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How Big Business Robs Us With “Externalities“

Profiting off of externalities is at the core the business model for many corporations in America and across the globe, and corporations are profiting off of them big time.

Odds are you’ve never heard the phrase “negative externalities.” Corporations and their boards know all about them, but most Americans don’t understand even the concept.

A negative externality is a cost born by all of us that was produced by a private entity and then dumped on us – externalized from that business to us. Externalities reduce the costs of business for corporations, which in turn increase their profits, while the tab is picked up by you and me, the taxpayer, the worker, and/or the citizen.

For example, air pollution is usually a negative externality.

Air pollution from the burning of fossil fuels causes damage to public health, crops, and the overall environment. But do the oil or coal or natural gas companies pay for these costs? No, of course not – they externalize them to us. You and I are forced to play for the cleanup of this pollution and the damage and cancers that it causes, while the corporations that pump it out increase their profits because we’re picking up the bill for the externality of pollution.

Other examples of negative externalities include things like noise pollution, water pollution, and the over-harvesting of fish. All of these are byproducts of corporations doing business, are harmful and expensive to the rest of society, and are usually externalized by corporations so you and I pay the cost and the corporation keeps the profits.

Profiting off of externalities is at the core the business model for many corporations in America and across the globe, and corporations are profiting off of them big time.

According to a report by the TEEB for Business Coalition, the top 100 global environmental externalities are costing the global economy about $4.7 trillion a year. This includes the economic costs of greenhouse gas emissions, loss of natural resources, loss of nature-based services such as carbon storage by forests, climate change, and air pollution-related health costs.

And, the primary production and processing sectors analyzed in the report, like the oil production and food processing industries, are estimated to have externality expenses that you and I pay for totaling $7.3 trillion, which is equal to roughly 13% of the global economic output in 2009.

Now you understand why industrial giants like the Koch Brothers and others are so enthusiastic to fund Libertarian think-tanks that talk about “less government regulation” – they want to make sure they can continue to externalize their costs to you and me.

And they’ve been incredibly successful, particularly since Reagan began slowing down and rolling back work Nixon put into place with agencies like the EPA.

You and I and working people around the world are paying these trillion-dollar price tags, while those responsible for them, the giant corporations of the world, and are continuing to rake in record profits. As long as there’s no or little cost to them, because you and I and the environment are paying the bill, the more they pump out devastating environmental externalities, the more profits they make.

This lack of defining, valuing, and charging for corporate externalities makes it more expensive for all of us in society, and more profitable for a very small group of corporations and their billionaire owners.

This isn’t how markets should work.

Corporations shouldn’t be allowed to pollute our environment and cause public health problems and then just pass the buck to the taxpayers.

Of course, don’t tell that to the world’s corporate elite.

At the core of the Libertarian message is the idea that corporations shouldn’t have to pay for the externalities that they create.

When Libertarians talk about deregulation, they’re really saying, “Let us keep dumping externalities on society, you pick up the tab for all costs, and don’t ask us to stop, pay, or even help out with the cleanup.”

But again, that is not how markets should function.

If corporations were forced to pay for the externalities that they create, we’d see a truer and more balanced marketplace.

And, more importantly, we’d almost certainly see less damage done to our environment and society on a daily basis.

If the Exxon’s and the BPs and Koch Industries of the world were forced to pay for the emissions that they put out, through something like carbon tax and pollution taxes, they would have more of an incentive not to pollute the environment, because as we all know, the biggest fear of any corporation is increasing costs.

It’s time to stop letting corporations openly pollute our air, damage our ecosystems, and destroy our environment, while you and I are forced to pick up the bill and deal with the asthmas and cancers.

Several nations across Europe have successfully put a price tag on externalities, including carbon, and handed corporations the bill. Even China is discussing a carbon tax, both to discourage pollution and to promote the use of renewable energies. It’s time America did the same thing.

We need to aggressively identify these corporate externalities, both what they are and what they cost, and finally hold corporate America responsible for the tab they’ve been letting the rest of us – and nature itself – pick up.