1 Nov 2012

Capitalism, growth, steady state and prosperity

AC asks:
I assume you're familiar with the zero-growth movement, which advocates for ending our reliance on economic growth as the be-all and end-all of human achievement. In a way, it demonizes the market-as-god concept and tries to instead put human and environmental health/sustainability as the ultimate goals of society.

So, my question for you is this: how would market-based water pricing and private water companies operate in this new type of zero (or negative) growth economy/society? Or, do you think anti-growth types are all head-in-the-cloud idealists? Or something else?
First of all, capitalism is compatible with growing, shrinking or "steady-state" versions of the economy (in aggregate or per capita) because capitalism and markets deliver value in exchange for profits. If people want to eat meat, then capitalists will deliver. If they want to eat carrots, then markets will deliver. Will we see profits and employment grow? Not if productivity outpaces demand. Is that a problem? Only if you worry about the physical economy and per capita consumption (on a value-added basis) is falling.

Since neither of these is likely, I'd predict that capitalism will deliver when people are consuming fewer goods (perhaps of greater value) and/or shifting to services. Also note that capitalism is compatible with improving the provision of non-private goods (e.g., parks, roads, etc.)

Just as a side-note, remember that "steady state" is really a myth in both biological and cultural terms. Evolution and history only run in one direction, so it's really impossible to "stay steady" (unless you're dead). I'd suggest that we use the terms "evolution" to refer to the changes we prefer in natural and human processes and "crash" or "revolution" to refer to the uncomfortable, costly and abrupt changes that we'd prefer to avoid, but that may be worthwhile when the path is unsustainable.

Bottom Line: Humans should pursue economic growth only when it's compatible with increasing human welfare, not as a bureaucratic fetish or outcome of processes that privatize gains and socialize losses. The capitalism that is compatible with both can be abused by political actors who do not serve the common interest.