Eco-Capitalism: Can It Work?

Written by Saral Sarkar

Introduction and Background

Since 2007, the world is suffering from an unending crisis. It is no longer only an economic crisis like many in the past; it has become a systemic crisis, a crisis of capitalism. Parallel to the futile efforts of the politicians to overcome it, many, even non-communists, are asking whether the crisis can at all be overcome in the framework of capitalism. In Portugal, one even hears people saying the country needs a revolution like that of 1974, which not only overthrew the dictatorship but also tried to build a socialist society.

Against this background – in addition to that of the climate crisis, resource crisis and the general ecological crisis – one is asking if there is an alternative to capitalism.

Recently, many people have rediscovered the limits to growth. They have realized that the long age of economic growth and rising prosperity is over. They are now propagating the vision of a "solidarity society" with a "post-growth economy". Of course, there are also leftists whose alternative to capitalism is still socialism, but one that also cares about the environment.

In this discourse, however, the answer to several questions remain relatively vague: What is here "solidarity"? Should a post-growth economy only cease to grow further, or should it contract? 

Should/can a socialism that cares about the environment be based on an industrial economy?

Also in the ecology movement there is no clear conception of the alternative. In the beginning most activists were radical. Then they soon made many compromises with the existing system. They told the ruling elite that they could create many jobs with environmental protection. In the mid-80s, their mottos were "restructuring of industrial society", "sustainable development", and "sustainable growth". Nobody except the communists and socialists criticised capitalism per se. All thought capitalism could be ecologically reformed. Their favourite motto was "eco-social market economy". 

Today, one speaks of "eco-capitalism" or "green capitalism".

Antonio Gramsci wrote in the 1930s: "crisis consists in the circumstance that the old is dying and the new is not emerging" (quoted in Holz & Mayer 2012: 2). We see today that the old, today's capitalism, is dying. But is eco-capitalism the new? The idea is not really new. As shown above, in Germany, the idea exists since the 1980s. In the English-speaking world, Herman Daly had already in 1977 published his book Steady State Economics, in which he maintained that a steady-state economy can be realized within the framework of capitalism. Later, also the terms "eco-capitalism" and "natural capitalism" were used..

In those days, the purpose of the protagonists of this idea was to protect the environment by means of revolutionary technologies. One asserted that it was possible to cut the connection between growth and resource consumption, i.e. to produce more goods and services with less resources. It was hoped that resource-productivity could be increased by factor four or even by factor ten, so that despite continuous growth damage to the environment would go down. However, our way of production and consumption would then have to be changed a little.

But in the meantime the capitalist system too is in danger of breaking down. Politicians and the bosses of the economy must now save both the environment and capitalism. To this end, they have brought forward new ideas and partly realized them. For example, they are massively subsidizing so-called renewable energies. In Europe, tradable emission-certificates, the purpose of which is to reduce the emission of CO2, have been introduced. They are trying to reform and regulate the finance industry. In short, they say capitalism can be both ecological and social. One is again speaking of "green capitalism". For example, Ralf Fücks of the Green Party of Germany has recently published a book, in which he declares eco-capitalism to be the future of the world. He is demanding a programme for green growth on the basis of renewable energies.

Paradigm Shift

But eco-Capitalism, can it work? I don't think it can.

What is the task an eco-capitalist government must fulfil in order to deserve this name? In short, it must lead the economy to sustainability. A sustainable economy is logically one which is based mainly, if not exclusively, on renewable resources. For non-renewable resources would be exhausted sooner or later, and they cause environmental degradation.

Of course, they will never be completely exhausted, for even ordinary rock contains many useful materials. But an industrial economy needs only such natural resources which contain the necessary raw materials (e. g. copper in copper ore) in sufficient degree of concentration and which can be extracted at reasonable costs. In course of time, one after the other, it would not pay any more to exploit particular deposits. (That is already the case with hard coal deposits in Germany). The cause may be difficult geographical or geological location. Or the degree of concentration of the useful raw material in the ore may be too low. That means, the useful non-renewable resources are becoming ever scarcer.

The renewable raw materials (e. g. wood, water) are of course renewable, but also their availability is limited. When the trees in a forest have been felled, one has to wait for years or even decades before the next generation of trees can be felled. And the yearly amount of precipitation is limited by the climate.

These facts compel us to conclude that continuous growth of the world economy is not possible. When the maximum exploitability of a natural resource has been reached (e. g. peak oil), then a zero-sum game begins. Then one economy can get more of a resource only at the expense of the others.

