A climate policy hardly anyone talks about

By Brian Lee Crowley, The Hill Times, May 14, 2012

The time has come to think differently about climate change.

For too long the debate has been monopolized by two parties. One has got religion, fervently believing in man-made climate change, and that only large changes in human behaviour can stave off disaster. Their opponents argue that the science is uncertain, unsettled and inconclusive, and therefore that no action is warranted until we possess that missing certainty.

I don’t agree with either camp. In most areas there is only ever certainty of uncertainty. In other words, both those who believe certainty has been achieved and those who say it has not share the same assumption: that certainty is what we are after and we can get it.

The reality is that long-range future energy, climate, economic, and other carbon-related environmental conditions are and will remain significantly uncertain, highly variable, and largely unpredictable. Scientists and mathematicians know that the systems involved in the various dimensions of climate change policy are in fact extremely complex and often chaotic, fraught with considerable, irreducible uncertainty.

But contrary to the so-called sceptics, this uncertainty does not licence inaction. Most human decisions are made in conditions of imperfect uncertain information. We have to act even though we don’t know everything.

While we may not have established that man-made climate change is an absolute certainty, it is a serious risk. And rational people act so as to manage serious risks, even when they cannot say with confidence exactly how great the risk is. The risk that any particular house will burn down is rather small. And yet fire insurance is almost universal. Most people sensibly believe that large risks, even if the probability they will occur is small, are still worth protecting yourself against.

The key discussion, then, is not about whether climate change is occurring, but how great we think the risk is, and how big the insurance premium is we are willing to pay to mitigate the potential damage. That is a completely different conversation.

Another thread in that conversation will concern the climate itself. The earth’s climate has changed continually and frequently throughout its 4-billion-year history and will continue to do so for hundreds of millions of years to come. Moreover, natural forces have caused the climate to change suddenly and drastically many times in the past and are certain to do so again. Human activities may indeed be contributing to climate change now. But more powerful, uncontrollable natural forces continue to operate. So policies that promise to prevent climate change are destined to fail and can only waste resources which can better be applied to improving human security and welfare, especially via strategies that will permit humanity to be more adaptable in the face of the potential impacts of climate change.

Yet a further thread would be a cold hard look at what we know about the greatest variable in climate change policy, which is not the climate, but the behaviour of people. Any climate change policy that depends on transforming human nature is not a solution, because it will not work. Too much wishful thinking goes on that “science” should inform all our decisions, and yet we somehow think the findings of the physical sciences can and will trump what we know about how real people think and act. As a result, the policy “solutions” utopians promote (we will give up cars and use buses and bicycles) assume a malleability of human attitudes and behaviour that has little or no basis in social science or historical precedent. We must plan on the basis of how people actually behave, rather than how we wish they would behave.

We would also dispense with the widely accepted but quite mistaken idea that small scale experiments can always and easily be massively scaled up. This presumption confounds one of the broadest and most consistent scientific principles, that forces and phenomena observed at a small scale usually work quite differently at a larger scale, and vice versa. So, for instance, advocates of carbon cap-and-trade schemes claim that such “market-based” solutions worked to reduce power-plant sulfur oxide emissions and replace ozone-destroying chlorofluorocarbons with more benign products. But those industrial markets are orders of magnitude smaller than the global market for carbon-based fuels and other products. There is little reason to think that such policies would escape this scale effect.

The climate policy we need, therefore, is the one that hardly anyone is talking about. It would accept the risk of manmade climate change, but reject utopian and unworkable schemes to “stop” it or that assume that human nature can be abolished. We would concentrate our scarce resources where they would maximize human well-being: on policies, technologies and infrastructure that allow humanity to adapt successfully to uncertain climate conditions in the future.

Brian Lee Crowley is the Managing Director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: www.macdonaldlaurier.ca.

We’re all Hayekians now

By Brian Lee Crowley, National Post, May 8, 2012

This year marks the 20th anniversary of the death of Friedrich August Hayek, the Viennese-born Nobel Prize-winning economist and philosopher, who led the intellectual equivalent of the D-Day charge against central planning in the postwar era. His lessons are worth remembering in 2012, especially now that left-wing politicians in France, Greece and elsewhere seem intent on forgetting them.

Hayek’s great adversary was John Maynard Keynes, whose faith in the ability of government economic planners to “correct” the operation of markets inspired generations of disciples in government and academe. In the long run, Hayek got the better of the argument with Keynes. Indeed, his ideas contributed to the fall of the Berlin Wall, and continue to influence economic thought to this day.

