Why the Climate Crisis Is Also the Crisis of Capitalism

By Ying Chen and Güney Işikara (guest post)

Many people are wary of bringing a critique of capitalism into the discussion of climate change, even if they are genuinely concerned about the crisis and actively looking for effective solutions. All it takes is the mention of any word ending with “-ism,” and skeptics will conclude that the discussion is unnecessarily ideological.

However, looking at the climate crisis through a Marxist lens can give us greater insight into the political inertia that has stalled the implementation of any kind of coordinated national response to climate change. The way capitalism operates in the United States, with its all-encompassing forces that have played a major role in creating today’s environmental disaster, is also standing in the way of the implementation of a comprehensive solution. We can only understand the impact of capitalism on the current crisis by viewing capitalism as a specific economic system and assessing its historical impact—as well as its limits and contradictions.

Capitalism and Economic Surplus

From a Marxist perspective, the key defining feature of an economic system is its ownership structure. It is those who own the means of production (the raw materials, such as land and machines, that are used to produce goods) who also have the right to claim the surplus. Surplus, also known as surplus product or surplus value, is the difference between the final product that emerges from the production process and the total amount of input involved in creating that product. In feudalist societies, the surplus mostly took the form of the extra crops appropriated by the landlord after providing the serfs with just enough food to survive. In capitalism, roughly speaking, surplus takes the form of the profit that the capitalist claims after paying for inputs such as raw materials and workers’ wages.

The term “economic surplus,” coined by the political economist Paul A. Baran, measures surplus at a societal level. It is the difference between the total output of the society and the level of consumption that is needed for the reproduction of society at its current standard of living. Depending on how it is being used, economic surplus can take the concrete form of grand architecture such as the pyramids in Egypt or China’s Great Wall, or less explicitly in the form of developing individual and social capacities, such as mass education.

Today, the economic surplus of the United States ranges from $8.4 to $10.8 trillion. However, having an economic surplus does not necessarily mean it will be used effectively or for the right purposes. The issue lies in who controls the economic surplus and whether they are motivated by the desire to turn a profit. When the surplus is under public control, profit motives can be largely averted and the use of surplus for social purposes is more straightforward: the Morrill Land-Grant College Act of 1862 made it possible to use the proceeds from federal land sales to establish colleges nationwide. The Rural Electrification Act of 1936, part of President Franklin D. Roosevelt’s New Deal, provided federal loans for the installation of electrical distribution systems in previously ignored rural areas. However, when the surplus is in private hands, policies to encourage investment for social purposes are more likely to be influenced by the profit motive. For example, when it comes to carbon reduction, the results of various
market-based attempts are far from satisfactory within national boundaries, and are often entirely offset on a global scale as a result of offshoring.

Capitalism Is Approaching Its Historical Limit

Capitalism once stood for a progressive stage of historical development. Even Karl Marx and Frederick Engels, capitalism’s most radical critics, agreed that the “massive and colossal productive forces” created under capitalism—manifested by material abundance, advanced technology, and enhanced productivity—was unprecedented compared to all previous economic systems. It was precisely the development of productive forces, previously hindered by the class of the “indolent” and “ignorant” landlords, as described by Adam Smith, now unleashed under capitalism, that granted capitalism its political legitimacy to replace feudalism as an alternative economic system. As a result, capitalism manages to generate abundant economic surplus, which provides the material base for the improvement of people’s living standards.
Today, however, the global capitalist regime is mired in economic stagnation, with extreme income inequality on the one hand, and the massive waste of human resources through unemployment and underemployment on the other. And on top of these issues is the ecological crisis, which, with its global scope, is the most dire challenge of all. Each of the failed, mostly market-based, attempts to mitigate the climate crisis thus far have made it more apparent than ever that the root cause of the crisis is the endless accumulation of capital, which is nothing more than the very definition of capitalism itself.

