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Thursday, April 18, 2019

Strategic CSR - Moral assumptions

Given that Monday is Earth Day, today's Newsletter highlights the article in the url below, which explores the moral assumptions that underpin economic models of climate change. Specifically, the article argues that, beyond the inherent complexity of climate change (replete, at least in the US, with large segments of deniers of science), there is an essential economic challenge:
"Humanity must work out how many resources should be diverted from other valuable uses—from life-enriching consumer goods to funding for pensions—to the task of limiting global warming."
In essence, the core question of economics applies—how do we allocate scarce resources to address needs/wants in ways that create optimal outcomes? The additional challenge here is that, in spite of economics' insistence for many years to the contrary, this is not purely a mathematical problem:
"These calculations may look bloodless, but they are built on weighty moral assumptions, namely, how to value people's lives."
For the author of the article, having a discussion around these moral assumptions may increase the perceived level of importance of climate change:
"Though it is hard to know what might finally impel humanity to take the threat of climate change seriously, speaking more plainly about its moral costs might help."
Take, for instance, the discount rate, which is an essential component of any attempt to place a value on wealth that is deferred today for future benefit. Up until now, economists have used knowledge about our consumption patterns to determine how much we would be willing to sacrifice today for some future, unspecified benefit:
"But it is far from clear that the rates people have in mind when deciding whether to attend university or save for retirement should be applied to questions of social policy that will affect billions of lives. Climate policy does not simply shift a bit of ill-defined utility from one pile to another, after all. It determines how much life-threatening environmental harm the current generation will impose on scores of future ones."
This is where it gets interesting because we have the knowledge to make these tradeoffs; it is just not something that economists have spent a lot of time thinking about:
"Philosophers are accustomed to discussions about how to value lives distant from our own in time and place; economists are not. But [new research] puts the results of discounting in evocative terms: given a 5% rate of discount, one human life today is worth 132 a century hence. Is it really ethically acceptable to save one life now at the expense of so many in the future? … Economists should treat threats to future lives as just as morally reprehensible as present threats to our own."
By valuing the future in proportion to the present (there is a lot more of the future), we should be able to arrive at a conclusion of how much that future is worth, relative to our current wealth, and how much of an obligation we have to deliver it:
"… there is a risk that humanity will no longer be around a few centuries from now—for example, if a large comet hits the Earth, or if a supervolcanoes erupt and cloak the Earth in choking debris. It makes sense to discount future lives by a tiny amount to take account of the possibility that they will never come to be. That would nonetheless mean that humanity ought to be willing to bear substantial costs now to reduce eventual climate harms."
Take care
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Future lives matter
December 8, 2018
The Economist
Late Edition – Final