Capitalism and resource exploitation

Originating in Western Europe in the sixteenth century, capitalism is a socioeconomic system that channels individual efforts toward increasing economic growth. Historically, economic growth is associated with an increasing human population and the increasing exploitation of natural resources.

Background

Capitalism has a number of characteristics that differentiate it from traditional economies and command economies. First, as Karl Polanyi observes in The Great Transformation (1964), capitalism is characterized by a market economy. A market economy means subjecting human beings, means of production, and nature to “market forces.” A market economy allocates labor, capital, and resources to their most profitable uses. While markets do exist in traditional economies, they play a limited role, serving as a means of disposing of surplus products. In command economies, markets are subordinated to the authority of the state. Second, capitalism is characterized by the production of commodities. Commodities are anything produced for sale. As Vandana Shiva points out in Staying Alive: Women, Ecology, and Development (1989), the transformation of natural resources into commodities requires separating resources from their natural environment. From a market perspective, forests, wildlife, and other natural resources have value only as commodities.

Third, capitalism is characterized by private property. Private property conveys to the owners of capital and resources the right to use their property regardless of the impact on society or nature. More recently, property refers not to the use of the property but rather to its value. Fourth, capitalism is characterized by the accumulation of capital. Accumulation begins with the capitalist who invests money to purchase inputs: capital, labor, and resources. These inputs are then converted into finished products, which are sold for money exceeding that originally invested. The resulting profit is subsequently reinvested. This implies that the accumulation of capital is self-expanding, requiring increasing quantities of resources and other inputs.

The quest for profits makes capitalism an inherently dynamic system. As Joseph Schumpeter observes in Capitalism, Socialism, and Democracy (1942), “Capitalism . . . is by nature a form or method of economic change and not only never is but never can be stationary.” Economic change results from the introduction of innovations—that is, from opening new markets, developing new products, introducing new technologies, and so on.

Competition for profit compels capitalists to innovate. Innovations in turn alter how humans relate to one another and to nature. First, innovations alter the mix of inputs required. In turn, this alters the distribution of income by eliminating or reducing the demand for one input and increasing the demand for other inputs. Second, innovations alter the form of cooperation both within the business and among individuals in society. Television, for example, reduced the degree of human interaction. Third, innovations expand the types and quantities of resources required. From a historical point of view, this expansion is associated with the expansion of capitalism itself.

Mercantilism: 1600-1800

Mercantilism is the first stage of capitalism, representing a symbiotic relationship between government and business. Business provided governments with a source of tax revenue; governments provided business opportunities for profit. Governments offered business protection, established monopolies, obtained colonies, and created national markets.

Creating a national market required reducing transportation costs. Clearing waterways and digging canals reduced the costs of the two most important resources in transporting goods: wind and water. Industries spread along the rivers and into the forests. In many places the spread of industry led to widespread deforestation. European countries established colonies to provide resources, especially gold and silver, in order to fuel the expansion. In general, this meant seizing the land and labor of the indigneous peoples of the world.

Laissez-faire or Market Capitalism: 1800-1930s

Market capitalism is the second stage of capitalism, ushered in by the innovations introduced by the Industrial Revolution. Beginning in the last decade of the eighteenth century and the first decades of the nineteenth century in England, the Industrial Revolution introduced machines into the workplace.

The Industrial Revolution had a number of profound implications for society. First, machines (epitomized by the steam engine) freed industry from its dependence on water and wind; industries could locate anywhere. Second, the introduction of railroads reduced the price of coal relative to wood. Coal freed society from its dependence on renewable resources, enabling individuals to tap into the energy accumulated over eons. The result was an explosion in economic growth. As Jean-Claude Debeir, Jean-Paul Deléage, and Daniel Hémery state in In the Servitude of Power (1991, originally published in French in 1986), coal enabled “the European economies to by-pass the natural limitations of organic energy, [and] this new system set them on the path to mass production.” In the United States, the railroad aided the descendants of Europeans in subjugating American Indians and taking their lands.

