Externalities involve ethical choices. The mechanisms that allow corporate actors to distance themselves from responsibility from their anti-social and anti-environmental choices are described – for example the role of corporate personhood and evasions of regulation, taxation and control. NGOs and Civil Society Organisations have evolved to counter unethical corporate choices. Unfortunately they are often co-opted and neutralised.
Externalities as ethical choices in a globalised world
There is a great irony that Adam Smith, a professor of Moral Philosophy, should become the apostle of an economic order that degraded people’s inclination to take moral decisions in their economic arrangements. Further, an economic order which has helped “externalities” to multiply until the point where we have a veritable social and ecological crisis. Loving your neighbour is a fine and practical ethical principle but almost all of the products that we use are not produced by our neighbours at all, but by people elsewhere in other countries and, to an increasing extent, on the other side of the world.
Distance matters – the greater the geographical and institutional distance between decisions and the people bearing the consequences of those decisions, the more difficult it is for the decision-maker to know about these consequences, good or bad. In addition, the more difficult it is for a person suffering the consequence of decisions to know who the decision-maker was and their motives. Distance erodes feedback, accountability and responsibility.
As a Professor of Moral Philosophy, Adam Smith wrote not only the Wealth of Nations but a book called The Theory of Moral Sentiments. In the latter he argued that human morality is based in the capacity of human beings to conceive what they would feel if they “were in other people’s shoes” in conditions of happiness or misfortune.
As we have no immediate experience of what other men feel, we can form no idea of the manner in which they are affected, but by conceiving what we ourselves should feel in the like situation. Though our brother is on the rack, as long as we ourselves are at our ease, our senses will never inform us of what he suffers. They never did, and never can, carry us beyond our own person, and it is by the imagination only that we can form any conception of what are his sensations. Neither can that faculty help us to this any other way, than by representing to us what would be our own, if we were in his case. It is the impressions of our own senses only, not those of his, which our imaginations copy. By the imagination, we place ourselves in his situation. (Smith A., The Theory of Moral Sentiments, Chapter 1, 1759)
What we can say is that our imaginative capacity to mirror the feelings of others depends, according to Smith, on the vividness of our observation. This involves either seeing the fortunes or misfortunes that effect people first hand or through the vividness and detail of a description. It follows from this that our ethical sense is most finely tuned to the love and care we feel for people that we know very well, or, if not, those people for whom we take a detailed interest and about whom we have much information. These are people to whom we are “close” where the word has a rather literal meaning. We are “in touch” with these people and what Smith says makes sense for our relations with people like this.
It also follows from this that, for Smith, our moral sense, rooted in a sympathy for the people and places that we are familiar with, can only extend so far:
The administration of the great system of the universe… the care of the universal happiness of all rational and sensible beings, is the business of God and not of man. To man is allotted a much humbler department, but one much more suitable to the weakness of his powers, and to the narrowness of his comprehension: the care of his own happiness, of that of his family, his friends, his country… (Smith A., The Theory of Moral Sentiments, 1759)
But Smith’s idea here throws up the question of how morality operates in a globalised economy or even whether it is possible in such a world. The scholastic economists had said that we give to those we love and we exchange with strangers. But strangers are those with whom we have no immediate sympathy arising in closeness, in familiarity and vivid personal experience of their world. We cannot so easily conceive of how strangers will feel, nor with the experiences that might affect them. Indeed, when we go into a shop we buy products almost entirely made by strangers we will never meet. We have no idea who they are nor under what conditions they worked to deliver the product to us.
Clearly, if we are producing goods for ourselves we are likely to be a little bit careful about the use of toxins in the production process. It is a similar case when we produce for loved ones or for local customers we have got to know and who buy from us every week. But does it apply in the same way to strangers on the other side of the world though? Strangers who may buy from us only once? The ethical issues are actually the same, but the emotional sense of loyalty to loved ones, friends and people we know, compared to unknown people far away, do not feel the same. Nor are the structures of accountability the same. Prior to the financial crash of 2007, many financial securities that Wall Street “insiders” knew to be worthless and described using words like “toxic waste” were sold to pension funds on other continents. Did they care? These were anonymous people on the other side of the world.
Clearly, if Smith was right then a global economy is highly vulnerable. Only at a local level are people’s sympathies likely to be strong enough, and loyalties powerful enough, to maintain ethically healthy economic relationships where economic actors actually buy into regulation.
It is important to make this argument because “externalities” are ethical choices. When a company pumps its toxic waste into a river, that is not just an economic act it is an ethical choice by its managers and/or its owners.
