Imagining the unimaginable

This post contributed by John Mutter, Professor of Earth and Environmental Sciences/Professor of International and Public Affairs and Director of PhD in Sustainable Development, Columbia University, NY.

Coalmines don’t leak, but there are few other ways that the tragedy at the Upper Big Branch Mine in Virginia in April differs from that of the Deepwater Horizon in the Gulf of Mexico just a month later.

The tragedy is the same.  Men went to work on the day of the disaster in the usual way they set out for their well-known tasks on any day.  Then a terrible thing happened that got very quickly of their control.  A total of thirty-nine people lost their lives; 28 at Upper Big Branch, 11 in the Gulf of Mexico.  This is not a large number in comparison to other industrial accidents but all loss of life is tragic especially when it is life cut short.  It seems out of order.  Fathers will now outlive sons.  The norms reversed.  In a sense that is what a disaster is; our world turned upside down.  In that there is no difference between coalmine and an oilrig.

It is far too easy to point out that in both cases the objectives were the same – the mining of a fossil fuel to provide cheap energy for economic growth in the US. Coal and oil are almost the same chemically.  Coal is more or less pure carbon, oil has hydrogen atoms as well; hence we call oil a hydrocarbon.  Different processes in the Earth create them — coal by the transformation of ancient land plants like ferns, oil from the transformation of microscopic marine organism with unfamiliar names like dinoflagelates.  Both are actually still being formed in the Earth but the rate of transformation is very slow and our rate of use is very high and so we call them non-renewable.  It’s a comparative statement but a fair one.

The ready availability of coal in Britain made the industrial revolution possible.  The unavailability of coal in most of Africa may have made an industrial revolution in that continent impossible and doomed it to poverty.  There is nowhere in the world that has achieved progress absent cheap abundant energy.   We need cheap energy to prosper; coal and oil provide it.  The only way to get access is to mine it, either through a drill pipe or an excavation.  Both forms of mining have always been and remain very risky, and countless people have died throughout the world in mining disasters.  We need the fuels so we take the risks.  Mining is not the most dangerous profession; agriculture and fishing have higher worker death rates in the US.  We need to farm and fish so we take the risks that go with farming and fishing.

The two disasters are similar in very unsettling ways.   To many they seem to speak of our addiction to fossil fuel.  Like a drug addict they suggest we will go to any lengths and take any risk necessary to get the substance we crave.  If drugs ruin an addict’s health, no matter; if fossil fuel addiction ruins the planet, that’s no matter either.  Both of these disasters can be seen as one more example of our reckless drive for cheap energy that is rooted in a hedonistic desire for greater material wellbeing.

Just over 25 years ago the worst industrial accident of modern times occurred in the small town of Bhopal in Madhya Pradesh north central India.  Vast quantities of highly poisonous methyl isocyanate were released from a chemical plant.  Generally referred to as the Bhopal Disaster the incident caused deaths estimated by official government sources to be a precise 2,259 but maybe as many as 16,000 by including deaths that occurred immediately plus those that happened subsequently from extended health effects.  Nothing was exactly being mined at Bhopal, something like the opposite was taking place.  The plant was producing fertilizers needed to catalyze the so-called Green Revolution, a revolution that turned agriculture in India around so that the country is now more than self-sufficient in food it is a net exporter.  Union Carbide, the company that owned the plant could hardly be accused of a rash drive to satiate an obscene drive for luxury living, it was helping to remove the specter of starvation from India.  Yet the criticisms are the same.  The company was accused of putting profits ahead of safety.  And maybe they did.  When poor people are the ones most likely harmed we care a lot less.  Writing in The Observer John Vidal has pointed out that oil leaks, spills and fires every year in the Nigerian Delta region dwarf the scale of the Deepwater Horizon in oil spilt and lives and livelihoods lost.  Nigeria is very far away and is none of our business while the Gulf of Mexico is very nearby and is very much our business.

Construction cranes topple while building skyscrapers, trains collide all over the world, nuclear power plants melt down, space craft explode, unsinkable ships collide with icebergs and sink.  We think of these as disasters because a lot of people die all at once or in a very spectacular way but, as everyone knows road accident fatalities far outweigh those from disasters but they happen one or a few at a time so we think of them quite differently, and never describe them as disasters.  Even though they happen all the time and we know how they happen we cant prevent them.

