Defending Economic Productivity and Capitalism for Climate Adaptation and Mitigation

Mainstream economic discussions, whether in the context of elections or central bank interest rates, take for granted that the underlying goal is to facilitate and stimulate the overall economy. However, there has long been a faction of the environmental left that rejects this goal outright. Undergirded by themes of catastrophic resource depletion articulated by Thomas Malthus in the 1700s and later in the 1960s and 1970s in Paul Ehrlich’s The Population Bomb, and in the Club of Rome’s The Limits to Growth, these circles have placed economic growth firmly in the crosshairs, framing it not as a measure of society's standard of living but rather as wasteful self-destructive consumption.

These views have persisted largely outside of the mainstream, but they are enjoying a resurgence in recent years. In the current context of a great deal of hyperbole on climate change impacts, the idea that reducing greenhouse gas emissions should trump all other concerns and that economic growth is a major enemy in this fight has become fashionable for academics and climate activists. These arguments are often intertwined with attacks on capitalism, which is considered the system responsible for unsustainable growth and all sorts of immorality. This theme was apparent in the title of Naomi Klein’s popular 2015 book Capitalism vs. The Climate, but momentum has been building since then, represented by Kate Raworth’s 2017 Doughnut Economics, Jason Hickel’s 2020 Less is More, and Kohei Saito's 2024 Slow Down. Falling under the umbrella of the Degrowth movement, Hickel and Saito argue for a kind of world communism that is aimed explicitly at dismantling capitalism and reducing global economic activity. Though these ideas may seem quite extreme to the average person, they are receiving increasingly favorable coverage in venues such as the New York Times and Nature, and they are being bolstered by a perception of credibility from a rapidly expanding field of academic research (that is, in fact, quite flawed).

Because the hostility towards both economic productivity (framed as wasteful consumption) and personal economic freedom in the form of capitalism seem to be ever in the background and enjoying a resurgence, it’s worth revisiting, from first principles, why both economic productivity and capitalism are assets, not liabilities in the context of general human material well-being and in the context of climate.

In Part 1, I’ll look at the case of adapting to climate and climate change, specifically how private property, markets, and trade (i.e., capitalism) tend to be great at facilitating productivity, and this, in turn, results in the societies that are least vulnerable to climate and climate change. In Part 2, I’ll look at how capitalism and the economic and technological progress it propels are essential for the eventual elimination of greenhouse gas emissions.

Part 1: Adaptation to Climate

The degrowth movement asserts that we can only hope to address our climate challenges by reducing economic activity to reduce greenhouse gas emissions and other resource draws on the earth, typically through some form of global control of the economy. However, this would be incredibly counterproductive for climate adaptation as it would dismantle the primary phenomena responsible for increasing the human material standard of living that fortifies us against our often hostile climate.

Economic productivity is typically measured with gross domestic product (GDP) per capita (the total per-person monetary value of all goods and services produced). GDP per capita is a popular target of critics. It is certainly an imperfect measure of total human well-being, but it represents a good proxy for a society's material standard of living. In fact, GDP per capita is strongly correlated with many outcomes almost universally considered socially desirable, including higher life expectancy, lower child mortality, higher educational attainment, fewer working hours, and higher self-reported life satisfaction.

Furthermore, we see a strong relationship between GDP per capita and reduced vulnerability to climate over space and time. Over time, almost all climate-sensitive aspects of society have been trending in generally positive directions as GDP per capita has increased. Over space, death rates from natural disasters like floods, droughts, and storms are 15 times higher for low-productivity countries than they are for high-productivity countries, and disaster damages as a percentage of exposed GDP are much lower in high-productivity nations. Finally, there is a strong across-country relationship between GDP per capita and measures of climate change adaptive capacity, such as the University of Notre Dame’s climate adaptation Readiness Score.

While the underlying productivity of a society is the foundation, governments play a critical role in providing the fundamental infrastructure and systems related to energy, transport, communication, health, and education that are upstream of resilience to the climate. The well-resourced governments of high-productivity economies are also able to provide many services that are more directly related to climate adaptation. For example, the US has the luxury of supporting advanced weather and climate prediction centers like the National Center for Environmental Prediction (NCEP); it has agencies like the Federal Emergency Management Agency (FEMA), which coordinates disaster preparedness, response, and recovery efforts; it has agencies like the Army Corps of Engineers which designs, builds, and maintains large-scale flood protection; it has agencies like the U.S. Forest Service Fire and Aviation Management Program which fights forest fires, and it has agencies like the United States Department of Agriculture which spends billions annually on research and development (and should probably spend more) that has supported breakthroughs in crop varieties, precision farming technologies, and improved fertilizers. These are all nominally government programs, but they are ultimately tied to the productivity of the private sector that funds these endeavors. Furthermore, all these programs buy the tools they use (vehicles, airplanes, computers, software, construction materials, bulldozers, etc.) from the private sector, and much of the public R&D is commercialized and implemented via private entities.

