An oil-soaked bird, courtesy of ExxonMobil. ìTo resolve the ecological crisis as a whole, as against tidying up one corner or another, is radically incompatible with the existence of gigantic pools of capital, the force field these induce, the criminal underworld with which they connect, and, by extension, the elites who comprise the transnational bourgeoisie.î Joel Kovel, The Enemy Of Nature
There is little serious debate today on whether we are experiencing ecological decline. Reams of empirical evidence exist to convince even the most stubborn skeptic that something must be done to alter our path of environmental destruction. Our current economic system is plagued, and arguably characterized, by its tendency to externalize costs whenever possible, dispersing social and environmental costs while privately reaping the benefits of such irresponsible production. Environmentalists rightly place much of the blame for eeological destruction on this externalizing tendency of capital.
From this reference point, however, the environmental movement falls into discord. Opinions on how we are to achieve a sustainable society are divergent, and have led to ruptures among otherwise likeminded academics and activists. The position that currently enjoys the greatest acceptance is that of left-leaning market advocates, who favour implementing measures to reform the economy so that these externalities become internalized and properly accounted for. The massive success of books like Paul Hawkenís bestselling Natural Capital can attest to the popularity of this point of view.
As influential as this perspective has been, however, more radical environmentalists argue that although such reforms may help slow environmental deterioration, green capitalist theory is fundamentally flawed from both an economic and a political point of view. First, the capitalist market economy is inherently unsustainable, as the individually rational practice of externalizing costs cannot be totally circumvented, resulting in collectively irrational behaviour that will perpetuate environmental decline. Secondly, even if it was technically possible for industry to become sustainable, the political system in which our economy functions would ensure that those who attempt to undermine the ëidealí functioning of the market would be marginalized and ultimately prevented from effecting any changes in policy that would promote a sustainable economy.
This essay shares the latter position and will argue that market reforms are not a sufficient means of attaining a sustainable economy, which can only arise as a product of structural change. In order to substantiate this position, we will first examine why a market economy is driven to externalize costs, exploring the relationship between producers, consumers, and the environment. The rationale behind different economic decisions in a market economy will be analyzed, culminating in an explanation of why externalizing costs is an individually rational, yet socially irrational behaviour. The discussion will then shift to an examination of why the measures put forth by advocates of natural capitalism to account for externalities fail to prevent environmental destruction from occurring. We will see that proper accounting is prevented in part due to the total pervasiveness of externalities in a market economy, and the lack of any reliable procedure to estimate them accurately. We will then briefly look at the role political influence plays in marginalizing environmental policy. We will then briefly look at the role of economic power in influencing environmental policy, and why this political reality prevents reforms designed to promote sustainability from taking place. Though this examination we will seek to understand the limits of market reforms and in doing so determine what role they can play in progressing towards a sustainable economy.
The Contradiction of Natural Capitalism
In Natural Capitalism, Paul Hawken presents a prescription that will allegedly cure the economy of its unsustainable nature. Hawken understands that the economy as it currently functions is doomed to extinction, and it will bring down the human species in its demise. ìCapitalism, as practiced, is a financially profitable, nonsustainable aberration in human development,î argues Hawken, and as such it must be transformed. The natural capitalism Hawken advocates is a multifaceted reform package that will result in a market economy that recognizes its fundamental dependence upon nature and therefore ëmanagesí her more wisely. ìNatural capitalism recognizes the critical interdependency between the production and use of human-made capital and the maintenance and supply of natural capital.î
Although it is still a capitalist market economy at its core, this new economy would be able to perpetually sustain itself, sustainably producing goods for human consumption. It would do this in such an efficient manner that the quality of life would actually rise, not only in the West, but across the globe. ìThrough this transformation, society will be able to create a vital economy that uses radically less material and energy. This economy can free up resources, reduce taxes on personal income, increase per capita spendingÖ and begin to restore the damaged environment of the earth. These necessary changes done properly can promote economic efficiency, ecological conservation, and social equity.î
It is at this point that the age old mantra ëit must be too good to be trueí seems appropriate. Hawkenís solution is simply not the panacea that he claims, despite his feverous optimism. While the reforms he proposes could eventually lead to a more sustainable economy, it will not create an economy that is sustainable enough to stave off our own extinction. Although natural capitalism may recognize the problematic functioning of our current economy, they do not delve deeper than the surface in their tautological pursuit for answers, and therefore come up remarkably short.
