Capitalism Empowers Prosperity, Quality of Life, Environmental Protection, and Climate Adaptation

     You know what they say, ‘It takes money to make money.’ This is true in many cases. It also takes money to survive and prosper, to protect the environment, to reduce carbon emissions, and to adapt to extreme weather and climate change. Capitalism requires at least some economic growth. The needs for economic growth arise from our growing population and our quest to improve living standards, especially improving them from substandard poverty to acceptable financial stability. Poverty reduction is a public good that improves the quality of life from dangerous and vulnerable to safe and protected. Thus, money also buys safety and protection. It lowers risk. Our capitalistic economy is really a ‘mixed’ economy that is tweaked for fairness and some redistribution to the poor and others in need.

     Along with poverty reduction, environmental protection is another public good, and ensuring it should be considered a public service as I show below in my crude economics chart. Environmental protection could also be considered to be a health goal.

 

     Whole Foods founder and former CEO John Mackey and Harvard Business School’s Raj Sisodia noted in their 2014 book, Conscious Capitalism: Liberating the Heroic Spirit of Business that capitalism is the most successful method devised by humans for creating value. While bringing people up out of poverty has been noted as a side-effect of capitalism, they also note that it can also be an intended effect that companies can actively pursue.

 

“… voluntary exchange for mutual benefit has led to unprecedented prosperity for humanity” and that “free enterprise, when combined with property rights, innovation, the rule of law, and constitutionally limited democratic government, results in societies that maximize societal prosperity and establish conditions that promote human happiness and well-being …”

 

Wikipedia’s entry on capitalism includes the following explanation of a free market:

 

“A capitalist free-market economy is an economic system where prices for goods and services are set entirely by the forces of supply and demand and are expected, by its adherents, to reach their point of equilibrium without intervention by government policy. It typically entails support for highly competitive markets and private ownership of the means of production. Laissez-faire capitalism is a more extensive form of this free-market economy, but one in which the role of the state is limited to protecting property rights.”

 

     However, in reality, government policies do affect markets via various regulations including financial regulations, labor regulation, and environmental regulations. Our economy in the U.S. is a mixed economy. Some economies in Europe with more regulations and more welfare are deemed welfare capitalism, but the U.S. also has a robust welfare system and could be considered such.

Wikipedia explains a mixed economy as follows:

 

 “A mixed economy is a largely market-based capitalist economy consisting of both private and public ownership of the means of production and economic interventionism through macroeconomic policies intended to correct market failures, reduce unemployment and keep inflation low. The degree of intervention in markets varies among different countries.”

 

     This basically defines our economy. Thus, our form of capitalism is a mixed economy or a significantly tweaked form of regulated capitalism. Business leaders can also orient their companies to have ESG goals that align more with a “conscious capitalism” as Mackey and Sisodia call it. However, there has been significant pushback against ESG policies that have been accused of going too far and have been deemed “woke capitalism.” That is a fair argument but I would also point out that the pushback can also go too far by banning and overly disincentivizing ESG goals and becoming an “anti-woke capitalism.

 

 

 

The Dangers of Anti-Capitalism

 

     Extremists, usually on the political left, have argued against capitalism. This is especially true of climate change activists like Naomi Klein, whose 2015 book: This Changes Everything: Capitalism vs. the Climate argued that capitalism was ruining the climate. Other climate change extremists like Bill McKibben have argued for a degrowth movement with the goal of slowing down the world economy, particularly for wealthy countries. This is obviously a non-starter and would be disastrous, making people poorer and more dependent on government handouts. Some people like Stephen Pinker have pointed out that there are no successful socialist economies and no successful purely libertarian economies in the world simply because they don’t work. Of course, it should be pointed out that social welfare and government services are not socialism.

     Growth is determined by need and by population growth. Developing countries where basic services and adequate energy access have yet to be secured are in need of economic growth to pay for the needed changes. As the population grows so does the extent of public services and things like power grids. All developing countries need strong economic growth. Developed countries may need less economic growth but they still need some growth to maintain capabilities, including those capabilities that make things more economically efficient and more energy efficient. These two go hand in hand and are powered by economic growth. New technologies improve lives, but they must also be pursued, and they always need investment to move through risks that often involve losses. Venture capitalists invest in new ideas and new technologies, often with the help of governments if those ideas and technologies are deemed viable and in the public interest. They take risks and lose capital in many projects, but others pay out very well. Hampering businesses with too many regulations, too stringent regulations, or overly lengthy timelines for project approvals makes it harder for them to succeed. Here the line between regulation and anti-capitalism can be blurred. Environmental groups often have stated goals of damaging companies, usually fossil fuel companies. That is clearly a form of anti-capitalism disguised as regulatory necessity.

