Marx’s law of the tendency of the rate of profit to fall is the basis for predicting the transient future of the capitalist mode of production. The law forecasts a secular decline in the profitability of capital that increasingly puts the capitalist production into crises that become more difficult to extricate from. The law has countertendencies that can slow the pace of falling profitability and even reverse the decline for periods. But in the long run, these countertendencies cannot overcome the tendency.
One of the countertendencies is capital’s drive to reduce the costs of production and raise profitability by intensive use of natural resources to lower the cost of raw materials (or circulating capital) in capitalist production. The rate of profit is thus “inversely proportional to the value of the raw materials’ (Marx 1967 III, 111). The cheaper the raw materials and energy, the higher the rate of profit. And yet, the dynamism of capitalist production leads the ‘portion of constant capital that consists of fixed capital . . . [to] run significantly ahead of the portion consisting of organic raw materials, so that the demand for these raw materials grows more rapidly than their supply’ (pp. 118–119). Raw materials become ‘scarce’ relative to the rise in fixed asset investment. “The more capitalist production is developed, bringing with it greater means for a sudden and uninterrupted increase in the portion of constant capital that consists of machinery, etc., the greater is the relative overproduction of machinery and other fixed capital, the more frequent the underproduction of plant and animal raw materials, and the more marked the previously described rise in their price and the corresponding reaction’ (Marx 1981, 214).
If a sufficient mass of cheap energy and raw materials can be mobilized, the rising organic composition of capital can be attenuated, especially if ‘capital saving’ innovations run strongly alongside labour saving movements. Then the tendency towards a falling rate of profit, is not only checked, but (for a time) reversed. The same logic applies to variable capital. If a sufficient volume of cheap food can be supplied, the rate of surplus value may be augmented.
Jose Tapia has argued that the transitions from peat and charcoal to coal, and from coal to oil, were major technological revolutions that initiated periods of accelerated accumulation in the history of global capitalism, since cheap energy “powerfully checks the falling rate of profit.”1 Conversely, expensive oil reduces profitability and pushes economies toward crisis, as clearly illustrated by what happened in the early 1970s, late 1980s, late 1990s, and in the years immediately before the Great Recession. The global slump of the mid-1970s has often been called the Oil Crisis and indeed a peak in the world price of oil occurred in 1974 at the time of the first simultaneous global recession after WW2.
But there were also peaks of oil prices in 1980, 1990, 2000, and 2008, which meant that oil prices were rising in the period immediately previous to each of the five crises. The econometrician James Hamilton reported a statistically significant correlation between oil price shocks and economic recessions in post-war US data.2 Hamilton’s conclusion was that the evidence “makes it difficult to reject the historical correlation as entirely spurious,” meaning that oil price increases might be the shocks that push the economy into recession. The evidence indicating a correlation between oil price shocks and the last five crises of the world economy is solid.
Capitalism turns the ‘free gifts of nature’ into profit. And in the incessant drive to raise profitability, it depletes and degrades natural resources. And as nature is privatised and turned into private property, the owners of ‘nature’ can also extract rent from the exploitation of labour. However, there is a continual battle by capital to control and lower rising raw material prices as natural resources are depleted and not renewed, adding another factor to the tendency of the rate of profit to fall. The drive for profit has led to an uncontrolled expansion of industrialisation, energy and commodity production in agriculture that emits carbon emissions and provokes natural resource depletion that is heating up the planet to levels that threaten its very existence.
The UN has said that: “Currently, the world is on course for a temperature increase of 3.2 degrees Celsius or more, unless industrialized nations can deliver reductions in greenhouse gas emissions of at least 7.2% annually over the next 10 years in order to keep to the limit ofe 1.5C degree target agreed in Paris”. Although the Paris Agreement aimed to hold global warming as close to 1.5℃ as possible, that doesn’t mean it is a “safe” level. Communities and ecosystems around the world have already suffered significant impacts from the 1℃ of warming so far, and the effects at 1.5℃ will be harsher still. Poverty and disadvantages will increase as temperatures rise to 1.5℃. Small island states, deltas and low-lying coasts are particularly vulnerable, with increased risk of flooding, and threats to freshwater supplies, infrastructure, and livelihoods. Warming to 1.5℃ also poses a risk to global economic growth, with the tropics and southern subtropics potentially being hit hardest. Extreme weather events such as floods, heatwaves, and droughts will become more frequent, severe, and widespread, with attendant costs in terms of health care, infrastructure, and disaster response.