The fundamental issue at hand is that the capitalist market economy is simply unsustainable by nature, and no amount of reform can change this inherent reality. The capitalist obsession with growth and accumulation, arguably the fundamental truism of this secular religion, is simply incompatible with our earthís finely balanced ecosystem. According to corporate lawyer Harry Glasbeek, ìwhat lies at the heart of capitalism is its maxim that, all other things being equal, human beings naturally believe that more is better than less. In economic terms, this belief about the instincts of human beings means that the drive to accumulate wealth is both insatiable and a good thing.î It is this perverse view of human nature that, having been propagated throughout society, has led to the insatiable desire to consume, grow, and accumulate, culminating in the delegation of environmental concerns to the back of the priority list.
In order to achieve constant growth, a company must keep costs low and operate as efficiently as possible. Any cost-cutting measure that can be taken without damaging the bottom line is welcomed, and is vitally necessary to stay afloat in the competitive marketplace. This growth mentality is what leads to the externalization of costs wherever possible, as this allows for the appropriation of a greater share of goods.
It is precisely the competitive pressures of the market economy that force both buyers and sellers to behave in this self serving fashion. Market incentives work to ensure that each person attends only to their personal wellbeing, finding interest in the needs and preferences of others in merely a corollary sense. By creating a direct opposition of interests between buyer and seller, the market functions to undermine cooperation and reward self-serving behaviour, without regard to external consequences. In a market exchange, neither participant can afford to worry about the needs of the other party, let alone the desires of the rest of society and greater environmental concerns. Such behaviour is completely rational within a capitalist market economy. And it is this rational behaviour that ultimately leads to the phenomenon of externalities.
Hawken however, believes that the market can save itself though internalizing external effects and including them within the price mechanism. He argues that markets need to be extended to include the resources that are currently not valued in a monetary sense. If we include the rest of nature in the marketplace, the argument goes, the market will ensure that these resources are used efficiently and sustainably. Hawken states:
We should vigorously employ markets for their proper purpose as a tool for solving the problems we face, while better understanding marketsí boundaries and limitationsÖ Most of the earthís capital, which makes life and economic activity possible, has not been accounted for by conventional economics. The goal of natural capitalism is to extend the sound principles of the market to all sources of martial value, not just to those that by accidents of history were first appropriated into the market system.
The problem is that Hawken and his colleagues do not understand the true boundaries and limitations that are inherent to markets. There simply are no ecologically ìsoundî market principles, and attempting to reform the capitalist market in a way that would internalize these concerns is simply not possible to a significant enough degree to achieve economic sustainability.
Why do the measures designed to account for externalities fail to achieve their claimed potential? The first thing to take into account is that in any market transaction externalities are the rule rather than the exception. Although typical examples of external effects include cases of industrial pollution or the exploitation of public resources, nary an action is taken by any individual that does not have some sort of externality. As economist E.K. Hunt explains:
The Achilles heel of welfare economics is its treatment of externalitiesÖ most of the millions of acts of production and consumption in which we daily engage involve externalities. In a market economy any action of one individual or enterprise which induces pleasure or pain to any other individual or enterprise constitutes an externality. Since the vast majority of productive and consumptive acts are social, i.e., to some degree they involve more than one person, it follows that they will involve externalitiesÖ The fact is externalities are totally pervasive.
In light of this revelation, any difficulties that are encountered in evaluating, measuring and accounting for externalities will hence be applicable to nearly every social interaction.
Measurement itself, however, is incredibly difficult to do accurately, for no convenient or reliable methods exist for estimating the scale of external effects in a market economy. Dollar figures must be assigned to externalities in order for them to be accounted for and integrated into new prices that reflect the environmental costs of production and consumption. Those who advocate this as an ultimate solution, however, fail to realize that externalities cannot be entirely accounted for in the realm of market exchange. As George Liodakis explains, ìthe restructuring of capital encompasses ëeco-regulationí, which mainly consists of an attempt to formulate ëecologically adjusted pricesí. These attempts and regulations, however, are usually proved ineffective insofar as they operate within the systemís logic, focus narrowly on the sphere of market exchange, and fail to understand that all relevant phenomena (competition, externalities, etc.) are deeply embedded in capitalist production itself.î
This can be demonstrated through examining the difficulties inherent in the measurement tools themselves, using the popular concept of willingness to pay (WTP) and willingness to accept (WTA) surveys as an example. Designed to measure the value of gains and losses, these instruments attempt to determine market value based upon what people would pay to obtain a gain and what they would demand as financial compensation to accept a loss.
