Low prices, hidden costs to society

If people paid the “full cost” for their goods, says Jeffrey Hollender, founder of the Seventh Generation brand of natural household products, “bad” products would be expensive and “good” products would be cheap.

“Today, it’s just the other way around,” the entrepreneur and author said in a talk today at Notre Dame’s Mendoza College of Business.

By “bad products,” Hollender was referring to those whose production involves polluting the air or water, exploiting labor, or some other unsustainable business practice.

“Good products” would likely include those sold by Seventh Generation, whose name comes from an Iroquois law stating that decisions should consider the impact on the seventh generation to come.

In his talk, “The Future of American Business, the Path to a Sustainable and Just Economy,” Hollender said the United States had created a system of incentives, taxes and regulations that encourages businesses to “behave in the wrong way.”

He cited the example of organic agriculture.  A grower of organic tomatoes or lettuce might take care not to pollute groundwater or streams, expose employees to toxic chemicals, or erode the topsoil. A conventional grower could engage in all those practices, leaving society to bear the environmental and health costs.

Those unpaid costs make it more profitable for conventional producers to act irresponsibly and more difficult for responsible producers to compete on price, he said.

He mentioned the difficulty Seventh Generation had competing on price for its toilet paper made from recycled fiber.

“[T]he government spends a billion dollars a year subsidizing virgin timber, which means that the cost of recycled fiber is artificially higher than the cost of virgin fiber.”

That sends a confusing message to consumers, he said.

“They think, ‘Well, you’re pulling this stuff out of the garbage, shouldn’t your product be cheaper than someone who has to go cut down trees and turn those trees into pulp?’ But what they don’t realize is that the government is subsidizing that and not subsidizing recycled fiber.”

Hollender helped found Seventh Generation in 1989. He stopped down as CEO in 2008 but remained chairman of the board until about six months ago, when, he said, he was fired.

He said he had differences of opinion on issues such as transparency, employee ownership and sustainability with board members representing venture capital and private equity interests, who had gained a larger stake in the company as it grew. One of the entrepreneur’s unusual management practices was limiting compensation for every senior executive, including himself, to no more than 17 times the salary of the lowest-paid person in the company.

Hollender’s writing frequently appears in a wide variety of publications ranging from the Harvard Business Review, Strategy & Business, the Huffington Post, and GreenBiz.com.  He is the author of How to Make the World a Better Place: A Guide for Doing Good and What Matters Most; How a visionary group of pioneers are teaching social responsibility to big business – and why big business is listening.

His talk was part of the Ten Years Hence speaker series of the Mendoza College of Business, which explores issues, ideas and trends likely to affect business and society over the next decade.  The series is sponsored by the O’Brien-Smith Leadership Program, made possible by a generous endowment from William H. O’Brien (ND ’40) and his wife, Dee.

The O’Brien-Smith Program endowment provides an opportunity for students and faculty to interact with distinguished leaders from business, government and nonprofit sectors.

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