Philip Whiteley's Blog

October 5, 2012

Externalizing costs – an economic crime by the left

Filed under: Uncategorized — felipewh @ 10:48 am

For decades now, anti-corporate pressure groups and trade unions have highlighted the unethical way in which many multinational companies have ‘externalized’ responsibilities and costs – keeping their profits but passing many of the costs of the way in which they do business to innocent third parties. Other agencies have to clear up the pollution they emit, or deal with the social problems caused by low pay.

So far, so clear-cut: principled campaigners from the left of politics put pressure on unprincipled corporations to clean up their act. Two recent developments have complicated the picture, and in some contexts the situation is almost the reverse.

Across the western world, in a bid to maintain free social and health care for their populations (an understandable objective), and maintain a short-term appearance of economic growth (far more questionable) centre-left governments have been borrowing, and borrowing big. They have a welter of euphemisms to justify the practice, by selectively quoting the economist John Maynard Keynes. This can reach extremes where some commentators claim that debt is not really debt and borrowing does not involve borrowing, as this interview with the ‘economist’ James Galbraith shows.

The harsh reality, however, is an externalization of costs to future generations to pay for benefits today. The people most negatively affected by these decisions have not been able to vote for them, because they are not old enough yet.

To take the UK, for example, in the period 2005-2008, the Chancellor and later Prime Minister Gordon Brown relaxed his definition of the ‘golden rule’ for borrowing by changing the definition of the ‘economic cycle’. For example, in 2005 it changed the start date by two years and, miraculously, it had suddenly met a target it was in danger of breaching. At the time, few people noticed; only when the banking crisis hit were the government’s stretched finances exposed. And on the crisis itself, the then government was partly to blame, as it had repeatedly ignored warnings about lax credit control, excessive personal debt and a housing bubble, as this transcript from the House of Commons shows in November 2003, where Mr Brown refused to acknowledge a clear warning from the Liberal Democrat Vince Cable.

The bigger point is this: the last Labour UK government, like others across the west, externalized the costs of their spending, for which they reaped short-term advantage, in a manner every bit as unprincipled as any corporation and on an even bigger scale. There was not a whisper of recognition, much less apology, for this financial crime at this week’s self-satisfied Labour conference.

Meanwhile, we discover that externalizing costs by corporations may not even make business sense, as this study shows. Corporations are smartening up their act, recognizing that responsible stewardship over the longer term encourages disciplines that help efficient operations and good customer service, helping profits.

It ought to trouble the left that it now has a worse record on ethical stewardship than the likes of Walmart, Coca-Cola and even some of the oil giants. But I don’t expect recognition of this any time soon.



  1. Very interesting blog Philip which really made me think.

    Comment by rockingyourrole — October 8, 2012 @ 12:26 pm | Reply

  2. Hi Jenny – thanks for your comment. I wrote this as a disappointed former Labour supporter, rather than someone who believes in the small state. I try to like Ed Miliband, and I agree with some of his policies, eg on the banks, but I just can’t get past this issue of the debt and the refusal to apologise – for me it’s the elephant in the room.

    Comment by felipewh — October 8, 2012 @ 12:49 pm | Reply

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