Sustainable capitalism

Sustainable capitalism is a concept of capitalism described in Al Gore’s and David Blood’s manifesto for the Generation Investment Management to describe a form of capitalism “which seeks to maximize long term value creation”.^[1]

According to their manifesto "It explicitly integrates environmental, social, and governance (ESG) factors into strategy, the measurement of outputs and the assessment of both risks and opportunities. Sustainable Capitalism encourages us to generate financial returns in a long-term and responsible manner, and calls for internalising negative externalities through appropriate pricing"^[1]

This concept follows recent trends that see forms of sustainable business as the preferred method for development, because of the way that these types of businesses offer a positive influence to their environment.

Sustainable capitalism is a variation of other theories of benign capitalism. See Eco-capitalism, Conscious business, Inclusive capitalism, Humanistic capitalism or even Anti-Capitalism.

Foundations

Sustainable Capitalism as a policy outline, attempts to address and tackle the use of admittedly insufficient tools used today to measure economic growth, and the real value of countries, such as GDP or GO. Its criticism of this form of measuring growth measurement is centered on the fact that GDP fails to account for labour conditions and other environmental factors which have a long-term influence on the value which it measures.^[2] It argues that relying solely on short term capital gains is an insufficient basis for value creation and instead offers an ultimately more profitable business model for existing companies based on a notion of long term capitalism . See also Green Gross Domestic Product, Sustainability measurement, Broad measures of economic progress.

Procedures

In its manifesto, Al Gore and David Blood propose 5 key measures to tackle to problem that is the current form of capitalism:

1. IDENTIFY AND INCORPORATE RISKS FROM STRANDED ASSETS

2. MANDATE INTEGRATED REPORTING

3. END THE DEFAULT PRACTICE OF ISSUING QUARTERLY EARNINGS GUIDANCE

4. ALIGN COMPENSATION STRUCTURES WITH LONG-TERM SUSTAINABLE PERFORMANCE

5. ENCOURAGE LONG-TERM INVESTING WITH LOYALTY-DRIVEN SECURITIES

They furthermore propose another five broad measures:

i. Reinforce sustainability as a fiduciary issue; ii. Create advisory services for sustainable asset management; iii. Expand the range and depth of sustainable investment products; iv. Reconsider the appropriate definition for growth beyond GDP; and v. Integrate sustainability into business education at all levels.

^[1]

Criticism

Marx's pessimistic view on capitalism proper

According to the notion of capital accumulation in the work of Karl Marx, capitalism is inherently bound to the transformation of surplus value into money, which can then only be used to make more money and also explains the creation of classes. Surplus value can be created from commodities which are themselves created by labour. However according to Marx and Marxists, because capital accumulation can only be done once capital is available this creates an unfair situation where only he who possesses capital is able to invest and create more capital for himself by transforming the labour of those who do not possess capital into commodities and ultimately more money.^[3] This leads to an unsustainable centralization of capital:

"Accumulation, therefore, presents itself on the one hand as increasing concentration of the means of production, and of the command over labour; on the other, as repulsion of many individual capitals one from another.

This splitting-up of the total social capital into many individual capitals or the repulsion of its fractions one from another, is counteracted by their attraction. This last does not mean that simple concentration of the means of production and of the command over labour, which is identical with accumulation. It is concentration of capitals already formed, destruction of their individual independence, expropriation of capitalist by capitalist, transformation of many small into few large capitals. This process differs from the former in this, that it only presupposes a change in the distribution of capital already to hand, and functioning; its field of action is therefore not limited by the absolute growth of social wealth, by the absolute limits of accumulation. Capital grows in one place to a huge mass in a single hand, because it has in another place been lost by many. This is centralisation proper, as distinct from accumulation and concentration." ^[4]

According to Marx the inexorable market forces were stronger than any impulsion for ethical values.

See also Exploitation for an alternative view on the inception of classes from market forces as proposed by Analytical Marxists

Other criticisms of capitalism are relevant to the article like Accumulation by dispossession which can lead to State Capitalism.

Sustainable capitalism as an oxymoron

As suggested by the Capital Institute, the term Sustainable Capitalism can be described as an oxymoron.^[5] This is mostly due to the fact that capitalism is not designed for cooperation and much of the proposed measures in the manifesto are insufficient:

"Numerous observers point out that modern capitalism, and the markets that enable it, have evolved into a machine built on extraction not regeneration, competition not cooperation, and accumulation not well-being. Theoreticians and practitioners alike are prone to tinker with many of the symptoms on Generation’s hit list of needed reforms. But short of confronting its structural attributes, we should not expect market outcomes that respect the Earth’s limits—its “safe operating space”—beyond which irreparable damage is inevitable. Regrettably, this is not what either capitalism or markets as we know them are designed to achieve."^[5]

The notion of entropy as a criticism of capitalism

According to John Ikerd entropy is a key factor that must be considered when questioning the suitability of capitalism as a vehicle for sustainability. This is because, even though, negative outcomes of capitalism on the environment have been recorded since the 1960's and onward's no real development has thus far solved the problem of applying a form of capitalism that is sustainable. Ikerd suggests that this is because central to the existence of capitalism is the transformation of energy into money. According to him this is directly subjected to first law of thermodynamics which suggests that all materials are "simply concentrated forms of energy, as in Einstein’s famous E=MC2." It thus follows that all "work" is based on the transformation of energy by humans from material things. He argues that, according to the second law of thermodynamics "each time energy is used and reused, some of its usefulness is lost".^[6] He also notes that "Pollution is not only wasted energy but is negative energy, in that pollution requires energy to mitigate its negative impacts of the environment." It thus follows that with this in mind, using the Earth as a closed system can only lead to entropy, as seen in Mars and other dead planets.^[7] The only energy the Earth has available is that found outside of its system: the Sun. "Sustainability ultimately depends upon the use of solar energy to offset the inevitable effects of entropy."^[6]

Another point he makes is that "Capitalism’s lack of sustainability arises because there is no economic incentive to use solar energy, the only truly renewable source of energy, to offset the usefulness of energy lost to entropy."

However he does go on to conclude in his essay that "Capitalism, with all of its inherent risks, is still humanity’ s best hope for sustainability" mostly due to the fallibility of alternative economic systems thus far.^[6]

References