Archive | November, 2019

WHY, AS A MATTER OF COMMON SENSE, RESOURCES ARE INFINITE

This is not the kind of topic this website normally tackles. but if we are serious about making South Africa work, there can be no question that we must come to terms with the issue of natural resources. This is perhaps even more apposite in a country endowed with a surfeit of natural resources, but just about the highest unemployment in the world, and massive poverty. How do we square the circle? The first step is to check our basic premises.

There is a massive fallacy underlying arguments advanced by the green movement in favour of various interventions in the economies of the world, such as that growth should be stopped or even reversed (“de-growth”), a “steady-state” economy should be pursued, green, “sustainable” energy sources only should be used, or we should revert to an “organic” lifestyle free from processed or manufactured chemicals and other goods. It also results in an ubiquitous state of near-panic that our environment, resources and ability to prosper, have reached or are close to a “tipping point” of total collapse. The fallacy has to do with misunderstanding the nature of resources, and results in viewing resources as a fixed, limited, finite collection of quantified goods.

If that view of resources were correct, then the world and humanity would be in huge trouble. That would mean that resources are finite, static substances that are “extracted” from the earth in order to sustain a growing population in a growing economy, which by definition must be exhausted sooner or later.

That makes it crucial that we understand what a natural resource is, and that it is not even nearly what the above premise postulates.

To start with, we can probably agree that a natural resource is:

• physical matter or energy
• that exists in the natural environment,
• that is useful to humans.

Of course resources, so defined, are limited in the sense that at any given moment in time, there is a limited quantity of resources that we know about, and that we have the ability to exploit and use. But that is a world removed from the real question, which is whether resources are finite, and whether they will ever run out.

All resources are distinguished by the quality that they – alone or in combination – provide energy that can be used by human beings. Some resources do not themselves provide energy, but are essential elements when combined with other resources, to supply or save energy. Easy examples of the former (providers of energy) are carbon-based fuels such as wood, coal, oil and gas. They all provide cheap and reliable energy. All foods that occur in nature are also such resources, because they supply energy. Examples of the second group are most metals and minerals that do not provide energy themselves, but save energy and make energy cost-effective. Steel in cars, trains and aircraft, for example, enable us to travel very fast without causing vehicles to burn up or disintegrate. Diamond drill bits enable quick drilling without constantly having to replace worn-out parts. A similar function is served by lubricants. Copper enables electricity transmission. Land can sustain livestock and harvests. Phosphates improve agricultural yields. All in all, natural resources thus either provide more energy, or make energy more efficient.

The result is that with resources we are able to do more, than without them. And as we will see, over time, do more with less. But for the moment the point to grasp is that fundamentally resources are about producing and saving energy. The exploitation of resources is their combination in a way designed by human ingenuity to produce energy as efficiently as possible.

But the energy that is produced, is not created out of nothing. It is simply the conversion of existing energy into other more useful forms, often in many specialized forms. Sunlight is a basic source of energy on earth. It is the source of energy of all fossil fuels, for one. Burning those fuels releases energy that has always existed. It does not create new energy.

At the same time, once used by humans, the energy does not disappear. Energy does not get “used up”. It stays “in the system”. An efficient process or machine is one that uses the maximum amount of energy from inputs to achieve its purpose, an inefficient process or machine less so. But in neither case is energy “lost”. It remains in existence, available to be tapped, given technology designed to do so. The same applies to by-products in the form of waste. Most so-called waste products are exploited in their own right. In the case of those that are not, a cost-effective process of exploitation has not yet been found. At any moment in time, there is no shortage of resources that hold the potential of usable energy. There is only conceivably a shortage of technology to process the stock of potential resources into usable energy. The pool of potential resources remains the same quantitatively, even if rearranged by humans and nature, and even if unknown to us.

The process by which humans cooperate in order to produce and distribute energy as efficiently as possible in order to benefit themselves optimally, is the economy. Its progressive efficiency determines how much value it produces. It neither creates nor destroys mass or energy.

Some resources we have used for a long time without knowing it, like oxygen. We instinctively know how to breathe, and it has always been there, available. Largely the same applies to water. Fruit and other edible plant products are such resources too, which our hunter-gatherer ancestors simply picked and consumed. But these resources do not get exhausted. Oxygen does not disappear. Nor does water. Fruit does, but it regrows. It is, to use the jargon, “renewable” and “sustainable”.

More of a bone of contention is so-called resources like minerals in the ground, and land. Logically these substances are finite in quantity.

Those examples make it easy to conceive of resources as limited. The reason is that we see resources as bound by the dimensions of area, space and volume of underlying substances or land. It is easy to think: at any moment in time, there is just so much copper, zinc and coal. Like food in a pantry. In the result we are inclined to think that these substances can be used up.
That is why, for example, environmentalists frequently conceive of the earth as an area of land that has a limited carrying capacity to support a given number of animals (including humans) with food and water.

But what distinguishes humans from other animals is their ability to reason. We are more than instinctive animals. The starting point to show how the idea of resources-on-a-shelf is wrong and dangerously misleading, is the fact that in addition to obvious examples that we instinctively consume, most resources that we take for granted today, have been unknown to us for most of our entire history.

By way of example: In the year 1000 coal was not a known resource. It was a physical substance in the environment, but even if it had been available and identified, it was not exploited, because at that stage human ingenuity to make it useful to humanity, did not exist. It was just a black stone in the ground.

Potentially everything in and on the earth and surrounding it, including the celestial bodies, is a resource like coal. Some we know how to exploit, others not.

Of course, crucial to a thing or substance operating as a resource, is human knowledge: knowledge that it is useful, knowledge of how to exploit it, knowledge that it is available in a particular place, and knowledge of how to use it cost-effectively. A resource is defined by its usefulness. If it is not useful, it is not a resource. And it is not useful to us unless we know how to use it. By the same token, a known resource may become vastly more useful if we discover a further, new, use for it. That, in a sense, then increases or changes the resource itself.

A resource is not matter in its natural state in the ground. It is its usefulness that defines the resource as such. Recall the point earlier made that all resources either alone or in combination produce or save energy. It follows that the moment we discover a way to use a substance to produce or save energy, we have a resource that we previously did not have. And if we discover a new way to use it twice as efficiently as before, in a way we no longer have the same resource. Just as the usefulness of a substance determines whether it is a resource, just so the amount of usefulness determines its quantity. What matters is how much it can do, not how much it is.

And the good news is this: Human knowledge in these senses (as to availability, ways to exploit etc) is not a limited resource. It is an ever-changing, ever-expanding asset. It is a resource in its own right, because it is what turns energy and substances in nature into usable resources. Without it there would (with the exception of things like oxygen that we use instinctively) be no usable resources.

The primary forms of knowledge by which we develop resources, are science and technology. And we know that science and technology expand all the time. A moment’s reflection will tell us why that happens:

1 We are designed to want to improve our lives. This demand and the drive to fulfil it, are hard-wired into humanity by evolution;
2 That means that market demand for better and more energy, food, transport, entertainment and technology is insatiable;
3 The market thus pays huge rewards in the form of profits to those who find exploitable resources, as a result of which there are huge incentives to find new resources;
4 The scarcer and more valuable a resource, the higher the reward, correcting any shortfall in, and improving the quality and quantity of, resources;
5 The rewards for finding new resources are geared exponentially more than in years and centuries past: bringing a new resource to market is becoming exponentially more rewarding by reason of the growth of the market of consumers who can benefit from it;
6 The number of humans able to study, think, explore and research in order to find more resources to exploit, grows all the time. If two heads are better than one, all the more so 7 billion;
7 The average education level of humans on earth increases all the time, enabling more people to find and exploit resources for the common good;
8 Because the wealth of the average person grows all the time, more and more productive capacity is released to be poured into discovering new resources;
9 Those who search for resources, stand on the massive, expanding platform of scientific and technological skill developed by generations of scientists, engineers and entrepreneurs in centuries before them. They do not need to reinvent the proverbial wheel. Scientific and technological knowledge is itself a resource, and a growing one to boot;
10 The pool of knowledge, which is ever-growing, is leveraged millions of times over by reason of the ever-growing number of students, researchers, academics, scientists and entrepreneurs able to use it;
11 Our communication systems, such as the internet, are improving all the time, meaning that all those billions of heads can increasingly collaborate to find new ways to exploit resources.

