Corporate Capitalism Digging Its Own Grave?

California is in its third year of a severe drought. Some scientists believe this will be the driest year in the last five hundred. Among other measures for dealing with the water shortage, the state has announced it will not provide subsidized irrigation water from dams this year.

The large-scale capitalist agriculture model touted by Norman Borlaug devotees (like Reason magazine’s Ron Bailey) is based on so-called “Green Revolution” seeds. These selectively bred seeds — “high yield varieties” — produce considerably higher output than traditional varieties, but also require much higher inputs of irrigation water and chemical fertilizer to produce those outputs. For this reason, corporate agribusiness critic Frances Moore Lappe prefers to call them “high response varieties.” They are far less hardy than traditional varieties — particularly those developed over the centuries by native populations to suit local conditions in the Third World — in the face of drought and other marginal environmental conditions.

As such, they are suitable primarily for large-scale, export-oriented cash crop operations — the sort which are carried on mainly on land stolen from former peasant cultivators and enclosed into giant plantations by  local landed oligarchies in collusion with transnational agribusiness corporations. They require large-scale inputs of subsidized water — the kind which tends to be directed disproportionately to large agribusiness operations on such land.

Meanwhile, state-subsidized and -protected fracking operations require billions of gallons of water, depleting aquifers in some of the most drought-stricken areas like California and Texas. And to top everything off, government subsidies to fossil fuel production and long-distance transportation (like the cross-country shipping of subsidized agribusiness produce from California) encourage the generation of the greenhouse gases that contribute to the drought.

The same principle is at work behind a wide spectrum of resource-input crises. Market prices, when free from subsidies and other distortions, are a sort of feedback system that tells those consuming an input the real cost of providing it. Artificially lowering the price sends distorted signals to the consumer — much like holding a candle under your household thermostat and winding up freezing.

Corporate capitalism is built on subsidized inputs, and profitable in large part because of them. It achieved growth in the 20th century through the extensive addition of subsidized inputs, like subsidized fossil fuels and large tracts of cheap land previously preempted (stolen) by the state, rather than the intensive approach of using existing inputs more efficiently.

A basic law of economics is that when you subsidize an input, people tend to use more of it. And businesses will tend to substitute that artificially cheap input for other inputs. The distorted price system gives an artificial advantage to firms most heavily dependent on that input. For example, subsidies to long-distance shipping infrastructure tend to benefit the firms with the largest market areas and the largest-scale production facilities shipping their output the furthest distance. It makes them artificially competitive against smaller, more localized — and more efficient — forms of production. It creates artificial economies of scale at levels where they would otherwise have leveled off, leading to an economy of artificially large firms serving centralized markets.

At the same time, such responses to the availability of inputs at less than the cost of providing them means demand for them outstrips the government’s ability to provide them. The state exhausts its fiscal resources trying to keep up with demand, and when it reaches fiscal exhaustion, businesses most heavily reliant on the subsidized inputs hit the wall of resource depletion and spiking input prices.

So we see subsidies to superhighways and airports generating further demand for them, and the building of new local freeway systems to “relieve congestion” generating even more congestion, leading to a situation where the state is fiscally exhausted, demand outstrips supply, and the need for maintenance of existing highways and bridges is four times the revenue appropriated to fix them. And we see giant, inefficient agribusiness operations that are heavily dependent on water, using up the water till there’s no more.

The end result is that this model of state-subsidized capitalism has built-in crisis tendencies which will destroy it. That means a radical relocalization of manufacturing and agriculture, and a radical shortening of supply and distribution chains, and small producers that make efficient use of resources. The current model of corporate capitalism, allied with the state, far from being a natural or inevitable state of affairs, is a historical epoch with a beginning and an end. It’s digging its own grave.-by Kevin Carson at Center for a Stateless Society under Creative Commons