Whether by accident or by design, the environmental movement has increasingly turned to blaming capitalism for polluting the earth. While it's true that the industrial revolution, a child of capitalism without a doubt, produced modern pollution, it's wrong to polarize the argument against the capitalist system. The idea that green and capitalist are absolutely opposed shows a misunderstanding of free markets and a lack of faith in the individual. In this article, we'll look at how capitalism can make "going green" a workable system rather than a revolutionary dream.

Property Rights Prevent Overuse and Pollution
The fact is that pollution is often the product of weak property rights. When nobody owns it, no one takes care of it. This concept dates back to times before the industrial revolution when grazing lands were public and, consequently, farmers and livestock owners allowed their animals to overgraze simply because there was no incentive not to. Only when lands were enclosed and property rights established did people start rotational feeding and other techniques to conserve the land. Parallels can be found in public lakes (overfishing), public roads (traffic jams from volume, irregular maintenance) and many other situations.

The alternative is hard for us to picture, because there is so much public land in America. But if you own a river and a company wants to pipe its sewage into it, you'd likely demand a monthly fee at the very least. This would produce a cost for the company and encourage it to find ways to reduce that cost. Sewage is an interesting type of pollutant, because up until the 19th century there was a private disposal system in which companies would buy waste from urban households to sell as fertilizers to farmers. When public sewage systems were laid out, all this waste was simply dumped in the nearest body of water – not exactly an environmental improvement. (For more, check out Top 10 Green Industries.)

Excessive Consumption Comes from Price Controls
Similar to the problem of property rights, public services often encourage consumption. If we paid for public services like we do for private services, there would be less waste. Imagine if you paid per bag or per pound to throw your garbage in a landfill. In this case, reusing things and reducing waste would have an obvious financial benefit by reducing your garbage bill. A private dump could easily impose this system, whereas the public system would have to retool the waste industry in such a way that tracked each household's garbage and then offered a tax refund at the end of the calendar year. It may still work, but it would provide less motivation than having a bill coming at you every month telling you how much it's costing you to be wasteful. (For more, see Less Trash For More Cash.)

The damage of price controls was most visible when the government tried to protect the public from the oil shock. By legislating lower-than-market prices, public consumption stayed the same until supply was severely depleted. If prices had floated, most people wouldn't have been able to buy gas. With price controls, everyone could afford gas, but there was little to no gas for anyone to buy. Market prices are one of the most powerful ways to conserve resources because, as the cost goes up, people naturally cut back on consumption. This applies to everything from apples to zinc.

Good Business Means Less Waste
Capitalism is driven by profit and cost.When you and your competitor are selling the same product, one of the best ways to beat him or her out is to produce it more efficiently. This means wasting less resources producing it and thus creating less waste in the end. This can be seen from the time J.D. Rockefeller used "waste" byproducts from oil and made them into other products like lubricants and paint. Competitors were dumping these byproducts in the river. If a company can cut its waste or consumption, its costs will fall, thus increasing its profits. This drive for profits produces more efficient, and thus greener technology, not legislation. (To learn more, see J.D Rockefeller: From Oil Baron To Billionaire.)

Legislation can be helpful for guidelines, but the best companies will naturally exceed these if the solution is truly better. For example, insulation makers have found that recycled glass takes the same amount of energy to melt and spin into bats as virgin materials like sand. The average amount of recycled glass used is between 30% and 40%. If a large source of glass - like a bottle depot or crushed glass outlet - is nearby, then a single factory may have as high as 80%, but only if it makes sense cost-wise. Legislating an 80% content will remove the environmental benefit of the plants already using that much because many other plants in less ideal locations will have to burn fossil fuels to ship heavy containers from all over in order to get enough materials. It is a rare company that is willfully wasteful, and these often don't survive for long. Sometimes, however, it is hard to see why a law that is more environmentally friendly on the surface can actually be harmful in aggregate.

If I Knew what I Know Now, When I was Younger …
A sticking point for most people is the idea of huge faceless conglomerates dumping materials into rivers, oceans, skies and meadows. There are a few problems. One is the word "dumping." Often, these companies were following the regulations of the time – a time when environmental impact wasn't a consideration. In fact, one of the great scientific disciplines, oceanography, used to have the stated goal of exploring the oceans for the best places to sink barrels of toxic waste. This is more an issue of education/knowledge than capitalism.

