Can capitalism be green?

Most of the participants at the Johannesburg UN Earth summit agreed that using some variant of capitalist market methods could solve the environmental crisis. But is that true? PETE DICKINSON writes.

Socialism Today October 2002, No. 69

WHEN THE US government dumped the Kyoto agreement to reduce global warming, millions of environmental activists throughout the world were enraged. The message was loud and clear: that the interests of the multi-national corporations – represented by the White House – come before the looming environmental disaster caused by greenhouse gas emissions. Bush’s blatant policy of defending the profits of US companies has brought into question the credibility of international agreements between rival capitalist powers and prompted a debate among left-wing environmentalists about the way forward.

Virtually all the participants in the recent Earth summit, however, agreed that using capitalist market methods was the only possible way to avert the environmental crisis facing the world. This consensus encompasses radical greens as well as George Bush, who differ only on the type of market tool to use, or on the extent that the state should be involved in implementing and policing their operation. To see whether any sort of market approach can tackle the scale of the problem, it is necessary to look in some detail at the different solutions on offer.

Property rights, tradable permits, & eco-taxes

THE CLASSIC METHOD put forward by the neo-liberal school to take account of environmental damage is the ‘property rights’ approach, which relies on direct negotiations between the parties affected to resolve the issue. This requires that the property rights to the use of environmental resources are defined and owned by someone. It is easy to see the practical difficulties in this. For instance, it is hard to see what system of private ownership could be imposed on the stratosphere and, even if it was, the number of people affected by its malfunctioning runs into billions, all of whom could seek redress from the owner, making the method unworkable.

This practical difficulty in using the property rights approach has even struck some die hard free-marketeers and an alternative system based on controlling pollution through the price mechanism has been worked out, the so-called ‘make the polluter pay’ principle. The preferred route this is envisaged as taking is by the trading of pollution permits, issued by a government at a price reflecting the environmental costs and covering a specific geographical area. Leaving aside for the moment the fiasco of the Kyoto permit trading experience, it is not difficult to see that this scheme would also be ineffective. For instance, the cost of building flood defences in Bangladesh in 20 years time, needed because of global warming due to emissions by US corporations today, would not be included in the permit price, meaning that the polluter is not really ‘paying’ at all.

An alternative to the permit system is the introduction of an eco-tax, although this is regarded as a dangerously ‘socialist’ idea by the neo-liberals, compared to the free trading of permits. The principle, however, is the same, that by increasing the price of polluting resources, there will be an incentive created to use them less and seek substitutes. Evidence to show this works is put forward by comparing the experience of the USA and some other advanced capitalist countries. Energy prices in the US are a third of those in countries like Norway, whereas their emissions of carbon are about three times greater per unit of GDP (quoted in The North, the South and the Environment, Edited by V Bhaskar and A Glynn, Earthscan, 1995 p139). The tax mechanism seems to work.

The issue is not so simple, however, when examined in more detail. France, for instance, has a relatively good greenhouse gas performance because she introduced nuclear power on a massive scale, which purely coincidentally does not produce greenhouse gases. This was done for political reasons, not because the price of fossil fuel was high, therefore questioning the link between high fossil fuel cost and low pollution emission. Also, the evidence shows that key economic factors that help create sustainability, for example, the development of new non-polluting technology, would not be promoted to any significant extent by adjusting prices through eco-taxes.

Even if taxes could play some role in reducing pollution, there is the question of scale to be considered. The cost to the US for significant cuts in greenhouse gases, of $400bn per year (around 3.5% of GDP and similar to the US defence budget), shows that for such a programme to be effective tax increases would have to be huge, significantly hitting the profits of big business. It is significant that in Scandinavian countries where some form of eco-tax has been implemented, companies are specifically excluded from paying, and the whole burden is put on individuals. Another consequence of eco-taxes is that the poor are hit hardest by their introduction because the cost of warmth and cooking, usually provided by fossil fuels, takes up a large proportion of their income. On a different level, this regressive effect also applies to congestion charges, such as those proposed by the London Mayor, Ken Livingstone, to promote the use of public transport.

Cost-Benefit Analysis.

