Confluence: Where the environment, economy and capitalism meet

“Confluence” can be defined as the flowing together of two or more streams...to make a greater whole.

At first sight, the title of my blog may give rise to some confusion given the clear evidence that the needs of our environment on the one hand and the practices of the economy and capitalism on the other seem diametrically opposed.  Rather than being streams flowing into a greater whole, they appear to be running in opposite directions, with the former being subsumed underneath the latter two.  The evidence is all around us...global warming, the Pacific Ocean garbage patch, deforestation, factory farms, etc.

But does it have to be this way?  I would answer ... no!!!  That is why I started this blog: to educate, inform and present new ideas, new thinking.

Put  simply, our economic system has a “design“ problem... and designs can be changed.  That’s the good news.  The bad news is that we do not have much time to make this change if we are to stop the destruction of our planet as we know it.  Also, there are powerful vested interests and inertia that stand against us.  The current pandemic and the clear weaknesses it has displayed in our societies could be a crucible;  a rare opportunity for systemic change.  Will it be embraced?  Will we have the courage and determination to take the steps necessary?  We shall see.

The design problem:

Our economies are based on a linear first industrial revolution system. In simple terms, think:

EXTRACTION——> PRODUCTION——> CONSUMPTION——> WASTE

We employ financial, human and technological capital to transform the gifts of nature into things our economy runs on: roads, hospitals, schools, houses, consumer goods, medicines, the food we eat. But the calculus that makes this system work and profit has a fatal flaw; it fails to put any value or price on the natural systems which are the foundation stone of all economic activity and  of life itself.  The result:  the race for growth using this outdated economic model has led to a massive erosion of the “natural capital” of the planet, so that it is now stressed to the point of breaking.

What is natural capital?

Let’s be clear: the  natural capital referred to above is not just the resources that feed our industrial system - wood, oil, fish, minerals, etc - but also the natural systems that create the base ingredients of life itself - water, air, soil.   It encompasses all living systems: forests, grasslands, rivers, lakes, oceans, coral reefs and so on.  All of these are interrelated and multi-dimensional in their benefits.  A forest is not just a source of wood.  It produces oxygen which we need to breathe, while sequestering carbon to keep the atmosphere in balance.  It enhances soil and stores water.  It contains intricate biological systems with flora and fauna that are wondrous to behold, as well as containing a vast store of potential foods, medicines and other valuable benefits for our and other species’ use.  One of nature’s most critical cycles, exemplified by the forest, is the continual exchange of carbon dioxide (CO2) and oxygen among plants and animals.  This recycling service is provided by nature free of charge.  But now, due to human activity and the use of fossil fuels, CO2 build up in the atmosphere has exceeded the ability of the denuded natural system to recycle it all.  Hence global warming.  

How do we put a price on natural capital?  

That is not really asking the right question.  To begin with, it is virtually impossible to do.  The natural systems we need to survive are non-replaceable at any price.  As such, they could be said to have infinite value. But with the adage in mind that “only a fool consumes his own house”, surely our economic processes should be incentivized to enhance the natural world which is the basis of all life on earth, not willy-nilly destroy it.

How do we stop the destructive consequences of our current economic system? 

In the early days of the environmental movement, eco-efficiency was seen as the solution.  The idea was that if we could make the current industrial structure cleaner and less wasteful it would be enough to turn the environmental tide.  The catch phrase “reduce, re-use, recycle” of course represents a strategy heading in the right general direction.  But if we do not change the industrial structure, it will come to nought.  Eco-efficiency in the end only works to make the old, destructive system a bit less so.  As Einstein would have it, it continues to work within the same economic structure that caused the problem in the first place. Reduction does not halt depletion, it only delays it. Reducing the amount of hazardous, cancer-causing chemicals in consumer products and building materials is certainly a good thing.   But why should they be allowed to be there at all?   

Shout it from the rooftops...WE NEED A NEW INDUSTRIAL REVOLUTION!!

To arrest the obliteration of the biosystems on this planet, we need a new industrial revolution, one predicated on redesigning economic activity and structures to bring about positive environmental, social and economic results.  This is not just about using less resources in production, but rather changing the entire productive system so that it is not environmentally destructive in the first place.    

In brief, we need to move from a linear, cradle to grave economy to a circular, cradle to cradle one.  

And we have a model for this... in nature.  Consider an apple tree:  it puts forth a bounty of blossoms, leaves and eventually apples, all so it can propagate itself.  Nothing is wasted along the way.  The blossoms, apart from being beautiful, attract birds and insects to feed on their pollen.  When the blossoms fall, they go into the earth, becoming food for worms and other creatures, which in turn excrete wastes that replenish the soil. The apples produced feed countless animals, including humankind, with excess again feeding back into the natural bio-system, replenishing the earth.  And all so that some seeds may be eaten by birds or other animals and deposited elsewhere, renewing the apple tree.  Throughout this process, there is great abundance, but nothing is wasted.  

