Time to internalize those externalities and get prices right

I've been catching up on my reading/listening this weekend. My schedule has changed as so have my 'study' habits. I've always listened to Terrance McNally's Free Forum on KPFK radio in LA (Pacifica Network) because his programs are very positive and he always has the most fascinating guests. I was looking through the archives from his show (my schedule doesn't allow me to hear it live anymore) and came across an interview with Hazel Henderson. I'd never hear of her before but the short bio intrigued me.

I'm sorry to say that I'd never heard of her before and she been around and involved in business, economics, pollution, etc since the mid sixties and takes a whole systems approach to all her areas of interest (which are pretty vast - as are whole systems)

A major focus of hers is the deception of GDP and working towards a more accurate measurement of 'progress'. In the referenced she expalins how on an individual corporate basis the standard Balance Sheet is analogious to a national GDP and just as inaccurate.

The title of this thread is the title of an op-ed she wrote for GreenBiz and is an excellent primer on 'Externalities" in business.

www.hazelhenderson.com...

An “externality” is code in economics jargon meaning any cost of producing a product that can be omitted (i.e., externalized) from the producer’s balance sheet and passed on to taxpayers, the public or hidden in the environment for future generations to pay.

Responsible investors internalize these externalities in their “triple bottom line” ESG accounting in their financial decisions (SIF) as do institutional investors of the UN PRI with $32 trillion AUM.

Externalities are now too obvious and can no longer be the basis of business models. False “profits” and toxic sub-prime assets are being flagged in company accounts. They are becoming questioned in GDP, now a Grossly Distorted Picture of a country’s “progress.” New scorecards: Canada’s Index of Wellbeing, OECD’s Better Life Index, the UN’s Human Development Index, Bhutan’s Gross National Happiness, these new multi-discipline “dashboards” of quality of life. Going beyond money-based measures to account for health, education, poverty gaps and the environment helps clarify that money is an accounting unit – not the real human and resource wealth it tracks.

I hope you read the article and her other work as she (and many others) are making important points.

One thing she said on Terrance McNally's Free Forum (you can hear his programs at AWorldThatMightJustWork.com) is that Renewable Energy and Sustainable Businesses are taking over and that there is no stopping it. That would be why the old guard of fossil and nuclear power would be fighting so hard to survive right now.

I hope you care enough to see solutions rather then just problems.

Check them both out.

Something that doesn't make sense from a business perspective is the oil companies have more money than god and resources for research and development that are not rivaled in the field of energy. They have enough apples to spare to be first to develop these alternate fuel and energy sources and have it effect their bottom line, until they can roll the new stuff out and control that market too. Well maybe that makes too much sense.

reply to post by Bilk22


The reason those big oil company's have all that money is because they have consistantly externalitzed the cost of their operation - the polution of their operations, the degradation to the environment, the expense of clean ups, etc.

That is the whole point of the article. This so-called FACT of business "externalizing costs" can not be maintained.

FyreByrd
reply to post by Bilk22

 

The reason those big oil company's have all that money is because they have consistantly externalitzed the cost of their operation - the polution of their operations, the degradation to the environment, the expense of clean ups, etc.

That is the whole point of the article. This so-called FACT of business "externalizing costs" can not be maintained.

Agreed. They've also "externalized" their R&D so where is the issue here in what I stated? The funds for exploration come from us, the tax payer via tax credits or directly funded by congress.

I like this idea. Only when you include all the "real" costs in the economy can you come up with meaningful productivity measurements. I think it would be a good idea to peg currencies on this metric if it could be accepted throughout the world. This would allow currencies to be mathematically valuated using a ratio of currency outstanding and this productivity measure. The countries with the greatest "real" productivity relative to their currency outstanding would see higher valuations. Those who abuse the environment and workers would see lower valuations. This would be the end of letting market forces determine and manipulate currencies relative to each other. Resetting the values every quarter would give more stability to international monetary relations. Such a system would also allow us to rid ourselves of fractional reserve banking as well.