Reviewing Jonathan Koomey's insightful book, Cold Cash, Cool Climate: Science-Based Advice for Ecological Entrepreneurs, led us to pose a series of follow-up questions to him. Herewith his reply to our question about the role of market-based innovation in climate change mitigation vis-a-vis the problem of corporate power and democratic accountability under the current system. Is Naomi Klein correct in arguing that "the Heartlanders have good reason to be afraid," because responding effectively to global climatic disruption "is going to require shredding the free-market ideology that has dominated the global economy for more than three decades"?
Our review of Cold Cash, Cool Climate.
See Jon's series at CSRwire (Corporate Social Responsibility Newswire) summarizing key points from the book.
There is much more to be said on these issues, but for now we'll post this exchange as a marker and invite comments:
Piltz Q: In your section “Profits are Good” you talk about how environmentalists and business need each other – that environmentalists need business to generate the wide acceptance of technologies and practices essential for creating a sustainable society, and that business needs environmentalists to call attention to when business practices are harmful to society.
Your way of framing this seems steeped in the Silicon Valley experience of creative, innovative venture capital and game-changing new businesses in the fields of information and communication technology. But isn’t there a larger problem of corporate power under the current system, in which corporate influence on government and politics can create substantial obstacles to holding business accountable for socially responsible action?
Koomey reply: I agree with your framing of the larger problem. There are those who always argue for less government, but markets cannot exist without government to define property rights, enforce contracts, and police the common good. Once we accept that reality, then the question becomes one of defining the kind of government we want. If corporate power wields undue influence and rigs the system, then the outcome will not be good for society as a whole. That’s the central argument, and it’s one the advocates for unregulated capitalism generally ignore. The rest of us ignore it at our peril.
I address this issue explicitly in part of Chapter 7 of Cold Cash, titled “The central problem of governance”:
I’ve worked with my friend Stephen Decanio, an economics professor emeritus at UC Santa Barbara, for many years. He’s an economist who, like me, has a deep skepticism about the computer models used to analyze the economics of climate change. He’s also a keen observer of the politics around facing the climate challenge, so I take his musings seriously.
I sent Steve an article about the failure of our elected representatives to create the fundamental reforms needed in the financial system after the market collapse of 2008, and he replied, “I'm becoming more and more convinced that the real problem doesn't have to do with economics or technology, but with governance.” What he meant was that the challenges we face, whether climate change or financial meltdowns, have in common the failure of government or corporate governance to align private incentives with the public good.
What has been most disheartening to me about the debates over financial regulations, health care reform, and climate change in the US in the past few years is how obviously sensible solutions are sidelined by one side or the other based on ideology or political interest, without serious discussion of the real issues. Regulators and elected officials are “captured” by the industries they ostensibly control, and either fail or refuse to see the need for structural reform. The news industry has been reduced to entertainment, with little real analysis in all but a few news shows (some comedy shows even do better analysis than the best of the real “news” shows). And the lack of accountability for truly colossal mistakes (like the financial meltdown) breeds a depth of public cynicism that virtually ensures that further disasters lie ahead.
Yet none of this is inevitable. The founding fathers laid out a framework for government that stands to this day as a paragon of how to make self interest work for the common good, relying strongly on checks and balances and competing interests to prevent the accumulation of too much power by any one individual or group. The system hasn’t been perfect, but it has worked remarkably well (better than all competing systems, as Winston Churchill noted). It has weathered world wars and numerous financial crises, and thus far always emerged stronger than before. But the system only works when all participants share a commitment towards working together for the common good.
Now we face new realities, with technological and financial power beyond the imagination of the people of two centuries ago, and new environmental challenges that require new ways of working together (this line of argument is eloquently developed in the first few chapters of Orr, David W. 2009. Down to the Wire: Confronting Climate Collapse. Oxford, UK: Oxford University Press). That means we must design institutions that recognize those realities, and use our new capabilities to align private interests with broader societal goals. Private enterprise is the best means yet devised for driving down costs and spreading the use of technology, but capitalism cannot survive without some check on the actions of corporations. Otherwise we end up with lead in children’s toys, testing of drugs on unsuspecting patients, fraud and theft by corporate cronies, and rivers that catch on fire.