COST BENEFIT ANALYSIS is a tool that has been used to assess environmental risks and to reach a rational decision about future investment, by giving values to different environmental effects using a common measure, ie money. Costs and benefits that will fall on future generations are discounted at an agreed percentage rate, to arrive at a ‘net present value’. In this way, values can be easily compared and an objective balance of costs and benefits created. Its success depends, however, on defining clearly what the costs and benefits are, and for all the parties involved to agree on these definitions. Where profit is as stake this is easier said than done.

In capitalist terms, risks must be expressed in money terms and probabilities of future adverse events clearly determined. For instance, in one cost benefit analysis of global warming, the number of deaths that could result due to climate change in the future was estimated. This calculated that 22,923 would die in the advanced capitalist countries and 114,804 (both very conservative figures) in the rest of the world. The next stage in the analysis was to put a money value on these lives, which resulted in a figure of $1,480,000 per ‘advanced capitalist’ citizen, and $ 131,000 for everyone else. It is hard to see the result of this type of analysis becoming the basis of a mutual agreement based on justice and fairness. When this cannot be done, which is the usual case, environmental risks are effectively ignored by using a system of ordinary discounting.

Using this method, it has been calculated that the cost of a nuclear accident, 500 years in the future, costing £10 billion at current prices to future generations, would be 25 pence, discounted at 5%. In other words, if a cost benefit analysis was made now about building such a power station, 25p would go in the costs column to allow for a future accident. Looking at the question another way round, if a compensation fund were created now to meet the costs of this future accident, it would be necessary to invest only 25p to raise the required sum, due to the workings of compound interest over such a long period. The net present cost is clearly dependent on the interest rate used, but there is no agreement on what it should be. This is not surprising since it is difficult to predict interest rates five weeks in advance, never mind 500 years. As one expert has said, "through the choice of appropriate parameter values almost any (environmental) abatement policy can be justified".

Constraints on capitalism

ALL THESE CAPITALIST theories to achieve sustainability – property rights, tradable permits or eco-taxes – remain just that, theories. The reasons why none of them have ever been implemented on any significant scale are much more important than the individual criticisms that can be made of each. The thinking elements of the capitalist class internationally realise that an abyss is looming, so why can’t they take really decisive action?

The central contradiction of capitalism from the beginning of the 20th century to the present day has been its inability to resolve the conflicting needs of profit-driven production and the continuing existence of nation states. In their quest for profit, the capitalists are forced to look for new markets beyond their borders as their own market becomes saturated, bringing them into conflict with rivals from other countries who are under similar pressures. In abstract terms, the rivals could co-operate to more efficiently exploit the rest of the world if the market was continually expanding, but this is never the case for long with capitalism, as bust always follows boom. When the market turns down, the tensions grow between the international rivals and the big corporations look once more to their own governments to protect their profits. This cycle will occur again in the developing downturn.

Any genuine solution to the environmental crisis, however, must be international since all the main threats, such as global warming, ozone depletion, or nuclear toxic waste contamination, affect the entire earth or large parts of it. The main capitalist countries that account for the majority of pollution though will never meaningfully co-operate if the profits of ‘their’ multinationals are significantly affected, particularly in a recession. This is the fundamental problem that lies at the heart of the environmental crisis.

The fiasco over the Kyoto agreement demonstrates the inability of the capitalist system to tackle the crisis. Kyoto is intended to tackle global warming by cutting greenhouse gas emissions by a small amount in order to go back to the 1990 level, in itself a modest target. The justification was that this was the maximum that was politically feasible, but even this tiny step forward, done at a time of economic boom, proved to be totally unacceptable to the USA. The agreement was fixed so that no actual reductions in greenhouse gases in the advanced capitalist countries (ACCs) were called for. Instead, a system of tradable permits was introduced, the preferred ‘free market’ mechanism, where the ACCs could buy the rights to pollute from other countries that were below their quota. This was possible because, very conveniently, the base year from which calculations were made was 1990, just before the economic slump in the former Soviet Union and Eastern Europe caused their greenhouse gas output to fall by 50%. This meant that East European states would have a large ‘surplus’ of tradable permits to sell to the ACCs, probably at very reasonable prices considering their desperate plight.

