After-dinner speeches are generally best forgotten after the dinner even when (perhaps particularly when!) they are extremely funny. My speech to the Australian Agricultural and Resource Economics Society dinner wasn’t funny at all (at least not intentionally), but a couple of people asked me to write it up for the blog. So I’ve done it. I didn’t have notes when I talked, so this is not an accurate record, more like a reconstruction of what I meant to say
Having given and listened to a fair number of after-dinner speeches, I know that the ideal speech is intelligent, light-hearted and short. But, in the current state of the world, it’s hard to be both intelligent and light-hearted. Perhaps contrary to what was expected when I was invited, I’m going to go for intelligent. You’ll have to judge whether or not I succeed in that, but I can at least promise to be short.
Looking at the news and at many of the papers that have been presented here, it’s obvious that we as a society have made all sorts of unsustainable choices and we now have to deal with the consequences. Emissions of greenhouse gases are growing ever more rapidly, with obvious consequences for the climate, and for the destruction of natural ecosystems such as the Great Barrier Reef. Ever-growing debt and the belief that risk could be wished away have produced a global financial crisis on a scale not seen for at least a generation. And the global economy as a whole is still failing in what should be its most basic function; that of providing food and other basic necessities to all.
On the other hand, we are living at a time of great opportunity. We know what needs to be done to stabilise the global climate. We have a wide range of policy options to respond to the financial crisis and to make better use of the financial resources available to us. And we have more than enough resources to meet the challenge of global poverty.
Obviously, there is a huge gap between the dire situation in which we find ourselves and the glowing possibilities available to us. What can economists, and particularly agricultural, environmental and resource economists, offer to help bridge this gap?
First, we have an understanding of constraints, and with the duality relationship that, to every constraint there corresponds a price. The temptation to wish away constraints is ever-present, whether these are the budget constraints of households and nations, constraints on the capacity of the global environment to supply us with the services we demand or constraints on our ability to mitigate risk. Unless we associate the right prices with those constraints, we will take actions that disregard them, and that ultimately produce crises of the kind we have seen recently.
Second, we understand economic magnitudes. The cost of stabilising the global climate is likely to be between 1 and 3 per cent of global income. For about the same cost, we could meet the Millennium Goals for economic development, and raise everyone in the world above the minimal poverty line of a dollar a day. Since any sensible program for global climate change stabilisation involves the purchase of emissions credits from poor countries, achieving both goal together would not cost much more than 5 per cent of global income.
These amounts are not small – 1 per cent of Australian national income is around $A10 billion a year, and 1 per cent of world income is perhaps $A500 billion. This means that we cannot meet our goals with the kind of voluntary feel-good measures that cost nobody anything, such as switching to low-emission light bulbs or doling out the tiny quantities of foreign aid we currently provide.
To illustrate the magnitudes again, consider the argument that Africa has received tens of billions in aid, but is still poor, and that therefore aid is a waste of time. Those billions sound impressive, but any numerate economist can calculate that they amount to a few cents per person per day. Perhaps the aid has been effective and perhaps not, but there has been nowhere near enough to test the claim that generous aid could end world poverty.
On the other hand, as economists, we understand that these numbers are small in relation to the productive capacity of our society. With income growing at around 2 per cent a year, the cost of dealing with global climate and providing a decent minimum standard of living for all would barely dent the rate of growth over a few decades. Ross Garnaut estimated yesterday that his proposals for deep cuts in CO2 emissions would reduce the growth rate by around 0.1 per cent, and all serious analyses produce similar numbers.
Finally, a point of which we as environmental and resource economists are particularly aware. Economics is not about money. The ‘economists’ seen by the average member of the public these days, are typically bank employees whose ostensible purpose is to explain why prices in financial markets have gone up, gone down or stayed the same (the financial version of the Norman May trilogy) on the day just passed. But real economists understand that only a small part of what is economically valuable is traded in markets.
Looking at the Great Barrier Reef for example, the market value of extractive activities such as commercial fishing is small in relation to non-extractive uses such as tourism, and both are small relative to the kind of recreational uses that are not reflected in standard monetary valuations. And all of these consumptive uses are insignificant in comparison to the cultural, scientific and spiritual values of the Reef for Australians current and future, and for the world as a whole.
This is a time when it is vital for economists, and for agricultural, environmental and resource economists in particular, to step away from an exclusive focus on academic research and to make a contribution to public debate. The choices made by Australia and the world over the next five years or so will determine our success or failure in dealing with the challenges we face for decades to come. We can and should make our voice heard.