33 Why Markets Alone Can’t Deliver Sustainability
Markets are powerful; there’s no doubt about that. They’ve played a central role in shaping our modern world, from the clothes we wear to the phones in our pockets. But while markets are brilliant at allocating resources in many situations, they are not perfect. In fact, there are times when they get things quite wrong. One of the clearest examples is when individual decisions carry consequences for others that are not reflected in prices. Economists call these externalities, and they lie at the heart of many sustainability problems we face today.
Externalities happen when the actions of one person or firm have an effect – either positive or negative – on others who are not directly involved in the activity. What makes externalities especially tricky is that the people or businesses involved often don’t take these wider effects into account when making their decisions. This means that what’s good for the individual isn’t always good for society. And that, in turn, means that the market outcome is not efficient. It doesn’t lead us to the best possible result for everyone.
Let’s look at one of the most powerful examples of a positive externality: education. Most people who invest time and money into getting a good education do so because it benefits them directly. It opens up better job opportunities, increases lifetime earnings, and improves personal development. But education is also one of the most socially valuable activities we can encourage. An educated population leads to a more informed public, a stronger democracy, lower crime rates, better parenting, and higher rates of volunteering. It also contributes to productivity and economic growth in ways that benefit everyone, not just the individual who went to school or university. These wider benefits are rarely captured in tuition fees or salaries, which means that left to the market alone, society would end up with too little education. This is especially true for people from lower-income backgrounds, who might not be able to afford the up-front costs even though the long-term social benefits of their education would be huge. That’s why governments fund schools, subsidise university places, and provide student loans. These policies aren’t acts of charity; they are corrections to a system that, left alone, would produce too little of a good thing.
Vaccination is another excellent example of a positive externality in action. When someone gets vaccinated, the immediate benefit is to themselves; they reduce their risk of illness. But vaccination also reduces the chances of spreading diseases to others. This helps protect vulnerable groups, like infants, elderly people, and those with weakened immune systems. When enough people are vaccinated, we achieve something called herd immunity, which stops outbreaks in their tracks. But here’s the catch: if people only consider their own private benefit, some might decide that it’s not worth the effort or the risk, especially if they think others are already vaccinated. If too many people think this way, the system breaks down and everyone is worse off. This is why public health campaigns and vaccination programmes exist. They help align private decisions with public benefits.
The same logic applies in reverse when it comes to negative externalities. Think about industrial pollution. When a factory produces goods, it considers its costs of labour, materials, and energy. But what if the factory emits harmful chemicals into the local river? That pollution can ruin fishing grounds, poison wildlife, or harm people living downstream. These are real costs, but they are not paid by the factory. Instead, they are pushed onto the public, onto ecosystems, and often onto future generations. In economic terms, the factory’s private cost is lower than the true social cost of its activity. So it produces more than it should, and the market outcome is inefficient. What if sustainability isn’t a burden but an opportunity to design a fairer, smarter, and more beautiful world? What role will you play in building that future?
A vivid example of this is the growing crisis of plastic pollution in our oceans. Plastic is cheap, convenient, and used everywhere. But its environmental cost is enormous. Once plastic enters rivers and seas, it breaks down into microplastics that can be eaten by fish and end up in our food chain. Sea turtles, birds, and whales often die from ingesting plastic. And the clean-up costs for beaches and harbours are staggering. Yet when someone buys a bottle of water or a takeaway container, the price doesn’t reflect any of that. The cost to society is invisible at the point of purchase, and so the damage continues. Again, the market has failed to tell the full truth. This is why some countries have introduced charges for plastic bags, bans on single-use plastics, and incentives for businesses to switch to biodegradable packaging. These are not about interfering for the sake of it; they are about making sure that people face prices that reflect the real costs of their choices.
These kinds of interventions are often described as market corrections. Rather than rejecting the market system altogether, they aim to improve it by making sure that all the relevant costs and benefits are taken into account. In other words, they help bring private decisions in line with social outcomes. This can be done in different ways. Sometimes, the solution is to tax harmful activities. A carbon tax, for example, makes polluters pay for the emissions they produce. Sometimes, the answer is to subsidise beneficial activities, like grants for renewable energy or electric vehicles. And sometimes, the best approach is to regulate directly by setting standards or banning harmful practices.
Of course, none of this is easy. Designing good policy involves trade-offs, and there’s always the risk of unintended consequences. That’s why the job of public institutions is so important. Governments, local councils, public agencies, and even international organisations exist to protect the interests of society – especially when individual decisions fall short. These institutions are not perfect, and they need to be held accountable, but without them, many of the most serious challenges we face would go unaddressed.
Think about the climate crisis. No single person or company can solve it alone. The emissions that drive climate change come from millions of small decisions – how we travel, what we eat, how we heat our homes. Each of these decisions is shaped by prices, habits, and incentives. And none of us individually sees the full cost of our choices. But collectively, the impact is massive. This is the textbook case of a global externality. It doesn’t respect borders, it can’t be solved by market forces alone, and it affects future generations who have no say in today’s decisions. The only way to tackle it is through coordinated action, informed by science and guided by values. And that means public policy has to step in.
Sustainability, then, is not just about the environment. It’s about the economy too. It’s about recognising that markets are good at many things, but they need help when it comes to aligning private interests with the public good. It’s about using the tools of policy – taxes, subsidies, regulations, public investment – to steer the system towards outcomes that are fairer, cleaner, and more efficient in the long run. Most importantly, it’s about seeing ourselves not just as consumers or businesses, but as members of a society that have shared responsibilities and shared stakes in our future.
Letting markets run wild might seem like freedom, but real freedom comes from living in a society that works for everyone. That means facing up to externalities, designing better systems, and building a future where progress doesn’t come at the expense of people or the planet.
Across the world, young people have begun to lead – organising protests, launching start-ups, and demanding action from governments and corporations. Their message is clear: the future belongs to us, and we are not waiting for permission to shape it.
