Externalities

Powerful US corporations socialize the costs of doing business and privatize the profits. In economic speak, this socialization of costs is described as an externality. If such things as exploitation of labor, income inequality, and environmental destruction were forced to be internalized by these corporations, the costs would be prohibitively high and they would not be so incredibly profitable and able to pay their executives sky high salaries and bonuses. Stock valuations would not be in the stratosphere.

That these powerful elites and the corporations they own are allowed to externalize their costs on to society and the environment says a lot about the power structure in the US. I’ve said this before but it bears repeating. Political-economy offers the best way to understand our milieu and political-economy at the most basic is–who gets what, and who bears the costs.

John Michael Greer is a wonderful writer and a joy to read. His topics, however, are not for the squeamish. He writes quite compellingly about the end of the industrial world and how society can go forward at a much reduced state. As such, he’s an apostate to the ultimate religion in the US–technological progress. In that process he’s also a trenchant critic of our present economic activity. Here, he describes how externalities, or the shifting of costs, is actually the basis of our modern technological world that we take for granted.

“Economic life in the industrial world these days can be described, without too much inaccuracy, as an arrangement set up to allow a privileged minority to externalize nearly all their costs onto the rest of society while pocketing as much as possible the benefits themselves.”

  1. a) Every increase in technological complexity tends also to increase the opportunities for externalizing the costs of economic activity;
  1. b) Market forces make the externalization of costs mandatory rather than optional, since economic actors that fail to externalize costs will tend to be outcompeted by those that do;
  1. c) In a market economy, as all economic actors attempt to externalize as many costs as possible, externalized costs will tend to be passed on preferentially and progressively to whole systems such as the economy, society, and the biosphere, which provide necessary support for economic activity but have no voice in economic decisions;
  1. d) Given unlimited increases in technological complexity, there is no necessary limit to the loading of externalized costs onto whole systems short of systemic collapse;
  1. e) Unlimited increases in technological complexity in a market economy thus necessarily lead to the progressive degradation of the whole systems that support economic activity;
  1. f) Technological progress in a market economy  is therefore self-terminating, and ends in collapse”

If you stop for a moment and look around there are glimpses of this collapse. Global warming is the ultimate manifestation of externalities run amuck and the potential for catastrophic upheaval is quite real.

Nevertheless, it’s quite illuminating to watch conservatives and libertarians, who worship private property, attempt to grapple with the implications of this externality.

Environmental writer George Monbiot well describes the libertarian dilemma:

“So here we have a simple and coherent explanation of why libertarianism is so often associated with climate change denial and the playing down or dismissal of other environmental issues. It would be impossible for the owner of a power station, steel plant, quarry, farm or any large enterprise to obtain consent for all the trespasses he commits against other people’s property – including their bodies.

“This is the point at which libertarianism smacks into the wall of gritty reality and crumples like a Coke can. Any honest and thorough application of this philosophy would run counter to its aim: which is to allow the owners of capital to expand their interests without taxation, regulation or recognition of the rights of other people. Libertarianism becomes self-defeating as soon as it recognises the existence of environmental issues. So they must be denied.

Denial seems to be winning the day. While the US fails to address global warming or environmental devastation, the Obama administration is pushing the Trans-Pacific-Partnership (TPP), free trade pact, codifying multi-national corporations ability to externalize costs onto others. The TPP allows corporations to sue countries for costs they must bear if environmental regulations impinge on their bottom line.

I’m not kidding. In fact, externalizing costs seems to be a large component of free trade pacts  negotiated by the US. It wasn’t just labor costs, but also the ability to evade US environmental regulations, that sent US corporations to Mexico then China.

Here’s John Michael Greer with the last word on where this obsession with externalizing costs will lead to.

“…you can see the chasm opening up under the foundations of industrial society. Externalized costs don’t just go away; one way or another, they’re going to be paid, and costs that don’t appear on a company’s balance sheet still affect the economy. That’s the argument of The Limits to Growth, still the most accurate(and thus inevitably the most reviled) of the studies that tried unavailingly to turn industrial society away from its suicidal path: on a finite planet, once an inflection point is passed, the costs of economic growth rise faster than growth does, and sooner or later force the global economy to its knees.”

 

 

 

 

 

 

 

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