#2 Externalities — in Everybody’s Business
My story with Externalities: a paragraph in a book
As students we needed to pick an area of interest, so I chose economics. People and society were my passions, despite the 10 years in the classical conservatorium playing piano and my mother trying to convince me to become a piano teacher. I was curious, concerned about others, and felt compelled to do something to make others feel better in their lives. One of the few interesting subjects, apart from philosophy, was Introduction to Economics and Society. “I like this, it feels right!” I thought. The book was a brief introduction to societal matters, from protecting natural resources, to the concept of GDP or the arrangement of a democratic country. Most of it briefly explained to give a taste to the newly students. In the chapter of economy and natural resources, there was a tiny paragraph of five lines describing the word externalities. I was the first time I heard such a word!
In the chapter on economics and natural resources, there was a small paragraph of five lines introducing the concept of externalities. It was the first time I had encountered such a word!
We are in 2006.
Just a few classes earlier, the most similar word I had discussed was “consequences,” in literature class. I even had a vivid discussion with my literature teacher about the semantics of the word “consequences” (she won, naturally).
I was bumped!
The thought that whatever I would be doing could be producing unintended outcomes, beyond my immediate awareness, left me with a sense of unease.
A feeling that never left.
Twenty years ago, the teacher glossed over that tiny paragraph, perhaps because she too had little to elaborate on. Sustainability wasn’t a mainstream concern then; the hottest topic was sustainable development. Yet, most people lacked a deep understanding of what they were discussing, and that was accepted by all.
One of my values is consciousness. A fundamental aspect of consciousness is acting with responsibility towards others, being mindphiful of the potential pain one may cause. It’s about acting with knowledge and awareness. That definition is the base of most of my decisions.
When I realized that I could unintentionally cause harm without even being aware of it, my world turned upside down. I’ve always strived to be conscious and aware, but this discovery highlighted a blind spot in my understanding. I wanted to be fully conscious of my actions and their impacts on others.
“But Patricia, externalities can also be positive!” you might say. And you’re right, they can.
However, back then, I became too concerned about the negative.
Meaning of Externalities
Externality — noun
ek·stuh·na·luh·tee
The fact of existing outside the perceiving subject.
Externalities are the unintended effects or consequences of an action or decision that affect parties not directly involved in the action or decision-making process.
Externality also can be called spillovers, can be positive or negative.
Negative externalities, are adverse effects or consequences of an action or decision that negatively impact parties not directly involved in the action or decision-making process.
Smoking in public places not only harms the smoker but also exposes nearby individuals to secondhand smoke, negatively impacting their health.
Using pesticides in your garden may control pests, but it can also harm beneficial insects like bees and butterflies, affecting local ecosystems and biodiversity.
Unhealthy behaviors like excessive consumption of sugary drinks can increase healthcare costs for society as a whole due to higher rates of diseases like lung cancer or diabetes.
Positive externalities, also named as positive consequences, are beneficial effects or consequences of an action or decision that positively impact parties not directly involved in the action or decision-making process.
Investment in scientific research can lead to innovations and technological advancements that benefit society as a whole, even beyond the initial investors.
Planting flowers in your front yard not only beautifies your property but also enhances the aesthetic appeal of the entire neighborhood, benefiting your neighbors.
Getting vaccinated not only protects yourself from diseases but also contributes to herd immunity, benefiting the health of the entire community.
Installing solar panels on your roof reduces your reliance on fossil fuels and lowers greenhouse gas emissions, benefiting the environment and reducing air pollution for your neighbors.
Externalities are events that happen because of a decision or action, but they’re not usually planned for. It’s like an unexpected side effect.
What is my definition?
While in Economics, definition vary from indirect cost or benefit or unpriced goods that are not considered in market transactions, then on a philosophical level it encompasses a fact existing externally independently of our perceiving eyes.
The latter one hooked me.
So, I left the unease of causing pain to others to later dive into the profound power of externalities and contemplate their significance in transforming the world slowly.
Understanding externalities is about thinking on the bigger picture.
The connecton with sustainability
The examples provided above exemplify the contemporary concept of sustainability. A growing number of individuals are becoming increasingly mindful of their environmental footprint, taking deliberate steps in determining where they invest their resources, how they dispose of waste, and the manner in which they feed the body and mind.