It is fair to say then, as long as these conditions continue, the probability is overwhelming that we will continue to find more resources, and that we have found only a small fraction of the resources that will be used in future. That applies of course to specific stores of recognised resources. But it applies, above all, to resources, the usefulness of which we don’t yet know. It is the unknown frontier of discovery of usable resources that is the exciting part. Let me repeat this, in case I am misunderstood: This applies especially to the vast majority of existing substances or energies for which we are still to find uses, of which we are presently blissfully ignorant.

The fact that new usable resources have constantly and continuously been discovered over the course of history, both more effective and more plentiful ones, that the amounts of particles and energy available to be exploited are not reduced, and that the means to exploit them are multiplying all the time, makes the inference irresistible that thousands of new usable resources are yet to be discovered.

One common fallacy underlying thinking about resources as finite, has to do with the fact that we assume that the same resources that we know about now, are what will be available for the future. We have almost infinitely more resources now than we had, say, a thousand years ago. That fact, coupled with the growing probability of uncovering new usable resources, shows why it is wrong to see resources as fixed for time and eternity. The past is not irrelevant, but its relevance does not lie in supporting the conclusion that everything will remain the same as now. Instead, the past is our best guide to the future trend of growth.

Of course, just because resources have grown exponentially for thousands of years, does not necessarily mean that they will continue to. Of course things may change. As Harold Macmillan reportedly said, when asked what is most likely to blow governments off course: “Events, dear boy, events.”

For example, our education system may completely collapse. Or socialist governments may come to power in the big democracies. Or World War III may break out. Or a mass epidemic may decimate the world.

In my view there are indeed some possible events that threaten on-going resource exploitation:

• The first is the growth of the welfare state, social democracy, socialism and all their variants, which undermine economic growth and by extension, exploitation of resources. These also create incentives that are inimical to development. The top countries on the Global Innovation Index 2018 (Switzerland, Netherlands, Sweden, UK, Singapore, USA) are all free-market countries. Even so, in the rich world we see a drive, especially among young people, to change their countries to socialist states, or at least social welfare states.

• The second is the decline of freedom of speech in the developing world, especially at universities, the traditional fulcrum of resource development. Science must develop, and the only way it can, is through the traditional method of science championed by Karl Popper, namely the process of hypothesis, empirical evidence and possible falsification by peers conducting reviews and attempting replication of results. That means that facts, and not ideological argument, should drive scientific enquiry. Topics like climate science, the biology of the sexes, child-rearing and environmental studies have increasingly been hijacked by groups that favour advocacy over enquiry. More importantly, many of these attacks have manifested as attacks on the very institutions that have made the resource development of the past two centuries possible in the first place: capitalism, competition, liberty and merit.

• The third looming danger is the decline of education generally.

In developing countries education, science and economic policy are still developing, mostly in the right direction. The problems identified above are mainly found in Europe, the UK, Australia, Canada and the US, and certainly not universal, even in those countries. Economic and political competition is still alive there. For example, the US and the UK still lead the world in terms of higher education, innovation of technology and knowledge-based science and technology. It is in the area of basic education that the US has become mediocre by developed standards . Based on some criteria, the rich western countries are lagging the east in terms of education.

Democracy cuts both ways. Socialism is by no means universally desired by voters in rich countries – or more accurately, they are not all prepared to pay for it by way of taxes.

Also, not all disciplines are equally threatened by the free-speech malaise. Information and communication technology, medicine, mathematics, engineering, hard physics and chemistry, finance and business science, for example, have not become visibly politically correct. Biologists on the other hand have embraced the environmental cause, and are champions of many of the fallacies identified in this article, based on biological notions such as carrying capacity of land, a notion applicable to animals that have no rational ingenuity suited to the development of resources. Most economists, again, favour some kind of welfare state, but with qualifications. Climate scientists are notoriously illiberal. The probable reason why these disciplines are home to such tendencies, is the fact that they have the political effect that politicians can catastrophise them, create maximum panic and guilt, and demand taxpayers’ money to solve supposed problems identified. Scientists then make money off the taxpayers’ funds allocated to these crises, so it does not pay them to rock the boat.

In India and China, where the greatest pool of future resource developers is, there is little sign of any of these potentially damaging trends:

• Despite the fact that China is a communist state (at least nominally) it is likely to develop, as it has been doing over recent decades, in a more market-friendly direction, and not towards embracing the idea of socialism or even a comprehensive welfare state;

• Although China is inclined to stifle free speech at a political level, there is little sign of the kind of politically correct censorship of science that is prevalent on western campuses.

• Most importantly, education in China is a growing juggernaut, and India is not far behind. Most economic hubs in the far east are centres of educational excellence, such as Shanghai, Hong Kong, Singapore and Tokyo. Hundreds of millions of children are eagerly swept along by the academic stream that will power future innovation. In fact, Singapore, Japan and Hong Kong are already leaders in innovation, and China recently broke into the top 20 of the Global Innovation Index. India are not far behind.

• Climate science, so-called, is bound to collapse under its own weight. First of all, there is no climate-control measure that does not exact a cost, either in the shape of taxes or carbon taxes, enforced lifestyle changes or the like. Ordinary voters are not about to fall for the propaganda supporting such measures. It is one thing to argue the cockamamy notions of climate change in the media, social media or hallowed halls of humanities academia. It is quite another to give up your income, smartphone, SUV, air travel and air conditioning. If you really believe that the earth has twelve years left to be saved, you would make those sacrifices. But if you didn’t, you would resist. Freedom is a nasty thing that way. Civil society has a habit of pushing back. That genie is not easily put back in the bottle.

• Moreover, the fear-mongering of climate science, so-called, is losing traction. There is a point beyond which politicians and the media can no longer push the narrative of escalating risks of global catastrophe, while the ordinary populace merely has to look out the window to see that the world is greener and wetter, the winters colder and the food more plentiful, than ever. Ordinary people know that there are so many times that you can cry wolf, before the ruse becomes clear. The failed predictions of dangerous climate change have been going on for more than half a century, and have been wrong consistently and spectacularly. As the privileged voters of the US and Europe relax on the beaches of the Maldives, or ski down the slopes of Aspen or Austria, surely it must occasionally occur to them that the island beaches are not under water, and the ski resorts are enjoying record snowfalls? If you really want to see if people out there believe the hype, see how the market responds. Supposedly flood-prone coastal properties are more expensive than ever. Ask Barack Obama, who recently bought a multi-million-dollar home in Martha’s Vineyard. Despite huge media hype, politically correct climate change policy is almost everywhere the lowest priority among voters. In a number of ways, voters have made their resistance known to carbon taxes (in France for example with the yellow vest protests, and in Australia recently where an entire election was decided on a similar issue).

For all these reasons it still seems unlikely that the train of resource development will be derailed by any of these modern political trends. That does not mean that the baton is not likely to be taken over by developing countries like India and China, to some extent at least, in due course. If that is a problem, blame the clever academics, politicians and media in the west.

