Harry Geels: ‘Growth’ and ‘exploitation’ are not capitalist concepts
This column was originally written in Dutch. This is an English translation.
By Harry Geels
Many opponents of capitalism despise this system because they believe it is inextricably linked to 'exploitative growth' at the expense of people and/or the environment. This is a common misconception. Growth and exploitation are not inherent characteristics of capitalism, but phenomena institutionalised by governments and supranational organisations.
Professor Roos Vonk recently shared a podcast with Jason Hickel on LinkedIn entitled It is either degrowth for the rich or climate disaster. One of Hickel's propositions – that capitalism equates to growth and exploitation – was presented by the professor as a kind of truth. Hickel, best known for his book Less is More: How Degrowth Will Save the World, argues that redistribution must take place: from rich to poor, and from the rich North to the poor South.
Ecocommunism
Hickel is an ecocommunist, i.e. someone who uses climate issues to promote a redistribution agenda. A key feature of ecocommunism is the criticism of capitalism as a system that by definition causes inequality, exploitation and unbridled growth. This link is misleading. The idea of growth emerged much later than capitalism. Growth has been institutionalised by governments and supranational organisations.
Different forms of capitalism
The first problem we encounter in discussions with critics of capitalism is a lack of clarity about the definition of capitalism. As I argued earlier, different variants have emerged, most of which do not even deserve the title of capitalism. In Figure 1, I have listed the different systems, from the purest form of capitalism (left) to communism (right) and all hybrid forms with increasing government intervention in between.
Figure 1: Different economic and social systems
The current system can best be described as a corporatocracy, in which the government plays a major role and cooperates with large companies, a system that leans more towards socialism than capitalism. In such a system, also known as 'corporate socialism', politics retains control and state-owned companies are obliged to cooperate with multinationals. The difference between public and private goals then becomes very small.
If we go back to basics, capitalism is a system based on private ownership, entrepreneurship, innovation, competition and free markets, with – depending on the exact definition – the government as referee. Capitalism already existed in pre-industrial societies without (high) growth, such as 'laisser-faire' – and later 'entrepreneurial' – capitalism, based on small businesses where entrepreneurs competed with each other through lower prices or innovations.
Famous capitalist economists
If we look for the founders of the pure definition of capitalism, we come across, for example, Nobel Prize winner Douglass North, who emphasised enforceable property rights as a fundamental condition.
Or Joseph Schumpeter, who advocated free (destructive) competition as a driver of innovation. Or John Stuart Mill, who encouraged free competition as a source of efficiency and innovation, with a role for the government when certain markets do not function properly.
Mill did not see capitalism as an end in itself, but as a means of giving people individual freedom and enabling them to pursue happiness – something he elaborated further under the heading of 'utilitarianism'. And finally, the grandfather of capitalism, Adam Smith, who emphasised how free markets and competition allocate resources more efficiently than centralised planning. Smith's 'invisible hand' is not focused on growth, but on coordinating preferences, production and (information) exchange.
These economists did not emphasise compulsive growth or the exploitation of others or the earth. Growth can, however, be a consequence of good entrepreneurship. Smith even spoke of a 'stationary-state economy'. In his book Theory of Moral Sentiments, he also emphasised prudence (mind your own business), justice (respect for the rights of others) and 'beneficence' (doing good). Every entrepreneur must also have a moral compass (to be developed through the concept of the 'Impartial Spectator').
Later institutionalisation of growth
Growth, as an official goal, was only institutionalised much later. GDP, now the standard measure of economic progress, is a 20th-century invention with clear political origins. In the 1930s, economist Simon Kuznets developed the first comprehensive national income accounts for the US to assess the Great Depression. When he presented them to Congress in 1934, he warned that GDP measures production, not well-being.
During World War II, the US and the UK standardised GDP to plan war production and mobilisation. It proved useful for comparing economies and directing resources. At the Bretton Woods conference in 1944, the newly established IMF and World Bank adopted GDP/GNP as the main measure of their members' economies. The OECD used GDP first for reconstruction and later for competitiveness during the Cold War.
The three real drivers of growth
In addition to innovation, there are three actors that stimulate growth in the economy. First, as already argued, governments and supranational organisations. They have taken on an increasingly important role and depend on growth to finance their ambitions in areas such as social services, fiscal policy and defence. This often involves borrowing. Without nominal growth, it is difficult to repay debts. The other two drivers of growth are commercial and central banks.
Central banks preach the growth model with their inflation policy. By fuelling inflation (to 2%), they want us to keep spending. After all, deflation would allow us to postpone spending. Commercial banks earn money by creating money: for every pound of savings, they can lend ten pounds. Money creation promotes consumption and investment, and therefore growth. Due to the leverage built up in the system, banks are in serious trouble when growth turns negative.
In conclusions
Ecocommunists also argue that our former colonisation was part of capitalism's exploitative growth ideology. Although it is true that colonising companies such as the Dutch East India Company and the British East India Company were privately owned, there were no free markets. These were mostly collaborations between the state and companies, which relied heavily on government power, monopolies and political privileges. At best, we can call this “crony capitalism” or state capitalism.
We still see these kinds of monopolistic and oligopolistic structures in our society, where powerful companies enjoy all kinds of advantages, from limited competition to trade agreements and international tax optimisation. Growth and exploitation are not inherent flaws of capitalism, but the result of choices made by institutions and power structures. Those who blame capitalism are fighting the wrong problem and missing the opportunity to tackle the real causes of exploitation.
This article contains the personal opinion of Harry Geels