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What are "externalized" costs?

Externalized costs are costs generated by producers but carried by society as a whole. For example, a factory may pollute water by dumping waste in the river without paying for it. Fifty kilometers downstream, the local government has to clean the water to use it as drinking water. Those costs are caused by the factory, but the factory does not pay them; the local government does. That's what we call externalized costs. Externalizing costs means companies show higher profits, but society is paying for them. Underpaying employees, leading to poverty and associated problems, is another example. The current shareholder and finance models reward companies for externalizing costs.

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