Opinionista Ivo Vegter 15 February 2016

Capitalism will not starve humanity by 2050

A recent opinion piece in Forbes magazine by Drew Hansen, a writer on “wisdom in the workplace”, states: “Unless it changes, capitalism will starve humanity by 2050”. This is a popular opinion, but it is the opposite of the truth. Believing it will serve society badly.

Human existence, by definition, requires natural resources. We live in the environment. We grow our food in the environment. We clothe ourselves with products from the environment. We seek shelter from the environment, using means available to us in that same environment. We need a healthy, productive environment to make our lives longer, healthier and more pleasant.

For some, this points to an inherent flaw in the way society is organised. In an opinion piece (see footnote) written for Forbes magazine, Drew Hansen makes the case: “Capitalism has generated massive wealth for some, but it’s devastated the planet and has failed to improve human well-being at scale.”

The article starts with a bang, fretting about population growth and blaming capitalism for species extinction, habitat loss, deforestation, climate change, and poverty (even in the US!). However, it gets almost all the alarmism wrong, and it ends in a whimper.

What will “ensure the future of the planet and its inhabitants,” writes Hansen, is something called “holacracy”. This half-literate management buzzword (a more conventional formation would be “holocracy”) is based on the idea of distributed decision-making by cooperating, autonomous units and self-organising groups. Instead of authority being distributed according to rank in a traditional hierarchy, a holacracy distributes power on a peer-to-peer basis, based on the contribution of each “holon” (Greek for “whole”).

If this sounds a little socialist, that’s only because of the artificial contrast drawn with capitalism in the headline and opening paragraphs. Contradicting the dramatic opening, Hansen calls this new system an “emerging form of capitalism”.

So, is the problem capitalism, or is it not?

Let’s start unpicking this apparent confusion by making a few clear distinctions. While Hansen celebrates employee-owned companies and “consumer cooperatives”, there is nothing especially socialist about them. There are many forms of socialism, but the dictionary definition will do: “[Socialism is] a way of organising a society in which major industries are owned and controlled by the government rather than by individual people and companies.”

In traditional terms, the groups Hansen mentions simply describe the identity of shareholders and the market power of consumers. Their existence is not an alternative to capitalism, which the same dictionary defines as: “[Capitalism is] a way of organising an economy so that the things that are used to make and transport products are owned by individual people and companies rather than by the government.”

Socialism by definition involves control by government or some other representative of the whole of society that has yet to be invented. Therefore, it by definition involves a loss of freedom. Things are a little more murky with capitalism. What many people view as capitalism in fact has many socialist features. It is useful, therefore, to distinguish between state-capitalism or crony-capitalism on the one hand, and free market capitalism on the other.

Free market capitalism accords with the dictionary definition. When individuals own the means of production, they can employ and trade those assets as they see fit, without the burden of regulatory restrictions and government intervention. This is capitalism, in the true sense of the word.

Both state-capitalism and crony-capitalism involve a degree of control by the state. That control can be benevolent, as it might be in a well-run welfare state, it might be misguided, such as when governments operate state-owned entities or bail out badly run companies, or it might be corrupt, such as when civil servants hand out fat contracts to favoured cronies.

Around the world, politicians serve corporate interests, but this is not a feature of capitalism. Policies such as quantitative easing (printing money) and corporate bailouts, for example, forcibly redistribute wealth from the poor – who hold cash or debt, and pay taxes – to the rich – who own assets like houses and shares. Public works projects, which are so popular with the South African government, do the same: they transfer wealth from consumers who pay VAT, fuel levies and income tax, to a select elite of contractors. These policies are not capitalist in their nature. They are the socialist features of well-intended state-capitalism or corrupt crony-capitalism. Let’s call these systems “corporatism”, to distinguish them from free market capitalism.

Hansen appears to be fed up with corporatism, and he has good reason to feel that way. However, what he describes is merely how capitalism operates in a free market. As he says, he favours an “emerging form of capitalism”.

He quotes: “…businesses are locked into a cycle of exploiting the world’s resources in ever more creative ways.”

This is half true, of course. The sole aim of business progress is to increase profit. That requires not only increasing revenues, but decreasing costs. The market – which is a term for the collective actions of all individuals – dislikes inefficiency. Capitalist organisations were once hierarchically organised because this was the most efficient way to control large-scale projects. Increasingly, as technology improves, so does business organisation. Markets cut out middlemen, when they begin to cost more than the value they add to a transaction. Markets become decentralised, pushing power into the hands of better-informed consumers.

