Externalities

It's been nearly 100 years since the eminent British economist A. C. Pigou first argued that competitive marketplaces would not work if producers did not bear the full cost of production 1920 essay "The Economics of Welfare." Consequently, Pigou called for taxes to be placed on products that would capture externalities to motivate producers to act responsibly and reduce their negative impact on the community.

Without environmental accounting, we could not measure these externalities. The author in our "History of Environmental Accounting" reading says that "support for EA in the business community has been reserved. In part, this is because...internalization of externalities threatens profit margins."

On the other hand, this week's optional reading from the Harvard Business Review (HBR) urges that "The key to becoming a contemporary corporate leader is to take on responsibility for externalitieswhat economists call the impacts you have on the world (like pollution) for which you are not called to account." Some say the HBR article was a landmark. It caused quite a controversy. Luckily, they had the foresight to accompany it with an online blog debating the subject with some very heavy hitting contributors. The following blog posts are from a debate that took place between high profile business people on the HBR blog for a couple of months following the publication of the article.

Embracing Externalities Is the Road to HellLinks to an external site.by Michael Schrage| 12:06 PM April 21, 2010

Companies Must Account for the True Cost of Their ProductsLinks to an external site.by Jeffrey Hollender| 10:23 AM April 22, 2010

CSR Efforts Need a Middle GroundLinks to an external site.by Sandra Waddock| 11:05 AM April 26, 2010

Why Aren't We Stressing Stakeholder Responsibility?Links to an external site.by David Chandler| 5:00 PM April 28, 2010

Business Owes the World Everything...and NothingLinks to an external site.by Andrew Winston| 4:20 PM May 4, 2010

Businesses Aren't Charities, and We Don't Want Them to BeLinks to an external site.by Debora Spar| 12:31 PM May 20, 2010

In Defense of the Unabashedly ProfitableLinks to an external site.by Jay Richards| 8:28 AM May 24, 2010

How Did Peter Drucker See Corporate Responsibility?Links to an external site.by Frances Hesselbein| 10:10 AM June 9, 2010

For 10 extra credit points, please address your reaction to the HBR article and share which arguments among the blog postings you find to be most compelling and why.(You can't see all of them without a subscription, but just pick three that sound good).

In your response, also consider that Pigou first raised the issue of externalities in 1920. What is different about the world 100 years later so that experts now argue that accounting for externalities may be a key to competitive advantage rather than a threat?