Capitalism is good for the environment
23 August 2021
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Most people believe that capitalism is to blame for climate change and environmental degradation. But numerous scientific studies have arrived at a surprising conclusion.
Every year, the Heritage Foundation ranks countries around the world based on economic freedom in a kind of capitalism index. Analysis has shown that the world’s most economically “free” countries also registered the highest scores on Yale University’s EPI environmental index, averaging 76.1 (on a scale from 0 to 100), while the “mostly free” countries averaged 70.2. These two groups have a significant lead over the “moderately free” countries, which received much lower ratings (59.6 points) for their environmental performance. The countries rated by the Heritage Foundation as either “mostly unfree” or “repressed” received by far the worst Environmental Performance Index scores (46.7 and 50.3, respectively).
Researchers at Yale University found that there is not only a correlation between the Heritage Foundation’s index and their own EPI, but also between the EPI and the “Ease of Doing Business Index” which is published each year as part of the World Bank’s Doing Business Report and is generally regarded as the world’s most comprehensive and reliable gauge of the ease of doing business, with higher ratings indicating better, usually simpler, regulations for businesses and stronger protections of property rights. According to the researchers at Yale University, the correlation between the “Ease of Doing Business Index,” which they refer to as a measure of “economic liberalism” (i.e., an indicator of how capitalist an economy is), and the EPI is 0.72.
In 2016, researchers published a study in the journal Sustainability that included an evaluation of the correlation between the EPI and the “Open Market Index” (OMI) compiled by the International Chamber of Commerce (ICC). The OMI measures a country’s openness to free trade and is thus an important indicator of economic freedom. The researchers found a high degree of overlap between the OMI index and the EPI: 19 of the OMI’s 27 highest-scoring countries also appear in the top 27 of the EPI. The survey covered a total of 75 countries, including all G20 and EU members. Together, these countries account for more than 90 percent of international trade and investment. The researchers conclude: “It is evident that there is a strong connection between OMI and EPI scores, supporting our hypothesis that countries with an open economy score higher in environmental performance. Overall, our evidence shows that the level of the openness of an economy is associated with a country’s environmental protection.”
Another study, “Is Free Trade Good for the Environment?” by Antweiler, Copeland and Taylor, uses sophisticated mathematical modeling to explore the correlation between free trade – a key feature of capitalism – and environmental pollution. The study finds: “Our estimates of the scale and technique elasticities indicate that if openness to international markets raises both output and income by 1%, pollution concentrations fall by approximately 1%. Putting this calculation together with our earlier evidence on composition effects yields a somewhat surprising conclusion: freer trade is good for the environment.”
Of course, it can be argued that capitalism leads to stronger economic growth, which in turn leads to an increase in resource consumption. However, the analyses show that, at an early stage of a country’s economic growth, a high level of environmental degradation is observed, while, after a critical point of economic growth, a gradual decline in environmental degradation is reported.
In addition, there are two real-world observations that also disprove the argument that stronger economic growth automatically leads to greater environmental pollution:
On the basis of numerous data series, Andrew McAfee has shown how economic growth has decoupled from the consumption of raw materials. Data for the USA show that of 72 raw materials, only six have not yet reached their consumption maximum. Although the US economy has grown strongly in recent years, consumption of many commodities is actually in decline. And the results of all these studies point in the same direction: capitalism is not the problem, it is the solution – both economically and environmentally.
Dr Rainer Zitelmann is a historian, sociologist, and author of the book The Power of Capitalism.
Every year, the Heritage Foundation ranks countries around the world based on economic freedom in a kind of capitalism index. Analysis has shown that the world’s most economically “free” countries also registered the highest scores on Yale University’s EPI environmental index, averaging 76.1 (on a scale from 0 to 100), while the “mostly free” countries averaged 70.2. These two groups have a significant lead over the “moderately free” countries, which received much lower ratings (59.6 points) for their environmental performance. The countries rated by the Heritage Foundation as either “mostly unfree” or “repressed” received by far the worst Environmental Performance Index scores (46.7 and 50.3, respectively).
Researchers at Yale University found that there is not only a correlation between the Heritage Foundation’s index and their own EPI, but also between the EPI and the “Ease of Doing Business Index” which is published each year as part of the World Bank’s Doing Business Report and is generally regarded as the world’s most comprehensive and reliable gauge of the ease of doing business, with higher ratings indicating better, usually simpler, regulations for businesses and stronger protections of property rights. According to the researchers at Yale University, the correlation between the “Ease of Doing Business Index,” which they refer to as a measure of “economic liberalism” (i.e., an indicator of how capitalist an economy is), and the EPI is 0.72.
