Capitalism is ending poverty and solving climate change. Socialism is incapable of doing either

 

Editor’s Note- This article was censored by the Daily. In the interest of promoting dialogue and creating a healthy culture of discussion, the B&B has decided to print this piece.

If you are passionate about ending poverty, you should support capitalism. You should also hope — and try to ensure — that socialism doesn’t undergo a popular resurgence. Most people don’t appreciate that the world is already on a promising trajectory. Capitalism is working. For the first time in humanity’s long and brutal history, the end of poverty is in sight. Since 1990, the number of people living in extreme poverty — defined as living on less than $1.90 per day — has fallen by about one billion globally. That is staggering. In the next two decades, that number is projected to continue to rapidly decline, possibly falling as low as 200 million by 2030, compared to almost two billion in 1990. Incomes are rapidly rising in the world’s poorest countries. 

It seems that we are barrelling toward a world with minimal drudgery, where every person’s basic needs are guaranteed — the end of poverty in every sense

In the world’s wealthiest countries, what we consider as poverty is not at all comparable. Extreme poverty means being too poor to afford a toothbrush. It means losing your child to a disease that costs a few dollars to prevent. In the United States, by contrast, 84 percent of people under the poverty line own an air conditioner and 100 percent own a refrigerator. But we don’t need to draw a false equivalence to recognize that wealthy countries’ version of poverty creates real suffering, and to take heart that rising incomes and better social programs are raising the income floor here too.

Looking ahead to the rest of this young century, it seems that we are barrelling toward a world with minimal drudgery, where every person’s basic needs are guaranteed — the end of poverty in every sense. This astonishing development is thanks to the convergence of revolutionary progress in science and technology, the breakout success of the capitalist economic system, the accumulation of knowledge and experience around public policy and poverty interventions, and a global consciousness that is increasingly moving toward a belief in full human equality. When people say that capitalism isn’t working, I see this as a fundamental misdiagnosis of the state of the world.

The terms ‘capitalism’ and ‘socialism’ are so often used imprecisely. I define capitalism as an economic system with capital markets — like venture capital and the stock market — that allow investment in companies and partial ownership of companies by investors. I define socialism, by contrast, as an economic system without capital markets in which investment is controlled by the government and in which companies are owned by the government or by their employees.

Handing over control of investment from decentralized, meritocratic capital markets to a centralized process of deliberative democracy is sure to inhibit innovation, visionary ambition, risk-taking, and the diversity of ideas

The two fundamental variables that determine whether poverty exists are the creation of wealth and the distribution of wealth. Obviously, the less wealth is created, the less wealth is distributed. That is the fatal flaw of socialism: it fails to create, and even destroys, wealth. Capitalism, on the other hand, has a phenomenal ability to create wealth. From 1820 to 2013, the percentage of the world living in extreme poverty has fallen from 94 percent to 10 percent thanks to capitalism.

Handing over control of investment from decentralized, meritocratic capital markets to a centralized process of deliberative democracy is sure to inhibit innovation, visionary ambition, risk-taking, and the diversity of ideas and thereby hinder the creation of wealth. If there is dramatically less wealth to distribute, even a perfectly equal distribution of wealth would leave poor people even poorer. In fact, what occurred when capital markets were abolished in the Soviet Union, and during Mao’s attempts at central planning in China, was economic collapse followed by mass starvation.

The good news is that the creation of wealth and the distribution of wealth are somewhat separable. An economy can have both vibrant capital markets and generous redistribution of the wealth those markets create through government programs like universal healthcare, welfare, and free or subsidized post-secondary education — maybe even a guaranteed minimum income someday. Cities in Alberta are eliminating homelessness by offering guaranteed housing, and even expect to save money in the process. Governments can raise the income floor and redistribute poverty out of existence without changing the way capital markets operate.

A common criticism is that even if capitalism is producing good social and economic outcomes now, it is producing bad environmental outcomes that will leave us worse off in the long term. However, there is no inherent reason why an economy without capital markets would be better for the environment than one with them — except perhaps that the poorer people are, the smaller environmental footprint they have. A socialist economy could be just as environmentally unsustainable, or more so, than our current capitalist economy.

There is also no inherent reason why a capitalist economy has to be unsustainable. One powerful tool to gear our economy towards sustainability is a carbon tax, which factors the environmental cost of carbon emissions into the market price of fossil fuels. I’m thrilled that Canada is now implementing a carbon tax, and I hope that the idea will catch on worldwide.

Another overlooked factor is that transitioning from fossil fuels to sustainable energy requires the market-driven innovation of a capitalist economy. This is best exemplified by one of the world’s fastest growing manufacturing companies, the electric carmaker and solar energy company Tesla. The culture and thought process that has enabled Tesla’s success emerged in the capitalist hot house of Silicon Valley, the global epicentre of venture capital and technology startups.