Although disasters like a world war, famine or disease are notionally possible, there is no probable chance of any such “event” coming to pass. The mere fact that things are as they are now, is the result of centuries of development, during which our ability to forestall such events has improved exponentially – mostly because our usable resources have constantly increased, and exponentially so. Over the last century alone, the death rate due to natural disasters has dropped by about 98%. Admittedly this process has not been a single, linear and unbroken line to ever-greater success. But since the Industrial Revolution its trend has been inexorably upward.

Another fallacy underlying the view of resources as scarce, is that resource exploitation is seen as having a fixed impact or “footprint” circumscribed by space, volume and similar physical dimensions. In other words: the greater the demand for resources, the greater their impact on the environment, which will inevitably collapse as we run out of space to harvest resources and save natural habitats at the same time.

To illustrate how wrong such thinking is, consider how we started using fire by burning wood. That in effect entailed clearing thousands of acres of land of vegetation. The environmental footprint could be measured in square miles of impact, and in tonnes of biomass destroyed.

Wood was however replaced by coal, which was more energy-efficient, and consequently also took up less ground area, and less volume of natural substance, to exploit. Much of it was hauled from under the ground, leaving land intact to some extent. In addition, as an energy source it was much more concentrated. Oil and gas continued this trend towards smaller physical dimensions of space, area and weight of physical matter consumed to produce the same amount of energy.

Then came the monumental discovery of nuclear energy, which would in time prove to be the most reliable, safest and above all, most concentrated form of energy yet developed. Suddenly the notion of destroying thousands of square kilometres of land in order to produce reliable energy, seems positively antiquated. (Which, as an aside, makes it so hugely ironic that the development of solar and wind energy by means of acres and acres of unsightly sun panels and windmills returns to the self-same tendency of taking up space to develop energy in a hugely cost-ineffective manner. It is literally regressive.)

The underlying fallacy still is thinking of resources as “stuff” that sits on the proverbial shelf, occupying fixed area and space. But as the example of nuclear energy shows, the limits of resources – such as there are – do not lie in those physical dimensions, but in the dimension of ever-expanding human ingenuity, and the energy that it can unleash, a necessary corollary of that expanding ingenuity.
The price mechanism of the market is a crucially important factor in this dynamic. Scarce resources attract higher prices, serving as signals to the market to conserve them, to find cheaper ways of exploiting such resources, and to find alternatives to them, as well as ways of exploiting them more efficiently. Virtually none of the many failed predictions of resource depletion over centuries has taken account of this fundamental phenomenon. Considering that the problem is about the allocation and use of scarce resources (ie economics), how can any forecast of future resources not take into consideration this most basic mechanism of resource generation, allocation and distribution?

This further demonstrates the fallacy of the typical biologist’s analysis of “carrying capacity” of land. Land has no fixed carrying capacity, because that improves all the time by human ingenuity following the price signal of the market. Any shortcoming in the carrying capacity of land induces price increases of goods (say agricultural produce), causing massive research and development by farmers, scientists and entrepreneurs eager to improve the carrying capacity of land. So for example, in about 1940 the US corn industry decoupled land use and yields, and the industry now uses five times less land per ton of produce compared to 1940. Land acreage in use has, if anything, slightly decreased since 1940. Also agricultural produce prices generally demonstrate a downward trend, which is a sure-fire indication that produce resources (and by inference their input resources) have become more plentiful over the past 50 years, as shown on this chart:

Resources consist of two main parts: matter or energy, and human ingenuity to process either into useful forms. As a matter of fact, matter or energy is not part of a limited resource in a closed system, save to the extent that one (theoretically correctly) regards the universe as a closed system, although it is for all practical purposes infinite.

The greatest sources of energy in our immediate environment are perhaps the sun and nuclear energy. We have not begun to exploit these to full potential. And then there is another potential energy resource, namely hydrogen , which can be used in combination with oxygen to create heat from chemical energy. Hydrogen is a component of water, but in its pure form is available in plentiful quantities on Jupiter for example (but not on Earth,. At present we do not know how to harvest hydrogen cost-effectively (from water, for example) and use it as a cost-effective energy source. In the sense used here, it is thus not a resource yet. But once it is developed into an energy resource (as many scientists expect in the next few decades), its benefits would be endless, it being pollution-free, reliable, effective and for all practical purposes without end.

Just as in the case of hydrogen, there will be other sources of energy in our universe, but of which we currently do not know. There is no fixed pool of these resources, since the universe is for all relevant purposes infinite. Think about various forms of energy that surround us, and that we do not even consider in daily life: The forces that hold molecules together, the radiation and heat of the sun, the gravity of the earth and other planets, the circulation of the oceans, the daily evaporation and precipitation of megatons of water, electricity in the clouds, the movement and unimaginable heat of streams of lava under our feet. Purely intuitively one knows that we have not scratched the surface.

A puzzling assumption seemingly made by those who insist on the finite nature of resources, is that the pool of resources is reduced because humanity exploits nature. The truth is the exact opposite. The very logic of development is that nature is changed by uncovering more usable resources. To the extent that we “conserve” nature, we do not uncover resources. A sure-fire way of running out of usable resources, is by limiting development. If all development of resources is to be halted, there would soon be no resources to use. So the environmental lobby puts the cart before the horse: The exploitation of nature gives us more resources, not fewer. Saving, and not developing, resources, is as good as suicide. And it will pay us to remember that what we have achieved in life quality until now, is the result of such a developmental process. So, even a so-called “steady-state” economy will not be possible without the exploitation of resources.

But more than that: the more resources we uncover, the more resources we are likely to uncover still. More wealth creation fuels more resources being discovered. For one thing, the enhanced efficiencies created by new resources (eg cheaper energy) make it possible to use those very resources to search for more, more efficiently.
The other puzzling idea is that continuous economic growth is impossible. This is another manifestation of the fallacy of conceiving of resources as physical substances that occupy finite space and area, and that will “run out”. A corollary of that fallacy is that the wealth created by exploitation of resources, is the production of more “stuff”.

Three main points must be made here:

• Resources to achieve continuous growth will not run out. That has mostly been addressed above;
• Growth is not the expansion of stuff, but of life quality;
• We are never going to run out of space to grow, or even grow to the extent that our resources will be compromised.

The corollary of the notion of resources, limited by volume and area, seems to be the idea that economic growth is the expansion of “stuff” that takes up space, and that it is bound sooner or later to bring our growth to a grinding halt. No, it is not.
When we talk of growth, we have in mind growth of economic value. (Some may call it “wealth”, but that can be used in a more limited sense, namely economic capital, so let’s stick to “value” for the moment). The way to identify value is to ask whether people are prepared to pay money for it. That is why economists still measure GDP by means of the total value of purchases and sales of goods and services. People pay money for a good or service because they, literally, value it. And they value it because it improves their life quality, or enables them in turn to produce a good or service that improves their own or others’ life quality. Without that value, goods are useless as a source of growth. Just as resources are defined by their usefulness, economic value is defined by its ability to increase life quality. Value may coincidentally manifest as goods, but then only goods that directly or indirectly increase life quality.

Take the recent explosion of new ways to retail goods and services, that include Amazon, Uber, Airbnb, e-commerce generally, e-entertainment in the form of Netflix, Facebook, Instagram, on-line games and music. Or the internet. Or Google. These services make available the same commodities that we have enjoyed for years, but do so much more conveniently and cost-effectively. That creates value by enhancing life quality. Humanity strives to increase its life quality, not necessarily to have more “stuff”. In some cases an increase in possessions is coincidental with life quality, but it is not an essential aspect of growth.

