Is Sustainable Growth Possible On a Capitalist Basis?

Most capitalist politicians now pay lip service to sustainability, so what are the prescriptions they are putting forward to achieve this? Before considering the solutions put forward by the neo-liberal theorists, it is worth emphasising further the scale of the task they are facing. On the crucial question of global warming, the US Department of Energy estimated in 1998 that the cost of cutting CO2 emissions to 7% below their 1990 levels would rise to 4% of US GDP by 2010, or in money terms $400 billion per year. Although this figure is certainly exaggerated as a result of scare-mongering by the US energy lobby (other calculations put comparable GDP figures rising to 1%-3% after a much longer time) the general scale of costs is clear, and would lead to massive tax rises for the multi-nationals.

Property rights

The classic method put forward by the neo-liberal school to take account of environmental damage is the property rights approach, which relies on direct negotiations between the parties affected to resolve the issue. This requires that the property rights to the use of environmental resources are defined and owned by someone. It is easy to see the practical difficulties in implementing this scheme. For instance, it is hard to see what system of private ownership could be imposed on the stratosphere, and even if it was, the number of people affected by its malfunctioning runs into billions, all of whom could seek redress from the owner, making the method unworkable.

Tradable permits

This practical difficulty in using the property rights approach has even struck some die hard free-marketeers and an alternative system based on controlling pollution through the price mechanism has been worked out, the so called ‘make the polluter pay’ principle. The preferred route this takes is by the trading of pollution permits, issued by a government at a price reflecting the environmental costs and covering a specific geographical area. Leaving aside for the moment the fiasco of the Kyoto permit trading experience, it is not difficult to see that this scheme would be ineffective. For instance, the cost of building flood defences in Bangladesh in 20 years time, needed because of global warming due to emissions by US corporations today, would not be included in the permit price, meaning that the polluter is not really paying at all.


An alternative to the permit system is the introduction of an eco-tax, although this is regarded as a dangerously ‘socialist’ idea by the neo-liberals, compared to the free trading of permits. The principle however is the same, that by increasing the price of polluting resources, there will be an incentive created to use them less and seek substitutes. Evidence to show this works is put forward by comparing the experience of the USA and some other advanced capitalist countries. Energy prices in the US are a third of those in countries like Norway, whereas their emissions of carbon are about three times greater per unit of GDP (quoted in ’The North, the South and the Environment’ Edited by V Bhaskar and A Glynn, Earthscan, 1995. p139), thus the tax mechanism seems to work.

The issue is not so simple however when examined in more detail. France, for instance, has a relatively good greenhouse gas performance because she introduced nuclear power on a massive scale, which purely coincidentally does not produce greenhouse gases. This was done for political reasons, not because the price of fossil fuel was high, therefore questioning the link between high fossil fuel cost and low pollution emission. Also, the evidence shows that key economic factors that help create sustainability, e.g. the development of new non-polluting technology, would not be promoted to a significant extent by adjusting prices through eco-taxes.

Even if taxes could play some role in reducing pollution, there is the question of scale to be considered. The cost to the US, given earlier at $400 billion per year, for significant cuts in greenhouse gases shows that for such a program to be effective tax increases would have to be huge, more than a 100% according to some estimates. This would devastate the profits of big business and make them politically impossible to impose. It is significant that in Scandinavian countries where some form of eco-tax has been implemented, companies are specifically excluded from paying, and the whole burden is put on individuals. Another consequence of eco-taxes is that the poor are hit hardest by their introduction because the cost of warmth and cooking, usually provided by fossil fuels, is a large proportion of their income. On a different level, this regressive effect also applies to congestion charges, such as those proposed by the London Mayor in Britain, Ken Livingston, to promote the use of public transport.

Cost-Benefit Analysis

Cost benefit analysis (CBA) is potentially a powerful tool to assess environmental risks and to reach a rational decision about future investment. Its success depends however, on defining clearly what the costs and benefits are, and for all the parties involved to agree on these definitions. Where profit is as stake this is easier said than done. In capitalist terms, risks must be expressed in money terms and probabilities of future adverse events clearly determined. When this cannot be done, which is the usual case, environmental risks are ignored, and a system of ordinary discounting is used. Using this method, it has been calculated that the cost of a nuclear accident, 500 years in the future, costing £10 billion at current prices to future generations, would be 25 pence, discounted at 5%. In other words, if a CBA was made now about building such a power station, 25 pence would go in the costs column to allow for a future accident.

Constraints on capitalism

All these capitalist theories to achieve sustainability: property rights, tradable permits or eco-taxes, remain just that-theories. The reasons why none of them have ever been implemented on any significant scale are much more important than the individual criticisms that can be made of each. The thinking elements of the capitalist class internationally realise that an abyss is looming, so why can’t they take really decisive action?

