innovation’s social externalities

In business, the economic concept of “externalities” has tremendous salience. In short, an externality is a cost that a third party must bear due to the actions of others. For example, air pollution is considered an externality of manufacturing. In theory, as protectors of the public good, reasonable governments should regulate corporate externalities through imposed taxes. (In reality…) More and more, discussion of environment externalities is a core part of business.

Lately, I’ve been thinking a lot about another type of externalities: social externalities. In other words, effects on social life caused by policy, cultural, or business decisions. In many ways, social externalities are quite like environmental externalities – the effects are often latent. As such, the offending parties are long since gone and the solution is not to turn back to the clock but to find a new way to move forward.

Technology often creates unexpected social externalities. Take, for example, the air conditioner. Anyone who has witnessed a summer in the deep south can attest to the value of an air conditioner. In the last couple of years, I’ve heard lots of people talk about the environmental costs of air conditioning yet I almost never hear people talk about the social cost of air conditioning. It used to be too damn hot to sit around inside all day long so people used to sit on their stoop or anywhere where they might catch a breeze. They used to sit in social spaces. I remember summers on the east coast where those who couldn’t afford A/C spent hot summer days at the movie theater or any public place with A/C that they could find. Affordable A/C means a collapse of certain types of social community space.

Of course, policy can cause just as many social externalities as technology. Consider the implementation of compulsory high school in the U.S. and Europe. While we can certainly say now that schooling is a good thing (even if we devised schooling for imperial, colonial, and corporate purposes), we often fail to consider the externality of age segregation and what that has meant for so many aspects of civic and social life. We consciously devised a system that would stall growing up and now demonize children for not maturing. What a mess!

A different innovation to consider would be the automobile. Once again, we can talk about the environmental impact of modern day horses. When it comes to social externalities, we also have a decent understanding of how the automobile created suburbia. Yet, how would we think about evaluating the social costs of the invention of the automobile? There doesn’t seem to be any agreed-upon way to measure “social good” or “public happiness” or any of those other squishy community concepts (thus, the debate around “Bowling Alone”). Unless I’m mistaken, there don’t seem to be that many economists trying to work out ways of measuring social externalities (other than violence or other externalities that can then be regulated through law).

I’m concerned that our contemporary business narratives of progress often fail to reflect on the social externalities caused by innovations and organizational shifts. Of course, this is not about techno-determinism or fear mongering. We do that all too well. Propagandized mythical headlines like “Violent games make kids kill” are not what I’m talking about. I’m more interested in work like Mimi Ito and her colleagues’ studies on how youth’s lives are reorganized by the mobile phone and how not being easily accessible means being written out of social life. STS scholars and other academics are definitely researching how innovation and structure affect broader social life, but this work often fails to get out in the public. More problematically, it seems to me that business and the public think that progress is a one-directional path to the future and that we’re on that train. Why are we so invested in innovating anything that can be innovated, regardless of the consequences?

What would it take to get people to reflect on the social externalities of innovations and public policy? To consider history and reflect on what the costs might be of a particular innovation? Now that we’re curbing some of our “brilliant” ideas because we understand the economic externalities, might we reconsider some of the things we do for what the longterm social externalities might be? Of course, part of being young and innovative is to not think about externalities… I’m definitely getting old.

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21 thoughts on “innovation’s social externalities

  1. Noel Pinero

    Hi dana,

    It’s been a while since I posted here. Got a chance to hear you speak at the Personal Democracy Forum a while back and you were great! This post reminds me of the new e-book by Peter Barnes’ entitled Capitalism 3.0. The UK Guardian article does more justice to any description I could offer, but I discovered the book while trying to find supporting material for an idea that popped into my head that felt so good I just knew someone else had thought of it. The idea came to me as I lamented the lack of innovation in the philanthropic world. So I thought, why don’t the moneyed do-gooders don’t just privatize stuff and set up a trust in perpetuity for future generations? Buy transportation routes in Detroit and create jobs in the inner city while giving expanding access to job opportunities. It’s private so Ward Connerly and his devilish friends can’t attack it. Build public infrastructure and run it for profit but not pure profit–multiple bottom lines. Anyway, Barnes opened up a whole new language for me on this very idea–“propertize the commons” Build new institutions that check the private sector and strengthen the Government/Public (AKA the gimp) sector.