Take the smartphone as an example. For the price of a single, affordable device a person can now get a written-communication system, a music and entertainment centre, a computer, a telephone, a library and research tool, a typewriter and a commercial platform. The life quality that it offers, is multiples more than that offered by any of the devices that would have delivered comparable benefits 30 years ago, and each would have had to be purchased separately, and at a much higher price. So ordinary people, not only the rich, can enjoy it. Importantly, it takes up less space per capita, not more. So, far from creating more goods, economic growth creates more value, increasingly by creating less goods.

Consider food. The variety and quality of food available to ordinary people are increasing all the time. Fresh fruit, foreign imports, exotic dishes and an endless ethnic diversity of dishes, door-to-door delivered meals, not to mention healthy options, are available in almost all big cities as a matter of course. And the prices of these items are declining all the time. In that way it hugely increases life quality, but it takes up the same amount of space per person, no matter the improved life quality it brings.

Take medical science. The essence of medical science is the application of knowledge to improving life quality. Its essence is not making stuff that beneficiaries accumulate. On average people live sixty years longer today than two hundred years ago. That represents untold value in the hands of beneficiaries, which is not in the form of “stuff”. Medical science provides probably the biggest leap in value that we can imagine. The sheer privilege of adding several decades to one’s life is valuable enough, something someone will in most cases give his entire fortune to get. Add to that the extra economic opportunities that it creates, and we see that we have proverbially leapt into the stratosphere of value, for that reason alone.

Education is a massive part of what we regard as life quality, and forms a huge chunk of global GDP. It is increasingly produced without creating new stuff. On-line learning is the fastest growing sector of tertiary education.

In a growing economy people get improved value that is mostly the result of exploiting knowledge better. Real life quality is about education, freedom, safety, life expectancy, health, comfort, convenience, child survival, clean water, energy, mobility, entertainment, books, media, travel, good food, enjoying nature and happiness, not primarily about more volumes of goods. Life quality as a whole is growing all the time, which means people are wealthier, but the lion’s share of that growth is not in the form of goods. That trend is continuing.

For example, here is the decline of the real dollar price of eggs over 120 years:

Eggs declined in price by about a factor of eight, reducing from $8 to about $1.

At the same time, people work less to earn that $1:

In other words, the amount of labour needed for a dollar’s worth of goods, has declined by a factor of 6 over a bit more than a century. Which means that an average worker now has to work 48 times less for a dozen eggs – a change that has happened in just over a hundred years. To that must be added the increased life quality that people enjoy due to goods and services with a technological bent. A telephone today is not the same as a telephone 100 years ago. Although global GDP per capita increased by about 3% per year over that period, it is clear that the actual value in terms of life quality enjoyed by the average person has increased by a rate far exceeding that, if we add in the multiple examples of better and safer cars, air travel, cameras, telephones, electricity systems and medicine.

The environmental lobby gets upset because they believe that wealth is growing faster than efficiencies are improving. As a result at some stage, they say, we will just use up all the room on earth.

There is no basis for such a wild assertion.

Currently service industries take up 68% of world GDP . Based on the nature of modern growth analyzed above, that is hardly surprising. That means that whilst current global GDP growth is just under 4% per annum, almost 3% out of that rate of 4% is in the form of services, not “stuff” that takes up space. Physical goods are declining as a proportion of world GDP.

So the rate of growth in manufacturing, construction and other non-service produce, (“stuff”) is just about 1% of GDP, and declining.
To this should be added the impact of improved life quality that is not reflected as growth in GDP, because prices decline while quality improves. Neither price declines nor quality improvements manifest as more goods.

In the result, over time humanity is becoming wealthier, in exchange for an ever-declining output of physical stuff per capita.
Then there is the demographic paradox. The more economic growth there is, the less humanity grows. That economic fact is now common knowledge. The leveling off of human population growth is an inevitable fact, given that economic growth has already brought fertility down to replacement rate, ie two children per couple. Economic growth does not equate to more people, but people enjoying better lives per capita. By extension, as population growth flattens out, the demands on resources will ameliorate.

As it is, birth rates have stabilized. The only real source of population growth is people living longer due to medical advances – a fact worth celebrating in itself.

It seems likely, given these trends, that just like the growth of the population is likely to flatten out, at the same time the production of physical goods will flatten out.

It is not unreasonable to postulate that each of these will occur in the next hundred years or so.

Finally, as a matter of sheer physical dimensions, the growth of goods is very far from overwhelming earth and its resources. Let’s put this in perspective by stating that all built-up areas in the world, which for all practical purposes include all the cities, towns and roads as well as “stuff” manufactured in factories, constitutes about 1% of all land on earth. The rest – 99% – is forest, ice, desserts, wilderness, grassland for grazing and agricultural land.

Landfills can be regarded as part of the built-up area on earth, and is a miniscule portion of it. In the US, for example, landfills to hold the country’s refuse for the next century would require a space only 80 metres deep and 250 square km in area . Expressed as a percentage, it is about 0.0000025% of the total US land area.

Resources are being used more efficiently all the time. Less efficient uses are discarded in favour of more. Again the development from burning wood, to coal, to oil, to gas and to nuclear energy illustrates this. As that process of doing more with less continues, the amount of “stuff” used to do it, will continue declining. Given the conditions that are in place that are responsible for ever-expanding efficiencies, and declining birth rates, we will reach a point where the so-called environmental footprint of each human being will become negligible, even as his or her life quality continues improving. We can imagine (not predict), the following examples: Food will be grown in high-rise buildings or sub-terranean tunnels and water reservoirs (the latter for fish), powered by no-carbon, highly concentrated energy sources. High-information irrigation systems will ensure maximum efficiency and yields, using a tiny fraction of available water. Materials will be (cost-effectively) bio-degradable, and water will be harvested (if need be, given the efficiency of fresh-water use) from the oceans by means of desalination. Materials will be cost-effectively recycled. The idea of farms as large tracts of land will be obsolete. Farms will be rehabilitated as wilderness. Mines will decline in number and take up less and less space, as more and more materials will be artificially manufactured.

So, the idea that manufacturing and construction will eat up the environment and the surface of the earth like a metastasizing cancer, is plainly absurd.

A counter-argument often heard is based on the law of diminishing returns. In economics, this law dictates a decrease in the marginal (incremental) output of a production process as the amount of a single factor of production is incrementally increased, while the amounts of all other factors of production stay constant. Just stating it tells you that the law of diminishing returns does not apply to the exploitation of resources as a whole. Neither of the factors of “production” (namely natural resources and human ingenuity) is constant. We have seen that in combination both are infinite. The matter and energy underlying natural resources are as plentiful as the infinite universe out there. Human ingenuity is infinite as long as the factors feeding it, (education, markets, population, communication and science and technology) keep on growing, which they are doing constantly. Exploitation of natural resources is not the same as production of widgets in a factory. Even in a factory, innovation may increase productivity, at which point a new cycle of returns is created. It is only if productivity of the system stays the same that increasing one or other factor of production activates the law. The point about scientific and technological development is that humanity continuously reinvents its ability to produce energy – time and time again. The very reason why many commentators have in decades and centuries gone past incorrectly predicted the exhaustion of natural resources, or mass starvation, is because they have not reckoned with the continuing innovation of technology.

What about the fact that the population is bound to level off at some stage? Is that not sure to slow down the process of resource development? Remember that when analysing the exponential growth of science and technology, we essentially took account of the following factors, all of which leveraged that growth:

1 Population growth;
2 Growth in the volume of knowledge;
3 Growth in connectedness/communication;
4 Growth in the average level of education;
5 The growth of free time.

