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The Efficiency of Inefficiency

How do we define social and economic efficiency? By Brad Allenby Read More

“Efficiency” is one of those terms everyone believes they understand but find surprisingly difficult to define. There are a number of dictionary definitions; the most instrumental is “energy expended per unit work.” Similarly, economic efficiency is the point at which the value of the marginal product equals its price or, more generally, where the benefits from using an additional unit of resource equals the cost needed to acquire it.

But the connotations of “economic efficiency” are broader. Many use it, for example, to justify free-market structures, favored policies, and global capitalism. For many environmentalists, the concept is pejorative, meaning globalized greed and industrial neglect of environmental values. An economist might respond that “economic efficiency” is intended to describe how to obtain the most benefit from a resource, not a statement about cultural values and morality generally; an environmentalist might respond that it is used that way regardless. And so it goes.

Let us leave these technicalities for a broader question: What of the efficiency of the two other legs of the triple bottom line, environmental and social? If we cannot define these in terms of efficiency, does it reduce our ability to implement a TBL approach?

To begin, there is no accepted definition of “environmental efficiency.” Much environmental doctrine rejects the idea that there can be any trade-offs of environmental goods, or at least of those regarded as sacred or beyond price (e.g., endangered species). In such cases, economics’ marginal cost/benefit approach cannot be used to define an environmental efficiency. In practice, of course, life is a marginal game, so one can come up with heuristics along the lines of “consume as little material, toxics, and energy to produce the desired product or service, all else equal.”

Such approaches are valuable because they imply a marginal analysis — “try to produce a given quality of life only up to the point where the value of the environmental good used for the last unit is equal to the price of that unit” — but without directly requiring it, and thus not challenging environmental orthodoxy. More directly, a number of increasingly popular policies, such as emissions trading systems, operate by incorporating natural systems into economic systems, thus making them susceptible to marginal analysis and management through economic efficiency. But such approaches remain controversial, not least in the environmental community.

The complexities of “environmental efficiency” pale next to those of “social efficiency.” Here, too, many of the conceptual and policy structures enshrine absolutes: “human rights” are generally justified as “natural” law (or religion), not as a product of rational marginal analysis. It is the essence of social institutions, including governments, that they exist primarily to distribute costs and benefits that, often satisfying no one, at least achieve a kind of real-world balance.

In this, “social efficiency” is perhaps unique, for it must be environmentally and economically inefficient to function: it must reject pure economic efficiency while appreciating its importance for quality of life, and it must reject environmentalism’s ideological rigidity while appreciating the importance of natural systems.

And it must do so because it operates at a level of complexity above efficiency and environmental ideology, a level where mutually exclusive positions and passionately held and conflicting beliefs must be integrated. Thus, for example, the U.S. government’s Florida Everglades restoration proposal satisfied no environmental or economic criteria of efficiency. But from a social perspective, it achieved an integration no single approach could have done, while maintaining social cohesion. That is to say, it was fundamentally socially efficient.

The real lesson, however, may be more profound. Economic and environmental efficiency can be understood only in the context of social efficiency — it is not a TBL, but a double bottom line, environmental and economic, embedded in a much more important social and cultural context.

It is doubtful that those who developed the TBL in response to the evolving idea of sustainability fully realized the degree to which the environmental would inevitably become subsumed in the social.

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Brad Allenby is VP of environment, health, and safety for AT&T, an adjunct professor at the University of Virginia’s Engineering School and Princeton Theological Seminary, and Batten Fellow at the University of Virginia’s Darden Business School. The views expressed herein are those of the author, and not any institution with which he is associated.

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