Externalities and social goods

Thursday, June 26, 2014

I’ve been so busy recently - reading, writing, moving the studio - that I haven’t had chance to blog. But I have lots of ideas for things I want to blog about! So I have reminded myself that I don’t need to write the perfect blog post about each one. I figure that it’s better to capture the idea, even if it’s somewhat half-baked, than not at all. 

Therefore - here we go with one topic that was sparked by a paper I read for the research project I’m working on, Design Routes.

The topic is the not-particularly-exciting-sounding question of ‘externalities’. Externalities are a concept in economics, which I have heard discussed in terms of sustainability.

Simply speaking (and blatantly borrowing from Wikipedia), externalities are costs that affect a party who did not choose to incur that cost. So, for example, if an industry produces air pollution, which negatively affects the environment (and other people), and the cost of that pollution is not included in the price of the products the industry produces - then that cost is an externality. 

This is a big problem in sustainability terms, because it means that the price we pay for goods does not reflect their true cost in environmental and social terms - and so the economic system we live within encourages us to produce and consume at rates which are literally unsustainable.

(Of course, this whole concept is rather narrow-minded, in that it assumes that you can put a price on everything - and suggests that negative impacts are ok, as long as they are costed in. But that’s a problem of economics in general, rather than externalities specifically, I think. I certainly don’t want to see the world through the prism of the market, but I think you can borrow the idea to think about costs in broader, non-quantified terms - such as human costs, social costs, and environmental costs. That would probably (hopefully?!) horrify an economist, but it works for me.)

The other day I came across a paper by Jeff Dayton-Johnson (download it here) about an economic framework for ‘cultural products’ - such as, in the case of our project, designs and products which are associated with particular places, and traditional craft processes. He argues that these cultural products contribute to ‘social goods’ - things which benefit society, like social cohesion and a sense of identity. Thus, the benefits are felt by third parties, external to the organisations and businesses which are producing the cultural products themselves. 

Reading this, I suddenly realised that externalities can be positive, as well as negative. (Of course, when I read the Wikipedia page, this was pointed out right away. But it was a revelation to me!)

The paper describes four different types of positive externality associated with cultural products. I particularly like the idea of ‘intergenerational externalities’, in which actions today contribute to a ‘dense and diversified cultural base’ which encourages and enables action in the future - it relates strongly to my idea of the fashion commons.

However, the producers of these cultural products don’t receive payment for the wider benefits they create, or at least contribute to. This is a problem because - to refer to trusty Wikipedia again: ‘if there are external benefits … less of the good may be produced than would be the case if the producer were to receive payment for the external benefits to others’. 

I’m certainly not arguing that we should try to quantify social goods - or that craft makers should somehow receive a payment in exchange for their contribution to, say, social cohesion - but I do think that this idea of positive externalities is a useful one in arguing for the importance and value of place-related products and traditional craft processes, beyond the price on the tag.