We are racing towards the catastrophic collapse of our bio-physical and social systems, driven by the capitalist economy. Gittins illustrates the trained incapacity of the conventional economic mind to get it.
In a recent P and I article Ross Gittins endorses Rod Sims’ enthusiasm for capitalism, arguing that all it needs is reform to increase competition. Neither of them seem to have the slightest idea of the reasons why capitalism cannot be reformed to enable a sustainable and just world.
Over the past fifty years, a vast literature has emerged which documents the fact that we have far exceeded the limits to growth. The literature finds that this is the basic cause of accelerating resource depletion, ecological destruction, global inequality and the deprivation of billions of people, geopolitical conflict and resource wars, and the deterioration in social cohesion and quality of life in the “richest” countries. Yet mainstream elites, politicians, media, along with general publics have steadfastly refused to take any notice while they plunge on in their manic quest for limitless increase in affluence and growth.
A capitalist economic system inevitably generates this damage; it cannot avoid doing so and it cannot be reformed to avoid these effects. This is primarily because it is a growth system; it is driven by the determination to invest capital in order to make profits and thus accumulate more capital to invest in increasing production and sales. This is not optional. Owners of capital must constantly strive to sell more than their rivals or they will be driven into bankruptcy. Grow or die.
There is almost no recognition of the extent to which we have exceeded the limits to growth. There is no possibility that all the world’s people could rise to the level of resource consumption or environmental impact associated with the average Australian lifestyle. There is a strong case that if a sustainable and just world is to be achieved then the per capita resource use in countries like Australia must be reduced by around 90%. Yet just about all economists and governments and ordinary people are frantically striving for more production, income, consumption, wealth, trade and investment, and they all know that the only way to solve our problems and improve “living standards” is to grow the economy.
Economic growth is not just absurd, it is now suicidal. Keep it up and before long resources will have become impossibly expensive and resource wars and grabbing will have become increasingly commonplace. Ecosystems will be collapsing, adding to our difficulties and costs. Failing states will be confronted by demands and discontent they cannot deal with, inequality will be far more obscene than it is now, and social cohesion will be crumbling faster than it is now.
The standard response to all this is that there is no need to think about limits or “degrowth”, because more recycling and technical advances will solve the problems affluence is causing, enabling resource and ecological impact to be “decoupled” from GDP growth. Thus growth can continue without depleting resources and wrecking the environment. There are now many studies showing that decoupling is not happening and is extremely unlikely to ever be achieved. Decoupling is achievable in some limited fields but if GDP increases, even via growth in services and information, the resource and ecological impacts increase.
The only way you can get the impacts down sufficiently is to degrow the economy, by an enormous amount, to a zero growth economy in which investment only goes into maintaining or adjusting a stable level of productive capacity.There can be no payment of interest. If more is to be paid back on a loan at the end of the year then there must have been an increase in production to enable the interest to be added to the loan repayment. That is utterly impossible in a capitalist economy. The number and type of firms and what they produce would have to be set by social decision according to need, not by competition between capitalists seeking to maximise their profits. That would be socialism, not capitalism, and there would be negligible room for a financial industry, market forces or a capital-owning class.
Consider the wisdom of an economic system which allows a very few who own most of the capital to determine what is to be produced by asking themselves what investments are likely to most increase their already astronomical wealth. 1% of the world’s people, let alone owners of capital, have half of the world’s wealth now. Are they going to invest in bread production for the 800 million who are hungry? This highlights the second huge and irredeemable fault in capitalism; it is a market system. It allows competition in the market to be the major factor which determines distribution and development.
Why is it that approximately 800 million people are hungry while an estimated half of grain produced in the world is fed to animals, primarily in rich countries? Simply because grain is taken, bought by those who can pay most for it in the marketplace where richer people can always out-bid poorer people. In a market system it does not matter who most desperately needs a commodity , it will go to whoever can pay most for it. Conventional economic doctrine teaches that the market is unquestionably the best way to determine distribution; whereas in fact it almost always makes the wrong distribution decisions.
Even worse is the fact that market forces guarantee that the wrong things are developed. For example in the Global South there is an urgent need for development of farms and factories to produce basic necessities for the majority of people who are impoverished. However very little development of this kind occurs while most of the investment goes into developing farms and factories to export to consumers in rich countries. Why? Simply because these are the purposes that will yield the most return on the investment of privately owned capital.
This is the main mechanism that has facilitated development in the Global South of the mechanisms and structures that serve the interests of the rich countries and their corporate elites. Most of the productive capacity in the Global South now benefits only transnational corporations, the corporate elite within the Global South who have access to and power over these corporations, and customers of wealthy global supermarkets. Producing to satisfy this global demand is the most profitable option for those with capital to invest. (On conventional “development” as a form of plunder, see, TSW: Third World Development.)
Thus the market inevitably enriches the already rich, simply because they have money to invest; poor people do not. Are you puzzled as to why inequality is at such a disgusting level, and accelerating?
So much for the prattle about the desirability of a “rules-based global economy”. Delightful when the supreme rule is to let the market deliver most of the world’s resources to the few who live in rich countries. In market transactions, need, morality and justice are totally irrelevant.
Fundamental to capitalism is the freedom to invest. Private investment is the primary determinant of the form the economy and thus society takes. That means investors are the ones who decide what our resources will be put into producing. On what basis do they decide? They choose to produce only what is most likely to increase their wealth; they have no interest in what is most needed or what our resources ought to be invested in.
And let me remind you, Ross, that an investor is a person who expects to be allowed to receive an income without having to do any work for it, while others have to work to produce the things he consumes. Capitalism certainly is a wonderful system - if you’re rich.
But don’t private firms work better than publicly-owned firms? No, they do not. In general they do not do better in the narrow terms of dollar costs, let alone social benefit. Consider the disaster that is private aged care in Australia. Many of our privatisations have failed and have had to be taken back into public ownership (See the long section on privatisation in Trainer, 2022.)
You, Ross, and the rest of us are now in a lot of trouble. As Marx saw long ago the contradictions built into capitalism will eventually lead it to self-destruction, and that’s what we are seeing now. Capitalism is using up the resources it feeds on, and fouling its nest, and most importantly so seriously failing to provide for most people that the deplorables are getting dangerously angry. The Degrowth movement and a mountain of academic literature are telling you that we cannot have a sustainable and just world unless we abandon affluence and growth (…the title of my widely ignored 1985 book.) But this is highly unlikely to be accepted or even understood. Unfortunately too many have been taught conventional economics and therefore, like Ross, cannot doubt that growth, market forces and high ”living standards” are sacred and indubitable principles of economic reality.
Ross says there is no satisfactory alternative to capitalism. There is. It would be so easy to establish marvellous alternatives if we wanted to. The Eco-village and Transition Towns movements are leading the way towards communities that are small-scale, cooperative, self-governing, running their local needs-driven economies and, above all, frugal, enjoying far simpler lifestyles and systems. I call it The Simpler Way. But I have no doubt that the official elites and decision-making systems of this society are incapable of deliberately, rationally adopting it. Our chances of achieving it will depend on the extent to which this alternative vision has been embraced by the time the coming era of great troubles brings on the mother of all depressions, and gets rid of capitalism. (See Simpler Way transition theory.)
Your move Ross.