• Externalities: How Social and Ecological is the EU?

  • By Leo Seserko | 10 Jan 13 | Posted under: European Union
  • Globalisation is itself nothing new in human history. However, in the last 20 years, due to the collapse of actually-existing socialism and the rapid pace of development of information technologies under the influence of the 500 biggest transcontinental private corporations who today control 52.8 % of the GNP of the planet1, there is a global hypertrophy of deregulation and privatisation. This raises the question: what will remain of the social state and its social and ecological essence? And what is the EU expected to do in this respect, which as a state community has declared, more than other states and communities of states, like the USA, Russia, Japan, Africa, and South America, its agreement with the Kyoto objectives and the goal of sustainable development? Moreover, the EU has announced its intention of becoming the world’s most dynamic economic and scientific research-focused region. What of this now? To answer these questions, I will examine the question of “externalities” or “external costs”, since they elucidate the contours of the social and the sustainable with special clarity.

    “External” or “Externalised Costs”

    By “external” costs we understand such costs that are “external” to their originator, that is to say, which they can get rid of or “externalise”. These costs are incurred by commercial or industrial activity, but not paid by the originator. However, that does not mean that they don’t appear at all. A truth applies to them, which is so often used as an argument against the social state: neither in nature nor in human economy is there a free lunch. However, showing who in the last analysis bears the costs is a more difficult matter, for they are perceived neither as they arise, nor is it visible that they were originally incurred by someone else.

    One example of external costs is the expulsion of CO2 and other hothouse gases, i.e. the utilisation of mineral energy sources. When we talk about climate change, economic relations – where the question of cost comes up – are only seldom analyzed: energy production from mineral energy sources and nuclear energy causes production costs that must be paid by commercial and individual consumers. Beyond that, the particular states in one or the other form levy taxes on energy consumption. By way of energy consumption, however, there will also be massive damage in the form of polluted air, which causes shortness of breath, colds, bronchitis, asthma and, in extreme cases, lung cancer. Especially affected are small children and elderly people. However, these costs are accounted for neither by the producers, nor by the consumers of mineral energies. They are considered as the unrelated category of sick people, and as separate individual cases, and as relevant to the public health system to the extent it functions. If the sick person is insured, medical insurance takes care of him or her, but only for treatment, but only for treatment. All other costs and problems, pain, anxieties, including eventual death, are his or her private matter.

    Yet, all this hardly exhausts the list of external costs in this case. By way of CO2 exhaust and other hot-house gases, there is an increase in temperature, climate change and the destruction of whole biotopes, the destruction of natural environments and continents, since the local plants and animals often cannot adapt to the higher temperatures and are threatened by death and extinction. They often fall prey to plants and animals, which themselves have migrated to their regions due to climate change. Glaciers withdraw, and diseases like malaria, until now unknown in Western Europe, are spreading. Thus there arises a whole range of costs whose actual perpetrators seem far removed from the scene of the crime, or at least do not have to carry the costs.

    Other kinds of external costs are veiled, or sometimes visible, for instance when public budgets take them over. A serious instance is the state financing of building costs and repairs to streets and highways damaged by heavy transport. The latter literally destroys the highways, and for that payments are made Europe-wide from the public budgets and not out of the pockets of the perpetrators. Put more precisely, it is a matter of subsidies paid by the state to the “transportation economy”.

    Social Exclusion by External Costs

    External costs can be seen to be especially anti-social, since they are paid by nature or by people who in fact are for the most part not aware that they are the victims and damaged by economic protagonists whom they hardly know. And the originators of the external costs do not take care for those who must carry these costs. However, in contrast to visible antisocial exclusions such as unemployment and poor wages, poor work and life conditions, commercialisation of the school system etc., the socially exclusionary aspects of external costs are hardly noticed. Nonetheless, they involve a broader stratum of people than does visible social marginalisation, for added to the already mentioned externalities such as shortness of breath, colds, bronchitis, asthma and, in extreme cases, lung cancer, there are additional allergies caused by chemical products or the decimation of bio-diversity, the damage wrought by climate change etc. All of this affects the majority of people. There are also numerous overlaps between social exclusion in their known forms and exclusion by way of the external costs. In Germany and in other European countries, there are children whose parents do not have an extra 20 or 50 Euros – to pay for school trips. That means social exclusion. But social exclusion often also takes place through illnesses caused by the conditions already mentioned, as well as many other factors, whose co-existence is often not a simple matter of addition but of multiplication and intensification. Depending on their education, children can act spontaneously in a very solidaristic way; however, if they are raised and encouraged to be indifferent, they can also become unmerciful.

