Centre for Policy Development
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The risk society
It's October 2007, and Newcastle has just been hit by another massive storm. As the flood waters recede, politicians from all sides line up to give their condolences - but in a break from tradition, they fail to announce any financial assistance for the flood victims. "Natural disasters are a part of life" says Prime Minister Howard, "we expect responsible families to plan ahead for this kind of thing". Premier Iemma echoes the sentiment: "the state government can't be expected to foot the bill for every act of god".
Sound unlikely? It probably is. Not only do most people expect governments to act as "the insurer of last resort" when disaster strikes - we also expect them to play an active role in calculating and preparing for the risks facing their citizens. Hurricane Katrina demonstrated just how serious the consequences can be when a government fails to live up to this expectation.
In 'The Risk Society: social democracy in an uncertain world', CPD fellow John Quiggin examines the role of government as the ultimate risk manager. He argues that risk will be the defining concept of the 21st century, the way that globalisation was for the 1990s.
Download The Risk Society: social democracy in an uncertain world (pdf)
Any party aspiring to win this year's election will need to grapple with 'the great risk shift' - the increased exposure of individuals to everything from the vagaries of international finance, energy and labour markets, to the risk of a complete collapse of our environmental life-support systems.
The kind of deep-seated anxiety this exposure creates will not be soothed by assurances that the economy is booming, or exhortations to change our lightbulbs or buy green power.
The risks and uncertainties shared by all require a shared response, argues Quiggin.
This does not mean that we should try to protect everyone from every possible risk - overly zealous or misplaced risk management can stifle innovation and creativity. But what we can do is take a long, hard look at what kinds of risk are best managed at an individual, government or business level.
In an increasingly high-risk world, any government that fails to do this may be headed for a perfect storm.
Comments
Comment on Quadrant article
I have just read the Quadrant paper. It is, as one would expect of an economist who unquestioningly supports the Washington Consensus, based on a long series of unsubstantiated assertions that masquerade as unvarnished truths for which no proof is required.
In the nineteenth century Alessandro Manzoni, in his novel The Betrothed wrote that “History may truly be defined as a famous war against time”. But the mainstream of the economics profession cannot even participate in this war as they have no functional memory. It is as if the manifest historic failures of the ideas that underlie their theories about such simplistic concepts as the universality, and general beneficence, of competition had never happened.
In an unconcious repitition of the centuries old philosophical and theological conflict between free will and determinism Ergas seems to plump squarely for the determism inherent in the artificial abstraction of the "marketplace" as the ultimate arbiter of human destiny. It is a direct rebuttal of the last two and a half millenia of western intellectal history.One of the defining lessons of that history is that humankind has not only the capacity, but the responsibility, to shape its own destiny. The emrgence of democracy was about a recognition that the imposed determinism favoured by the Medieval Church and the Monarchy were not inevitable. The economic determinists among us are keen to return us to that state of childhood where we accept unquestioningly the power of another abstraction to take control from us.
Where an understanding of that history would suggest to people sensible of how much they do not know, that doubt, rather than certainty, was warranted, the prophets of market determinism have instead a child-like certainty that they are right. Their technocratic arrogance is useful in obscuring the narrowness of their knowledge and their ignorance of the past. George Santayana had some pretty apposite things to say about those who fail to learn the lessons of history being doomed to repeat them.
Probably the greatest Magistrate that the US has ever produced, a man with the extraordinary name of Learned Hand, is instructive in this regard. When speaking to a graduating class at Bryn Mawr College in the 1920’s he said “In competition there lies latent a fatal antimony. Men take their color from one another, catching a reflection from sources that themselves send out no light; they are chameleons surrounded by others of their species, mysteriously acquiring hue from a colourless environment”.
Those who insist that we should abandon our democratic rights to decide to an abstraction called the market, are seeking to return us to a state of childhood that ill befits grown-ups.