Tesla is currently gearing up to produce the world’s first mass-market electric car later this year. With over 370,000 pre-orders internationally, Tesla’s Model 3 sedan is on track to be one of the best-selling cars of any kind. By comparison, the best-selling car in the United States in 2015, the Toyota Camry, sold 360,000 units. Tesla is also building the world’s largest factory, which will soon singlehandedly double global battery production relative to 2013 levels. At the same time, Tesla is scaling up rooftop production of solar energy and attempting to bring down the cost of solar panels. More than perhaps any other organization on the planet, Tesla is spearheading the fight against climate change.

This kind of technological innovation and commercial application of existing technologies — which requires as much creativity and intelligence as the original invention — is something that decentralized, meritocratic markets full of diverse, risk-taking, and controversial companies can uniquely deliver. Markets allow ideas to be tested in the most direct, brutal way. Tesla stands victorious on a heap of failed electric car companies, and no one knew at the beginning which, if any, would succeed.

Capitalism is much maligned, but unfairly. It’s pulling off incredible feats, and far outperforming any previously tested economic system. It’s ending poverty and solving climate change. For fundamental, structural reasons — the inability of a centralized democracy to replicate the function of decentralized markets — socialism is incapable of doing either of those things. The system isn’t flawed at its root. The solution we need is not to abolish capital markets, but to implement a carbon tax, improve social programs, redistribute more wealth to poor countries (and do so more cost-effectively), and to undertake other reforms like these that can improve life on our planet without sabotaging economic stability and prosperity. Put down the sledgehammer of socialism. Pick up the chisel of capitalism.

Disclosure: I own Tesla stock.

6 Comments

  • Rachel Allen says:

    Besides claiming that poverty in central countries is “not real poverty” because the impoverished can afford a toothbrush (a toothbrush is less expensive, by the way, than a meal), the real problem here is your claim that “Capitalism is not inherently unsustainable”. You don’t have to be a Marxist to understand why this is entirely incorrect.

    Capitalism requires growth. Capital markets work on the basis of increasing value – the stock market “grows” year to year, this is how the finance industry makes money. No economist, stockbroker, or average person who’s read the wall-street journal will seriously argue that capitalism can continue without growth. How, then, does growth happen? By extracting and refining resources. For all the advances in so-called “sustainable” business, in the end any production requires the extraction and refinement of raw materials and, in a capitalist system, this must occur at an ever-increasing rate. Initiatives such as carbon taxes do not stop this growth, they simply slow it down by increasing the cost of production of high-carbon companies. In a capitalist world, no tax would be allowed to cause the rate of production to fall to zero, as this goes against the primary tenant of capitalism – Thou Shalt Return a Profit.

    Tesla, lauded as a relatively sustainable company, also relies on resource extraction. Specifically, the extraction of lithium, though many petroleum products are used in their vehicles. Lithium is a very scarce resource, with many experts agreeing that there simply is not enough lithium to sustain the normalization of ‘Green cars’. Why? Because capitalism relies on constant growth.

    We need to stop kidding ourselves. Capitalism is a system that relies on positive growth, and true sustainability requires zero, or negative growth. Anyone who claims that sustainability and capitalism can be reconciled has no interest in true sustainability, or helping future generations, but simply delaying the environmental collapse until after their death.

    • Trent Eady Trent Eady says:

      I certainly don’t say that poverty in wealthy countries isn’t real poverty. In fact, my exact words are that it “creates real suffering”. What I said is that it isn’t extreme poverty, which the World Bank defines as living on less than $1.90/day. I also said that the conditions of life for poor people living in high-income countries like Canada and the U.S. are dramatically different than for people living in extreme poverty, who don’t have electricity, running water, or access to basic life-saving healthcare. I don’t think this can be disputed.

      The problem with zero growth or negative growth is that it makes it much harder, and perhaps impossible, to end extreme poverty or high-income countries’ version of poverty. Global income per capita is about $16,000 U.S./year, and zero or negative growth means that number will stay there or go down. That means in a zero or negative growth world economy, with perfect income equality every person will have to live on $16,000 U.S./year or less. Massively redistributing the world’s wealth like this, besides being politically impossible, would also be profoundly destabilizing and actually dramatically decrease the amount of wealth available to redistribute. For this reason, it really is a choice between growth and poverty.

      It’s simply not true that growth requires extracting and refining ever-increasing amounts of natural resources. Market prices ultimately reflect the value that people place on things, and economic growth means an increase in the total value of goods and services in the economy. So, all that is required for economic growth is an increase in the value that people place on all the goods and services in the economy. Writing poetry can contribute to economic growth if people buy your book of poems or pay to hear you recite them. There is no inherent link between increasing subjective value and increasing environmental damage, so there is no inherent link between economic growth and environmental damage.

      As we develop new technologies that can provide us the same benefits with less environmental damage, the economy will both grow and become more sustainable. I focused on electric cars and solar power in this article, but another area I’m enthusiastic about is the use of biotechnology to produce animal products like meat, eggs, and dairy without animals. Late this year, a biotech startup called Perfect Day is planning to release a dairy product made from milk produced by yeast that are genetically engineered using cow DNA. In the coming decades, biotechnology will be a major driver of both economic growth and environmental sustainability.

