Capitalism is compatible with the environment

Competition and the quest for profits can go hand in hand with sustainable development.

Last month a friend who lives in Toronto came to see me in Montreal. On an evening where the drinks flowed freely, we tried to solve the world’s problems.

We talked about the economy. My friend blamed capitalism for almost every ill. I tried to convince him that, on the contrary, capitalism and free trade have played an important role in improving the living standard of low-income individuals. I even pushed the envelope by stating that capitalism is extremely good for the environment.
I said to him, "Let’s start with some good news. In the past 20 years, close to one billion people have been lifted out of extreme poverty. According to The Economist, from 1990 to 2010, the global poverty rate has dropped by half, to 21% from 43%."

Capitalism and free trade made it possible for countries to grow their economies.

Is capitalism good for the environment?

My friend countered, "Sure, economic growth is good. But the more we produce and the richer we get, the more we destroy the planet."

"Not necessarily," I replied. If we look at the official statistics, the opposite becomes clear: both the standard of living and environmental quality have been making great strides for more than a century.

A few years ago, Pierre Desrochers, associate professor of geography at the University of Toronto and associate researcher at the Montreal Economic Institute, showed just that, using statistics from several countries and the United Nations. In one study, he noted that air and water quality is continually improving in industrialized economies, and the forest cover is expanding in some 60 countries; food production has more than doubled in the world since 1961 and tripled in developing countries. Since 1970, the quantity of food consumed per person has gone up 26% worldwide. Furthermore, since the mid-’50s, the cost of food has decreased by almost 66%.

Desrochers also pointed out that in 1940, American farmers were producing 56 million tonnes of corn with 31 million hectares of land, while in 2000 they were producing nearly five times that amount (252 million tonnes) with 6.5% less crop area.

In addition, he noted the development of natural gas production and hydroelectricity has significantly cut the demand for coal and firewood, thus reducing the pressure on forests as well as pollution in cities.

The quest for profits

Government regulations are not the main reason for all this good news. Of course, they play an important part, but we can’t overlook the benefits of competition and the quest for profits. Competition forces companies to do more with less, compelling them to use fewer resources and innovate to attain a very self-serving goal: reduce costs and remain competitive.

Take automobile manufacturers, for example. Gas engines are much more powerful and efficient than they used to be; in fact, from an environmental standpoint, some models being developed are very similar to hybrid and even electric car engines. Carmakers want a bigger market share and bigger profits, and they know full well that consumers want to save at the pump.

Basically, I told my friend, I don’t believe our economic system is incompatible with sustainable development. On the contrary, I think they go hand in hand — even if we could do a better job to protect the environment and make sure that ongoing threats of ecological disasters such as the Fukushima nuclear accident become no more than a distant memory.