In his latest post on the Environmental Economics blog, Tim Haab puts the spotlight on one of the fundamental realities that impact sustainable economics--namely costs that pervade our system but for which there is no direct accountability, and thus little incentive to address. Well, in sustainable business circles the push is towards a different and more promising approach to these external costs.
Tim's example is a good one, using pollution as the unaccounted for cost:
In the process of producing something, say corn, the farmer applies fertilizers to improve the crop yield. Some of the costs and most of the benefits of the fertilizer are borne by the farmer. But, some of the costs of the fertilizer run-off the farm and into nearby waterways. The result? High nutrient loads in nearby waterways resulting in increased algal blooms, lower dissolved oxygen levels, and impure drinking water. To purify the drinking water, nearby towns have to pay extra to remove the extra nutrients. This extra cost has to come from somewhere. In an ideal setting, it would come from the farmer, because the farmer is responsible for generating the cost.
He follows on with:
The additional costs borne by the nearby towns are real costs. They are dollars that could be spent on things the town residents really want, but instead have to be used to ensure their drinking water is clean.
So when you think about sustainability and formulate your own take, remember...shifting costs away from those who cause them, a classic form of 'not my problem', is not a sustainable proposition. Ultimately they need to be accounted for upstream, where they originate. There, they can and will be addressed through the kind of innovation in product and processes that industry is capable of. There, the ultimate winners will minimize both their future risk as well as the downstream cost to their customers and society at large.
Someone's got to pay, right? Not so fast. Sustainable business principles tell us that both the who and the how much are not always what they seem to be.