DeFi and degrowth: or how not to fix capitalism


Capitalism is broken and must be replaced. This is an increasingly common view among younger generations, whose future prospects have been clouded by financial crises, disease and war. But some alternative utopian narratives gaining traction in the wake of Covid-19 risk forgetting some of its most basic lessons – with potentially dystopian results.

At one extreme is the philosophy of degrowth. Fear of climate catastrophe along with signs that critical infrastructure is already collapsing under record temperatures have galvanized calls to curb economic growth and consumer habits to cut carbon dioxide emissions faster.

The impact of Covid lockdowns on shows in 2020 has given this 1970s movement renewed relevance. In Spain, where a 2016 poll found 37% of people would rather ignore or stop growth to help the environment, a member of the ruling coalition recently backed degrowth as a policy. In France, a former ecology minister called it last year “the only real alternative”.

In stark contrast is the libertarian ideology behind cryptocurrencies and decentralized finance (DeFi). Inspired by the financial crisis of 15 years ago, it rejects centralized authorities such as banking systems and governments as obstacles to wealth and prosperity, promoting instead an ideal world of semi-anonymous networks that would not need trusted third parties.

Covid fueled this doom-laden “cypherpunk” narrative, warning frustrated and locked-in traders that they ran out of time to flee hyperinflation and elite economic mismanagement. The results have been visibly toxic – from hacks and fraud to wasted energy and misguided speculation – but evangelists continue to promise future rewards to those who keep the faith.

Degrowth and DeFi are different movements with different histories, but they are increasingly becoming identifiable as the new economic rebellions of our time, as Venezuelan-British economist Carlota Perez puts it. “Decrescents want to get rid of capitalists, and crypto fans want to get rid of the state,” she told French magazine L’Express in June, calling instead for a redistribution of economic and technological gains to reduce inequalities.

Perez scores a point. Decreases are right to attack unsustainable consumption habits and slow emissions reductions. But they minimize the ability of investment and innovation to do more with less, for example by increasing the lifespan of goods while reducing their carbon footprint. Government policy and subsidies are essential for decarbonization, but a total command system is no panacea: the silver lining of the pandemic was not the sight of societies shutting down, but the public-private development of mRNA vaccines.

The other problem is political. If most governments are in no hurry to propose degrowth as a policy to voters, it is partly because it is difficult to see how a State deprived of growth and resources could ensure its distribution. Witness the angry reaction of several countries, including Spain, to the European Commission’s request for a 15% reduction in gas consumption across the European Union, considered an unfair request that the Southern European companies shrink a little to help Germany avoid shrinking a lot. Social cohesion matters.

When it comes to crypto and DeFi, while there is some truth to the perception that the financial system is plagued by personal transactions and inefficiencies, eliminating guardrails and central authority is surely a a recipe for even more ruinous inequalities. The seesaw volatility in crypto has compounded, but not limited to, the effects of inflation; Bitcoin adoption has so far left El Salvador even less in control of its financial future. Without a welfare state to protect workers during Covid, society would have fallen into a Hobbesian free-for-all.

Just as Descenders ignore the natural urge for status and advancement, DeFiers ignore the natural urge of bad actors to exploit unregulated systems. Allegations of insider trading against former employees of the OpenSea NFT market and the Coinbase exchange, as well as the heartbreaking accounts of those who lost money depositing funds at Celsius, show how much the gains of crypto are asymmetric.

Imperfect utopias aren’t just a millennial/Gen-Z thing. The end of the Cold War was marked by faith in the “end of the story” of free markets, while the Davos-wide commitment to “stakeholder capitalism” was humiliated by greenwashing ESG.

Better counter-narratives can be found in economist Alessio Terzi’s book “Growth For Good”, which calls for an energy transition that does not reject growth but involves more government support, international coordination and social cohesion to ensure that no one is left behind. “The only way for this climate transition to be achievable is for all of society to be on board,” he says.

Or, as Brazilian video game developer Mark Venturelli recently put it, the solution to financial inequality shouldn’t be to waste country-sized amounts of energy trying to circumvent trusted intermediaries, but rather to find more trustworthy and human-centric intermediaries. Central bank-issued digital currencies could offer such benefits, as economist Eswar Prasad has pointed out.

It may not amount to a satisfying brick through the proverbial window, but it is reminiscent of a description of Perez’s worldview as “the economy of hope.” And if there’s one thing young people have in greater numbers than their elders, it’s optimism.

More other writers at Bloomberg Opinion:

Lights out for Crypto’s laser-eyed crooks: Lionel Laurent

Crypto loves its shadow banks: Matt Levine

Four ancient truths to help you lead a modern life: Andreas Kluth

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Lionel Laurent is a Bloomberg Opinion columnist covering digital currencies, the European Union and France. Previously, he was a reporter for Reuters and Forbes.

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