The sixth report from the Intergovernmental Panel on Climate Change (IPCC) states clearly that climate change and global warming is “unequivocally caused by human activities.” But can climate change be laid at the door of the whole of humanity or instead on that part of humanity that owns, controls and decides what happens to our future? Sure, any society without the scientific knowledge would have exploited fossil fuels in order to generate energy for production, warmth and transport. But would any society have gone on expanding fossil fuel exploration and production without controls to protect the environment and failed to look for alternative sources of energy that did not damage the planet, once it became clear that carbon emissions were doing just that?
Scientists warned of the dangers decades ago. Nuclear physicist Edward Teller warned the oil industry in 1959 that its product will end up having a catastrophic impact on human civilization.3 The main fossil fuel companies like Exxon or BP knew what the consequences were, but chose to hide the evidence and do nothing – just like the tobacco companies over smoking4. The scientific evidence on carbon emissions damaging the planet, as presented in the IPCC report, is about as inconvertible as smoking in damaging health. And yet little or nothing has been done because the environment must not stand in the way of profitability.
So the culprit is not ‘humanity’ but industrial capitalism and its addiction to fossil fuels. At an individual level, in the last 25 years it is the richest one percent of the world’s population mainly based in the Global North who were responsible for more than twice as much carbon pollution as the 3.1 billion people who made up the poorest half of humanity.5 The richest 10 percent of households use almost half (45 percent) of all the energy linked to land transport and three quarters of all energy linked to aviation. Transportation accounts for around a quarter of global emissions today, while SUVs were the second biggest driver of global carbon emissions growth between 2010 and 2018. But even more to the point, just 100 companies have been the source of more than 70% of the world’s greenhouse gas emissions since 1988.6 It’s big capital that is the polluter even more than the very rich.
The UN forecasts that unless global warming is stopped, the planet will turn into “uninhabitable hell” for millions.7 Even at 1.5oC, we will see sea level rises of between two and three metres. Instances of extreme heat will be around four times more likely. Heavy rainfall will be around 10 percent wetter and 1.5 times more likely to occur. Much of these changes are already irreversible, like the sea level rises, the melting of Arctic ice, and the warming and acidification of the oceans. Drastic reductions in emissions can stave off worse climate change, according to IPCC scientists, but will not return the world to the more moderate weather patterns of the past.
European Climate Commissioner Connie Hedegaard said: “If your doctor was 95 percent sure you had a serious disease, you would immediately start looking for the cure,”. But what are the solutions? The chairman of the IPCC reckons that the only way to reduce large-scale fossil-fuel use is to ‘price’ carbon emissions: “Unless a price could be put on carbon emissions that was high enough to force power companies and manufacturers to reduce their fossil-fuel use, there seemed to be little chance of avoiding hugely damaging temperature increases.”
For some time, the IMF has been pushing for carbon pricing as ‘a necessary if not sufficient’ part of a climate policy package that also includes investment in ‘green technology’ and redistribution of income to help the worst-off cope with the financial burden. The IMF is now proposing a global minimum carbon price. Leading climate economist, William Nordhaus calls for a “climate club” of countries willing to commit to a carbon price. “A key ingredient in reducing emissions is high carbon prices,” he said, adding that a “climate club” would have to impose a penalty tariff on countries that did not have carbon pricing in place. Nordhaus said such an approach would help solve the problem of ‘free riding’, which has plagued existing global climate agreements, all of which are voluntary.
Market solutions to climate change are based on trying to correct “market failure” by incorporating the nefarious effects of carbon emissions via a tax or quota system. The argument goes that, as mainstream economic theory does not incorporate the social costs of carbon into prices, the price mechanism must be “corrected” through a tax or a new market.
The first problem with this is that climate change is not just one market failure (like tobacco) but several: in capitalist transport, energy, technology, finance and employment.8 Economists who have attempted to calculate what the ‘social price’ of carbon should be, have found that there are so many factors involved and the pricing must be projected over a such a long time horizon that it is really impossible to place a monetary value on the ‘social damage’– estimates for the carbon price range from $14 per ton of CO2 to $386! “It is impossible to approximate the uncertainties in low-probability but high-damage, catastrophic or irreversible outcomes.” 9Moreover, where carbon pricing has been applied, it has been a miserable failure in reducing emissions, or in the case of Australia, dropped by the government under the pressure of energy and mining companies.
