The False Perception (part two) – Externalities
…continued from The False Perception (part one) – Value.
When we started a.k.a. Green, I never thought that we would compete with big box retailers and, as it turns out…we don’t. We primarily compete with our society’s acceptance of cheap products that are designed to be expendable and are manufactured with many hidden ‘costs’. A perfect example of these hidden costs is prevalent in the paint industry. When we first opened a.k.a. Green, one of our paint manufacturers had two versions of the same product – a general line and a ‘PRO’ line. The pro line was about $8 less per gallon, but both were Zero-VOC, No HAP’s and No exempt solvents. We smelled a fish. So we set out to understand why a company would make two products of ‘equal’ quality when they could just make one at a price somewhere in the middle. Why have a more expensive line? They told us that the ‘PRO’ line was manufactured with cheaper ingredients, and actually didn’t perform to the same level as their other line. It had less scrub resistance, less coverage/hide and didn’t level out as well as their general line, but it was cheaper…and that appealed to contractors. This, we have seen, is a common practice in the paint industry. Manufacturers need to entice contractors/homeowners with cheaper prices, but to make it work for them financially they have to cut corners and cheapen the product. In the end, you, the consumer, gets a product made with cheaper ingredients (read: usually more hazardous – thus the formaldehyde issue), at the expense of quality, performance, durability and, while less appreciated…your health.
This practice extends to just about every product we buy. An example comes from a friend who wished to purchase a lunch box. She searched many stores in her effort to find this particular lunch box, but ultimately found it at Wal-mart – for 50 cents. She inquired with a sales associate about the cost and its ability to stand up to usage over time. The associate said “what difference does it make? If it breaks, just buy another one.” Without batting an eye. Want more examples?
We call it ‘The story of a rock.’ There is company here in Arizona which makes products from stone. They carve giant chunks of stone out of a local quarry and load them into a container. This container is sent via truck to Los Angeles where it is taken from the truck and loaded onto a shipping vessel. The ship travels to China, where it is unloaded from the vessel and put back onto a truck. The truck is taken inland and the container is unloaded at a factory which makes the finished stone products. The finished products are loaded back into a container, back onto a truck, back to the shipping port, back onto the boat, back across the Pacific to Los Angeles, unloaded, put back on a truck, shipped back to Arizona and unloaded at the factory ready to be shipped to places of sale across the region. (Deep Breath) This rock travels halfway around the world and back in spite of the fact that there is a finishing plant with the same capabilities just 30 miles from the mine. But hey don’t send the rock there because it is Cheaper to send it to China. Not just cheaper… CHEAPER BY FAR!!! How can this be? There are many reasons; Chinese subsidies, US subsidies and tax incentives, subsidized fossil-fuel energy, social inequity, cheap labor, poor living standards, lax environmental protections, free polluting, etc… And we don’t even bother to think that we pay for these costs.
So do you know all the ‘expenses’ associated with your purchasing decisions? What is the ‘cost’ of our addiction to cheap products? We refer to these expenses/costs as Externalities. These are costs that we ‘pay for’ but that are not reflected in the price of the products we purchase. They are pushed off onto the larger society. In business terms, these are costs that occur but don’t show up on a Profit and Loss spreadsheet or in returns to shareholders. We pay for these costs in tax incentives, government subsidies, environmental damage and occasional cleanup (eg: Superfund), air quality, water quality, lost species, soil erosion, climate change, military engagements, foreign aid, healthcare costs… and government bailouts. These are the hidden costs of our addiction to cheap products. Want another example?
Let’s take a look at gasoline. Right now, we pay about $2.78 per gallon of gas at the pump. The key is the phrase “at the pump.” According to Lester Brown, in his (free) book Plan B 3.0 (now available in 4.0), the actual cost of a gallon of gas if you count all the externalities is close to $14.78 per gallon. Oh, and you pay that… just not ‘at the pump’. You pay it in the form of taxes which go to oil companies in the form of subsidies and taxes breaks. As a matter of fact according to experts, the US pays the equivalent to a TARP bailout every year to the oil industry to further our addiction. That is over $700 billion each year! That’s $2300 per person per year in taxes that are extended to feed our addiction to gasoline.
So, our big lesson… Currently, there is little room left in the world for quality products. People want them cheap, and the overwhelming majority are not aware of (and some simply don’t care about) the ‘cost’ that choice brings. The big question… Can we overcome this tendency before it costs us Social degradation and Ecosystem destruction?