless by conspicuous consumption? The rich will continue to have bigger houses, faster cars and travel more. With a market price for carbon they may initially have to pay more for these privileges but they will not stop consumption. Indeed because new technologies have a higher initial entry cost the rich may well be able to increase their energy use at the higher cost per unit simply because they can afford to take advantage of new technology. The poor however will have to stop these carbon intensive activities altogether. Even now the poor are not conspicuous consumers of, for example, air travel. For giving up their very limited air travel they are likely to be rewarded by more sport and reality shows on Television and cheaper alcohol.

I hope I am proved wrong but it is significant that those countries making most progress toward carbon emission reduction targets are the Scandinavian social democracies where there are strong welfare systems, guaranteed income support, more egalitarian societies and they also have higher rates of foreign aid. The English speaking countries are not yet even on the radar screen. It is significant that real progress is being made by these nations without embracing full blown socialism. It seems simple fairness just makes the required action easier.

There is no point in making carbon emissions part of a market economy. The rich will always find a way around price constraints either by using tax havens, raising interest rates or getting bigger taxpayer subsidies. After all they consistently have the best governments money can buy.

The current crisis predictions were clearly spelled out in the 1972 Limits to Growth report for the Club of Rome and confirmed by recent research, 37 years later. They are akin to those we would expect in a world war. Indeed the overpopulation problem is only likely to be solved by mass starvation of the poor. This is current OECD policy and explains why OECD aid budgets are pathetic. Thirteen to eighteen million people die of hunger or hunger related causes every year. Alternatives for population reduction are pandemics, wars over resources, particularly water, eco refugee movements or a massive extension of the religious conflict between Islam and Christianity exacerbated by the resource wars.

In wartime we accepted rationing as necessary for the greater good of our society. A system of rationing the right to pollute would not necessarily solve all of the problems but at least the rich, who no longer accept graduated income tax as a way of restoring equity and justice would have to buy pollution rights from the poor and pay for the generations of freeloading previously enjoyed.

I believe James Lovelock’s prediction that island strongholds or areas close to the poles will be the only places where humans may survive is highly likely if we cannot address the population problem and its initial symptom of global warming. The only way to reach sustainability is by a unified world wide approach which can only result from a fairer more co- operative society. This does not mean totalitarian communism but it certainly means an end to the uncontrolled laissez fair corporate capitalism which has caused the current financial crisis.

I do not believe that the views I have expressed are likely to gain any traction. I am sure that several “”think tanks” outside of the Pentagon, are considering such a future and clearly do not think it is possible to take remedial action in time. The Pentagon think tanks, who are not bleeding heart liberal “greenies”, are also predicting widespread chaos and war. However I am concerned about the world into which my grandchildren have been born. Like James Lovelock I remain optimistic that the few survivors may be wiser when they repopulate the world..