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Overhauling economics to combat climate crisis



There is a common error about economics that, if not corrected, has far reaching consequences. It is the widely held belief that economic growth and consumption are the same. They are not. Economic growth is an increase in transactions, the amount of money that changes hands. Consumption is the using up of resources. It is perfectly possible to have at the same time an increase in the amount of transactions, economic growth, and a reduction in the consumption of scarce resources and less despoliation of the environment.

Main image: Tree growing out of coins (Micheile Henderson/Unsplash)

This misconception largely came about because of a sleight of hand in the economics discipline that inflated their own importance and converted economists into something resembling modern day high priests pontificating on the state of society. To demonstrate, consider the difference between these two statements. First:

‘The Australian economy (GDP) grew by 2 per cent indicating that the country is doing well.’

Sounds good, does it not? The nation is strong, and our standard of living is on track. Then consider this statement, which is exactly the same thing:

‘The amount of transactions in Australia (GDP) rose by 2 per cent, indicating that more money changed hands.’

Not quite the same thing, is it? Money can change hands for all sorts of reasons that may or may not include consumption of scarce resources. Say, for example, there was a massive global investment in renewable energy sources that eliminates the use of fossil fuels. This would reduce consumption of scarce resources while dramatically boosting economic growth.


'Rather than considering the environmental challenge as a fight between the political right and the political left, the focus should instead be on overhauling economics completely.'


In Australia, recent economic growth has mainly come from rising property prices — or rather the increasing value of residential land — against which banks have loaned aggressively. That consumes hardly any resources at all. The bank loans are just blips on a computer screen (a little bit of electricity). Increasing the monetary value of land consumes no resources — the land remains the same.

This is not to suggest that there is not a problem with the over-consumption of resources or pollution. Both represent a critical challenge for the future of life on earth. But to conflate it with economic growth — and, in so doing, argue that capitalism is to blame — is dangerously wrong. It turns the issue into a political one, when correcting the problem is mainly about system design and engineering.

The real destroyer of the environment is industrialisation, not capitalism. The overconsumption of resources and pollution in the twentieth century was significantly worse in communist countries than in capitalist countries. Even now, communist China has a much worse environmental record, especially in the consumption of fossil fuels, than many capitalist countries. 

Industrialisation as conceived in the last century, whether of the communist or capitalist variety, is predicated on achieving economies of scale, especially in areas like agriculture and resource extraction. This inevitably harms the environment. Such pursuit of scale, including market dominance is, in turn, the aim of global corporatism (both privately owned and government owned). Corporatism, which has a capitalist face, but in many ways it is closer to socialism, should not be thought of as the same as capitalism. It is anti-competition, supposedly the core value of capitalism.

These large corporations create destructive monocultures and use their lobbying power to control politicians and government and stop stronger environmental protections. But there is a worse effect. As the anthropologist David Graeber pointed out, corporate bureaucrats are skilled at suppressing innovative ideas, mainly by buying them and them putting them in a drawer. Corporates may carry on about innovation, but they have a powerful business interest in keeping things the same.

There are occasional new moves, though. One such is the climate crisis, where there is expected to be big money is moving. The world’s biggest sources of capital, pension funds and insurance funds, are moving in that direction meaning there will be heavy investment in what is effectively the monetising of air quality. It will, however, only address one problem, carbon emissions. The problems of pollution, waste and resource depletion are far wider than that.

To get a clear picture of the environmental challenges the word ‘capitalism’ should be jettisoned. It only exists as a descriptor because Marxism was invented as an opposing ideology. Consider some simple tests of the allegedly distinctive features of capitalism. How long have markets existed? Thousands of years. How long has money with an interest rate existed? Thousands of years. How long have property rights existed? Hundreds of years. We are more materialist because far more of our activities are subject to monetary exchanges, but what exactly is new about ‘capitalism’ that justifies making it an ‘ism’?

Rather than considering the environmental challenge as a fight between the political right and the political left, the focus should instead be on overhauling economics completely. Bizarrely, in most schools of economics the environment is treated as an externality: not something to be included in the models. Unless we measure and cost the main problem properly allowing us to scrutinise and limit the monocultures and waste practices that are powered by the world’s large businesses and state enterprises, we will not be able to find solutions.



David JamesDavid James is the managing editor of businessadvantagepng.com. He has a PhD in English literature and is author of the musical comedy The Bard Bites Back, which is about Shakespeare's ghost.

Main image: Micheile Henderson/Unsplash


Topic tags: David James, COVID-19, capitalism, socialism, consumption, environment, climate crisis



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Existing comments

It is all about externalising costs to fudge the figures with environment and social as well as individual justice falling into victimisation

Anna | 18 November 2020  

Perhaps capital-ism happens when some people have the option of lots of money available for transactions, when, at the same time, too many people do not have this option. Money, the blood of the economy, is too readily available in some parts of the economy while under-available, even scarce in other parts. The 'body-economic', while having healthy hands, is in danger of losing both its legs below the knees.

Andrew McAlister | 19 November 2020  

Agree that growth in old industries that pollute through both inputs and outputs like fossil fuels is not needed; Australia like most economies is dominated by services including 'growth' in health care. Moral hazard with the seeming anti-libertarian and anti-growth movement that also views immigration, population growth and fertility rates as existential threats (or distractions?) with zeitgeist that any growth is bad.... Those in the mainstream and/or the environmental movement should be cautious that while their focus is elsewhere under the auspices of low or no growth, it lets others off the hook... Many large global and/or multinational corporate entities e.g. fossil fuels, defence, auto, mining etc. can benefit from fewer competitive threats globally and/or locally when the latter are compelled to be low growth and stay behind national borders (and in some cases tariff walls).... putting them at a competitive disadvantage compared with legacy players....

Andrew J. Smith | 20 November 2020  

David, A enlightening story of greed disguised as 'progress'. I totally agree with your warnings about our exploitation of the scarce resources that Nature has endowed us with.One can compare the advent of the motor car and the resistance put up by the horse drawn cabbies of the 19th Century.We all know who won. The fossil fuel industry which has been polluting our atmosphere much as horses polluted the streets is putting up a last ditch effort to survive. However the writing is on the wall. Economics is moving capital to renewables at a rapid rate. Guess who will win in the end?

Gavin O'Brien | 23 November 2020  

Interesting article, but naively overlooks the problems with capitalism. Sure, markets, money and credit have existed for thousands of years, but capitalism as a system developed in the eighteenth century and uses individual greed and selfishness, unfettered by any sense of communalism, as the basis of society. Thatcher could not have put it more plainly when she claimed 'There is no such thing as society". Capitalism also enshrines profit and capital accumulation as the sole purposes of economic activity - the environment and the common good are purely incidental. Industrialisation and corporatism are the quintessential faces and logical outcome of capitalism. Capitalism is destroying the biosphere and if civilisation is to survive, capitalism has to be replaced quickly. There are an infinite number of ways to organise society, without resorting to totalitarian central planning. The challenge is to work on the alternatives, but we'll never bother doing that while we deny that capitalism is the problem.

Peter Schulz | 24 November 2020