If population growth levels off (factor 1 above), it will be because wealth growth has made that possible. That will mean that what we sacrifice in terms of numbers of thinkers, will be compensated for by growth in the other 4 factors, especially average education (factor 4) and free time (factor 5). The wealthier we get, the fewer thinkers we will have. But their education levels and free time will expand in the result. We can test the idea this way: Which countries have the greatest rates of innovation today: Wealthy countries with low fertility rates (like the US and Europe) or the poor developing world with high population growth? Clearly it is the former.

Can we reach a point where the growth of resource exploitation levels off because the population of the world is not only leveling off, but actually declining? Of course a decline in population is possible. But if it happens, that will be caused by wealth creation, which is universally associated with higher life quality. If a point is reached where we are so content with life that we want fewer and fewer children, then what is the problem? Remember where we came in: The perceived problem was that our ever-growing population and economy would consume all natural resources. Now it seems that we are likely to reach a stage where one of those “threats” will be neutralized. That will be because life on earth will have become so easy that we might not need exponential growth of usable resources, as we will have enough to sustain our high-quality lives.

Is it likely that we will stop having children altogether? There are at least three reasons why this seems unlikely:

• Ever since the dawn of humanity, procreation has been one of the most powerful evolved urges. On a purely biological level, people are not going on a baby strike any time soon.
• It is one of a number of events that give meaning beyond the basic needs of Maslow’s scale. Beyond pure procreation, bringing a new human into the world, loving him or her and helping shape their future, is one of the most rewarding activities imaginable.
• Many wealthy people crave having children, and do build families. That is unlikely to change just because there are more wealthy people.

Although wealth creation reduces the number of children people want to have, it also creates infinite means and opportunities to make a child flourish and become an exceptional performer, which in today’s world more than off-sets the decline in the number of enquiring minds. That ratio should hold good in future.

Bear in mind why historically poor societies tended to have more children: They needed children to work for the welfare of the family unit, and they also needed to have more children, because the survival rate of children due to disease has been very poor in poor societies. Thirdly, for years birth control has been either absent or ineffective in poor, ill-educated communities.

Now that we are increasingly able to remove the causes of explosive population growth as we have seen in the developing world, it does not mean we no longer want to procreate.

So, it is unlikely that humanity will commit suicide by birth control. Instead, it is likely that more and more privileged children with access to learning and development opportunities will be born, even if the population no longer increases as a whole. Even if the number of top-educated students eventually levels off, the amount of education and knowledge into which they can tap, will not. In, say, 200 years, young students will be able to perform mental operations far more complex than their counterparts of today.

Saying all this, we remain mindful that we depend on natural biological systems to continue living in comfort on the planet. That is true.
But that does not mean that nature must stay untouched to make that possible.

Let me put it this way: if we compare the degree to which humanity has suffered because the environment has become “degraded” by industry, with our advantage gained through exploitation of the environment’s resources, the latter is orders removed from the former. History tells us that the environment has become exponentially safer and more productive for human habitation over past centuries.

None of that means that biodiversity, for example, is not important. But pursuing natural biodiversity for its own sake as it existed in some “ideal” past state, is a particularly bad idea.

Take one example. Malaria still kills thousands of people. It has killed millions in past centuries. We have had to eradicate malaria in the developed world in order to make it safe for human habitation. Imagine malaria had still been a normal occurrence in Europe. Or imagine original, “normal” biodiversity had prevailed in cities today, with lions, leopards and elephants walking the streets. Or snakes and scorpions populating our living spaces. Life would have been cruel, nasty, brutish and short.

Or think about the countless viruses that have developed over the ages, and killed millions of people. They too, are part of the biodiversity at any given moment of time. That is not any kind of biodiversity we want in our lives.

Here is an uncomfortable truth: never in the history of humanity have we suffered fatally adverse consequences from a decline in biodiversity, that is remotely comparable to any disadvantages suffered from unchecked biodiversity. Large populations of humans have been wiped out by evolving viruses, bacteria or diverse wild animal populations. Never has any remotely similar threat been posed by a reduction in biodiversity.

We are told biodiversity is important for food production. Hard to tell. What we do know, is that whether biodiversity has declined or not, food production has gone from strength to strength.

The extent to which we have changed the biodiverse environment, has so far been a boon to humanity. Perhaps we have made mistakes along the way, but whatever those were, they were massively outweighed by what we have done right.

In a cost/benefit analysis of the two (leaving intact and impacting biodiversity respectively), the latter has been massively beneficial in the net result. It has won the contest by a factor of many orders.

Resources have not declined in that process. There is no “law of nature” that determines that undisturbed nature contains more resources than nature reworked by humanity. Resources as defined, are first and foremost combinations of particles or waves. How we turn them into resources, depends on human ingenuity, not on any particular coincidental (“natural”) arrangement. Yes, we have been lucky to be endowed with conditions, including resources, that support life. But there is no statistical reason why natural substances or bundles of energy, to some extent “rearranged” by development, are less likely to offer up usable resources. Atoms and waves do not disappear. They remain part of the system. And development makes more resources and more of each available, not fewer and less.

In this context a possible argument is that we must not disturb the delicate balance of our ecosystem, because disturbing it will bring about unpredictable consequences that will destroy our ability to exploit resources. For example, popular currently is the idea that man-made greenhouse gases are causing catastrophic climate change, that in turn will cause flooding, crop yields to drop, ocean life to die and so on.

So far, the track record of these predictions has been dismal, to say the least. Whatever outcomes have been accompanying rising CO2, neither resource depletion nor the hamstringing of exploitation of resources has been demonstrated as an outcome.

Take the oceans which are allegedly turning acidic due to CO2. Whether ocean acidification is caused by CO2, whether it leads to depletion of sea life, or whether it even exists, is entirely speculative. Over prehistoric and geological time CO2 levels have been many multiples higher than current levels, with no known impact on the diversity of sea life, or significant declines in the alkalinity of oceans.
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Agricultural yields are achieving historical records, we use proportionally less and less of resources like water, land and fertilizer to achieve that, the planet is becoming greener and forests are expanding . Even growing seasons are lengthening and rainfall is on the increase.

What is more, the wealthiest countries in the world are the ones with the lowest levels of pollution – almost to a point where it poses no significant danger to health of people or the environment. That has been achieved by exploitation of resources, not the other way around.

Here’s another uncomfortable truth: There is no “normal” natural order. The only constant thing about nature is change. Yes of course the earth has on balance been a favourable habitat, compared to any other that we know of. But over millennia that habitat has constantly changed. Over geological time there has been no “normal” amount of vegetation on any land, or water in a river or sea, or animals in a biosphere or CO2 in the atmosphere. Nature has evolved and is still evolving. There are many influences causing it to evolve. Humanity is one of those influences. Humanity is part of nature, and also one of its outputs. It is one of the species on earth, albeit a species that has evolved more successfully than any other.

The notion that the environment is somehow “perfect” because it is “natural”, is just absurd. Nature is what it is. We have to adopt a standard of value before we can say that something is “good”, let alone “perfect”. Perfect to what end, by which standard? Of course we can adopt the idea that something is “natural” as a standard of value, but what does that mean? Does that mean the natural world inclusive of humanity as an evolved species, or without it? And then, what world is our standard? One of the many ice ages of the past, when much of life struggled to survive? Or life on Mars with its eternal dust storms, no growth and no water?

Yes, of course nature on earth can conceivably be optimal for human flourishing. Perhaps that should then be our guiding standard. But what is that point or zone? What temperature, how much precipitation, ice, sea water, vegetation, animals other than humans?