This conclusion has an enormous significance for economic theory and policy. Directly or indirectly, it has unpleasant consequences for all areas of human life. It necessitates a complete paradigm shift, namely a shift from the hitherto prevailing growth paradigm to what I call the limits-to-growth-paradigm. What appears possible in the former, namely unlimited growth of GDP and prosperity, appears in the latter to be impossible. If one accepts this compelling paradigm shift, then one must throw much of received economic theory overboard. Then one must also undertake a radical change in economic and social policy.

Capitalists cannot accept the paradigm shift

If one accepts the said paradigm shift, then one ought to pursue an economic policy that initiates a gradual contraction of the world economy, which will only end when a steady state has been reached. 

After all, everybody wants to prevent that today's growth madness ends in a chaotic ecological, economic and social breakdown. But capitalists cannot accept such an economic policy, because a growth compulsion is inherent in capitalism.(see below). That is why they maintain that sustainable growth is possible and hence also eco-capitalism.

As stated above, protagonists of eco-capitalism place their hope on renewable resources, especially on so-called renewable energies. They believe that by 2050 the whole energy need of Germany – in principle, of the whole world – can be met through renewable energies.

Actually, they already expressed such hopes twenty years ago. Franz Alt wrote:

"Just solar radiation contains about 10,000 times as much energy as present-day world energy consumption; the winds 35 times as much; the growth of biomass 10 times as much; and hydro-power offers half as much … .

Reed grass that can be grown on the fields that today lie fallow in Germany can produce as much energy as all the 21 nuclear power plants of the country. …

The working group 'Solar Energy for Environment and Development' of the United Nations ascertained … in 1991: ' … the total potential of renewable energies is about 10,000 times the current total energy consumption of humanity." (Alt 1993: 6-8)

Alt also asserted that from biomass we could get raw materials for almost everything: houses, cars, every kind of chemical etc. And such materials could be composted (ibid).

And Hermann Scheer wrote in 1999:

"For an inconceivably long time the sun will donate its energy … . And it will do that so lavishly that it could satisfy even the most sumptuous energy needs of the world's humans, animals, and plants experiencing drastic growth. (Scheer 1999: 66)

If such visions were realistic, then, of course, sustainable growth would be possible, and then also eco-capitalism. Thomas Steinfeld wrote in 2008:

"If one believes Schumpeter, capitalism does not need particular resources. It only needs resources. It perhaps does not even need oil. It might instead be willing without any problem to switch over to alternative energies – using the money made on the basis of oil – if the profit is satisfactory. In this total indifference that capitalism shows in regard to the material the economy uses lies considerable hope." (Steinfeld 2008)

Technological Illusions

But such visions are illusions. Elsewhere I have presented a detailed refutation of these visions (see Sarkar 1999). Here I shall only present in short the more important facts and arguments.

In connection with the hope placed on solar energy, Barry Commoner wrote in 1976:

"Like sunlight, the energy of falling rain is widely diffused …, and its gentle force would seem to hold no promise of delivering power sufficient to run the energy-hungry tasks of modern society. … 

What transforms the diffuse 'impractical' energy of the rain into the eminently useful power of the hydroelectric plant is the process of concentration. (Commoner 1976: 132)

Astonishingly, Commoner, a renowned natural scientist, failed to notice a difference between sunshine and rainfall. Whereas raindrops, guided by natural topography, automatically get collected behind a dam, sunshine must be collected by us. Of course, both building dams and manufacturing photovoltaic modules involve expenditure of energy and materials. But in the latter case is, relative to the energy harvest, it is much higher than in the former. That is why solar electricity is very much dearer than hydroelectricity. In 1976, Commoner had actually hoped that solar energy "can also reverse the trend toward escalating energy costs" (ibid. 122).

Moreover, the low intensity of sunshine on the earth's surface is a cosmological constant. We cannot change it. We also cannot do anything about the sun not shining in the night. The wind too does not blow always. In contrast, the energy content of fossil fuels is very much higher and it is available day and night.

Because of these factors it is highly unrealistic to hope that solar energy will one day be able to compete with conventional energies. Yet, because of their potential dangers, we should desist from using nuclear power and oppose construction of new coal-fired power plants. Environmentalists therefore demand that renewable energies be subsidised until they become competitive.

The real problem with renewable energies is however much more serious. If competitiveness were the only problem, the state could, by means of discriminatory taxation, make the non-renewable energies costlier – to the point at which the renewables are competitive. But that would not help. For the production of everything that is necessary for producing and commissioning solar modules, wind turbines etc. – from A to Z – are done till today, for the most part, by using non-renewable energies. If the latter are made costlier, then also the renewable energies would become costlier.