  2. Nicole

    Your post has me thinking about the social externality of closed captioning technology on the Deaf community. While the community doesn’t articulate it as such they are familiar with the concept. Many old skool Deaf folks attribute the rise of closed captioning on broadcast TV and watch-at-home movies with the decline in Deaf Clubs and community social spaces. Deaf people are staying home to watch captioned entertainment instead of sign language performances or socializing at the local Deaf club. It’s a catch 22– while the community actively supports and advocates for more captioned media (especially on the internet) they wax nostalgic about the good old days when Deaf people had physical spaces of their own where they could gather as a community.

  3. Nicole

    Your post has me thinking about the social externality of closed captioning technology on the Deaf community. While the community doesn’t articulate it as such they are familiar with the concept. Many old skool Deaf folks attribute the rise of closed captioning on broadcast TV and watch-at-home movies with the decline in Deaf Clubs and community social spaces. Deaf people are staying home to watch captioned entertainment instead of sign language performances or socializing at the local Deaf club. It’s a catch 22– while the community actively supports and advocates for more captioned media (especially on the internet) they wax nostalgic about the good old days when Deaf people had physical spaces of their own where they could gather as a community.

  4. Terren

    Very thought provoking. I thought the most interesting lines were these:

    > we often fail to consider the externality of age segregation and what
    > that has meant for so many aspects of civic and social life. We
    > consciously devised a system that would stall growing up and now
    > demonize children for not maturing. What a mess!

    I’m definitely an outsider to sociology, but this sounds like it might be controversial. Is there a consensus among sociologists/child-psychologists that age-segregation is the cause of modern kids’ immaturity?

    I also wanted to make the point that, as fruitful as it might be to consider social externalities, I don’t think we need to do it for “the kids”. I remember always feeling that life was unfair – that I was bearing the cost of others’ actions – whether that was true or not. Kids are adaptable and used to dealing with unfairness. I also tend to think that social externalities are easy to identify in hindsight, but are probably very difficult to predict, given the complexity of the social space.

    In general though I agree that we ought to be thinking about social effects of policy and technology before we implement them.

  5. LS

    What would it take to get people to reflect on the social externalities of innovations and public policy?

    The classic answer to get people to address externalities is to tax them. How well would that work in the social sphere? Could we charge people for answering their mobile phones during movies, for instance?

  6. Nancy H

    even with environmental externalities, it’s very tricky to determine what is in fact “bad” for natural systems(also sometimes only visible over the long term/big picture), and attempt to put a cost on them.

    it seems nearly impossible to agree on standards for public happiness and “good”. statistics like crime rates, employment rates, financial success are only part of the picture. perhaps, measure volunteer/community service(a form of participation)? i think there have been studies of numbers of close friends, numbers of acquaintances and declared happiness, maybe social connectedness is something societies should monitor along with economic indicators? seems like social connectedness would also be a positive economic factor: networking, idea sharing, sales, etc?

    the Close Captioned example(and can be generalized to home tv/cable entertainment in general) is an excellent point, people *want* these new things even at the cost.

    i’d be very interested in any further reading people can suggest on this topic. i’m not an academic but i can digest papers when necessary 🙂

  7. piers

    About six months ago, Dan Saffer, who works at the design group Adaptive Path, published an article in Business Week about innovation. One of the things he discussed there was a tripartite structure for innovation, involving insight, invention and judgment. It seems like judgment, that nagging “how will this effect other people” or “should we…”, is often excluded from the push towards innovation.

    I used to talk to people on the bus, then a year ago my wife gave me an iPod. It’s quieter on the buses, though, with all the people listening to their own public transit private soundtracks.

  8. Jeff Larche

    You pose a great question:

    > What would it take to get people to reflect on the social
    > externalities of innovations and public policy?