Services like Uber and Lyft are a great example of this dynamic at work. Instead of monolithic public transport or taxi companies that rely on regional monopolies and centralised dispatch offices, it has become feasible for passengers to interact directly with drivers, which improves route flexibility, reduces wait times and pushes down prices. A recent startup, Arcade City, is proposing to flatten even this structure, by doing away with centralised control over fares altogether. Using distributed digital ledger technology (the Ethereum blockchain), it will let drivers and riders decide on any fare and payment method, from credit cards down to donations and barter. It intends to layer other services, such as food delivery, courier services or roadside assistance, on top.

This is simply how the market operates. Different attempts to reduce inefficiency compete with each other. Some fail, while those that actually work succeed and make a profit. This dynamic is blunted under corporatism, and doesn’t exist at all in a socialist world.

The same motive that drives such competition – the profit motive – also drives innovation dedicated to reducing the demand for resources, whether those be time, labour, or raw materials. More efficient use of resources is good for the bottom line, of course. But it is also good for consumers, who in a competitive market benefit from higher quality at lower prices. More importantly, to Hansen’s point, is that it is good for the environment. The relationship between profit and the planet is not necessarily adversarial, and becomes less so over time, as technology improves and companies respond to public pressure.

Consider the use of wood 50 years ago compared to today, for example. A great deal of wood in manufacturing has been substituted by plastics, metals or composite products like chipboard, plywood and oriented strand board (OSB). A lot of hardwood has been replaced by fast-growing softwood like cedar and pine, which turns the forestry industry from an exploitative harvesting industry to a renewable agriculture industry. Hardwoods that are under pressure are protected not only by various laws and regulations, but also by price. Mahogany, Burmese teak, oak and walnut are no longer wasted on everyday, utilitarian furniture, but are limited to small items and expensive display pieces.

There certainly is still pressure on some old-growth forests, and much of that can be attributed to a failure to enforce property rights in forested regions. They don’t call it illegal logging for no reason. The rule of law is a feature of capitalism. Breaking the law is not.

Moreover, the pressure has been much relieved, in part thanks to the technological progress that comes with capitalism. According to the UN Food and Agricultural Organisation (FAO), net deforestation declined by 37% from 8.3 million hectares in the 1990s to 5.2 million hectares per year in the subsequent decade.

The global area under forest cover has been pretty steady since 1950, at about 4 billion hectares. That makes the annual deforestation rate 0.13%. Contrary to predictions in the Global 2000 report published in 1980, which warned that “in just another few decades, we could witness the virtual elimination of tropical forests”, that rate would mean the world would lose half its forest cover in 533 years. If the rate of deforestation continues to decline as it did in the last 20 years, which is a reasonable expectation, it would reach zero by the end of this century, with 3.986 billion hectares (or 99.6%) remaining.

On the climate change front, while forest management has not always contributed to atmospheric carbon dioxide sequestration, which was never its main aim anyway, it has done so since about the 1950s (a fact which the Washington Post manages to relegate to paragraph 16 of its story on the subject). And counter to the environmental movement’s reverence for tropical hardwood forests, recent research shows that new-growth forests actually capture more carbon than old-growth forests.

This strongly contradicts the picture Hansen sketches of a world “committed to the relentless pursuit of growth, even if it ravages the planet”.

His other examples are equally tenuous. Population growth was a popular focus of fear in the 1970s, which led to predictions of mass starvation and calls for extreme measures such as eugenics and forced sterilisation programmes by environmentalists like Paul Ehrlich and his co-author, Barack Obama’s current chief science adviser, John Holdren. However, as I wrote in 2013, population growth is slowing down. It took longer to add the seventh billion than it took to add the sixth.

While Hansen is (almost) correct to say the world’s population might reach 10 billion by 2050 (the correct figure, according to his source, is 9.6 billion), he fails to mention that the same UN agency says the total world population might peak by then, and certainly will slow towards the end of the century. Moreover, in more developed (read: more capitalist) regions, the predicted peak comes as early as 2035, after which populations will slowly begin to decline. Progress and development are not only correlated with declining fertility rates, but also with increased life expectancy, which is expected to reach 76 years by mid-century, and 82 years by 2100.

Hansen mentions “commercial agriculture” as a cause of habitat loss, but fails to note – as I also wrote three years ago – that the expansion of land under farming has peaked. At the time, I quoted the authors of the paper in question: “We believe that humanity has reached peak farmland, and that a large net global restoration of land to nature is ready to begin. Happily, the cause is not exhaustion of arable land, as many have feared, but rather moderation of population and tastes and ingenuity of farmers.”

