What Bennett Could Say at the COP26
The Prime Minister can leverage his background and Israel’s unique position at the UN’s 26th Climate Change Conference, COP26
Shavuah tov!
At the end of October, Israel’s Prime Minister Naftali Bennett is reported to be heading to the UN’s Climate Change conference in Glasgow to lead the Israeli delegation at the summit. Given the timing, after the IPCC report and in the dawn of the post-Abraham Accords era, I believe the speech he could give there is an opportunity to clearly position Israel at the forefront of the battle for the sake of humanity and an ally of the movement to save the planet.
So I wrote him a speech, and published it in the Times of Israel. I’m reprinting below in full, and here is the link to the original. And I’m going to record myself giving the speech just for kicks so you can hear what it sounds like, which you can find on my substack.
At the core of the speech is an attempt at conveying in simple terms a complex but incredibly important idea: the need to internalize negative externalities if we ever want to make the free market work for the planet.
Negative externalities are an important theoretical term that have very, very real consequences: when the production of a good or service has effects on the wider world that do not cost to the producer, the market is perverted and incentives lead to sub-optimal outcomes.
A concrete example: when a factory is able to more cheaply manufacture clothing by placing itself by a river and dumping all of its waste into that river, the company owning the factory has subsidized its costs by depending on the public paying for the damage done through the pollution. Consumers, who make up the public, believe they are buying cheaper clothing, but really they are paying through their taxes and their health a lot more for the same clothing than the money they pay the company.
Too often we tend to externalize the State, thinking that the State should pay for certain things and the Market should strive to be most efficient. Such doing so is immature and trite. Obviously the Market only exists when it is propped up by the State, and any activities in the market will affect the State and be affected by the decisions of the State. Moreover, the State is us: we who buy and sell and create and consume come together to make States, and we end up with the tab whenever a company offloads costs onto the public to make their goods seemingly cheaper.
There are literally dozens of concrete examples where externalities directly subsidize the price of goods and in doing so harm the public in the long-run. Take Uber and Lyft as an example, as this excellent study shows, which raise the costs of transportation for society as a whole by 30-35%. By keeping those costs external to their balance sheets, companies benefiting from negative externalities are literally robbing the public -- that is, you and me and everyone you know.
There is a solution for this: judicious taxation through true cost accounting. If companies were to truly reflect their costs of goods sold, the market would work much more efficiently to create optimal outcomes for everyone.
Companies will not do this themselves. This is where the State needs to step in, to demand that companies apply the rules of true cost accounting and pay the State for the resources companies siphon off to produce their goods and services.
Naftali Bennett is a great spokesperson for this message. Not only is he a Startup Nation poster-child, and a deep believer in the power of markets, he’s also a world leader able to speak to other world leaders and call for a global alliance for truth in accounting. Which is why I hope he considers delivering my speech.
Have a great week, and I look forward to thoughts and comments - and please share if you find what you read interesting.
Ariel
The Speech Bennett Should Give at the Climate Change Conference
Prime Minister Naftali Bennet is expected to lead Israel’s delegation to the UN’s 26th Climate Change Conference of the Parties, known as the COP26, at the end of October. Here is the speech I would recommend he give.
Dear esteemed delegates and world leaders, I stand before you here today both as the prime minister of my country as well as a father deeply concerned about the future.
Before I speak to the reason we are all here, I would like to directly address the elephant in the room: I know many of you have disagreements with my country and with the particular circumstances we are in with our neighbors. I recognize we have a lot to work on. There are injustices we have yet to remedy. Our nation is devoted to reducing human suffering, and I commit to you we will do our best to address the very real political challenges we face.
I ask your patience for the moment to put that aside. Because without reducing the complexities of our current political situation, things are going to get a whole lot worse for all of us if we do not use this opportunity to think of the future. If we do not work together to overcome gathering storms brewing that will change life as we know it.
I am here as the prime minister of a country that has seen remarkable growth in its technology and services infrastructure over the past 30 years. Even before we were known as Startup Nation, we were known for leveraging cutting edge breakthroughs in the sciences to make the desert bloom. For the past century we have built a national home under the often harsh environmental conditions of our region, and went from being a parched nation to a nation proud to export water to our neighbors in need. Because of our history and our geography we have become a nation engaged on a daily basis with the question of how to improve human life in ever hotter climates.
