From true costs to revolt: instruments for responsible consumption
Original article by Christina Graf (in German)
The E4S interactive event in Bern identified a variety of instruments for action to make our consumption more responsible. The implementation remains to be discussed.
Do we have to change the model in order to consume responsibly? Yes, but… this is how one could summarize the answers to this question given by a consumer representative, a behavioural economist, a corporate representative and a researcher in marketing on August 31 in Bern. There was also a broad consensus at the tables, where around 80 people discussed the experts’ statements and contributed their individual knowledge. The result was a useful overview of instruments that can pave the way for responsible consumption. However, who is to conduct this orchestra, what the first violin is and who plays it, remained largely unanswered. Perhaps the follow-up E4S white paper will answer this?
True costs and the polluter pays principle are not enough
In an ideal market economy, sustainable consumption should be self-evident if true costs and the polluter pays principle apply: the price for a good would include all costs, i.e., also the scarcity of resources due to production as well as costs due to current and future damage to the environment and health. These costs would be borne by the polluters, i.e., those who profit in all phases of production and consumption, and who are responsible for (consequential) damage. The scarcer the resources needed to produce a good and the greater the negative consequences for the ecosystem, the more costly the good would be. Unsustainable goods would automatically become more expensive and less demanded, and supply would adjust to become more sustainable.
However, future and indirect environmental damages are usually not included in the prices. And there are many areas in which costs are not borne by polluters alone. So, would the solution simply be to correct the economic model so that true costs and the polluter pays principle prevail? For example, by taxing fossil fuels at such a high rate that the costs of greenhouse gas emissions are compensated? Or through mobility pricing as suggested (among others) by Economiesuisse, which would make the use of roads and railways more expensive at peak times and thus reduce the need for infrastructure? In theory, yes, says Dirk Niepelt of the Society for Economics and Statistics in his welcoming address. In practice, however, this would be difficult to implement, he says, as consideration for various interest groups is necessary in the political process.
Labels, social signals and other tools from behavioural economics
The problems of acceptance that true costs and the polluter pays principle have in politics are far less of a burden on the instruments of behavioural economics. It is true that behavioural economics also assumes rational, utility-maximising companies. However, as behavioural economist Luis Santo Pinto explains, consumers are only considered to be rational to a limited extent. Consumption decisions can therefore be influenced by factors other than price:
Labels and certifications: they reduce the cost of obtaining information for consumers.
Sustainable default options: which option applies when consumers themselves do not actively choose (e.g., electricity)? The default option is unconsciously understood as a recommendation. In addition, switching to another option involves some effort.
Salience: attention is a limited resource. For consumption decisions, how strongly a good or information on its sustainability attracts attention (e.g., through colour or placement) has more impacts on consumers’ behaviours than statistical and abstract information. This property is called salience.
Social norms, social signals: what kind of consumption is considered normal in private and professional environments and in the media used? What consumption decisions do we observe in others? The perceived behaviour of peers is a strong determinant of consumers’ choices.
Companies and politicians can influence these factors by means of so-called nudges, for example through marketing decisions such as packaging design, labelling, product placement or through declaration regulations such as nutritional value scales, warning labels or reparability indices (how well can a product be repaired, e.g., by replacing defective parts?).
Marketing can influence, but is not overpowering
Marketing researcher Frédéric Dalsace emphasizes the important role of marketing as an interface between companies (supply) and consumers (demand). He confirms that marketing departments can use tools from behavioural economics to shape consumer decisions. This can go in the direction of more or less sustainability. However, although marketing excesses, as the past has shown several times, are harmful in the long run, the power of marketing should not be overestimated. The consumer has the powerful weapon: the “no”, the revolt. Only 15-20 percent of consumers saying “no” to non-sustainable products is sufficient to trigger changes. The marketing department must perceive their message and carry it into the company in order to retain or win them as customers. From the daughter of globalisation, marketing could thus become the mother of responsible consumption. Consumers should therefore be optimistic and use their decision-making power. “You don’t have to foresee the future, but allow it”, the marketing researcher concludes using a quote from Saint-Exupéry from the novel Wisdom from the Sands.
