“Sustainable Capitalism – Euphemism for Statism”
Sydney M. Williams
There is little in life so dangerous as a deceptive concept dressed in protective coloring. The term “sustainable capitalism” falls into that category. Sustainable capitalism is based on the belief that free market capitalism has failed. Supporting that belief would be the widened income gap, the near collapse of the financial system in 2008, and the emphasis of investors and management on short term results. Business decisions based on fulfilling short term market expectations have led to boards of directors ignoring the longer term implications of their strategy. The grasp for profit, these people believe, is destroying our environment and menacing our climate. A new and better form of capitalism is required – sustainable capitalism, which incorporates ecological integrity, social responsibility and economic viability. In short, what is wanted is a utopian dream.
Seven years ago John Ikerd, a professor emeritus of agricultural economics at the University of Missouri, wrote, Sustainable Capitalism: A Matter of Common Sense. The book is based on the seemingly commonsensical concept that an economy can only grow indefinitely if it can do so without consuming more energy and natural resources than it reproduces; but, tellingly, it ignores innovation. The line of reasoning is similar to the 1972 report issued by the Club of Rome, “Limits to Growth” that focused on ecological sustainability. It is reflective of the “Bruntland Report”, issued in 1987 by the United Nations Commission on Environment and Development, which defined sustainable growth in social and ethical, as well as in ecological terms. Both reports were based on the noble idea that present day capitalist scavengers were destroying the opportunities for future generations. But, like the Malthusians of 200 years ago, neither report allowed for the creative ingenuity of individuals operating in a free market environment. What the Malthusians and the Club of Rome did not anticipate was the growth in technology, which, thanks to scientists like the American agriculturist, Norman Borlaug, greatly increased per-acreage food production in undeveloped parts of the world.
Free markets do have short comings. Excesses get built into the system, allowing speculators to make unreasonable profits, as they did in the financial industry in the later half of the past decade. But, people and businesses are also allowed to fail. At times, unscrupulous operators take advantage of the unwary. Outcomes are never equal; free markets are merit based. There are people who work harder than others; some have more talent or luck. Certainly there are those few businessmen who aim for short term gains – they will rip off customers, milk their resources and then, with cash collected, disappear into the night. Even the tightest regulations will never get rid of all the bad guys.
However, free markets are easy to understand; they are not plagued with multiple agendas. A profit is the principal purpose of any business; though all for-profit enterprises are responsible to four constituencies – customers, employees, owners and community. The confluence of those constituencies allows a business to prosper and grow, increasing employment and raising living standards. In a purely market based economy, failure means bankruptcy and loss of capital. Creative destruction keeps businesses flexible and executives alert, adapting as technology changes. Of course, our capitalist system, while not mercantilist, does have a large government component. Unfortunately it was government that permitted banks to become too big, and has allowed tax credits and expenditures to benefit certain industries over others. Also, financial repression has kept interest rates lower than where they would be if left to market forces, negatively impacting savers while helping borrowers. And, it has created an atmosphere of crony corruption with big government teaming up with big labor and big business. Sustainable capitalism, by definition, increases the role of government.
It is not that the idea of sustainable capitalism is all bad. There has been a focus on short term profits versus long term investment. The world’s population continues to expand, albeit at an increasingly slower rate. The developing world is becoming richer, which means standards of living are rising. Rising living standards translate into an increased demand for consumer goods, which, in turn, drives demand for natural resources.
The problem with sustainable capitalism is that it relies on government bureaucrats. Not surprisingly the single most public advocate has been Al Gore and his firm, which has made him a fortune over the past decade, Generation Investment Management. Mr. Gore and his partner David Blood, like all opportunistic capitalists, have taken the financial crisis and turned it to their advantage, the difference being that they have arrogantly disguised its wolf’s body in the clothing of a peaceful lamb. Mr. Gore, in a Wall Street Journal op-ed three years ago, placed the blame for the crisis on an emphasis on “short-termism”, poor governance, regulation and misaligned compensation and incentive system. While all of those factors played a role, he conveniently ignored a culture, fostered by government that encouraged people to live beyond their means. It was debt and exceptionally low interest rates that allowed asset prices to rise beyond reasonable levels that are at the root of the cause. Government (and unions), in terms of welfare benefits, aggravated an entitlement culture, by promising what a prudent man knew they could not deliver. Government sponsored enterprises (GSEs), like Fannie Mae and Freddy Mac – equally complicit – were mandated by Congress to lend to those with poor credit histories, regardless of the consequences.