Mathematically and statistically the possibilities are endless, and we can argue the toss on this question for ages. Is it the world as it is today? A hundred years ago, two hundred, before the industrial revolution, or at the time of the medieval optimum, when it was warmer than today? Or is it before the evolution of man? Perhaps it was much better many centuries ago, or on more than one occasion, for more than one period in history, who knows?

But given the unprecedented degree of human flourishing today, is there not a case to be made that nature has never been kinder to us than today? That if optimal conditions for human flourishing are our criterion, then today is the closest we have yet got to ideal? And since that was largely achieved by exploiting resources, we should continue doing that, so as to do more with less?

Even more absurd is the popular idea that nature was perfect until humans came along and spoilt it. As if humanity was parachuted in by some alien force, not part of nature. While in fact, that most natural of natural processes, evolution, is what has created humanity, the most evolved, resourceful and intelligent species of all nature. Viewed like that, humanity is the biggest triumph of nature, not its scourge.

Another possible standard of value is the notion of nature in a state of balance or equilibrium, so that the different species are stable. That sounds good, but is a problematic criterion. The idea of nature being in balance in that sense is typical of the culture of environmental conservation, which views animals and plant species ideally as being in a state of equilibrium because they form part of a mutually reinforcing eco-system. For example, predators hunt herbivores, which in turn ensures that they do not completely destroy vegetation, while herbivores consume vegetation to avoid overgrowth. Animals, birds and insects all play parts in the fertilization and pollination of plants. In the net result all species survive in a stable circle of life.

But that won’t work to solve the problem as to the choices humanity must make.

First of all, there is no place for a criterion of natural equilibrium without recognizing that species evolve all the time, making room for constantly evolving, new states of relative equilibrium. Part and parcel of evolution is the destruction of species unable to adapt by way of instinctive behaviour. Species survive if they survive natural selection. The problem is that humanity has won the survival contest completely – so completely that other species are largely dependent on humans for their survival. Of course, by the same token, to a large extent humanity depends on the rest for its own survival. But a moment’s reflection will make clear that, given the all-powerful position of humans as a species, there is no room for the notion of a natural equilibrium by reason of instinctive behaviour.

In fact, humanity has evolved to the state where its biggest competitive edge as a species is not instinctive behaviour, but rational thought. This evolved ability has enabled it to exploit natural resources in a way that is a thousand times more efficient than instinctive behaviour on the part of animals.

Any criterion of natural equilibrium is thus wholly artificial and fallacious. Any ideal of balance among the species will not be a natural one due to instinctive behaviour and natural selection. It will perforce have to be a rational one, born of human enlightened self-interest. One can of course expand the meaning of “natural selection” to encompass also the ability of humanity to take rational decisions to ensure its own survival. Conceivably that will include considering the welfare and survival of other species, in service of the survival of humanity. But that will not change the fact that humanity will largely be taking rational decisions and actions to ensure its own survival. That will then be driven by the criterion of human life quality, not some abstract notion of natural equilibrium.

Sooner or later that reality will force us to confront the moral choice of a standard of value: Is human survival and life quality our aim, or some kind of notional balance of nature? Of course it would be good to have both, but we will be forced to make choices whether to kill members of other species all the time. Every time we swat a mosquito, clear a field or slaughter a chicken, we exercise such a choice. That choice is obviously driven by human life quality. The alternative, the balance of nature for its own sake, necessarily entails a different judgment. That judgment would be an arbitrary one, as it is impossible for humanity to simulate nature in the sense of a natural equilibrium due to instinctive behaviour and natural selection. There is no right answer to the question. For example, how many of each species should there be? How much forest land, wilderness areas, built-up urban areas? It also spawns impossible moral questions, such as those called forth by Sir Richard Attenborough referring to humanity as a “plague” and so on. A plague must be eradicated, or reduced, or stopped from expanding, surely? Who decides that?

Further qualities that set humanity apart, are of course self-conscious morality and aesthetics. They too, are triumphs of evolution. They enable us, for example, to have empathy with other people and sentient beings. They have enabled us over time to admire natural creatures in their own right, and have relationships with some of them as pets, working animals or even wild beasts in some cases. And over time we have adapted our ways of exploiting natural resources in a way that progressively considers the well-being of animals and plants. We have developed an appreciation for the beauty of nature that is but a few millennia old. We have also increasingly realized that our sheer survival depends on us taking rational decisions to preserve life enjoyed by other species. This development of values is on-going, and no doubt far from complete.

But this process is intimately bound up with economic development. It is privileged people in mostly wealthy countries that have the inclination, the education, the resources and the time to pursue the environmental agenda. If we are really serious about the environmental project, we must make more and more people part of that privileged community. None of that is possible without the on-going exploitation of resources. Without exploiting resources, we can have no international environmental conferences, armies of game wardens and green activists, institutions, academies and university faculties dedicated to researching problems, the internet to research and exchange ideas, crucial conservation technology such as helicopters, GPS systems, sophisticated cameras, weaponry against poachers, teams of engineers designing solutions to clean up the sea and the air, and agricultural researchers devising ever-less invasive food production systems.

So, none of this is meant to denigrate the value of nature for humanity. Both as a collection of resources essential to survival and as an aesthetic phenomenon that gives enormous meaning to life on earth.

But those very values – that nature is valuable to humans – are likely to be best served by the continuing exploitation of resources.
And our ability to appreciate nature through eco-tourism, game watching, mountaineering, National Geographic-, One Earth- and David Attenborough films, camping in the wild and wildlife photography, is a function of wealth. Conservation is a relative luxury afforded by wealth, not poverty. The aesthetic value of nature is an advanced demand on Maslow’s scale of needs. Rich hunters and tourists pay to preserve the wildlife of Africa. Absent them, Africa reverts to subsistence economies of slashing and burning, hunting bush meat and killing predators to protect cattle.

The correctness of this counter-intuitive idea – that resource exploitation is nature’s best chance – is illustrated by an excellent lecture given by Jesse Ausubel, titled Nature Rebounds , in which he demonstrates that in developed countries, massive tracts of land have already been returned to the wild due to increased agricultural yields. One example is in in the former Eastern Bloc, where an area the size of Poland or Italy have become available for conservation and re-wilding.

This, from his conclusion:

“The incipient re-wilding of Europe is thrilling … Salmon have returned to the Seine and Rhine, lynx to several countries, and wolves to Italy. Reindeer herds have rebounded in Scandinavia. In Eastern Europe bison have multiplied in Poland. … As thrilling as Jacques Perrin’s films are, I propose the image of a humpback whale in New York Bight with the Empire State Building in the background as the most significant environmental image of 2014 …”

Our natural resources are not likely to run out any time soon. Or at all.

