Do not neglect the fate of future generations
Debates about climate (and other systemic risks) too often fall prey to the power of narratives that seem more certain than the underlying evidence, and can easily lead policymakers astray.
It’s a standard playbook. The words used to describe the prescription of the policy are charged – connoting what is good (or not). They often assume causal relationships that, at best, can be characterized as wishful thinking. Priming the pump with repetition by influential (and interest-driven) actors strengthens the story.
Take, for example, the arguments made about corporate “short-termism” and environmental degradation. Contrary to popular belief, companies that think long-term are likely to pollute as much as those that focus solely on creating short-term shareholder value, as they prioritize profits over externalized social costs. Those who care about corporate externalities should not harbor false hopes that business leaders will themselves protect the interests of other stakeholders.
What is needed are regulatory interventions that address the challenges of effectively monitoring and holding companies accountable for these social costs – by undoing the incentives for one company to impose these costs on others, through measures such as sustainability reporting and assurance standards, imposing carbon taxes (and otherwise pricing externalities), subsidizing adaptation. This is more effective than attempting to alter a company’s time horizons in a way that “sounds good,” but which may serve primarily to insulate management from accountability to the market. National solutions (or measures solely focused on state-owned enterprises) will not suffice.
A similar, often self-serving source of political confusion stems from the concept of discounting the future and our relationship to time. Nobel laureate William Nordhaus and Sir Nicholas Stern (who edited the 2006 Stern review on the economics of climate change) have taken diametrically opposed approaches – each assessing policy options through the prism of discount rates.
While both make the same basic assumptions about the effects of climate change (and most other parameters likely to affect the debate), Nordhaus argued for discounting the costs of policy measures at the market rate of return while that Sir Nicholas Stern argued for the use of much lower discount rates.
Applying this logic, Nordhaus suggested small and slow reforms, arguing that rapid change imposes excessive costs relative to the benefits. By contrast, Stern argued for immediate and dramatic responses, given the magnitude of the risks involved.
Again, the narrative has gotten wrong. It is easy to show that even a modest level of discounting violates the principle of intergenerational equity by treating the well-being of those living in the future as less important than that of those living in the present. Discounting should be used as a tool to inform and discipline choices about where to invest and how the costs should be distributed (among potential payers and over time), rather than whether and when to respond to necessity. to move to a net zero economy.
Why are these distinctions important? On the one hand, when we confuse our need to deal directly with externalities with narratives of long-term thinking or to deny (or delay addressing) systemic risks by neglecting the future, we obscure meaningful choices. For example, coal provides 50% of the world’s energy, produces 75% of harmful global emissions and is increasingly used in less developed countries. The actualization of policy alternatives (rather than the urgency to adopt them) suggests that we invest in facilitating a global transition away from coal (as companies such as Transalta have done over the past decade), rather than continuing to facilitate its export (coupled with the “”export” of domestic manufacture) to countries with low-cost coal production.
Obscuration negates our moral obligation to those who follow us. This is particularly pernicious given the highly regressive nature of systemic risks – social and economic inequalities disproportionately affect those least able to bear them, amplify exponentially and, at some point, become irreversible.
Obfuscation is also doomed to failure. The institutions of any open society depend on trust in the future. In virtually every industry, most market value is intangible, defined in large measure by investor confidence in the future prospects of the business. When the future is in danger, very few works. Without confidence in the future, why would anyone save or invest? It is hard to imagine building an effective and sustainable strategy based on the belief that the company is failing in its most fundamental goals.
These are questions about which we cannot avoid making choices. If we refrain from believing that the future can be better than the present, we are unlikely to do anything to help make that happen.
The same goes for the purpose of the company and the concern for those who feel left behind or left behind. Both require intentionality. As Henry Ford would have said, “Whether you believe you can or not, you are right.”