Such surveys, however, are prone to familiar biases and discrepancies that are easily exploited by special interests, as well as methodological inconsistencies and shortcomings. For instance, mainstream economists often claim that there is little difference between the two measures (WTP and WTA) in terms of the results they generate; that the amount one would pay to acquire a gain is not significantly different than what one would demand as compensation for a loss. Although this may seem sensible to classical economists, recent research has indicated that this conjecture is simply untrue. Tests of this assertion have determined that people regularly value losses much more than identical gains, even to the point of influencing their judgement on what they believe to be acceptable or objectionable economic behaviour.
Aside from demonstrating the difficulty with valuation, these findings undermine basic market assumptions about human actions and limit the ability of market reforms to internalize external effects. As Jack Knetsch explains, ìconventional prescriptions draw on the usual economic critique that presumes that people favour compensation over efforts to mitigate the injury because a money award can be used by them to buy whatever they value most whereas mitigation restricts their remedy to the one particular gain of reducing the adverse impacts of the action. However, the findings of losses being valued more than gains suggest that because mitigation measures reduce losses they will therefore be valued more highly, and because compensation will likely be viewed as a gain it will be discounted.î Similar problems in valuation also exist with other techniques, such as contingent valuations methods, which are particularly susceptible to intentional or inadvertent bias.
Before we conclude this discussion, however, it may be important to address a related argument put forth by supporters of natural capitalism, namely that assigning private property rights to natural resources may be the surest way to ensure their sustainable management. The argument has its foundation in Garrett Hardinís infamous ìTragedy of the Commonsî theory, which argues that commonly held resources will inevitably be led to ruin as each individual seeks to maximise their own personal gain, an individually rational yet collectively absurd behaviour. Using this line of reasoning, the green capitalists argue that if all resources are owned by someone, then it is in that personís immediate interest to ensure that their natural capital does not deteriorate. Discrepancies and shortcomings of valuations methods would be offset by overly cautious management of the resource, ensuring that it will last in perpetuity. Essentially, assigning private property rights to natural resources are seen as the most effective means of avoiding the ìtragedy of the commonsî.
There are several substantial weaknesses with this argument. First and foremost, it would be a allocative nightmare attempting to assign property rights to all types of resources, particularly those that do not have easily defined and manageable boundaries, such as oceans and the atmosphere. Furthermore, even if we assume that the basic argument holds true, any resources left out of the privatization scheme would continue to be exploited, and thus sustainability would continued to be skirted.
A much more fundamental critique, however, is that empirical evidence demonstrates that privately owned resources are not managed any more sustainably than their commonly held counterparts. It is often far more economically rational to exploit a resource to depletion than it is to harvest a sustainable yield. A prime example of this economic reality is given by Jeremy Cherfas in his examination of the whaling industry during the mid-1980s. He argues that any firmís decisions are based upon the wish to maximize the current value of the profits it will obtain. A minimum expected rate of return will exist, based upon the ìopportunity costî that could be attained by investing the money instead in some other equally risky venture, and the company should discount any future profits by the expected rate of return. Cherfas explains how this is manifested into the whaling industry:
Imaging that there is some renewable resource, say a school of whales, and that you wish to exploit it for maximum profit. You are faced with a choice between milking and mining, between conserving your asset forever while harvesting only the sustainable yield, and selling off the whole resource for an early profit which you can then invest in some other ventureÖthe crucial point is the relationship between the rate of return on whales versus the rate of return on moneyÖwhale stocks almost certainly reproduce much more slowly than 5 percent; 1 or 2 percent is probably closer to the norm. And monetary investments often provide censurably in excess of 10 percent. So long as that is true, the conservation of whales will never pay.