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OBFUSCATION OF CONCEPTS, FACTS AND REASONING WHEN DISCUSSING FREE MARKETS

Something that really irritates, is the obfuscation of concepts and thus of facts and reasoning when discussing free markets, or free enterprise.
It sounds something like this:
“Neo-liberalism is not working. Firstly, it has caused inequality. Trickle-down economics don’t work, because the richest 1% accumulates the bulk of all wealth, and the share going to the poor gets smaller all the time. Unbridled free markets are what caused the financial crash, and since then we have not recovered. Besides, capitalism is consuming the resources of the earth, which is causing destruction of ecosystems and will lead to mass starvation. Capitalism is also responsible for climate change, which will soon result in climate collapse.”
Much of this is the outcome of basic confused thinking. Misconceptions that are repeated by the media often enough, eventually become accepted wisdom. But the edifice of belief captured in the little passage above, which is very typical, is shot through with so many fallacies of fact, logic and meaning, that an accurate understanding of the economy is completely negated.
What is necessary is therefore to clear up the meanings of terminology, understand concepts and check facts.
FREE MARKETS/FREE ENTERPRISE
This concept is central to the debate.
The phrase denotes an economy that is relatively free from state intervention, namely in respect of the ability of persons freely to own and dispose of property obtained legally, and to exchange goods or services relatively free from state intervention.
One of the most prevalent aspects that bedevil the debate is the notion of relativity. No market is completely free, and very few free marketers propose that no government should exist. Which does not mean that in practice greater economic freedom is neither possible nor desirable. But it is important to grasp that economies lie on a spectrum of freedom. In the real world the most unfree ones are true socialist/communist societies where the vast majority of the means of production are owned and controlled by the state, examples of which today would be North Korea and Cuba, and in years gone past Soviet Russia and China. In the real world the freest ones are Hong Kong and Singapore. At both ends of the spectrum it is possible to have more extreme examples. For example, not many people know that housing in Hong Kong is strictly speaking owned by the government, and that the government pays for most education. And in Cuba and North Korea some degree of private property of especially movable things like cars is allowed. In Cuba minor aspects of economic activity have been deregulated in recent years.
Of course, the relative nature of market freedom in the real world is not an argument against it. And yet it is an astonishingly common remark that “there are no free markets anywhere anyway, so ….” (followed by a pregnant silence, and a look which conveys the flourish of a mathematician saying “QED”), implying no further words are required, the case has been proved.
No it has not. On the contrary, this is a senseless argument used to discredit market freedom, and proves absolutely nothing. It is the equivalent of arguing that no human being is 100% fit, therefore physical fitness is not beneficial or desirable. Of course it is hard even to conceive of a notion such as 100% fitness. But so what? Some people are fitter than others, and we can thus say someone is relatively unfit, relatively fit or one of the fittest we know. The real question is whether relative fitness statistically correlates with other parameters of well-being, such as longevity, freedom of disease and energy – parameters that themselves are relative. We might then find that relatively fit people on the probabilities live longer or are healthier than others.
A related argument that one often hears is that there is no such thing as a free market, because there can be no free market without the state. There must always be government institutions, they will argue, even in countries that have so-called free markets. Since free markets must have contracts, there must be a court to enforce them, for example, or an institution that protects property legally gained, from invasion or damage.
Again, the question is, so what? Even assuming that private regulation to enforce property tights and contracts is not possible, the question remains whether relatively free markets are more effective than others. Just as it is difficult to be optimally fit without enough healthy food and access to some facility like a gym, just so it may be correct that we need a minimal government to protect market freedom.
There is also a moral point here. In a range of possible choices – from most unfree to freest – the relatively freest one for all members of society that can be achieved, is surely the most moral choice. If a minimal state is then necessary to ensure that, so be it. We live in the real world.
The most concrete way to describe market freedom is to devise a way to measure and quantify it, just like we give practical content to the vague notion of fitness by measuring performance, heart rate, blood pressure, endurance and strength.
The Fraser Institute does that with its Economic Freedom of the World Index, which measures relative economic freedom by country. In order to do this, it makes use of five areas of regulation:
• Property and the rule of law;
• Sound money;
• The share of the state in the economy;
• Business regulation;
• International trade.
Each of these areas represents an aspect of economic freedom that can be measured by reference to economic and related data:
• Property rights and the rule of law protect citizens (amongst other things) against arbitrary interference in property by the state, and arbitrary interference by officials in contracts. In short, it allows citizens to get on with their economic lives, secure in the knowledge that their property is theirs, and rules are clear and known and consistent. The state cannot interfere in economic assets or activity, except in very limited and known ways.
• Sound money means that the state does not seize citizens’ money by watering down its value through inflation. To the greatest extent possible, an individual knows that his money is what it is.
• The share of the state in the economy: In a relatively free market the government owns and produces as few goods and services as possible, leaving that to private citizens, which means that taxes and transfers, loans and spending, public service employment, state-owned enterprises and other state spending are limited to the minimum.
• Business regulation: Government makes as little regulation as possible governing property and contracts.
• International trade: Government imposes as few restrictions as possible on international trade, whether by way of import tariffs, exchange rate manipulation or -restrictions, or export bans.
These practical criteria will make it further clear why, in the real world, market freedom is a relative parameter, and the government has some role in protecting it. The ideal to pursue is that the state’s role is limited, namely to protect freedom, as opposed to infringing it.
Now that we have some conception of what a free market or free enterprise is, let’s compare its meaning to other terms that are often used as synonyms, a practice that not only causes confusion, but is often used as rhetorical devices to discredit it unfairly.
CAPITALISM
“Capitalism” is often used interchangeably with “free enterprise”. That is not quite correct.
Although most dictionaries define capitalism as an economic system in which factors of production are owned by private individuals, often insufficient emphasis is placed on the essential aspect of free enterprise, namely freedom. In popular usage the term “capitalism” also conjures up notions of large, powerful corporations that became that way by accumulating capital and that hold disproportionate power, and exploit workers, consumers and the poor. In other words, the term refers to activities of capitalists, rather than the conditions of freedom under which they operate.
Ironically capitalist corporations often become powerful by lobbying government. Examples include:
• They form cartels with trade unions (in SA in the shape of bargaining councils) that impose unaffordable minimum wages on small enterprises, and force them out of business. The same activity results in growth of unemployment, as workers with low skills become unemployable at the high wages mandated by the cartels.
• Import protection enables corporations to sell goods at uncompetitive prices to consumers.
• Government grants business licenses to large corporations, which unfairly cuts out competition of smaller undertakings.
• Government grants monopolies to certain providers of utilities like electricity, transport or communication.
Apart from these examples of abusing the power of the state, most large corporations become that way because they benefit society more than any others, and provide far more advantages than disadvantages to consumers and workers. Modern examples include Walmart, Amazon, Google and Apple. These companies create huge value, the bulk of which goes to consumers in the form of enhanced life quality and reduced prices.
Tim Worstall, a Fellow at the Adam Smith Institute in London, explains it like this:

“What we need is for more value to be created in order that more value can be consumed. William Nordhaus has explained why it’s capitalism that does it:
‘The present study examines the importance of Schumpeterian profits in the United States economy. Schumpeterian profits are defined as those profits that arise when firms are able to appropriate the returns from innovative activity. We first show the underlying equations for Schumpeterian profits. We then estimate the value of these profits for the non-farm business economy. We conclude that only a minuscule fraction of the social returns from technological advances over the 19482001 period was captured by producers, indicating that most of the benefits of technological change are passed on to consumers rather than captured by producers.’
The result is that entrepreneurs get to keep some 3 percent of the value of their creations. The other 97 percent of the value flows to us consumers out here. Value is what we consume; value is what GDP is, what income and wealth are. And the vast majority of, near all in fact, the wealth and income created by this capitalist exploitation flows to us.
Jason Furman … explains this in more detail:
‘There is little dispute that Walmart’s price reductions have benefited the 120 million American workers employed outside of the retail sector. Plausible estimates of the magnitude of the savings from Walmart are enormous – a total of $263 billion in 2004, or $2,329 per household.’ ”

So, capitalism does spawn large corporations, but in the vast majority of cases their value is inestimable in improving our lives. Others become powerful by abusing government help. In those cases capitalism therefore often gets conflated with free enterprise, which is not the same thing.

There is another reason why capitalism as conventionally understood is not the same as free markets. Free markets have been a fertile ground for cultivating a variety of business models that depend for their success on neither corporate power nor capital formation in the traditional sense. Examples are:
• the so-called gig economy, where individuals or small businesses provide services on an ad-hoc contractual basis, such as transport (Uber, for example), hospitality (Airbnb for example), construction, information technology, entertainment, catering, gardening, hairdressing, fitness instruction and commercial art;
• open-source IT and IP;
• Bitcoin and other crypto-currencies;
• on-line services;
• cooperatives.

