Externality of market economy

Externality refers to the cost caused by market activities to innocent third parties. Or to put it another way: externality refers to the inconsistency between the behavior and consequences of social members (including organizations and individuals) when they engage in economic activities. Externality can also be called spillover effect, external influence or heterodyne effect, which refers to the situation that the actions and decisions of one person or a group of people impose costs or give benefits to another person or a group of people. Externality can be divided into external economy and external diseconomy. The so-called external economy means that the economic activities of a person or an enterprise will bring benefits to other members of society, but this person or enterprise cannot be compensated for it. The so-called external diseconomy means that the economic activities of a person or an enterprise will bring harm to others in society, but this person or enterprise does not have to compensate for this harm. Attaching importance to economic externalities is the non-market effect of economic activities of economic subjects (including manufacturers or individuals) on others and society. Divided into positive externalities and negative externalities. Positive externality means that the activities of an economic subject are beneficial to others or society, and the beneficiaries do not have to pay the price. Negative externalities mean that the activities of an economic subject harm others or society, but those who cause external diseconomy do not bear the cost. Saskatchewan's definition: "When production or consumption produces incidental costs or benefits to others, it produces external economic effects;" In other words, the cost or benefit is dependent on others, and those who have this influence have not paid the price or return for it; More precisely, the external economic effect is the influence of one economic entity's behavior on the welfare of another economic entity, which is not reflected in currency or market transactions. "We can get the following understanding from the definition: 1. Externality is a man-made activity. 2. Externality should be the influence from the main purpose of an activity. 3. Externality includes all biological or abiotic influences related to social welfare, such as ecological environment. The existence of externalities leads the society to break away from the most effective production state, which makes the market economic system unable to realize its basic function of optimizing resource allocation. The basic idea of solving externalities is to internalize externalities, that is, to arrange social benefits or social costs generated by economic activities of economic subjects through institutions and convert them into private benefits or private costs. It is technological externalities that are transformed into monetary externalities, which to some extent force the transfer of non-existent currencies. Typical methods are: 1. Taxes and subsidies tax negative externalities and subsidize positive externalities. Taxation can inhibit economic activities that produce negative externalities; Subsidies can stimulate economic activities with positive externalities. 2. Business Portfolio If it is said that planting trees in China is equal to debt, but pollution can promote a higher position and make a fortune, I'm afraid not many people will believe this statement. However, this is a real reality. Niu Qinyu, a national model worker, planted 80,000 mu of sand in the past 20 years, but owed a loan of 2.52 million yuan. The family is still living in poverty. Dinner is just a big pot of soy sauce, potatoes, boiled cabbage and a pot of rice. The Huaihe River has invested heavily in pollution control for ten years, but no one has been investigated by law-this is the reality before us. Any kind of economic activity will have an impact on the outside. For example, automobile transportation will inevitably produce waste gas to pollute the environment, and afforestation and forestry development will improve the environment. This is the externality of economy. If the former is "negative externality", then the latter should be called "positive externality". Externality distorts the relationship between the cost and income of market subjects, which will lead to market inefficiency or even failure. If negative externalities cannot be contained, the environment on which economic development depends will continue to deteriorate and eventually lose the conditions for economic development. This is precisely the cruel reality that China's current economic development has to face: we produce the most steel in the world, consume the most raw materials in the world, and pollute the environment that has been difficult to fundamentally improve for many years, but only account for 4% of the world's GDP. In the long run, the sustainable development of China will not be sustainable. Careful analysis of the main reasons for this situation, the author believes that we should start from the following aspects. The first is the question of understanding. For a long time, especially in the era of planned economy, China's economic development is at a low level, and economic externalities, whether positive or negative, are not obvious, and are confined to the range that the environment can bear. In this case, nature does not have a deep understanding of the externalities of the economy. After the reform and opening up, China realized the importance of economic development and began an era centered on economic construction. However, due to cognitive reasons, we mistakenly equate economic construction with economic growth, even with GDP growth. Under the guidance of this understanding, it is not surprising that the negative externalities of the economy cannot be effectively curbed. Secondly, the problem of policy deviation and the difficulty in implementing existing policies. From June 5, 2002 to 10, China began to implement the Law on Combating Desertification, prohibiting the felling of ecological forests. Every tree planted by cattle has become an indispensable part of the "ecological forest". Seeing these trees grow into wood, none of them can move. On the other hand, she owes more and more bank loans, and all the principal and interest of the due loans cannot be returned, so she has to live in debt every day. The old loan has not been paid, and the new loan has certainly not been settled. Without the source of funds, even if there are all kinds of greening ambitions, what can Niu Qinyu do except look at the sand and sigh? This is obviously a problem of policy deviation or at least policy incompatibility. As for how to prevent pollution and how to punish it after pollution, we actually have a set of relevant regulations. The problem is that most of these regulations only stay on paper. The cost of violating the policy is almost zero, but the benefits of pollution are readily available. In this case, no pollution becomes a strange phenomenon. Finally, there are institutional issues. All problems can be found from the system, and economic externalities are no exception. It has long been pointed out that there are problems in the previous assessment mechanism for cadres and local governments, which pay too much attention to economic growth and ignore economic externalities such as the environment, and should be replaced by assessment methods like "green GDP". This theory is correct and should become the knowledge of the whole society, but there are two points that need to be supplemented: First, the government should speed up the pace of withdrawing from the economic field that should never be involved, which includes not only the establishment of modern enterprise system by state-owned enterprises, but also the eradication of improper government intervention in the economy, such as all kinds of so-called management or service behaviors that are essentially fees or local protection. Because only in this way can we cut off the proper relationship between the government and the economy, find the correct position of the government from the perspective of social interests, make it pay more attention to economic externalities from the correct position, and deal with economic externalities more fairly. Second, we should strengthen the error correction mechanism, and hell to pay should be responsible for those behaviors that are ordered to fail and are not corrected. Economic externalities are closely related to each of us and our sustainable development. It is an important duty of the government to pay attention to the externalities of the economy and maintain the fairness and efficiency of the market. In a word, only by solving the economic externalities can Scientific Outlook on Development be finally implemented.