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

    ETF Analysis: iShares MSCI KLD 400 Social

    Find out about the iShares MSCI KLD 400 Social exchange-traded fund, and learn detailed information about its characteristics, suitability and recommendations.
  2. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  3. Savings

    6 Ways to Save Money on College Supplies

    Tuition and room and board are big expenses, yes, but the cost of textbooks and supplies can add up, too, unless you strategize.
  4. Professionals

    The Rich Get Richer: Global Wealth is Rising

    Global wealth is rising and expected to continue. Advisors should know that the wealthy value fee transparency, performance.
  5. Investing

    Asset Manager Ethics: Disclosures

    Effective communication and disclosures go a long way towards easing minds and creating a lasting and trusting symbiotic relationship. Here are the four steps to making good disclosures.
  6. Investing News

    How 'Honesty' Could Pay off for Jessica Alba

    Is it possible that Jessica Alba is one of the savviest businesswomen on the planet?
  7. Investing

    How To Invest For The Greater Good

    We discuss why is important to prioritize economic, social and governance factors when making investment decisions, regardless of gender or generation.
  8. Professionals

    Wealthy Clients are Thirsty for Better Advice

    New research uncovers the ultra-weathy's fast-growing demand for better, in-depth investment advice.
  9. Markets

    Fat Tail Risk Makes Global Warming Scarier

    The cost of global warming does not take into account climate change-related catastrophes. Here's where fat-tail distributions come in.
  10. Savings

    4 Signs Your Financial Advisor Is Ripping You Off

    Pay attention to the habits of your financial adviser to avoid him ripping you off by commingling, churning, scamming or embezzling your money.
  1. Principal-Agent Problem

    The principal-agent problem develops when a principal creates ...
  2. Good Student Discount

    An auto insurance policy discount available to young drivers ...
  3. Whartonite

    A graduate of the Wharton School of Business at the University ...
  4. Bidding Ring

    A group of individuals or businesses that conspire to affect ...
  5. Negative Option Deals

    A dubious business practice that involves supplying a typically ...
  6. Bad Faith Insurance

    An insurance company’s appalling or malicious refusal to pay ...
  1. 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 >>
  2. What are restricted shares?

    Restricted shares refer to shares of stock whose sale or acquisition is subject to specific restrictions laid out by the ... Read Full Answer >>
  3. Why has emphasis on corporate governance grown in the 21st century?

    Corporate governance refers to operational practices, management protocols, and other governing rules or principles by which ... Read Full Answer >>
  4. What are the main substitutes for oil and gas energy?

    The main substitutes for oil and gas energy include nuclear power, solar power, ethanol and wind power. Fossil fuels dwarf ... Read Full Answer >>
  5. Why are fee-based accounts preferred by many high net worth individuals (HNWI)?

    High net worth individuals (HNWIs) often prefer fee-based investment accounts for reasons that include reduced conflicts ... Read Full Answer >>
  6. Are investments in the chemicals sector appropriate for ethical investors?

    Generally speaking, ethical investors shy away from chemical manufacturers and companies that have perceived negative chemical ... Read Full Answer >>

You May Also Like

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!