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Capitalism, Socialism And Environmentalism

I got involved in the environmental movement in the 1970's and a goodly number of the young people in the movement could be described as "leftists". Some had even made an assumption (which sounded reasonable at the time) that environmental deterioration was entirely a consequence of capitalism. Profit maximizing capitalists would, of course, produce goods and services at the lowest possible cost and, if this involved damaging the environment, they would be indifferent to this particular "externality". And - as we battled out various issues - most of our opposition came from large corporations which appeared to bear out this assumption.

These problems appeared to be inherent in capitalism. On the other hand, in a socialist economy, with the state controlling the means of production, there would be no "incentive" to harm the environment and managers of industrial facilities would readily adopt environmental control measures since they had no "profit motive" and therefore no incentive to minimize costs. I think that Barry Commoner may have - to a degree - believed something along these lines. Thinking about it at the time, it seemed logical to me. I was very skeptical about socialism so that I still believed we should retain a capitalist system but I also believed that it would take a great deal of effort to rein in the drive of the capitalists to minimize costs by wrecking the environment.

As time passed, evidence began to undermine the logic underlying these assumptions. First of all, disquieting evidence began to emerge that - in socialist countries (defined as countries in which the state owned the means of production) - environmental horrors were occurring. Note that I am defining "socialism" as the state ownership and operation of the means of production and this definition would exclude countries that are often wrongly labeled "socialist". The Scandanavian countries have generous- "safety nets" and are, therefore, labeled "socialist" by some but, in fact, they have vital private sectors and - in some cases - higher ratings on the "economic liberty" index than the United States. I am focusing on countries with a strict socialist model. The Soviet Union was host to the worst nuclear powerplant catastrophe (Chernobyl made Three Mile Island look like a fender bender), the destruction of the Aral Sea and various other fiascoes. China seemed to be producing some environmental atrocities. Secondly, we increasing discovered that some of the worst polluters in the United States were governmental agencies. The Department of Defense generated some nasty problems and the TVA seemed no different from investor owned utilities. Finally, most of our donors and supporters appeared to come from the upper echelons of the income brackets.

I was asked to talk about this issue in the 1990's and I was confused about how the evidence appeared to contradict what seemed to be a rational economic argument that socialism should be better for the he environment better than capitalism. Thinking it through, I came up with the following line of reasoning.

1. The Environmentalists - Environmental protection does not happen on its own. It needs a group of advocates to identify problems and agitate for change. Ideally, it should have individuals and organizations outside the government to monitor the government's actions and lobby for change. These individuals are likely to arise in an affluent society in which there are sufficient resources to support activities which will be, at first, not considered "productive." To support organized environmental advocacy groups, substantive charitable giving is required. Again, this is a luxury that only an affluent society can afford. Capitalism produces the necessary affluence to support an environmental movement. It also produces a large number of people living well enough so that they may be willing to make marginal sacrifices for the environment. The socialist economies simply do not produce the affluence necessary to support an environmental movement. Worse yet, some of them suppress any criticism of the government and, if the government owns the means of production, it is the government which will be creating potential harm to the environment.

2. Resistance to Regulation - In a capitalist economy, environmental regulation will take the form of governmental agencies issuing rules and orders requiring action by privately owned businesses. In a society with a reasonably functioning legal system, these rules and orders will be enforced based upon a fundamental assumption that a legitimate order of the government must be followed. Of course, there will be challenges to the legality and the reasonableness of these orders, but - at the end of the day - if the courts uphold the orders, private entities will be compelled to obey them. In a socialist economy, the process is very different. Even assuming that a socialist country somehow creates a powerful environmental agency, problems will still remain. The environmental agency will simply be "another part" of the government and the parts of the government which operate industrial facilities will have no particular incentive to knuckle under orders coming from a "peer" governmental authority. Environmental enforcement will simply involve one part of the government trying to tell another part of the government how to conduct its business. We have seen countless examples of the bureaucratic snafus which result from this kind of confrontation. Interservice rivalries in the military, the inability of law enforcement agencies to share information, roads "to nowhere" and other fiascoes remind us that an assumption that there will be smooth governmental coordination is wishful thinking. More likely, the result will be that the parts of the government operating industrial facilities will dig in their heels in opposition to environmental regulation, a "turf war" will result, and issues will be resolved, only after years of delay, at a very high level.

3. Technological Innovation - Some of the greatest success stories in modern environmental control involve technological innovation to reduce the costs of pollution control. These have resulted from efforts by industry and entrepreneurs to respond to the incentives created by environmental regulation. Only in a capitalist system, will the powerful incentive to reduce costs produce strenuous efforts to find new ways to control pollution. As the cost of pollution control declines, the cost/benefit analysis applied to determine optimal control levels will tilt in favor of a cleaner and cleaner environment. A system of state ownership of the means of production cannot generate this level of innovation although it may try to clumsily "mandate" certain outcomes.

4. Freedom of Expression - Freedom of expression is - in a sense - the lubricant which enables modern capitalism to function. It allows for price discovery, the functioning of capital markets, and advertising aimed at consumers and other businesses. It is only from the free-for-all of free speech that economically efficient solutions to problems emerge and capital is rationally allocated. On the other hand, in a socialist economy, state planning replaces the marketplace and freedom of expression is not strictly necessary. And, in most modern examples, governments have developed various rationales for suppressing free speech. With the government owning all the newspapers and media channels, this form of suppression becomes very easy. Environmentalism has grown out of constantly evolving scientific knowledge making complex causal relations between actions and consequences - between burning coal and acid rain, between asbestos and cancer, between carbon dioxide emissions and global warming. It is only when scientists and advocates have complete freedom of speech to articulate these concerns that a movement to protect the environment can take shape. More fundamentally, the facts concerning emissions from various facilities can be suppressed by the operators of those facilities and - in the absence of free speech - never see the light of day.

Conclusion - There are times when capitalists hate environmentalists and there are times when environmentalists hate capitalists, but capitalism and environmentalism actually make a pretty good combination. Capitalism allows for the functioning of things like "effluent charges" and "pollution taxes" which create incentives to reduce pollution at the lowest possible cost and, thus, can lead to breakthroughs in pollution control technology. Capitalism creates the wealth which, in turn, opens the way for "social gadflies" to operate and critique the society, its economy and its government - an activity which is, in a sense, the ultimate luxury expenditure. My commitment to environmentalism has actually made me a stronger advocate of capitalism.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.