Monday, November 19, 2012

The World Bank Ignores How Capitalism Can Help Us to Adapt to Climate Change!

The World Bank's core mission is to foster equitable economic growth in the developing world.   I have always assumed that its research team were fans of free markets and capitalism's amazing ability to provide opportunities and possibilities.   But, I have now read this report on climate change's impacts and I can't find a single sentence focused on how capitalism will help LDC nations to adapt to climate change.  Strange!   It is also noteworthy that Section 6 (which focuses on sectoral impacts) discusses Agriculture, Water Resources, Ecosystems and Biodiversity, and Human Health but skips urbanization!  Yet in 15 years, over 60% of the world's population will be living in cities.

International trade in goods, ideas, agricultural products, capital and labor will help many nations  to adapt to the new climate realities.  I have spoken at the World Bank about these topics but apparently my work has not influenced the Bank's thinking on this topic. I will repeat again my key thought.   The World Bank should focus on supporting free international markets and then it can be more confident that the costs of climate change will be lower.

As I read this WB document, I see a science document with no discussion of how the 7 billion self interested people on the planet will respond to the "news" embodied in this report.  The anticipation of a challenge gives rise to ex-ante investments and coping strategies that mitigate the sting of the blow.  Intuitively, if you see the punch coming you duck!   At least based on this publication, the World Bank views the developing world as passive victims here.    Here is a direct quote from the piece:


"Largely beyond the scope of this report are the far-reaching and
uneven adverse implications for poverty in many regions arising
from the macroeconomic consequences of shocks to global agricultural production from climate change. It is necessary to stress  here that even where overall food production is not reduced or is  even increased with low levels of warming, distributional issues  mean that food security will remain a precarious matter or worsen  as different regions are impacted differently and food security is  further challenged by a multitude of nonclimatic factors."

I will let you explain to me what this vague paragraph means.

A brief examination of the references to the report indicates that only 4 economists are cited in this report. I congratulate Josh, Matt, Wolfram and Michael for being cited here!


Schlenker, W., & Roberts, M. J. (2009). Nonlinear temperature
effects indicate severe damages to U.S. crop yields under
climate change. Proceedings of the National Academy of Sciences, 106(37), 15594–15598. doi:10.1073/pnas.0906865106


Zivin, J. G., & Neidell, M. J. (2010). Temperature and the Allocation
of Time: Implications for Climate Change. Cambridge, MA.
Retrieved from http://www.nber.org/papers/w15717



Apparently 200 years of economics research has yielded only 2 relevant papers on this subject!  Interesting!

To my many friends at the World Bank I must ask,  given how many talented Ph.D. economists you have on payroll, do any of you have anything to say about applying basic logic from microeconomics to thinking about climate change adaptation?  I know that you can buy a cheap copy of Climatopolis on Amazon.  Should I subsidize such a mass purchase?

2 comments :

Seabreeze said...

I'm often struck by how rich country-specific the sources of your comfort with respect to the management of climate changes are. (my apologies if your book deals with why poor countries should be able to rely on markets to the same extent that rich countries can.) you've written before about how natural disasters have different effects in less developed countries, it surprises me that you have so much faith in markets to solve problems in poor countries.

Marianne Fay said...

Are you actually arguing that capitalism is a good instrument to deal with complex public goods? While I am in full support of the idea that we need to harness the power and innovation of the private sector to help tackle climate change, free markets and their inability to value extrnalities are hardly the solution to climate change.

As to your concern that the World Bank is ignoring the economics of climate change, pls see our World Development Report on Climate change and development (www.worldbank.org/wdr/) as well as our recently released report on Inclusive Green Growth (www.worldbank.org/inclusivegreengrowth) --both of which emphasize the critical role of cities. There is plenty more economics of climate change work in our policy research working paper series

The 4oC report you mention was a specific effort to get an update on the state of the science--something most of us economists do need some help with.

Marianne Fay
The World Bank