      I don’t think there is much cause for concern about lithium. The U.S. Geological Survey estimates that current known reserves of lithium contain 365 years’ of supply at the current level of consumption. Of course, consumption will increase. Tam Hunt, writing in Greentech Media, comes up with an estimate for the point in the future (which is still quite a way off) when the entire world is making a complete transition to electric cars and battery storage for power grids: 17 years of supply for currently economically viable known reserves and 50 years of supply for reserves that will potentially be economically viable in the future, which is more likely as demand for lithium increases. (The article: https://www.greentechmedia.com/articles/read/Is-There-Enough-Lithium-to-Maintain-the-Growth-of-the-Lithium-Ion-Battery-M) As Hunt notes, with other resources the historical trend has been that known reserves greatly expand over time as discovery and extraction technology advances. Hunt also notes that lithium’s use in batteries can be substituted with other materials. Moreover, Tesla’s Chief Technology Officer, JB Straubel, has already discussed Tesla’s plans to recycle its batteries and reuse raw materials like lithium: https://electrek.co/2016/11/14/tesla-cto-jb-straubel-battery-technology/ This means that batteries could be potentially be recycled and produced indefinitely. But on a 50-year timeframe, we will likely have new energy storage technologies that supplant lithium-ion batteries.

  • Redleader says:

    Despite Marx’s criticism of capitalism, he did not go as far to say that capitalism has not provided benefits for mankind. Much of the development the author speaks of is an example of this; capitalism gave us mechanized industry, modern healthcare, the automobile, planes etc. The point is, despite these benefits capitalism is not the best system we are capable of because fundamentally the driving force in capitalist societies is profit and not social benefit. Just like the author communicated: if something is not profitable, it is not viable. So while we could have become greener and more sustainable decades ago, we’re waiting for capitalists to figure out how to make green energy profitable all while slowing the movement away from traditional fossil fuels.

    I mean, ultimately, capitalism relies on an imbalance not of wealth, but of ownership of the means of production. So yes, the world is getting richer and living better as time progresses, but the desires of the capitalists always have and will come first. One just has to look at the growing number of jobs lost to automation to see that capitalists don’t care about you, they care about increasing their profit margins.

  • I feel that the main vein of your argument is similar to that the proponents of Soviet-era communism: while the ideological system has potential and doesn’t *have* to reach a state of abuse, the application of it is almost always (but the extent really is up to analysts) doomed to converge toward the worst because of the human element.

    Saying that “capitalism is solving poverty and climate change” seems to work from the idea that capital can be used to effectively eliminate the root causes of those problems, which is partially true. However, it again fails to take in account that while some of the more fortunate ones do use capital to help, an equal if not stronger push is done in the opposite direction. To this effect, we can take a look at the apparent interest of our southern neighbours’ government to instate a National Right to Work policy that would severely weaken collective bargaining, or the propensity of richer companies to seek cheap labour to boost profits and please shareholders.

    Similarly, on the side of the fight to reduce the impact of human action on climate, the profitability logic of capitalist systems generally pushes industries to be late adopters of cleaner tech, since the setup cost would gravely reduce their profit margin — from an administrative point of view, they deem it better to use the system that is already in place until it becomes drastically unprofitable, forcing change. Coal in the U.S. is a good example of this: the reason why it’s still a thing is in part because the preexisting structure is already there, and coal itself isn’t produced at a loss.

    In a perfect world, where people are socially-conscious and aware of the impact they have on others and the environment, capitalism can probably be a tool for positive change. In the current context, however, no amount of checks and balances could coerce a class that doesn’t play by the same rules as the rest and that has the influence to tweak the rulebook to fit its agenda in the long-term. It’s then an extremely idealistic position to take to say that it is actually solving problems, while wishful thinking aside, it actually is often a driving force in causing them.

  • For political theory's sake! says:

    Were the books that the author draws his conclusions from written in the 1930s? It has been a while since the political and economical system that he decries has not been called socialism. In fact ever since it was applied from Marx, Engels, or Lenin’s theories it bore other names like Marxism or Communism.
    Socialism as it is understood today is essentially the “good news” that the author describes in the 7th paragraph: a capitalist economy whose government sets up mechanisms for the regulation and taxation of large companies in order to redistribute wealth to the needy. By those standards, Bernie Sanders in USA is indeed a socialist, which does not mean that he is against a market economy.
    As for the point that Socialism as the author understands it (that is some form of communist government-run economy) cannot generate and destroys growth, even that is a flawed statement. The Soviet Union and its government management of the economy took Russia from a mainly agrarian country to an industrialized superpower that rivalled the United States, although it is by no means an example to follow considering how much its citizens suffered for these achievements.

    • Trent Eady Trent Eady says:

      There is a lot of confusion and conflation between socialism and social democracy, with people often using those terms interchangeably. That’s why I took care to define socialism in this article as an economy without capital markets. You’re right that what I advocate in this article is social democracy, which is often confusingly referred to as socialism. The two could not be more different, and the distinction isn’t drawn often enough.

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