Social Costs and the need to re-think First Principles

As Canadian economic and business analysts pore over the latest round of dismal to mediocre economic data, seeking to parse any nuggets of market pleasing information that can be used to shore up their confirmatory biases, the world of ordinary citizens and average households feels an increasing sense of despair. The problem is that the experts look at the manufactured data and trends through the narrow prism of orthodox economics and the ruse of “self-regulating market equilibria” thinking. The political paradigm that stubbornly celebrates such skewed and low net-welfare outcomes is one in which elite accommodation and veneration of private capital is the norm. It is an approach that will continue to be increasingly forced to lower expectations, celebrate derisory achievements and shun aspirational public interest goals. This is because our political and economic systems are self-evidently broken and no longer fit for purpose. The incremental growth and profits that we now forcibly, or through financial artifice, extract from our economic system comes at a heavy price in terms of the health of our life-sustaining natural eco-systems – other species, forests, oceans, lakes, agricultural lands and soils – and the physical and psychological well-being of our fellow citizens. No amount of techno-philia can alter these unsavory facts.

It can only be thus, for the economic, energy, and financial systems and complexes we have erected in the years since the late 1970s, despite the warnings of the Club of Rome, have been premised on assumptions of limitless & unfettered economic growth and the indefinite socialization of cost. (The growth in global population and the increased reliance on carbon-based energy sources had actually gathered pace after the Second World War but, for a time, a philosophy of enlightened developmental assistance and eradication of common diseases, de-colonization, welfare state provision, and public health and environmental regulation, temporarily mitigated its worst features. Many of those gains have since been eroded, if not reversed, and we are faced with the added existential threat of global warming). Many members of the general public, except for the most stubborn supporters of business-as-usual policies, recognize that now, and moreover, they realize that we are metaphorically at the end of our road. If, at one point, it may have been possible to cling to the illusion that we might reform or temper the excesses of rentier capitalism while still preserving the allegedly benign ‘animal spirts’ that it gave expression to, that delusion has now crashed on the rocks of reality. Canada’s immense natural blessings and physical endowments no longer insulate us from unpleasant realities and corrosive global trends. The exceptional society that we had once constructed is looking more precarious by the day. Our current elites are either out of ideas or too timid and wedded to vested financial and corporate interests to do anything substantively different now.

Regrettably, due to our earlier passivity, it is too late to think about incremental tweaks and modest changes to arrest the destructive forces of mass consumerism, environmental degradation, soaring income inequality and widespread health dysfunction. Effectively, there is now an urgency to acting immediately to revisit ‘first principles.’ By that, I mean the very foundations or basic edifice of rules, maxims and assumptions upon which all advanced capitalist societies have been founded and which persist to this day as the source of deep pathologies, morbidities and collective action failures. What must take place now amounts to a very re-invention of our most basic thinking about our role as temporary custodians of this biosphere that we call Earth and about our obligations to our fellow citizens.

To his credit, Karl Kapp, the father of modern ecological economics and a visionary rational humanist, gave a great deal of thought as to how we might reorganize our constitutive principles before his untimely death in 1976. He anticipated where a “winner-take-all” and “survival-of-the-fittest” market-based mentality would ultimately lead us. Recently, his profoundly original and humane thinking has been revived by a German economist, Sebastian Berger. Kapp had perceptively noted that capitalism must be regarded as an economy of unpaid costs which, left unchecked, would bring about a dystopia. In his writings he developed a thoughtful and powerful critique of the flawed premises of the “free market” system. In this short post, I re-print the summary of Kapp’s core notion of ‘social costs’ that Berger provides in his book, The Heterodox Theory of Social Costs (2016). Thinking seriously about the origin and nature of social costs will lead us to construct a different kind of politics based upon an alternative conception of the intrinsic importance of human nature, the natural world and society more generally. According to Kapp:

1. Markets socialize costs to third parties, future generations, and society as a whole.
2. Social costs are large-scale and systemic problems requiring precautionary, systemic and comprehensive remedies at the macro and societal level. Social costs are not minor temporary failures of an otherwise functioning and harmonious system, and can thus not be effectively remedied via ad hoc and ex post (after the fact) measures.
3. Social costs happen behind the back of the victims and are one-sidedly forced upon them in situations characterized by power asymmetries. Social costs are not voluntary exchange relationships between equals.
4. Social costs are subject to circular and cumulative causation between the open economic system and its social and natural environment, which makes them non-linear, unevenly spread out along the time axis, hidden for considerable periods of time, and often irreversible. Social costs are not linear and direct causal relationships, which makes it often impossible to determine their exact causality or value ex-post.
5. Social costs do not have exchange value, because human life and health are not exchangeable commodities. Human life and health have an absolute value and are of a substantive kind.
6. Social cost prevention and reduction are matters of institutional reform and their extent depends upon the level of countervailing power that can be leveraged via social controls of corporations.
7. Instituting precautionary safety standards and social minima can protect human life and health, guarantee the gratification of basic human needs, and thereby effectively prevent social costs, and create social benefits. Protective measures reflective of existential human needs are a matter of the integration and humanization of social knowledge.

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