In a market economy, where the primary goal is to maximize profits, the rational behaviour in such a situation is to exploit the resource to extinction, placing the profits back into another investment. We see, therefore, that assigning private property rights to natural resources does not immediately result in sustainable management. The tragedy of the commons, as well as the failure of property rights to avoid it, can be seen as a result of the competitive ethos and growth mentality that are instilled by the capitalist market economy, an economic model that must be abandoned if solutions for proper environmental management are to be found and implemented.
The various problems we have thus far seen are all intrinsic to the capitalist market economy, and become clear when we look at the earth as an organic whole as opposed to a natural parallel to the industrial world. As Harvey argues, ìthis way of pursuing monetary valuations tends to break downÖ when we view the environment as being constructed organically, ecosystemically, or dialectically rather than as a Cartesian machine with replaceable parts.î Understanding the earth and its processes ñ an understanding that is necessary if one is to realize sustainability ñ requires thinking outside of the sphere of market exchange, a feat that capitalist economists have yet to prove themselves able to accomplish.
The politics of marginalization
The economic argument against markets is quite strong, and it quickly becomes apparent that market reforms aimed at internalizing external effects, and therefore moving towards a sustainable economy, have serious shortcomings and therefore at best can help slow the level of ecological decline. But the problems associated with the natural capitalism approach do not stop with the economic sphere ñ they also extend into the political, where they meet further debilitating constraints. Much of what is advocated within the reformist position requires government legislation to be effective.
Tax shifting, for instance, is designed to deter environmentally harmful activities by ëshiftingí taxes from perennial staples such as income and property onto ecologically sensitive items such as fossil fuels or disposable packaging. Market-friendly environmentalist argue that these tax-shifts have great potential to change behaviour, and would therefore make a huge contribution towards developing a sustainable market economy. As Lester Brown maintains, ìrestructuring the tax system is the key to eliminating crippling economic distortionsÖ the challenge is to use taxes and subsidies to help the market reflect not only the direct costs and benefits of economic activities but the indirect ones as well.î Brown also understands that, within our market economy, some environmental goals can only be effectively pursued through governmental policy, such as placing restrictions or bans on certain activities with punitive measures for those who infringe upon the law.
For the sake of this argument, let us briefly assume that the advocates of green capitalism are correct, despite all the misgivings elucidated earlier. For the moment, let us believe that if we implement the various reforms proposed by green capitalists we will eventually have a sustainable economy sitting before our very eyes. The only challenge to realizing this dream then becomes the implementation of the various reforms, what is essentially a political act.
Once we enter the realities of the political sphere, however, we discover another massive barrier to realizing a sustainable society through market reform ñ a lack of political influence among advocates of green capitalism. In the modern western political economy, political leverage is necessary to effect the policy changes required for green market reforms to become a reality. While we simply cannot give a proper treatment to the corporate domination of politics in this essay, let it suffice to say that, in the words of Murray Dobbin, corporations ìinfluence politicians and political parties with huge amounts of cash; they threaten governments that dare to consider any laws that lessen their power or privilege; they withdraw capital to punish governments that donít take them seriously; they spend millions on lobbyists to persuade legislatorsÖThey use their virtually unlimited resources in a relentless, continuous, and self-interested assault at every level of governmentÖî
The problem is that corporations who honestly attempt to implement more sustainable business practices will find themselves marginalized in the corridors of political power. Without being too simplistic, the amount of capital possessed by any given entity is roughly equal to the amount of power they hold in the political system. Economic power equals political clout. The support within the power structure for natural capitalism, therefore, will be roughly equal to the proportion of capital that is held by green capitalists. This is no more than one percent of the total by generous estimates.
Even if we concede that this proportion may grow in the coming years, it will still remain relatively insignificant and marginalized. The reason why green capital constitutes such a small portion of the whole is due to the inherent nature of capital itself ñ it exists to expand, to replicate itself, and to do this as efficiently as possible. While green capital may be able to achieve this feat to a satisfactory degree, it will never come anywhere close to the gains of indiscriminate capital, which, not unlike a virus, replicates itself by any means possible short of suicide. This differential in growth will result in green capital being perpetually left behind. As Joel Kovel contends, ìsince no oneÖ can claim that an ecologically sensitive particle of capital will expand faster than the ecologically destructive one that discounts nature, the principle will always apply that the preponderance of capital will flow in ecodestructive directions.î In short, firms who continue to externalize costs whenever possible will have a level of growth greatly exceeding that of their ecologically aware counterparts, and will therefore enjoy much greater influence in the political sphere.
