Free Markets = Sustainable Development

Without capitalism, true sustainability is impossible.


“The current global development model is unsustainable.” That is the conclusion of the High-Level Panel on Global Sustainability, appointed earlier this year by United Nations Secretary-General Ban Ki Moon to outline the economic and social changes needed to achieve global sustainability. The Panel urged the world leaders who will gather in Rio de Janeiro next week for the U.N. Conference on Sustainable Development to embrace “a new approach to the political economy of sustainable development.” 

The Panel’s report, Resilient People, Resilient Planet: A Future Worth Choosing [PDF], specifically cited the definition of sustainable development devised in Our Common Future, another U.N. report from an expert panel of headed by former Norwegian Prime Minister Gro Harland Brundtland issued in 1987. “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs,” declared the Brundtland report.

It turns out that the only form of society that has so far met this criterion is democratic free-market capitalism. How can that be? Let’s take a look at the two terms, sustainable and development. With regard to most of human history there has been precious little in the way of “development.” The vast majority of people lived and died in humanity’s natural state of disease-ridden abject poverty and pervasive ignorance. Economic historian Angus Maddison calculated that per capita Western European incomes in 1 A.D. averaged $600 and rose by 1500 to $800 reaching $1,200 by 1820. In China average per capita income was $450 in 1 A.D. rising by 1500 to $600 and reaching $700 by 1820. And the rise was anything but steady, e.g., income in Western Europe fell from the early Roman Empire average to $425 by 1000 A.D.

And what about the other term, sustainable? Again, looking across history and the globe, we know for a fact that there have been, until now, no sustainable societies. All of the earlier civilizations in both the Old and New Worlds collapsed at various times, e.g., Babylonia, Rome, the Umayyad Caliphate, Harrapan, Gupta, Tang, Mayan, Olmec, Anasazi, Moche, just to mention a few. Of course, collapse in this context doesn’t mean that everybody died, but that their ways of life radically shifted and often much of the population migrated to other regions. In other words, history provides us with no models of sustainable development other than democratic capitalism.

Every one of these earlier ultimately unsustainable societies were what economics Nobelist Douglass North and his colleagues call “natural states” in Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History. Natural states are basically organized as hierarchical patron-client networks in which small militarily potent elites extract resources from a subject population. The basic deal is a Hobbesian contract in which elites promise their subjects an end to the “war of all against all” in exchange for wealth and power. 

Natural states operate by limiting access to valuable resources, e.g., by creating and sharing the rewards of monopolies. One fundamental downside to this form of social organization is that innovation, both social and technological, is stifled because it threatens the monopolies through which elite patrons extract wealth. While natural states do succeed in dramatically reducing interpersonal violence, they have one appalling consequence as Maddison’s data show: persistently low average incomes. Again, as history teaches, civilizations organized as natural states are not sustainable in the long run.

Lots of thinkers have pondered what causes the collapse of civilizations, i.e., why they are unsustainable over the long run. Let’s take a brief look at three recent theories of unsustainability: climate change, complexity, and self-organized criticality cascades. In January 26, 2001, issue of Science, Yale University Anthropologist Harvey Weiss and University of Massachusetts Geoscientist Raymond Bradley asked, “What Drives Societal Collapse?” They concluded, “Many lines of evidence now point to climate forcing as the primary agent in repeated social collapse.” Basically they argue that abrupt and long-lasting droughts caused the downfalls of civilizations in both the Old and New Worlds.

Utah State University anthropologist Joseph Tainter, author of the 1988 classic, The Collapse of Complex Societies, asserts that societies fall apart when their problem solving institutions fail. Tainter argues, [PDF] “Confronted with problems, we often respond by developing more complex technologies, establishing new institutions, adding more specialists or bureaucratic levels to an institution, increasing organization or regulation, or gathering and processing more information.” 

Tainter maintains that this strategy of building complex institutions ultimately fails as the result of diminishing marginal returns to the social investment in them. Collapse occurs when accumulating unaddressed problems overwhelm a society. Interestingly, Tainter notes, “In a hierarchical institution, the flow of information from the bottom to the top is frequently inaccurate and ineffective.”

