Erik M. Conway on The Role of Neoliberalism in Climate Change

“Market fundamentalism allows us to continue believing that we’re not responsible for climate change or its impacts.”—Erik M. Conway

The following post is by Erik M. Conway, the coauthor (with Naomi Oreskes) of The Collapse of Western Civilization: A View from the Future

One of the important intellectual underpinnings of the American refusal to undertake significant efforts to mitigate climate change has been the economic doctrine of neoliberalism. The term is rather amorphous, and means different things to different people. Naomi Oreskes and myself use it in the sense of what George Soros called market fundamentalism. Market fundamentalists believe in the perfection of economic markets as they currently exist, and that only markets “free” of government interference can protect individual liberty.

There are many things wrong with market fundamentalism, but the aspect of it that’s preventing us from dealing with climate change effectively is that markets as they currently exist don’t account for the cost of pollution. It’s free to dump carbon dioxide and methane and many other things into the atmosphere. In other words, we use the atmosphere as an open sewer, and don’t charge anyone for dumping stuff into it. In economic terms, pollution is an “externality,” a thing that exists outside the market system.

Market fundamentalists like to speak of the “magic of the market place.” Somehow, they think, markets will magically fix these externalities. But markets can’t fix problems that are external to those markets, no matter how hard we wish they would. That sums up the problem. Market fundamentalism is a form of magical thinking. And unfortunately, otherwise reasonable people routinely engage in this sort of magical thinking.

The good news is that, at least in principle, it’s fairly easy to fix this externality. In the 1970s, economists interested in reforming environmental regulation away from what they called “command and control” restrictions towards more market-friendly policies revived an old idea, the idea of pollution pricing. Emissions trading, what we now refer to as “cap and trade,” was one way to establish a price on pollution. Pollution taxes are another (economists often call this kind of tax “Pigovian,” after their inventor, Arthur Pigou). Both are simply ways of extending the market system to cover air and water pollution as well.

Today’s neoliberals have abandoned these market-friendly ideas, however. Unlike the original theorists behind neoliberalism, like Friedrich Hayek, they cannot accept that markets are imperfect and sometimes need reform. Long before the advent of neoliberalism, the original theorist of capitalism, Adam Smith, understood the need to regulate markets. The Great Depression taught early 20th century economists new lessons in market failure. That generation of economists came to understand the need for government to both manage markets and address their failures. Those lessons, though were forgotten in the 1990s’ fetish for deregulation and “free markets,” effectively leaving us unwilling to deal with the greatest market failure of all time, climate change.

That’s why we prefer the term market fundamentalist. It captures the narrow dogmatism of modern neoliberal political economy. It also captures the magical thinking—the nearly religious faith in markets to solve all problems and meet all needs.

What’s made market fundamentalism so dangerous is simply that because it protects current market structures, it also protects the fossil fuel economy—what we call in Collapsethe carbon-combustion complex. That means fossil-fuel companies and the “free market” think tanks they finance (and legions of consultants, lobbyists, and even university-based economists) champion the doctrine, as well as diverse industries that depend on and defend cheap fossil fuel. It’s really hard to overcome a dogma backed by an industry whose earnings exceed $100 billion a year.

The difficulty of unseating this doctrine is made worse by the reality that it’s a very comfortable belief. Market fundamentalism allows us to continue believing that we’re not responsible for climate change or its impacts. It reinforces the absurd idea that our economies are somehow independent of the “environment,” that economy and environment are separate spheres that don’t affect each other. It doesn’t ask us to fix (or even admit) of our failures.

The two-decade-long and counting PR campaign to promote market fundamentalism and deny the need for carbon emissions reduction works so well precisely because they’re messages many people want to hear.