The real problem with renewable energy technologies is their low to negative energy balance – also called net energy, harvest factor and EROEI (energy received on energy invested). The construction of a power plant including production of all the components that belong to it requires input of energy and materials. The power plant must produce in its lifespan more energy than the total energy invested in its construction from A to Z. That is, its energy balance must be positive. Otherwise the undertaking does not make any sense. There is a controversy about whether solar power plants show a positive energy balance (EROEI). Many, including me, doubt that. Such a controversy exists also about some other renewable energies. There is a half-consensus on wind power. Its EROEI is slightly positive – according to Odum, 2+ (cf. Heinberg 2003: 153). I have elsewhere presented the details of this controversy (Sarkar 1999). Here I only want to present some additional arguments for my scepticism.

Due to progressively worsening geographical and geological conditions, the energetic (hence also financial) extraction costs of most raw materials – coal, oil, gas, uranium, industrial metals, rare earths etc. – are continuously rising. It is exactly with such raw materials that solar and wind power plants are built. That means, the energy input required for building such power plants is continuously rising. But the average energy content of sunshine and wind remains unchanged. Such being the facts, the EROEI of renewable energy technologies cannot rise. It will fall – in spite of possible technological developments. Miracles will not happen, although small improvements are possible.

If the EROEI of renewable energy technologies were really 40 to 70, as often claimed by their protagonists, then they would have long ago pushed all the conventional energies out of the market. For, according to Odum, the EROEI of Middle East oil is only 8.4, that of coal from Wyoming only 10.5, and that of onshore natural gas only 10.3. (cf. Heinberg 2003: 153). But they are still demanding subsidies. How can one understand that at all? And why does the German photovoltaic industry panic when the government cuts the subsidies a little? And why did recently – in spite of all subsidies – several solar technology companies in Germany and the USA go bankrupt? These facts indicate that, as Nicholas Georgescu-Roegen (1978) expressed it, they are,of course, feasible but not viable. That is, the net energy gain, if it is not negative, is too little for the energy needed to build the replacements (of the same sort) when the lifespan of the power plants in question expires. Then it is no use saying that such power plants do not emit any CO2 while in operation.

In the final analysis, the subsidies come from the total income of the whole (world) economy, which, as we know, is driven for the most part by the conventional energies. How can the renewables replace the conventional energies, when they are dependent on the latter? They are parasites. They will die when their host dies.

Another question that must be raised here is why India, rich in sunshine and winds, is still building new nuclear and coal-fired power plants. If solar and wind power plants were profitable, i.e. without subsidies, then Indians could easily build a few thousand of them every year. And why do the Chinese prefer to export their photovoltaic modules instead of using them in China for making the construction of new coal-fired power plants unnecessary? And why do they have to subsidise their solar module exports – the EU Commission has ascertained that – although Chinese wages are much lower than, say, in Germany?

Of course, these are only indications and indirect arguments, no proofs. But they must be considered because the EROEI-figures of researchers are unreliable and contradictory (cf. Sarkar 1999). I think the dispute will be settled in the next ten years through facts on the ground. "In the meantime also renewable energy enthusiasts concede", writes a Green Party intellectual, "that one cannot reckon with permanently profitable solar electricity production north of the Mediterranean Sea (Wiesenthal 2013: 29).

Up to here I have only dealt with the energy question. But an industrial economy also needs metals and other materials, which are in the main non-renewable and hence exhaustible. For reasons stated above also their energetic and financial extraction costs are rising. Their extraction and smelting also cause serious environmental damage. How do eco-capitalists propose to solve this problem?

They do not take Alt's claim seriously that we could get almost all needed materials from biomass. They rather place their hope on raising resource-productivity (-efficiency) and recycling .

As regards resource productivity, there are, since long, conceptions that claim that technological development makes it possible to reduce resource consumption by factor 4 or factor 10 without curtailing, even while raising, the standard of living (See Schmidt-Bleek 1993 & Weizsäcker et al. 1995). I regard all that as illusions (for details see Sarkar 1999). As Fred Luks (1997) showed, if in the next 50 years resource consumption in the industrial societies is to be reduced by factor 10, and if simultaneously the economy is to grow yearly by 2%, then resource productivity must rise by factor 27. That is not realistic. There are simply also limits to technological development of this kind. Most great technological achievements require enormous expenditure of resources.

Also as to recycling, there exist totally unrealistic hopes. Thus, in the 1970s, André Gorz (1983: 79) hoped that "entire" amounts of raw materials could be recycled or reused. Environmentalists often say, garbage in landfills are resources at the wrong place. The most absurd idea in this regard came from Prof. Jero Kondo, at that time president of the Japanese Science Council, He said we should capture both the surplus CO2 in air and CO2 gushing out of chimneys by using solar energy and convert them into useful chemicals, in order thus to solve the global warming problem (cf. Schmidt-Bleek 1993: 80).

