Ever since I first heard Clay Shirky talk about the cost of damage and the cost of repair, I have been very taken with the idea. I believe he was talking about Wikipedia at the time. The more I think about it, anything that is a commons will have this tendency to retain and increase value, as long as the cost of repair is kept at least as low as the cost of damage.
I started kicking it around in other contexts and the answer seemed to come out the same. It made me understand more about urban graffiti and about vandalism. Then, more recently, I saw this article, about chewing gum. So it costs 3p to buy a piece of chewing gum and 10p to clean up after it.
And it made me think. Wouldn’t that look a little unfair to a non-chewer? The chewer gets the benefit, the manufacturer makes the profit, and the taxpayer foots the bill.
Maybe it’s time for some radical solutions. Maybe we could try something else. If a good for sale is capable of damaging “the commons” then maybe we should measure the cost of repairing that damage. If that cost exceeds the cost of damage, then we raise a tax on the good until the cost of damage is higher than the cost of repair. Half the tax is payable by the manufacturer, half by the consumer. The taxes so collected are then used to do the repairing.
Permanent marker pens. Chewing gum. Maybe even anything that comes in packaging that people tend to throw away.
Just a thought.
Education + Reduce the clean up cost.
I like where you are going with this. Excess packaging annoys me to no end – Why do I need food wrapped twice when it will cost the planet for something completely useless?
I also think the rising price of fuel in the U.S. is generally good although I have the luxury of it just being expensive not keeping me from getting to work or eating into other necessities. The high price makes people think about whether they really need to make that extra trip, whether they can shop closer to home, etc., etc. Ultimately it causes a lot of people to buy smaller, more efficient vehicles. And that is good for all of us.
We’ve gotten away for years without paying for externalities and I think it disguises the real cost to us all.
I agree with the concept of true and fair price, which reflect whole cost of a product to society. I just want to point out an issue with implementation:
1. in the end a consumer pays ALL the taxes, therefore trying to assess it in two places (consumer and manufacturer) will only inflate the cost;
2. governments have very sticky fingers, therefore I would rather see the price adjustment and liability for “repair” created on manufacturer’s level then tax imposed.
I read that there are some such initiatives implemented in Germany. There is an excellent book, “The Ecology of Commerce” that discusses these issues in a very constructive way.
That’s supposed to be the reasoning behind taxes on tobacco & alcohol (at least in France) : to pay for the health costs.
Hm, to me the problem with the ‘solution’ to chewing gum is trying to control behaviour through taxing it – a slippery slope indeed. Apart from the fact that even if it works, i.e. in aggregate people stop or start doing more of whatever the tax is designed to change, there are _always_ unintended consequences that cause further distortion(s) in the market. Just look at financial regulations. :)
But my real objection to using any tax to control behaviour is that is it paternalistic and shifts the relationship between the state and the people from one of servant-master to master-slave.
People don’t seem to differentiate between the state and society – two separate realms that relate to the individual in fundamentally different ways. The state is political and the society, well, social. One of the features of communism (or any totalitarianism) is the explicit aim to politicise the social. In such systems, everything is political and the power is taken away from the society and individual for political purposes. Therefore, I distrust and thwart the state wherever I can. I support and strengthen society to the best of my abilities.
A bit of a political theory overkill for a chewing gum issue, however, that is the reason my alarm bells go off every time I hear proposal to tax one thing or another to change or influence human behaviour. Social solutions are always better than political and taxation IS a political solution.
The cost of repair vs cost of damange is a brilliant framework for understanding why some phenomena work and others don’t. I am with DE on how to approach it – education and lower cost of clean up. :)
Yikes…In addition to environmental and energy efficient assessments we will now have to have a more generic damage assessment done for each and every product. Who decides what is included and excluded? Who decides the “cost” of the damage? Who decies from whom to recover? How does one apportion the “cost”.
We can have thousands of pages breaking down each product into its constituent parts, hire an army of inspectors and then an equally large bureacracy to monitor and enforce.
what a fantastic job creation exercise for Whitehall. And, what a great way to suck value out of the economy.
Ireland almost did this a couple of years ago, but did a deal with the industry instead. See
http://www.confectionerynews.com/news/ng.asp?id=65476-wrigley-chewing-gum-defra-ireland
A “carbon footprint” tax — possibly levied, balanced and collected ala European VAT — is another possibility as would be a non-biodegradability assessment or a water-consumption/pollution assessment or an infrastructure replacement assessment. Much of Western consumption and prosperity is based on postponement of as many indirect costs as possible to a future date and future payers. JP’s idea of linking indirect and delayed costs to pricing of individual units is worthy of further examination. For an ongoing examination of the postponement of costs of energy and transport in the US, James Kunstler’s blog http://jameshowardkunstler.typepad.com/clusterfuck_nation/
The level of value attained where the cost of repair is at least as low as the cost of damage is pretty low. Anything of any complexity is much easier to damage than to repair. That’s why we have social norms, laws and regulations – these enable us to have higher levels of equilibrium. Indeed, I would go so far as to say that any society that sinks as low as the repair/damage equilibrium point is a dysfunctional society.
Taxing an externality is another way of raising the equilibrium point, but probably works better when applied to organizations rather than individuals. And I tend to favour the approach of making the organization pay for the externality, rather than taxing it (so for example a legal requirement for companies to pay for the disposal of packaging that their goods come is in in my view a better approach than taxing goods according to their level of packaging).
