Thursday, November 12, 2015

Bill Gates, Capitalism, Socialism, and Climate Change

In a recent interview with The Atlantic, Microsoft founder Bill Gates raised hackles with some anti-capitalist statements; specifically, that only government, not capitalism, can drive the energy innovation necessary to mitigate climate change. To be sure, Gates doesn’t sign on to the anti-fossil fuel radical environmentalists’ agenda of shutting down fossil fuel energy regardless of the consequences. He wants to foster development of non-carbon energy sources that can replace fossil fuels without disruption to our energy supplies. And to be sure, Gates did not unequivocally condemn capitalism—and he certainly didn’t advocate socialism, as some overheated commentaries asserted. But, he did strongly endorse statism in energy, a strange position for a self-made billionaire capitalist. What explains the contradiction?

Gates believes that capitalism cannot save the world from climate change because, as Louis Doré at i100 puts it, he thinks “the private sector is too selfish [short-term profit oriented] and inefficient to produce effective energy alternatives to fossil fuels.” Gates said that fossil fuels are too entrenched in the market to be overtaken by innovative non-CO2 emitting energy sources, even if those sources can be produced without subsidies and are competitive with fossil fuels economically and regards reliability. Though he acknowledged that capitalism can foster an eventual transformation to a carbon-free energy future, the transformation will be too slow to save us from climate change. Gates believes that fossil fuels are a significant driver of climate change, and that climate change will lead to catastrophe if not contained. Furthermore, the catastrophe is approaching faster than free energy markets can adjust. Given the urgency of climate change, as well as the global nature of the problem, Gates believes we need a massive government-directed global effort to speed up the energy transformation. Therefore, massive government intervention, including carbon taxes, a major increase in government funding for R&D, and government funding for startup companies, is required to phase in alternatives to fossil fuels. “Without a substantial carbon tax,” Gates said, “there’s no incentive for innovators or plant buyers to switch.”

“We need an energy miracle,” Gates proclaims. That miracle can only come from government, Gates believes. This, from a college dropout who, starting in his garage, helped upend the entrenched computer market dominated by IBM. This, from a man who simultaneously announced that he will privately and voluntarily (and unselfishly?) invest two billion dollars of his own money in carbon-free energy. This, from a man whose own life story is a total refutation of his description of the private sector as “generally inept.”

The whole history of capitalism—even though hampered in varying degrees by statist taxes, interventions, and controls—has been a steady progression of disruptive technological usurpations of entrenched industries. Consider just a few examples: what digital photography did to film photography king Eastman Kodak; what innovative communications technology did to the AT&T monopoly; what the automobile did the the horse-drawn carriage; and what electrification did to John D. Rockefeller’s near-total dominance of kerosene-based nighttime illumination more than a century ago.

Gates minimizes capitalism’s contributions. “Since World War II,” he said, “U.S.-government R&D has defined the state of the art in almost every area.”

But Gates ignores that government spending is funded from taxes on private wealth, and the spending is used to hire private scientists and private companies to do the work. All of the people involved in U.S. government R&D are free people. And individual freedom is the hallmark of capitalism, not statism. Look at it this way: If governments really are capable of defining the state of the art in almost every area, then human history should have been a millenniums-long economic boom. After all, governments of one kind or another have always been with us. Why, then, has human history prior to the rise of free market capitalism been—with brief exceptions—marked by grinding poverty and stagnation? Why was American technological and economic progress in the 150 years prior to World War II, before government captured a heavy role in basic research and development, so dramatic? Why does government R&D “work” in America, with its generally free, capitalistic private sector, but not in undeveloped countries with little or no elements of capitalism? Because individual freedom and free enterprise, not government financing, is the true driver of progress. Given the history of capitalism prior to the mid-Twentieth Century, there is no reason to believe that, without government-funded R&D, progress wouldn’t have been equal to or greater than that allegedly fostered by government since WW II. Especially when considering that basic R&D is only a starting point. Basic R&D in and of itself, is of no value to ordinary citizens without commercialization. Private sector entrepreneurs are the ones who transform the basic scientific knowledge into useful, mass-market products that provide practical value to consumers. As philosopher Ayn Rand observed:

The professional businessman is the field agent of the army whose lieutenant-commander-in-chief is the scientist. The businessman carries scientific discoveries from the laboratory of the inventor to industrial plants, and transforms them into material products that fill men’s physical needs and expand the comfort of men’s existence.