What if our industries were modeled on this example?

The example of the apple tree is, of course, simplistic, but the point is that economic and environmental objectives need not be mutually exclusive or competing...they can be complementary and interdependent.  We can transform industry, agriculture, energy production and all economic activities in-between from our current wasteful and destructive model to something more durable and sustainable, in sync with nature and more equitable in the sharing of its benefits. And we can create countless jobs and huge scope for free enterprise in the process.

Taxation, regulation and subsidization are the initial levers

You may well ask, how can we possibly redesign an economic system that has been in operation for centuries. It will not be easy, but it can be done.   Clearly it must start with government, responding to public pressure and scientific evidence. The levers of taxation, subsidization and regulation must be used to shift, not just the playing field of the economy, but the entire game.  A carbon tax is a good place to start, with revenues utilized to fund green energy alternatives.  We also need much more strict regulations controlling pollution and penalizing those that don’t abide by the rules—polluter pays.  Removing the vast subsidies that support the fossil fuel industry and factory farms (taxpayer dollars) and directing them instead to innovators driving green industrial and agricultural change would be another huge step in the right direction.  The government can also actively stimulate a change in the economy through their purchasing power.  It is worth remembering that people today have pcs, laptops and mobile phones in part because of the steady stream of purchases by the Pentagon and NASA during the 1960s and 70s.  Those purchases helped companies climb the learning curve, create economies of scale and so bring down costs  to the level where average consumers could buy these products.

Future articles on this blog will address policy initiatives in detail.  For now, it is enough to state that the first steps toward a new industrial revolution have to be taken at the governmental level. But the effort will not succeed if it does not work hand in hand with free enterprise.

Why capitalism?

Many environmentalists and other commentators take the view that capitalism is the heart of the problem; the reason the planet is being destroyed.  I disagree.  The problem is not capitalism itself, but the almost total lack of regulation and constraints placed upon it.  So, let’s change this.

The historical fact is that the capitalist system, while far from perfect, is the best system so far devised to maximize innovation and drive growth in the economy to the benefit (unequally of course...a different matter to discuss) of the populace.  No other economic model has proven nearly as successful.  It cannot be denied that it has brought about a massive increase in productivity, technological innovation and standards of living throughout much of the world. 

Capitalism’s central premise is that free markets are best at allocating financial and human capital to maximize innovation and wealth creation; with winners decided, not by bureaucrats, but in a Darwinian competition.   Industry in a capitalist system will always seek to maximize profit.  It will innovate and compete to achieve this.  That’s fine.  But if no value is placed on the natural systems of the planet or on social impacts, then capitalism will result in the destruction and inequality we find in the world today.  However, what if the rules are changed to bring about positive economic, environmental and social results?  Capitalism can still thrive and compete and achieve within the new parameters.  Oh yes, industry and its raft of paid lobbyists will complain to the nth degree.  But in the end, they will adapt.  There are many examples of this: the forced introduction of catalytic converters to automobiles in 1981, banning the use of chlorofluorocarbons (CFCs) in  refrigerators and air conditioners in 1996, the new International Maritime Organization’s rules on emissions from ships.  These are all very small scale of course, but they illustrate how industry can adjust and still profit when the rules are changed. Businesses respond to regulatory, market and price signals.  They need to be given clear ones!

Let's consider a figurative example of product “X” 

In our current system, the manufacturer of product “X“ buys raw materials and parts from various sources, but does not have to consider any of the potential environmental and social harm done in the production of these raw materials or their transportation to its factory. The manufacturer then processes the raw materials into the finished product. Again, it does not have to worry, in most cases, about effluents occurring from this process which might pollute the air or water. Once the product is finished, it is sold to the end consumer or another manufacturer as a material in its industrial process.  The original manufacturer is then absolved of all responsibility for the product.  It has no need to think about the end life of said product:  how it enters and impacts the waste stream after it is used and discarded. 

Now, what if we change this equation via appropriate stimulus from taxation, regulation and subsidization?   What if the manufacturer of product “X” actually had to consider the environmental and social damage done by its production process at all stages?    If the sub producers of the manufacturer’s raw materials and parts were forced to pay the true cost of their production, not just say mining rights, capital costs and labor, but all environmental externalities,  the price of these raw materials would go up sharply. Would not this force them to redesign their products and processes to compete, lest the manufacturer of product “X” switch to makers who did not destroy the environment and so were able to produce a competitively priced alternate source of materials?  Similarly, if our manufacturer was forced to pay for the damage caused by effluents from its own industrial process, would it not then, in its own self interest, take those costs into consideration and redesign the production process to reduce such externalities?  And, finally, where applicable, were said manufacturer forced to take its product back at the end of its life, would it not holistically redesign that product so that it lasted as long as possible and so its technical nutrients could be brought back into the industrial food stream once that extended product life was finished?  (Planned obsolescence no longer!)

