Without good manufacturing practices, the toll taken on people and the environment can go unnoticed

Have you heard of the Kudankulam power project? It’s a nuclear power plant in southern Tamil Nadu which has taken the government over a decade to build.

The government says the plant will add considerably to power supply in the southern states but protests against the power plant began even before its construction could start. Villagers who live near the Kudankulam nuclear plant, which is ready to generate electricity now, continue to protest.

Whether you agree with the idea of a nuclear power plant or not, the protests against the Kudankulam project are a good way to understand what economists call social costs.

When you buy a new mobile phone, the price you pay at the shop is called the private cost. This includes the cost of raw material for the phone, the cost of building a phone manufacturing factory, the rent on the land where the factory is built, the salaries paid to workers and the transportation expenses of bringing the phone to a store where you can buy it.

But what if in the process of making the phone, all the waste metal is dumped in a river? The manufacturer may not spend any money cleaning up the polluted river and hence the cost of that pollution is not reflected in the price you pay for the phone at the store.

But the ‘social cost’ of the phone includes not only private cost but also all expenses that society at large has to bear because that one phone was made – like the cost incurred in cleaning up the river, or money spent on medical bills because people fall sick drinking the polluted water.

Examples of social cost

Take the example of clothing brands that use sweatshops. In many Asian countries, workers are paid very low salaries and work in environments without safety features so that the final product, a t-shirt maybe, is produced cheaply. Here, the price we might pay for the tee is does not fully account for the dangers that were involved in producing it.

This negative fallout of business that we usually forget to account for can be explained with a simple textbook example of people who live near an airport. An airport makes a lot of money and does a lot of good by helping people cross long distances very quickly. But it doesn’t compensate people who live close by for the noise pollution that is caused or doesn’t help those who develop hearing difficulties. The true cost of running an airport, economists would say, needs to include these unseen costs as well.

Now let’s go back to the Kudankulam issue. The electricity supplied by the power plant is going to help homes, offices and factories. By increasing the total supply of electricity in Tamil Nadu, the plant may even help in reducing the price we have to pay to get power at home. But what are the unseen costs? Will the villagers be exposed to nuclear radiation? Will their health suffer as a result? Will their water be poisoned by radioactive waste? If the fish in the sea die, where should the fisherfolk go to earn their livelihoods?

In most cases, it is difficult to put an exact figure to what a product’s social cost really is. But it’s important to be aware that the price we pay for goods and services may not fully reflect the burden the product creates on natural resources.

(Got questions on business or economics? Write to

tanya.et@thehindu.co.in)

Q for the week

To control pollution, the Kyoto Protocol helped create a market where industries could buy or sell the right to emit greenhouse gases. What is this permit called?

Send in your answers to school@thehindu.co.in with subject ‘money’. Add your name, class, school and city.

Last week’s answer: Furlough is the term used to describe the leave of absence forced on workers during the recent U.S. shutdown.

Kudos to S. Anirudh, Class 11, Cheran MHSS, Karur, for getting it right.