Capitalism, carbon, and colonies – looking back and looking forward

By Gaurav Khatri | 2 November 2023

Director Wendy Carlin delivered the Royal Economic Society Annual Public Lecture 2023

The University of Reading, 21st June 2023

Greed. Power. Corruption. Wendy Carlin – Director of CORE Econ – inspects the words on the vast screen before her. Inequality. Exploitation. She has asked her audience what comes to mind when they hear the word ‘capitalism’, and they watch with fascination as their answers fill the display. Evil. Entrepreneurship.

So begins the Royal Economic Society Annual Public Lecture 2023. Sixth-form students have gathered to hear Carlin on capitalism, and their disenchantment with the status quo is apparent. A quick poll reveals that 19% of them believe that the global economy will shrink in the decades to come, and 49% fear that climate change has doomed the world. Bleak, I think. Can Wendy change their minds?

Students’ thoughts on capitalism at the Royal Economic Society Annual Public Lecture 2023. CORE previously asked students throughout the world what they think are the most pressing problems economists today should address. Explore their responses.

Hockey history, and healing: the age of affluence

Wendy kicks off with a graph. A millennium of history captured by a long flat line, and a dramatic uptick. The Hockey Stick, she cheerfully explains. From 1000 till the 1700s, Britain’s GDP per capita is flat. Time races on, while living standards laze in the sidelines. Centuries of stagnation, however, give way to a new economic era. GDP per capita skyrockets. And unlike upticks past, the trend is not quickly reversed by compensating decline. A revolution.

What changed, you ask? Wendy chalks it up to the advent of a new economic system – capitalism. What sets capitalism apart from its comparators? Quoting The Economy 2.0: Microeconomics, Wendy asserts, that ‘a failed capitalist is an ex-capitalist.’ Entrepreneurs – keenly aware that failure to deliver to the market’s satisfaction will be punished with the failure of their firm – face strong incentives to innovate. Technological competition between such profit-seekers first in England in the 18th century reversed historic economic inertia.

How strange, I think, that capitalism – seemingly the engineer of sustained economic growth and our present comfort – received largely scathing reviews just minutes prior. What are we missing?

History’s hockey stick. The series presented are GDP per capita in 2011 US Dollars. Adapted from Figure 1.1 in The Economy 2.0: Microeconomics.

Carbon, colonies, and cotton: the cost of capitalism

Addressing inequality, Wendy concedes, has not been capitalism’s strength. While indeed, the increase in living standards eventually came after nearly a century of rapid growth of per capita GDP and was unprecedented, the income share of the richest decile rose strikingly. While  members of the capitalist elite necessarily fail as creative destruction plays out, a concentration of the gains occurred. 

A deeper dive into the origins of Britain’s success reveals more.  A low price of coal relative to labour ushered in large-scale mechanisation. Energy-intensive machines were fast and obedient, but their extensive use ultimately spelt disaster for the environment, culminating in today’s climate crisis.

As industrialisation spurred the establishment of clothing mills in the north of England, raw material was needed to maintain their business. Overseas British colonies – particularly America – proved a fertile source, providing a steady stream of cotton. Further, labour was needed to work the mills. Sugar produced by enslaved people from Africa on British-owned plantations  in the Caribbeans  kept them fed and working hard. 

The picture seems clearer. An ideal built on a rickety scaffolding of colonialism, slavery, and environmental irresponsibility can hardly expect popular support. Capitalism’s economic growth, I think, may not justify its cost.

Pollution for prosperity? The road to reform

But can policy action reform capitalism to reduce the cost of growth? Wendy thinks so.

First up: a global carbon tax. Tax emissions and redistribute revenue to poorer sections of society across the globe. A sensible economic answer, Wendy thinks, but one best supplemented by further intervention.

Wendy offers the history of solar power as a lesson in climate economics. Starting in the 1970s, subsidies and research funding from Western governments led to scaling up of solar energy deployment. Resulting economies of scale and learning-by-doing substantially lowered manufacturing costs – led by firms in China. The price of photovoltaic cells in 2019 was less than 1% of the equivalent figure in 1976, greatly improving access to greener, cleaner energy.

Indeed, it seems the Industrial Age’s association of prosperity with pollution is reaching its end: Sweden, Wendy shows, achieved over 40% GDP growth from 1990 to 2021, while reducing emissions by 40%. And Sweden isn’t alone. Wendy has in fact come prepared with examples of 25 countries that successfully decoupled growth from environmental sacrifice!

The lecture finishes with a call to action: holding capitalism to account is the task not just of the state and market , but even the ordinary you and me. Active civil society – in the form of informed consumers lobbying for climate action by governments and ethically sound firm behaviour and making conscious consumption decisions – can have a strong impact. As a pensive crowd of students bursts into applause, I smile. Perhaps there is cause for optimism yet.

Visit the Royal Economic Society website to watch or download resources for the Annual Public Lecture 2023.

 The Economy 2.0: Microeconomics is the rewrite of the microeconomics part of The Economy 1.0, CORE’s flagship introductory textbook in economics. Discover the ebook.