Cost shifting, competition and economic structure

Ecological economics has firm foundations in criticising the environmental degradation and crises created by economies that seek never ending capital accumulation. It has emphasised the inevitable consequence of material and energy throughput in such a growth economy. However, when explaining the institutional causes of pollution it has tended to borrow mainstream economic thought concerning market failure and concepts, most prominently externality theory. This provides flawed and inadequate accounts which are also inconsistent with some basic ontological commitments of ecological economists. In this chapter, we explain the heterodox alternative account of pollution using the concepts of cost shifting and cumulative causation as developed in the work of Karl William Kapp. The theory enables a much richer institutional understanding of the creation of environmental and social costs and explains them as a process internal to competitive societies which structurally incentivise gain at others expense. Such structures are inherent in capitalism but can also occur under planned and centralised systems. The approach makes a significant contribution towards a social theory for ecological economics.