Copenhagen review

Friday’s Australian Financial ReView section (subscription only) runs my review of Bjorn Lomborg’s new book. CT readers won’t be surprised to find a lot of criticisms of the Copenhagen Consensus project that produced the book. But I found a fair bit to praise as well. The review, pretty lengthy, is over the fold. Comments appreciated.

On my bookshelves, I have many works that make a substantial contribution to our understanding of important issues facing the world, and quite a few exercises in political propaganda. Much rarer are books that fall into both categories. The Copenhagen Consensus, a joint initative of The Economist and Bjorn Lomborg’s Environmental Assessment Institute, has produced just such a book.

Lomborg first came to worldwide attention with The Sceptical Environmentalist, a book that claimed to refute a ‘litany’ of environmental woes. In most cases, Lomborg argued that the severity of problems had been overstated or that progress in mitigation had been ignored.

When it came to global warming, however, neither of these claims seemed plausible, and Lomborg adopted a different tack. Rather than disputing the scientific evidence of global warming, he argued that the cost of addressing the problem through the Kyoto protocol would be better spent dealing with more urgent issues, such as the provision of clean drinking water in the Third World.

There are a variety of problems with this argument, one of the most notable being that the most cost-effective approach to mitigating global warming would be a global emissions trading scheme that would require rich countries to buy emissions rights from poor countries, providing funds that could be used for initiatives of the kind Lomborg proposes. Rather contradictorily, Lomborg went on to argue that, precisely because of the large transfers from rich to poor countries they would require, emissions trading schemes would not be politically feasible.

His criticism of the environment lobby led the right-wing Danish government of Anders Rasmussen to establish the Environmental Assessment Institute and instal Lomborg as its director. Ironically, the same government made repeated cuts in Denmark’s foreign aid program.

It was against this background that, in 2003, Lomborg announced the Copenhagen Consensus project. The idea was that a group of eminent economists would look at priorities for assisting poor countries and try to rank them in terms of costs and benefits. The planned procedure was that an advocate would present a case for each of a number of possible global projects. Two ‘opponents’ would then provide a critique. The panel of eminent economists would then distil the arguments and rank the possible projects.

There was an immediate reaction to this announcement. Three of the seven members of the board of Lomborg’s insitute resigned in protest at a project which seemed unrelated to the purposes for which the institute had been established.

At the same time critics (including this reviewer) voiced suspicions of a setup. Criticism began with the composition of the panel. With four Nobel prize winners, it was certainly an eminent body. But the members weren’t notable for a focus on the problems of Third World economic development. They included experimentalist Vernon Smith, econometrician James Heckman (who later withdrew), and economic historians Robert Fogel and Douglass North.

Fogel has done important research on population and nutrition, but the other Nobel prizewinners, and most other members of the panel, were not experts in the main fields under discussion. As Jeffrey Sachs (who headed of the Commission on Macroeconomics and Health) observed, the timeline was far too short for the panel to gain requisite expertise, lasting only a few months in total; the background papers circulated for a few weeks, and in the final discussions, the panel had 5 days to review 32 proposals.

The point can be sharpened by looking at some of the Nobel prizewinners who would have seemed like obvious choices for such a panel, including Kenneth Arrow, Joseph Stiglitz, Robert Solow and Amartya Sen, all of whom have made extensive contributions to the debate on economic growth and development.

Comparing the two lists, the omissions are, broadly speaking, towards the left of the economics profession and those who have commented on climate change have supported policy initiatives such as Kyoto. Conversely, the members of the Copenhagen panel were generally towards the right and, to the extent that they had stated views, to be opponents of Kyoto. Indeed, Lomborg’s argument that spending to mitigate climate change would be better directed to aid projects was first put forward by Thomas Schelling, one of the Copenhagen panellists.

The same lack of balance was evident in the selection of ‘opponents’. For Robert Cline’s paper on climate change, Lomborg picked vigorous opponents of Kyoto, Robert Mendelsohn and Alan Manne, and the result was an acrimonious debate. But for most of the other issues under consideration, the differences between the parties to the discussion were matters of emphasis and nuance, to the extent that the ‘opponents‘ were eventually redescribed as providing ‘alternative perspectives’.

It is clear from reading the papers and the discussion reports that the panellists approached the task in a serious and fairminded way. But, inevitably, the narrowness of the selection meant that many important issues were prejudged or not discussed. Undoubtedly the likemindedness of the panel members assisted in the stated objective of achieving consensus. It is not clear, however, that a consensus confined to a narrow ideological subset of the economics profession is going to be of much help in achieving broad agreement on solutions to global problems.

The real problems, though, were not with the choice of panel members but with the assessment procedure, which was clearly designed to fit Lomborg’s original example of a choice between spending on climate change and on clean drinking water.

The approach adopted was to assume a budget of $50 billion, and then seek to allocate it to those projects which would yield the largest benefit for a given cost. As Jeffrey Sachs points out, this approach is fine for evaluating discrete, project-based interventions, such as improvements in drinking water quality. But with a small budget and an insistence on easily quantified costs and benefits, it is naturally biased against bolder initiatives such as broad-based improvements in health and education.

The problems are even more severe in relation to issues like civil conflict. Stability and peace aren’t alternatives to development programs, they are preconditions. Trying to rank such disparate issues makes no sense. In this and some other instances, the Copenhagen panel wisely chose not to make a ranking.