Even before we were known as Startup Nation, we were known for leveraging cutting edge breakthroughs in the sciences to make the desert bloom.
I am here to extend our hand in partnership to anyone and everyone who would like to work with us towards solving the challenges that will face us all in an ever hotter climate.
I am also here as a veteran of the Israeli startup ecosystem, as a person who has built companies that have transformed industries. With my own eyes I have seen what entrepreneurial individuals can do when the right incentives are aligned, taking scientific and engineering breakthroughs and applying them in novel ways to meet the needs of the market.
Markets, however, do not work unless goods are properly priced. When participants in markets take into account the true cost of supplying products to meet demand, amazing things happen: salaries rise, products improve, and customers are happy. Incentives align for entrepreneurs, customers, and investors, and everyone benefits from the new value that is created.
With my own eyes I have seen what entrepreneurial individuals can do when the right incentives are aligned, taking scientific and engineering breakthroughs and applying them in novel ways to meet the needs of the market. Markets, however, do not work unless goods are properly priced.
When markets do not take into account the true costs of producing something, the incentives become misaligned. In the short term everything looks great: companies produce products priced below their actual cost, customers are initially ecstatic because they are able to buy more for less, and investors reap the benefits of a lower cost base and higher revenues. But when the bill comes due everyone suffers from the long-term costs of the negative externalities. Companies fail, products break down, the stock crashes.
Which is of course what has happened today. All of us have benefitted tremendously by the abundance of energy made available by how we account for the cost of carbon. Until today, the price of oil, for example, was calculated based on the direct costs of extracting, packaging, and shipping that oil to the end customer. The companies able to extract oil have profited tremendously, and our economies have been turbo-charged by having access to cheap energy for industrialization.
We now know, however, that the same public that bought the oil at that immediate, lower price also accrued a debt reflecting the long-term costs of using that oil: by burning so much oil so quickly, we have altered the climate and led to a rapid warming of our planet. We are already seeing the economic impact: increasing healthcare costs, defense budgets, infrastructure expenditures, and more.
Or take something as mundane as non-compostable packaging, for example: we have agreed to allow plastic plates and cutlery and bags to be sold for pennies on the dollar, while ignoring the public costs of waste management, land appropriation for landfills, and the health effects of plastic contamination of our water. Whether it is oil or plastic plates or one of many other goods and services, by allowing our companies to sell products at a price that does not take into account the true cost to our countries and our tax-paying citizens, we have allowed a market inefficiency to pervert our incentives. We have constrained the power of free markets, stopping them from helping us solve the climate crisis.
I believe the most fundamental thing we can do today is to create a properly priced market for carbon that takes into account the true price of the goods we rely upon. I believe that if we build such a market, through the judicious use of taxation, innovators and inventors and entrepreneurs will have properly aligned incentives to launch new startups that can help us transform our world.
It is time for us as world leaders and committed members of humanity to recognize that for private initiative to succeed, public initiative must come first. It is time for us to work together to internalize the costs that until now have been externalized by private players. It is time for us to create the conditions for free enterprise to unleash the creativity of our best and brightest to tackle the clear and present dangers before us.
It is time for us as world leaders and committed members of humanity to recognize that for private initiative to succeed, public initiative must come first. It is time for us to work together to internalize the costs that until now have been externalized by private players.
This is the 26th Climate Change Conference of the Parties. Over the past quarter century, we have hoped that corporations and private citizens would get in touch with their better angels and reduce their contribution to the warming planet. We expected philanthropy and good-will to save us. It did not. It is time for us to unleash the power of the markets by properly structuring them to take into account negative externalities in pricing. It is time to use true cost accounting to properly price goods and services.
My small nation is unable to do this by ourselves. We will do our best to share our hard-earned lessons with the world on how to survive a warming planet and feed a growing population. But I recognize that it will be no more than a bandaid for a wound that needs surgery. Which is why I am standing before you here today calling for a global alliance to mandate true cost accounting to harness the power of free enterprise to help us fix the planet.