Many say that capitalism has always been resilient in the aftermath of crises. However, most of the capitalist crises were only postponed rather than resolved. The impact of the Great Depression was mitigated by the creation of a 75% tax on the rich so that some economic surplus could be used to address urgent public needs. Up until the 1900s, such compromise from the capitalist class was unprecedented in the United States. Instead of leading to a head-on collision between capitalism and public interests, the recession in the 1970s was temporarily relieved by the widespread implementation of neoliberal policies beginning in the 1980s. These policies not only brought a substantial loss in well-being to the working class, but also planted the seeds of the 2008 crisis, in which we are still deeply entrapped.

Today, when those who claim a significant portion of the economic surplus have the least to lose from climate destabilization, it is hardly surprising that they have a different perception of the urgency of the issue. One example is the recent announcement from Jeff Bezos, Amazon’s founder and the richest person in the world, that he will invest in the development of space technologies as a solution to climate change. Turning a blind eye toward the poor in Bangladesh—who would be among the first to suffer the loss of their homes when sea levels rise as a result of climate change—Bezos prefers to use his money to divert attention away from the Earth and toward a new planet that people, mostly likely those in his class, can relocate to in the indefinite future.

The Green New Deal and Capitalism’s Legitimacy

The uniqueness of climate change is that it threatens the reproduction of the inhabitable ecosystem that we live in today. The ecosystem is as essential as food, clothing, shelter, and transportation, if not more so. Hence the expenditure on its preservation, through the Green New Deal, falls within the cost of the necessary reproduction of human society.

Yet the surplus-owning class is reluctant to consider spending on climate change mitigation. Economists who are sympathetic to the Green New Deal have cautiously proposed public debt as a solution, in an attempt to circumvent any implications of transferring private wealth into the hands of the government, as occurred under the New Deal.

Such reluctance from the surplus-owning class to preserve human beings’ only habitat demonstrates the irrationality of the capitalist economic system; and their hesitancy raises the larger question of whether capitalism itself has come to its own historical limit. This kind of crisis of confidence in our political and economic institutions is not new to capitalism. During the Great Depression in the 1930s—when one-quarter of the labor force was unemployed and radical left organizations were in their heyday—was the last time capitalism faced such a life-or-death challenge. The current planetary disaster is posing a threat no less severe than what occurred nearly 90 years ago.

There are only two possible trajectories. The capitalist class will either allocate part of the surplus it owns to a more comprehensive solution to the ecological crisis, such as the Green New Deal (which would most likely happen as a result of pressure from the broader public, i.e., the working classes). Or, it will continue to deploy its surplus for purposes other than climate action. At stake is both the political legitimacy of our current global economic system and the fate of a livable environment for human beings. Given the amount of hostility on the part of capitalists to the Green New Deal, capitalism itself is in overt conflict with the future of humanity.

Ying Chen is an assistant professor of economics at the New School for Social Research; Güney Işikar was a graduate student in economics at the New School for Social Research and begins a position as clinical assistant professor at New York University’s Liberal Studies program this fall.

SOURCES: Paul A. Baran, The Political Economy of Growth (Monthly Review Press, 1957); Zhun Xu, “Economic Surplus, the Baran Ratio, and Capital Accumulation,” Monthly Review, March 1, 2019; Baki Guney Isikara, “The Weight of Essentials in Economic Activity,” Working Paper, 2019; Anders Fremstad and Mark Paul, “Overcoming the Ideology of Climate Inaction,” Project Syndicate, Feb. 25, 2019 (project-syndicate.org); Enno Schröder and Servaas Storm, “Economic Growth and Carbon Emissions: The Road to ‘Hothouse Earth’ is Paved with Good Intentions,” Institute for New Economic Thinking, November 2018; Catherine Clifford, “Jeff Bezos: I spend my billions on space because we’re destroying Earth,” CNBC, July 17, 2019 (cnbc.com); Mark Paul, “The Economic Case for the Green New Deal,” Forbes, Feb. 20, 2019 (forbes.com).

Agroecology as Innovation

By Timothy A. Wise*

Cross-posted at Food Tank

Recently, the High Level Panel of Experts of the U.N. Food and Agriculture Organization (FAO) released its much-anticipated report on agroecology. The report signals the continuing shift in emphasis in the UN agency’s approach to agricultural development. As outgoing FAO Director General Jose Graziano da Silva has indicated, “We need to promote a transformative change in the way that we produce and consume food. We need to put forward sustainable food systems that offer healthy and nutritious food, and also preserve the environment. Agroecology can offer several contributions to this process.”

