Sustainability and Economics

G20 protesters.jpg

With the G20 meeting in London to deal with the global reach of the current financial meltdown, I thought it would be relevant to devote a post or two to the subject of capitalism. I am by no means knowledgeable in the subject so I have chosen a few posts giving some diverse points of view. Tom Friedman, always a booster (remember The World is Flat), thinks some repairs are all that is needed;

This system was a powerful engine of wealth creation and lifted millions out of poverty, but it relied upon the risks to the Market and to Mother Nature being underpriced and to profits being privatized in good times and losses socialized in bad times. This capitalist engine doesn’t need to be discarded; it needs some fixes. For starters, we need to get back to basics — accountable lending, prudent saving, reasonable leverage and, most important, more engineering of goods than just financial products.

He does admit that the present system has done much harm to Mother Nature.

That’s what “Market to Mother Nature” accounting is all about. It begins with the premise that the distinction between the G-20 and the Copenhagen climate change negotiations is totally artificial. They are just flip sides of the same global problem — how we as a world keep raising standards of living for more and more people in ways that will not, as a byproduct, have both the Market and Mother Nature producing huge amounts of toxic assets.

I think his arguments are a bit simplistic. So would the next writer, also a non-economist. Writing in the McKinsey & Co blog, What Matters, Kim Stanley Robinson takes a much more critical view even while pointing out the same flaw, failure to price goods and services properly.

Am I saying that capitalism is going to have to change or else we will have an environmental catastrophe? Yes, I am. It should not be shocking to suggest that capitalism has to change. Capitalism evolved out of feudalism. Although the basis of power has changed from land to money and the system has become more mobile, the distribution of power and wealth has not changed that much. It’s still a hierarchical power structure, it was not designed with ecological sustainability in mind, and it won’t achieve that as it is currently constituted.

The main reason I believe capitalism is not up to the challenge is that it improperly and systemically undervalues the future. I’ll give two illustrations of this. First, our commodities and our carbon burning are almost universally underpriced, so we charge less for them than they cost. When this is done deliberately to kill off an economic competitor, it’s called predatory dumping; you could say that the victims of our predation are the generations to come, which are at a decided disadvantage in any competition with the present.

The way the global economic system distributes wealth over the present world and over generations to come will be a key determinant of sustainability. With all the talk about sustainability, I have yet to hear that this will be a subject at this G20 meeting. There are cetainly many bleeding wounds that need immediate treatment, but unless world leaders take a deeper and longer-term perspective alongside their political necessities, we are probably still on an unsustainable trajectory. The use of “probably” here is consistent with my view of a complex world where the future cannot be foretold. But deep in my heart away from any such intellectualizing, I do believe we are on such a trajectory, moving further from our noble and virtuous aspirations.

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