Opportunity Cost: The Copenhagen Consensus

‘If the world decided to spend $50 billion on improving global welfare, which projects should we start with?’

The Copenhagen Consensus is an example of opportunity cost in the real world. It was an attempt to improve prioritisation of the numerous problems facing the world. With scarce resources it is impractical to attempt to solve all the world’s problems. The challenge is to identify and rank the challenges facing the global community in a rational way.

The Copenhagen Consensus gathered some of the world’s most prominent economists to a meeting to assess the challenges facing the world today and to develop criteria which would enable rational prioritisation.

The challenges identified for consideration are listed below:

Task

In groups rank the issues considered by the Copenhagen Consensus in order of priority

*The outcome of the group’s deliberations are shown at the bottom of the page

Iconoclasts

By Bjørn Lomborg

I will try and outline the idea of what I think is the most important thing and that is a very simple idea. Sometimes one of the best ideas. Its prioritization. Nobody can do everything at once. We prioritise in our private lives every day. When we budget. When we plan our day. Business people have to juggle competing demands; so do politicians. Yet, when it comes to global issues – the biggest challenges facing the planet – we don’t prioritise very well. The media’s shifting spotlight often dictates what’s the most deserving of our attention. We hear experts warn us about global warming, others tell us about HIV/AIDS or about the tragedy of children missing out on education. In an ideal world, we’d have the resources and ability to fix all the world’s biggest challenges at once. Unfortunately, we don’t live in that world. Thus, we need to ask ourselves the difficult question: what should we do first?

Prioritization might sound harsh or unfair. But do we think it’s harsh or unfair when doctors in an overcrowded emergency room perform triage? The harsh, unfair thing is to kid ourselves that we can do everything. To pretend that we have the resources and the capacity to solve everything here and now. Because that means that instead of solving any one problem, we end up doing very little anywhere. It is surprising that such a simple idea as prioritization can get people so riled up, and that we are even discussing it in a forum called “iconoclasts”.

Iconoclasts are people who question cherished notions. Many single interest groups – not the least the environmental movement – do not like to have their projects questioned. I have been on the receiving end of personal abuse, as you told us Ed; likened to Hitler, professional vilification and the odd pie. Likewise, many interest groups vastly oversell their message. Witness Al Gore scaring us with 20 feet deluge from global warming, when the thousands of UN scientists tell us real sea level rise will be 1-2 feet in the coming century. So without questioning the status quo, how will we ever know if we’re achieving the most we possibly can?

That’s the simple idea that underpins the Copenhagen Consensus – a project created in Denmark that aims to put prioritization on the agenda for the world’s decision-makers. Two years ago we launched the first Copenhagen Consensus prioritization exercise, addressing some of the worst challenges facing the planet. Copenhagen Consensus is about solving problems. I guess one way to look at things would be to identify the problems affecting the most people, and then try to solve that first. But that doesn’t work. A problem might be large, but we might not have a very good way to combat it. Arguably, the biggest problem of the world is that we will all die. But we don’t have a good technology to solve that problem, so it doesn’t come first. Thus, at Copenhagen Consensus we set out to find the best solutions. We asked some of the world’s top experts to provide us with information about the scale and threats posed by climate change, communicable diseases, conflicts, education, and other major challenges. Each of the experts came up with the best solutions within their area, identified the cost, and told us the benefit of each solution. As an example, experts told us the cost of providing mosquito nets to ward off malaria, and the exceptional benefits it would have. But talking to individual experts isn’t enough. If you ask a climatologist, you’re likely to be told that climate change is the biggest issue facing the planet. If you ask a malaria expert she will probably say malaria is the biggest issue.

So, at Copenhagen Consensus we asked some of the world’s top economists to listen to all these arguments, compare all these different ‘solutions’ – each one of which would do some good in the world – weigh the costs and benefits, and then come up with their own priority list for where we get the most power for the pound. Our group included four Nobel laureates. And the top of their ‘to do’ list – what they thought should be the world’s top priority – was combating HIV/AIDS. A comprehensive program would cost £14 billion, but the potential social benefits would be immense: we’d avoid more than 28 million new cases of HIV/AIDS by 2010. This makes it the single best investment the world could possibly make, reaping social benefits that outweigh the costs by 40 to 1. For every pound spent, we’d achieve forty pounds worth of social goods.

At the bottom of their list: the experts said current methods to combat climate change, like the Kyoto Protocol, were bad because they would cost more than the good they do. Kyoto would cost £80 billion a year for the rest of the century, but only postpone warming six years in 2100. If we invest £14 billion we can either save 28 million people from HIV/AIDS or postpone global warming four days in 2100. Which is better? For every pound spent on Kyoto, the experts estimated we’d do 2 pennies worth of good.

That certainly doesn’t mean we should ignore climate change. But, given scarce resources, we must ask ourselves: do we want to do a lot of good now, or a little good much later? We must ask ourselves if we can do more for the world by investing differently. This does not mean not caring about the environment. It means realizing that the environment is not the only problem for most of the world’s population, and often poverty and disease are bigger problems, which are more easily remedied first.

Arguably, the single most important environmental problem affecting the world right now is indoor air pollution. The UN estimates that indoor air pollution causes 2.8 million deaths annually – almost the same death toll as HIV/AIDS. It is caused by poor people cooking and heating their homes with dung and cardboard. But the solution is not environmental – to regulate dung – but rather economic, by ensuring everybody can get rich enough to afford kerosene. Likewise, hurricanes caused thousands of deaths in Haiti but virtually none in Florida, because Haitians are poor and could not take preventive measures.

Breaking the circle of poverty by addressing the most pressing issues of disease, hunger and polluted water, will not only do obvious good, but also make people less vulnerable to the effects of climate change. As the world tackles problems, come up with new solutions, and more and better information, we’ll need to update our priority list for humanity. So we’re planning to re-do the Copenhagen Consensus project every four years with the world’s top economists, and hold other exercises with other groups around the world. Our hope is that discussing priorities will help to improve the quality of debate and of decision-making. If you favour spending more on an issue at the bottom of the priority list, this process means the onus is on you to come up with smarter solutions that can convince the world to focus on your issue first.

This is where I believe the debate has to go. Rather than questioning prioritization itself, we should constantly be asking: what should we do first?

http://www.bbc.co.uk/religion/

The priorities identified by the Copenhagen Consensus

1. Control of HIV/AIDS
2. Providing micro nutrients
3. Trade liberalisation
4. Control of malaria
5. Development of new agricultural technologies
6. Small-scale water technology for livelihoods
7. Community-managed water supply and sanitation
8. Research on water productivity in food production
9. Lowering the cost of starting a new business
10. Lowering barriers to migration for skilled workers
11. Improving infant and child nutrition
12. Reducing the prevalence of low birth weight
13. Scaled-up basic health services
14. Guest worker programmes for the unskilled
15. Optimal carbon tax
16. The Kyoto Protocol
17. Value-at-risk carbon tax

Task

Investigate why Control of HIV/Aids was ranked as number one in the list of priorities and why The Kyoto Protocol was ranked only sixteenth in the list of priorities.