14 June 2005

Economists may have some answers... but not all: Review of Global Crises, Global Solutions (ed.) Bjorn Lomborg

June 14, 2005
The Hindu
Book Review

GLOBAL CRISES, GLOBAL SOLUTIONS: Bjorn Lomborg — Editor; Cambridge University Press, The Edinburgh Building, Cambridge CB2 2RU, U.K. Rs. 995.

Economists may have some answers... but not all

Siddharth Varadarajan

The papers provide a useful glimpse of what professional economists are thinking about these days on the 10 most serious challenges facing the world today

This weighty tome— the brainchild of its editor, a professor of statistics at the University of Aarhus in Denmark— is based on the audacious and, in my opinion, slightly misplaced premise that economists have all the answers to the world's most serious problems.

What Lomborg did was to invite 10 well-known economists and ask them to make concrete proposals to tackle a particular challenge in their area of expertise. He then asked a larger group of economists to critique these proposals. The final step was to invite a distinguished panel of eight senior economists, including Jagdish Bhagwati and Nobel laureates Robert W. Fogel, Douglas C. North and Vernon L. Smith, to evaluate the proposals made by the first group. Specifically, they were asked, "What would be the best ways of advancing global welfare, and particularly the welfare of developing countries, supposing that an additional $50 billion of resources were at governments' disposal?"

Copenhagen Consensus

The idea was to force the experts to prioritise a plan of action on the basis of some notion of what constitutes the global good. Since the economists met in the Danish capital (where they were paid an honorarium of $30,000 each for their exertions), the emerging document— consisting of a total of 38 proposals of which only 17 were finally ranked from "very good" to "bad"— has been called the "Copenhagen Consensus". However, as we shall see below, at least some of the emerging proposals have not proved to be consensual. The Copenhagen Consensus secretariat began the exercise by enumerating what they considered the 10 most serious challenges confronting the world today. Few would disagree with the list: climate change, communicable diseases, conflicts and arms proliferation, access to education, financial instability, governance and corruption, malnutrition and hunger, migration, sanitation and access to clean water, and subsidies and trade barriers. Each "challenge" is addressed in one chapter in the book. All the chapters are well-conceived, but "Malnutrition and hunger" by Jere R. Behrman, Harold Aldermann and John Hoddinott, and "Sanitation and access to clean water" by Frank Rijsberman, are outstanding.


In the final overall ranking of cost-effective proposals deserving of a share of the notional budget of $50 billion, the panel placed the control of HIV/AIDS at the top with as much as $27 billion assigned to it. The other three proposals to be considered "very good" were providing micronutrients so that the prevalence of iron-deficiency anaemia could be reduced ($12 billion); pushing trade liberalisation; and new measures for the control and treatment of malaria ($13 billion).

Five proposals were considered "good" from the perspective of their cost-benefit ratios. These were: development of new agricultural technologies to combat malnutrition and hunger; community-managed water supply and sanitation; small-scale water technology for livelihoods; research on water productivity in food production; and lowering the cost of starting a new business as a way of improving governance and reducing corruption. The four proposals rated "fair" were: lowering barriers for migration of skilled workers; improving infant and child nutrition; scaled-up basic health services; and reducing the prevalence of low birth weight.

Finally, the panel labelled as "bad" four proposals made by the sectoral experts, mostly in the field of climate change: guest worker programmes for the unskilled; the optimal carbon tax; the Kyoto Protocol; and the value-at-risk carbon tax. Interestingly, not a single proposal under the challenges of financial instability, conflicts, and education, were considered by the panel to be worthy of ranking.

On financial instability

In his chapter on financial instability, Barry Eichengreen considered four proposals: re-imposing capital controls, re-regulating domestic financial markets, creating a single world currency and pursuing a solution to the currency mismatch problem wherein international financial institutions borrow and lend in emerging market currencies. The first two he dismisses as cost-ineffective, the third as desirable but politically unfeasible, and the fourth as the one most likely to succeed. The panel, however, felt the "uncertainties" and "complexities" in the field were too great to endorse any of these proposals. If Nobel laureates could not make up their minds, one wonders what lay bureaucrats and politicians are expected to do.

While the Copenhagen Consensus sticks in the main to the "motherhood and apple pie" prescription that is the staple of modern development economics— most of the proposals ranked "very good to "fair" would easily make it to any check-list of spending priorities in India, for example— the project has proved somewhat controversial with environmentalists. In particular, they disagree with the characterisation of key climate change-related proposals as "bad" on grounds of cost-effectiveness. Indeed, cynics say the report bears the imprint of Bjorn Lomborg's earlier book, The Skeptical Environmentalist, which took a more optimistic view of global warming than what environmental scientists do.

On migration too, the proposal to push for skilled migration alone is untenable on both positive and normative grounds. As Bhagwati notes in his comments, the argument that developed countries should take the skilled but not the unskilled from the poor nations, even on a temporary basis, "will not stand scrutiny among immigration experts unless they are of conservative persuasion."

All told, the papers provide a useful glimpse of what professional economists are thinking about these days on key challenges. But is the book worth the million-odd dollars Lomborg and his sponsors must have spent on putting it together? Perhaps someone ought to do a cost-benefit analysis of the project and find out.

© Copyright 2000 - 2005 The Hindu

No comments: