It seems the more that is said about capitalism, the less people understand it. This might be intentional: capitalism has become a politically useful catch-phrase, conveniently morphing into whatever politicians wish it to be. Progressives blame capitalism for the impending ravages of climate change, the profit motive supposedly overwhelming any sense of social responsibility. Conservatives champion capitalism as a bulwark against what they conceive of as “socialism,” harboring fundamental misunderstandings about both. Both political extremes mistakenly conflate the goals and means of an economy.
Capitalism is a system of economic governance, a way of allocating and coordinating resources. But capitalism is directed by political choices. Capitalism is the engine of development, while political choices are the steering wheel. Capitalism is meant to determine who manufactures widgets, and how. Political choices determine whether we want to manufacture widgets, or something else.
It is true that the lines separating political choices and economic decisions are blurry. But it is still worth making a conceptual distinction between the two types of decisions If politicians wish to help their favored industry, they should be held accountable for doing so. Government subsidies or competitive preferences are political decisions and should be recognized as such. Claims to be greasing the axles of capitalism can be scrutinized more carefully if we accept the difference between political choices and economic decisions. For example, are subsidies for fossil fuel industries an economic decision – on the grounds that low energy prices encourage commerce and industry – or are they political choices? When one sees the low-cost, lower-polluting alternatives to fossil fuels, the political nature becomes apparent. Both parties in the United States, but especially the Republican Party, have conflated industrial and political self-interest with capitalism, arguing that their industrial patrons actually represent capitalism. In this simplistic, mistaken notion of capitalism, all capitalism ever stands for is making money.
It is long past due for a reconception of capitalism. The goals of economic actors reflect the priorities of a polity. The problem with capitalism is that the choice we made at the outset of the industrial revolution was just to maximize industrial development. Having pointed our economies in that direction, capitalism bounded off, a little too exuberantly, in that direction.
The capitalist engine can be re-oriented to achieve environmental goals, such as mitigating climate change and reducing air and water pollution. This re-orientation will be a political choice, and will be extremely contentious. Fossil fuel industries have bitterly fought first the science, then the economics, and now the values implicit in climate policy. Fortunately, signs of change, capitalist ones no less, have emerged. The stubborn resistance of ExxonMobil to consider anything other than oil and gas extraction has now been met with investor intervention. Institutional investors have ousted ExxonMobil’s chosen directors, in favor of individuals with a broader view of energy and social responsibility. It has become clear that even oil giants must now consider their business more broadly.
But private intervention is insufficient. Consciously re-orienting capitalism will require strong governmental policies – the product of political choices — that create incentives for people and firms to devote energy and capital to the supply of carbon-free energy and to the conservation of energy and natural resources. A carbon tax, for example, would incentivize changes both large and small, obvious and ingenious. Prices are the grease for the capitalist engine, and a carbon tax creates a price for emitting carbon dioxide, sending entrepreneurs off in search of ways to reduce emissions. With a price on carbon, the enormous resources, energy and human capital that have been poured into fossil fuel industries would be redirected towards the delivery of clean energy. The transformation could be dramatic. As it happens, dramatic change is exactly what is needed now to avert environmental catastrophe.
Some progressives are infatuated with socialism as an alternative. It is fantasy to think that a socialist economy would scrub out greed and excess, and there is ample reason to believe that the environment would suffer greater neglect under socialist economies. If anything, the impulse to grow and externalize costs is stronger in socialist systems. The old Soviet Union exploded a nuclear reactor, shrunk the Aral Sea, and polluted the largest freshwater lake in the world in the name of economic growth. China built its vast stock of coal-fired power plants, now the greatest source greenhouse gas emissions in the world (by far), and have made China the source of more than a quarter of the world’s greenhouse gas emissions, double that of the United States. Mao Tse-Tung was actually obsessed with economic growth, and among other moves, put in place the construction of the Three Gorges Dam, which backed up the Yangtze River for 375 miles and forcibly displaced over two million people. All for growth. Progressives also avoid thinking about how a centrally-planned economy would work: it would necessarily be authoritarian. Prices in a socialist economy are established centrally, which necessitates an authoritarian price-setter. Karl Marx himself embraced the notion of a “dictatorship of the proletariat.” How has that turned out?
Like it or not, capitalism is the only choice for governing an economy. Pollution must be priced like other costly things, but once they are, the direction of a capitalist economy changes. Pollution prices are needed to provide incentives for innovation, so that profits can be made finding ways to reduce pollution, instead of externalizing them. Pricing pollution is the political choice; it would reflect a global consensus that environmental harms, most prominently climate change, must be severely curtailed. That dire state of Earth’s environment requires that a transformation take place at a speed that is only attainable in a capitalist economy.