Including prices that reflect the full costs of producing goods, including externalities, is important for empowering consumers to make informed purchasing decisions, encouraging sustainable production practices, and rewarding efficient and sustainable producers.
By including the real cost of producing a good in the price, companies can provide consumers with a more accurate understanding of the full impact of their purchases. Consumers need to understand the overall impact of a good and the company to make more informed shopping decisions.
The hope is that companies not only act more sustainably and responsibly but also reap the benefits of consumer loyalty and a more competitive marketplace.
For example, if a company produces a product that generates pollution, and the cost of that pollution is included in the price of the product, consumers can see the true cost of the product and can make a more informed decision about whether or not to purchase it.
If consumers are willing to pay a premium for goods that are produced sustainably and responsibly, then companies that prioritize sustainability will be rewarded with higher sales and greater profits.
If people don’t care, then more of the pressure is off the company and can be blamed on society at large.
Yes, some companies put an “organic” sticker on their food, but what is the true cost to society for their entire operation?
How Do Products And Companies Affect Society?
One of the big problems right now is that consumers just don’t know the full effect of their purchasing decisions.
- How much does the company pollute?
- How much does it spend on lobbying, and what is it pursuing?
- How are workers paid and treated?
- What does upper management make compared to the worst-paid employees? What percent of profits does that represent?
- How do they impact their local community?
- What are their gender and racial policies, the makeup of upper management?
The answers to these questions will hopefully be included in The Humanity Index:
The Humanity Index
Ignoring Externalized Costs
When companies do not include the full costs of their products in their prices, they are “externalizing” those costs onto society.
This means that the costs of producing and using a product are not borne by the company that produces it, but rather by society as a whole.
This leads to several problems, including:
- Environmental damage: They are more likely to pollute the environment causing climate change, or air and water pollution.
- Social costs: They are more likely to engage in practices that harm society. This can include things like child labor, sweatshop labor, inequality, and environmental racism.
- Economic costs: They are more likely to act counter to the common good. This can manifest itself in higher prices for consumers, lower quality products, lower wages, wasted resources, less innovation, and more.
True Cost Accounting
To address these problems companies seed to include the real costs of their products in their prices. This allows consumers to make informed decisions about what they want to support with their dollars.
Implementing a “true cost accounting” approach involves assessing the full social and environmental costs and benefits associated with the production of a good. This approach takes into account not only the direct costs of production but also the externalities that may be incurred as a result of production. This includes factors like carbon emissions, waste disposal, labor exploitation, damage to political discourse, muddying of government regulation, and much more.
By having businesses include the true cost of producing a good in the price, we incentivize more efficient and sustainable production methods.
Impact Consumerism
If a company can find ways to reduce the externalities associated with their production, they can reduce their costs and offer their product at a lower price while still maintaining profitability and helping the planet.
This creates a competitive advantage for efficient and sustainable producers, encouraging other companies to adopt more sustainable practices to remain competitive.
Taxing Bad Behavior?
In the case of externalities, such as pollution or labor exploitation, the traditional view is that it is difficult for corporations to internalize these costs on their own without government intervention. But that is bullshit. We are letting companies off easy.
Many activists believe the best way to include the full costs of products in prices is to use a system of taxes and subsidies. These “Pigovian Taxes” can be used to discourage the production of products that have negative externalities, while subsidies can be used to encourage the production of products that have positive externalities. In theory, this system can help to ensure that the prices of products reflect the true costs of their production.
Unfortunately, the government is broken and we can’t trust it to do anything right.
We as consumers should be doing a better job holding companies responsible for the full costs.
By undertaking a true cost accounting approach, corporations can gain a better understanding of the true cost of their goods and can take steps to internalize externalities, such as investing in more sustainable production methods or ensuring that workers are treated fairly. This approach can also help corporations identify areas where they can reduce costs and increase efficiency by reducing waste or energy usage.
It’s Up to Consumers
Our government and politicians are such a mess that we can’t rely on politicians to get their act together.
Ultimately corporations have to take the lead in identifying and accounting for these costs.
Accounting for the true costs allows consumers to make informed decisions about what they can afford, it rewards efficient producers and helps to address several environmental, social, and economic problems.
We need business to help get us out of this mess, and the best way to do that is to #demandMoreForYourDollar
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