The Battle of Capitalism: A Struggle Between Profits and Welfare

One of the key driving forces of our economy is profit. The central goal of companies in a capitalist economy is to make the most profit, whether that is economically efficient or not. Large companies find many ways in which they can increase profits. Unfortunately, a lot of the strategies that result in the largest increases are the ones that push large prices onto other peoples and societies. These prices are called externalized costs, meaning they are costs to other people, governments or the environment. The externalized costs of a profit motivated economy have significant impacts on the environment, both directly and indirectly. This blog will focus on how these costs affect the environment specifically through threats to biodiversity (variance of life in the world, particular habitats, or ecosystems).

President Trump recently addressed the United Nations and claimed that the US has the “fastest growing economy in the world”, as seen in this New York Times article. While this is an exaggeration, we do have one of the fastest growing, and many people rarely stop to ask the cost from which this growth is coming. Efforts to increase profits and boost the economy for one company or entity leads to a lessened quality of life for others. By this I mean, to increase profits, companies either directly or indirectly contribute to the destruction and harm to our environment.

These externalized costs can be shown in many ways. For example, the world’s population of vertebrates has decreased rapidly since globalization became popularized. The main threats to biodiversity are also debated, but the ones generally agreed upon are habitat loss, pollution, invasive species, and overharvesting or overexploitation. These contribute the profit motive of our economy because they are the least expensive ways of attaining or disposing of resources. An example would be companies dumping waste into rivers. Because they are not economically responsible for the damage they are causing to the environment, this is the cheapest disposal of waste they have.

Large companies from core (powerful) countries use globalization as a way to externalize costs by continually extracting raw materials from periphery (weaker) countries. In many cases, this leads to deforestation and the collapse of smaller ecosystems. The picture below is an example of this deforestation in the Amazon Rainforest from an article by multiple professors and students at Penn State University.

These cases of deforestation result in losses of habitats. Other causes of these losses of habitats are mining, agriculture, industrial activities, and water extraction. The type of habitat loss demonstrated by the visual above is called Habitat Fragmentation, or large losses of a habitat but not an all-around loss.

Pollution is another externalized cost of capitalism and the need it creates to make the highest profits possible. Toxic substances and chemicals are released into the environment as waste from production processes and can have fatal impacts on entire species. Even natural substances can become toxic in large amounts or high concentrations in small areas. Bioaccumulation is a process through which pollutants become more and more condensed in animals’ tissue and then these pollutants travel through the food chain and contaminate other animals. For example, when a killer whale consumes fish that have received these chemicals, the whale also takes them on in high concentrations. Any animal high up on the food chain is at risk for these contaminants, including humans.

The issue of invasive species occurs when animals and plants move into new areas. This can effect the occupying species in harmful ways. The new species can be parasitic to the resident ones or can be predators upon them. They can also bring new diseases and microbes which could cause depletion of the species and modify habitats. An example of this could be, the frim borders between countries interrupting migratory patterns of wildlife. The wall that president Trump continually refers to and the fence that is currently on the border between Mexico and the US are not only impractical but harmful to the ecosystem. The animals that attempt to cross the border while following typical migration patterns are derailed by these barricades          and are forced into new areas which can cause an invasive species issue.

Over-exploitation is another cost of capitalism externalized onto other places and species. Examples of over-exploitation are “targeted hunting, gathering, or fishing for a particular species as well as incidental harvesting” as shown in this article. Especially with species that are delicately balanced, slight over-exploitation could lead to the breakdown of that population. Also, if the species that collapsed is a primary predator to those lower on the food chain, it can lead to an overpopulation of prey in the ecosystem.

All of the cases explained above are consequences of capitalism and the push on companies to drive prices down and profits up. More often than not, multiple of these side effects occur at once, attacking ecosystems from many sides and resulting in increased or expedited destruction.

Some organizations have attempted to curb this product of capitalism by devoting time, energy, and money into biodiversity conservation efforts. In this report by the Overseas Development Institute, the arguments for conservation are summarized, but the specific economic argument is that profits would increase because the “output from land is greater when biodiversity is conserved”. Also, through the destruction of biodiversity, “unknown biochemical and genetic resources” that could be beneficial and of value are being destroyed.

However, some believe that threats to biodiversity are not valid and the efforts to counteract these losses are a waste of time and money. Their argument is that, while protection for the environment is necessary, it is not enough to make a difference. The main cause of threats to biodiversity, as stated in this BBC article, is that human consumption is exceedingly high for the resources this planet has to offer. Their primary issue with the conservation efforts is that they focus too much on protected areas and not on the root cause of over consumption.

Capitalism, and the influence it has on our society, have brought along with them many costs that are then externalized in order to drive prices down and increase profits. In many cases, these costs are imposed on the environment. While this may not immediately affect the welfare of humans, habitat loss, pollution, invasive species, and over-exploitation have serious consequences. These factors are limiting resources and are leading to collapses of ecosystems and species. If this loss is not stifled, eventually it will lead to a mass extinction which humans might not be able to survive.