The central contradiction of capitalism from the beginning of the 20th Century till the present day has been its inability to resolve the conflicting needs of profit driven production and the continuing existence of nation states. In their quest for profit, the capitalists are forced to look for new markets beyond their borders as their own market becomes saturated, bringing them into conflict with rivals from other countries who are under similar pressures. In abstract terms, the rivals could co-operate to more efficiently exploit the rest of the world if the market was continually expanding, but this is never the case for long with capitalism, as bust always follows boom. When the market turns down, the tensions grow between the international rivals and the big corporations look once more to their own governments to protect their profits. This cycle will occur again soon as the drive to globalisation is undermined by the developing downturn.

Any genuine solution to the environmental crisis must be international since all the main threats, such as global warming, ozone depletion, or nuclear toxic waste contamination affect the entire earth or large parts of it. However, the main capitalist countries that account for the majority of pollution will never meaningfully co-operate if the profits of ‘their’ multinationals are significantly affected. This is particularly true in a recession, and is the problem that lies at the heart of the environmental crisis.


The fiasco over the Kyoto agreement is a good example to demonstrate the inability of the capitalist system to tackle the crisis. Kyoto is intended to tackle global warming by cutting greenhouse gas emissions by a small amount in order to go back to the 1990 level, in itself a modest target. The justification was that this was the maximum that was politically feasible, but even this tiny and cheap step forward, done at a time of economic boom, proved to be totally unacceptable to the USA. The agreement was fixed so that no actual reductions in greenhouse gases in the advanced capitalist countries (ACCs) were called for. Instead, a system of tradable permits was introduced, the preferred ‘free market’ mechanism, where the ACCs could buy the rights to pollute from other countries that were below their quota. This was possible because, very conveniently, the base year from which calculations were made was 1990, just before the economic slump in the former Soviet Union and Eastern Europe caused their greenhouse gas output to fall by 50%. This meant that East European states would have a large ‘surplus’ of tradable permits to sell to the ACCs, probably at very reasonable prices considering their desperate plight.

Why did the US Congress vote virtually unanimously to reject this almost completely cosmetic deal? It was probably not because the immediate price was unacceptable, since they had reached an agreement, although belated, on the Ozone issue that incurred costs to US companies. It was because they regarded this as the thin end of the wedge, where, eventually, meaningful cuts would have to be made. Since the US produces 25% of all greenhouse gases, almost twice as much as their principal rivals in the EU, their profits would be disproportionately hit by meaningful cuts. The lesson here is that if small sacrifices only are needed, and they can be evenly distributed between rival capitalists, as in the ozone case of CFC reductions, then limited agreements can be made (although it is doubtful that even this would apply in conditions of recession or slump). However, if profits are seriously under threat, then even limited agreement is impossible, and this particularly applies if the dominant world power, the USA, is the biggest potential loser.

Direct state intervention

Direct state intervention to reduce pollution, although still operating within the framework of a market driven society, has been largely discarded as an option by the dominant neo-liberal alchemists, who dismissively label it ‘command and control’. Some pro-capitalist commentators though are beginning to reconsider this attitude, because they think direct intervention may actually work, in contrast to neo-liberal theorising. A strategy that they propose is to impose a legally enforceable set of standards to control emissions, but other options could also include more radical measures. For instance, to redirect production to non-polluting sectors, to restrict consumer choice to eco-friendly products or to prescribe that energy should be produced by renewable sources.

As the environmental crisis deepens, the attractiveness of this approach will grow, particularly to those on the left or active in the green movement who can see the impotence of purely market based ideas. Although state intervention could have an effect if it was applied in the all the major polluting countries in a large-scale manner over the long-term, the question is-will it be? It is possible that an individual country will begin to implement small-scale environment-friendly measures, such as in Germany now, or in Scandinavia. However, as soon as the level of investment by the state threatens profits through higher taxes, as it must if the measures are to be sufficiently large scale to be effective, the big companies will scream that their international competitiveness is being undermined. Since in the context of capitalism, the priority of the government of each country is to protect the interests of the multi-national companies based inside their borders, any meaningful environmental program will then be dropped.

The requirement to solve the crisis, which is to have international agreements capable of tackling the scale of the problem, remain the same, as do the reasons why they will not happen.

New Technology

Although it is theoretically possible that the bacon will be pulled out of the environmental fire by a fortuitous new invention, for example, a technology like nuclear fusion that promised to produce large quantities of energy cheaply and without pollution, there is nothing viable on the horizon. The market system has been unable to provide the scientific breakthroughs that are needed. One of the reasons is that under monopoly capitalism, new technology is the result of long-term incremental advances by teams of scientists and engineers working for big bureaucracies in multi-national corporations, where to change course to a radically different direction is very difficult due to bureaucracy. Furthermore, the huge costs of developing the new approaches that are needed in the energy field deter most companies from entering the market. Also since the lure of profit is still ultimately the reason for investment in new technology, it will be introduced in those sectors that are most profitable in the short and medium term, i.e. for fossil fuel technology rather than renewable energy generation.

Sustainable growth on a capitalist basis is not feasible, partly because the methods it can employ to achieve this are inadequate and flawed, but mainly because imperialist rivalry will prevent the international co-operation that is essential to make progress. The result is that the world will continue to hurtle headlong to disaster since the environment will still be treated as a ‘free good’ by the multi-nationals that dominate production and will be exploited at no cost to themselves.