But there are also limits to recycling. Energy cannot be recycled at all. Materials can be and are being recycled, but not unlimitedly. The problem is a law of nature, namely the entropy law. Take for example a piece of steel that has been used to make 100 products, which have gone to 100 consumers living in different places. After being used up, they land in different landfills. Even if waste separation is practised there, collecting the small pieces of steel and transporting them to a steelworks cost a lot of energy, material and labour. If a part of the original piece of steel has rusted or has been converted into small particles, then it is practically impossible to recycle it. (See Sarkar 2012: chapter X.3)

Eco-capitalism is not possible

The above exposition shows that sustainable growth is not possible at all. Also Daly's steady-state industrial economy is not possible. For any industrial economy needs huge amounts of non-renewable resources, which would sooner or later be exhausted or become unaffordable. In the foreseeable future, therefore, the world economy will inevitably contract. The current world economic crisis is a precursor thereof (see Sarkar 2012, and Sarkar 2010). But an ecological steady-state economy is, in principle, possible – at a much lower level than today – for it would mainly be based on genuinely renewable resources, of which biomass would be the most important,

But is the transition to such an economy possible within the framework of capitalism? Daly and most eco-thinkers and -activists believe it is. I doubt it, for many reasons:

(1) Of course, capitalism has until recently been able to overcome many crises of every sort. But that was possible because, every time, capitalists could realistically hope, indeed they were sure, that the crisis would end and normality would come back. Today, however, the prospects are totally different: a long period of economic contraction with the certainty of a stagnating economy at a very low level at the end.

Capitalists need hope and a felt relative certainty in order to be willing to invest. When the objective situation is as described above, especially if the states, out of consideration for the future generations and the environment, pursue a general policy of economic contraction, then there is little hope of profit. If the contraction proceeds chaotically with many firms going bankrupt, then there is no relative certainty.

(2) A growth compulsion is inherent in capitalism. In an environment of competition, the motto is: expand or perish. Since no firm wants to perish, since all must expand if they want to continue to exist, a general growth compulsion arises, also for the economy as a whole. For only in a growing economy can all individual firms hope to make profit. And they also thirst for growth.

(3) A big problem is the short time horizon of firms. Sustainability requires showing consideration for the interests of future generations. But, as one manager said, "a company cannot work for the next generation. … We must produce now for the market and make money (Der Spiegel, 9.6.1986; 100f). That is logical. The time horizon "cannot … go beyond the amortization time of capital goods. For profitability calculation … is exactly limited to this time" (Altvater 1986:100).

(4) Sustainability also entails care for other peoples and other species of nature. That presupposes a moral stance, which is not a part of the principles of capitalism. Since the days of Adam Smith, the logic of the system says, one should only care for one's own interests. That is still the rule. That is why capitalists cannot care about the social costs of their business. They must reduce their own costs and externalize the social costs as much as possible. The invisible hand, says Smith, will take care of the welfare of society. Smith did not know anything about the limits to growth. But we know today that the welfare of society is to a very large extent a task of the state, and it will be more so in future.

(5) If the economy contracts, then also the real income of the people will fall. With the intended or unintended closure of many enterprises many jobs will be lost. Without an egalitarian distribution of the remaining socially necessary or useful jobs and of the sacrifices that will accompany the process, chaos and social unrest will break out. We have already witnessed in the recent past several bread riots, water riots etc.. But egalitarian distribution is incompatible with capitalism. That must be a task of the state. Moreover, only the state can decide which enterprises must be closed.

(6) In a sustainable economy, also during the transition to it, there must not be any waste of resources. But that cannot be avoided in capitalism. An individual firm can possibly do that, but not the whole economy. Every overproduction, every production of unsaleable goods, every destruction of still useable goods, half empty trains etc. are waste of resources. The entire advertisement industry is a huge waste. All that must be accepted in capitalism because planning the whole economy is out of the question.

Worst of all is the waste of the labour power of unemployed people. But a reserve army of the unemployed is very useful for capitalists. They almost need it. Also strikes are a waste of labour power. But trade unions need this instrument for countering the power of capital. The mass unemployment that we witness today in South Europe is also making the societies there unsustainable. All that calls for an orderly retreat, a consciously planned contraction, not a chaotic one.

(7) Since economic contraction will (have to) take place on a world scale, world trade also will (have to) contract. In order to prevent chaos and breakdowns, there must be international planning and cooperation in this area too.

For all these reasons I think a good society of the future, one with a sustainable economy, must be a socialist society. But this time an eco-socialist one.

Saral Sarkar is an ecosocialist writer, his blog is here