The challenge is to create the right kind of check on corporate power, keeping the spirit of innovation alive while curtailing corporate excesses. In the US, at least until recently, we seem to have been moving away from limiting corporate action in any form. Somehow the pendulum needs to swing back, but some systemic problems prevent it, including people who worry greatly about excess government power but not about excess corporate power, and vice-versa. If you worry about both, I get it, but if you only care about one or the other, I think you’re missing the boat.
One important purpose of government is to promote what the US Constitution calls “the general welfare”. This means designing systems that result in economic efficiency and social justice, minimizing perverse incentives. For example, one of my former neighbors is a lawyer who defends developers against environmental lawsuits. In a recent case, one of his clients bought an old railroad yard and promised significant funding to clean it up, so that housing could be built on the site. A local environmental group, sensing an opportunity to get publicity, sued anyway, even after the company met with them and promised to go beyond current requirements. The problem in this case is that the incentives for the local environmental group (to get publicity) are not aligned with the social goal of spending money on cleaning up the toxic mess left at the old industrial site, and now hundreds of thousands of dollars will be spent on legal fees that could otherwise have gone to cleaning up the site. There are many such examples where the incentives for individuals and institutions do not necessarily align with the social good. Markets are pretty good at providing the right incentives (provided certain conditions are met) but they are not infallible, and need to be designed, operated, and regulated well, otherwise we get financial crises, polluted rivers, and toxic toys.
I do wonder if all great countries reach a point where they can’t reform themselves, because they are too rich, the entrenched interests are too powerful, and the people grow self congratulatory and self indulgent. I’m hopeful we haven’t reached that point, and I don’t see why it has to be that way. We live in a democracy, after all, and the American ability to reinvent ourselves has been proven time and time again. We just need to figure out how to get things moving in the right direction.
Piltz follow-on Q: How would your analysis deal with something like the following, by Naomi Klein (excerpt from from “Capitalism vs. the Climate,” The Nation, Nov. 28, 2011)?
Denialists gained traction by making climate about economics: action will destroy capitalism, they have claimed, killing jobs and sending prices soaring. But at a time when a growing number of people agree with the protesters at Occupy Wall Street, many of whom argue that capitalism-as-usual is itself the cause of lost jobs and debt slavery, there is a unique opportunity to seize the economic terrain from the right. This would require making a persuasive case that the real solutions to the climate crisis are also our best hope of building a much more enlightened economic system—one that closes deep inequalities, strengthens and transforms the public sphere, generates plentiful, dignified work and radically reins in corporate power. It would also require a shift away from the notion that climate action is just one issue on a laundry list of worthy causes vying for progressive attention. Just as climate denialism has become a core identity issue on the right, utterly entwined with defending current systems of power and wealth, the scientific reality of climate change must, for progressives, occupy a central place in a coherent narrative about the perils of unrestrained greed and the need for real alternatives.
Building such a transformative movement may not be as hard as it first appears. Indeed, if you ask the Heartlanders, climate change makes some kind of left-wing revolution virtually inevitable, which is precisely why they are so determined to deny its reality. Perhaps we should listen to their theories more closely—they might just understand something the left still doesn’t get.
The deniers did not decide that climate change is a left-wing conspiracy by uncovering some covert socialist plot. They arrived at this analysis by taking a hard look at what it would take to lower global emissions as drastically and as rapidly as climate science demands. They have concluded that this can be done only by radically reordering our economic and political systems in ways antithetical to their “free market” belief system. As British blogger and Heartland regular James Delingpole has pointed out, “Modern environmentalism successfully advances many of the causes dear to the left: redistribution of wealth, higher taxes, greater government intervention, regulation.” Heartland’s Bast puts it even more bluntly: For the left, “Climate change is the perfect thing…. It’s the reason why we should do everything [the left] wanted to do anyway.”
Here’s my inconvenient truth: they aren’t wrong. Before I go any further, let me be absolutely clear: as 97 percent of the world’s climate scientists attest, the Heartlanders are completely wrong about the science. The heat-trapping gases released into the atmosphere through the burning of fossil fuels are already causing temperatures to increase. If we are not on a radically different energy path by the end of this decade, we are in for a world of pain.
