It is difficult for democratic society to agree on a sacrifice today in order to get a collective but uncertain advantage far in the future. Or to be more precise: The majority is against action because it is more expensive in the short term to solve the world’s long term climate problems than to leave them unsolved.
Jorgen Randers, co-author of the modern classic “The Limits To Growth” (1972) and professor of climate strategy at Norwegian Business School, fears that the tyranny of the short term will cause gradually increasing difficulties for all.
Long term perspective possible in theoryThe answer is of course yes. At least, in principle. It is fully possible for democratic society to decide to spend today on projects that will only give a benefit in the long run. But although this is possible in principle, it rarely happens in practice – at least if the sacrifice is significant. The reason is obvious: most people, most voters, are short term. If they are to make a sacrifice they want to be sure it leads to an advantage for someone close in space or time. Ideally, in the form of higher wellbeing for the voter within a five year period . If this cannot be promised, the voter normally remains skeptical. Current examples of voter inaction on obvious long term problems include the lack of action on global warming and antibiotic resistance. Voter opposition against military spending after long periods of peace belong to the same category.
The cost was ridiculously low – equivalent to an increase in income taxes from 36 to 37 percent. […] In spite of this, a vast majority of Norwegians were against this sacrifice.
… but voters are short-sightedVoter short-termism is illustrated by the recent history of Norway – a very rich democratic society where education and health has been free for more than fifty years, and where the distribution of income and wealth is more even than most where. In 2006 a 15-point plan was published that made it clear that Norway could solve the climate problem if every Norwegian was willing to pay 250 euros in extra taxes every year for the next generation or so. The plan explained how Norway could cut its greenhouse gas emissions by two thirds by 2050, within its own borders and in a manner that could later be copied by other rich countries – using known technology. In my mind, the cost was ridiculously low – equivalent to an increase in income taxes from 36 to 37 percent – given that this plan would eliminate the most serious threat to the rich world in this century. In spite of this, a vast majority of Norwegians were against this sacrifice. To be frank, most voters preferred to use the money for other causes – like yet another weekend trip to London or Sweden for shopping.
The cheapest solutionThe sad story of Norway illustrates the short-termism that dominates most democracies. It surfaces as an unwillingness to pay for a solution that is more expensive than the cheapest solution. By “cheapest” is normally meant the “cost-effective” solution. That is the solution which involves the lowest cost relative to the benefit obtained in the relatively near future. It is important to note that voters support the use of surprisingly high discount rates when converting future benefits to current advantage. Actually, they support the discount rates recommended by macro-economists, namely those rates that are observed in the market (say 5 to 10 percent per year in real terms) . This amounts to disregarding benefits that are more than 10 to 20 years into the future. Proposals to solve the climate problem 40 years on, are seen as having no benefit, only costs.
Resistance to changeThere is another reason why democratic society finds it hard to solve long term problems. This is because the short term costs are very visible and very real for a small group of voters, who actively opposes wise action, even though they will receive their fair share of the benefit in the long run. The vast majority, who will not pay any short-term costs, nor receiving any short term benefit, remains passive. As a result, the minority carries the floor and stops meaningful action. This phenomenon is illustrated by the global climate challenge. It is well known  that the problem can be solved by moving some 2 percent of the global labour force and 2 percent of the capital equipment from dirty (i.e. fossil based) production to clean (i.e. low-carbon emissions based) production. Not surprisingly this shift is fiercely opposed by the incumbents – the workers and owners – of the dirty sectors. Incumbent workers and owners (e.g. in the coal industry) understandably fight for their existing jobs and profits. The majority of the voters, who work in the clean sectors, remain unengaged.
No one wants more expensive energyBut as an interesting curiosity: when it comes to the change from dirty to clean energy, the incumbents are supported by a majority. The shift from dirty to clean energy is resisted by most voters because it leads to more expensive energy – gasoline and electricity – in the short term. Or to higher taxes. Or more regulation. These are things normal voters dislike, even if they are very rich and highly educated. As a result politicians do not dare to propose the obvious solutions to the climate problem, for fear of losing votes and be squeezed out of office. In summary, democratic society is stuck in a situation where the short term costs of climate action hinders meaningful action – action that will improve the quality of life for people in the middle of this century, but provide little benefit in the meantime.
