Sacred Economics 2: Externalities

Sacred Economics picMoving into the solutions aspect of Sacred Economics, one step Eisenstein suggests for a more sustainable economy is to eliminate externalities from the equation. Externalities are costs of production that someone else pays. Usually we the people. One of the most common examples of an externality is pollution. Here in the U.S. we are importing a lot of really cheap clothes from overseas. The cost of these clothes does not include the pollution emitted by the factories producing these clothes under much looser air and water standards than exist in the United States. But wind will blow, and the pollution isn’t confined to China and Bangladesh, and we all wind up paying those costs (including the people in China and Bangladesh).

When Wal-Mart moves into a town and everyone goes there to shop because they have cheaper everything, the mom-and-pop stores that close are externalities. When the Wal-Mart employees sign up for food stamps and Medicaid because they have part-time jobs that don’t support them (perhaps they used to work at the True Value Hardware in town), that’s an externality. The loss of a vibrant main street because both the True Value Hardware and the Coast-to-Coast have closed is an externality.

water pollutionBut the environment is the biggest externality: our polluted oceans, removed mountaintops, declining water tables, eroded topsoil, and climate change in general. (Some would disagree and say the biggest externality is our health and I could not argue that, though I would certainly appreciate the discussion.)

There are some companies out there who are concerned about these issues as well, and they have enacted a “triple bottom line” (aka “full-cost accounting”). They address three bottom lines: people, planet, profit. This makes good sense: If there are no more people, or if the planet implodes, there will be no profits anyway. But still, most companies focus only on profits—short-term profits—regardless of long-term impact.

Eisenstein suggests:

[W]hen the costs of pollution are internalized, the best business decision comes into alignment with the best environmental decision. Suppose you are an inventor and you come up with a great idea for a factory to cut pollution by 90 percent with no loss of productivity. Today, that factory has no incentive to implement your idea because it doesn’t pay the costs of that pollution. If, however, the cost of pollution were internalized, your invention would be a hot item. A whole new set of economic incentives emerges from the internalization of costs.

I like it. I’m tired of living in a world where everything has a price and everything can be exploited.

Valuing the forest as a forest, the oil left in the ground, the sand left to be a water filter instead of fracking material: Yes, I will pay more for that.


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