Ethical disconnection – the role of corporate “personhood”
To make (un)ethical choices easier, economic history has been full of processes and institutional arrangements constructed to allow the people making the production and supply decisions to distance themselves spatially and institutionally from their ethical responsibility to a wider society and to a clean environment. In the nineteenth century, the creation of limited liability companies and the development of corporations enabled responsibility for debts to be transferred to “corporate persons” and away from individuals who put their money into these companies.
It was not always so. For example, after freeing itself from British colonialism and for the first half of the 19th century, US states kept a close control on business corporations. In a book by Thomas Hartmann we learn how in most US states during this period corporations were required to have a clear purpose, to be fulfilled but not exceeded.
• Corporations’ licenses to do business were revocable by the state legislature if they exceeded or did not fulfil their chartered purpose(s) or misbehaved.
• The act of incorporation did not relieve corporate management or stockholders/owners of responsibility or liability for corporate acts. Corporation officers, directors, or agents couldn’t break the law and avoid punishment by claiming they were “just doing their job” when committing crimes but instead could be held criminally liable for violating the law.
• State (not federal) courts heard cases where corporations or their agents were accused of breaking the law or harming the public.
• Corporation charters were granted for a specific period of time, such as twenty or thirty years (instead of being granted “in perpetuity,” as is now the practice).
• Corporations’ real estate holdings were limited to what was necessary to carry out their specific purpose(s).
• Corporations were prohibited from making any political and other kinds of contributions, direct or indirect.
All corporation records and documents were open to the legislature or the state attorney general. (Hartman, 2010)
But in 1886, after a series of cases brought by lawyers representing the expanding railroad interests, the Supreme Court ruled that corporations were “persons” and entitled to the same rights granted to people under the Bill of Rights. Since this ruling, America has lost the legal structures that enabled people to control corporate behaviour.
From this time onwards, “ethical responsibility” has been set up in an institutional and legal structure that made the companies accountable to the owners only. The companies, the supposed “corporate persons”, have a fiduciary duty to make maximum profits. Unlike real human beings, who act from a range of motives including the empathy and sympathy of which Adam Smith wrote, corporations are supposed to be exclusively self-interested. This means that they are effectively supposed to rob the commons if it is legal to do so. As investor Robert Monks put it very eloquently in the film “The Corporation”:
The great problem of having corporate citizens is that they aren’t like the rest of us. As Baron Thurlow in England is supposed to have said, “They have no soul to save, and they have no body to incarcerate”… the corporation is an externalizing machine, in the same way that a shark is a killing machine. (Achbar and Abbott, 2004)
To whom do these companies owe loyalty? What does loyalty mean? Well, it turns out that that was a rather naive concept anyway as corporations always owed obligation to themselves to get large and to get profitable. In doing this, it tends to be more profitable to the extent that it can make other people pay the bills for its impact on society. There’s a terrible word that economists use for this called “externalities”.
People who are subjected to military training are subjected to various psychological management techniques to make killing easier for them. For example a firing squad puts a blindfold over the eyes of the person to be shot – not only for the sake of the victim, but for the sake of the soldiers doing the shooting. In addition one or more rifles may be loaded with a dud bullet so that the soldiers may never know whether they actually killed when they pulled the trigger. Killing is easiest done at a distance and easiest if shared – one person loads the guns, another person gives the order to fire, another pulls the trigger. (Grossman, 2013)
The destructive dynamic of the modern economy is organised rather like this: in their relationship to these supposed corporate “people” the shareholders of companies listed on the stock markets have no personal involvement in what the companies actually physically do in the world. At the same time, capital market institutions exist for shareholder owners so that they can move their wealth into and out of companies with great rapidity, and in ways that are entirely impersonal and enhance the ethical disconnect. The very concept of “shares” lends itself to building up portfolios with a small spread across many companies and securities. This makes it even more impractical for wealth owners with a reasonably well spread portfolio to actually know what each of these companies are up to in the real world, even if they were interested – which mostly they are not. Further, the biggest companies operate trans-nationally across multiple continents. It is again impossible to know what they are doing in detail in each place.
To complete the arrangements to “distance” wealth owners from any responsibility for what the companies that they own actually do, there are tax havens and secrecy jurisdictions operating in the global network of asset and financial markets.