The Facilitator of Economic Productivity

Throughout the vast majority of human history, material poverty and extreme sensitivity to the whims of the climate were the universal state of the world. As measured in GDP per capita, there was virtually no economic growth until the commercial revolution in the late Middle Ages, when economic trade began to better facilitate productivity and innovation. As the 19th-century economist Frédéric Bastiat noted, “In the absence of trade and production, life itself would be impossible. Nature does not supply us with ready-made products, but only with the materials from which we must fashion the means of our existence.”

In recent centuries and decades, humanity has been rapidly becoming materially much better off. The average person alive today is approximately five times richer than the average person in 1950, with parallel declines in the share of the global population in extreme poverty. So, what is the engine behind this explosion in economic productivity? As Adam Smith famously observed, productivity is greatly enhanced by the system that we now call capitalism. In particular, in a system where individuals and firms know they can own, control, and disproportionately benefit from disproportionate productivity, they are incentivized to work harder, think more creatively, and invest their money and their time (including investment in themselves) more wisely. Even Karl Marx emphasized that capitalist competition amongst private firms is largely responsible for stimulating the technological change that increases productivity (in terms of production per hour of labor).

In recent history, examples such as the United States, Germany, Switzerland, and Japan show the success of mixed economies or “welfare-state capitalism” with significant government intervention but robust private sectors embracing capitalism. In stark contrast, fully planned command economies have a track record of failure. Some of the 20th century's more famous examples include the Soviet Union’s economic stagnation, the economic and human disaster of Mao Zedong's centralized attempt to collectivize Chinese agriculture, and the contrast of economic success in capitalist West Germany compared to socialist East Germany. More recently, Venezuela’s expansion of socialism has been marked by economic decline and crisis.

Of course, various economic systems spanning the range from more market-oriented to those with much stronger levels of state intervention and control have been implemented, and more laissez-faire is not necessarily better. South Korea, Taiwan, and Singapore provide examples of rapid economic development in the latter half of the 20th under autocratic rulers who used formal economic planning. However, this planning relied on incentives and support not dictatorial mandates, and the vast majority of the economies in these countries remained under private control.

Overall, the field of developmental economics has continually identified strong institutions that enforce property rights and allow for open markets and free trade as critical facilitators of productivity. In systems where a government ensures that property rights are secure, individuals are free to specialize in the areas where they have the most skill or interest, and this specialization leads to greater efficiency and productivity as people focus on what they do best with an eye to producing what their fellow citizens desire most. Competition is the key to driving efficiency and innovation, so governments also play a critical role by inhibiting monopolies and price fixing.

Critically, freely fluctuating prices reflect people’s needs and realistic production constraints without explicit calculation. What’s produced is determined by the prices people are willing to pay for products, and prices for raw materials, labor, loans, rent, and other costs determine the most efficient way of producing those products. These same prices determine how much each person has to spend in the market. Prices vary and thus reflect changing conditions. When a desirable product becomes scarce, its price rises, which stimulates more resources to flow towards producing that product (or substitutes for that product), reducing the scarcity.

These dynamics are why a strong association exists between a country's degree of economic freedom and its economic productivity, and there is good evidence that this relationship is causal. Below, the current across-country relationship is visualized using GDP per capita and economic freedom estimated by the Fraser Institute’s Economic Freedom Index (which gives points for, e.g., the security of private property rights, freedom to trade internationally, and penalties for, e.g., government ownership of industry and overregulation of business).

Finally, since economic freedom is associated with economic productivity and we saw above that economic productivity is associated with climate adaptation readiness, it is not surprising that there is also a strong across-country relationship between economic freedom, and climate adaptation readiness.

Overall, the three-way positive association between economic productivity, economic freedom, and climate change adaptation readiness indicates that the market-based, high-productivity societies of the world are those that not only have the best current protection from the climate but those that will be the most agile in their adaptation to climate change.

The Agility of Capitalism in Climate Adaptation

In his defense of a command economy, Karl Marx articulated that only that which is planned is rational. When it came to attempts to implement Marx’s ideas, the most consequential hurdle has been finding benevolent autocrats and planners. However, more relevant to the issue of climate adaptation was Marx’s supposition that technocratic planners could have sufficient information and knowledge to be effectively rational, even if they were benevolent. In contrast, Ludwig von Mises argued in 1920 that “socialism is the abolition of rational economy,” making the case that without private ownership and free-market pricing mechanisms, there is no way of calculating the most “rational” allocation of resources. A survey of the landscape of climate adaptive measures in productive economies lends much more support to von Mises than to Marx.

For example, as Anderson et al. discuss in their 2018 paper The Critical Role of markets in climate adaptation, markets in agriculture effectively signal emerging climate risks, prompting adjustments such as changes in cropping patterns, irrigation practices, and even the geographic shift of agricultural production to less vulnerable areas. If certain crops become less viable in one region, they can be grown elsewhere and traded on the global market, mediating any effect on the total food supply. This is a specific example of the more general principle of Ricardian comparative advantage, where, in this case, capitalism naturally facilitates the efficient distribution of production across the globe, allowing regions to specialize in the goods and services for which they are best suited.