Les MacDonald
Quadrant responds to 'The Risk Society'
Risk
Not perhaps quantifiable in economic terms but the risk induced by the provision of innaccuarte information, most recently seen in the case of Iraq or of climate chanmge in which the documentation provided by Pearce High and Dry is an indictment of our societies information provision. Prof Quiggin argues that class divisions have largely gone but if not class division then certainly divisions exist in the right to know. The elite still rules see the rise of the vulcans. Prof Quiggin refers to this but does not equate it with risk. If the sum society can allocate to covering risk then the cost of wars decreases the amount for anything else as does climate change. Would accurate iformation help to forestall increased risk if so how does society guard against capture of the organsof information by parties who's aim is manipulation their own life purposes?
Still a one dimensional interpretation of risk
Hi John,
First let me thank you for a stimulating article. I did enjoy your risk perspective of WorkChoices.
However, many of the points you raise still assume risk is something that is quantifiable, predictable and can be readily translated into dollar amounts. This is the one-dimensional insurance industry view of risk that Ulrich Beck actually argues against.
For example, your discussion of risk in the healthcare system, seems to revolve around who should pick up the tab. I would argue that the complex and multi-faceted issue of preventative care is where government should be focusing its energies, as it is uniquely placed do this. The management of preventative care (an idea often placed outside the scope of western medical 'best practice') is something that should, rationally, be pooled.
Also, you mention 'lifetime risks' associated with education. Redistributing funds to disadvantaged sections of the community (although crucial for ensuring some measure of social mobility) does not address the more serious threat of changing standards. This cannot be offset by a government regulating for higher standards. Private enterprise has developed intimate connections with the higher education system, connections that seek to high-jack the direction of cirricula in the interests of 'business innovation.' In our current neo-liberal climate no government would dare stand up to the mantra of 'innovation.' The risks associated with business led path dependance need to addressed by government. Not only can we not all be miners, lawyers and accountants, we shouldn't be.
Many of the risks we face in contemporary society are over-determined and their consequences often unpredictable (this may make them 'uncertainties' in the strict sense). Phenomena like cancer, labour market disparities and climate change cannot be insured against because they cannot be easily quantified let alone predicted. This is the crux of the issue. This is what causes widespread anxiety. The 'organized irresponsibility' of the "free market" can often act to obscure calculable 'risks,' (that is after all one of the ways of turning a profit) and the government can and should ensure that this is kept to a minimum.
However, government (in its being accountable to the people) is uniquely placed to deal with 'uncertainties' that require restraint or the employment of the 'preventative principle'.
As long as we continue to think of risk as something that can be dealt with by means of the 'distributional logic' (and its associated emphasis on ownership and control) I fear we will miss the point of what it means to live in the Risk Society.
Cheers,
Bob Karmin
The "Risk Society"
This is the kind of debate we should be having before any Mr Howard or Mr Iemma tell us WE are responsible for THEIR economic, environmental and planning DISASTERS. As Quiggin foretells it is in the realm of possibilities that such responses could be forthcoming from neoconservative "small government" proposers faced with natural and man made disasters. Prevention, as the adage tells us, is better than the cure, however we are still allowing development at all costs without a price tag on risk. What a better example of plausible circumstances are presented by those who built Noosa Sound (QLD) all those years ago. They were never made to pay a RISK bond, to ensure that if a natural disaster (I'd call it a natural correction) ever takes place and Noosa Sound is wiped out the new owners and society at large are left handling the costs of such folly. The very reason for living in a society as ours is to not only manage risk but to share the costs and REPONSIBILITIES of being such with all tiers of responsible government. So far the Cyclone Larry and Bali responses have been comforting.
John Quiggin's paper is one
John Quiggin's paper is one of the most uplifting policy papers I've read for a long time.
The paper proposes an economic risk management role for governments which makes sense to me against the background of empirical data, daily life, and insights from mainstream mathematical economic theory, with origin in Adam Smith, as developed since the 1950s.
Insurance and Risk
The following is I think an easy way to make this point.
I think most people are comfortable about insurance.
It is possible to point at that at a particular size it makes sense for organisations to do their own insuring - they don't need to pay another organisation to do it for them.
Australia is a big enough organisation to self insure - its called pensions, benefits, infrastructure and so on.
I know this isn't elegantly put but I think the general idea is good.
Evan