    Our reptilian brain filters out anything that isn’t an impending threat or immediate benefit. How else do you explain the disproportionate fear many experience when taking a flight on an airplane, in spite of its relative safety, and equally strong feelings of lust for the flight attendant when the odds of of that person actually giving us the time of day are even slimmer than us falling into the ocean?

    Mindfulness meditation (with or without the Buddhist dogma) is one possible solution. I just wish it was even remotely possible to see this widely adopted. Fat chance.

    Against my will, I went to a casino this weekend. It was packed with people ignoring the externalities of gambling — the macro effects of the casino on the local economy, and the micro effects of going home one paycheck lighter. Thinking deeply about the interconnectedness of the world appeared to be on absolutely no one’s mind. To use a phrase you enjoy, Danah, le sigh.

  9. jkd

    “We consciously devised a system that would stall growing up and now demonize children for not maturing. What a mess!”

    Yeah, but look on the bright side – age segregation means that because youth co-acculturate rather than being subsumed in the culture of their parents, they’re not as tied to the status quo. Thus, social change happens quicker. Granted – this isn’t a good thing in and of itself (see the Cultural Revolution), but the case of the U.S. in the 20th C. (and despite these last seven years of political leadership, the early 21st C.) is a good argument that this kind of situation is a good one, as looking at youth attitudes toward all manner of (increasing tolerance towards a diversity of) social arrangements supports.

  10. Bertil

    Dearest danah,

    For two years not, I hoped — and I boasted toward my friends and colleagues — to be one of your most systematic commentator; and I am an economist. Your post both pleased me to the highest grade of satisfaction: after two years of PhD, someone finally says that what I do is worth it; and it saddened me greatly: how can you not know that I work on these? How can you ignore that one of my best friend is presenting today his job-market paper, measuring social externalities from schools interaction? How can research be so segmented that those closest to us know so little about us?
    You are not the only one: my team recently made eight hours worth of presentations of our work. At the end of the day, we had three questions, requests really, asking for us to study precisely what we talked about after months of consideration. I can’t figure of something both so humiliating and refreshing as having the man who pays for your working ask it *after* you gave it to him. And I can’t explain those questions without thinking they came either from people who did not listen, or who are severely irrational.

    In economics, externalities are like that feeling I can’t name: they run both ways — so let me play the expert and insist on you calling those “negative externalities”, because they are some positive ones, and because things are very different depending on that sign. Why am I so picky? Because (and that is all you need to know about economics, really) as pointed out by jkd who provided an example of a positive social externality, it is a science where everything runs both ways. It could be the definition: economics is when everything and its opposite is true. I taught my first class yesterday, and that’s the only thing I can remember saying them. Thrice.

    I am trying to measure those effects, but they are very tricky. For example (and that is an exampled found in the latest IMF report): technology has overall positive externalities, in both developed ans developing countries — but it benefits much more to educated workers. Although the poor are benefiting from it, social gaps are widening. Is this good? Do you have the authority to deny illiterate people growth (and literate people even more so) because you want to keep the gap sustainable? Not according to Posner; maybe according to you: I don’t have an opinion other then an idealistic “Educate them all”.

    The examples you are providing are very interesting, but they are much harder to grasp, measure and estimate. More time at home, generally on-line: you of all people should know they meet more people there then anywhere else — and for one, my prejudice were shattered on-line in a way no real life interaction could expect. Doesn’t meditation in the comfort of one’s home has tremendous, positive, social externality.

    What type of interaction has the most positive social “externalities”? I would argue the option of going digital (combined with real-life, of course) is better by a far margin, but that would be presumptuous given the state of advancement of my PhD.

    More accurately, most of what you describe is not really externalities as understood by economists: those suffering from the burden are the same that decided to watch TV, flee conversation with headphones, etc. — or at least too close relatives to be told appart. They aren’t able to master the consequence of their decision and have therefore a limited rationality — a much deeper problem.

    Why people gamble, that is a rationality issue: love of thrill and poor appreciation of small probabilities.