The reason I don’t favour the approach of making individuals pay an externality tax is because it makes everyone pay for the ‘damage’ whether or not they cause ‘damage’. I chew gum, but I *never* spit it out on the pavement (I guess my mother brought me up well) – so a tax on chewing gum to pay for cleanup is unfair to me. It also does not give the appropriate level of choice to the consumer – again in your chewing gum example the only choice someone can make to avoid the tax is to avoid buying the gum, there is no incentive to stop spitting it out on the pavement.
Why in heaven’s name does anybody chew gum?
The state gets the sales tax or VAT, the jobs create economic uplift as well as additional taxes, and the profits of said chewing gum sales are taxed and then distributed to shareholders who are then taxed on the gains. I think your analysis of the economics of the chewing gum cycle might be a little simplistic.
Not all chewing gum consumers dispose of their spent gum inappropriately. To penalize all chewers because a minority litter strikes me as draconian considering a more equitable solution would be to enforce existing anti-littering laws and assess fines to violators, the revenue from which would offset the damage cost.
In the final equation I would oppose your proposed solution simply on the basis that companies really don’t pay taxes, they offset tax costs as higher prices to consumers. As Adriana points out, uses tax policy to change human behavior has precious few success stories. Many countries have jacked up the taxes on cigarettes only to find that smoking levels do not decrease but a new addiction is formed, the state’s addiction to cigarette tax revenues.
Thanks for all the comments. I agree I was trying to make too simplistic an argument. (I tried to keep away from rational economics, spent too many years studying that at university, I am an economist by training).
I am also way not a fan of the nanny state; nor am I am truly in favour of increasing taxation.
The point I was trying to make, badly, was something else. I was using the chewing gum “tax” as an example to open up a debate. What debate?
The debate I wanted to engender was one of protecting “the commons” against damage. Education has been, is, and will continue to be, a good way of doing this. Reducing the cost of repair is also a good way. What I wanted to see was whether there was any justification in raising the cost of damage.
I see DRM as a “raise the cost of damage” approach, and you could have guessed by now that I am not a fan of DRM. I see Congestion Charge as a “raise the cost of damage” approach, and still marvel at how a congestion charge quietly became an energy charge as well. And no, I am not a fan of the Congestion Charge either.
I would love to come to a position where I am sure that it is never appropriate to raise the cost of damage, but I have not got there yet.
it’s a fascinating academic debate, no question about it, but I would probably fall back on a long standing belief that governments tend to make problems worse when they get involved and that taxes rarely result in the supposed quality of life benefit they promise.
There is a case when it is appropriate to raise the cost of damage, namely when that cost is kept artificially low by a subsidy (for example, some governments subsidise the cost of petrol). However I think you will say that this does not really count.
Like you I feel that a ‘tax’ to raise the cost of damage is generally wrong, but I feel much more strongly that subsidies are wrong. Yet I don’t wish to arrive at a position where I am sure that subsidies are always wrong. If I became sure of such a general principle then I would stop examining each case on its merits. I hold strong views, but I am prepared to change them in the light of new evidence. That means never really being “sure” of anything.
And I’m surprised you want to come to a position where you are sure it is never appropriate to raise the cost of damage. In your “In two words, Im-possible: The problem with counterintuition” post you specifically said you wanted to keep challenging your views.
Martin, to try and explain what I meant in that last sentence, since my words failed I will use someone else’s. So here’s my my favourite Bacon quote:
“If a man will begin in certainties he shall end in doubts; but if he will be content to begin in doubts he shall end in certainties.”
JP –
This notion of the (hidden) costs of repair and damage has implications in lots of ways. Why, for example, are there so many horror stories from computer consumers about the support they receive for their machines? One cause must be because after about half an hour on the phone, the cost of support outweighs the cost of the kit. In most cases, it will be easier and cheaper to swap the old machine than repair it. But most vendors’ support models aren’t designed for the fact that we are now in the era of disposable computing, so instead they try to offer the lowest cost support possible without swapping, which still costs them hours of effort while giving customers the worst possible experience.
(And let’s not even begin to think about the cost of damage and repair to data…).
The business of change (which is the business we are all in, these days) relies for its effectiveness on our ability to direct our efforts to those places where we can get the most return for least effort. Your observations on the hidden costs of repair and damage gives us another way to help identify where we should direct our attention. We need to be asking where is the metaphorical chewing gum getting in the works? The answers may not always be the obvious ones.
a late tuppence worth from an amateur observer- I see companies in the future responsibly choosing to devote an increasing proportion of what used to be their profits, on the cost of damage. People will want to buy products from companies with built-in damage-compensation.
Chewing gum from a company with a scheme that cleans gum off streets is a great example. I’d buy that for a few pennies extra- so would an increasing number of other people. Who knew that the cost of clearing up gum is so high? As people’s consciousness is raised through the new communications and the new social awareness and ethical thinking, we will exercise our “consumer” choice to address problems like these. The role of business of to give us that opportunity. First they need to believe that we want it, and then they need to spread the word.
Alice, couldn’t agree more. You’ve gone first to where I was heading lazily. “self-taxation” as a means to solving such things, even if it makes a firm look uncompetitive. Subject of a post to follow. Thanks for the comments.
Mike, I’ve been spending some time on the cost of change, it formed a focal point of my “Open” talk at SuperNova. Again the subject of a post to follow. Thanks for helping me articulate those thoughts.
Cigarette butts are a bigger litter problem in Australia than gum. Cigarettes are already taxed to the hilt.
The government here has just introduced an “alco-pop” tax to discourage teens from drinking sweet alcoholic drinks.
The anecdotal evidence suggests people are now buying hard spirits instead.
Adriana is right. We need social solutions, rather than political ones.
People are using fewer plastic shopping bags because of increased awareness. We don’t need a new tax to stop people using them.