Replacing the Concept of Externalities to Analyze Constraints on Global Economic Growth and Move Toward a New Economic Paradigm

1. From Externalities to Limitless Growth
The concept of externalities facilitates optimism about economic growth because it lends scientific credibility to an abiding faith in technological mastery over the human made and natural forces that threaten a nation’s welfare. In turn, this faith in technology leads most policy makers to dismiss critical discussions of the future of economic growth as misguided and embrace investment policies in technology that are intended to promote ever more economic growth.

Concepts are seldom either right or wrong. They facilitate or inhibit particular lines of reasoning and particular modes of action within the context of a paradigm. The economics concept of externalities is part of the prevailing paradigm of knowledge about the world. This is a paradigm that fragments and divides research and explanations – which is supposed to be a good thing because disciplinary and conceptual boundaries promote the development of specialized skills and knowledge. But disciplinary and conceptual boundaries don’t just focus attention; they also inhibit the discovery and study of processes that transcend those boundaries and bias public policy development in certain directions.

The concept of externalities divides and orders the world in a way that intellectually and morally empowers groups of humans to use technologies to conquer, control, and exploit other peoples and the world of nature. It does this by setting up a hierarchy of relationships across geopolitical, ecological, and geophysical boundaries and by inhibiting development of understandings of processes that transcend those boundaries.

The very word “external” divides the world into the internal and external. In economics, this division connotes a hierarchy of initiative and power that is played out at the boundary that separates an economy (the internal) from everything else (the external). This hierarchical bifurcation is implicit in definitions of externality.

BusinessDictionary.Com defines an externality as “a loss or gain in the welfare of one party resulting from an activity of another party, without there being any compensation for the losing party.” puts a slightly different, but relevant, spin on the concept: “An externality is an effect of a purchase or use decision by one set of parties on others who did not have a choice and whose interests were not taken into account.”

As well as dividing the world into two components, these definitions define an asymmetrical relationship in which one party has greater power than the other. One party initiates an action; the other party is a seemingly passive victim (negative externalities) or beneficiary (positive externalities) of the action initiated by the first party.

In the Western mind, passivity is less worthy than activism. Thus, the concept of externalities also carries with it a hierarchy of worthiness. From within an economy (the internal world), the external world is seen as less worthy than the internal world, so it is legitimately subject to being conquered, controlled, manipulated, and consumed.

2. A National Economy and its External Worlds
For economists and the rest of us, the primary economic unit is a nation. Everything economic is seen through the lens of boundaries that define a nation. The boundaries that come to mind immediately are territorial – the boundaries that divide the world’s people and territories into separate geopolitical entities and economies. But, a national economy is also defined in terms of geophysical and ecological boundaries. Certain things, notably the things of nature, are not part of the national economy even when they are found within the territorial boundaries of the nation.

3. The External Status of Other Economies
From the perspective of the people of an initiating nation, the boundaries of their nation are the boundaries of an economy. Other people and their economic activities and other territories are external. Because those people and their economic activities are external, economic relationships with them are “foreign” relations entered into for instrumental purposes – to supplement domestic demand, to provide supplemental and low cost labor, to gain access to the resources in their territories, and to use their territories as dumping grounds for waste.

The people of external territories are excluded from discussions within the initiating nation that lead to the pursuit of instrumental access through negotiations or invasion. From the perspective of the people in the initiating nation, it is up to external peoples to protect themselves and their economic activities. If they are unsuccessful at this, it is only evidence that the initiating people are superior and in the right to make use of the external peoples and their economic activities.

It should be noted that people who are not economically active and do not have a culturally legitimate reason for not being economically active are deemed to be external to the national economy. In status, they are also foreigners, even when they live in the same communities as those who are part of the national economy.

4. The External Status of Nature
Technically, humans are part of the natural world, but the people of a nation who are engaged in economic activities effectively define themselves as separate from nature. Nature is a separate and external form of existence.

The things of nature are not forms of wealth; the things of nature have no wealth value until people have done something with those things to give them market value (collected and delivered them; processed them into something else). Nature is also a dumping ground for waste and discarded wealth, even when the part of the natural world that is being used by a people for that purpose is within the national boundaries of the nation of those people. Waste never becomes part of the internal world (the economy) and wealth that is discarded is no longer considered to be wealth, so it is part of the external world.

External peoples are also seen as part of nature. They exist, but they have no wealth value until the people of the initiating nation do something with them – teach them, change their culture, and assimilate them into the nation as various forms of human capital.

5. Externalities and Technological Optimism
The inequalities of power and worthiness in the relationship between an economy and its external world facilitate a belief that the external can and should be used to solve problems encountered by the participants in an economy. In turn, this belief drives a continuing effort to create technologies for doing just that.

In the histories of the affluent capitalist nations, technologies to manipulate and process the external world have been used with considerable success. Extraction and transportation technologies have been used with great success to transform elements of the earth into material wealth. Weapons technologies and social control technologies have been used to gain access to elements of the earth in external lands and to control and use external peoples. This history of successes has imbued Western people with an almost unshakable technological optimism.

It is an easy intellectual move from technological optimism to optimism about economic growth. Whatever problem is holding up the restoration of a high rate of economic growth in the world economy can be fixed with technological advances. This optimism is nicely captured in the words of an academic professional and mother:

“When I was pregnant with my second daughter, I had a terrible, apocalyptic dream about a global water crisis. … My second thought was Johns Hopkins will fix this. … But I’m ever hopeful that science will find its way, that as my daughters grow up and have their own kids, they can worry about something else.”8

† See and
8. Catherine Pierre, “Call me a true believer,” Johns Hopkins Magazine 7 (2014).

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