In 1776 Adam Smith wrote his famous passage about the invisible hand of the market which, in effect, promoted the greater good of society through the actions of individuals pursuing their own self-interest. This is the foundation of the principle of free market economics, which insists that the best possible outcomes will be produced by the activity of markets unencumbered by government regulation or other interference. In this view, a free market will naturally achieve the best distribution of goods and services through the law of supply and demand. Central planning of any kind is anathema to free market economics: at best the results are considered less efficient than they would be through the natural functioning of the free market, while quite possibly leading to the worst of all possible outcomes.
This view is taken as gospel in our contemporary economic climate, but its extreme myopia is clear to anyone concerned about the long term welfare of humanity and of the world in general. The personal greed which drives the free market has no concern for the long term: the only interest is short-term profit for oneself, with all other considerations brushed aside as externalities. Setting aside the callousness of this idea for the moment, it might make sense if the Earth were not a closed system. We simply cannot (continue to) ignore the fact that negative “externalities” have been occurring on a massive scale which effect the environment that we all share.
But as expected, this is exactly what the market continues to do. As Naomi Klein writes, investment bankers are enthusiastic about weapons manufacturers but not so sanguine about renewable energy:
Anyone tired of lousy news from the markets should talk to Douglas Lloyd, director of Venture Business Research, a company that tracks trends in venture capitalism. “I expect investment activity in this sector to remain buoyant,” he said recently. His bouncy mood was inspired by the money gushing into private security and defense companies. He added, “I also see this as a more attractive sector, as many do, than clean energy.”
Within the limited perspective of free market economics, this makes perfect sense: if you want to make money right now invest in guns and mercenaries rather than clean energy. Many investors will indeed make plenty of money this way, and in the unlikely event that weapons manufacturers start to show declining profits they’ll simply move on to the next hot market sector. It’s hard to imagine a way in which clean energy solutions could be profitable in a strictly economic sense — their real “profit” will be in the survival of the human species, but since that isn’t something that can translate to larger numbers in someone’s checking account it can’t be an incentive in a free market.
Predictably, the chief lemming leading us all off the cliff keeps up the same cheery rhetoric. Continuing with Klein’s article:
The Bush Administration, still roadblocking firm caps on emissions, wants to let the market solve the crisis. “We’re on the threshold of dramatic technological breakthroughs,” Bush assured the world last January, adding, “We’ll leave it to the market to decide the mix of fuels that most effectively and efficiently meet this goal.”
The idea that capitalism can save us from climate catastrophe has powerful appeal. It gives politicians an excuse to subsidize corporations rather than regulate them, and it neatly avoids a discussion about how the core market logic of endless growth landed us here in the first place.
Investors are not completely blind to the coming dangers caused by this assumption of endless growth, as studies of the worst possible scenarios of climate change help the wealthy prepare for a dangerous new world. The dramatic example of the 2003 report titled “An Abrupt Climate Change Scenario and Its Implications for United States National Security” (subtitle: “Imagining the Unthinkable”; see also here) commissioned by the Pentagon’s own “Yoda” is a case in point. The possible future envisioned there is dire indeed:
The report explores how such an abrupt climate change scenario could potentially de-stabilize the geo-political environment, leading to skirmishes, battles, and even war due to resource constraints such as:
- Food shortages due to decreases in net global agricultural production
- Decreased availability and quality of fresh water in key regions due to shifted precipitation patters, causing more frequent floods and droughts
- Disrupted access to energy supplies due to extensive sea ice and storminess
As global and local carrying capacities are reduced, tensions could mount around the world, leading to two fundamental strategies: defensive and offensive. Nations with the resources to do so may build virtual fortresses around their countries, preserving resources for themselves. Less fortunate nations especially those with ancient enmities with their neighbors, may initiate in struggles for access to food, clean water, or energy. Unlikely alliances could be formed as defense priorities shift and the goal is resources for survival rather than religion, ideology, or national honor.
The authors of the study do not predict that abrupt climate change will definitely happen, but they believe that it is “quite plausible” and that it is important to “dramatize the impact climate change could have on society if we are unprepared for it.” Ours could become a “world of warring states” in which “nuclear arms proliferation is inevitable” since “nuclear energy will become a critical source of power, and this will accelerate nuclear proliferation as countries develop enrichment and reprocessing capabilities to ensure their national security.” They expect that in addition to the current nuclear-capable states, North and South Korea, Iran, and Egypt would have nuclear weapons capability. Their final pronouncement is that “disruption and conflict will be endemic features of life.”
While officials have distanced themselves from the dire scenario envisioned in the report, we can expect that the wealthy — who want to stay that way — are paying close attention to such possibilities. In a world in which “disruption and conflict will be endemic features of life” it makes sense, from a purely self-interested perspective, to invest heavily in “security”, that is, weapons manufacturing and “private military companies” such as the infamous Blackwater Worldwide (née Blackwater USA; business is booming, after all). Returning to Klein:
The market, however, appears to have other ideas about how to meet the challenges of an increasingly disaster-prone world. According to Lloyd, despite all the government incentives, the really big money is turning away from clean energy technologies and banking instead on gadgets promising to seal wealthy countries and individuals into high-tech fortresses. Key growth areas in venture capitalism are private security firms selling surveillance gear and privatized emergency response. Put simply, in the world of venture capitalism, there has been a race going on between greens on the one hand and guns and garrisons on the other — and the guns are winning.
Do mainstream economic theories account for the ability of the super-rich to create their own demand? Those with hundreds of millions and even billions to spare can decide for the rest of us the future course of the economy. They are in effect creating demand that does not exist. As Klein points out:
This trend has nothing to do with real supply and demand, since the demand for clean energy technology could not be higher. With oil reaching $100 a barrel, it is clear that we badly need green alternatives, both as consumers and as a species. The latest report from the Nobel Prize-winning UN Intergovernmental Panel on Climate Change was characterized by Time magazine as “a final warning to humanity,” while a new Oxfam report makes it clear that the recent wave of natural disasters is no fluke: over the past two decades, the number of extreme weather events has quadrupled.
Not only does the vast majority of the world want clean, renewable energy, we need it for our very survival. This is real demand. Not only are we choking to death on the pollution caused by current energy technology, we’re quite possibly producing a scenario in which we may not survive at all. But the super-rich, as the owners of the means of production, can simply decide that it’s more profitable to prepare for the worst possible scenario rather than collectively work for a better future. This is what Klein sees happening in the market economy:
[...] many of the original counterterrorism technologies are being retrofitted as privatized emergency response during natural disasters — Blackwater pitching itself as the new Red Cross, firefighters working for insurance giants (see my last column). By far the biggest market is the fortressing of Europe and North America — Halliburton’s contract to build detention centers for an unspecified immigration influx, Boeing’s “virtual” border fence, biometric ID cards. The primary target for these technologies is not terrorists but immigrants, an increasing number of whom have been displaced by extreme weather events like the recent floods in Tabasco, Mexico, or the cyclone in Bangladesh. As climate change creates more landlessness, the market in fortresses will increase dramatically.
She points out the standard market logic in making this decision:
Of course, there is still money to be made from going green; but there is much more green — at least in the short term — to be made from selling escape and protection. As Lloyd explains, “The failure rate of security businesses is much lower than clean-tech ones and, as important, the capital investment required to build a successful security business is also much lower.” In other words, solving real problems is hard, but turning a profit from those problems is easy.
Bush wants to leave our climate crisis to the ingenuity of the market. Well, the market has spoken: it will not take us off this disastrous course. In fact, the smart money is betting that we will stay on it.
The invisible hand is there at the edge of the cliff, helpfully guiding us over the brink.