What is an Externality?

Somewhere there is an exchange. Two things (at minimum) change hands for which there in the immediate sphere one assumes a equivalence between givens. The traders or exchangers take their givens back to their private domains and there take stock of what went into their objects of exchange. For one it could have been the products of a 40 hour work week, for several weeks, as well as other material and psychological investments or sacrifices. For another it could be hours slaving away in a studio over a product or just as likely the utilization of some environmental resource harvested for product creation, or alternatively the purchase of the labor time of another or several others all pitching in for the creation of that which will be exchanged.

In the immediate scenario there’s an appearance of equivalence. Something that nets out at zero. Product -> Money / Money -> Product or Product 1 -> Product 2 / Product 2 -> Product 1. But in the move from micro to macro (or even before one gets there, in the movement from the microeconomic to even semi-macro scales) one sees emerge a different picture. One where things are not quite so equal, not quite so simple.

All cases where these “not quite so simple”, “not quite so equal”, not quite so foreseen consequences escape from the exchange, one can say that one is the domain of the “externality”. The concept presupposes one capable of problematizing the stable presentation of the given exchange or set of exchanges. Between oneself and others, between diverse sets of others, between that which speaks for itself and that which perhaps doesn’t even have a voice that one would understand. The concept of the externality directly pertains to the relationship between the accounted for and the unaccounted for, the measured and the unmeasured or perhaps in some cases (as we’ll see below) the unmeasurable. To consider the externalities of a set of actions or exchanges means to “make visible” what has heretofore remained out of the equation or ‘off the books’ (in the accounting sense of that phrase).

There is an accounting of what is needed to do X. The objects needed for the proper functioning of X are thus accounted for as costs (actual or potential, direct or indirect). The system functions (one presupposes) interiorly on the basis of the driving of these objects accounted for. Something happens occasionally however during the everyday functioning of this system– by-products of activity are spit onto the exterior of the system–, –presuppositions of productivity become obstacles to the realization of production–.

Externality & Gift

In the case of gift exchange or charitable acts, unseen costs of accepting a gift become apparent — costs incurred in the creation of a gift become recognized by the gift barer, gift-giver or even a third party, though previously invisible to all.

But not everything is bad. There are always costs in exchanges and transactions, but cost are generally associated with benefits, somewhere, received by someone, or something. The same unaccounted for presuppositions that can become obstacles to the realization of production are also considered positive externalities when they without cost provide productive conditions for the generation of value for X consumer, for X producer or X public service. To give an example, the advent of the smart phone produced positive externalities in the sphere of immediate access to knowledge, but negative ones in the sphere of public physical sociability and interaction or in the corporeal sphere of long-term spinal pain. Or one could dig further into the issue of the access to knowledge and reveal a negative within it (confirmed by Herbert Simon) of the consequent negative externality of oversaturated information-processing capacity, the feeling of being overwhelmed by demands on attention. The good comes with the bad, and one objective for any enterprise social or commercial is to minimize negative externalities and the capture as much terrain with positive externalities as possible.

Economist Yann Moulier Boutang has written about the need to take externalities into account to properly understand today’s economy. Like the beekeeper and the orchardist (to use his famous example) the major modern enterprises of the 21st century all harvest the potential and value created through “cross-pollination” of spheres of production in the creation of positive externalities to create exponentially more innovation, impact, detail, and externality spillovers on the environments in which they operate. This means mobilizing latent, undervalued inputs and putting them to use if ways previously unthought of. Or it could conversely mean exploiting relaxed laws in the spheres of environmental protection, bribery or corrupt practices in business to maximize profit elsewhere that one could not do in more strict regulatory environments. In either case, it’s an issue of seeing, recognizing and accounting for what might alternatively be thought outside the sphere of a transaction, an exchange, an act of production or consumptions in and of itself. It invites you to question who accounts for what is produced or consumed? Who pays costs associated? Or conversely, one could ask who can rightfully take credit for a benefit consumed? Should anyone?