No one could imagine the Titanic sinking.  No one sounded a warning.  No one imaged the space shuttle exploding.  It is hard for me even to imagine being in a car accident, let alone a plane crash though every one that happens receives graphic media coverage. I am not going to apologize for BP but it is hard to imagine the unimaginable.  BP did the things that the oil industry knows how to do.  They put a blowout preventer on the well.  That’s what everyone does and blowout preventers usually work.  It is hard to imagine a blowout preventer not working.  They are using everything the industry knows how to do to stop the flow after the preventer failed.  No one has had any better ideas so far.

The oil leak in the Gulf is a new and terrible version of an old story.  We take preventive actions against small to medium sized problems because we are familiar with them and we know what to do.  In earthquake prone areas we strengthen our houses against minor events but no one tries to build to withstand a magnitude 9 earthquake, first because it is almost impossible and tremendously costly to do and second because these huge events are hard to imagine.  Our roads and road rules prevent a lot of accidents but cannot prevent the unimaginable tragedy of a person getting drunk and driving the wrong way on a freeway with a car full of children.  It is not astonishing that the levees failed in New Orleans and the Army Corps of Engineers has been rightly criticized for its lack of attention to their state of repair, but it was hard to imagine the failures that occurred.

As an industrial accident what happened in the Gulf is principally distinguished by the way continues on.  At Upper Big Branch coal gases exploded, coal miners died, the mine was shut down, and families continue to grieve.  But the coalmine disaster is over.  The Titanic sank, many drowned, some survived and then it was over.  The Deepwater Horizon platform exploded, caught fire and collapsed but the disaster of the leak continues. What happened in the Gulf is not entirely without precedent.  There is a long history of oilrig failures some of which have lead to extended leakage taking months to stop.  Magnitude 9 earthquakes have occurred.  Category 5 hurricanes actually make landfall fairly often.

I don’t know why we don’t properly prepare and many people have pondered the question without coming to a good answer.  Maybe it is that we simply cannot prepare for things that are so terrible just because of their scale.  They are just too big to prepare for.

Or maybe it is that we are a breed of risk-takers and that is a trait that has, for the most part served us well.  The exploration and settlement of new lands is risky.  Starting a new business is risky.  Every step in human progress has required taking risks.  Many people will say that these disasters happen because we don’t properly calculate the risks.  I wonder if instead it is that we do more or less know the risks and are willing to take them.  We may not be able to calculate a probability density function but to say we are unaware of the risks is wrong in my view.  We can’t imagine exactly what might happen but no one working on an oilrig could possibly think they we working in a risk free environment or that the consequences of a accident could not be catastrophic.  I don’t think it is a manic drive for profits or an addiction to oil or a callous disregard for people or pelicans.  I think that those who died on the rig were killed by the essential hubris of our industrial society.

We have to use the lessons of the Deepwater Horizon to teach us how to avoid another similar catastrophe.  We can even try to imagine another unimaginable event.  We need to be smarter and more careful. The continuing leak is a daily reminder.  We should be much less reckless.  But we cannot and should not try to engineer our hubris away.  We need it and would be the lesser without it.

Taxes can spur and guide innovation

[This text was written by Jeffrey Owens, director of OECD’s Centre for Tax Policy and Administration]

Innovation is fundamental to long-term prosperity – it drives growth and makes economies more nimble, dynamic and productive. The tax system can be a powerful policy instrument for spurring this. Tax measures can stimulate innovation; taxes on pollutants can guide innovation demand towards meeting environmental challenges.

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Read all about it…

Newspapers are dying: Advertisers fled during the recession and haven’t come back, and readers now turn to the Internet – not inky pages of newsprint – to find out what’s going on. This accepted wisdom has become so pervasive it even has its own website.

But are rumours of the newspaper’s demise premature? A new report  from the OECD suggests that – for all the challenges – there may be life in the old medium yet.

Admittedly, the picture for traditional newspapers – paid-for and not given away – looks gloomy in the OECD area. Between 2000 and 2008, their circulation fell in most OECD. But against that, circulation expanded strongly in some emerging economies – by 45% in India and 34% in South Africa. Indeed, despite all the gloom, circulation actually rose globally between 2000 and 2008.

Paid for dailies average total daily circulation (2000-08, in millions)

Still, there’s no question that the traditional news business is facing challenges, especially in developed countries, with large falls in advertising revenue and circulation income, most notably in the United States.

