Friday, November 29, 2013

Are Corporations Evil?

Or are we neglecting our responsibility to make them account for externalities? Should corporations pay compensation to the people in proportion to the harmful side-effects caused by their actions?

When we carry out our responsibility as citizens, we will create rules that guide operation of businesses to ensure that what is profitable to industry is also what is good for society and the larger community of life.

We make corporations the villains because they do bad things. But the bad acts they commit are not expressions of intrinsic evil intent. They do things to meet the needs of their customers in the most profitable way.

It is our responsibility as citizens to create the rules governing society. If harmful acts are profitable, we need to change the law. We should not blame corporations for their profit-seeking behavior any more than we would blame consumers for seeking the lowest price when shopping. Both corporations and consumers are economic entities. Seeking profit and seeking low prices is what they do. The problem we need to address is our own failure to make harmful practices costly to corporations. When putting pollution or depleting resources brings a substantial financial penalty to producers, then prices for things that are more harmful to the environment will be higher. Consumers will try to avoid buying those things because they are already inclined to avoid things with high prices. Corporations will try to avoid causing harmful environmental impacts in an effort to reduce costs of production, and thereby increase profits. The most environmentally-damaging industries will shrink or go out of business.

If corporations (if economic actors generally) were required by law to pay substantial penalties any time that they put pollution or take natural resources in pursuit of profit, then they would change their behavior and do those things less, because doing them would no longer be so profitable. The penalty could be in the form of a fee or a requirement to buy from a limited number of permits sold at auction. The fee amount would be greater (or number of permits offered would be fewer) if more people polled in a random survey wanted industries to try harder to reduce environmental impacts. The role of corporations in society is to meet consumer demand in the way that they calculate as most profitable or least costly. The role of citizens is to create the rules that businesses must follow. Those rules must include efficient and fair means of limiting overall environmental impacts to levels that most people feel are acceptable.

When we see corporations as evildoers, we are less likely to see our own responsibility as citizens to create systems of governance that would require economic actors to account for externalities. Accounting for externalities will ensure that the cost of environmental impacts are reflected in prices for goods and services. If we assign fees to industries that extract carbon-laden material from the Earth, for example, in proportion to the amount of carbon it contains (and in relation to the amount of environmental damage caused by the extraction process), then fossil fuels will cost more. We will all get an effective signal (the higher price of fuel) that will tell us to burn less fuel. The industries that take carbon from the ground will shrink because they will not be able to sell as much fuel at the higher price. The threat to climate stability will be reduced. By adjusting the fees, we could achieve the rate of carbon extraction that at least 50% of citizens think is acceptable. (Random polls could reveal what most people want.)

We should recognize that corporations do not have any intrinsic desire to foul the air and water and deplete resources. They do these things only because we buy the products and services that they are able to provide by doing them. We have a responsibility as citizens to demand that corporations account for externalities. We must demand that industries pay some compensation to the people at large when they degrade the quality of that which we all own in common, or when they take natural resources in pursuit of profit. When we do this, industries will learn to meet market demand in ways that create less pollution or no pollution. They will shift to manufacturing processes that rely more on recycled materials and will reduce inputs of raw materials. We will all learn to not buy so much of that which is harmful to the environment. We only buy as much fossil fuel as we do today because it is deceptively cheap to do so. When environmental impacts are accounted for, prices will more honestly reflect true costs. We will make different decisions about how to live.

Why is there no connection drawn between the enormous environmental and climate stability challenges that we face on the one hand and the assault on human dignity and the serious threats to social stability and cohesion posed by extreme poverty and wealth disparity on the other hand? These two problems (environmental degradation and severe material deprivation) are related to our failure to share natural wealth equally. This failure points us back to the citizens' responsibility to create systems of governance that ensure that environmental impacts are accounted for AND that benefits of natural wealth are enjoyed by all.

The problem of financing the change to a sustainable society will be resolved when proceeds from pollution fees and from the sale of environmental impact permits are shared among all the world's people. With a natural wealth stipend going to all the people in the world, the money to finance the change will be in the people's hands. If we buy fuel, for example, we will be paying a higher price. We can use part of our natural wealth stipend to cover this cost. The corporations selling fuel may use this additional income to pay emissions fees. At the same time, higher fuel prices will encourage research and investment in carbon-neutral fuels. Higher fuel prices will cause some people to adjust their lifestyle to reduce their need for fuel. In fact, everyone will do this to some degree. For some, it will be easier to move to live closer to their work. Others may switch to public transit or invest in a fuel-efficient automobile. Each person will make the changes most suitable to their own situation. The fee mechanism (accounting for externalities generally) will ensure that everyone is alert to opportunities for how to reduce environmental impacts, but it will not create a need for a bureaucracy to tell people or corporations exactly how to do that.