Property rights would have given these companies pause, due to possible legal costs. And many companies have rightly been stung by class action lawsuits. This legal risk encourages them to reduce waste and change their habits in the same way a per-bag fee would make households more environmentally conscious. Industry is much cleaner today than in the 1920s, '50s or '70s. This progress is often belittled as too slow, but environmental education has only become widespread since the '70s. The economics of waste led to capitalism cleaning things up long before the general public knew how important it was. (Learn more in What Does It Mean To Be Green?)

Conclusion: Every Individual Makes a Difference
One of the great ironies of the hostility between green movements and capitalism is that the same message is at the heart. Both emphasize the importance of each individual looking after his/her own interest. For the green movement, it's in your interest to conserve, recycle and generally avoid polluting because we only have one earth. For capitalism, you watch out for your economic interests – you conserve water because water costs money, you reuse to avoid wasteful buying and so on. When property rights are explicit in the capitalist system, going green is not a moral decision, but an economic reality. Capitalism comes out of the self-interest of the individual – and if more and more people wish to go green, capitalism is the quickest and most efficient system for making that wish come true.(For more on this topic, check out our Investopedia Special Feature: Green Investing.)

Related Articles
  1. Mutual Funds & ETFs

    Top 3 Japanese Bond ETFs

    Learn about the top three exchange-traded funds (ETFs) that invest in sovereign and corporate bonds issued by developed countries, including Japan.
  2. Taxes

    Here's How to Deduct Your Stock Losses From Your Tax Bill

    Learn the proper procedure for deducting stock investing losses, and get some tips on how to strategically take losses to lower your income tax bill.
  3. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  4. Stock Analysis

    3 Solar Stocks to Add to Your Portfolio

    Understand the growth and challenges of the renewable energy market and its success in 2015. Learn about the top three energy stocks to add to a portfolio.
  5. Professionals

    How to Sell Mutual Funds to Your Clients

    Learn about the various talking points you should cover when discussing mutual funds with clients and how explaining their benefits can help you close the sale.
  6. Mutual Funds & ETFs

    Top Three Transportation ETFs

    These three transportation funds attract the majority of sector volume.
  7. Investing Basics

    Statistical Proof That Buy-and-Hold Investing Pays Off

    Learn about how the data suggests that the buy-and-hold investment strategy still works, even after the huge declines of the Great Recession.
  8. Investing Basics

    5 Things To Ask Before Hiring A Financial Advisor

    Choosing a financial advisor isn't an easy task. Here's a list of the most important things to consider when planning for your financial future.
  9. Investing

    5 Recession Resistant Industries

    No companies are completely recession proof, but some industries perform better in a weak economy than others.
  10. Mutual Funds & ETFs

    How to Find Mutual Funds With High Dividends

    Learn about the important factors to consider when looking for mutual funds that pay high dividends, including how they may impact your taxes.
  1. What are the main kinds of annuities?

    There are two broad categories of annuity: fixed and variable. These categories refer to the manner in which the investment ... Read Full Answer >>
  2. What are the risks of rolling my 401(k) into an annuity?

    Though the appeal of having guaranteed income after retirement is undeniable, there are actually a number of risks to consider ... Read Full Answer >>
  3. How do I get out of my annuity and transfer to a new one?

    If you decide your current annuity is not for you, there is nothing stopping you from transferring your investment to a new ... Read Full Answer >>
  4. Student loans, federal and private: what's the difference?

    The cost of a college education now rivals many home prices, making student loans a huge debt that many young people face ... Read Full Answer >>
  5. Are high yield bonds a good investment?

    Bonds are rated according to their risk of default by independent credit rating agencies such as Moody's, Standard & ... Read Full Answer >>
  6. Which socially responsible retailers appeal most to ethical investors?

    Ethical investors have many reasons to consider companies in the retail sector. The sector is broad and features an abundance ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  2. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  3. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  4. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  5. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  6. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!