Can the news business reinvent itself? As The Economist reports, in some ways it already has: “Newspapers are becoming more distinctive and customer-focused. Rather than trying to bring the world to as many readers as possible, they are carving out niches.” And as James Fallows recently reported in The Atlantic, technologies like Google that seem to threaten the news business may actually help to save it.

There has also been much discussion of whether governments could do more to support newspapers. Some countries already support the press financially, by subsidising printing and distribution, for example, or providing tax breaks. Doing more is an option but it would clearly raise serious questions over press freedom from state control. And clinging to newspapers as the only way to save journalism could be a dangerous strategy.

As Sacha Wunsch-Vincent, who prepared the OECD report, told The New York Times, “policy initiatives focused on salvaging traditional newspapers will fail to address” the bigger question of how to safeguard high-quality journalism. That distinction – between journalism and the newspapers that carry it – will surely become ever more important in the emerging media landscape.

However, as the OECD report points out, while new models of newsgathering and delivery hold plenty of promise, there are also potential perils: “One extreme is that online and other new forms of more decentralised news will finally liberate readers from partisan news monopolies. … The other extreme is that the demise of the traditional news media is before us (partially caused by the rise of the Internet) and with it an important foundation for democratic societies is at risk.”

The Beautiful Game and the Dismal Science

Today’s post is from Eva Marikova Leeds of the Department of Economics and Business, Moravian College and Michael A. Leeds of the Department of Economics, Temple University.

But is it level?

Every four years, economists around the world turn their attention to something of true interest to the world’s population – predicting who will win the World Cup.

Studies of what it takes to succeed in international football have confirmed that it pays to be big and it pays to be rich.

Countries with large populations and high GDP per capita have higher FIFA rankings and have more success in World Cup competition. 

By that standard, the United States should be an odds-on favorite for this year’s World Cup.  Of the 32 countries currently competing in South Africa, the United States is the most populous and has the highest GDP per capita (after adjusting for purchasing power). 

Obviously, population and income are not the sole determinants of success, as only the most wildly optimistic fans of Team USA expect it to get anywhere near the final round.  In a paper that was published in the August 2009 issue of the Journal of Sports Economics, we confirmed the finding that large, rich nations have greater success in international soccer competitions than small, poor nations. 

But we find that the importance of income and population – and hence the United States’ advantage – fall as they become larger.  More importantly, we also found that a variety of other economic, political, and institutional factors play an important role in a nation’s soccer prowess: 

  • It pays to be a well-to-do democracy.  Even when one controls for GDP per capita, countries that are members of OECD do better than other nations.  More than half of the teams in this year’s World Cup Finals belong to OECD. 
  • Currently communist countries have more success in soccer.  Thus soccer is one of the few venues in which North Korea’s regime has helped its country.
  • The old colonial order continues to hold when it comes to soccer, as the former colonial powers – England, France, Netherlands, Portugal, and Spain (all of which are in this year’s World Cup Finals) – do better than other nations.  
  • Oil-exporting countries do better in international soccer competition.  In this year’s final, that would give an advantage to Mexico and Nigeria.  
  • Perhaps the most important indicator of international success is a nation’s commitment to soccer.  We measured this commitment in two ways.  First, we found that nations that had hosted the World Cup (which 13 finalists have done) did better in international soccer.  Our second measure used the number of teams to reach the quarterfinals of Confederation competitions, such as the UEFA Champions League or the Copa Libertadores.  We found that a country’s national team did better as more of its club teams (which might or might not feature home-grown talent) reached the confederation’s quarterfinals.  This gives a big edge to England and an even bigger edge to Brazil.

What does all this mean for the upcoming World Cup Competition?  We applied our econometric results to data for 31 of the 32 nations competing in the finals (missing data led us to exclude North Korea) and found that the favorite is – surprise of surprises – Brazil. 

It just goes to show that economic analysis sometimes predicts the obvious.

Useful links

The OECD looks at Competition Issues Related to Sports (Yes, that really is the title).

And the World Cup winner is …

Allez les Bleus!

As the World Cup gets underway in South Africa, excitement is at fever pitch among soccer fans. For the rest of us, there will be nothing to do over the next month but wait to see how the financial sector reacts.

Even before the kickoff, some big names are already in action. Swiss giant UBS scored back in 2006 when it predicted that Italy would win the World Cup. Two years later, it used the same model to predict the winner of the European Championship: Sadly, it just wasn’t the Czech Republic’s year. This time round, UBS is offering only percentage likelihoods of victory. Its top four: Brazil, with a 22% chance of success, Germany on 18%, Italy on 13% and The Netherlands on 8%.

