In The Future, You will be Expected to Pay for Your Externalities

Recently I started a light-hearted series aimed at exploring ways in which the social etiquette of the future will evolve/ change as a consequence of transformative technologies such as the blockchain. In the first post of this series I proposed a version of the future in which it will be socially expected to tip your grower/ producer. In this post, I am proposing a future in which it will not be acceptable to enjoy a profit/ benefit without paying for the related negative externalities*

It is a big tragedy of our time that we operate with economic theories that tolerate privatized profits and socialized costs. These economic theories — developed at the end of the 19th century and in dear need for an update — glorify economic growth and fail to quantify non-monetary cost of this growth. This is the case for countries, companies or even individuals.

Sure we congratulate companies that voluntarily offset (some of) their negative externalities, but it remains shockingly acceptable that economic growth will have socialized negative consequences — left often to NGOs and communities to address as they see fit, in exchanges for “generous” donations from the very people/ companies/ governments who created the mess to start with.

Large industries continue to displace communities, oceans continue to be polluted in the pursuance of economic growth and those people grabbing your water and then reselling it to you while packing the world’s landfills with plastic continue to enjoy investor’s money and government’s confidence.

Jerks.

In the future this will not be acceptable anymore. The big change will come from the fact that we will soon be able to quantify these externalities. That’s right — put a monetary value on them, floated on an open, transparent, decentralized market that cannot be rigged or distorted.

It is easy to get outraged by narratives around externalities. But when it gets down to it, it is hard to put a number on these externalities, while profits, taxes, jobs are easy to count. This makes the whole debate asymmetrical and easily paints people who protest as emotional lefties.

Blockchain technology will change this in at least two critical ways:

1. Supply chains will become transparent and verifiable against trustless distributed ledgers. We will know where the plastic comes from, who produced it and who dumped it. We will understand who contributed what, which will allow us to balance traditional economics against these costs and pass the costs to whoever profits.

2. Communities will verify impact continuously — positive and negative — on a decentralized network. This impact — natural and social capital essentially — will then be tokenized and made available for trading. Someone pollutes, they have to pay for it. Someone invests in social or natural capital, they will make a profit.

Eventually, it will be easy to check any company’s (and country’s) impact portfolio — if it is negative, customers can choose to not do business with them and regulators will penalize/ tax such unsustainable players. Investors will shun them in favour of high positive companies. It will be expected/ obligatory to maintain a positive portfolio for anyone who wants to survive in this new economic environment.

Friends will not let friends stay net negative. There will be support programs helping the ones who struggle. Within a few years, our children will give all of us a hard time for daring to stay net negative — and there will be a generational settling-of-scores about this.

Sure, the market price of goods may go up — as companies are forced to fork out for decent wages, health insurance and pay for cleaning up their mess. But on the other hand, there will be real and immediate value associated to positive externalities. Contributing to your community will earn you social capital which is real capital. Recycling, producing solar energy, planting trees etc. will all earn real money (taken from the ones who created the mess) so there will be more money to go around for those doing the right thing.

The circular economy, done right.

*A negative externality is a cost that is suffered by someone that wasn’t part of the economic transaction. For example, a producer (party) sells plastic to a consumer (party), but this transaction affects the community where the plastic is produced (pollution) as well as generations to come who will spend centuries trying to get that piece of plastic out of the oceans.