Capitalism is carefully designed to allocate capital to the most profitable projects. And this is exactly what we don’t need today.
Capitalism need frame conditionsIt may be worth pointing out that the capitalist system does not help. Capitalism is carefully designed to allocate capital to the most profitable projects. And this is exactly what we don’t need today. We need investments into more expensive wind and solar power, not into cheap coal and gas. The capitalistic market won’t do this on its own. It needs different frame conditions – alternative prices or new regulation. The pricing problem, and its remedy, is of course well known in textbook economics. In order to align the corporate short term interest (maximum profit) with society’s interest in the long term (wellbeing for future generations), one must “internalize the external costs”. In the case of global warming: corporations must be forced to pay for the climate gases they emit. The world needs a “price on carbon” – a carbon tax or a functioning quota price. But this has proven difficult to introduce in democratic society, for the obvious reason that voters are loath to introduce a carbon price – since it unavoidably will increase the cost of energy in the short term. The alternative is outright regulation – for example banning the use of coal – but this runs into exactly the same voter resistance, because it will also increase energy prices in the short term.
Unfounded optimismAs I see it, voter and market short termism has dominated the climate response of the rich world for nearly thirty years. Optimistic observers hope that the stalemate will end once it becomes “profitable” to solve the climate problem. This means cheaper than pursuing current policy. Pessimists like I fear that this means waiting for a very long time indeed. It will always cost more to produce clean power from coal, than to produce dirty coal power as we do today. It will always cost to collect the CO2 emitted from the burning of coal. And global society will be burning coal for a very long time unless something drastic (read: costly in the short term) is done. Coal is the source of 80 percent of the energy we use in the world. If we are going to wait until the clean coal becomes profitable, the world will become impossibly warm in the meantime.
Profitable to let the world go to hellIn my mind, it is difficult for democracy to handle difficult issues like climate change. It is difficult for democratic society to agree on a sacrifice today in order to get a collective but uncertain advantage far in the future. The fundamental reason is that human beings are short-term. Or to be more precise: The majority is against action because it is more expensive in the short term to solve the world’s long term problems than to leave them unsolved. In more snappy, rhetorical terms: It is cost-effective to postpone global climate action. It is profitable to let the world go to hell. At least, when using market discount rates.
The tyranny of the short term exists as a phenomenon, and represents a real threat to the long term sustainability of democratic society.
Solutions to the problemWhat to do? How can we make democratic society better able to long term problems – where the cost comes first and the benefit only arises far into the future? First of all, we should make it generally known that the “tyranny of the short term” exists as a phenomenon, and represents a real threat to the long term sustainability of democratic society. Second, we should argue for the use of low discount rates in public cost-benefit analyses. Third, we should encourage the use of common sense rather than quantitative analyses when deciding whether to make an investment for the long run benefit of society. One approach would be to set aside a fraction of society’s investment flow for long term purposes – called the “sustainability budget”. It would be similar to the “military budget”, which is not based on cost-benefit analyses but on qualitative, cultural, and ideological considerations. Fourth, we should lengthen the election period, in order to give politicians time to implement unpopular measures before they lose the next election. A fifth, and in my fundamental and very attractive, solution would be to introduce general income security. This would reduce the resistance against the job loss which is an unavoidable first effect of the structural change which is a central element of any solution of a long term problem. We should guarantee that all workers will receive an adequate salary after their dirty job has been closed down and until they get a new clean job. This is of course totally unrealistic in democratic because it will mean taking from the majority (those with a job) and giving to a minority (the two percent losing their dirty job). But it would reduce most of the resistance to change.
Enlightened dictatorship unrealisticThese five solutions have all been proposed, and sadly been rejected by a democratic majority. As has the most obvious – sixth – solution, which is to reinstall enlightened dictatorship for a time limited period in critical policy areas. Like the Romans did when the city was challenged. And which is the solution currently pursued by the Chinese Communist Party, with obvious success in the poverty/energy/climate area. But I agree that the obvious solution of strong government appears unrealistic in the democratic West. This is supported by the loss of standing of the EU Commission in spite of its historical success in getting in place the 20/20/20 climate and energy legislation against the will of most Europeans.
The Tesla electric car is cruising into the market because of its superior short-term advantages, which more than compensates for the high cost of the car.