Spreading capitalism creates global prosperity and environmental sustainability. Abandoning it is disastrous.

It is not social policy but capitalism that has created today’s prosperity.

What is important is that what made today’s mass prosperity possible – a phenomenon unprecedented in history – was not social policy or social legislation, organised trade union pressure, or corrective interventions in the capitalist economy, but rather market capitalism itself, due to its enormous potential for innovation and the ever-increasing productivity of human labour that resulted from it.

Increasing prosperity and quality of life are always the result of increasing labour productivity. Only increased productivity enabled higher social standards, better working conditions, the overcoming of child labour, a higher level of education, and the emergence of human capital. This process of increasing triumph over poverty and the constantly rising living standards of the general masses is taking place on a global scale – but only where the market economy and capitalist entrepreneurship are able to spread.

From industrial overexploitation of nature to ecological awareness

The first phase of industrialisation and capitalism was characterised by an enormous consumption of resources and frequent overexploitation of nature, which soon gave the impression that this process could not be sustainable. Since the end of the 19th century, disaster and doom scenarios have repeatedly been put forward, but in retrospect they have proved to be wrong: The combination of technological innovation, market competition, and entrepreneurial profit-seeking (with the compulsion to constantly minimise costs) have meant that these scenarios never occurred. The ever-increasing population has been increasingly better supplied thanks to innovative technologies, ever-increasing output with lower consumption of resources less harmful to the environment – e.g. less arable land in agriculture, or oil and electricity instead of coal for rapidly increasing mobility. More recent disaster scenarios, such as those spread by reputable scientists since the late 1960s and in the 1970s, have also proved to be inaccurate.

The reason things developed differently was the always underestimated innovative dynamism of the capitalist market economy, a growing ecological awareness and, as a result, legislative intervention that took advantage of the logic of market capitalism: As a result of the ecological movement that had come out of the United States since 1970, wise legislation began to use the price mechanism to apply market incentives to internalize negative externalities. Environmental pollution was given a price-tag.

This led to an enormous decrease in air pollution and other ecological consequences of growth, which is only possible in free, market-based societies, because the production process here is characterized by competition and constant pressure to reduce costs, i.e. to the most profitable use of resources. On the other hand, all forms of socialism, i.e. a state-controlled economy, have proved to be ecological disasters and have left behind destruction of gigantic proportions, without providing the population with anything that is near comparable in prosperity, often even by destroying existing prosperity, such as happened in Venezuela.

Capitalist profit motive combined with digitalization as a solution: Increasing decoupling of growth and resource consumption

Moreover, technological innovations combined with capitalist profit-seeking and market competition have led to a new and surprising phenomenon over the past decades, which is still hardly noticed in the public debate: the decoupling of growth and resource consumption (“dematerialization”). In a wide variety of industrial sectors, the developed countries, above all the U.S., are now achieving ever greater productive output with increasingly fewer resources. This has a lot to do with technology, especially the digitalization of the economy and of our entire lives.

As the well-known MIT professor Andrew McAfee shows in his book More from Less, published in October 2019, this process also follows the logic of capitalist profit maximization. To get it going, we do not need politics, even though wise, properly incentivizing legislation can be helpful and sometimes necessary. Above all, however, it is the combination of technological innovation, capitalist profit-seeking, and market-based entrepreneurial competition that will also solve the problem of man-made global warming.

In addition, property rights and their protection are decisive for the careful use of natural resources. And where this is not possible, legal support for collective self-governing structures, in accordance with the principle of subsidiarity, are important—as is analysed by Nobel Economic Prize winner Elinor Ostrom. By contrast, the growing ideologically motivated anti-capitalist eco-activism, and the policies influenced by it, are leading in the wrong direction, distracting precisely from what would be best for the climate and the environment—and distracting us from what could help protect us against the inevitable consequences of global warming.