Capitalism and Corporate Behavior: Can the Invisible Hand Adjust the Natural Thermostat?
Mohammad Ali Zafar 02.23.21
Capitalism in the pursuit of profit maximization, as much as any other factors, has caused the climate crisis over the last century. The global economy has grown exponentially. This remarkable economic growth was fueled by the use of cheap and abundant fossil fuel energy, the emissions of which have impacted our climate. But what if we could take that power of capitalism and the profit motive and redirect it away from contributing to the climate problem and instead harness that power to help solve it?
The International Monetary Fund estimates that 6.5 percent of global GDP was spent on fossil fuel subsidies in 2017. This, along with the reality that a shift towards complete green energy is out of reach under the current investment trajectory, for instance, a shift to greener energy will cost oil-producing countries $13 trillion dollars by 2040. Despite the wonderful technological advancement and market opportunities that capitalism has provided to the world, climate change remains to be the greatest market failure in the history of capitalism.
Environmental experts have tried to find answers to the market structure, which has resulted in brace ends – either the collapse of capitalism or our climate. The multifaceted debate moves from faith in the capacity of the invisible hand to the ones who believed that an unresolvable conflict between capitalism’s drive for growth and ecological sustainability exists. From technological problem-solving to radical carbon market designs seems to be a plausible retort to the emission reduction chart. These steps ask for drastic shifts in the corporate sector’s behavior which even if applied, would lead to the emergence of polygonal factors such as how will carbon emission rights be managed and how to design and monitor the carbon markets while at the same time incentivizing green innovation.
The question arises that is radical shift an option or not? Under the current trajectory, climate stabilization is not even compatible with non per capita income growth hence moving towards de-growth. For this, global change is required, more specifically, in the U.S. and China – who are the largest contributor to GHG emissions. Capitalism’s raison d’etre –growth – must be given up to keep ecology running its wheel. But while keeping the environmental politics inline, the aforesaid radical shifts are not an option. This is not politically feasible in the U.S., while on the other end, China’s current model of industrial development with intense inter-state competition – the future of radical shift to zero growth, despite its increasing efforts to mitigate climate change, is not an option.
To think beyond these traditional policy responses to the problem, which are largely focused on determining the corporate behavior following the capitalist mode of production which we don’t want, instead, states must think more about how to encourage the corporate sector to think about aligning the power of competition and profit-seeking with climate change.
Realistically, there is more money to be made in addressing the climate problem, and this can be observed from the fact that the market showed a $288 million investment in renewable energy – it was the fifth year since the investments have crossed the $230 million mark. Furthermore, there will be $23 trillion dollars in profitable climate-friendly investment opportunities, by 2030, in the emerging markets. This points out that there should be a belief in the capacity of the market where incentivizing green innovation can pave the way for the invisible hand to adjust the thermostat.
The market wants to see companies having smart leaders with vision, as in the case of Elon Musk. He is viewed by the market as a visionary leader who sees strength and opportunities before others. Musk’s Tesla is professed as championing the market while living with the contemporary realities. This is why the market will give more space for missionary corporate firms who have the strategy to curtail climate change threat or at least manipulate the climate rhetoric.
Once the aforementioned corporate values are guided towards eco-friendly industries, alternative energy, fuel-saving technology, and clean transport, then in the second phase, states must move towards regulating the market to set a carbon price. Market incentives aligned with reforms in capitalism’s institutions will make the market equitable.
As per the current political and economic power relation, carbon trading solution is notoriously efficient and less costly. It presents an inherently superior solution to confront the powerful force of modern capitalism driving climate change. Time is hastening, aggravating stats have left no time for new carbon market designs hence the existing structure must be regularized through command and control regulation, proving grants for renewable energy generation and carbon taxation. These regulations will not only allow the market to function without a fallback option but allow them to maximize their growth by investing in green technology.
The bottom line is that stock prices profit other critical in terms of corporate values will be higher for companies that are taking climate change seriously, so one must be an optimist because corporations are good at pursuing profits. Companies that are mitigating climate risk will be more valuable than companies that are not. Henceforth, the solution depends on climate leadership within the corporate sector, because as once said, “it is easier to imagine the end of the world than the end of capitalism.” This is why the solutions to climate change and environmental leadership are to be explored within the market structure.
Mohammad Ali Zafar is a columnist based in Islamabad, Pakistan. He is a student of International Relations at National Defence University. He consistently writes news articles. His work primarily focuses on matters pertaining to the Middle East, Pakistan, and CPEC. In addition, the author has a keen eye for Arctic affairs.