Economy & Business

Capitalism Will Save the World

(Toby Melville/Reuters)
In More from Less, Andrew McAfee argues that economic growth can combat climate change.

Last month, Greta Thunberg, the Messiah of the environmental movement, told delegates at the United Nations Climate Summit that addressing climate change was at odds with “fairy tales of eternal economic growth.” This view is not confined to teenage protesters. The same case was made in a 2017 New York Times opinion piece titled “The Climate Crisis? It’s Capitalism, Stupid.” Prominent thinkers such as Naomi Klein and George Monbiot have spent years arguing that free enterprise and environmental protection are fundamentally incompatible. Indeed, recent policy proposals such as the Green New Deal concede as much. Rather than curbing pollution, climate activists have set their sights on the capitalist system as a whole.

But they’re wrong, says MIT research scientist Andrew McAfee. In his new book, More from Less, he details how decreasing resource usage has coincided with economic growth. Until roughly 1970, American GDP grew in lockstep with energy consumption. Increasing output required more raw inputs, thereby harming the environment. However, since 1970 — and, coincidentally, the inaugural Earth Day — economic growth and resource usage have decoupled entirely. Whereas real GDP has nearly quadrupled, energy consumption has barely budged.

This is the result of a process McAfee calls “dematerialization,” which refers to two general phenomena. First, goods require less raw material. Aluminum soda cans, for example, have decreased in weight from 85 grams in 1996 to 12.75 grams in 2011. Buildings and cars have also gotten lighter. Second, and more significant, technological advances obviate the need for increased material output. In the 1990s, the features now available in a smartphone would have required numerous distinct gadgets (e.g., camera, calculator, clock radio, tape recorder). Now, an eight-ounce handheld device suffices. As a result, American consumption of steel, copper, fertilizer, timber, and paper has decreased — not just per capita but in absolute terms. As we get richer, we consume less.

Rather than resulting from environmentally friendly public policy, dematerialization has been an organic feature of the market economy. Profit-maximizing firms seek to reduce their costs, which incentivizes resource efficiency. Carbon-footprint-reducing innovations such as smartphones and computers were devised from the self-interest of entrepreneurs, not well-meaning bureaucrats. Comparatively, environmental policies such as recycling have had a negligible effect on greenhouse-gas emissions.

Dematerialization is a remarkable phenomenon, seemingly contrary to economic theory. “Human wants are countless in number and very various in kind,” Alfred Marshall observed in his seminal book Principles of Economics (1890). As output grows, man “desires a greater choice of things, and things that will satisfy new wants growing up in him.” As efficiency brings down the price of a resource, we demand more of it — economists call this “price elasticity of demand.”

However, when resource-intensive goods and services are replaced by more-efficient alternatives, this relationship breaks down. Having rendered numerous old gizmos nearly obsolete, the smartphone substantially reduced demand for plastic, timber, energy, and a host of metals and minerals. The same goes for the substitution of coal by natural gas. Hydraulic-fracturing technology (“fracking”), whereby natural gas and oil are extracted from shale rocks, has increased American natural-gas production by 43 percent. Because natural gas is cleaner than other fossil fuels, carbon emissions have decreased.

This does not mean that an unfettered free market alone will mitigate climate change. Governments must incentivize and accelerate dematerialization. McAfee calls for sensible policies in cases where pollution represents a clear negative externality. For example, Environmental Protection Agency regulations have been integral to reducing air and water pollution in the United States. Unlike greenhouse gases, the targeted pollutants directly affect nearby populations, so the public is receptive to stringent limits on them. McAfee argues that a revenue-neutral carbon tax, whose proceeds would be returned to consumers, would serve a similar purpose.

Another important caveat is that dematerialization has been limited to advanced economies, which helps explain why global carbon emissions continue to rise. Pollution in China and India has skyrocketed as they have industrialized. Many economists argue that as these developing countries get richer, they will move away from carbon-intensive manufacturing and mining. However, this does not necessarily mean global emissions will follow suit. It is possible that pollution, diminished in one part of the world, will continue to increase elsewhere.

McAfee cites persistent U.S. heavy-manufacturing output as evidence to the contrary. While American production of automotives and machinery has remained roughly constant over the past two decades, American manufacturers’ resource usage has decreased, meaning that industrial processes are dematerializing as well. However, imports of so-called intermediate goods — the parts that go into manufactured goods — have increased steadily. According to the Federal Reserve Bank of San Francisco, at least 17 percent of the cost of an American-made Jeep Patriot comes from parts made in other countries. In effect, the resource-intensive work has been outsourced, moving the pollution elsewhere, but not curbing climate change. Dematerialization will prove fruitless if reduced energy use in certain countries is simply converted into increased energy use in other, poorer countries.

That being said, the need for resource-intensive manufacturing is not inevitable. Indeed, as the world grows increasingly digitized, material production may decrease globally. With mobile-phone users outnumbering those with electricity in the third world, many emerging economies could digitize before they industrialize, meaning that economic development would no longer be synonymous with manufacturing exports. “Software is eating the world,” the famous adage of tech investor Marc Andreessen, describes a transition from the world of atoms to the world of bits. It might be more accurate to say that software is regurgitating the world, disentangling human activity from nature.

While this phenomenon reduces our dependence on natural resources, it has the potential to spark conflagrations in communities reliant on the industrial sector for employment. The opioid epidemic — and the resultant decline in the life expectancy of the white working class — has demonstrated the extent to which diminished social and economic capital can ravage communities. McAfee acknowledges this problem and concedes that the policy toolbox for ameliorating working-class alienation is lacking. In the long run, revitalizing deindustrialized communities — through worker-training programs or wage subsidies — may prove more significant than technological research or EPA regulations.

If More from Less has a weakness, it is McAfee’s tendency to derive a broad, overarching theory from what is really the story of two groundbreaking technologies: fracking and the smartphone. Dematerialization is not a nebulous law of economics but the result of the dogged work of researchers and entrepreneurs. But this only accentuates McAfee’s underlying thesis. The merchants of doom have it backwards: Fairy tales of economic growth may well stave off the crisis.


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