    Therefore, the efforts to make visible, not only for children, how the social exclusion caused by external costs can involve every individual in society, have great educational potential. Insight into exclusion by external costs is strategically important, because it is, on the one hand, connected to traditional forms of social exclusion which are often ridiculed and cynically disregarded, and, on the other hand, it is a key instrument for making all of society more self-consciousness.

    External costs are hardly treated in public discussions. Even when they are examined by committed experts or by experts of civil society, they are typically noticed only in a fragmented way, such that only certain types of costs are examined, such as those caused by the chemical industry or by transport. A synthesis of external costs hardly exists. Yet it is precisely this that is crucial – not external costs in particular, but their effects on social developments as a whole.

    Transnational Corporations as “Externalisation” Machines

    One aspect of the difficulty in dealing with external costs is that there are many obstacles to resistance. The damaged or abused person must overcome several obstacles: 1) the victim must first of all understand him- or herself that he or she has become the target of external costs; 2) the attribution of the costs, damages or abuses must be scientifically determined; 3) in society, a common understanding has to develop (through the media) that these damages/costs were rolled over and not paid; 4) this connection must be demonstrated in court or by reference to the law; 5) after this lengthy procedure, the abused can only hope that she or he will still catch the perpetrator and that the latter will not evade his responsibility through insolvency or capital export.

    Another reason is that the originator is frequently hidden: the damage caused is “individualised”, pushed onto individual people and their behaviour, and in this way the real perpetrators are veiled. The perpetrators are then said to be anyone who uses electricity, drives cars, uses pesticides, or buys goods. Since economic development leads to a merciless concentration of production, there is a progressive concentration of capital in ever fewer international companies that not only produce more cheaply – and this also in countries with the cheapest work force – but also become more powerful in order to reinforce the five obstacles described above.

    With their media influence, they try to make the individual believe that he or she is responsible if he or she suffers from bronchitis, asthma, cancer or allergies, because he or she smokes, drives a car, flies to holiday locations or heats an apartment in the winter. Not that individual behaviour is not also important for the damages described! But on the one hand, there is also always the question of what real alternatives exist for the individual, for instance, the availability of affordable public transportation, and on the other hand, regarding external costs, the relative prices of ecologically damaging goods and service offered lie below their real social costs, and thus favour an irrational consumption attitude.

    Science typically becomes a willing instrument in the hands of the economy. No research institution dependent on large private sponsors will voluntarily denounce the latter and expose the sponsors to public criticism by making available meticulous scientific data. And, where news generally has become a commodity, the news regarding external costs has also become an object of purchase and sale. Not purchased and sold, of course, by the sufferers, but by international economic corporations! Enormous scandals, such as for instance in the matter of pesticides, asbestos and other chemicals, are required in order to break through this barricade of silence.

    For a long time In neoliberal economic thinking, the notion of “external costs” did not exist. Only in recent years have environmental agencies and energy agencies focused on this problem as an object of investigation. The pressure of scandals (Seveso, Bophal, asbestos, pesticides etc.) was too great, and the problem could not be completely ignored. But for economic agencies of the EU member states, for the IMF and the World Bank, this notion continues to be considered a mere figment of the imagination of environmentalists and is not accepted as a scientific economic category. Precisely as an environmental category, it is barely tolerated.

    The political confrontations around the EU Constitutional Treaty should also be an occasion to debate these problems and to treat them in a basic law of the EU so as to guarantee to citizens better protection against damage caused by third parties. However, the resistance unleashed by the mere mention of social rights in an EU constitution indicates that such an undertaking will be very complicated.

    In reality, behind the semblance of free individuals striving for personal happiness, there lurks international economic corporations, which for the most part evade member-state legislation. That way they evade and hide from the external costs that they cause. Not only do they relocate production to countries with cheap labor forces, but also to countries where they receive the most lenient treatment from the tax point of view and with respect to their external cost obligations.

    Joel Balkan has pointed out in his book that the people controlling these transcontinental firms are not necessarily inhuman. They may be good neighbours … and when you meet them, they make a good impression as people. Only the structure, the system tears all of them along. “At the heart of this structure is a simple dynamic: a transcontinental firm ‘tends to make profit to the degree to which it can get other people to pay the bills for their effect on the society’, as the captain of industry Robert Monks says that: ‘There is a terrible word that economists use for that practice, and that is ‘externalities’.”2 In Balkan’s book, transnational companies are called “externalisation machines”. They develop technologies and offer these on the market, they exercise influence on legislature and governments, on media and public opinion, but they strive to remain discretely in the background, and like to leave to the individual the moral burden of responsibility.

