Climate Economics: Growth and Capitalism

16 minute read

Updated on Sat May 29 2021

Economics is about how products and services (like apples or life insurance) are made, and who uses them. In this course, we’ll delve into the nitty-gritty details of the economic world, because it has a huge effect on climate change!

Our current economic system is all about getting us to buy more things - whether we need them or not. We can see this in advertising all over the place: consuming products and services is shown as something that will make us happier. But all this consumption comes at a cost to the environment and society.

So how did we end up here? To find out, we’ll need to start at the beginning: let’s talk about markets.

The role of markets in society

Markets have existed for a long time. They have taken many forms and covered many different trades such as trading food for a place to live in medieval Europe or buying products with seashells in ancient China.

Earthlies trading products

As societies grew and became more and more complex, so did our markets. Trade became more global and with that came the ideas, science and materials to invent new things. Before this point, our economies were mostly based on agriculture and hand-made goods, but that all changed as our economy shifted to one based on machine manufacturing and industry.

What is this event commonly called?


The industrial revolution: A pivotal moment in economic history

The industrial revolution was a period of time during the 18th and 19th centuries where humanity saw an explosive increase in productivity. Increasing productivity means that you’re able to produce more things with fewer resources (energy, materials, labour) or in a shorter amount of time.

Why was there such an explosive growth in productivity? Select all that apply.


Agriculture-based economy vs an industry-based economy

All these innovations meant that we could make a lot more stuff much faster and cheaper than ever before; in other words, we increased our productivity. This was aided by more global trade: for example, a factory owner in Liverpool, UK, could now sell their products to millions of people around the world rather than to a few thousand people in Liverpool. This increased the demand for faster and more efficient production.

All of these ‘increases’ led to what we call economic growth. While this growth has come with many benefits to human society, it has also been a major contributor to our current global predicament: climate change.

Economic Growth: Is more always better?

Economic growth is actually fairly new, only really taking place over the last couple of centuries.

In fact, our economic history can be split into two acts. The first act lasted thousands of years: most people were poor and societies achieved little (if any) growth. Human life didn’t change much: the things people used for shelter, food, light and energy remained pretty similar for a very long time.

Economic history remained mostly unchanged until very recently

The second part (as you can see) is much shorter and much more dramatic. As we discussed before, this change mostly came from the industrial revolution.

By how much has the average UK income per person grown between 1650 and today?


On average, a person in the UK now makes more money in 2 weeks than the average person in 1650 would make in an entire year!

This huge amount of growth has led many to question whether it can be sustained in the long run. The rise in using resources (and their effect on the environment) has followed a population growth and rising incomes: can this continue forever?

A huge rise in societal transformations and impacts

Capitalism: Our current economic system

All of this growth led to the eventual rise of capitalism, the predominant economic system used in our world today. With capitalism, the means of production (the things needed to produce products and services) are owned and controlled by businesses or individuals, rather than the government. This means that individual people run the economy without the government affecting what happens. Instead, what happens is determined by something called the “free market”.

What is the free market? Select all that apply.


Essentially, this means that people can buy whatever they want (demand) and sell whatever they want (supply) without the government getting involved in their transaction.

Now, we know that this is almost never the case; governments usually have rules that affect how and what people can buy or sell. For example, many governments do not allow recreational drugs to be sold and they punish businesses that cause pollution, such as oil spills.

Many governments also collect taxes and help provide things like healthcare, roads and education. They can even decide the price of certain products and services to make sure people can afford to buy them.

The role of the government

Which of the following countries are purely capitalist?


That was a trick question! In fact, no country has ever achieved a totally capitalist economy. Almost all economies are called mixed economies. This means that they combine bits of both capitalism and socialism.

Why is the debate always about capitalism vs socialism?

A fully socialist economic system involves everything being owned and shared by communities rather than by individuals. In a society like this, production is decided by the government and is meant to benefit society rather than make a profit for individuals. The shared ownership aims to make society more equal.

Has any country ever had a fully socialist economy?


A socialist society

What problems has capitalism caused?

While capitalism has made most people richer, due to capital accumulation it’s made the rich a lot richer.

What percentage of global wealth in 2014 went to the richest 1% of people?


This isn’t just restricted to inequalities between high-income and low-income countries. In fact, significant wealth inequalities exist within high-income countries as well.

The top 1% own more than the bottom 50%

This is relevant to climate change because inequality is not just about money; it’s also seen in CO₂ emissions. From 1990-2015, the richest 1% were responsible for 15% of cumulative CO₂ emissions; this is twice as much as the poorest 50% of the world’s population combined.

Inequalities in emissions

Conclusion

Capitalism does not work for everyone: it benefits a few and leaves the rest to scramble for the scraps. The lack of access to opportunities is not fair. So what can be done? The next few chapters will hopefully help you understand how we can try to amend and slowly transform our economic system into something that works for everyone and allows our planet's life to thrive.

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