In a 2002 article, “Why Do Societies Collapse?,” published in the Journal of Theoretical Politics, independent political scientist Gregory Brunk argues that societies are self-organizing critical systems. The usual example of self-organizing criticality is a sand pile in which grains of sand are constantly being added. Many land and simply find a place in the pile; some grains land and cause small local avalanches that soon come to rest; and eventually a grain lands that causes a huge avalanche that changes the shape of the whole pile. In a 2009 article, “Society as a Self-Organized Critical System,” in Cybernetics and Human Knowing, researchers Thomas Kron and Thomas Grund suggest the example of the start of World War I as a social avalanche. In that case, an unlikely series of events involving a lost driver gave Serbian nationalist assassin Gavrilo Princip the opportunity to kill Franz Ferdinand, the archduke of the Austrian-Hungarian Empire, and his wife Sophie. And as the phrase goes, the rest was history.

Brunk suggests the main mechanism by which societies reach a critical point where collapses are realized was outlined by economist Mancur Olson in his 1982 book, The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities. Olson argued that over time interest group politics produces over-bureaucratization, essentially recreating the patron-client networks characteristic of natural states.

These three theories of societal collapse can complement one another. Long duration intense local droughts would no doubt constitute a problem that complex hierarchical institutions would have difficulty solving, thus producing a criticality cascade that results in social collapse. It’s important to stress that all of the social collapses cited by these authors occurred with natural states, that is, societies organized as patron-client networks. In fact, the more recent social collapses, e.g., the Soviet Union, Yugoslavia, the Congo, Somalia, and Libya, all also occurred in residual natural states that had persisted into the modern era.

The plain fact is that development (rising incomes, health, and education) occurred only after what North and his colleagues identify as a new form of social organization, open access orders, arose during the past two centuries. Open access orders are basically societies organized as democratic free-market capitalism, and are characterized by the rule of law, the proliferation of private economic, social, religious, and political institutions, and civilian control of the military. In all of history, the only kind of development has been capitalist development, along with parasitical versions of development that some remaining natural states can attain for a while by imitating aspects of open access orders. By 2008, average per capita income in Western Europe was $22,200 and in China $6,800. 

Is free-market development sustainable? After all, it’s only been around for 200 years. Obviously, most of the folks gathering next week at the U.N. conference in Rio don’t think so. Last September a U.N.-sponsored activist conference issued a declaration, Sustainable Societies, Responsive Citizens, that urged the replacement of “the current economic model, which promotes unsustainable consumption and production patterns, facilitates a grossly inequitable trading system, fails to eradicate poverty, assists in the exploitation of natural resources to the verge of extinction and total depletion, and has induced multiple crises on Earth” with “sustainable economies in the community, local, national, regional and international spheres.”

Perhaps free-market capitalism will prove itself unsustainable in the long run. But I don’t think so. Brunk suggests that humans don’t just take complexity cascades (avalanches) lying down; they attempt to foresee and dampen them. “From this perspective, the fundamental reason that civilization has advanced is because societies have become more adept in addressing the problems caused by complexity cascades" [emphasis in original], claims Brunk. The chief way in which modern societies have “become more adept in addressing the problems caused by complexity cascades” is free markets. Free markets are the most robust mechanism ever devised by humanity for delivering rapid feedback on how decisions turn out. Profits and losses discipline people to learn quickly from and fix their mistakes. Consequently, markets are superb at using trial-and-error to find solutions to problems.

What about the Brundtland report criterion? As I have argued elsewhere, "There is only one proven way to improve the lot of hundreds of millions of poor people, and that is democratic capitalism. It is in rich democratic capitalist countries that the air and water are becoming cleaner, forests are expanding, food is abundant, education is universal, and women's rights respected. Whatever slows down economic growth also slows down environmental improvement." By vastly increasing knowledge and pursuing technological progress, past generations met their needs and vastly increased the ability of our generation to meet our needs. We should do no less for future generations.

Top-down bureaucratization of the sort favored by the delegates who will be meeting in Rio moves societies back in the direction of natural states in which monopolies are secured and run by elites. Innovation would thus stall and the ability of people and societies to adapt rapidly to changing conditions, economic and ecological, via free markets and democratic politics, would falter. “Ironically, instead of eliminating all complexity cascades, what the increasing bureaucratization of mature societies may do is increase the impact of the really big cascades when they overwhelm a society's barricades,” argues Brunk. That’s entirely correct.

What well-meaning activists and U.N. bureaucrats are trying to do is centrally plan the world’s ecology. History suggests that that would work out about as well for humanity and the natural world as centrally-planned economies did. 

Note: I will be reporting from the U.N. conference and the People's Summit in Rio all next week. 

Ronald Bailey is Reason magazine's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books.