    Make Externalisation Visible as a Public Problem

    If it is not possible to expose and severely criticise the creeping externalisation of costs, it will become even more difficult to protect existing and legally secured social rights, once they have fallen under the wheels of externalisation. It is difficult enough as it is to bring suit if extant and codified rights are violated. It is even harder to sue for damage and the exclusion occasioned by the external costs. For that, one needs time and money, and these are finite quantities for normal citizens. It also depends, however, on whether, and under what conditions, science, the media, the legal system, the legislature and the political parties finally realise the problem. They tend in fact not even to realise it, as, in the name of “global economic reality,” they can hardly resist the pressure of the most important and influential international corporations.

    Added to this is the fact that the social state can no longer be maintained exclusively at the level of the nation-state. In the age of globalisation, the social state of single countries can only be sustainably guaranteed if a worldwide social state is established. Therefore, the construction of social states in China and India, however Utopian that may sound today, is as much of a key question as is peace policy.

    EU Policy and External Costs

    Compared to other continents, Europe had the most developed social states. However, in the last 15 years, in the context of the neoliberal policy of the IMF and the World Bank, the European social state is being significantly reduced. On the one hand, there is the reduction of the social rights of marginalised strata of European societies and, on the other hand, the dismantling of the rights of the employed. At the same time, the state, or more precisely the public administration of society’s public services and public infrastructures, is being downsized. This process is called deregulation and privatisation and is being carried out in the name of economic efficiency. In that context, arguments, evidence, and statistics play a subordinate role.

    Alongside Ronald Reagan, Margaret Thatcher was a front runner in this process. She dismantled an excellently functioning public infrastructure: British Rail. The railroad system following privatisation is in a deplorable state and costs the British state three times more than previously; nevertheless, this scandal is not taken as evidence of failed privatisation policy. For this, the pressure applied by the IMF and the World Bank, which represent the interests of transnational corporations, is too great. Now and then, they lose a battle or two, as for instance, in the case of the recognition of the damage and immense external costs caused by asbestos, pesticides, smoking etc., but what are such lost battles compared to the generally won global war for deregulation and privatisation!

    The EU and the European Commission are very far from carrying out a coherent social and ecological policy; nevertheless, in some areas, forward-looking steps have been taken: as for instance certain directives and obligations that force especially the late comers among the member states to adapt to unified regulations.

    On the one hand, there is the permanent pressure of transnational corporations on the Commission and its expert organisations, with the goal of minimising the recognition of external costs and preventing appropriate regulations to deal with their occurrence. In this way there is a permanent jungle war between different interests and EU institutions, in which the companies impose their interests in the framework of mostly “technical regulations” or by way of the budgets of the EU and its member states. On the other hand, there is pressure from organisations of civil society for more social and environmentally friendly policy. However, both civil society institutions that do not follow a unique action model and political parties represented in parliaments are constantly observed by the transnational capital corporations, quite often by additional civil or expert societies the corporations themselves called into life, and often also undermined and turned into willing-executioner institutions of these societies.

    In social policy, the situation is different, because here trade unions occupy a leading role, but they in turn are limited; first of all, by focusing only on the level of the member state and on wage negotiations for distinct population groups; and second, because they fail to represent the general social interests of their members and do not provide leadership for confrontations around political demands, including strikes.

    The EU experts do also bring about progress in the form of more ecological substance in their directives, for instance in the case of fine particles or renewable energies. There is nothing comparable in the social area. But also in the ecological domain, there is no unified or consistent EU policy; this is blatantly obvious in the area of atomic energy policy, or rather in policy for the ”peaceful use of nuclear energy” that in reality is inseparable from military development.

    The reason for this ambiguous situation is the fact that in the institutions and expert bodies there are also upright and morally responsible individuals who have influence on decision-making processes even if they run the risk of being isolated and subjected to discrimination.

    In the EU’s environmental policy, in many instances the Commission destroys with its right hand what it has just created with its left. This phenomenon is also observable elsewhere in the world. Especially in the area of project financing and structurally by means of budgets, economic activity is being unleashed or promoted, which generates enormous external costs and which then must be counteracted by other means. One such example is the subsidising of fishing by the EU and by the member states that leads to drastic damage to marine bio-diversity. In part, fishing capacities are encouraged; in part, a reduction of that capacity is promoted. The oceans are largely over-fished, and this results in the dying out of certain species.

