söndag 19 december 2010

Capitalism and the environment

Nedanstående inlägg skrev jag nyligen till min blogg på Rightosphere. Det handlar om kapitalismen och dess påverkan på miljön, och inspirerades av en diskussion jag hade med en vän från den lokala kyrkan på Irland där jag studerar (det är alltså ingen av mina bekanta i Sverige med vänstersympatier som åsyftas):

Recently I had a discussion with a kindhearted yet uneducated friend with economic ideas that are simply not the kind of ideas any thinking man would agree on: He claimed that economists have it all wrong since we assume that an economy can grow forever, and that natural resources cannot end.

He's wrong on two counts: We're not saying an economy can grow forever, as a matter of fact the whole marginal utility theory says that growth gets slower as an economy gets richer - something we can see when we compare growth in the US and China. Poor countries converge and grow fast at a start, but later on growth gets slower, until it reaches it's steady state (which is a theoretical concept, a level which is really hard to calculate). That doesn't mean no growth, only a steady growth.

Also, he fails to see the difference between natural resources and materia. Materia is finite, but natural resources are infinite. A natural resource is materia that we can use for something. If we found a way to use clouds, clouds would become a natural resource. But we don't, so right now they are just materia. Oil used to be materia for thousands of years, because we didn't know what to do about it. It's when we found out oil can be used for fuel, heating, plastics etc that oil became an actual natural resource.

Capitalism doesn't consume natural resources. Consumers consume them. Capitalism creates them.

Materia is not a natural resource until an entrepreneur comes up with a way to use it to create a product which consumers want, and capitalism is the only system which gives entrepreneurs any incentive to do so. What incentive? They get to keep the profit! Socialists like to talk about how entrepreneurs must share with the rest of us, that they must contribute to society. My answer to that is: They are already doing that! By providing us with new technology and goods that we want, better and more goods than we had before! Why should they be punished for that?

Oil became a natural resource in the 19th century. Before that (though there were some limited use of it earlier as well) it was materia. And it would have stayed materia if we hadn't allowed people to profit from turning it into a natural resource.

But capitalists don't care about conservation, do they? They'll just flood the market with all the oil there is, with no thought about tomorrow? No. Capitalists maximize profit by minimizing the use of natural resources. The reason why the ham you buy in the supermarket is something like 50 % water is because capitalists don't want to use more natural resources than they absolutely have to - in this case pigs. Yes, I hate that too when the ham is watery, but you certainly can't accuse capitalists for wasting natural resources. That wouldn't give them any profit, using more oil than they absolutely have to. How do you think a CEO would explain that to the shareholders? "Yeah, we could have given you twice the dividend you'll receive this year, but we bought a bunch of oil we really didn't need... why? Well, we felt for wasting some natural resources. Sorry guys!"

That CEO would be fired immediately.

But aren't capitalists only thinking about the short term? No, absolutely not. Well, they are, but only if politicians screw things up. Imagine you own a forest with a certain number of deers and mooses. You could shoot them all this year, but then you wouldn't have any deers/mooses next year. In the long run, you're better off shooting maybe 10 % of all your animals each year, so that the population may recover and you'll be able to hunt and have meat year after year for eternity.

Now, imagine that you fear that your forest will be nationalised by the government next year. What do you do? You shoot all your deers and mooses of course. Next year they'll be gone from your ownership either way, so you'll shoot all of them, sell the meat that you can't/don't want to consume yourself and then use the money to buy something the government won't nationalize - or just move abroad. The fear of communism and nationalisation causes short-sightedness. Unstable and unpredictable governments (like the ones we see in Africa and... well, lately also the US) is causing capitalists to think about short-run returns instead of long-run returns. Shares are usually treated as perpetuities - meaning they are assumed to exist and deliver a return forever. If shares are instead treated as annuities - bonds which have only a limited life - their price falls remarkably.

Capitalism also gives us an effective signal, like a red flag which tells us that we need to find new natural resources or use less of the ones we are currently using - the price goes up! That's what happened to the price of copper a few decades ago when China were building phone lines (which were made of copper back then). They wanted phones, which according to the environmentalists was an outrageous idea: "Why do they need phones? Can't those chinks just use smoke signals instead? Hey, we NEED phones here. Otherwise we can't call each other and plan our anti-racist manifestations..."

However, capitalism provided the solution to this. When the price of copper started to rise, entrepreneurs realized that whoever invented an alternative to copper would make a lot of money. The alternative came fast (and, trust me, it was not invented by a politician): Fibre optics! A new, cheap material that you can make phone lines from. The environmentalists stod there dumbfounded; they had already written their five-year rationing plans and this bloody entrepreneur ruined all the fun for them!

I am confident capitalism can also provide cheaper materials for water pipes - I know my confused friend is feels strongly for those seven millions who die each year because of lack of clean water (he's a good guy really, just a tad confused when it comes to economics). This will make clean water available for more people; all you have to do is to reassure the entrepreneurs that you won't steal their profits through taxation and they'll solve the problem in a minute.

Capitalism has a proven track record of creating growth an abolishing poverty anywhere its been applied. Why wouldn't we trust it with the environment?

John Gustavsson

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