Supply determines demand
From the point of view of consumer protection, it is also clear that supply, and in particular its presentation, influences demand in the same way as demand influences supply. Consumer representative and National Councillor Sophie Michaud Gigon (Greens, VD) points to the example of imported strawberries available in supermarkets in February, against which the French-speaking Swiss consumer association has launched a campaign (Ramène ta fraise). Consumers have been interested in the environmental impact of their consumption since the 1970s, she stresses. She also identifies the under-representation of consumers in political decision-making processes and the lack of transparent, easily accessible information as key obstacles to responsible consumption. S. Michaud Gigon is clearly in favour of the circular economy and calls, for example, for a reparability index, as is already the case in France, so that consumers can make better informed decisions.
Business case for sustainable action
Eugenio Simioni, CEO of Nestlé Switzerland, agrees with the representatives from economic sciences that companies maximise profits. In his view, however, there is a business case for sustainable consumer products: long-term added value for shareholders presupposes that added value is also created for society. It is therefore worthwhile for companies to act according to the maxim of “doing good” rather than “doing no harm”. However, sustainable consumption decisions at the individual level are particularly important. Consumers should be able to obtain quick, transparent, and credible information at the point of sale (e.g., via Nutri-Scores, labels). The state also has a responsibility: for example, infrastructures are needed to ensure that theoretically recyclable materials can actually be recycled. Financial incentives play an important role. The financial market must reward the production of sustainable products and penalise those that are not sustainable.
In an interactive format, participants identified a variety of tools and levers to make consumption socially, environmentally and economically responsible. It was agreed that different instruments need to interact and actors need to work together in order to achieve something in a useful timeframe.
However, four points remained unclear:
1) How can these instruments be used?
What do you start with and in which area? How do you implement – and above all enforce – the instruments where political acceptance is necessary? And, do the answers to these questions turn out to be sector- or area-specific? The social and cultural dimensions of consumption, which were hardly a topic at the event, are decisive for the operationalisation.
2) To what extent are companies responsible (in relation to the state and individuals)?
In the course of the event, a dissonant picture of companies and their behaviour emerged between speakers and participants. The economists L. Santo Pinto and D. Niepelt as well as Nestlé CEO E. Simioni painted the picture of the rational and profit-maximising company. Several speakers in the audience, on the other hand, assumed that companies should also behave responsibly and not only maximise their profits. This could be achieved, for example, through an intentional corporate culture of sustainability, which would require a mindset shift at the management level. The different assumptions about corporate behaviour could be one reason why the scope of corporate responsibility remained blurred.
3) How are consumer preferences formed?
Both the unbounded and the boundedly rational consumer make consumption decisions according to their individual preferences, which in turn determine individual utility. But how are these preferences formed, and what is their relationship to needs? How persistent are they over time? What is the influence of socialization, culture, images and narratives in public discourse or art and literature?
4) Is the growth paradigm compatible with sustainability?
This question is strongly debated in society, partly also within the economic community. In recent decades, the dominant doctrine in economics has been that economic growth (usually measured in terms of gross domestic product) is a prerequisite for welfare growth and thus a higher quality of life for all. In simplified terms, gross domestic product is made up of consumption, investment and exports (minus imports). This raises questions such as: can the environmental and social costs of consumption fall if it grows at the same time? For example, by consuming fewer, more durable, better and correspondingly more expensive goods? Is gross domestic product even the right measure of economic performance – let alone welfare?
Next step: White paper
As a follow-up to the event, a white paper on responsible consumption is planned. Some of the open questions and dissonances will be addressed there.
An event of the series “Responsible(-less) Consumption”
The event on 31 August in Bern was organised by the Swiss Society for Economics and Statistics and the Enterprise for Society Center. It is part of the series of events “Responsible(-less) Consumption”, which the SAGW specialist societies are organising under the label “La Suisse existe – La Suisse n’existe pas”. The SAGW supports these events financially.
Simon, Herbert A. (1957): Models of Man, New York.