Prices for labor (i.e., wages) also facilitate adaptation to climate change. As new challenges arise, the demand for certain skills and occupations changes, creating incentives for workers to acquire new skills and transition into industries critical for climate adaptation. For example, in agriculture, the need for agronomists and environmental scientists to develop and implement new climate-resilient practices may increase, driving labor toward these areas.

These dynamics tend to be mediated through private firms. John Deere, for example, has been behind the development of numerous machines that have improved crop productivity, including recent precision agriculture aided by GPS-guided tractors and other “smart farming” equipment that allows farmers to better optimize planting, irrigation, and harvesting. Firms like Nutrien and Yara International have developed advanced fertilizers that increase crop productivity, and companies like Bayer have innovated in gene editing, facilitating the creation of drought-resistant and pest-resistant crops.

When it comes to the infrastructure that is critical for climate resilience, basics like steel were famously developed by icons of capitalism like Andrew Carnegie. More recently, private firms like LafargeHolcim and CEMEX are behind the development of high-performance concrete, Saint-Gobain is behind the production of tempered glass five times stronger than normal glass, and buildings, bridges, dikes, dams, etc., are assembled at relatively low cost with the help of Caterpillar and Komatsu.

Air conditioning has been critical for human protection from heat, and this technology, too, has been greatly pushed forward by private-sector competition. While working for the Buffalo Forge Company in 1902, Willis Carrier invented the first modern air conditioning system and then founded Carrier Engineering Corporation. They innovated sufficiently to produce products suitable for cooling large spaces. However, Frigidaire was the first to introduce a unit small enough for residences in 1929, and its design was supplanted by one from General Electric in the early 1930s. Other improvements by General Motors primed the technology for an explosion in adoption in the US in the middle of the century. Demand for cooling systems was large due mostly to the climate not being tuned to optimum human temperatures (not necessarily climate change), so companies like Carrier, Trane, Daikin, and Lennox entered the market, competing to improve efficiency and affordability. Through this competition, innovations like variable refrigerant flow (VRF) systems, smart thermostats, and energy-efficient compressors were developed.

These innovations have helped make air conditioning accessible to a broad population, contributing to widespread adoption and protection from extreme heat that has undoubtedly saved an enormous number of lives. A common critique of capitalism is that it leaves the poor behind, but as Joseph Schumpeter argued, the record of capitalism is one of unprecedented economic growth that benefits the poor the most. As he put it “The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within steady reach of factory girls in return for steadily decreasing amounts of effort.” Echoing this sentiment, Matthew Khan makes the same case in the context of climate adaptation via air conditioning:

“The market for air conditioning is an example. As outdoor temperatures rise, people will increasingly demand more powerful air conditioning. This aggregate demand creates a market for firms to design products to meet this demand. Such mass production leads to economies of scale, which lowers the cost per unit produced. As a result, lower-income people can afford these goods. As lower-income people purchase such adaptation-friendly products, they suffer less from extreme weather events. Academics using big data can rigorously test whether the damage caused by such extreme weather is shrinking for poorer people. If this is the case, then this is direct evidence that capitalism is playing a productive role in protecting the most vulnerable people from emerging threats.”

Climate adaptation has been a resounding success in the modern era of rapid capitalistic economic growth, but we still have a very long way to go. Critics of capitalism, including those in the degrowth movement, often advocate for revolution on the grounds that the status quo is imperfect. They frequently echo Jean-Jacques Rousseau’s famous sentiment that “Man is naturally good, and it is by his institutions alone that he becomes evil.” In putting forward their proposed alternatives, however, they are often committing the Nirvana Fallacy, where the supposed choice is between the imperfect status quo and a perfect utopian solution rather than the choice being between alternative real-world arrangements.

But we live in the real world, and thus, we must compare systems as they actually operate without being overly indulgent in our fantasies about how they might ideally operate. In the real world, Bastiat is correct that poverty is the base state of humanity, and it would appear that Smith is correct that a critical component for alleviating that poverty is to channel natural human self-interest through systems that rely on private ownership and freely fluctuating prices that represent realistic constraints on supply and demand. Historically, this formula has pushed great progress, and there is scant evidence that the anti-capitalist degrowth model would do anything other than rapidly unwind this progress and return us to a state of greater material poverty and vulnerability to the climate.

In Part 2, I will shift the focus to the equally important topic of greenhouse gas emissions mitigation, which is critical for the stabilization of the climate. I will argue that market-driven technological innovation seen in capitalist economies is necessary for the production of an energy and agriculture system that produces no CO2 emissions and that trying to achieve climate goals through global top-down controls on population and/or economic activity is misguided.