K. William Kapp's theory of social costs: A Luhmannian interpretation

a r t i c l e i n f o Social costs Open systems Autopoiesis Sustainability In developing his famous theory of social costs, K. William Kapp claimed to draw inspiration from the theory of open systems. The present paper reconstructs the notion of social costs from the perspective of the Luhmannian theory of autopoietic social systems, an alternative systems-theoretic paradigm. According to Luhmann, these systems build up their internal complexity at the cost of lowering their sensitivity to the complexity of their environment , both societal and ecological. From the Luhmannian perspective, social costs can be understood as those segments of environmental feedback that are thus ignored by social systems. This perspective is not only consistent with Kapp's own vision of social costs as a systematic outcome of private business enterprise, but also even more radical as it traces these costs back to the regime of functional differentiation of society, and thus to human civilization generally. It follows from the Luhmannian perspective that social costs can be reduced by improving the coordination between the individual functional systems, such as economy, law, politics, and science. K. William Kapp's theory of social costs, a widely acknowledged source of inspiration for modern ecological economics, continues to attract lively scholarly interest until today (Berger, 2008a,b; Berger and Elsner, 2007; Elsner et al., 2007a,b; Ramazotti et al., 2012). There seems to be a consensus among ecological economists that business firms indeed tend to " leave out of account important social costs of production borne by third persons and future generations " (Kapp, 1975, p. vii), thus bringing about a " serious deterioration of man's natural and cultural environment " (Kapp, 1975, p. vii). Kapp insightfully discerned cost shifting as an endemic feature of the modern institutional system of business enterprise, a feature generating the systematic divergence " between exchange/market value and social value " (Vatn, 2012, p. 36). Empirically, social costs can be identified through the introduction of benchmarks such as social minima, maximum tolerance levels, and socio-ecological indicators (cf. Berger, 2008a). At the root of Kapp's concept of social costs is his understanding of the " open system character of the economy " (Kapp, 1985). It is indeed a central tenet of Kapp's theory that social costs arise precisely because the economy is embedded into the broader societal and ecological systems. He located the " key problem of the open-system character of …