The same types of concerns that pertain to economic activity pertain as well to charitable acts. Charitable acts, as with types of seemingly benevolent intervention in medical fields, psychological fields, social and economic fields are wrought with examples of disaster deriving from well-intentioned actors. One could ask Ignaz Semmelweis about the negative externalities of all the love and concern of germ-infested hospital staff in the 19th century Western nations, or one could similarly ask the approximately 900 villages in Bangladesh that suffered from arsenic poisoning from the 1970s to the 1990s from ground wells built specifically to reduce the extremely high infant mortality and diarrhea rates from deficient water purification and sewage systems. In both cases here the transaction was not a simple product as one would normally depict in examples of gift exchange or the sale of goods. These examples are closer to the complexities involved in service provision. When one pays for or offers a service, only part of the product is actual and present (generally the obligation as encapsulated in contract or receipt), the other part of the product is virtual, a promise to deliver upon the obligation. With complex charitable acts it is somewhat the same. Something is done, which is actual, but it is done from the basis of a virtuality–by which I mean the content of the world inhabited by the actor, one’s territorial maps of the world/society/risks and opportunity as well as the cognitive points of reference and experiential history that combined makes each individual actant unique in internal composition. The act alone would not determine for another the nature of the act. Its nature can only be determined by establishing a connection with something virtual. Two internal worlds must if only for a moment, understand each other, usually with accompanying narrativization about its promise of benefit (thus making it “charitable” potentially).

Just as with externalities generally, the issue of charitability necessarily involves matters of the perception of complex interdependencies. The externality generally remains hidden or unspoken when negative, but made explicit (generally during the exercise of outlining marketable benefits in promotional activity) when they have positive effects. Organizational entities with major footprints may occasionally make explicit the benefits of their presence in a community by way of the provision of new jobs or new tax revenue as positive externalities from communities allowing them residence. The presence of this type of talk is strategic for such organizations because in absence of such narratives a community may decide to focus on all the costs such residence will cause for them, and as someone like Nassim Taleb would say, not differentiating between different type of organizations or scales of their organizations/activity would be quite unfortunate due to the differences in long term effects generally. With gifts there is often an equal necessity to make explicit the fact that something given or done is done in a charitable way. It transforms acts of maintaining supply chains open or inspiring new consumers suddenly to acts altruism or being good citizens. One needs this perception or confirmation of “intentionality” for the virtual associating of a “charitable” intention to the act.

What we perceive as “valuable” in the presence of something or what we perceive as “gift”, as we are starting to see, can proceed from two different sides. Material evaluations of acts or things produced or presented as corresponds to an existing internalized systems of valorization; or conversely, the recognition of the intention in the presentation of something which provokes a valuation or auto-valorization to novelly received objects. Something given to me is not easily placed in the category of gift (as immaterial evaluation). But if there’s a nicely tied “bow” on top or a PR statement announcing the act, any ambiguity about the nature of the given fades. It is intended as “gift”. Something given to me likewise is not always easily placed in the category of “value” (as material evaluation). But external assessments or external clamoring for the thing given changes my apprehension of it.

The Gift of the Externality

Without mentioning it specifically this entire discussion revolves around the interaction between one’s apprehension of an object and one’s territorialization. The Thing and how it is received. The first side of the connect is the one most familiar to us. It is summed up in question of “What IS the Gift?”, “What is Exchange?”, “What IS the externality?” The second side of the question is less familiar and as a whole changes the nature of the first question. This second side is less familiar with most people but has the potential to change the very nature of the first question. It can be posed as “How does this novel object-relation change me?” “What is created socially or ecosystemically by X transaction?” “What changes in your/my territorialization with the acceptance of this gift?”. In ethnological study one would historically speak of kinship strategy in terms of alliance and filiation. Models that could explain the social implications of acts of exchange. All acts of exchange pose risks and potential gains in resultant relational outcomes.

The externality presented by an exchange, a gift or transaction is such only in part because of the complexity of what produces it. The other side of the externality is such because of the complexity of those that receive said exchange, gift or transaction.

As Plato could possibly have said of the pharmakon, something can be both remedy and poison but nonetheless potentially useful, the nature of the externality in all cases depends on the externalities of the particular “gift”. Whether or not there is in fact a gift (a giving forth of something deemed to be of value) in this context becomes a question of relevance only to the material evaluation of the object and externality. The question implicated in the evaluation of territorialization becomes “What is valued by the resultant territorialization created in the exchange?”.

The gift of the externality is a moving target. It can be defined materially if it exists, but on for a subject that does not also become something else in a transaction.