These decisions, which we are all compelled to make, hold the potential to safeguard the long-term well-being of our planet and its inhabitants — a prospect we aspire to realize. Numerous studies offer guidance on how we can act to mitigate the repercussions on our environment.
Microeconomics for example studies the concept of externalities in depth, exploring topics such as social cost, negative and positive consumption, and marginal costs. Sociologists study how externalities affect communities and societies and public health researchers investigate the health impacts of externalities such as air and water pollution, noise pollution, and exposure to hazardous chemicals.
We are in a moment of time that isn’t only about finding solutions to heal the system; but looking at our action to minimize its consequences.
A story from my personal life
When I moved to the Netherlands, I befriended a neighbor who couldn’t speak English at all. Despite the language barrier, she would invite me for coffee, and we relied on Google Translate to communicate. Our friendship endured for many years, with her husband and son often assisting when Google Translate fell short. Although I wasn’t a frequent visitor to her home, we stayed in touch through WhatsApp (also using Google Translate)
As time passed, I began to notice progress: she could construct more elaborate sentences, relied less on the translator, and engaged in actual conversations with me. One day, her son overheard me expressing my amazement. Curious, I asked, “How did this happen? What did I miss?”
Her son explained, “She didn’t want to lose you as a friend, so she took it upon herself to learn. She asked me questions and I translated things for her. Now she can speak English.”
It wasn’t my teaching or encouragement that prompted her to learn, but rather the value of our friendship. While this may seem like a simple example, it is to simply show how daily creates positive positive externalities without one noticing.
Actions at distance
Every day, our actions have ripple effects, touching something or someone, with an impact felt elsewhere from the originally created.
My father would ask me to be careful with the example I am about to share, but even in physics there is a phenomenon called “action as distance”. In physics, it describes how an object can affect another object without being in physical contact with it. One famous example is gravity: the Earth pulls on the Moon, and the Moon pulls on the Earth, even though they are not touching. This concept challenges our intuitive understanding of cause and effect, showing that interactions between objects can occur without direct contact.
This really blew my mind!
Perhaps it was my father’s early introduction to this concept that allowed me to internalize it so deeply. This may have been an unintended consequence of our dialogues.
Each time my father urged me to explain into thoughts with precision, to observe thoroughly, from afar, with compassion.
Did I become so concerned about unintended consequences because of this? I don’t really know.
It’s no longer a process, but rather an fundamental part of who I am, rooted in my skin and bones.
An example in social entrepreneurship
S. arrived in Utrecht feeling disconnected and lonely. At that time, Mathieu and I were implementing a language exchange project aimed at bridging the gap between migrants and locals in the city.
S. actively participated in cultural events and even volunteered to teach her native language, aiding others in their integration into the city while also learning Dutch herself within our initiative too. A year later, she reached out to us, expressing that her experience as a French volunteer teacher had led her to make a significant career shift. Consequently, she departed from her role as a biotechnological consultant and embraced a new path as a French teacher.
This outcome wasn’t what we initially imagined. Our aim was simply to create connections within the city and facilitate language learning. However, somewhere along the way, someone’s life was profoundly impacted by the process.
Why is this Everybody’s Business?
Gone are the days when we would believe that governmental action was enough to ensure that we live in a society in equilibrium, where every element, including every human being and the natural world, is treated with respect and care. Achieving such a harmonious state requires a collective action, since problematics became more and more complex. While governmental action remains crucial, we can’t afford to see it as the sole solution. It failed in the past, let’s not let the story repeat again. Instead, we must recognize the importance of individual responsibility, grassroots initiatives, and global cooperation in addressing the complex challenges facing our society and planet.
We also can’t afford to wait for others to solve these issues or for a global solution to magically emerge.
When I entered university, I naively thought that one of my teachers, the textbooks, or the system would hold the solution.
I waited in every class and conversation, hoping that the professor would unveil the solution, after all, that’s why I was there.
I had grown up with a father who, like many of his generation, believed in political ideologies that promised to save the world. These individuals had faith in a singular solution that could address all questions. That failed miserably. But this generation perpetuated the idea of a single solution, disregarding the responsibility of everyone.
I never obtained those answers, but I asked. I asked everyone I thought could answer me. And no one ever gave me any plausible answers.
Because, that answer I so eagerly looked for, does not exist!