 

 

 

Capitalism and Climate Adaptation

 

     Patrick Brown, in a new article for the Breakthrough Institute: Defending Economic Productivity and Capitalism for Climate Adaptation and Mitigation, argues that the degrowth movement inaccurately frames economic productivity as wasteful consumption. He notes that private property, markets, and trade (i.e., capitalism) are chiefly what increases economic growth and that growth is needed to empower other public goods such as environmental protection, climate adaptation, and greenhouse gas emissions reduction. Of course, if degrowth limits expendable income then it will also limit these public goods. It really is as simple as that. He writes:

 

“GDP per capita is strongly correlated with many outcomes almost universally considered socially desirable, including higher life expectancy, lower child mortality, higher educational attainment, fewer working hours, and higher self-reported life satisfaction.”

 

     He also notes that higher GDP per capita equates to reduced vulnerability to climate change. Lower-income countries have more deaths due to natural disasters, often because they are less prepared for them and have invested less in preparing for them due to less available funds. Wealthy countries invest much more in disaster preparedness which is often the result of extreme weather exacerbated by climate change. Regarding the power of capitalism in general, he notes that:

 

“… in a system where individuals and firms know they can own, control, and disproportionately benefit from disproportionate productivity, they are incentivized to work harder, think more creatively, and invest their money and their time (including investment in themselves) more wisely.”

    

     He notes that economic freedom strongly correlates with economic productivity as shown in the graph below. Similarly, economic freedom strongly correlates with climate change adaptation readiness.

 

     He points to a 2018 paper, The Critical Role of Markets in Climate Change Adaptation, which argues that market signals encourage adaptation through land markets. Impediments to critical market signals are identified and subsequent policies are recommended that include new technologies. “Urban, coastal, and agricultural land markets provide effective signals of the emerging costs of climate change.” Policy must be adjusted to be more adaptive to climate change impacts, they say.

     Brown also notes the common fallacy that capitalism leaves the poor behind. That is simply not true as it has made the poor richer. It has, however, benefited the wealthy even more, and thus, we have increasing income inequality.

     The bottom line is perhaps the quite logical realization that capitulating in any way to the anti-capitalist degrowth would be disastrous.

Capitalism is Associated More with Generosity and Cooperation

 

     According to a December 2023 New York Post opinion article by John Stossel touting libertarian historian Johan Norberg’s 2023 book, The Capitalist Manifesto:

 

“Capitalism is Making You Lonely,” says Jacobin magazine.

 

Vox claims, “Capitalism makes us feel empty inside.”

 

On a YouTube channel with 1.7 million subscribers, a socialist says, “Material incentives of capitalists isolate us from nature, each other and ourselves.”

 

     I hear similar things from some Facebook posters, but I don’t think it’s true. I think capitalism has become a well-used scapegoat, something to blame our problems on.

 

     Norberg says: “The most important aspect of capitalism is cooperation” Surveys say that people in capitalist countries say more that they feel they have someone to count on if things get tough than in non-capitalist countries like China and India (although I’m not sure how non-capitalist India is) He says: “Every poll shows that people say that they’re less lonely in the most market-oriented societies.” Studies and experiments also conclude that people are more generous in capitalist societies. Some show a near doubling of generosity. This is not surprising since people in capitalist countries are better off financially. It’s pretty simple. If you have more, you have more to give. 

 

References:

Defending Economic Productivity and Capitalism for Climate Adaptation and Mitigation. Patrick Brown Breakthrough Institute. September 16, 2024. Defending Economic Productivity and Capitalism for Climate Adaptation and Mitigation (substack.com)

Conscious Capitalism: Liberating the Heroic Spirit of Business. John Mackey and Raj Sisodia. 2014. Harvard School Press.

Capitalism. Wikipedia. Capitalism - Wikipedia

The Critical Role of Markets in Climate Change Adaptation. Sarah E. Anderson, Terry L. Anderson, Alice C. Hill, Matthew E. Kahn, Howard Kunreuther, Gary D. Libecap, Hari Mantripragada, Pierre Mérel, et al. National Bureau of Economic Research. Working Paper 24645. May 2018. The Critical Role of Markets in Climate Change Adaptation | NBER

Surprise: Capitalism makes people happier and more giving. John Stossel. New York Post. December 3, 2023. Surprise: Capitalism makes people happier and more giving (msn.com)