The selection of projects is another fundamental problem. Even if, say, improvements in basic health services rank poorly when compared to action against AIDS, they might rank well by comparison with military spending, or advertising, or cosmetic surgery. Lomborg dismisses these from consideration as being ‘not motivated by doing good outside the country concerned’.

But much the same point applies to proposals to mitigate climate change. Adverse impacts species extinction and loss of biodiversity are mostly of concern to people developed countries, and other impacts such as loss of coastal land affect rich and poor countries alike. Similarly the costs of mitigation will be spread across the economy, not funded from a specific government budget item that could be reallocated to foreign aid. Treating climate change as a foreign aid project fits Lomborg’s own framing of the issues, but it is not an accurate representation of the actual problem.

Not surprisingly, the Copenhagen panel concluded that implementing the Kyoto protocol was not a good a use of scarce funds. All of the doubts raised about the Copenhagen Consensus project have been confirmed by the use Lomborg has made of the results. He has said almost nothing about the positive merits of the options favored by the panel. When it emerged, in December 2004, that none of the money promised by the Bush Administration for the fight against AIDS[1] had actually been spent, he was silent.

By contrast, Lomborg has repeatedly stressed the panel’s negative findings about climate change. A typical example is an article in The Australian, reprinted from The Telegraph. More than half the article was devoted to the importance of not allocating significant resources to fighting climate change. None of the priority issues identified by the panel got more than a few sentences.

In summary, the Copenhagen Consensus project was created as a political stunt. It was designed, in every detail, to produce a predetermined outcome. Having got the desired outcome, the organiser has shown little or no interest in pursuing any of the other issues raised by the project.

With all of these criticisms, it would be easy to conclude that the entire exercise was a waste of time. In fact, however, the project has made a valuable contribution. If we disregard the ranking exercise, and set the debate over Kyoto and climate change to one side, what remains is a set of well-informed papers, and thoughtful comments, dealing with some of the most serious problems facing the world, and assessing some possible responses.

The participants were nearly all economists, and this is reflected in fairly tight adherence to a standardised cost-benefit framework. The lack of alternative perspectives from natural scientists and public health specialists is a major weakness of the Copenhagen Consensus considered as a policy initiative. On the other hand, it gives the resulting publication a degree of consistency that would otherwise be hard to achieve in a single volume.

The chapters on specific initiatives to prevent disease fit most neatly with the constraints imposed by the ranking procedures. Anne Mills and Sam Shilcutt give an excellent overview of the problems of communicable diseases, focusing on the big killers, HIV/AIDS and childhood diseases, and on malaria, which not only kills millions each year but is a huge source of chronic morbidity.

In comparing fatalities with chronic illness, the standard economists approach is to measure impacts in terms of disability adjusted life years (DALYs), which may then be converted into dollar terms in various ways. However a monetary valuation is done, the invariable answer is that a life in a poor country is worth less than a life in a rich one. Rich country governments, and the voters who elect them, implicitly make this judgement every time they point tax cuts or domestic health services ahead of foreign aid. Nevertheless, it is jarring to see the same judgement made explicitly. Mills and Shilcutt address some of the difficulties, and they are taken up further in the discussion by David Evans.

The chapters on water and sanitation and on malnutrition and hunger follow a similar pattern. They provide an excellent overview of the limited progress that has been made towards providing people with their basic needs for adequate food and clean water (as an aside, the tone is considerably more sombre than the upbeat treatment of the same issues in The Sceptical Environmentalist). As discussant Peter Swedberg observes, the main cause of malnutrition and hunger is poverty. Only reductions in global poverty are likely to produce large-scale reductions in hunger, though some specific micronutrient deficiencies may be addressed . The same is largely true in relation to water supply, though again there is some scope for local initiatives.

The discussion of education is rather disappointing. In both developed and developing countries there has been vigorous debate about the impacts of increased inputs to education, and particularly reductions in class sizes, on educational outcomes. Experimental and macroeconomic studies have generally produced favorable results, while microeconometric analyses using test scores as a proxy for performance have shown little or no impact. But the debate is not joined here, since both the challenge paper author, Lant Pritchett, and the discussants, are supporters of the microeconometric approach, which suggests that there is little that can be done in this field, beyond a nod to such free-market nostrums as charter schools and vouchers. Even these limited recommendations look fragile since more recent US research, using the test score approach, has found that charter schools don’t do much better than ordinary public schools and may even do worse. If progress is going to be made on this topic, it will probably be necessary to look beyond test scores as a measure of achievement.

The remaining chapters are on topics that don’t fit well into the project-based approach of the Copenhagen Consensus, but are essential to an understanding of the problems facing the world, particularly with respect to relationships between more and less developed countries. These issues include trade, migration, international financial flows, governance and corruption and civil conflict. They cannot be addressed simply by allocating a line item in a budget, and they raise important questions of sovereignty.

Understanding these issues, and the interactions between them, is crucial to any assessment of the way forward in resolving the global problems associated with poverty and deprivation. The contributors, notably including Kym Anderson, Barry Eichengreen and Susan Rose-Ackerman, make an importatn contribution to our understanding of these issues.

In summary, this is a book that belongs on the shelf of anyone concerned with the crises facing the world. But, because of the dubious process by which it was generated and the dishonest uses to which that process has been put, it ought to be sold with a warning label, something like ‘It Ain’t Necessarily So’.

fn1. There is an error here. As reported here it is funds promised for the Millennium Declaration Account that have not been spent. Money for AIDS was promised separately and some money has been spent, though there is a lot of smoke and mirrors