These alternatives to traditional capitalism are possible because of free markets. It is quite likely that yet more new business models will be spawned by the free market, because there is no better environment for experimentation, competition and thus improvement in customer service and cost-effectiveness. The freer the market, the more likely these types of business are likely to proliferate and flourish, all to the growing benefit of consumers.

NEOLIBERALISM
This term has its origin in the values of classical liberalism, and originated in about 1980, to describe the ideological position that embraced free markets and international free trade (globalisation). The resurgence of these ideas under Thatcher and Reagan probably explains the epithet “neo” attached to the term.

As in the case of capitalism, it has obtained an aura of derision, but is otherwise used interchangeably with “free markets” or “free enterprise”. As in the case of “capitalism”, examples of what are in reality state interference that occur in relatively free markets, are used as evidence of the failure of free-market policies.

The relative nature of free markets means that there is always room for interference by government. This can take various forms, but one of the most obnoxious ways is where officials in government collaborate with private citizens to interfere in economic freedom, a veritable unholy alliance;

Examples that are, sadly, all too common, are:
• Government assumes the right to perform services such as transport, financial services, electricity provision, water reticulation, cleaning, education and training or entrepreneurial support, and then gives contracts to favoured individuals, be they members of the governing party, relatives of politicians or other cronies;
• Politicians get involved in enterprises that provide armaments for war, while themselves influencing decisions to go to war, and government buying their products, which wars (invariably unnecessary) are harmful to the country as a whole;
• Central banks use inflationary instruments like quantitative easing to expand government balance sheets with stocks and bonds, which artificially pumps up share and bond values, benefitting wealthy individuals and impoverishing poor and middle-class people;
• Central banks keep interest rates artificially low in pursuit of employment targets and political support, which suppresses real productivity and real wages;
• The state is captured by rich individuals that pay government officials to give them effective power in respect of government decisions;
• Government places pressure on banks to lower mortgage bond rates in pursuit of expansion of the housing market among poor and middle-class people, which benefits property speculators and banks, but eventually distorts market values and causes property crashes – as happened with the financial crash of 2008.
• Government imposes import tariffs to protect big business or agriculture, meanwhile impoverishing poor people as prices go up.
Most of these practices have played a role in causing relative poverty in developed countries, and have discredited free markets. A combination of these is almost certainly responsible for growing inequality and relative depression of the incomes of poor and middle-class people in the US. Criticism is then often directed at systems with these features on the basis that they typify “neoliberalism” or “globalism”. Occasionally the term “unbridled free markets” is used.
None of these examples is a manifestation of free enterprise. In none of the cases is poverty caused by either free markets or globalism, and most certainly not by liberalism, whether “neo” or otherwise. In every case it took two to tango. Private individuals or undertakings were as guilty as government officials, and only as guilty as government allowed them to be.
These examples also show that we cannot conflate the US, for example, with absolute free markets. We must in every case first ask what caused economic problems: Was it free markets (namely non-interference by the state) or the opposite?
Unfortunately, malpractices of government interference such as those listed above, are prevalent in the US and other wealthy countries. These countries are still relatively free-market societies, but their governments interfere in their economies in these and other ways, giving ammunition to free-market critics. Instead critics should target the real reason for the relative poverty caused by these practices: state meddling.
TRICKLE-DOWN ECONOMICS
A surprisingly common misconception is that national and global poverty in a period of relative free-market reform is increasing. One can only assume that people who believe that, do not read. Poor people in free-market economies get richer all the time, and often richer in relation even to rich people. Take Chile as an example: In free-market Chile, incomes of the poorest 20% rose by more than 8% per annum over the period 1990-2013, and poverty declined from 50% to 11%. Trickle-down economies actually work.
Global inequality is declining as we speak. Since adopting some free-market reforms from about 1980, real per capita GDP in China has grown by some 3000%.
ENVIRONMENTAL DESTRUCTION
As for the environmental argument, the simple fact is that wealthy free-market countries are the ones with the best environmental records by far. According to Yale University’s Environmental Performance Index (EPI) for 2016, the 10 countries with the best environmental performance in the world are Finland, Iceland, Sweden, Denmark, Slovenia, Spain, Portugal, Estonia, Malta and France. All are relatively free-market capitalist countries, with an average score of 7.421 on the Economic Freedom of the World Index and an average ranking of 42.9 out of 159 countries. By contrast, the 10 countries with the worst environmental record according to the EPI – Democratic Republic of the Congo, Mozambique, Bangladesh, Mali, Chad, Afghanistan, Niger, Madagascar and Somalia – have an average score of 5.9 and an average ranking of 133.4 out of 159.
The point need not be belaboured. It is in unfree economies that slash-and-burn agriculture takes place, water is polluted, bush meat is hunted, forests are consumed for firewood and air pollution is prevalent. All free markets go through the so-called Kuznets curve of environmentalism, namely that economic development initially leads to a deterioration in the environment, but after a certain level of economic growth, a society begins to improve its relationship with the environment and levels of environmental degradation reduces. This is fairly common knowledge amongst economists, but not generally understood.
CLIMATE CHANGE
Finally, quite apart from the merits of the argument of dangerous anthropogenic global warming: If it is correct that dangerous global warming is caused by fossil fuel, the best way to guard against that is the free market. It is free enterprise that has ensured that the vast majority of solutions to problems have been discovered and developed over the past few centuries. Whatever remedies are most likely to prevent some kind of climate catastrophe, will be provided by the free market. It will certainly not be provided by government interference. The answer probably lies in nuclear or hydrogen energy sources of some description. So-called renewable sources, heavily subsidised and supported by governments, have now proved to be severely damaging to the environment and hopelessly inefficient. Economic inefficiency is almost a guarantee of environmental damage, because it inevitably is a waste of natural resources. It is no coincidence that the most efficient, safest and long-term cheapest energy form – nuclear – is 100% sure to stop the hypothetical threat of man-made global warming, dead in its tracks. Which makes you wonder why so few governments and climate alarmists are calling for its use.
The answer is surely that they are not really concerned about the environment.
One of the most egregious examples of the unholy alliance between wealthy people and government in recent times has been Al Gore, who made many millions by first scaring the public into a state of paralysis with false and exaggerated scenarios of future catastrophe – each and every one of which has been proved false, or seems very unlikely to materialise. And yet, with government backing for his alarmist ideas, Gore has made many a fortune out of renewable energy, movies about climate change and carbon trading schemes. “Neoliberalism” in the worst sense of the word, indeed.
There is an unholy alliance between the media, politicians and scientists who promote the climate agenda. They all benefit, and they do so on the back of state power.
For that matter, the entire climate movement is a threat to the free market. It is now well-known that its proponents are in fact also proponents of government interference in order to reform the economy. The agenda seems to be to dismantle “capitalism” as we know it, and replace it with some kind of alternative, which will at the same time achieve the objects of eliminating economic growth, and rectifying the exploitation of poor people of which capitalism is guilty.
As they say in the classics: good luck with that.
But for the moment it is enough to understand that any threat of man-made climate change will be headed off by free enterprise, long before it becomes a problem. And it is not a problem. If it were, we would have expected the prices of coastal properties to have plummeted by now, as buyers ran scared of the supposedly certain catastrophe of rising sea levels.
Spoiler alert: There are no bargain-basement beach buys yet. Not in Martha’s Vineyard, not in the Maldives, not in Miami or in Cape Town.

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