Evading regulation, taxation and control
In theory “externalities” can be corrected in a variety of ways: by regulation; by state subsidy for adjustments to production arrangements; by taxing harmful activities or by setting quotas that limit harmful activities. However, unable to tax their richest citizens, most wealthy states are increasingly at the mercy of international lenders and finance houses who call the shots when it comes to policy. Indeed, it has become an accepted practice for governments to compete by offering companies ever more lax or non-existent regulatory regimes. (This idea is explored in more length in the chapter about co-opted states).
To sum up the argument so far, not only are externalities ubiquitous, there has also been a logic that has expanded them. If, as neo-liberal economists claim, it is in the interests of private property owners to solely pursue their own interests then it is in their interest to externalise as many costs as they can get away with.
So far, this chapter has considered the circumstances in which people and companies cause “externalities”. In what follows I want to consider what happens to the people who suffer them, and what opportunities they have to deal with them or get some kind of restitution.
After enclosure, after colonial and post-colonial expropriation, after marketisation, de-localisation and the institutional arrangements just described, the possibility of challenging and influencing the destructive dynamic of the economic system have declined dramatically. With the shrinking of the commons, the vernacular familiarity, understanding and control of ordinary people over their natural and economic environment has been radically reduced. In a society where technologies do not change from one generation to the next, ordinary people are more able to accurately judge the consequences of productive decisions. As technologies evolve very rapidly this becomes very difficult. It becomes difficult too because many modern processes deploy technologies whose destructive effect is either hidden and/or evolves over a long time frame.
To take decisions about resources you have to privately own them. It is true however, that a limited number of remedial decisions are sometimes taken by states when private decision-making is particularly damaging. Therefore, as a generality, decisions have become either market decisions – taken by private businesses and consumers – or citizens’ decisions.
Citizen influence over decisions about land and resources that they do not own are possible via land planning or by regulation. Nevertheless, the basic philosophy is to keep economics decision-making by citizens to a minimum and leave this to corporations.
It is also true, in some cases, that negatively affected people can resort to the courts, for example, using tort law to claim the perpetration of a nuisance. However, this requires action that will be costly in a variety of ways. Thus, to repeat, the property owner is in a relatively favourable position to ignore externalities and is likely to be “ignor–ant” of the problems they are causing.
As should thus be clear, citizens’ attempts to influence the “allocation of resources” in such a way as to prevent negative externalities entail a struggle with institutional hurdles and geographical distance. Free market economists like Ronald Coase envisaged models for dealing with pollution in which there is a single polluter and a single pollutee. In fact, there are corporations which are well resourced and well connected with the state, have access to PR machinery and can get the best lawyers… alongside often hundreds of thousands or even millions of unorganised victims with very few resources, if any, to put up against the polluters. They need representation – they need organisation and agents to be able to find out what is going on, draw attention to it, lobby and develop a countervailing power to the power of the corporations.
The role of non-Governmental organisations and civil society organisations
In recent decades, a very large number of civil society organisations and non-governmental organisations have appeared all over the globe trying to resist destruction unleashed by the unrestrained market and by states whose policies have been largely co-opted to serve the agendas of corporate actors. In a book describing the civil society organisations that have been set up everywhere to resist the trend of destruction, Paul Hawken guesstimates that there are probably over one million, maybe even two million, organisations working towards ecological sustainability and social justice. (Hawken, 2007, p. 2)
Note – this is not one to two million individuals. is is one to two million organisations. Hawken writes:
This movement… doesn’t fit the standard model. It is dispersed, inchoate, and fiercely independent. It has no manifesto or doctrine, no overriding authority to check with. It is taking shape in schoolrooms, farms, jungles, villages, companies, deserts, sheries, slums – and yes, even fancy New York hotels. One of its distinctive features is that it is tentatively emerging as a global humanitarian movement from the bottom up. Historically social movements have arisen primarily in response to injustice, inequities and corruption. Those woes still remain legion, joined by a new condition that has no precedent: the planet has a life threatening disease, marked by massive ecological degradation and rapid climate change. (Ibid p 3)
No matter how good they are NGOs and CSOs will always have been an imperfect substitute for what was lost when communities lost collective control over their living environments. The problem for this vast “movement” is that it can be subverted, co-opted and undermined by the corporate sector – particularly as organisations in this movement are often dependent on corporate and state funding to allow them to function.