Hayek and Keynes were punctilious professional colleagues and scholarly rivals. Yet for all the correctness that characterized their relations — Hayek was, for example, Keynes’s guest when the London School of Economics fled the Nazi bombings to the relative safety of Cambridge — the Austrian could not shake a profound distrust of Keynes.A brilliant economist, captivating teacher, witty conversationalist and bon vivant, Keynes seemed to almost everyone who knew him a Renaissance man and one of his country’s most powerful minds. Hayek found Keynes glib and superficial, but it was Keynes’ intellectual dilettantism that most appalled him. When Keynes wrote A Treatise on Money in 1930, Hayek spent a year carefully analyzing it, and then wrote a devastating review. At their next meeting, Hayek was outraged when Keynes airily said that he now agreed with Hayek, having long since changed his mind. Hayek always regretted that this incident led him to neglect replying to Keynes’ next book. By the time Hayek was alive to the danger, it was too late.

Keynes’ 1936 General Theory of Employment, Interest and Money became the bible of a whole new generation of economists. The Keynesians, as they came to be known, shared Keynes’ own unshakable belief in the ability of clever people, like himself, to smooth out capitalism’s cycles of boom and bust by manipulating the level of demand in a nation’s economy — through, for example, inflationary monetary expansion and public-works programs. Such vigorous actions appealed to a world already in the grips of a devastating depression — far more than the “do-nothing” non-interventionist economics of the likes of Hayek, who counselled letting the economy’s self-corrective mechanisms do their work. To those concerned about the inflationary consequences of his policies, Keynes asserted that inflation was the hallmark of rising civilizations.

Hayek already had showed how the consistent pursuit of Keynesian policies would, in the long run, produce simultaneous inflation, economic stagnation and unemployment. That long run was reached in the 1970s, when economists had to coin a new word, stagflation, to describe a condition Keynesians always had dismissed as impossible.

Keynesian ideas nevertheless became policy in Europe and the United States in postwar efforts to transform wartime planning into peacetime social engineering. Intellectuals believed that mastery of our social and economic life lay in their grasp. Deeply troubled, Hayek set out to expose such rational-sounding claims as a form of bait and switch.

In his 1944 classic, The Road to Serfdom, Hayek warned of the dangers inherent in “national planning.” Although the book temporarily ruined his reputation within academic circles, it earned him popular acclaim.

Ironically, Keynes liked the book, saying: “Morally and philosophically, I find myself in agreement with virtually the whole of it.” However, he told Hayek that while the dangers described in The Road to Serfdom were well-founded, as long as intelligent and well-meaning people (like themselves) were in charge, they could easily prevent things from getting out of hand. Yet part of Hayek’s argument was precisely that even good people would be corrupted or forced aside by the coercion that is necessary to give central planning even a semblance of success. A few years later, virtually every European country had a ministry of planning, and a British Tory prime minister could proclaim without fear of contradiction, “We’re all Keynesians now.”

Hayek’s misgivings about both Keynesian-style demand management and overall social planning, as well as his condemnation of the twin scourges of fascism and communism, stemmed from the central understanding that had caused him to abandon his early socialist convictions: The limits to human knowledge and wisdom.

Hayek’s main point is that all human knowledge, and especially the knowledge available to social planners, is irremediably fragmentary and incomplete. To be successful, planners need what their plans destroy: The signposts offered by freely formed prices reflecting the true state of supply and demand. Only a decentralized system — in which people are free to make the most of opportunities, often known only to themselves, and in which people voluntarily agree to exchange their goods, services and ideas with one another, and in which new information is constantly being discovered and integrated — can achieve the needed co-ordination of all human activity.

To this knowledge-based critique of central planning, Hayek added another element: What we would call today the problem of the irreducible pluralism of values.

Postwar planners envisioned an almost universal consensus on society’s peacetime objectives. Hayek saw that people would not submerge their own dreams and aspirations in the tidy plans of well-meaning bureaucrats. Hayek’s concept of the “abstract order” doesn’t require different individuals to agree on common goals, but rather on basic practical rules governing each person’s behaviour as they pursue their private goals.

Behind the Iron Curtain, Hayek’s ideas, while illegal to publish, were widely influential among opposition intellectuals. He added to his importance in the East by stating clearly how societies based on freely grown institutions manage to have individual freedom and social order coexist, all within a context of prosperity. Samizdat versions of Hayek’s works circulated widely, including readings on cassette tapes.

When the Berlin Wall fell, many members of the opposition who rushed to fill the power vacuum had been indirect “students” of Hayek’s, especially in those countries that were quickest and most vigorous in moving to a market economy and liberal democracy: Poland, Hungary and Czechoslovakia.

The thanks Hayek received were, at first, cruel and dispiriting. But he ended his life a Nobel laureate, Companion of Honour and intellectual godfather of policies that have transformed Western politics and helped to hasten the collapse of communism.

Perhaps — just perhaps — there is something to this business about things working themselves out in the long run after all.

