Pandemic lesson: the disappearance of externalities

Lazy neurons, they fail to see connections even when they are obvious.

I cannot recall when I started hearing people talking about the global village, globalisation, hyperconnectivity, spaceship earth, Gaia, ... I grew up with this holistic language as my conceptual koiné.

But only recently, thanks to the pandemic, I realised that I should have linked it to another phenomenon: the disappearance of externalities. It is so obvious now.

In pseudo-precise literature or pretentious conversations, an externality is a negative effect of a profitable activity, call it a cost, paid by someone else. Like what happens if one runs a profitable business that pollutes someone else's environment.  My externalities may be unintended, possibly avoidable, but it is not my problem whether they occur, and the fact that they may occur is not going to stop me from pursuing my activities, since the cost paid by someone else is not a sufficient disincentive to sacrifice my own benefit. Sometimes, I think that when people speak of "externalities" what they really mean is "collateral damage".

However, an externality, in economics, is something more neutral and precise. It refers to a cost or a benefit (negative or positive externality) – due to the production or consumption of a good or service (and I would add here policies, regulations or courses of action) – incurred or received by a third party, which has no control (more on this in a moment) over the creation of that cost or benefit. Thus pollution may be an externality, but only if the polluted has no control on it, and the benefits of pollination caused by beekeeping are also externalities, but of a positive kind, even if we do not attach a reward to them.

Politics has always known the value of both externalities: nobody is grateful for positive externalities (who does ever thank the keeper of the bees for the pollination they facilitate?), and the negative externalities of bad government today are paid tomorrow, by the next government, or another generation of citizens. Brexit comes vividly to mind.

As for "control", this is an important clause. The lack of control may be due to lack of information: the third party may not know. I can imagine this might have been common during the industrial revolution, all the way down to the post-war reconstruction. Today, in an information society, this seems to be increasingly unlikely. More plausibly, the lack of control is due to a lack of power. In this case, an externality is both known and imposed. We need to remember this below, when internalities are in question. They are more and more obvious, and if we do not deal with them is not for lack of knowledge, but for lack of power. 

Juxtaposing these two phenomena – one world and the nature of externalities –seems enough to see their correlation: connectivity is changing externalities.

Today, externalities are quickly becoming merely displaced (elsewhere) or delayed (elsewhen) internalities, that is, costs and benefits incurred or received by the very agents who are responsible for them, even if they did not consider them. We live in a single network, where there is no external space to dump one's own negative externalities and where positive externalities percolate more widely, building resilience.

If I did not see the end of negative externalities until recently, it is also because, despite all our holistic theorising, we practically keep behaving as if we had plenty of space and time at our disposal. The growth of space debris and the recurrent suggestion that rubbish or even radioactive waste may be disposed of in Outer Space show how reluctant we are to take seriously the view that there is no disconnected, other reality where negative externalities migrate for good, never to return home.

The pandemic has made painfully clear that negative externalities are increasingly an untenable abstraction. What we do affect each other, here modifies there, today changes tomorrow. In an ever faster and more connected world, the time between doing something and its consequences becomes increasingly shorter. Brexit was possible not despite but because of the delays. If it had been immediate, its critics would have been right about the sudden pain it would have inflicted. This is also why the same political approach did not work with COVID-19, the effects of which have had a dramatic impact on the population almost immediately. Nothing better than a robust externality slapping one in the face immediately to make one change behaviour asap.

Space and time have shrunk and keep shrinking. This is obvious. Therefore externalities are disappearing. This should have been equally obvious. Better late than never. We should really speak only of internalities that, like boomerangs, seem to go away but always come back to the point of departure, faster and faster. This may seem problematic, but it is good news.

First, there is value in clarity. As long as we thought that externalities were alive and kicking, we could try to manage them. Now it seems we have been trying to manage phlogiston. It makes no sense to misbehave thinking that the cost of such misbehaviour will be paid by someone else. "Anyone first", America included, is a head-in-the-sand approach because it is caused (also) by the end of externalities  (in a smaller world the "first" is, and sees itself being, challenged by the second and the third) and yet makes such end even more dangerous by refusing to acknowledge it.

Second, accepting the end of externalities means that we can start focusing entirely on internalities and design systems that handle them better. We need to become critically aware of them, and design policies to incentivise good internalities, which make the world a better place, and disincentivise negative internalities, which make it worse.

The end of externalities is the end of the delusion that we may live in a disconnected world. It should also be the beginning of a better management of a connected one. As often in our age, this is a matter of good design: the right solutions developed in the right way. Good design requires knowledge and intelligence, of which there is plenty. But unfortunately, its implementation requires goodwill and political leadership, of which there should be much more.  Recall the lack of power to control the old externalities, not of information about them. So the simple conclusion is that the end of externalities should lead to society's stronger demand for better politics.