Externalisation

Externalisation Project

 

There is a conventional narrative of the role of business in improving the world. In this story, good behaviour is synonymous with good business. If you treat your customers well, they will be more loyal; if you treat your employees fairly they will more than repay it with commitment and creativity; if you contribute to the rest of society, you will be rewarded as a good corporate citizen.

In this story, ethical behaviour and competitive advantage are more or less synonymous.

And there are certainly good examples of companies which have both behaved ethically and been successful. The top ten in the UK include: Pukka teas, Neal’s Yard, Triodos, and Ecover.

But if we look at the really successful companies, what do we see? Five huge companies now make up 20% of the market value of the entire S&P 500:  Facebook, Apple, Microsoft, Google and Amazon. They are all under investigation by House judiciary’s antitrust subcommittee for anti-competitive behaviour. In addition, they all avoid taxes. Amazon is notorious for its treatment of its workers. And Facebook has been complicit in abuses of democracy. Are these the five most ethical companies in America?

So, what is really happening ? In practice, one of the easiest ways for a business to be competitive is to externalise its costs: to pollute without paying the costs of clean-up, to avoid taxes, to underpay staff – and leave the rest of society to pick up the bill for all this. And so an ethical business finds itself at a cost disadvantage when competing with an unethical one. Amazon exemplifies the power of externalisation as a competitive weapon.

At the moment, the playing field is tilted against ethical businesses.

We have started a project jointly with Imperial College, the Institute for Public Policy Research and the Impact Project (which coordinates the international accounting standard setters). This project is aimed at quantifying the externalities and adjusting company accounts accordingly. It is the first step towards re-engineering the profit motive into a force for good.

If you would like to help, please contact doris.honold@99-percent.org

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