But when it comes to the real-world consequences of those scientific findings, specifically the kind of deep changes required not just to our energy consumption but to the underlying logic of our economic system, the crowd gathered at the Marriott Hotel may be in considerably less denial than a lot of professional environmentalists, the ones who paint a picture of global warming Armageddon, then assure us that we can avert catastrophe by buying “green” products and creating clever markets in pollution. …
It is true that responding to the climate threat requires strong government action at all levels. But real climate solutions are ones that steer these interventions to systematically disperse and devolve power and control to the community level, whether through community-controlled renewable energy, local organic agriculture or transit systems genuinely accountable to their users.
Here is where the Heartlanders have good reason to be afraid: arriving at these new systems is going to require shredding the free-market ideology that has dominated the global economy for more than three decades. …
Koomey reply: I don’t agree with this framing of the problem. We need markets to help us attain wide acceptance of technologies, ideas and practices essential for building a sustainable world. That’s the only way we’ll be able to adapt fast enough to truly face the climate challenge.
There’s the cartoonish free-market ideology that says government is always bad, and people holding that view will probably never be convinced. They are wrong, but their understanding of how markets work is so far from reality that it’s not easy to have a reasonable conversation with these folks. They can start by reading McMillan, John. 2003. Reinventing the Bazaar: A Natural History of Markets. New York, NY: W.W. Norton & Company. Even Adam Smith talked about the necessity of regulating financial markets in The Wealth of Nations, so this is not a new or a radical idea.
There are good reasons to support a rethinking of the way government interacts with the private sector, but that doesn’t mean that capitalism is doomed, just that it has to be modified to reflect the new realities in which we find ourselves. The key is in redefining property rights. First, and most importantly, that means changing the property rights in the atmosphere, so that people can no longer freely dump pollutants there. People who use fossil fuels must pay the true cost to society of the pollution they cause, which is both fair and efficient for society as a whole.
Property rights in other parts of the economy also need to change. Here’s one way I talk about it in Cold Cash, Cool Climate:
It’s also important to remember that government defines property rights and can choose how these will be structured and enforced, which can strongly affect the incentives individuals, companies, and governments have to protect the commons. Many of these choices have some level of arbitrariness to them, which means we as a society can make choices that favor long-term sustainability instead of short-term profit, and there’s nothing wrong with that.
I doubt anyone would argue nowadays that preventing people from owning others as slaves was an unwarranted abridgment of property rights, but that shift had major social and economic implications, not the least of which was living up to the promise of the Declaration of Independence, that “all men are created equal”. Other examples abound, from restrictions on how companies can treat workers, to conditions on the chartering of corporations, to creation of new types of corporate entities, to the penalties imposed when property rights are actually infringed by others in the society.
For many decades the property rights associated with a battery transferred fully from the manufacturer to the purchaser of that battery. In recent years, as society has become more aware of the toxic effects of chemicals in groundwater, some countries (notably those in Europe) have moved towards a modification of property rights, under the rubric of “extended producer responsibility”. The manufacturer is still responsible for safely recycling that battery, even after it is sold to the customer, so in a sense the producer still owns the part of the battery’s costs associated with long-term disposal. This change is not that different from property rights for land in the US, where rights for mining, water, wind generation, and air (in the sense of the right to fly through the air above some land) can be split off and sold separately, depending on the laws for the state in which the property resides.
Changing the structure of property rights is something most folks don’t consider when thinking about the climate problem, but it allows us great flexibility in dealing with the issue. Doing so needn’t destroy modern capitalism, if we do it right, but not doing so surely will.
So I disagree with Klein that solving the climate problem means the end of capitalism—it means the end of a particular type of capitalism that ignores the reality of humanity’s current situation, but there are many ways to structure markets, and we can choose which ones better suit the challenges we face. Markets are human constructs, after all, and they can be structured in better, worse, and downright awful ways—we get to choose which structures we embrace. If we act responsibly and use the power of markets to spread low emissions technology throughout the world, we’ll be able to avoid the worst effects of climate change, and that’s the task before us now. Let’s get to work!