We can see these discrepancies of political power in place at a large scale on the international scene. As well as enjoying domestic influence, the largest most profitable corporations also posses significant clout in the global realm, influencing international treaties and organizations in ways that will benefit their bottom line. And while green-friendly companies push for reforms at international conferences such as the UN Conference on the Environment and Development, it is quite clear that those lobbying for neoliberal trade agendas have seen greater levels of success than their environmentalist counterparts.
ìCorporations now exercise the power not only to force governments to back off environmental legislation but to create treaties and agencies and regimes of punishment for countries that dare to enact environmental policies that might restrict their activities,î argues Dobbin, highlighting the corporate influence at play in institutions such as the World Trade Organization and the North American Free Trade Agreement. While corporate greenspeak and the public acceptance of environmental principles has become more common, we are moving away from environmental regulations while simultaneously, and not without coincidence, moving to accept greater liberalization of international trade. Provisions of the WTO and NAFTA, among other agreements, have led to the dismantling of environmental legislation worldwide, much to the chagrin of green market reformers.
For instance, in 1997 the Canadian government passed a law restricting the import of MMT, a gasoline additive believed to be a dangerous neurotoxin. Canada was not alone in their actions, as MMT was also banned in Europe and in the United States. Not long thereafter, however, US based Ethyl Corp., the sole supplier of MMT in Canada, argued that the legislation violated chapter 11 of NAFTA and demanded compensation to the tune of $350 million for damages and lost revenue. The Canadian government eventually came to an out of court settlement that would see them pay $19.5 million in damages to Ethyl Corp., rescind the ban on MMT, and issue a statement alleging that MMT is not an environmental or health risk, which Ethyl used to market their additive internationally.
This example clearly illustrates the difficulties present in creating green legislation, for nearly any political measure that results in diminished opportunities for corporate profit can, and will, be challenged at supranational levels within the provisions of NAFTA, the WTO, or other such agreements. Even if the purveyors of green capital were able to surpass the domestic barriers to political influence, they would still have to accomplish a similar feat in the international sphere, an area dominated by the worldís largest, most powerful and most eco-destructive corporations. It quickly becomes apparent that the small contingent of natural capitalists will remain politically marginalized, unable to secure all but the most insignificant of environmental gains.
Conclusion: rejecting the false dichotomy
The purpose of this essay was to demonstrate that reforms proposed by the supporters of natural capitalism are simply not sufficient to bring about a society that boasts a sustainable economy . We must be clear, however, that this has not been an exercise designed to reject these reforms outright, but rather to understand and appreciate their limits. Although they will not produce a sustainable economy in and of themselves, they may have an important role in mitigating some of the immediately harmful effects of our economy and in encouraging public awareness and interest in these issues. Jumping into the ëreform versus revolutioní debate here would not only be counterproductive, but would addresses a false dichotomy, one that assumes the two approaches are diametrically opposed. This is simply untrue, as environmental market reforms can indeed play a significant role in shaping a new economy.
The problem is not with reforms per se, but with reformism as a prescription and ideology for pursuing social, political and economic change. As Michael Albert argues, ìthe alternative to reformism is not to dump all reformsÖ but to fight for reforms in ways that not only seek worthy immediate gains, but increase movement membership, deepen movement commitment, enrich movement understanding, develop movement infrastructure, and in short, create preconditions for winning still more gains and ultimately fundamental change.î While it may be difficult to properly evaluate individual reforms ñ the benefit of some reforms may be outweighed by the extent to which it placates public desire for fundamental change ñ the bottom line may be that revolution will not occur overnight, and in the meantime humans will continue to inhabit the earth. Pursuing progressive reforms can help slow ecological decline, reduce inequalities, and empower people, following a path that leads to the revolutionary change that is necessary for a truly sustainable society to exist.
ìRevolution is not something fixed in ideology, nor is it something fashioned to a particular decade. It is a perpetual process embedded in the human spirit.î
Abbie Hoffman, Freedom
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