The commissioned report, “Agroecological and other innovative approaches for sustainable agriculture and food systems that enhance food security and nutrition.” Two years in the making, the report makes clear the urgent need for change. “Food systems are at a crossroads. Profound transformation is needed,” the summary begins. It stresses the importance of ecological agriculture, which supports “diversified and resilient production systems, including mixed livestock, fish, cropping, and agroforestry, that preserve and enhance biodiversity, as well as the natural resource base.”

It is not surprising, of course, that those with financial interests in the current input-intensive systems are responding to growing calls for agroecology with attacks on its efficacy as a systematic approach that can sustainably feed a growing population. What is surprising is that such responses are so ill-informed about the scientific innovations agroecology offers to small-scale farmers who are being so poorly served by “green revolution” approaches.

One recent article from a researcher associated with a pro-biotechnology institute in Uganda was downright dismissive, equating agroecology with “traditional agriculture,” a step backwards toward the low-productivity practices that prevail today. “The practices that agroecology promotes are not qualitatively different from those currently in widespread use among smallholder farmers in Uganda and sub-Saharan Africa more broadly,” writes Nassib Mugwanya of the Uganda Biosciences Research Center. I have come to conclude that agroecology is a dead end for Africa, for the rather obvious reason that most African agriculture already follows its principles.”

Nothing could be further from the truth. As the new expert report shows, and as countless ecological scientists around the world can attest, agroecology brings much-needed innovations to prevailing smallholder practices. With a long track record of achievements in widely varying environments, the approach has been shown to improve soil fertility, increase crop and diet diversity, raise total food productivity, improve resilience to climate change, and increase farmers’ food and income security while decreasing their dependence on costly inputs.

The failing policies of the present

The predominant input-intensive approach to agricultural development can hardly claim such successes, which is precisely why international institutions are actively seeking alternatives. The Alliance for a Green Revolution in Africa (AGRA) is the poster child for the promotion of input-intensive agriculture in Africa. At its outset 13 years ago, AGRA and its main sponsor, the Bill & Melinda Gates Foundation, set the goals of doubling the productivity and incomes of 30 million smallholder households on the continent.

There is no evidence that approach will come anywhere near meeting those worthy objectives, even with many African governments spending large portions of their agricultural budgets to subsidize the purchase of green revolution inputs of commercial seeds and synthetic fertilizers. National-level data, summarized in the conclusion to my book Eating Tomorrow, attests to this failure:

  • Smallholders mostly cannot afford the inputs, and the added production they see does not cover their costs.
  • Rural poverty has barely improved since AGRA’s launch; neither has rural food insecurity. Global Hunger Index scores remained in the “serious” to “alarming” category for 12 of the 13 AGRA countries.
  • Even in priority crops like maize and rice, few of AGRA’s 13 priority countries have seen sustained productivity increases.
  • Production increases for maize in Zambia have come as much from shifting land into subsidized maize production as from raising productivity from commercial seeds and fertilizers.
  • There is no evidence of improved soil fertility; in fact, many farmers have experienced a decline as mono-cropping and synthetic fertilizers have increased acidification and reduced much-needed organic matter.
  • Costly input subsidies have shifted land out of drought-tolerant, nutritious crops such as sorghum and millet in favor of commercial alternatives. Crop diversity and diet diversity have decreased as a result.

recent article in the journal Food Policy surveyed the evidence from seven countries with input subsidy programs and found little evidence of sustained—or sustainable—success. “The empirical record is increasingly clear that improved seed and fertilizer are not sufficient to achieve profitable, productive, and sustainable farming systems in most parts of Africa,” wrote the authors in the conclusion.

Agroecology: Solving farmers’ problems

 Branding agroecology as a backward-looking, do-nothing approach to traditional agriculture is a defensive response to the failures of Green Revolution practices. In fact, agroecological sciences offer just the kinds of innovations small-scale farmers need to increase soil fertility, raise productivity, improve food and nutrition security, and build climate resilience.

Do these innovations sound backward looking to you?

