The world is faced with the same crisis. However, different countries are responding in different ways. Much could change over the coming weeks but, even at this stage, there is a great deal of variety in terms of government response. Some of the most successful at battling the pandemic so far have been countries in East and Southeast Asia, including China, South Korea, Singapore and Taiwan. These are all countries that are following (or have followed) the model of the “developmental state”, rather than more laissez faire, free market-based capitalism.
There are other crises facing the world. Climate change has not gone away, biodiversity loss is still a pressing issue, resource scarcity, environmental degradation, ocean pollution – all of these are still happening (albeit on completely different time horizons from the coronavirus crisis). Furthermore, as with the coronavirus crisis, different countries are responding differently to all these challenges.
Could free market capitalism be particularly unsuited to responding to environmental crises? Is the short-termism and individualism of laissez faire capitalism good for generating short-term economic growth, but bad at responding to long-term or system-wide challenges?
What do our readers think? We had a comment from James, who argues that free markets struggle when it comes to environmental protection. He says:
Free market? The free market is notoriously bad at long-term planning (that’s kind of the point). There’s nothing to stop the free market driving the environment off a cliff (a market can’t be self-correcting if all the consumers and producers have been poisoned). So, a mixed approach is needed, with sensible, proportionate government regulation (not an oxymoron) as a necessary evil.
Is he right? Can free market capitalism be environmentally sustainable as long as it is properly regulated by governments, or is capitalism inherently unsustainable?
To get a response, we spoke to Christian Kreiß, Professor of Economics at Aalen University, Germany. He has spoken publicly about why our current economic system is not sustainable, so how would he respond to James?
Capitalism in its current form, with its extreme imbalances of power and limited government regulations, cannot be sustainable. The shareholder value principle – based on maximising profits and maximising returns – essentially guarantees an unsustainable economy.
According to Greenpeace, the average middle class citizen in Europe has about ten thousand products at home. It is completely absurd. Everyone [should consider the absurdity of this] for themselves, because [the response] will also depend on individuals.
Firstly, however, we need sensible laws and regulations, because they are far too weak today. Secondly, we will need greater media plurality than we currently have, because our leading media are extremely one-sided and keep guiding us towards this craze for consumption. Thirdly, the theory of economics must also be changed: the shareholder value principle (and this selfishness) must change.
For another perspective, we also spoke to Otto Brøns-Petersen, Director of Analysis at the Centre for Political Studies (CEPOS), a free-market think-tank in Denmark. What would he say?
No, I think actually the opposite is true. I think the necessary stewardship of natural resources is only possible when we have private ownership and free-market capitalism. The prerequisite for not over-using scarce resources is that we have private ownership and the owner can benefit also from not abusing a scarce resource today.
The challenge we have is not scarce resources, as such, it’s resources that are not owned by anybody. Especially if we have a problem with our atmosphere – there’s no price generated from private ownership on the emission of greenhouse gasses. And there, we need to put a price on emissions to compensate for the fact that we don’t have private ownership. But, generally, private ownership is a prerequisite for stewardship of the environment, so I think free-market capitalism is very much needed. And, actually, if you look at it in the West, we are using fewer and fewer resources to sustain our economic growth.
Is capitalism sustainable? Can free market capitalism be environmentally sustainable as long as it is properly regulated by governments, or is capitalism inherently unsustainable? Let us know your thoughts and comments in the form below and we’ll take them to policymakers and experts for their reactions!