Greening of Capitalism

How Asia Is Driving the Next Great Transformation

John A. Mathews

• Publisher: Stanford Economics and Finance
• Year: 2014
• ISBN:
  9780804793162
• Edition: 1
• Topic: Business
• Subtopic: Government & Business
• Index: Business

As China, India, and other industrializing giants grow, they are confronted with an inconvenient truth: They cannot rely on the conventions of capitalism as we know them today. Western industrialism has achieved miracles, promoting unprecedented levels of prosperity and raising hundreds of millions out of poverty. Yet, if allowed to proceed unencumbered, this paradigm will do irreversible harm to the planet.By necessity, a new approach to environmentally conscious development is already emerging in the East, with China leading the way. Positioning its argument against zero-growth advocates and free-market environmentalists, Greening of Capitalism charts this transformation and sketches out a framework for more sustainable capitalism. State-mandated changes in energy use (as opposed to carbon taxes), a circular flow of resources (as opposed to emissions standards), and the introduction of new financial instruments that support green growth are cornerstones of China's framework. John A. Mathews argues that these tenets will be emulated around the world—first in India and Brazil. In light of this emerging shift, Mathews considers core debates over national security, international relations, and economic policy, ultimately addressing the question of whether these measures will be far-reaching or timely enough to prevent further damage.

1

Introduction

The bourgeoisie, during its rule of scarce one hundred years, has created more massive and more colossal productive forces than have all preceding generations together. Subjection of Nature’s forces to man, machinery, application of chemistry to industry and agriculture, steam-navigation, railways, electric telegraphs, clearing of whole continents for cultivation, canalisation of rivers, whole populations conjured out of the ground—what earlier century had even a presentiment that such productive forces slumbered in the lap of social labor?

—Karl Marx and Friedrich Engels, The Communist Manifesto (1848)

The Puritan wanted to work in a calling; we are forced to do so. For when asceticism was carried out of monastic cells into everyday life, and began to dominate worldly morality, it did its part in building the tremendous cosmos of the modern economic order. This order is now bound to the technical and economic conditions of machine production which to-day determine the lives of all the individuals who are born into this mechanism . . . with irresistible force. Perhaps it will so determine them until the last ton of fossilized coal is burnt.

—Max Weber, Protestant Ethic and the Spirit of Capitalism (1904)

Now that mankind is in the process of completing the colonization of the planet, learning to manage it intelligently is an urgent imperative.

—Barbara Ward and Rene Dubos, Only One Earth (1972)

The traditional development strategies of industrialised countries all present two distinct features whether in Europe, the United States or Japan, despite their differing national and development conditions. One is that high-speed growth is sustained by high consumption of resources (especially non-renewable resources); the other is that the high-speed growth is stimulated by high consumption of the means of subsistence. We call this a traditional development model. In view of China’s conditions, it is impossible for China to realise modernisation by following the traditional model.

—Hu Angang, “Green development: The inevitable choice for China” (2006)

Most books with greening in the title would be expected to start with the observation that we have only one earth and it is subject to increasing stresses from our ever-expanding industrial system. There would follow an analysis of energy and resource issues, with the aim of showing that “business as usual” cannot be allowed to continue. Capitalism, with its unbridled appetite for expansive consumption and the production that feeds it, would be viewed as the core problem. There might ensue a discussion that critiques the notion of economic growth as something that cannot continue forever in a finite world, leading to a preferred outcome of a steady-state economy as the best approximation to a balance between ecological and economic processes. Whether it is capitalist or not would be left unsaid.

None of this is wrong; it is all too true. And none of this is new; we have heard it all before. Something different is needed if we are to make headway with the greening of capitalism. It requires changes that will really matter and will really have an effect, and that are based on capitalism as it really operates.

My approach is to start at the opposite end, as it were, with the current “third phase” of industrialization that is bringing China and India into the orbit of the industrialized world. As China lifts hundreds of millions of people out of poverty, and India follows a similar course, and Brazil and many other developing countries aspire to do so as well, they open up a new pathway for development and the prospect of a new kind of industrial capitalism. There is under way a process of “shifting wealth,” whereby the center of gravity of the world economy is shifting east (and to some extent south), thereby raising the prospects for hundreds of millions more to be lifted out of poverty.¹ But no sooner do these extra millions and eventually billions seek to achieve their share of industrial wealth (as did the West through the first and second industrial revolutions) than they encounter a most inconvenient truth. Can the development model that served the already-industrialized countries—with access to the cornucopia of fossil fuels and unlimited resource flows—scale to accommodate the new demands?

