Capitalism & Climate Change – Part II: The Externality Problem

By Alyssa Rohricht - June 4, 2014

A discussion of the capitalist economic system would not be complete without an examination of the issue of externalities incurred within it. An externality is a cost or benefit that is thrust upon a group that did not choose or cause it. Externalities are a natural byproduct of a capitalist, free market system and are a major factor when considering the causes of global climate change. These externalities would include such things as industrial manufacturing causing extreme air pollution, which effects human and non-human life, water pollution caused by the runoff of chemicals in industrial farming practices, massive over-fishing that depletes the fish stock for small communities and individual families, a high unemployment rate and extreme income disparities, and so on.

In capitalism’s incessant need for growth (an issue I examined in Part I: The Growth Problem), new technologies are constantly developed to expand production and reduce costs, and so long as costs can be externalized on nature and society, capitalism reaps the benefits.

Within the free market system of capitalism, regulations and controls are minimal, allowing the true costs of industrialization or large-scale farming, fishing, and production to be written off as externalities. The producer thus incurs the benefits, while the costs are incurred in other areas, including the environment. With capitalism’s pure focus on accumulation of capital, there is an incentive to externalize at all costs possible, be that through using outdated but “cheaper” technologies that emit high levels of pollution, or through the exploitation of cheap labor.

By externalizing these costs, corporations can focus only on their own bottom line, and thus will engage in more of these harmful activities than they otherwise would, if forced to pay the full costs effecting “common property” like air, water, and land. What’s more, many of the agents that are incurring these costs have no voice with which to protest, resulting in the loss of critical habitats, the breakdown of vital ecosystems, and massive species extinction at a rate not seen since the dinosaurs died off 65 million years ago (a rate 1,000 times higher than the natural rate of extinction due to the human effect on the natural world).

The effect on human populations is obvious when one looks at the developing world, mostly in the global south, which is often forced to bear the externalities of the capitalist system for the benefit of first-world nations in the global north. Capitalism drives corporations to lower costs and increase profits, even at the great detriment to the environment and to the labor force. With little or no labor or environmental laws, corporations outsource labor and pollution to the most impoverished areas of the world. This has led to such things as the clear cutting and slash and burn-style agricultural practices of capitalist corporations working in the rainforests of Africa, Asia, and South America, where the palm oil industry, for example, destroys vital ecosystems in one area in order to benefit consumers in the developed world.

Pollution is also an externalized cost that is mostly heaped onto developing countries for the benefit of the “Global North” – mainly North America and Europe. Many corporations setup shop in countries like Bangladesh, Indonesia, China, and India, where labor is cheap and plentiful, and environmental laws are negligent. Thus, corporations can spend less money on labor and sustainable environmental practices, yet more goods can be produced and thus, more capital can be made. An estimated 70% of China’s rivers are contaminated by toxic chemicals and almost half are unfit for human consumption. Yet even though the hormone-disrupting substances such as alkylphenols and perfluorinated chemicals are banned in the US and Europe, US-based corporations such as Adidas, Nike, Puma, Calvin Klein, Abercrombie and Fitch, and Lacoste have found their way around this ban by simply setting up shop abroad. China’s lax environmental laws provide the perfect outlet for capitalism to expand its production cheaply and efficiently – with the most dire costs thrust upon the people of China and the environment.

This system of boosting the bottom line through environmental destruction and exploitation of labor is a natural step of a capitalist economy that is left unchecked by government oversight, since the primary focus is continued growth and production. Scientist Fred Magdoff and sociologist John Bellamy Foster write in their book What Every Environmentalist Needs to Know About Capitalism,

“Although capitalism’s champions claim that the egoism that drives the system makes it maximally efficient and eminently fair, this is manifestly untrue…Inevitably, many unintended consequences occur in the production and distribution of goods and services. Mainstream economists call these “externalities”; to them, they are side effects of an otherwise rational and socially benign system.”

If such things as exploitation of labor, income inequality, and environmental destruction were forced to be internalized by corporations, the costs would be prohibitively high. Coal, for example, which is considered by many to be a ‘cheap’ source of energy, would be not be worthwhile to attain if all of the externalities associated with it were internalized by the corporations. Extraction of coal through mountaintop removal has massive environmental effects that are far-reaching. Toxification of watersheds, ecosystem breakdown, loss of biodiversity, airborne toxins and dust are estimated to cost in the tens of billions alone. Add to that the adverse health effects, including 50% higher cancer rates and 42% higher birth defect rates in places like Appalachia where mountaintop removal is common, and the costs total somewhere around $75 billion per year for public health costs. And in terms of labor, black lung disease still kills hundreds of miners each year and has killed over 76,000 miners since 1968. The full extent of the costs are impossible to quantify: air pollution, water pollution, breakdown of bionetworks, further stress on endangered species, loss of forest cover, mercury contamination, higher pH in streams, cancer, birth defects, disease, and of course, when the coal is finally burned as fuel, the release of more carbon dioxide and methane into the atmosphere.

What’s worse, the very essence of the climate change problem is such that the causes of climate change are dispersed temporally and geographically in ways that are impossible to map. Similarly, the issue of fragmentation of agency further complicates the issue – since the specific effects of climate change cannot be linked back to a particular person or institution, given that almost everyone contributes to climate change to some degree. It is impossible, then, to pinpoint exactly where one unit of carbon emissions led to the extinction of some species, for example, and thus impossible to judge and internalize the true “cost” of carbon in a strict economic sense. So long as other costs can be written off and externalized, the system of the free market and the capitalist economy see no reason to consider environmental damage an important issue. The system functions solely to grow the economy and accumulate capital. Once more, the natural systems of the earth cry out, only to fall on the deaf ears of the machine of capitalism.