The actions and messages of NGOs and civil society organisations often take place in conditions in which the large corporate actors determine the terms of the debate. Insufficiently critical NGOs and CSOs often act in ad hoc ways responding to immediate humanitarian or environmental problems without any deep analysis of where these problems come from or vision of how to produce the fundamental change that would actually get to the roots of where the problem lies. Without thinking about the issues in depth many NGOs accept conventional wisdoms and ideas like those of “development” naively accepting the corporate and economist’s narrative that poor people and poor countries are poor because they have been “left behind” and now must be “helped” to develop, to improve their economic arrangements. Given this as their starting point, the actions of NGOs can be dysfunctional, damaging and condescending, particularly as they are often “outsiders” to problems, and they can end up doing more harm than good.
The problem is that most NGOs treat us as if we are babies still drinking from feeding bottles. They speak for us and design projects for us. Most times they are the main beneficiaries of the projects “for the communities”. In Paraguay there are hundreds of NGOs who, by obtaining the compliance of some Indigenous individuals, believe that they possess the right to decide on behalf of entire Indigenous communities. In other cases, not even acceptance by a few is required for advancing what outsiders view as solutions to our problems.
I have seen this with my own eyes. Once, an NGO came to our community. The NGO had designed a project without ever asking us what we wanted. When funding for the project was granted by an international donor, the NGO sent a musicologist to oversee the project. What we needed badly at that time was an agronomist, for the Yshiro-Ebitoso had been hunters, gatherers and fishers. We do not know how to plant very well, what seasons correspond to each crop, and so forth. We asked that this NGO send us an agronomist, but there is always this attitude of not listening to our voice. They sent us a musicologist, as if in our poverty what we need is just to go on singing. “An agronomist, not a musicologist, is what we need”, we said to them, “Yes, yes. Sure, sure”, they said but later on sent us a veterinarian. He was probably a friend of the NGO’s director. We do not have animals! This is shameful. The projects never work out well because those who organize and direct them will not listen to us. (Barras, 2004, p. 49)
Co-opting and neutralising NGOs
It is then easy for NGOs to get sucked into “consultative arrangements” which offer a place at the table where they end up thinking very much like the corporations and the governments and having very little real influence. Thus, the NGOs’ presence in consultative processes can serve to endorse the practices of the polluters and human rights abusers whose PR strategies successfully enrol NGOs to give a seal of approval.
Even worse is when CSOs and NGOs end up intellectually and conceptually co-opted and framed in a mainstream economic discourse that assumes the very problems and approaches that are problematic. Namely, that:
1. The goal of (un)economic growth is a given
2. That environmental problems should be dealt with in a cost benefit framework where deliberation and debate between all affected parties is replaced with a supposedly “objective calculation” to work out the optimal outcome
3. Policy instruments should ideally be market based.
These are critiqued in more depth elsewhere in this book. Suffice it to say here very briefly, that if NGOs accept these typical pre-conceptions for environmental and social decision-making they will have given up on protecting the eco-system and communities in the face of the economic onslaught.
If one accepts economic growth then one accepts that in about 21 years as much economic activity will take place as in all of world history up to now – for this is the doubling time at a 3% rate of compound growth. The idea that the ecological system has both the resources and the sink capacity to survive that onslaught is complete madness.
Secondly, using cost benefit analysis to deal with externalities pre-empts and prevents democratic deliberation and is an implicit claim that a mathematical procedure gives us a correct answer rather than debate and contestation of different views and value systems. To the economist the preferences to be regarded as legitimate are those of people when they spend money – not people in democratic processes. As Clive Hamilton has argued “this is perhaps the ultimate conceit of mainstream economics, the equation of market behaviour with democracy itself”. (Hamilton, Requiem for a Species, 2010) To allow “cost benefit analysis” to be the procedure for assessing and dealing with externalities is to allow economists to take over the process of deciding about them and set up a procedure that assumes people think with money focused value systems and it allows economists to describe the options, the goals and choices as they, the economists, think appropriate.
Thirdly, market based policy mechanisms implicitly assume that good environmental behaviour has to be made to pay, in money terms – which implies that money is the ultimate end/ way to measure “preferences” and environmental protection is to be framed as a means to a money end. But if money is the ultimate aim then actors will also game environmental policies, or manipulate or avoid them if doing so pays more – the fact is that it is this very mentality, which one does not find in communities who regard themselves as protectors and stewards of nature that is destroying the ecological system on which we all depend.
Fortunately there are those in the NGO/CSO community who realise these dangers and are concerned to develop a smarter and more critical way of operating. They realise that what they are doing must be rooted in values and ethics and that, if they are to escape an ad hoc incoherence, they must situate their actions in a narrative for the future of the economy and society which makes a bigger sense and represents a new vision for society, a “Great Transition”. These ideas are explored more fully in the final chapter.