    Yoga can help you face life and others, increase you rationality; good economics classes too. By “good”, I mean… Well, I’m excluding Black & Scholles modelling from the social-opening curriculum — although they certainly help when talking to a trader; by good, I rather mean political economics, fringe discussions: talks that help you see new points of views, and isolate new issues, avoid being trapped in a fit of rage, missing the bigger picture.

    By good, I mean having the opportunity of a daily conversation and a better knowledge with other science, leading to (among bolts of fear that the “others” miss an important point) bursts of new, refreshing ideas.

  11. Brian O' Hanlon


    I know I have a habit of pushing really stodgy and impossible to read books on you – but I am going to do it anyway here again.

    This blog entry has resonance, with one of Kevin Kelly’s primary references for his book, Out of Control. That book is called ‘Towards an Ecology of Mind’, by Gregory Bateson, of Cybernetics theory fame.

    It is really a collection of essays published by Bateson in various places. I am reading an essay of Bateson’s about the origins of communication in human beings. It is a chapter you should read, in relation to much our your recent writings.

    I quick thing on air conditioning too. Check out the ‘The Bankers’ by Martin Mayer. In his chapter about Loans from Banking, you will see a description of old bank spaces, which had huge high ceilings for ventilation and later on, when other companies got in on the lending game, they bought air conditioned office blocks, without the high ceilings.

    There was another kind of urban space in the old city, which was wiped out by the air conditioning technology. And I thought, that the high ceilings in banks, were just for grandeur. Often, a lot of things in architecture have deeper technological functionality, rather than just aesthetics.

    Another book, you should make an effort to check out too. I recommended to Howard Rheingold, who has read Isaiah Berlin in the past, is ‘The Crooked Timber of Humanity’.

    It is alot to do with the history of ideas, and communities. Quite an interesting read for someone involved in your field.


  12. Steve Smith

    Really interesting subject, great conversation – I just have one itch I need to scratch. The possessive form of innovation is not innovation’s, it’s innovations. Plural and possessive forms do look alike, it’s true, and that bothers me too sometimes. But when you use a contraction with an auxiliary verb as if it were the possessive form, my 9th grade English teacher rolls over in my head. And she’s kinda heavy.

    OK. That’s it. Back to fun stuff. Thanks for bearing with me. 🙂


  13. Jeff Larche

    Hi, Steve —

    Is it possible your head’s 9th Grade English teacher is rolling over for no good reason? Unless I am mistaken, the possessive form of a thing instead of a person (such as “head,” above) is “personified” by using an apostrophe. The one exception is the word “it.” Its possessive form has no apostrophe, as demonstrated in this very sentence.

    Is my 9th Grade English teacher misguided?

  14. lucychili

    hi danah

    this post feels related to Wade Davis’s perspectives on our
    assumptions that a conquesting monoculture is the only possible outcome for our cultural space.

    I see this as being a part of the original shift from communities which included the perspectives/needs of plants an animals local to them in their systems of understanding self and society.
    self as an entity in a network where all of the different aspects are valuable and contribute.

    later humanist and economic rationalist models drop out information in order to scale and move the culture around. eg faith based models and international finance. self as a part of a group of sameness which should conquest other because it is not valued/valuable.

    iterative abstraction of information about impact, efficiency, value created through photocopying out detail in order to scale.

    do we have the clue factor to be able to reconfigure around a network model where we recognise and value diversity, and where we are able to find a better fit for sustainable ecology and ethnosphere and to also
    learn from what we are doing at a global and technological scale to
    bring the best of both approaches into something more responsible?


  15. Leigh

    For a while I have been trying to get a client to do some research work with me on this very subject (or related one)…

    I don’t know if you are familiar with methodologies for Environmental Impact Assessment? Firstly EIA defined by our friends at Wikipedia as

    “The process of identifying, predicting, evaluating and mitigating the biophysical, social, and other relevant effects of development proposals [aka large infrastructure projects usually technology such as waste treatment plants, dams etc.] prior to major decisions being taken and commitments made.”