Why did the US Congress vote virtually unanimously to reject this almost completely cosmetic deal? It was probably not because the immediate price was unacceptable, since they had reached an agreement, although belated, on the ozone issue that incurred costs to US companies. It was because they regarded this as the thin end of the wedge, where, eventually, meaningful cuts would have to be made. Since the US produces 25% of all greenhouse gases, almost twice as much as their principal rivals in the EU, their profits would be disproportionately hit by meaningful cuts. The lesson here is that if small sacrifices only are needed, and they can be evenly distributed between rival capitalists, as in the ozone case of CFC reductions, then limited agreements can be made (although it is doubtful that even this would apply in conditions of recession or slump). However, if profits are seriously under threat, then even limited agreement is impossible, and this particularly applies if the dominant world power, the USA, is the biggest potential loser.

Direct state intervention

DIRECT STATE INTERVENTION to reduce pollution, although still operating within the framework of a market-driven society, has been largely discarded as an option by the dominant neo-liberal alchemists, who dismissively label it ‘command and control’. Some pro-capitalist commentators though are beginning to reconsider this attitude, because they think direct intervention may actually work, in contrast to neo-liberal theorising. A strategy that they propose is to impose a legally enforceable set of standards to control emissions, but other options could also include more radical measures. For instance, to redirect production to non-polluting sectors, to restrict consumer choice to eco-friendly products or to prescribe that energy should be produced by renewable sources.

As the environmental crisis deepens, the attractiveness of this approach will grow, particularly to those on the left or active in the green movement who can see the impotence of purely market-based ideas. Although state intervention could have an effect if it was applied in the all the major polluting countries in a large-scale manner over the long-term, the question is – will it be? It is possible that an individual country will begin to implement small-scale environment-friendly measures, such as in Germany now, or in Scandinavia. However, as soon as the level of investment by the state threatens profits through higher taxes, as it must if the measures are to be sufficiently large scale to be effective, the big companies will scream that their international competitiveness is being undermined. Since in the context of capitalism, the priority of the government of each country is to protect the interests of the multi-national companies based inside their borders, any meaningful environmental programme will then be dropped.

Imperialist rivalry will prevent the international co-operation that is essential to make progress, since the environment will be treated as a ‘free good’ by the multi-nationals that dominate production and will continue to be exploited at little cost to themselves.

Socialism and the environment

THE EARTH IS clearly on the path to ecological catastrophe. This road will be marked by, amongst many other examples, the destruction of large areas of the habitable globe due to global warming, the chemical degradation of the atmosphere leading to an epidemic of cancer, and bequeathing the problem of toxic waste disposal to future generations, for up to 100,000 years.

The responsibility for this situation lies at the door of capitalism, a system controlled by the infamous ‘hidden hand’ of market forces, and driven by profit. The market economy has an in-built need for permanent growth, propelled by competition and the quest for profit, but at the same time, apparently paradoxically, suffering from regular slumps in production. Both tendencies lead to waste and environmental degradation, as does the anarchic, unpredictable nature of the market economy. The alternative is a social system based on need not profit, that would have enormous inherent advantages from the viewpoint of saving energy. For instance, it would avoid the duplication of resources, planned obsolescence and wide-scale destruction of factories, plant and machinery in slumps, characteristic of the capitalist profit system. Eliminating these features of the system will have a significant impact in increasing the efficiency of energy usage and therefore reducing pollution. A socialist system, as well as avoiding the waste inherent in capitalism, will offer the overwhelming environmental advantage of providing conscious democratic control through planning.

According to most environmental activists reducing global warming and other environmental threats to sustainable levels is not just a technical issue, but is closely tied to the question of reducing or reversing economic growth. Since this has great implications for the possibility of abolishing poverty throughout the world, which is a pre-requisite for building socialism, a different strategy needs to be explored. An important aspect of this debate, which is only just beginning to be considered, is proposing an alternative to the market system, whose single-minded quest for profit is the prime cause of unsustainable environmental destruction. Although the collapse of the Soviet Union and the degradation of the environment in Eastern Europe during the Stalinist period appeared to discredit the ideas of planning as an alternative to capitalism, the planned use of resources, as compared to the anarchy of ‘free enterprise’, will be the essential tool to tackle the problem of global warming and other threats. Such a planned economy, if it is democratically controlled, is an alternative both to capitalism and to the perversion of socialism practised in the former USSR.

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