Sunday, August 8, 2010


IQ2 Debate, Sydney City Recital Hall
Tuesday, August 10,2010

The older I get, the more I worry about saving the planet. The past 200 years have seen a phenomenal expansion in economic activity around the world. In that time, the world’s population has exploded from one billion to 6½ billion. Over the same period, the average standard of living of all the people in the world has increased sixfold. Multiply the two together and you see the amount of economic activity in the world has increased by a factor of 45.

I fear that this huge expansion of human activity over just the past 200 years has reached a point where it’s starting to do significant damage to the natural environment - the ecosystem. The trouble is that, while the economy grows exponentially (that is, at a reasonably steady percentage rate) - the ecosystem doesn’t. It’s fixed in size. This says there must be natural limits to growth, and I suspect we’re close to those limits. That certainly seems to be the case with global warming: 200 years of growing use of fossil fuels have caused a build-up of carbon dioxide and other greenhouse gasses in the atmosphere that exceeds the earth’s capacity to absorb it, and this is starting to interfere with the climate in ways that are soon likely to do great damage to the economy. And the threat to the planet isn’t just from global warming. We also have big problems with water, soil, fish stocks and the destruction of species. As I say, I fear we’re reaching the limits to growth in our use of natural resources.

And yet I have no hesitation in supporting the motion that ‘Only capitalism can save the planet’. Why? Because, as Maggie Thatcher used to say: TINA - there is no alternative. And because capitalism is malleable. It’s changed a lot over the past 200 years as circumstances have changed, and it can change further as our needs dictate.

If you doubt that, it’s because you’re reacting to a comicbook definition of capitalism. Capitalism is just a pejorative term for a market economy - an economy where the means of production are largely privately owned and decisions about supply and demand are made in markets, with those markets receiving a greater or lesser degree of guidance from government. The world’s experiments with alternatives to market economies - central planning as in the former communist countries or heavily regulated socialist economies (such as pre-reform India) have failed and been abandoned. Those economies that retain vestiges central control are generally moving closer to a market model.

Don’t fall for either criticism or praise of The Free Market. Free markets don’t exist - never have, never will. In all real world economies freedom is constrained by government intervention to a greater or lesser extent. That’s really the point: the choice we face is not between markets that are totally unregulated or markets that are so tightly regulated they cease to be markets. The answer to our problems will never be found at one extreme or the other; it will always be found somewhere in the middle. Finding the optimal degree of regulation isn’t easy, particularly because regulating markets is much harder than it looks. It’s terribly easy to get reactions you weren’t expecting. So there’s plenty of scope for debate about where the line should be drawn.

Clearly, with the global financial crisis, the line in America was drawn too far in the direction of deregulation, great damage ensued, and now it’s clear the line needs to be redraw further in the direction of regulating. Note that we didn’t have any significant problem with our banks. So does that mean the Americans had a capitalist economy and we didn’t? Of course not. It just means we drew the regulatory line in a better spot than the Yanks did.

If the other side wants to argue that market economies are far from perfect, they won’t get any argument from me. Of course markets are far from perfect. That’s particularly true in the case of the environment, where many scarce natural resources don’t have prices and so don’t get into the market process. They’re external to the market system and so don’t benefit from the market’s usual ability to ensure those resources aren’t wasted or used to excess. But that just means governments have to find ways to get prices on them and thus get them into the market system.

Guess what? The planet is in danger and making the appropriate modifications to the capitalism system offers the best chance we have of saving it.