The process of industrialization has lifted close to one billion people in Western Europe, North America, and Japan out of the “Malthusian trap” that pinned income to population and set them on a trajectory of rising per capita wealth. This created a “great divergence” between the West and the “rest,” accounting for the extreme disparities in wealth, income, and power that have characterized the modern world. In the twentieth century, while serious efforts were made to industrialize in many parts of the world, it was only in East Asia that catch-up, or convergence, was achieved. Now in the twenty-first century these efforts have spread to China and India, and a “great convergence” is under way, reversing the trajectories of the past two hundred years.² So the key question is, Can the industrial model that served the West so well now be adapted to meet the new demands? Can it meet the needs of up to six billion people who are looking to achieve middle-income status by 2050 (as envisaged by economists such as Michael Spence)?³ Can it do so—without subjecting the planet to irreparable harm?

The scale of the changes involved in this next “Great Transformation” is immense. The original Industrial Revolution lifted the population of Great Britain to double the per capita income over a period of around 150 years; the subsequent industrialization of the United States took around 50 years. Now China has doubled its per capita income in 12 years, and India in 16 years. Moreover, China and India are starting from a population of more than one billion, compared to around ten million for the United States and the United Kingdom early in the nineteenth century. So the pace of industrialization in this third round has picked up tenfold, and the number of people involved has expanded a hundredfold—meaning that the current transition involving the new industrial giants China and India is a thousand times more intense than the original Industrial Revolution. Can the same model of dependence on apparently unlimited fossil fuels and resource abundance underpin this latest industrial transition at such a level of intensity?

To pose the question in this way is really to answer it. As soon as the material, resource, and energy requirements needed to expand the present industrial system along conventional lines are spelled out, the impossibility of pursuing such an approach becomes clear. Industrial capitalism is rapidly “filling” the planet. Something therefore needs to be done in a way that is consistent with the engine of wealth generation that drives the capitalist economy. To borrow the phrase made famous by Karl Polanyi, who described the process of industrialization as the “Great Transformation,” we may characterize the changes that would allow industrialization to spread worldwide, in a manner that respects ecological realities, as the “Next Great Transformation.”⁴ Its current drivers, as well as the obstacles that stand in its way, are the subject of this book.

In this work I examine efforts under way in East Asia and Europe that seek to carve out a new development pathway. Insofar as its material foundations are based on a less resource-intensive approach to growth, we might call that pathway “green.” Eminent Chinese scholars like Hu Angang see such a development as the “inevitable choice” for China and, by extension, for the rest of the developing world.⁵ Thus, rather than beginning with the problems of carbon emissions; devastation of forests, fisheries, and agriculture resources; and degradation of soils and other problems, my approach is to look to “greening” of development strategies and to ask what may be the consequences for the myriad problems of environmental mismanagement that are widely discussed. The difficulty encountered in framing the issue in the conventional way, which starts with the problems, is that it appears to place the burden of solving problems created by the developed world on the shoulders of developing countries; this makes “green growth” strategies thereby suspect in the eyes of some. After all, why should developing countries have to bear the burden of higher costs for renewable energies while the developed world goes on burning cheaper coal? Why indeed? That there is considerable debate and some opposition to green strategies in the developing world is hardly surprising.⁶

A different starting point is possible, and indeed necessary. Instead of listing the well-known problems created by capitalism, one can begin by celebrating its achievements. Capitalism is an extraordinary social, political, and economic innovation that has been world transforming. The modern global system, powered by industrialization, is quite unlike anything that came before. New gigantic productive forces have been conjured into existence, in the phrase immortalized by Marx and Engels. Mortality rates have been drastically reduced, leading to a population explosion that has in turn enhanced productivity and innovation potential. Income levels have exceeded population growth, breaking humanity free of the Malthusian trap that constrained everything before.