    The same holds for agricultural subsidies in general. Organic agriculture is uninteresting for transnational corporations in terms of profits: not only because of agriculture itself, but also with respect to other economic branches, such as transport industry, the energy corporations etc. All these industrial branches are interested in stopping the spread of organic agriculture, however desirable the latter is from the point of view of health experts and consumers. Out of the attempt to restrict organic agriculture, there arises an unholy alliance of opponents of organic agriculture, of media, broad overseers and inspectors up to and including dominant agricultural organisations. Behind it all, however, stands the invisible eye of the transnational corporations, which provide the desired global economic development in any area, including agriculture.

    A similar situation exists in the transportation economy. Even though the White Book for the introduction of sustainable transportation strategy until 2010 was already published in 2001, nothing happened in the years since, apparently because the interests of the carrier companies and its lobby are overwhelmingly powerful in the EU, even though transportation is among the most important sources of hothouse emissions.

    Nevertheless, in the course of the development and enlargement of the EU an area has emerged that has progressively contributed to more attention paid to environmental questions. This is the EU’s promotion of research. In the member states, the promotion of research is for the most part directly subordinated to economic policy, in some cases also military policy. And it is subject mainly to the internal political consensus in the member states; it can, therefore, hardly set any new priorities. By contrast, the development of EU scientific research policy needed a new and responsible focus that could not simply be an extension of the scientific research policy of the member states. This extension is seen most blatantly in the extraordinary and completely unjustified financing of atomic energy research and nuclear industry. But even this financing must, in order become it socially legitimate, mask itself as “atomic security technology” which is only the euphemistic paraphrase for the continued development of this industry.

    In any event, EU research has produced considerable arguments for an offensive environmental policy and in many areas revealed glaring contradictions in legislation. That has led in part to improvements in EU directives in the area of the environment, in the form, however, of measures introduced over a very long period, in order to give the economic actors enough time to prepare for the new requirements. This strategy “of more time to soften the pain for industry”, however, has at least one further advantage: transnational corporations no longer try to exert control within the jungle of tasks, directives and instructions, and have time to prepare for new conditions, while the medium-sized industrial firms fall mercilessly prey to competition and the pressure of legislation.

    However, there is very little EU promotion of research in the domain of social affairs. Why the EU is developing more sensitivity for environmental than for social matters is not an easy question to answer. One explanation may be that environmental policy ultimately concerns every individual; social policy, on the other hand, always only parts of society. Nonetheless, there is an inseparable link between environmental and social policy. One explanation for the EU’s relative sensitivity to environmental matters, however, arises from a certain view of economic development in which expenditures on the environment ultimately increase the capacity for competition, while social expenditures, on the other hand, reduce it. From this perspective, expenditures for the social state belong to the external costs of the economy, and “the economy needs to be encouraged”. Yet, behind this lies a real problem. Through constant capital concentration, medium-sized industry is just as threatened as the social middle-class in the EU and world-wide and, thus, the social and moral values that are thought to be embodied in them: honesty, moral uprightness, social feeling and justice.



    1. The Empire of Shame. The Struggle Against Poverty and Oppression, by Jean Ziegler, Munich 2005, p. 213.
    2. The Corporation. The Pathological Pursuit of Profit and Power, by Joel Bakan, London 2004, p. 70.
    3. Commission of the European Communities, WHITE PAPER, European Transport Policy for 2010: Time to Decide, Brussels, 2001, COM (2001) 370 final.



    Pier Luigi Lombard, Walter Baldassarri (ed.), Isabella, Buscema, Laura Cutaia, Massimo Bellapadrona, The environmental and social costs of mobility in Italy, Fourth Report, Rome, 2002.

    European Commission, External costs, Research results on socio-environmental damagedue to electricity and transport, Brussels, 2003: http:/europa.eu.int/comm./research/rtdinfo_en.html

    INFRAS, IWW, External costs, transport, accident, environmental and congestion costs in Western Europe, Zurich, Karlsruhe, 2000.

    INFRAS, Internalisation of external costs: Instruments, Zurich, 1999.

    Meike Spitzner, Ute Beik, Soziale Aspekte der Mobilitat, Wuppertal, 1999.

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