‘Nikey’ and the Price War

Prices lie. Well, at the best they tell a half truth, masking a lot of what the full cost of a particular product is. A price tag will tell you, for example, that the bottle of Coke you’re holding costs one thing, while in actual fact the real cost is usually far more.

I am talking about what economists refer to as externalities, and how it works is fairly simple. A hypothetical corporation, Nikey, runs an incredibly profitable business manufacturing shoes. In the production of their shoes they incur certian costs: materials, labour, waste disposal, and electricity. However to increase their profit margins Nikey decides that it is not going to pay what the labourers rightfully deserve to be paid. They are also not going to dispose of their waste in the most ecologically responsible fashion, instead they dump it into the river which runs past their sweatshop, er, factory. In this way Nikey is able to supply shoes to us at a price we’ve become accustomed to paying, and also maintain a very healthy bottom line.

But as you can see, Nikey is making its profit at the expense of others, and through buying their shoes, we are encouraging that practice. If Nikey was to pay fair wages, dispose of its waste responsibly, and use materials from a sustainable source, each shoe would cost a lot more to more produce, and their profit margins may decline as a result. But in going the other route they merely bypass these costs, and let someone else deal with the fall out.

When Nikey refuses to incur the aforementioned costs, the costs do not just magically vanish – they are borne by other parties. The underpaid labourer can’t afford to educate her family as she’d like to. The river becomes polluted and its fish population plummets. Another forest is razed in order to supply the cheapest materials. Now Nikey may not bare these costs, they may not be reflected in the price you pay for your Nikey shoes, but that is not to say they don’t exist. The costs have been externalised, passed on to someone else who ultimately pays for your indulgence. Simply put: When you buy products like those from Nikey, you are stealing other people’s labour.

I think part of the reason why organic and fair trade products often seem so outlandishly priced is because (in theory) the price tags on those products are a more realistic reflection of the actual cost.

To explain: Using pesticides, Farmer A may say to herself that the cost of producing her crop is only X as she doesn’t take into account the damage she has done to the local ecosystem. She can afford to sell her produce for far less.

On the other hand, Farmer B decides to go the organic route. She opts to use labour over chemicals, and so has to pay more for her crop, also passing off fewer costs as externalities. Later when we are faced with the choice between organic or non-organic we may decide to buy whichever’s the cheapest, forgetting that the latter is only the cheapest because of the costs it has passed off to the social and environmental.

So, here’s the question: If products were forced to carry labels that disclosed the product’s full cost to society, would you have the conviction to put certain products back? If you picked up a pair of the latest Nikey shoes, would you have the courage to return them to the shelf when you saw their tag? Or would you make some excuse along the lines of ‘in Vietnam it costs less to live, so being paid a few cents a day is actually a blessing’. Would buy the shoes, convincing yourself that you’d actually done a good thing for ‘those’ people in China? Because ultimately if you wouldn’t put the shoes down, if you decided to buy them despite their cost, you’d be encouraging and condoning what went into making them. You’d be saying that your looking fashionable is worth more than the factory shop worker’s dignity.