What is the Connection Between Nation States and Market Externalities in Our Globalized World?|| Written Summer of 2020
By: Bohai Lu
Tags: Humanities, Globalization, Anthropology, Market Externality, Nation State

What is the Connection Between Nation States and Market Externalities in Our Globalized World?|| Written Summer of 2020 Bohai Lu Follow Sep 1 · 5 min read

In this article, I will examine the relationship between market externalities and Nation States. I will also consider the idea of neoliberalism and that we live in a globalized world.

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Market externalities are “costs that are not included in the prices people pay, for example, health risks and environmental degradation” (Robbins 2017:229). It might come to you as a surprise that if we include market externalities in a snicker bar, the cost can skyrocket from $1.50 to $10. But how can corporations manage to keep the cost down? It has to do with the interventions of nation-states. Nation-states are a “political community that has clearly defined territorial borders and centralized authority” (Robbins 2017:226). This paper will examine how nation-states help companies make a profit by subsidizing part of their production cost.

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Let’s look at a specific example: the cane sugar in snickers bars. Sugar cultivation needs to happen in a tropical climate, which Canada does not possess. Hence, a lot of the sugar Canada imports comes from the United States, specifically southern Florida and Hawaii. These sugar production areas are not environmentally friendly; they contribute significantly to the dying coral reefs in Hawaii and the destruction of native species in Lake Okeechobee in America. These often irreversible damages are not primarily paid by the corporations who produce the sugar, the companies who use it in their products, or even the consumers. A majority of the actual cost of sugar production is shouldered by the nation-states in which the production occurs. Nation-states generally pay for all environmental remediation costs that are needed to rehabilitate the environmental damages of sugar production. Nation-states also pay for infrastructures such as roads, power systems, and the water corporations required for their production. This is because one of the functions of nation-states is to ensure that businesses and corporations are successful (Robbins 2017: 228–230). If nation-states required corporations to pay for all the market externalities, corporations would go bankrupt, which would be a massive hit on the economy.

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The question arises, who is paying for all these market externalities and the real cost of production? While the nation-state helps corporations and consumers avoid paying the actual price, the costs are passed to people in other countries. Corporations often move production sites to third-world countries where labour costs are low and environmental laws are lacking. Thus they are passing on the damages caused by production to other countries. Ironically, this seems to be what citizens in developed countries want. Corporations spend billions to elect politicians who suit their interests, while consumers look at politicians to keep the price accessible. Thus wealthy nation-states can pass the real cost of production, e.g., market externalities, to people in other countries.

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Perhaps globalization can conceal the actual cost of production and help reduce damage to people in poorer countries. Globalization is “the intensification of worldwide social relations which link distant localities in such a way that local happening is shaped by events occurring many miles away and vice versa” (Anthony 1990:64). We live in a globalized world, and our actions often influence people far away from us. One such influence is the economic effects of globalization, and to talk about this, we need to define what a financial system is. Economic systems are the rules, mechanisms, institutions, and systems of relations through which goods and services are distributed (Robbins 2018:223–224).

Through the economic system, the nation-states can regulate what kinds of goods are imported into their countries. For example, they can impose a tariff on products that come from child labour or those that occur at the cost of environmental degradation. It all comes down to whether a nation-state can make the right decision for its country and the world.

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While this could be a potential solution to market externalities, another solution can be neoliberalism. Neoliberalism is “an economic philosophy that argues for minimal government involvement in the economy and greatly accelerated economic growth. Well being, neoliberals argue, is best served by liberating individual entrepreneurs to operate in a framework of strong property rights, free markets and free trades” (Robbins 2017:225). Instead of the nation-states focusing on covering the market externalities for the corporations, they would have to find their way to protect it. There should be laws in place to punish those who damage the environment or who sell inferior products. Critics could argue that this would be a significant hit on the economy, but with less damage to the environment around it, it may be worth it.

Market externalities constitute a significant problem in our globalized world. Consumers want cheap products, while companies are unwilling to pay for these externalities. The nation-states often fail to make the right decision, such as passing down the actual cost of market externalities to people in third-world countries. So what is a solution to this problem? Neoliberalism offers somewhat of a solution but at the expense of the economy. It is imperative that we come up with a solution for these externalities instead of ignoring them.