Third, the Industrial Revolution altered the institutions of capitalism. The Industrial Revolution introduced the factory system, depersonalizing relations between capitalists and workers. Furthermore, the dramatic increase in economic growth necessitated a change in the role of government. Government adopted a policy of laissez-faire, agreeing not to interfere with business activities.

The Corporate Welfare State

The corporate welfare state is the third stage of capitalism, associated with the development of new technologies. First, new technologies in railroads, steel production, oil, and so on enabled businesses to reduce their unit costs by expanding output. Corporations gained prominence as a means of reducing competition by controlling output. Second, many of the new technologies proved expensive. Few businesses could raise the necessary financing. Corporations provided a new means of financing, namely stocks.

Third, the new technologies expanded the resource base. Oil, for example, became increasingly important. Standard Oil Company’s effort to monopolize the sources, production, and refinement of oil in the late nineteenth century fueled the public’s mistrust of corporations. In response, the U.S. government passed the Sherman Antitrust Act in 1890 specifically preventing monopolies.

Fourth, the severe economic depressions of the nineteenth and early twentieth centuries became politically unacceptable. People demanded that governments provide a degree of economic security, a demand that manifested itself in the social legislation of the 1930s and the 1960s. Further threats to economic security stemmed from the West’s dependence on fossil fuels. Some of the events surrounding the oil embargo of the 1970s, the Gulf War of 1990, and the War in Afghanistan beginning in 2001 showed the willingness on the part of the industrialized countries of the West to intervene in those countries considered vital to ensure the flow of oil.

Resource Consumption and the Future of Capitalism

The question of whether or not humankind can continue to consume the resources of the world at present rates has evoked two different perspectives regarding the future of capitalism. A tradition within British political economy since the work of economist David Ricardo in the early nineteenth century contends that the exploitation of limited resources will in time cause economic growth to decline.

Ricardo asserted that economic growth confronted with limited land would eventually raise rents, thereby squeezing profits. Eventually the rate of profit falls to zero, resulting in the stationary state. William Stanley Jevons, writing in the late nineteenth century, agreed with Ricardo except that Jevons believed that declining growth would result from limited coal deposits. More recently, Nicholas Georgescu-Roegen expressed a similar view in The Entropy Law and the Economic Process (1971). Georgescu-Roegen asserted that growth is ultimately limited by the finite supply of low-entropic resources.

In 1972, the Club of Rome, a group of distinguished scientists, published The Limits to Growth, predicting the depletion of many resources within forty years. Their time predictions proved incorrect, but their central point—concerning limitations on the rate of growth could, and can, continue—remains.

The alternative viewpoint asserts that resources are sufficiently abundant. This argument rests on the assumption that changes in prices will elicit the discovery of alternative resources. For example, as oil supplies decline, the price of oil rises. Higher oil prices provide incentives either to find additional oil or to find alternatives to oil. This concept assumes that markets “work” and that substitutes can and will be found (this has been called the "assumption of infinite substitutability"). Whether economic growth is sustainable ultimately turns on the human ability to substitute renewable resources for nonrenewable resources.

Yet another line of thinking has it that the future of capitalism depends on the decoupling of economic growth, as measured by gross domestic product, from limited natural resources and the environment affects of their use. Proponents of this theory include government and United Nations officials and the World Resources Institute think tank. Some proponents have argued that decreases in carbon dioxide emissions during periods of increasing national economic growth indicates that such a decoupling is possible and already happening. Skeptics, including some sustainability experts and political economists, claim that those results derive rather from efficiency gains and resource substitutions, both of which have finite limits themselves, as well as from the geographical separation of production and consumption. Critics of the decoupling theory further contend that at the least, different standards and measures of economic progress and societal well-being are needed.

Scholars point out that capitalism has caused emissions inequality because the wealthier countries generate the most These countries include China, the United States, India, and Russia. The climate changes caused by these emissions affect the poorest countries by impacting their water quality and reducing the amount of safe drinking water available. These scholars suggest using capitalism to remedy the situation by offering carbon credits to companies that reduce their emissions. Companies can sell the credits they earn by emitting less carbon.

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