Business being the mainstay of the economy, the businessman both funds and commercializes the R&D.

Yet, in calling for major government investments in carbon-free energy during his interview with The Atlantic, Gates claims, in an apparent answer to the Solyndra argument, that although “government will be somewhat inept, . . . the private sector is in general inept. How many companies do venture capitalists invest in that go poorly? By far most of them.”

But Gates misses the key difference between government and private investment. For one, private citizens are risking their own money, a stark moral difference from politicians using other people’s money against their will. Second, failure is an integral and necessary part of entrepreneurial activity and economic progress. Private individuals learn from their mistakes, and alter their future choices accordingly. Government failures tend to lead to politicians doubling down on failure, as crony beneficiaries always blame lack of “adequate funding” for their failures; we’ve seen this play out in education for decades. To put it bluntly, government ineptness leads to further ineptness, while private “ineptness” leads to progress.

It is not government taxes or the judgments of politicians that drive human progress. It is free market capitalism. Without capitalism, the government’s taxes and the politicians’ judgement as to whom to dish out the proceeds would be meaningless. Gates cites the Manhattan Project and the internet as government accomplishments. But there could have been no Manhatten Project or contribution to development of the internet emanating from governments in non-capitalist countries, because non-capitalist countries don’t have free private sectors to feed off of. Capitalism doesn’t need government R&D to provide progress. But government R&D sure does need capitalism.

Given Gates’s own life story as an innovator, technological disruptor in a lightly regulated industry, and beneficiary of capitalism’s freedom, his position is inexcusable—and his sincerity on this issue is, to me, more than a little suspect. So, what drove the great former industrialist Bill Gates to betray capitalism in the area of energy?

I offer four possible explanations:

  1. Gates doesn’t understand capitalism, and thus doesn’t know what he is talking about.
  2. Gates is wracked with guilt brought on by submission to altruism.
  3. Gates wants to protect his Microsoft fortune by crushing upstart entrepreneurs from advancing better ideas, thus preserving his economic power.
  4. Gates has become a power-luster, and sees statism as a means of transforming his benign but enormous economic power into political power in order to impose his agenda on everyone else.

Any one or combination of the above explanations may explain Gates’s betrayal of capitalism. Let me elaborate on each of them.

#1: I find it hard to believe that a man of Gates’s stature and history doesn’t understand capitalism. But I suppose it’s plausible.

#2: It’s true that capitalism is the system based on selfishness. But selfishness, properly understood, is capitalism’s greatest moral strength. Capitalism is great precisely because people are left free to pursue their own selfish ends by their own efforts, so long as their efforts involve only voluntary association and trade with others. But if you ascribe to the dominant moral theory of our time—altruism—and the conventional straw man definition of selfishness as short-sighted, damn-the-rights-of-others whim worship, then capitalism must be rejected. By altruism’s standards, Gates is one of the greatest examples of capitalist selfishness. He holds the leading capitalist country’s largest capitalist-earned fortune, so by altruism’s standard, he is also one of the most morally corrupt human beings ever. Thus, Gates must condemn capitalism to atone for his supremely selfish, and proudest, lifetime accomplishments.

#3: Of course, selfish ends can be governed by motivations other than seeking monetary fortune. Capitalism also leaves people free to “do good” by giving away one’s fortune, as Gates has been doing. But if protecting his fortune is his motive for embracing statism, it’s a great demonstration of one of capitalism’s greatest virtues: Capitalism protects upstart entrepreneurs’ right to challenge the dominant industries in any field, like Gates himself successfully did in the field of digital technology. Capitalistic freedom leaves great fortunes forever vulnerable to challenge from below, because a capitalist government protects individual rights—including the right to production and trade—equally, at all times, for all people. Under capitalism, no one—no matter how wealthy—can use the physically coercive power of government to hamper competitors or protect one’s position in the market through laws, regulations, taxes, or other statist controls. The mighty Standard Oil of John D. Rockefeller, who at one time dominated the nighttime illumination market through his 90% share of the oil market, could do nothing to stop Thomas Edison’s electric light bulb from making his Kerosene-based lighting obsolete. What better way for Gates to protect his investments in alternative energy than to get government to “define the state-of-the-art” in the energy market as carbon-free, and then put government in charge of deciding who gets the funding and the R&D?