    What I wanted to do most specifically is take the methodologies used for a innovative evaluation sub-set called social impact assessment, and attempt to evaluate and predict the impacts of specific digital technologies or marketing programs on social networks/communities.

    I had talked to Reg Lang at York University who is at the forefront of this work in the Environmental field, and he was very interested, but in the end the client chickened out (didn’t want to pay) and I haven’t had an another opportunity since. For anyone who might be interested in this approach, I for my part would love to volunteer my time and participate…

    The web being an ecosystem and all….:)

  16. Eyrie

    hi dinah,

    It’s been a while but another spot-on post. I can’t help wondering at the moment, though. However clear the theory, or proved ‘the facts’, it all seems a bit moot with the Fed and the banks creating money as though there’s no tomorrow. See At this rate, there may not be – they’re using it to extract all kinds of ‘externalities’.

    After 20 years of involvement in left wing/community activism, most of that time with a clearly feminist and vaguely Marxist view of economics, I’ve been shocked to discover how thoroughly the banks (and American banks in particular) control people through their control of the creation of money, and that really their grip has been growing pretty steadily since the Fed was created in 1913. Some would say since the creation of fractional researve banking, sometime between 2000 and 400 years ago, depending on the source. Others blame the Bretton Woods agreement after WWII, others Nixon’s abaondonment of gold in 1971 – but what is certain is that the party has really got going since Reagan and Thatcher deregulation sweep in the 80s.

    Remember all this money is being created through interest-bearing debt (see this mind-boggling primer on this by the Chicago Federal Reserve, which is ultimately financed (or collateralized) by some kind of ‘externality’ – be that a house, unpaid labour, a wage, a pension fund, the right to pollute, the right to extract or store resources.

    I’m told that Luxembourg wrote at some length about the importance to capitalism of the not-yet-monetised in colonies and the family, unfortunately haven’t had time to read her. The women’s group I was in during the 80s was more interested in Trotsky for some reason (the feeling that someone was coming up behind us with an axe, perhaps?) was well as Marx.

    I can’t help but start seeing a lot of US culture, its exports and imitators as merely a reflection of the fiat currencies it runs upon. With celebs and pro sports providing the poster children shots for what we’re supposed to both aspire to and feel sorry for. I feel that until we collectively (as everyone whose head is not in the trough) get a grip on the money supply, relative estimates of the contribution of new ideas are kind of meaningless. I don’t mean that ultimately we don’t need to know exactly what we have as wealth, including contribution of innovation and other so-called externalities. Hopefully we can come up with an altogether better way of measuring it than we have at the moment. This isn’t just a thing to theorise about now, it’s a matter of survival.

    Now, values are being set by a bunch of guys who lust after cars, boats and babes, leading everyone else into debt-slavery and what Max Keiser ( calls Neo-Feudalism.

    People with brains need to pay attention to money, how it’s made, what it controls and who controls it as a matter of urgency, as well as investigate its history – there was a very good 2003 german dissertation about this called ‘Money upside down’ online but this is now being sold as a book – and alternative ways of dealing with money, and wealth in general. Before there isn’t any.

    Omigod it’s 4:30am. Thanks for the discussion – !

  17. Tim Smith

    Hey Dinah,

    Relative to my work with a large mentoring organization, I am compiling resources on the term “social externalities”. Please let me know if you are researching the subject further and we can share notes.

    I would point you to the very young field of “impact economics” and idea streams that intersect with social venturing and social investment methods of return measurement.

    I recognize the critical need for finding common terms, frameworks, and methodologies for evaluating social externalities and the impact of social movements or societal innovation. Moving from individual and institutionally backed technology ventures into the social venturing space leaves me evaluating definitions of holistic performance management. It is a research truism in CBO’s that detailed work of this nature is not done because it represents a type of heresy against the core foundational beliefs of the organization. And yet, thoughtful inquiry and surfacing of assessment systems and tools helps every aspect of CBO activities. I am fortunate to serve a highly innovative and performance driven agency.

    Best wishes,


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