Eliminating waste

As William McDonough and Michael Braungart put it in their seminal book Cradle to Cradle:  “To eliminate the concept of waste means to design things—products, packaging and systems—from the very beginning on the understanding that waste does not exist...Products can be composed either of materials that biodegrade and become food for biological cycles, or of technical materials that stay in closed-loop technical cycles, in which they continually circulate as valuable nutrients for industry.”   

Tying it all together

I believe that a shared framework is needed to solve the world’s deepest environmental and social problems.  Government must lead, utilizing their power of taxation, regulation and subsidization to establish the rules under which capitalism works. But the private sector needs to be in the vanguard of finding and implementing environmental solutions, solutions that can also be hugely profitable and create a vast array of new jobs in the economy. As in wartime, the public and private sectors need to work together... in this case to navigate the transition to genuine sustainability.  

To those “purists” who argue that the economy can only work properly when markets are free of government interference, I say “nonsense”!   Human beings and private enterprises are not islands.  We live collectively.  The medium to do so is called government.  Markets have never been free of government involvement; they are inextricably linked.  Think about  intellectual property rights,  infrastructure and other government work contracts, subsidies, tax incentives, research grants, tariff protection, anti-trust rules (all of which create both private enterprise winners and losers).  The list goes on.  As Steven Vogel writes in his article ‘Marketcraft and the Digital Economy’ in the Regulatory Review, May 2018: “Free markets are not so much liberated from government, but rather liberated by government.”  It is notable for instance that certain car companies (BMW, Volkswagen, Ford, Honda) are siding with California in its battle against the Trump administration’s efforts to lower auto emission standards.  Why?  Because they see it as both a business opportunity and the right thing to do.

The fact is that renewing the balance between humanity and the ecosystem could be the biggest business opportunity of the next fifty years.  Yes, the redesign of our economy will be painful for many industries and their employees.  But it will also create whole new industries—many with jobs right here in the USA—not farmed off to Asia.  In 2019, there were 250,000 workers engaged in the solar industry in the USA vs only 50,000 in the coal mining sector.   

Despite the legion of doomsayers out there, perhaps we do not have to choose between saving the planet and having growth.  To quote McDonough and Braungart again: “The key is not to make human industries and systems smaller, as efficiency advocates propound, but to design them to get bigger and better in a way that replenishes, restores and nourishes the rest of the world and its people.....Wouldn’t it be wonderful if, rather than bemoaning human industry, we had reason to champion it.”  

And let us not forget that one of the biggest environmental problems is poverty...or rather the urge of billions of people around the world to escape poverty and live a more comfortable life. Who can begrudge the disadvantaged this?  If we follow the old linear, destructive economic system we have since the first industrial revolution, the consequences of lifting the poor from misery will be devastating to our bio-systems.   All the more reason to redesign that economic structure into a cradle to cradle one so that a more comfortable life for the distressed billions can be achieved in harmony with the planet. 

Future articles on this blog will discuss specific solutions from energy generation to dealing with the plastic disaster; from autos to public transit; from cradle to cradle manufacturing to renewable agriculture (regenerative farming, managed grazing, pasture cropping, vertical farming, etc).  I hope you will join me in exploring these vital issues.  

The world faces environmental problems on a massive scale.  To sit back and do nothing on the view that it is “all too much to deal with” or “it is against my short term economic interest” would be unconscionable.  We have the tools to arrest the slide into disaster. We need only the courage and commitment to utilize them.  Our destructive economy is a human creation.  It is up to each of us to set it onto a new, healing path.

Steve Beecroft
14 August 2020

Note: if you would like to receive notification of future articles added to this blog, please register via this link.

Recommended Reading:

Collapse: How Societies Choose to Fail or Succeed, Jared Diamond, 2005

The Travels of a T-Shirt in the Global Economy, Peitra Rivoli, 2005

Marketcraft: How Governments Make Markets Work, Steven Vogel, 2018

Cradle to Cradle: Remaking the Way We Make Things, William McDonough & Michael Braungart, 2002

The Upcycle: Beyond Sustainability: Designing for Abundance, William McDonough & Michael Braungart, 2013

Natural Capitalsm: Creating the Next Industrial Revolution, Paul Hawken, Amory Lovins & L. Hunter Lovins, 1999

Environmental and Natural Resource Economics: A Contemporary Approach, Jonathan M. Harris & Brian Roach, 2018

Blessed Unrest, Paul Hawken, 2007

Drawdown: The Most Comprehensive Plan Ever Proposed To Reverse Global Warming, Paul Hawken editor, 2017

Earth Odyssey: Around the world in search of our environmental future, Mark Hertsgaard, 1998

This Changes Everything: Capitalism vs the The Climate,  Naomi Klein, 2014