Solutions to our problems can be found in our willing-ness as citizens to change the nature and character of government. Our government is an instrument through which we can fulfill our responsibilities to ensure an equal sharing of natural wealth and to define appro-priate limits to environmental impacts. The solution to our environmental problems is also the solution to our poverty and disparity problems: Charge fees to industries that pollute and extract resources; Give the fee proceeds to all the people, to each an equal amount. We will know that fees are set at the right amount when random surveys tell us that most people feel that overall rates of putting pollution and taking resources are not excessive. When we fulfill our role as citizens, we will live in the kind of world that we want to live in. We will have a truly democratic society.

A sustainable and just civilization requires that we use our moral sense

Systemic flaws are not reported

Equal sharing of Natural Resources promotes Justice and Sustainability


Anonymous said...

I found you in comments on Krulwich rainforest post @ NPR. Thank you for your reasoned discourse. Wishing you well, but I'm convinced after 60 years on this planet that humans are two-legged cockroaches. We're going to exterminate ourselves eventually; whether we'll leave sentient life behind is anyone's guess. Keep fighting the good fight, though.

Foppe said...

"Why is there no connection drawn between the enormous environmental challenges that we face on the one hand and the assault on human dignity and the serious threats to social stability and cohesion posed by extreme poverty and disparity of wealth on the other hand?"

There is, but differential access to political power, institutional barriers to political power, and (intellectual) corruption ensure nothing happens.

Furthermore, as you might have noted if you watched the police response to Occupy WS and its offshoots, those with institutional power are not at all unwilling to repress people, and to use violence in doing so. So your suggestion (via your chosen title, as well as some of your other statements, including your last sentence) that "it is our own fault" that we are ruled by corrupt kleptocrats only suggests to me that you are not particularly interested in real-world phenomena, and that you prefer instead to think and talk in (irrelevant) abstractions, which lead you to "exciting" conclusions such as "we deserve what we get" -- and so do the kleptocrats. Was your point really to provide 'intellectual' cover for their behavior, or is this accidental?

John Champagne said...

I think we deserve much better. (Your quote marks in the last paragraph wrongly imply that you are quoting what I have said.) We will have a much better world if and when we start making industries account for external costs. I went to Occupy Washington and, as with the Occupy group in my hometown, I noticed what I think is an unfortunate fixation on a narrative of corporation as villain. Many people who embrace this narrative seem impervious to the idea that, when it becomes costly to put pollution or deplete resources, industries will try to do those things less. With higher fees, those efforts will increase. There are real examples of this happening. This is not a mere abstraction. Unfortunately, these are fringe examples (sulfur emissions from power plants come to mind). We have not applied the principle of 'polluter pays' to the carbon extraction industry or to problems of deforestation, destruction of wildlife habitat and resource depletion/environmental degradation generally.

A change in the rules, to bring them into line with what basic moral principles require, will cause corporations to try to do what most people would recognize as the right thing (They would try every day to reduce pollution, depletion of resources and environmental impacts. If we set the right fees or issue the right number of permits for sale at auction, they will put the right amount of effort.) To point this out is NOT to condone repression of dissent or excuse current bad practices. I think that corporations know enough about the bad effects of externalities that they should be among those calling for their proper accounting. Perhaps I am mistaken about how much people really know about the topic. (Some industries would benefit when externalities are factored into the prices of goods and services.) But we as citizens must call for this accounting regardless of what corporations do.

Can you share a few links, if you are aware of any, to websites that point out the connection between externalities, environmental degradation, wealth disparity and poverty--and that offer solutions that resolve these problems?

Thanks for taking the time to share your thoughts.

Dan Pedersen said...

I share your concerns for the environment and the poor, but I disagree with some of your conclusions.

"We only buy as much fuel as we do today because it is deceptively cheap to do so."

Fuel is not cheap, it has become increasingly more expensive. Generally, we consume a lot of fuel because many of us need fuel to travel to work. Also, businesses need fuel to ship their products. This is why people still consume a lot of fuel even though it is expensive.

"When we fulfill our responsibility as citizens and demand accounting for externalities, they will learn to meet market demands without causing such large impacts on the environment."