 

Externalized Costs: A Capitalism Crisis

Global capitalism has allowed giant businesses to control the economy of the world. It has made it possible for companies to expand their businesses to multiple parts of the world through globalization. Globalization has allowed American businesses to move overseas to manufacture their products at lower costs. It has made it cheaper for businesses to manufacture, produce and sell products at a price that allows them to maximize their profit. Have you ever bought something for a very low price and realized it was from a foreign country all the way across the world? How is it so cheap if it has traveled all the way from China? Global capitalism and externalized costs have made it possible for companies to sell their products at cheap prices while still maximizing profit. A major example of this can be seen in McDonald’s signature Big Mac. How exactly does a huge company like McDonalds get their products to the lowest retail price possible? The answer: externalized costs.

Externalized costs are how companies make profit. They minimize their spending by cost externalizing, which is basically a fancy term for the company offloading “indirect costs” on society or the environment. The easiest way to think about externalized costs is to think of them as effects caused by businesses when they “cut corners”. Externalized costs of capitalism tend to be hidden from the public eye. Companies hide their externalized costs because most of the time, the truth would be detrimental to the reputation of their business. Some major externalized costs of global capitalism include pollution, taking advantage of people and poor working conditions in other countries, cruelty, and health care.

Marion Nestle is an author for Food Politics, where she published her article, Food is Cheaper Because Costs are “Externalized”. Nestle’s article explains the externalized costs that go into bringing the crops from the field to the dinner plate. Nestle breaks down externalized costs into four categories: human costs, environmental costs, safety costs, and health care costs. The article explains how costs are externalized in each category and how it negatively impacts certain aspects of life. Below is an image representing the external costs of a McDonald’s Big Mac as explained in the article, Each Time McDonalds Sells a Big Mac.

As the image shows, a big mac from McDonalds costs more than its retail price of $4.56. The image breaks down McDonald’s externalized costs into health care, subsidies, environment, and cruelty. This image is a great example of externalized costs because it points out that the true cost of a Big Mac is $12, however, the hidden externalized costs of McDonald’s company allows them to get the retail price down to $4.56.

Pollution is another huge example of an externalized cost. Pollution is an externalized cost because instead of dealing with waste in ways that are environmentally friendly and sustainable, companies are getting rid of their waste in the cheapest ways possible in order to maximize profit. Examples of this could be a company dumping their waste into a nearby river instead of spending money to have it disposed of properly. The article, Talk About Externalized Costs, talks about this issue. As pointed out by the article, “[Businesses] are shoving a whole range of costs – from pollution to climate change to water depletion – onto communities around the world”. It is estimated that the world’s top corporations, “contribute $2.2 trillion in environmental damage”. Other forms of pollution, such as waste from shipping packaging, use of gasoline, plane emissions, etc. are also forms of externalized costs and are extremely detrimental to the environment.

Another example of an externalized cost is taking advantage of people and poor working conditions in other countries. Businesses move their factories overseas in order to take advantage of the minimum wages in other countries. A prime example of this comes from the article, I Lost My Hands Making Flatscreens I Cant Afford. In the article, Rosa Moreno explains how both of her hands had to be amputated due to a work related incident. She was working with dangerous machinery six days a week, for $400 a month. The work she was doing involved extremely dangerous machinery, but she had no choice, she needed to support her family. Could you imagine working 6 days a week and only making $400 a month? I couldn’t. It’s not livable, which is why the government of the United States implements things such as minimum wages. However, other countries don’t have these laws implemented, so workers in these countries work for a few dollars a day. Being that there isn’t a minimum wage implemented, American businesses move overseas to take advantage of workers in foreign countries. Why would American businesses run their factories in the United States where in some states, minimum wage is as high as $11 an hour, when they could go overseas and pay their workers less than a dollar an hour. Below is a cartoon that brings to light the horrible working conditions of sweatshops in other countries of the world.

The tag of the t-shirt points out the cruelties of sweat shops, making it known that some of the externalized costs include “sweat and blood”. The bottom of the tag notes that the t-shirt was made in Pakistan, which only adds to the point of the article that the t-shirt was produced in a sweat shop. Another article that talks about these sweatshop conditions is, American Businesses Taking Advantage of Sweatshop Labor, on The Channels. The article goes into depth about the harsh and cruel working conditions in factories in other countries and talks about how much American businesses are profiting from sweatshop labor.

To be sure, some people disagree that externalized costs are a bad thing. Some arguments for externalized costs are that it keeps the economy flowing. It is argued that without externalized costs making prices cheaper, that people wouldn’t be able to afford all of the goods they need, and thus, will stop spending money. However, if businesses became less globalized, and began producing products solely in their country of origin, theoretically, minimum wage would increase, so that the consumers can afford the products.