In a Wall Street Journal op-ed last week, Mr. Gore and his partner David Blood penned another missive advocating sustainable capitalism. Sounding like Old Testament prophets, their tone has become even more hysterical: “The disruptive threats now facing the planet are extraordinary: climate change, water scarcity, poverty, disease, growing income inequality, urbanization, massive economic volatility and more.” Regardless of their spiteful tone, environmental issues, at least in the developed world, have been improving for decades; world-wide, poverty is in decline; income inequality in the U.S. peaked ten years; urbanization is a natural trend that has been on-going for two hundred years, and markets have always been susceptible to bouts of volatility. Mr. Gore is simply trying to drum up business for his firm, a perfectly respectable thing to be doing, except for the hypocrisy of his argument. Among his recommendations for “immediate adoption” is to end the practice of companies’ issuing quarterly guidance; he favors a system of issuing guidance “only as they [management] deem appropriate (if at all.)” Should Mr. Gore take his firm public his intent would be to disclose as little as possible!
But, most insidious, sustainable capitalism leads to statism. Perhaps its advocates see sustainable capitalism as a response to Chinese mercantilism? I don’t know. Calls for the integration of soft measurements, like environmental, social and governance factors into markets, implies an understanding that someone (a new Czar?) must determine those standards. There is also, in their recommendations, an inference that markets and people cannot be trusted to make correct decisions.
Certainly, I am not so naïve as to believe that free market capitalism is without blemish. There has been too much emphasis on the short term, but the existing tax code could address that problem. Poverty is being addressed in the developing countries. One of the immediate victims of an improved living standard is the environment, but time will address that concern in places like China, as it has done in the West. Keep in mind, environmental concerns are a luxury of the wealthy. Poor people first concern themselves with food, water and shelter. But, when people like the sanctimonious Al Gore decide that our “betters” should determine what is in our best interest, my hackles rise and I question motivation. The answer seems to me dual – financial profits and political power. Beware the wolf that bleats.
Thought of the Day
“Sustainable Capitalism – Euphemism for Statism”
December 19, 2011There is little in life so dangerous as a deceptive concept dressed in protective coloring. The term “sustainable capitalism” falls into that category. Sustainable capitalism is based on the belief that free market capitalism has failed. Supporting that belief would be the widened income gap, the near collapse of the financial system in 2008, and the emphasis of investors and management on short term results. Business decisions based on fulfilling short term market expectations have led to boards of directors ignoring the longer term implications of their strategy. The grasp for profit, these people believe, is destroying our environment and menacing our climate. A new and better form of capitalism is required – sustainable capitalism, which incorporates ecological integrity, social responsibility and economic viability. In short, what is wanted is a utopian dream.
Seven years ago John Ikerd, a professor emeritus of agricultural economics at the University of Missouri, wrote, Sustainable Capitalism: A Matter of Common Sense. The book is based on the seemingly commonsensical concept that an economy can only grow indefinitely if it can do so without consuming more energy and natural resources than it reproduces; but, tellingly, it ignores innovation. The line of reasoning is similar to the 1972 report issued by the Club of Rome, “Limits to Growth” that focused on ecological sustainability. It is reflective of the “Bruntland Report”, issued in 1987 by the United Nations Commission on Environment and Development, which defined sustainable growth in social and ethical, as well as in ecological terms. Both reports were based on the noble idea that present day capitalist scavengers were destroying the opportunities for future generations. But, like the Malthusians of 200 years ago, neither report allowed for the creative ingenuity of individuals operating in a free market environment. What the Malthusians and the Club of Rome did not anticipate was the growth in technology, which, thanks to scientists like the American agriculturist, Norman Borlaug, greatly increased per-acreage food production in undeveloped parts of the world.
Free markets do have short comings. Excesses get built into the system, allowing speculators to make unreasonable profits, as they did in the financial industry in the later half of the past decade. But, people and businesses are also allowed to fail. At times, unscrupulous operators take advantage of the unwary. Outcomes are never equal; free markets are merit based. There are people who work harder than others; some have more talent or luck. Certainly there are those few businessmen who aim for short term gains – they will rip off customers, milk their resources and then, with cash collected, disappear into the night. Even the tightest regulations will never get rid of all the bad guys.