But something told me it had to do with working on the inner self of each person, reaching them at their core, and making them see that when you change something in your life, everything else follows suit. And so, begins my life as an entrepreneur because these ideas were never going to make anyone money, and no company was interested in hiring what society so often likes to shame — a ‘dreamer’
There is no one solution because the complexity of the problems is so great that it’s necessary to unravel all the threads of these knots. And that takes an enormous amount of time and patience, which the world isn’t designed to provide.
A young person ending up on the streets selling drugs or stealing;
an elderly person suffering from severe depression;
a teenage mother unable to find employment;
a family facing eviction from their home due to rising prices;
a child living in a polluted neighborhood;
a migrant facing discrimination because of the looks;
a rural community experiencing water scarcity
These are issues beyond our common understanding. These are problems that may seem distant to most of us, but we underestimate our influence.
Each of us has the power to influence part of the system through the daily decisions we make.
How? The question I’m most frequently asked.
This isn’t the real question, because I’ve realized that, in reality, people and organizations know what to do.
However, the greatest challenge lies within: people not believing in the value of their actions and therefore doing nothing.
“It’s not enough”;
“It won’t solve anything”;
“What difference does it make”;
“it’s just once”;
“I don’t have time”;
“I don’t have money”;
“I can’t change the system”;
“It’s too difficult, not even worth it”;
“Things are already too bad to bother doing anything.”
The reasons are numerous, and to me, they’re not excuses. Many people deeply believe in what they’re saying.
It’s because they fail to understand what the chain of change entails and everything it triggers when actions are taken. I’ll talk about these paths of change in another post. It’s important to look at the process to consider the externalities of the decisions we make; before taking action.
1. Observe and Self-reflection — Observe the world around you: the type of interactions you have with others, your consumption patterns, the reactions of those around you, the difficulties of others. How can your actions and decisions be affecting others? What am I creating in others? Can I unlock anything in my relationship with other people? Can I adapt my behaviour?
2. Evaluate — Before making a decision or engaging in an activity, question — what impact could this have on the lives of others or the environment? How big will be the impacts? Will the consequeces last in future?
3. Learn — Stay informed about various societal issues. In newspapers, on social media, in everyday conversations with friends. Be attentive to what you hear.
4. Discuss — Engage in conversations, ask questions, learn perspectives. Explore new ways of acting. What is the context? What are the challenges? Can I change my perspective?
5. Make conscious decisions — whether in your relationships with others, in how you consume and what you learn, know why you are doing it. We don’t want perfect human beings — don’t succumb to the pressure of doing everything 100% right. But strive to do better each time.
6. Get involved — if you want to go beyond your individual decisions, get involved in activities that benefit society. Participate in street activities, company social events, or other groups you belong to. Share your skills and time with others. Listen to those who need to be heard. Teach your language to a migrant. Offer your ideas to a friend. Talk to an elderly person. Go along with someone else (good) idea.
Just as small positive actions can create a transformative impact for good, it’s also true that seemingly insignificant choices can result in adverse consequences. It’s important to recognize that our actions have the power to generate both benefits and harm, and it’s essential to take responsibility for the consequences of our choices. By becoming more aware of the externalities of our actions, we can work to maximize positive outcomes and minimize negative ones, thereby contributing to a more balanced and pleasant world for future generations.
Is it difficult? Yes!
Recognizing and dealing with externalities can be challenging.
Inconvenient and boring. Because it’s not just about making a decision here or there. But cultivating a mindset that is attentive to the consequences of our actions. We don’t have to become overwhelmed by this responsibility. It’s acceptable and even healthy to allow ourselves moments of not constantly thinking about externalities. After all, we’re human beings with concerns and responsibilities in our daily lives.
However, at the same time, we can incorporate this awareness into our everyday reflections, allowing it to become a natural part of our way of thinking and acting. It’s about finding a delicate balance between being aware of externalities and not letting that awareness completely consume our minds.
It’s about doing the best we can, in the moment that’s possible for us and at our own pace. But we have to do it because in the world we live in today, it’s really necessary!
Deliberately, I didn’t give ideas of what you can do, because this is a post of reflection about what each one has the ability to generate, inadvertently.
When one becomes aware of what they create, we transform ourselves and it is not necessary for us to be told what to do; because we will know exactly what needs to be done.
