External Costs with John Bloom
John Bloom is Senior Director of Organizational Culture at RSF Social Finance in San Francisco, where he has developed innovative philanthropic programs and contributed to the organization’s thought leadership in the field of social finance. As part of his work at RSF he has been developing and facilitating conversations and programs that address the intersection of money and spirit in personal and social transformation. He writes frequently for RSF’s Reimagine Money blog on aspects of the new economy. He has worked with over 100 nonprofits over the last seven years in the areas of capacity building and culture change.
John Bloom: I’m the Senior Director of Organizational Culture at RSF Social Finance located in San Francisco, California. We are a social finance organization that does lending, investing and giving, both domestically and internationally. Our theory of change is that every financial transaction should be as personal, direct, transparent as possible, and based on long-term relationships.
Douglas Gayeton: Part of the problem with cheap food is that it doesn’t take into account all the external costs. What is the concept of an “external cost?”
John: One example that I use to explain externalized cost is a historical example: Alexander Hamilton took the great Passaic River and the Passaic Falls to create the first industrial park in Paterson, New Jersey. The falls powered mills and hemp factories for an extended period of time. Hamilton was capitalizing from this force of nature. However, all the pollution from the industry was dumped back into the river that eventually flows into the mouth of the New York Harbor, so at a certain point there were no fish alive in that river.
If it were a whole economy, the Paterson industries and Hamilton would have been trying to figure out how to make sure that the capital is used to restore the natural resource from which they were benefiting. If we don’t do that, somebody else is going to have to. That is an externalized cost.
Douglas: There are a lot of people now talking something called “true cost accounting,” which attempts to take into account the environmental, the economic, and the social justice aspects related to the production of something. Those three aspects are often called “the triple bottom line.” Does RSF subscribe to the principle of the triple bottom line when looking at the investments you do as an organization?
John: When we’re making a loan to a social enterprise we are absolutely looking at the whole system, meaning we look at how they are handling waste on the production side. On the supply chain side, we’re looking at everything from labor practices to distance traveled to all the inputs of the manufacturing process. Those values through the entire chain are really important to us.
From an RSF social finance perspective, we tend to look more at what we call "true price" rather than “true cost” because price actually puts everyone in the community — the producer, the consumer, and the intermediary — in the picture, whereas cost is manufacturing-centric or production-centric.
An example of how we, as a financial services organization, actually practice moving toward the ideal of true price, is once a quarter we bring together a group of our borrowers and a group of our investors to talk about what the appropriate interest rate should be for that quarter. We do this to make sure that all the parties of the transaction are having their needs met through the transaction, and to really hear the stories on all sides. The price that emerges out of that discussion bears a certain consciousness on all the parties’ part, as opposed to just being unilateral.
True cost accounting is a really important piece, but it represents more of the production side. Yes, externalized costs need to be included, but the harder exploration is of associative systems that exist which actually have no externalized costs.
Douglas: Do you think there will ever be a mechanism that will allow us to understand the true price of something and to actually have a way to grasp the externalities associated with the purchases we are making when we go to the store?
John: To the degree that a store reflects the association (of the producers, consumers and distributors) that created it, the pricing will become more transparent and visible to everyone. Producer-consumer cooperatives are a step in that direction, and there is just a beginning of a movement towards these types of cooperatives. In that realm, the price question will start to surface, become more real, and gain more insight.