  • Biological pest control – Scientist Hans Herren won a World Food Prize for halting the spread of a cassava pest in Africa by introducing a wasp that naturally controlled the infestation.
  • Push-pull technology – Using a scientifically proven mix of crops to push pests away from food crops and pull them out of the field, farmers have been able to reduce pesticide use while increasing productivity.
  • Participatory plant breeding – Agronomists work with farmers to identify the most productive and desirable seed varieties and improve them through careful seed selection and farm management. In the process, degraded local varieties can be improved or replaced with locally adapted alternatives.
  • Agro-forestry – A wide range of scientists has demonstrated the soil-building potential of incorporating trees and cover crops onto small-scale farms. Carefully selected tree varieties can fix nitrogen in the soil, reduce erosion, and give farmers a much-needed cash crop while restoring degraded land.
  • Small livestock – Reintroducing goats or other small livestock onto farms has been shown to provide farmers with a sustainable source of manure while adding needed protein to local diets. Science-driven production of compost can dramatically improve soil quality.

These innovations and many others are explored in depth in the new U.N. report, the full version of which will be available in English in mid-July, other FAO languages in September. Those advocates of industrial agriculture would do well to read it closely so they can update their understanding of the sustainable innovations agroecological sciences offer to small-scale farmers, most of whom have seen no improvements in their farms, incomes, or food security using Green Revolution approaches. Many farmers have concluded that the Green Revolution, not agroecology, is a dead end for Africa.

*Timothy A. Wise is a Senior Researcher on the Land and Food Rights Program at Small Planet Institute and a researcher at the Global Development and Environment Institute at Tufts University. He is the author of Eating Tomorrow: Agribusiness, Family Farmers, and the Battle for the Future of Food (New Press, 2019).

Industrial Policy Finally Legitimate?

By Jomo Kwame Sundaram
Cross-posted at Inter Press Service.
For decades, the two Bretton Woods institutions have rejected the contribution of industrial policy (IP), or government investment and technology promotion efforts, in accelerating and sustaining growth, industrialization and structural transformation.
Finally, two International Monetary Fund (IMF) staff members, Reda Cherif and Fuad Hasanov, have broken the taboo. They embrace industrial policy, arguing against the current conventional wisdom that East Asian industrial policies cannot be successfully emulated by other developing countries.

Miracle Economies Not Miraculous

They argue that IP has been key to East Asian ‘miracles’, offering valuable lessons for sustaining ‘catch-up’ growth. For them, appropriate IP interventions have been key to successful entry into more sophisticated industrial activities, early strong export orientation, and fierce competition with strict accountability.
For over half a century, especially following Asian and African decolonization after World War Two, developing countries have gone their separate ways with very mixed results, with all too many falling behind. Meanwhile, very few economies have caught up with some of the most advanced economies and firms.
Between 1960 and 2014, 16 out of the 182 economies they study achieved high-income status, underscoring the difficulties for middle-income countries reaching high-income status within two generations. They distinguish three types of countries which have ‘succeeded’, namely the East Asian miracles, those discovering considerable oil and gas, and those that benefited from joining the European Union.
Cherif and Hasanov insist on the key role of industrial policy in the Asian miracles, and for the US after the Civil War, Germany under Bismarck, and Japan after the Meiji Restoration. They argue that East Asian industrial policies have much in common despite their many differences.
The conventional growth formula — of improving macroeconomic stability (typically through anti-inflationary policies), strengthening property rights, and providing physical and social infrastructure and basic services to address government failures — was not enough .
Drawing useful lessons from varied country experiences is fraught with difficulty, especially considering the exogenous and conjunctural factors affecting growth, including luck. In contrast with the conventional empirical approach emphasizing averages, their analysis of long-term cross-country growth experiences underscores the value of studying the ‘tails’ or exceptions instead.

Technology and Innovation Policy

Contrary to earlier formulations of industrial policy as primarily involving investment and technology, Cherif and Hasanov propose three key principles constituting ‘true industrial policy’, summarized as technology and innovation policy (TIP), namely:
•    State interventions to overcome constraints to the early emergence of national producers in more sophisticated industries, beyond conventional notions of ‘comparative advantage’.
•    Export orientation, not import substituting industrialization (ISI); this contrasts with providing effective protection in the national or regional market on condition of early export promotion to achieve export competitiveness.
•    Ensuring both national and international competitiveness with strict accountability.

