The Darkside of Consumerism: Market Failure and The Future of Global Sustainability

By Sanghoo Ahn Oct. 28, 2025

Within the realm of a dynamic global economic landscape, consumerism has increasingly driven the growth of industries such as fast fashion and drop-shipping. While the aforementioned industries act as significant economic catalysts in developing countries, the active production of negative externalities is often overlooked. Traditional market mechanisms are unavailing in correcting inefficiencies in the form of environmental and social costs, ultimately distorting market efficiency and successively, leading to market failure. Amidst intensifying international concerns, Environmental, Social and Governance (ESG) frameworks have emerged as plausible counteractions, though their effectiveness has yet to be manifested in various economies.

Fast fashion and drop-shipping industries primarily demonstrate market failure through labor exploitation, unsustainable supply chains, and the overconsumption of scarce resources. Despite the advantages of leveraging economies of scale for price-sensitive demand, these industries fail to internalize the full societal costs associated with its production and distribution. World-renowned brands in the fast fashion industry such as Shein, H&M, and Zara, heavily prioritizes cost reductions through outsourcing, relocating their production plants to countries that lack labor protection laws . Consequently, this has resulted in a race to the bottom, in which developing nations deliberately alleviate environmental and labor restrictions in order to attract foreign investments. The Rana Plaza disaster in Bangladesh exemplifies the faulty regulatory supervision of the fast fashion industry as the collapse of a garment factory left 1134 fatalities. Post-accident investigations revealed that the building suffered from critical structural issues, highlighting the failure of global supply chains, particularly of the fast fashion industry, to enforce ethical labor practices and thereby account for the negative externalities of production. 

Furthermore, the fast fashion industry is responsible for a substantial environmental footprint, accounting for 10% of global carbon emissions and the consumption of 79 billion cubic meters of water yearly. Accompanying such grave statistics, the industry produces a further 92 million tons of textile waste annually, with only 15% being recycled. 

Fig 1. Deadweight Loss Caused by Negative Externalities of Production

Global e-commerce markets have recently been dominated by the drop-shipping model, which allows retailers to sell products without having to hold inventory. Since drop-shipping companies such as Amazon, Temu and AliExpress rely on comparative advantage, production is primarily centered in low-cost hubs in China and Southeast Asia. Nevertheless, market inefficiencies burgeon within such circumstances due to inadequate labor conditions and environmental footprints. Drop-shipping is alleged to account for 3% of global carbon emissions, with emissions from air freight being 12 times higher per unit than that caused by sea transport. As consumers progressively emphasize delivery time as a pivotal product-centric element for drop-shipping, just-in-time shipping further increases carbon footprints. Moreover, excessive plastic packaging vigorously contributes to landfill overflows, as industry monopolies such as Amazon single-handedly generated nearly 300 million kilograms of plastic waste in 2021.

Addressing global sustainability efforts, ESG frameworks have been established to internalize negative externalities through the explicit integration of environmental, social, and governance factors in corporate decision-making. The notion of stakeholder capitalism, which prioritizes the interests of all stakeholders over solely maximizing shareholder profits, epitomizes the objective of ESG considerations, contrasting to conventional profit maximization suggested by Milton Friedman’s shareholder theory. In the modern technological world where consumers are complemented by widespread awareness through transparency, product quality in itself is insufficient. Instead, consumers readily align themselves with corporations that share the very ethical values that they espouse. Hence, fundamentally ESG-propelled companies experience reputational advantages alongside regulatory preparedness. For example, Patagonia has successfully wielded strong consumer loyalty through its emphasis on ethical sourcing of sustainable materials. Although such stances can hinder short-term profits, especially in an industry where comparative advantage is crucial, companies are willingly adopting ESG considerations in order to capture long-term profits. 

Nonetheless, ESG adoption is strictly subjective, depending on the status of various economies. Within developed economies like the US and E.U, ESG regulatories thoroughly ensure corporate oversight. Likewise, investors have developed a preference for corporations that demonstrate ESG adherence, further incentivizing sustainable practices. On the other hand, however, developing economies of that of India and Southeast Asian countries have shown reluctance towards adopting ESG deliberations, prioritizing economic growth over sustainability. This is complemented by weak regulatory measures, tacitly encouraging continued unsustainable production schemes and the bypassing of ESG standards. 

Externalized environmental and social costs effectively portrays the systematic market failure of fast fashion and drop-shipping industries. While the development of ESG standards aim to internalize such externalities, the efficacy is equivocal in the status quo, necessitating multilateral cooperation beyond traditional frontiers.