Externalities - Economics and Ecology: United for a Sustainable World - page 84

wages for the paper mill workers), profits of the owners decreasing, and
paper being sold for a higher price. Choices among these options depend
on market power and market conditions, as well as the will and power of
government, which are of no consequence here. Nevertheless, the economic
fortunes of all the direct-market participants would be predicted to decline.
Now it is time to bring into the picture economics as methodology. It enters
into this example first by acknowledging that a misallocation of resources
has occurred because there are uncompensated costs and benefits enjoyed
for free. If you get something of value, you should pay for it, and if a cost is
imposed on you, you should somehow be compensated.
Further, it is said that the market has failed, because it failed to contain
all the legitimate costs of production within the domain of just the private
market participants. Economics, as a discipline, might also contend that an
overproduction of paper has occurred as a result of the price of paper being
too low to include all private costs of production. The economic response,
which borders on an exercise in circular logic, is that the externality should
be internalized . The external social costs borne by the breathers of air and the
users of water should be somehow transferred to the direct-market partici-
pants—so far, so good.
Here the plot thickens, however. There is a wide range of real-world factors
that complicate the attainment of the simple-sounding process of “internal-
izing the externality.” First is that the “benefits” of polluting, in the form
of higher wages and profits, as well as lower paper prices, in no way have
to match the costs of dirty air or water. The profit the factory owner makes
has no quantitative relationship to the health costs of a local resident with
emphysema, or to a young family that can no longer enjoy swimming or
fishing in the local river.
A second issue stems from the fact that in the early stages of the industry,
the impacts appeared to be small, isolated, and self-correcting in terms of
ability of the (otherwise clean) air or water to assimilate the pollutants. This
untested appearance led to the assumption that air and water were “free
goods” for the taking, so no one was really affected by the pollution. Thus,
historical convention resulted in a willingness to ignore the impacts.
In effect, as we deduced during the more recent era of environmental con-
cern, this uncritical assumption bestowed the ownership of air and water to
the industry in the form of private property, as opposed to the citizens at large
as part of the global commons, which is everyone's birthright. The process
of wresting back these ownership rights through legal action has had a long
and tortured history in the courts. There is a huge difference between the
public saying, “The air and water belong to all of us a part of our birthright,
and you must leave it as clean as you found it for the sake of all generations,”
and the industry saying, “I have always used the air and water in produc-
tion, and I therefore own the rights to them, and you must compensate me
if I am to stop current practices.” When such issues get to the courts, or even
to the point of some jurisdiction considering pollution-control regulations,