#4: This is related to #3. It’s true that fossil fuels, which currently have 86% of the world’s energy market, is the primary fuel of choice by selfish individuals who judge fossils to be the best available option. So, why does Gates want to use government power to force his alternative energy agenda on the rest of us, rather than rely on the market, which allows alternative energy entrepreneurs the freedom to persuade people to switch but allows no one to force anyone to switch? Why isn’t Gates content to invest, prove, and persuade? Perhaps Gates has tired of relying on the benign and benevolent economic power of his fortune, and is now turning to the tool of every utopian who believes he knows better than everyone else but can’t bother with voluntary persuasion—political power; the power of the gun. In condemning capitalism because of the private sector’s selfishness, Gates is essentially saying, “I don’t like the choices lessor people are making, so I will impose my choices by government decree. I’m right, therefor I get to invest my money as I see fit. You are wrong, therefore we must have the government tax away your money to ‘invest’ the way I think you should.”

Gates offers up a red herring in defense of his policies:

Even if you have a new energy source that costs the same as today’s and emits no CO2, it will be uncertain compared with what’s tried-and-true and already operating at unbelievable scale and has gotten through all the regulatory problems, like “Okay, what do you do with coal ash?” and “How do you guarantee something is safe?” Without a substantial carbon tax, there’s no incentive for innovators or plant buyers to switch.

Gates is apparently looking for certainty for his investments. But there is no certainty in the free market. So he wants to purchase certainty through government policy—i.e., at the point of a governmental gun. In other words, Gates is essentially saying, “If I can’t convince you on the merits to buy my product, I’ll force you.” It’s pure political cronyism of the kind only statism can deliver.

Here we have another demonstration of capitalism’s virtue: It protects the innovative would-be competitor from rich people gaining the political power to hamper or crush them in the market. Capitalism establishes a “wall of separation” between economics and state, thus preventing the rich from converting their economic power into political power, so as to force carbon taxes down our throats.

Gates is no far Left ideologue. He has no patience for symbolism, such as buying an electric car to “prove” one’s anti-climate change credentials. “There are places where if you buy an electric car, you’re actually increasing CO2 emissions, because [of] the electricity infrastructure,” he says. Gates rejects “the self-defeating claims of some clean-energy enthusiasts” who assert that the cost of solar and wind have reached parity with hydrocarbons, labeling them “misleadingly meaningless statements.” “What they mean,” Gates explains, “is that at noon in Arizona, the cost of that kilowatt-hour is the same as a hydrocarbon kilowatt-hour. But it doesn’t come at night, it doesn’t come after the sun hasn’t shone, so the fact that in that one moment you reach parity, so what?” And Gates rightly condemns “the dangerous certainty of environmentalists,” who downplay the role of natural phenomena like El Niño, which “has a much bigger impact on current weather than climate change has had so far.” Gates notes that the climate models have consistently over-estimated the warming.

Whatever the reason[s] for Gates’s position, this much is clear; even if you accept that catastrophic climate change is coming (I’m not convinced); even if you agree with carbon taxes (I don’t); even if you accept that government must have a major role in energy (I don’t): You still cannot escape the fact that free minds and free markets—capitalism—is the source of human progress.

Gates is wrong about capitalism. Gates says “We need an energy miracle,” and he “has committed his fortune to moving the world beyond fossil fuels and mitigating climate change.” But without capitalism, he wouldn’t have his fortune or the freedom to use it as he judges best. In fact, Gates’s private crusade itself is capitalistic, and disproves his own declaration that government must take the lead on energy R&D and funding of startups to commercialize the R&D. Without capitalism, there could not have been the fossil fuel, nuclear, or hydroelectric energy miracles. Without capitalism, there will be no further energy miracles. Whatever you believe about climate change or what government’s role in “solving” the climate problem should or should not be, there is no disputing: Beyond the crucial function of protecting individual rights through the rule of objective law, capitalism doesn’t need government to provide progress in energy. But government, to the extent it attempts to usurp the energy market, sure does need capitalism.

Related Reading:

The Dollar and the Gun—Harry Binswanger

1 comment:

Steve D said...

'Now, nuclear is a non-CO2 source, but it’s had its own problems in terms of costs, big safety problems, making sure you can deal with the waste, making sure the plutonium isn’t used to make weapons.'

Dismissed so easily in one short paragraph...what he really means to say is that nuclear is bad because it works.

High costs are mostly due to the huge insurance and regulatory load, the waste problem has been solved for decades and not all nuclear power plants make plutonium.

Once the cost of thorium power becomes lower than coal, what will they say then?