I have also covered the persistent scare that we’re running out of resources. The most popular focus of this fear has been oil, but we were swimming in the stuff even before the price collapsed due to a global glut in supplies. A few select minerals are fairly scarce, but capitalist economics is all about how markets respond to scarcity by balancing supply and demand via the price mechanism. When scarcity increases, prices rise, which incentivises production and increases frugality. In general, the idea that we’re running out of resources is simply not true.

Starvation, which Hansen placed in his marquee headline, is also a far-fetched idea. The reality is that the average daily intake of calories per capita has risen strongly and consistently in both the developed and developing world, as economies have become more free since World War II. According to the FAO, the proportion of undernourished people in developing regions has declined from 23.3% to 12.9%, despite signi?cant population growth. Besides war and corruption, the biggest threat to progress on this front is not “endless economic growth,” but a lack of it.

Poverty rates have followed an even more encouraging trend – another point I made recently. The UN reported a decline in the poverty rate in the developing world from 47% in 1990 to 14% in 2015, thanks to capitalism and free markets. His only actual statistic, the 15% poverty rate in the US, ignores the simple fact that the US poverty line is not $1.90 per day, as it is worldwide. Instead, its poverty threshold varies between $14 and $32 per day, depending on family size. Comparing poverty levels between countries is complicated. For example, UNICEF uses a poverty rate set at 60% of a country’s median income. So if you’re rich, but live in a very rich country, you may be counted as poor. If the US poverty rate is similar to that of other countries, that is so because it is defined similarly. In truth, even the poorest Americans are richer than 80% of the world’s population. So frankly, Hansen should stop whining.

Inequality, the perennial fall-back when poverty figures don’t make your case, can be harmful to economic growth and poverty alleviation, but only when caused by political connections, rather than by capitalism itself.

Another column of mine pierced the alarmism about a supposed sixth mass extinction peddled by environmental alarmists.

Extinction rates are most likely higher than in the past, and much can be done to curb them. However, the alarming predictions usually trotted out – 100 species lost per day – are subject to massive uncertainty. Even today, extinction rates cannot be reliably measured, and even educated guesses are fraught with difficulty. This might explain why fewer than 1,200 extinctions have actually been recorded in the last 400 years. Most studies are performed on isolated islands because they serve as small, closed ecosystem laboratories, assume a formulaic relationship between habitat area and species numbers, and suffer from other defects. A 2009 re-evaluation of extinction rates shows that if the commonly-cited predictions of environmentalists like the aforementioned Paul Ehrlich, Norman Meyers (who was also responsible for the disappearing forests prediction), Thomas Lovejoy and Edward O. Wilson had been true, we should have seen 50% of all species lost in the last 30 years. We haven’t.

Contrary to anti-capitalist rhetoric, wildlife conservation has, in fact, been aided immeasurably by private ownership of land and game, with private ranches accounting for the majority of land under conservation. A case study that has been part of the literature for over 25 years involves the recovery of white rhino from near-extinction, largely thanks to a change in the law that permitted wildlife ranch owners to buy and sell game. Its author, environmental economist Michael t’Sas Rolfes, has done follow-up work along similar lines. The Convention on International Trade in Endangered Species (CITES) claims vicuñas – a Peruvian relative of the llama – as one of its few success stories. However, in reality it was saved from extinction because trade in its fine wool was legalised and ownership of the animals was transferred from the state to the people. Again, capitalism came to the rescue, when government control had failed.

Industrial development has certainly caused environmental damage, but increasing prosperity in free, capitalist economies is positively correlated with improving environmental conditions.

It simply isn’t true to say, as authors Christopher Wright and Daniel Nyberg do, and Hansen quotes approvingly, that “large corporations are able to continue engaging in increasingly environmentally exploitative behaviour by obscuring the link between endless economic growth and worsening environmental destruction”. The fact is that there is no such link to obscure.

All of these facts – on deforestation, population growth, agriculture expansion, habitat loss, extinction rates, resource scarcity, poverty and starvation – contradict Hansen’s alarmist view that capitalism has failed to improve human well-being at scale, and that we will not be able to feed people “while we exhaust the resources that remain”. On the contrary. The link between these data and economic prosperity runs exactly opposite to what Hansen claims.

Sure, capitalism is changing. It always does. The entire purpose of a market economy is to respond to changes in circumstances and adapt to the evolving needs and wants of people. But Hansen’s premise, that capitalism needs to change because it has been a destructive force antithetical to human welfare, is false on every count. DM

PS. I linked to an archived copy of the Forbes article, since the magazine’s own website has a truly annoying ad-block detection system which reports false positives even on fresh installs of multiple browsers, and if you do get past it, the site might serve you malware disguised as advertising. Forbes claims to be working on the problem, but read its version of events at your own risk.)


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