Goldman Sachs is also in cautious mood, and is predicting only the semi-finalists: England, Argentina, Brazil and Spain. But just for fun, it has also carried out a probability exercise based on FIFA rankings and bookmakers’ odds. Under that rubric, its top picks are Brazil, with a probability of success of just under 14%, Spain on just over 10%, and Germany and England neck-and-neck on just under 9½%.

And then there’s J.P. Morgan which has applied quantitative analysis to the problem. It sees  Brazil as the strongest team, but believes the fixture schedule will deprive it of the title. Instead, it predicts 3rd place for The Netherlands, 2nd for Spain and … a win for England (huh!).

But will markets respond to what happens on the pitch? Some believe they may, partly because testosterone-fuelled share traders are just the sort of guys who like to stay up all night watching big matches. In soccer-mad Hong Kong, China, for instance, trading is predicted to be light during the football festival, which can make for extra volatility in share prices.

In the United Kingdom, a study by a group of academics suggests shares in London fall when England loses or draws and rise when it wins. “Stockbrokers, like everyone else, can be carried away in the depression associated with an England loss at the World Cup,” Professor Robert Hudson told The Daily Telegraph.

 And then there are the business winners and losers. A good run for Portugal or Brazil might boost shares in Nike, which makes the teams’ kits. By contrast, success for Spain could be good news for Adidas. As HSBC’s Erwan Rambourg told Forbes, “The further your team goes in the tournament, the more jerseys, footwear and footballs you will sell.”

 The bigger question: Will the World Cup mark the beginning of a new era for Africa on the world stage? If you can tear yourself away from the soccer action, you’ll find regular postings here on the OECD Insights Blog over the next few weeks examining that question and, more broadly, the challenges facing Africa and its prospects for success in the post-World Cup era.  

 Useful links

 African Economic Outlook

 Africa at the OECD Development Centre

Photo courtesy of Steindy

Entrepreneurs – stuck on the starting blocks?

Innovation is sometimes thought of solely in terms of new inventions. But, as the OECD’s Andrew Wyckoff explains, it’s much more than that – Apple’s iPod was innovative, not because it contained much in the way of new technology but because of clever design and shrewd marketing.

That sort of innovation can drive economic growth. As the OECD’s Innovation Strategy demonstrates, there are real obstacles to overcome in many countries first.

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The best books in the world (of government and international organisations)

Security consultant

You don’t see many Zapolets these days, except outside the Vatican. The Swiss Guards are the last vestige of a mercenary tradition Thomas More satirised in Utopia under this name as “a rude, wild, and fierce nation… made, as it were, only for war”.

The rise of the modern state and the constitution of standing armies largely put an end to the outsourcing of war to the private sector, but equivalents of the “free lance” still exist. However, in much the same way as pesticides companies now refer to themselves as the “plant protection industry”, we now have a “stability operations industry”.

Some of these firms became famous, or infamous, in Iraq and Afghanistan, but they’re present in practically every conflict and post-conflict zone and in many post-disaster areas too, providing a range of military and other services. Indeed, the ground in Haiti had hardly stopped trembling before one of their trade organisations was setting up a forum on business opportunities in the earthquake zone. Should governments be hiring them?

The OECD’s Partnership for Democratic Governance debates the question in Contracting Out Government Functions and Services: Emerging Lessons from Post-Conflict and Fragile Situations. Paul Collier, author of The Bottom Billion, uses the analogy of how mobile phone technology enabled many developing countries to bypass analogue technology to argue that fragile states needed to look past the 1950s European model for ministry-based service delivery.

If you don’t agree, you can contribute to the discussion on the PDG website.

Contracting Out was named as one of 2009’s “Notable Government Documents” by the American Library Association and the Government Documents Round Table. The ALA/GODORT Panel singled out another OECD publication too. In Innovation and Growth: Chasing a Moving Frontier, the OECD and World Bank discuss “options for national and global policy initiatives that can foster technological innovation in the pursuit of faster and sustainable growth”.

They argue that the competitiveness and prosperity of high income economies has come to rely increasingly on their innovative capability, but that developing countries’ competitiveness and prosperity remain largely tied to their natural resources.

Countries like Korea that shifted quickly from “developing” to “developed” support this. Today, we all know world leaders like Samsung or LG, but as the Insights book on international trade points out, fifty years ago, Korea was poorer than the Sudan and its main export was wigs made from human hair.