However, free markets are easy to understand; they are not plagued with multiple agendas. A profit is the principal purpose of any business; though all for-profit enterprises are responsible to four constituencies – customers, employees, owners and community. The confluence of those constituencies allows a business to prosper and grow, increasing employment and raising living standards. In a purely market based economy, failure means bankruptcy and loss of capital. Creative destruction keeps businesses flexible and executives alert, adapting as technology changes. Of course, our capitalist system, while not mercantilist, does have a large government component. Unfortunately it was government that permitted banks to become too big, and has allowed tax credits and expenditures to benefit certain industries over others. Also, financial repression has kept interest rates lower than where they would be if left to market forces, negatively impacting savers while helping borrowers. And, it has created an atmosphere of crony corruption with big government teaming up with big labor and big business. Sustainable capitalism, by definition, increases the role of government.
It is not that the idea of sustainable capitalism is all bad. There has been a focus on short term profits versus long term investment. The world’s population continues to expand, albeit at an increasingly slower rate. The developing world is becoming richer, which means standards of living are rising. Rising living standards translate into an increased demand for consumer goods, which, in turn, drives demand for natural resources.
The problem with sustainable capitalism is that it relies on government bureaucrats. Not surprisingly the single most public advocate has been Al Gore and his firm, which has made him a fortune over the past decade, Generation Investment Management. Mr. Gore and his partner David Blood, like all opportunistic capitalists, have taken the financial crisis and turned it to their advantage, the difference being that they have arrogantly disguised its wolf’s body in the clothing of a peaceful lamb. Mr. Gore, in a Wall Street Journal op-ed three years ago, placed the blame for the crisis on an emphasis on “short-termism”, poor governance, regulation and misaligned compensation and incentive system. While all of those factors played a role, he conveniently ignored a culture, fostered by government that encouraged people to live beyond their means. It was debt and exceptionally low interest rates that allowed asset prices to rise beyond reasonable levels that are at the root of the cause. Government (and unions), in terms of welfare benefits, aggravated an entitlement culture, by promising what a prudent man knew they could not deliver. Government sponsored enterprises (GSEs), like Fannie Mae and Freddy Mac – equally complicit – were mandated by Congress to lend to those with poor credit histories, regardless of the consequences.
In a Wall Street Journal op-ed last week, Mr. Gore and his partner David Blood penned another missive advocating sustainable capitalism. Sounding like Old Testament prophets, their tone has become even more hysterical: “The disruptive threats now facing the planet are extraordinary: climate change, water scarcity, poverty, disease, growing income inequality, urbanization, massive economic volatility and more.” Regardless of their spiteful tone, environmental issues, at least in the developed world, have been improving for decades; world-wide, poverty is in decline; income inequality in the U.S. peaked ten years; urbanization is a natural trend that has been on-going for two hundred years, and markets have always been susceptible to bouts of volatility. Mr. Gore is simply trying to drum up business for his firm, a perfectly respectable thing to be doing, except for the hypocrisy of his argument. Among his recommendations for “immediate adoption” is to end the practice of companies’ issuing quarterly guidance; he favors a system of issuing guidance “only as they [management] deem appropriate (if at all.)” Should Mr. Gore take his firm public his intent would be to disclose as little as possible!
But, most insidious, sustainable capitalism leads to statism. Perhaps its advocates see sustainable capitalism as a response to Chinese mercantilism? I don’t know. Calls for the integration of soft measurements, like environmental, social and governance factors into markets, implies an understanding that someone (a new Czar?) must determine those standards. There is also, in their recommendations, an inference that markets and people cannot be trusted to make correct decisions.
Certainly, I am not so naïve as to believe that free market capitalism is without blemish. There has been too much emphasis on the short term, but the existing tax code could address that problem. Poverty is being addressed in the developing countries. One of the immediate victims of an improved living standard is the environment, but time will address that concern in places like China, as it has done in the West. Keep in mind, environmental concerns are a luxury of the wealthy. Poor people first concern themselves with food, water and shelter. But, when people like the sanctimonious Al Gore decide that our “betters” should determine what is in our best interest, my hackles rise and I question motivation. The answer seems to me dual – financial profits and political power. Beware the wolf that bleats.
Labels: TOTD
posted by Thought of the Day @ 7:46 AM
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