Saturday, December 7, 2013

Capitalism's March Towards Global Collapse

The failure of the Warsaw meeting on climate policy indicates that governments are not able to take the actions that are necessary to keep us from destroying our planet.  Environmentalists are free to create their own industry, that informs us of our folly, but that does little to disrupt the system.  That is because expansion is the central problem solving solution of an economic and societal system faced with finite resources.  Warnings from environmentalists may even provide a signal that the party may be coming to an end.  That may only encourage some to enjoy the party as long as it can last.  This article in Der Spiegle argues that is necessary to alter the incentive system that is at the root of capitalism to preserve the only planet that we have.  It offers two strategies for altering the incentive system.

The first strategy requires a change from a system based upon profit generation to an economic system designed to promote the common good.  The system would award "common good" points to enterprises.  Firms would be able to benefit from the accumulation of common good points through tax incentives, cheaper loans and preferred access to government contracts etc.  That would reduce their costs and make sustainable firms more competitive versus firms that did not invest in sustainability.  Once enough has been created there would no longer be an incentive to generate surplus.

The second strategy was developed by Bill McKibben in the US.  The basic idea is encourage university endowments, pension funds and other institutional investors to withdraw funding from firms that have not embraced a sustainability strategy.  That would have a negative effect on their stock price, and even investors who did not care about how the firms profits were earned would look for other investment opportunities.  The fossil fuel divestment strategy has been partially implemented in the US.  A more effective implementation would have a profound effect on corporate behavior.  It provides a strong signal that some forms of profit are more valuable than others.

Changing the fundamental incentives that drive business behavior is a radical solution to a problem that governments have been unable to address.  Many will claim that the solutions will destroy the goose that has laid the golden eggs. On the other hand, radical solutions may be necessary to save the goose from destroying itself.

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