The Anti-Ecological Nature of Capitalism: Externality Theory Defined
Daniel
Faber
November 11, 2021

The race for ever higher profits is the life and death battle of every corporation in the capitalist marketplace. Without high profit margins, businesses in a capitalist system are not able to compete in their market, thus lapsing into financial crisis while being outpaced by more aggressive profiteers. As a result, these corporations will strive to maximize their profits by minimizing all unnecessary costs of production and distribution. For example, most pollution control devices and cleanup technologies mandated by environmental policy increase the cost of doing business. These become added fixed costs which decrease profit margin for the business. 

The upshot of this reality is that measures to protect the environment and public health are often considered to be more of a luxury, since corporations are reluctant to absorb the additional cost required to implement them. This is especially true when one considers the possible advantages enjoyed by overseas competitors with lower labor costs due to less stringent environmental regulations. Externality Theory is the theory that these externalities, or additional costs or benefits, get placed onto consumers and third parties because profit-driven businesses do not factor in these additional costs or benefits when pricing a good or service they are selling.

The economist Arthur Pigou originally developed externality theory in the 1920s. According to classical economic theory, in a supply-demand interaction, there are two parties: a producer who supplies a good or service, and a consumer who demands it. Externalities are burdens or benefits placed onto other parties (not the consumer or producer). This takes the place of those costs or benefits being internalized and the price of the good or service reflecting that internalization (through taxation, for example). Externality Theory relates to environmental justice in that pollution and negative environmental effects from corporations often spillover to other members of society not involved in the original producer-consumer transaction. 

Environmental Externalities

Without a strong system of state environmental regulation and enforcement, it is simply more profitable for corporations to pollute. Rather than spending money for expensive environmental protection technology, businesses seek to avoid these costs by directly releasing pollution into the environment. Instead of “internalizing” $10 million in costs for the installation of a “scrubber” (filter) on a smokestack at a coal-fired power plant, a corporation will “externalize” this expense onto society by directly releasing the pollutants unfiltered into the air. The consequential social losses (or “negative externalities”) are numerous — air pollution kills an estimated seven million people worldwide each year, and can cause long-term damage to human health, destruction or deterioration of property values, degradation of ecosystems, and loss of community.

Not all people are equally impacted by the corporate displacement of these costs onto society and nature. In order to bolster profits and competitiveness, corporations and state institutions embrace various strategies to purposely displace negative environmental burdens onto communities because they are simultaneously cost efficient and politically expedient. Most citizens rightly see the act of releasing carcinogens and other dangerous toxins into the air and water as an assault on those most fundamental human rights to live in a healthy and clean environment. Residents will seldom “choose” to see their family members or neighbors poisoned by industrial pollution, especially if they are aware of the dangers. In fact, the successful imposition of such public health dangers onto a community without their consent is indicative of a lack of that community’s political power. Once aware of the dangers, affected residents are likely to oppose the offending facility. Therefore, corporations take the path of least political resistance because it is a path to higher profits, regardless of the externalities. 

Corporations and state institutions embrace various strategies to purposely displace negative environmental burdens onto communities because they are simultaneously cost efficient and politically expedient.

Externalities are Dumped on those with the least Perceived Power

Following the path of least resistance often means burdening the most oppressed communities in society with the most ecologically hazardous industrial facilities, toxic waste sites, natural resource extraction, and destructive energy development schemes. The less political power a community possesses, the fewer resources (time, money, education) the people within have to defend themselves from potential threats, rendering them more likely to experience arduous environmental and human health problems at the hands of corporations and the government. The weight of the ecological burden upon any community is dependent upon the balance of power and level of struggle between business capital, the state, and social movements responding to the needs and demands of the populace. And in capitalist countries such as the United States, it is working-class neighborhoods and poor communities of color that most often experience the worst environmental problems.

Movements for environmental justice and climate justice are a response to the fact that not all people are polluted equally, or experience the impacts of climate change in the same manner. Susceptibility to experiencing environmental harm is deeply related to what sociologists call “social positionality”— where a person or group of people are situated in multiple power structures centered around class, gender, race, ethnicity, citizenship, and more. The various social positions or identities held in these power structures intersect to create different social axes of advantage and disadvantage. The Environmental Protection Agency (EPA) has even acknowledged that a working-class Black person typically encounters many more environmental disadvantages and exposure to pollution, further compounded by racism and sexism, than a white, upper-middle class individual. 

The various social positions or identities held in these power structures intersect to create different social axes of advantage and disadvantage.

In the United States, communities that lack control capacity — or the capacity of a community to exercise control or influence over what types of industries are placed in a community and how they operate — are often those that have been historically oppressed, as well as the white working-class. America’s undocumented immigrants, Chicano farmers, migrant farm workers, Indigenous people, and other dispossessed peoples of color are the ones being selectively victimized to the greatest extent by environmental health abuses. For those experiencing multiple forms of political domination, economic exploitation, and cultural oppression, climate change and environmental quality are literally life or death issues.

The result is the displacement of noxious industrial pollutants, toxic waste dumps, urban heat islands, and other ecologically hazardous facilities onto predominantly poor communities of color. Further, the corporate assault on labor rights is leading to more dangerous working conditions and occupational hazards for workers of color, including for Asian immigrants and undocumented Mexican workers laboring in the pesticide-soaked agricultural fields of California, Texas, and Florida. This concentration of environmental and occupational health hazards (or negative externalities) among poor people of color and working class whites is creating ecological sacrifice zones — areas where it is simply dangerous to breathe the air or take a drink of water. Time and again, negative environmental externalities have been dumped onto those with the least perceived power — be it economic, social, or political power.

Environmental externalities, that become embedded environmental injustices, are rooted in the profit motive and power structures that reinforce the pursuit of corporate profit, maintain social class advantages, and various forms of white privilege. Only by building coalitions that bring together oppressed communities, workers, and residents can we push for better regulation of externalities through our governments, put the heat on corporations through lawsuits and seek damages through the courts, expose bad practices through civil disobedience, and work together to establish expanded labor rights and greater democratic ownership of enterprises. We will need an “all of the above” strategy to help put the negative externality genie back where it belongs — embedded in the true cost of goods and services.

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