And while there is much talk about raising carbon emission prices, little or nothing is said about the huge subsidies that governments continue to make to fossil fuel industries. EU Commissioner Gentiloni admitted as such: “Paradoxically, [the current energy taxation directive] is incentivising fossil fuels and not environmentally friendly fuels. We have to change this.” The G20 countries have provided more than $3.3tn (£2.4tn) in subsidies for fossil fuels since the Paris climate agreement was sealed in 2015, despite many committing to tackle the crisis. G20 member states continue to provide substantial financial support for fossil-fuel production and consumption.10 China provided nearly a quarter of the 2019 count. But with a per-capita total of $104, it was well below the G-20 average of $313. In contrast, Saudi Arabia ($1,962), Argentina ($734) and Russia ($523) came top. The G-20 as a whole has cut this funding 10% 2015–19. But this masks significant variation across countries, with eight members boosting support — notably Australia, Canada and the US. Australia increased its fossil fuel subsidies by 48% over the period, Canada’s support rose by 40% and that from the US by 37%. The UK’s subsidies fell by 18% over that time, but still stood at $17bn in 2019. The biggest subsidies came from China, Saudi Arabia, Russia and India, which together accounted for about half of all the subsidies.
Around 60% of the fossil fuel subsidies went to the companies producing fossil fuels and 40% to cutting prices for energy consumers. And yet reforming fossil fuel subsidies aimed at consumers in 32 countries could reduce CO2 emissions by 5.5bn tonnes by 2030, equivalent to the annual emissions of about 1,000 coal-fired power plants and also save governments nearly $3tn by 2030.11 The International Energy Agency’s (IEA) road map for net-zero emissions by 2050 calls for a 6 per cent decline in coal-fired generation annually. Yet coal production continues to rise.12
More than 80% of emissions are covered by carbon price schemes in France, Germany and South Africa. In the UK, only 31% of emissions are covered, but the UK has one of highest carbon prices at $58 per tonne of CO2. Just 8% of US emissions are covered and at the low price of $6 per tonne. Russia, Brazil, and India do not have any carbon prices. Indeed, the current average global carbon price is under $2 and 80% of global emissions have no carbon emissions pricing market at all!13 So the carbon pricing and taxation solution, even if it worked to lower emissions, is a pipe dream as it can never be implemented globally before global warming reaches dangerous ‘tipping points’.14
Market solutions are not working because for capitalist companies it is just not profitable to invest in climate change mitigation: “Private investment in productive capital and infrastructure faces high upfront costs and significant uncertainties that cannot always be priced. Investments for the transition to a low-carbon economy are additionally exposed to important political risks, illiquidity and uncertain returns, depending on policy approaches to mitigation as well as unpredictable technological advances.” (IMF). Indeed: “The large gap between the private and social returns on low-carbon investments is likely to persist into the future, as future paths for carbon taxation and carbon pricing are highly uncertain, not least for political economy reasons. This means that there is not only a missing market for current climate mitigation as carbon emissions are currently not priced, but also missing markets for future mitigation, which is relevant for the returns to private investment in future climate mitigation technology, infrastructure and capital.”
Late 20th century Marxist economist Ernest Mandel wrote: “it is simply not true that modern industrial technology is inevitably geared towards destroying the environmental balance. The progress of the exact sciences opens up a very wide range of technical possibilities”.15 Increased rates of pollution and environmental degradation occur because capitalists pursue profits at the expense of the environment, not because of the technologies themselves. Socialists have to distinguish between instruments of production and their use under capitalism.
Capitalism is highly inefficient when it comes to meeting human needs; it produces so much, and yet leaves 60% of the human population without access to even the most basic goods. Why? Because a huge portion of commodity production (and all the energy and materials it requires) is irrelevant to human well-being. The goal should be to scale down ecologically destructive and socially less necessary production (what some might call the exchange-value part of the economy), while protecting and indeed even enhancing parts of the economy that are organized around human well-being and ecological regeneration (the use-value part of the economy).