Hyundai vs Proton

Cherif and Hasanov also contrast the cases of Malaysia’s Proton with South Korea’s Hyundai in support of their three principles. They argue that Proton did not export enough, reflecting failure to build sufficient managerial and engineering skills as well as an innovative automotive cluster.
Hyundai, by contrast, has successfully created a global brand. Cherif and Hasanov insist that allowing several South Korean industrial conglomerates or chaebols to develop rival auto industries and the push to export were key to its success.
Governments have directed capital and labour into industrial ventures that firms probably would not have undertaken without appropriate incentives, but market competition, market signals, and private sector accountability are also recognized as important.
Without conclusive evidence, Cherif and Hasanov claim that due to the government’s push to export, Korean automakers ‘moved first, then learnt and adjusted’. In exchange for very low real interest rate loans, Korean chaebols had to quickly secure foreign market shares, while accountability was enforced by firing senior managers who failed to reach export targets.
Pressure to compete and export forced Hyundai to increase its R&D effort and technology upgrading, producing its own engine in 1991, and later, its first electric car. Korean encouragement of several chaebols in the automotive industry later forced them to restructure, with few surviving.
But would fostering more than one automotive firm have ensured Proton’s success in light of Malaysia’s smaller domestic market and more modest industrial capabilities? And what were the economic costs of Korea’s arguably wasteful automotive industry competition?

Three Development Policy Options

Cherif and Hasanov emphasize the importance of government ambition, accountability and adaptability. Government ambition is seen in terms of a feasible or pragmatic level of sophistication of new sectors and domestic ownership of industrial technology.
Government policy implementation must be subject to accountability, not only for firms, but also policymakers and senior managers responsible. As conditions change and new knowledge becomes available, policy interventions must adapt to continue to be effective and feasible.
  • Low gear: The conventional approach to growth — of improving the investment environment, key institutions, infrastructure, macroeconomic stability, investments in education, and minimizing other government interventions — is likely to result in relatively slow ‘snail’s pace’ growth.  Such policy interventions typically address government failures, but not necessarily market failures, especially to develop more technologically sophisticated sectors beyond conventional understandings of comparative advantage.
  • Middle gear: This approach mainly relies on attracting FDI into more technologically sophisticated industries to participate increasingly in global value chains, or by improving the technological level of existing industries. This may accelerate growth for middle-income countries, but is unlikely to lead to sustainable development or ‘high-income status within two generations’ owing to limited national capacities and capabilities.
  • High gear: The East Asian miracle economies are said to be using a ‘moonshot approach’ for governments to create competitive national firms in frontier technologies, and more sophisticated industries with homegrown technologies, creating conditions for high, sustained long-term growth.
The speed and extent of the leaps to more sophisticated industries and technologies created by national firms are crucial for sustaining long-term development. Countries that manage this process well have better chances of soon becoming relatively advanced economies.
Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought.

Farming First: A Recipe to Feed a Crowded World

By Timothy A. Wise

Cross-posted at Mark Bittman’s Heated at Medium

One version of an old joke features a shipwrecked economist on a deserted island who, when asked by his fellow survivors what expertise he can offer on how they can be rescued, replies, “Assume we have a boat.” Economists have a well-deserved reputation for making their theories work only by making unrealistic assumptions about how the real world operates.

I was reminded of the joke often in the five years I traveled the world researching my book, Eating Tomorrow: Agribusiness, Family Farmers, and the Battle for the Future of Food. Policy-makers from Mexico to Malawi, India to Mozambique, routinely advocated large-scale, capital-intensive agricultural projects as the solution to widespread hunger and low agricultural productivity, oblivious to the reality that such initiatives generally displace more farmers than they employ.

