35.5 – The Social Waste of Capitalism
Learning Objectives
By the end of this section, you will be able to:
- Analyze the relationship between social waste and cost minimization
- Define the vicious cycle hypothesis of cost shifting and social waste
As shown in the previous section, cost shifting in capitalism means that business leave costs unpaid which are nevertheless socially necessary costs in the sense of necessary for sustainable social provisioning. These social costs have to be paid no matter what if society is to be able to reproduce itself and thrive in the long run. The question involved here is primarily the distributional question of who pays these social costs, that is, an issue of socio-ecological justice. As shown, preventing or reducing cost shifting and social cost deficits where possible is also more efficient than fixing them more expensively afterwards. This demonstrates how the critique of cost shifting expresses a joint concern for sustainability, justice and efficiency.
Cost shifting as Social Waste
There is, however, an additional category of social costs that are unnecessary additions to above necessary social costs of sustainable social reproduction that businesses leave unpaid. These types of social costs are completely unnecessary from the perspective of society but emerge because they are very profitable and not prohibited with robust enough enforcement. As such they are social waste as they reflect additional and unnecessary social opportunity costs in excess of the minimal social costs of social provisioning. A brilliant example is the overproduction and marketing of sugary and fatty foods marketed to children, which result in ill-health ranging from obesity, diabetes, and dental decay. These are socially costly for individuals and society in terms of health care, and foregone human wellbeing and life expectancy. Other examples include planned obsolescence, when companies reduce the life cycle of products so consumers have to discard them and buy new ones. Additionally, repairs or replacements of parts are intentionally barred such that a fault in one part of the product causes the entire product to become wasted. This leads to a throw-away consumerism and ever-growing barrage of waste and pollution. A good example is the case of Apple who forced an update onto users’ I-phones to slow them down. Conveniently, this occurred at the time of the release of the new I-phone so as to incentivize consumers to buy a new phone and discard their old phone.
Again, as discussed above, the reason is the institutionalized principle of investment for profit rooted in capitalist accounting rules and property rights, not some impossibility of socio-ecologically efficient engineering. Engineers are well capable of building durable consumer products that are repairable with exchangeable parts, making precious resources last longer, reduce and recycle waste flows.
Cost Shifting and Social Waste vs. Cost Minimization
This theory of social costs of capitalist firms does not assume that firms minimize costs but that there is considerable movement in the firms costing procedures depending on the power asymmetries playing out in transactions between agency and structure. For example, there is plenty of evidence that firms shift the costs for proper waste disposal to society by dumping legally and illegally emissions and refuse into ecosystems. The same is true when the costs for the maintenance of workers are shifted onto society by paying low wages that are far from living wages. At the same time managers inflate their salaries, administrative and travel expenditures for prestige purposes and reducing tax payments. This is known as the “edifice complex” and there is no overall cost minimization in the sense of technical or cost efficiency at work here. Indeed, the inflated costs of the edifice complex might be rendered cost neutral and even profitable for the firm only thanks to tax rules designed for especially for the benefit of the edifice complex. However, this simply means that these costs are shifted to society in the form of absorbing the waste flow from this conspicuous consumption, the resource depletion, as well as reduced tax revenues, which are unavailable for funding public goods, such as hospitals, schools, childcare etc.
For example, the German government allows firms to write off from their taxes the expenses for fuel guzzling SUVs, which makes them very cheap from the perspective of the firm and even cheaper than small economy cars for consumers who do not benefit from the same tax regulation. Basically, these types of tax regulations are a form of subsidy for the luxury car industry and support the socially wasteful edifice complex. This shows how firms redistribute costs in a cost shifting dynamic based on asymmetric power relations between workers, managers, absentee owners, society, and government. Social cost deficits and profits emerge from this process of cost shifting, which is far from a cost minimization process either in technical or monetary terms, nor for society as a whole.
For example, it has been well documented how the financial sector shifted the costs of toxic assets to the public balance sheet to avoid bankruptcy. These toxic assets had been the result of profitable predatory lending practices to people who could not afford these loans. Upon default these loans became worthless after having been accumulated during this very profitable run-up to the Great Financial Crisis of 2008. Basically, the short-run profits were merely the flip side of accumulating unsustainable risks and loans, the costs of which were eventually shifted to society. Banks received newly created money from central banks, shifting the costs towards inflated central banks’ balance sheets and public deficits and debt. The public thus bailed out the financial sector who otherwise would have ceased to exist. Some commentators dubbed this socialism for the rich who are able to socialize their costs, while the poor are told to accept the laws of capitalism, that is, bankruptcy and default.
Cost shifting >> Social Waste: Vicious Cycle Hypothesis
The downside of allowing profiteering from social cost deficits is that the resulting profits are mostly amassed by the top 1% who are either capitalist, rentiers, or their top executives, administrators, and lawyers. From these groups the members of the leisure class are selected, who spend predatory profits on wasteful and conspicuous luxury consumption far in excess of their contributions to social use values. For example, a recent Oxfam study showed that the richest 1% causes double the greenhouse gas emissions of the world’s poorest 50%.[1] Another study showed that the top 1% causes 16% of total emissions.[2] If the leisure class were allowed to spend its entire wealth on luxury consumption there would be no resources left for the rest of humanity and future generations, who also would drown in the resulting flood of pollution.
We can see here that under conditions of a leisure class society and capitalist accounting rules, social cost deficits are of a compounding nature in the sense of self-reinforcing dynamic or vicious cycle:
Social cost deficit >> profits >> social waste >> higher social cost deficits
This is a form of social waste in the sense of social opportunity costs as it means not only that the kept classes do not add social use values (foregone alternatives). It also means that they get to exhaust precious natural resources and pollute ecosystems far in excess of their basic needs and sustainability requirements. This implies additional foregone alternatives for future generations and additional social cost deficits.