Externalities

Sept2016ExternalitiesI did just one university course in economics and learning about externalities was pretty much my favourite thing. Suddenly it explained a bunch of things that are wrong with how consumerism works. I still see externalities behind a number of environmental, business and humanitarian issues. In fact globalisation and our use of digital make things worse rather than better.

A quick definition; an externality is a consequence of an economic activity experienced by someone else. The consequence could be positive or negative.

The most common example of a positive externality is the beekeeper who benefits from the neighbouring orchard. Since both parties need each other this seems closer to a symbiosis in biological terms but for the economists it counts as a positive externality.

A common example of negative externality is rubbish; in the above picture the rubbish has a negative impact on the environment, on any business relying on the environment. However the neither the producer of the containers, the restaurant packaging it’s food, nor the consumer making the purchase and dumping the packaging take responsibility for disposing of the rubbish and the cost of clearing it will probably fall to a government entity.

We, as a society, try to limit externalities by putting rules in place to limit the effect, and by providing services – well placed rubbish bins on a beach for example. All of which is funded by taxpayers. This more or less works on a local level.

Globalisation

On a global level it doesn’t work out so well.

My mobile phone was probably manufactured in China and used components or elements extracted in a dozen other countries. Some research indicates that up to 50% of the pollution from a phone production occurs at the first step. There’s a long and complicated chain of manufacture but I’m pretty sure zero eurocent of the amount I paid for the phone made its way back to the mines in the Democratic Republic of Congo where coltan.  (Oh wait, I paid nothing for my phone.)

Digital World

Our digital world is creating brand new externalities we haven’t thought about.

Yep, the Pokemon craze is laden with externalities, that’s why museums, locations, city councils, traffic controllershealthcare officials and governments are making a fuss.

In the Netherlands one tiny town, Kijkduin, has been somewhat over-run by Pokemon players, they’re trying to get Niantic to change the game to reduce the number of Pokemon in the town, they’ve found the numbers overwhelming, and there’s a risk to a neighbouring nature area. The town has already put up more toilets and rubbish bins to cope with the crowds. The cost of that is an externality. It’s a cost the small town is paying for the consequences of Niantic’s popular game.

If I were organising events in the town with such a large attendance I’d need a permit, there’d be a fee, and I’d be the one paying for security and clean up.

So when globalisation and digital collide the potential externalities grow, and right now we don’t seem to have a good way of handling them.
Image: Pollution 2  |  Kim Etherington  |  CC BY-NC-ND 2.0

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One thought on “Externalities

  1. Pingback: Digital Dispatch 7 – Fantail Consultancy

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