Making new government laws and creating new taxes will not accomplish this. This demand can be made by not buying products from businesses that do things that the consumer does not agree with. As for monopolies making it difficult for people to make that decision, monopolies occur because of government subsidies and various regulations that favor some businesses over others. The banking community is one example, they have a monopoly over the creation of money, an act that would land anyone else in jail.

"Our government is an instrument through which we fulfill our responsibilities to ensure an equal sharing of natural wealth, and to define appropriate limits to environmental impacts."

This is not the role of government. The role of government is to protect freedoms, not intervention in the economy. There may be some precedence for dealing with pollution, as this interferes with the freedom of others.

"We will make different decisions about how to live. We must recognize that the solution to our problems can be found in our willingness as citizens to change the nature and character of government."

This I agree with. But government needs to be changed in the opposite direction to what you are suggesting. The character of government is already one that interferes in the market, doing more of this will only cause more problems.

John Champagne said...

I think we have different ideas about how to decide whether prices are at the right level. You seem to think that, if you would rather not have to pay so much for fuel, then the price is too high. I think that the price of things should reflect the costs, the full costs, of their production and use. In the case of fossil fuel, whose use results in change in the atmospheric concentration of carbon-dioxide, we may never know within our lifetimes the true costs of using the fuel, because climate instability will impose costs or burdens on future generations. We cannot have perfect knowledge of what these costs will be, even if we had perfect information about what impact on climate will result from a given amount of carbon emissions. Also, there are always opportunity costs associated with the use of limited resources. If we use fossil fuel today for a particular purpose, that will deny a potential user to use that amount at some point in the future. (In the case of fossil fuels extracted with today's hydro-fracking methods, there will be associated depletion of helium because we are destroying the geologic features that hold helium. These features cannot be repaired or replaced.)

We cannot ask future inhabitants what they will have to do to respond to induced climate instability. We cannot really know what the costs are of our use of fossil fuels. In a democratic society, an imperfect but perhaps appropriate proxy for determining what the full costs of carbon emissions are would be to ask current citizens to give an opinion as to how much release of carbon-dioxide (and methane) is an acceptable amount. I have not taken the random survey even locally, let alone globally, but my strong sense is that most people feel that we should be reducing our carbon emissions. Assuming a lack of willingness on the part of the people at large to see such vast quantities of carbon being put into the air (and, indirectly, into the oceans), there should, in principle, be a policy that brings reductions in carbon emissions. The fact that there is more carbon being put than what most people want suggests an imbalance between the supply of the capacity of the atmosphere to absorb carbon and the demand on that capacity that results from our use of fossil fuel. Prices are set at the right amount when there is a balance between supply and demand. (Fees on emissions will dampen our demand for fossil fuels, to bring actual conditions, in terms of our demand on the atmosphere to act as a repository for our unwanted carbon, into line with what the people want. The underlying assumption is that the amount of carbon going into the air is a public policy question and should reflect the will or average opinion of the people.)

The question of whether the price is at the appropriate amount depends on there being a balance between the supply or capacity of the atmosphere to receive carbon and our demand that the atmosphere do so. I don't think there is a balance; rather, there is an imbalance tilted strongly toward excess emissions.

We will have a less-pressing concern about high fuel prices as we develop efficiencies and change our living patterns so that we, for example, live closer to our workplaces (or work closer to our home) or switch to reliance on public transit or eat lower on the food chain. As we make those transitions and others, we will spend a smaller, perhaps a much smaller, portion of our earnings on fuel-related expenses.

Whatever government involvement in markets that exists today, I would tend to agree with you that government should not be involved--except to the extent necessary to account for externalities (such as in the case described above).

Thanks for sharing your thoughts.

Dan Pedersen said...

In response to your reply from July 9, 2014.

Interesting thoughts, John. Yes, I agree, we do have different ideas about the subject of prices. My point about prices is in regard to what people are willing to pay, nominally, for a product or service and that such prices should be determined by the market, and that government interference distorts whatever prices the market would otherwise determine.

I understand your point about pollution and its cost to the environment, our health and to future generations. I agree we cannot put a price tag on this and there is some precedence for the community to deal with this in an organized way. I'm still not sure what the best way would be, but I do know that government intervention in the economy has historically made matters worse instead of better.

I would also add that I'm not sold on the issue of global warming/climate change and the alleged impact that carbon emissions may have on the environment. I'm not saying that it's not true, but I am saying that I'm not convinced. I won't get into the reasons here, but I will say that Lawrence Solomon's book 'The Deniers' is a compelling reason to question it. I am however concerned about pollution in general.

Thanks for your response.