On the whole, the arrival of industrial capitalism has been associated with profoundly positive results. Food has become cheaper and more abundant; extraction of resources has grown, and their prices relative to wages have plummeted. Early experiences of pollution and environmental degradation have been reversed. Scientific and medical breakthroughs of the first order—anesthesia, antibiotics, vaccines—have relieved humanity from age-old burdens (although those breakthroughs are not yet universally shared).

Recognition of the many achievements of industrial capitalism has sparked its emulation and rapid diffusion worldwide—in Latin America, India, East Asia, and now in China. All these countries have been industrializing on a conventional resource-intensive and fossil-fueled model first—as did the West. As industrial capitalism powered by fossil fuels and extensive resource throughput spreads worldwide, so its impact on ecological processes becomes more obvious, more intrusive, less avoidable.

The costs of continuing with “business as usual” (to use the terminology of the International Energy Agency and the Intergovernmental Panel on Climate Change) are becoming apparent—and it is in the developing countries that these costs are encountered with greatest force, as ecological limits are breached with abandon. The polluted air of Beijing and the clogged waterways of Mumbai are ever-present reminders of the toll being taken by such a pathway of industrialization, where massive resort to coal and fossil fuels leads to the fouling of the air and waterways, and equally massive throughput of resources leads to chemical pollution on a scale unprecedented.

It is therefore perhaps not surprising that the strongest response is also to be found in these developing countries. China in particular is emerging as a leader in building renewable energy industries and advancing the frontier of resource efficiency technology. After all, the conventional view has been that it would be the most advanced countries that would be supplying the technologies needed to clean up the planet. The fact that in many ways it is the latecomers like China that are taking the lead, while the advanced countries remain locked in by their carbon investments, is at odds with this conventional view. It throws up one of the most challenging issues to be resolved by the social sciences.

How can we account then for this unanticipated development? I advance a response in this book that integrates three major lines of argument, each associated with a pioneering thinker of the twentieth century. First, the argument I advance is neo-Schumpeterian, in that it evolves through repeated episodes of creative destruction, which turns on the capacity of firms to drive change, subject to the institutional incentives and barriers created by the prevailing techno-economic paradigm. The latest such shift may be identified with the surge of investment in renewable energies and low-carbon technologies. It amounts to a complete change in techno-economic paradigm and creates unprecedented opportunities for the firms (and countries) that grasp the challenge. Second, the argument is neo-Gerschenkronian, in that it focuses on the latecomers to industrialization and how they draw advantages from adopting a green development model. China is the clear latecomer that is arguably adapting fastest to the demands of a greening of capitalism. Finally, the argument is neo-Olsonian, in that it takes account of the tangle of institutional blockages and vested interests that block and delay the transition in the most advanced countries—what is memorably described as “carbon lock-in.”⁷ This implies that the initiative in shifting to a new kind of industrial system will most likely pass to the countries that have contributed least to the present problems.

From these three perspectives an argument is distilled whereby it is the latecomers like China that have the most pressing need for green growth strategies, given the terrible environmental catastrophes they are experiencing, and that have the greatest incentive to implement an alternative development model. What is equally important is the fact that the state centered on Beijing has the capacity to do something about those problems. The country’s current Twelfth Five-Year Plan provides as close a template as one is likely to find for greening an industrial economy. In a similar move, South Korea, another East Asian practitioner of state-guided industrial transformation, has initiated its own green growth industrial strategy. By contrast, the lead countries, and particularly the United States, which came of age in the oil era, have the densest thicket of rules and institutions favoring fossil fuel interests. These rules and interests are proving to be exceedingly difficult to undo. In Europe, however, the German Energiewende (energy transformation) may have wider ripple effects as it demonstrates a middle way.

The Focus of Change: Renewable Energies, Resource Efficiency, and Finance

The variety of problems we are confronted with—the peaking of oil and gas supplies; environmental spoliation; depletion of soil and water; long-term systemic disturbances exhibited in such miscellaneous phenomena as loss of biodiversity, collapse of coral reefs, mass extinctions—all call for specific kinds of solutions. But underpinning these solutions there is a common cause—and that is the “business as usual” (BAU) kind of capitalism that has brought us (effectively so far) to this point. The argument of this book, then, is that it is changes to the rules of this particular kind of capitalism that are called for—not changes to the rules of capitalism as such, insofar as it works well on foundations of property rights, markets, and innovation. Indeed, the “free-market environme...