Italy and China’s One Belt One Road Initiative

By Sara Hsu

China has become a leader in globalization, most visibly through its One Belt One Road initiative, which spans several continents and aims to build up infrastructure and trade between China and the rest of the world. While the program has, for the most part, remained controversial in the West due to a fear of Chinese imperialism, in March 2019, Italy broke with the G7 major economies and signed up for the program. Some analysts have expressed concerns that this move will allow China a back door into Europe’s heartland, while others see it as a shrewd move on the part of the Italians, allowing them to obtain much-needed financing for a number of endeavors. So, which is it, and is this a win-lose or a win-win situation?

China Has Strategic Objectives In Going Global, Does Africa?

From The Real News Network.

If Africa as a continent does not have strategic objectives of its own, the history of impediments to African economic development will be repeated in its engagement with China, says Ethiopia’s Alemayehu Geda.  

LYNN FRIES: It’s The Real News. I’m Lynn Fries. My guest on today’s show is Ethiopia’s Alemayehu Geda, who is a Professor of Economics at University of Addis Ababa. We are meeting at the UN Geneva, where Professor Geda just presented at anexperts meeting. Professor Geda, welcome.

ALEMAYEHU GEDA: Thank you very much.

Read the rest of this entry »

World Bank Financialization Strategy Serves Big Finance

 By Jomo Kwame Sundaram and Anis ChowdhuryCross-posted at Inter Press Service.

The World Bank has successfully built a coalition to effectively advance its ‘Maximizing Finance for Development’ (MFD) agenda. The October 2018 G20 Eminent Persons Group’s (EPG) report includes proposals to better coordinate various international financial institutions (IFIs) in promoting financialization.

New Pan-Agency Development Financing Report Suggests Major Economic Crisis Brewing

By Jesse Griffiths

Cross-posted at ODI.

The 2019 Financing for Sustainable Development report from the Inter-Agency Task Force (IATF) on Financing for Development was launched today.

For those – like me – who worry that the world is sleepwalking into another crisis, it’s not reassuring. It confirms that global debt is at record levels and ‘financial fragilities’ have built up across the globe. It’s also disappointingly light on solutions that could reverse these trends.

What is the IATF report?

The IATF is a group of fifty major international institutions that work on finance issues, including various United Nations bodies, the International Monetary Fund, World Bank and World Trade Organization.

This report is its annual stocktake on progress towards meeting commitments to finance the Sustainable Development Goals (SDGs). It’s an impressive undertaking, covering all major financing sources, with a mandate to look at the global financial and economic system as a whole.

World Bank Financializing Development

By Jomo Kwame Sundaram and Anis Chowdhury

Cross-posted at Inter Press Service.

The World Bank has successfully legitimized the notion that private finance is the solution to pressing development and welfare concerns, including achieving the Sustainable Development Goals (SDGs) through Agenda 2030.

A recent McKinsey report estimates that the world needs to invest about US$3.3 trillion, or 3.8 per cent of world output yearly, in economic infrastructure, with about three-fifths in emerging market and other developing economies, to maintain current growth.

The world financing gap is about US$350 billion yearly. If new commitments, such as the SDGs, are considered, the gap would be about thrice the currently estimated gap as available public resources alone are not enough. Thus, for the Bank, the success of Agenda 2030 depends on massive private sector participation.

China’s Belt and Road Initiative vs. the Washington Consensus

Cross-posted at Inter Press Service.

With the Washington Consensus from the 1980s being challenged, President Donald Trump withdrawing the United States from the Trans-Pacific Partnership (TPP), and China pursuing its Belt and Road Initiative (BRI), most notably with its own initiatives such as the multilateral Asian Infrastructure Investment Bank (AIIB), the political and economic landscape in East Asia continues to evolve. Jomo Kwame Sundaram was interviewed about likely implications for developing countries in the region and beyond.

IPS: What do you think of world growth prospects and China’s Belt and Road Initiative?

Jomo: Although there are some hopeful signs here and there, there are few grounds for much optimism around the North Atlantic (US and Europe) for various reasons. Unconventional monetary policies, especially quantitative easing (QE), have helped achieve a modest recovery in the US, but appears less likely to succeed elsewhere. Such measures have also accelerated massive wealth concentration, which is why a few of the world’s richest men own more than the bottom half of the world’s population.