In 2016, researchers published a study in the journal Sustainability that included an evaluation of the correlation between the EPI and the “Open Market Index” (OMI) compiled by the International Chamber of Commerce (ICC). The OMI measures a country’s openness to free trade and is thus an important indicator of economic freedom. The researchers found a high degree of overlap between the OMI index and the EPI: 19 of the OMI’s 27 highest-scoring countries also appear in the top 27 of the EPI. The survey covered a total of 75 countries, including all G20 and EU members. Together, these countries account for more than 90 percent of international trade and investment. The researchers conclude: “It is evident that there is a strong connection between OMI and EPI scores, supporting our hypothesis that countries with an open economy score higher in environmental performance. Overall, our evidence shows that the level of the openness of an economy is associated with a country’s environmental protection.”
Another study, “Is Free Trade Good for the Environment?” by Antweiler, Copeland and Taylor, uses sophisticated mathematical modeling to explore the correlation between free trade – a key feature of capitalism – and environmental pollution. The study finds: “Our estimates of the scale and technique elasticities indicate that if openness to international markets raises both output and income by 1%, pollution concentrations fall by approximately 1%. Putting this calculation together with our earlier evidence on composition effects yields a somewhat surprising conclusion: freer trade is good for the environment.”
Of course, it can be argued that capitalism leads to stronger economic growth, which in turn leads to an increase in resource consumption. However, the analyses show that, at an early stage of a country’s economic growth, a high level of environmental degradation is observed, while, after a critical point of economic growth, a gradual decline in environmental degradation is reported.
In addition, there are two real-world observations that also disprove the argument that stronger economic growth automatically leads to greater environmental pollution:
- In non-capitalist countries, environmental degradation has been a far more serious problem than in capitalist countries.
- The correlation between economic growth and increasing resource consumption is becoming ever weaker in the age of dematerialization.
On the basis of numerous data series, Andrew McAfee has shown how economic growth has decoupled from the consumption of raw materials. Data for the USA show that of 72 raw materials, only six have not yet reached their consumption maximum. Although the US economy has grown strongly in recent years, consumption of many commodities is actually in decline. And the results of all these studies point in the same direction: capitalism is not the problem, it is the solution – both economically and environmentally.
Dr Rainer Zitelmann is a historian, sociologist, and author of the book The Power of Capitalism.
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“Most people believe that capitalism is to blame for climate change and environmental degradation.” Most people don’t think about that, but I agree that it is absurdly false.
I’m sorry, but this is really just a second rate article that does not delve into the causes of environmental degradation. Countries that have a high degree of capitalism influence countries with smaller wealth, in essence blackmailing them to conform at the expense of their counties environment. Global influence has been eliminated from this article and only points to Capitalism as the “Savior of the World” when in essence everything that has been presented indicates the opposite.
Yes, there is a poverty of insight running all through this article.
It has ALWAYS been the case that a more powerful state exploits the resources of less powerful states.
With the whole premis of this piece pointing at the apparent relative cleanliness of advanced capitalist states,whilst failing to note that they’ve merely exported their production to states that have a much less enviromently clean manufacturing!
Well it just beggers belief,doesn’t it. A simplistic warping of the truth will not wash your hands clean of the responsability of the whole ethos of capitalism, IT IS THE BIG POLLUTER itself.
Go educate yourself please!
You proved, at best, that certain (the most statistically significant/prevalent in the modern world) types of governments against your definition of economic freedom have worse track records than certain types of governments with your definition of economic freedom. This does not prove that all government intervention is necessarily going to be worse for the environment. In fact, there is yet to be presented an actual argument (as opposed to simply numbers that economists decided about countries (that didn’t consider the outsourcing of environmentally unfriendly labour to “non-capitalist” countries)) that government intervention somehow makes the environment worse. Capitalism’s prioritization of profit over the planet and has destroyed it, is destroying it, and will destroy it until it is changed. Where, for example, is the proof that capitalism’s creation of a reliance upon fossil fuels is somehow “good for the environment”?
Furthermore, these findings would only ever maybe have the slight capacity to pretend to argue that capitalism is *better* than non-capitalism, not that it is good. Cutting down seven thousand forests is indeed better than cutting down eight thousand forests, but this is not proof that cutting down seven thousand forests is good for the environment. There are so many studies that show that our economic systems are, undeniably and actively, taking the earth to a path of ruin. Titling your report in this manner is misleading.
This is dangerous propaganda perpetuating capitalism’s destruction of our home, but I fear that you will not, even once the damage is irreversible, open your eyes to see the oily bloody on your hands. Hope this helps