The solution to these multifaceted and compounding environmental crises is not “degrowth”, but rather, as Mandel formulated it, “controlled and planned growth:” “Such growth would need to be in the service of clearly defined priorities that have nothing to do with the demands of private profit…rationally controlled by human beings… The choice for ‘zero growth’ is clearly an inhuman choice. Two-thirds of humanity still lives below the subsistence minimum. If growth is halted, it means that the underdeveloped countries are condemned to remain stuck in the swamp of poverty, constantly on the brink of famine. “Planned growth means controlled growth, rationally controlled by human beings. This presupposes socialism: such growth cannot be achieved unless the ‘associated producers’ take control of production and use it for their own interests, instead of being slaves to ‘blind economic laws’ or ‘technological compulsion.
A global plan could steer investments into things society does need, like renewable energy, organic farming, public transportation, public water systems, ecological remediation, public health, quality schools and other currently unmet needs. And it could equalize development the world over by shifting resources out of useless and harmful production in the North and into developing the South, building basic infrastructure, sanitation systems, public schools, health care. At the same time, a global plan could aim to provide equivalent jobs for workers displaced by the retrenchment or closure of unnecessary or harmful industries. And a global plan could start to utilise new technology in food production. Damaging and cruel livestock farming could be phased out with plant-based meat production and organic farming.
The capitalist economy is based on the private sector and the public sector operates as a support of the former. The private sector works for profit, so it engages into activities procuring profits and abstains and/or withdraws from non-profitable activities. Furthermore, the capitalist economy, in order to surpass health and economic crises, needs to mobilise primarily the private sector (as this is the dominant sector of the economy). This requires using the public sector in order to subsidise the private sector by giving to the latter sufficiently profitable incentives. So actions are slow and fuzzy in a capitalist economy.
In contrast, in a planned economy, the dominant sector world be collectively owned and controlled. It would have non-surplus producing activities and even loss-making activities if this were decided by social planning. Loss-making activities would also be viable since they would be designated as such by social planning and would be structurally subsidized by the other economic activities. Additionally, when faced with an urgent contingency, a planned economy could mobilise resources on time and in sufficient numbers through a direct mechanism operated by the planning authority. Hence, it is certain that (a) it would take place and (b) be punctual.
For these reasons, a planned economy is better equipped to face contingencies like a health crisis. During the COVID pandemic, Donald Trump said that the US economy was not built to be shut down. The fundamental reason is that capitalist enterprises operate for profit, or else they have no reason to exist. Consequently, they cannot operate at a low cost of production level and moreover with losses. Unless someone else subsidises them to keep operating, they are going to close. On the contrary, a socialist economy can survive without achieving surplus (profits) by simply covering production costs. For the same reasons, it can survive longer even with economic losses.
The lesson of the coronavirus vaccine response is that a few billion dollars a year spent on additional basic research could have prevented a thousand times as much loss in death, illness and economic destruction. What better lesson can we learn from the COVID vaccine experience than that the multi-national pharma companies should be publicly owned so that research and development can be directed to meet the health and medical needs of people not the profits of these companies? Sure, state-owned companies can also work for the interests of capital and profits, but within a democratically planned economy, they would work for social needs. In a planned economy, necessary vaccines can get to the billions in the poorest countries and circumstances rather than to just those countries and people who can afford to pay the prices set by these companies. “This is the people’s vaccine,” said corporate critic Peter Maybarduk, director of Public Citizen’s Access to Medicines program. “Federal scientists helped invent it and taxpayers are funding its development. … It should belong to humanity.”
Within a planned global economy, it would be possible to set up a programme to monitor wildlife, reduce spillovers, end the wildlife meat trade and reduce deforestation.16 Such a scheme could cost no more than $20bn a year, a price tag that is dwarfed by the cost of the Covid-19 pandemic, which has wiped trillions of dollars from national economies round the world. Spending of about $260bn over ten years could substantially reduce the risks of another pandemic on the scale of the coronavirus outbreak, which is just 2% of the estimated $11.5tn costs of Covid-19 to the world economy.
Furthermore, the spending on wildlife and forest protection would be almost cancelled out by another benefit of the action: cutting the carbon dioxide emissions driving the climate crisis. The New Nature Economy project, published by the WEF, says: “We are reaching irreversible tipping points for nature and climate. If recovery efforts do not address the looming planetary crises, a critical window of opportunity to avoid their worst impact will be irreversibly lost.” And yet the cost of action to deal with these impending disasters would be not much more than the recent fiscal spending by governments to save jobs and businesses from the COVId-19 pandemic.”
2 Hamilton, https://www.brookings.edu/wp-content/uploads/2009/03/2009a_bpea_hamilton.pdf