National Post

Brian Lee Crowley is the managing director of the Macdonald-Laurier Institute, an independent, non-partisan public policy think-tank in Ottawa. He is the author of The Man Who Changed Everyone’s Life: The ubiquitous ideas of F.A. Hayek, available at macdonaldlaurier.ca.

Canada, the city

By Brian Lee Crowley, Ottawa Citizen, May 5, 2012

After the First World War the question on everyone’s lips was “How are you gonna keep them on the farm after they’ve seen gay Paree?”

Canadians and Americans from a largely rural and agricultural society had flocked to Europe and not only beat the Kaiser, but also saw some wondrous sights in Paris, London and Berlin, glimpses of a life literally worlds away from rural Saskatchewan or Iowa.

While they didn’t generally stay in gay Paree, they came home and moved to cities everywhere in North America. At the beginning of the 20th century roughly 90 per cent of Canadians lived in rural Canada, and the rest in cities. By the end of the century the proportions had essentially reversed.

Our forebears didn’t move just for the bright lights. They moved chiefly because life in the city made them and their children better off. On the farm people have to be more self-sufficient, and do a little bit of a lot of things. In the city there were more kinds of jobs, services, goods and education, so more room for specialization. That shift from the countryside to the city was probably the single biggest factor behind the vast increase in the standard of living we have enjoyed compared to our great-grandparents.

And of course immigrants to Canada overwhelmingly choose the cities in which to settle for the same reason.

Canada’s experience is not unique. What is unusual in global terms, however, is how far out in front we and other industrial countries are in the transition to urban living. The rest of the world is working hard to catch up, however.

Of the seven billion people in the world, only about half of them live in cities. But by 2050, according to the UN, the world’s population will have increased by 2.3 billion, whereas the population of the world’s cities will have increased by 2.6 billion. All of the population increase over the next 40 years will take place in cities, and another 300 million people will move from rural areas to the cities.

As Paul Romer, one of the world’s leading economists, said in a talk he gave in Ottawa last week, all this means that there is a serious shortage of cities in the world. He points out that much effort is spent trying to tear down the barriers to trade between countries on the grounds that this will increase the world’s wealth by a few percentage points. But you pull more people out of poverty faster by simply moving them from the country to the city.

Simply moving a worker from a developing country to a developed one like Canada or the U.S. increases their earning power several times over. Moving from chaotic disorganized societies to ones with strong institutions such as functioning infrastructure, police, courts and the rule of law is the most powerful anti-poverty tool there is. But not everyone can change countries.

The central development challenge of the coming decades, then, will be to help developing countries establish well-functioning cities. Simply moving from rural Mexico to Mexico City or backwoods Philippines to Manila will increase each person’s standard of living, but far less than it might. That’s because these places don’t have those strong institutions that allow people to get the best value out of their skills and abilities.

For example, for cities to work well, you have to have good infrastructure, things like power, water and transport. But those things require investment, tying up billions of dollars in capital that has to be paid back over many years.

There’s the rub. Because these societies so often are corrupt, don’t respect contracts and don’t have independent judges to adjudicate disputes fairly, people with the money and expertise don’t want to invest in urban infrastructure in the developing world. Those who do face the constant risk that a Hugo Chavez or a Vladimir Putin will simply take their investment and leave them high and dry.

It is the poor who pay the costs of such corrupt practices, not just because they have to grease the palm of officials to get things done, but because they have to accept crumbling infrastructure and substandard services at high prices. As a result, says Romer, the citizens of poor countries often end up paying the most for basic goods such as electricity, if they have access to it at all.

The solution, Romer argues, is not more aid. Instead it is to get countries like Canada to work with developing countries to create local greenfield “charter cities” with the rule of law, trustworthy police, protection for investors and other rules that make cities work. Then let the locals choose where they want to live. Chances are they’ll choose Canada — or at least the life that Canadian-style rules make possible.

Brian Lee Crowley is managing director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: macdonaldlaurier.ca.

The trouble with the Buffet Rule

By Brian Lee Crowley, Ottawa Citizen, April 21, 2012

There’s no realistic alternative to the F-35s

By Brian Lee Crowley, The Hill Times, April 16, 2012

At last – a defence debate Canadians can get excited about. The government has been caught understating the cost of the F35 Joint Strike Fighter. We’ve been misled, say the auditor general and the Parliamentary budget officer. Outrage is the order of the day.

Or not. For every expert in high dudgeon because the cost of the planes should be projected over 36 years, not 20, or the cost should include pilots’ salaries and a lot of money being spent regardless of what kind of plane we have, there are just as many who will say that it has been normal practice not to state these things in this way.

Probably on balance the government engaged in some sharp practice and deserves to have its knuckles rapped, but then it is highly likely that all governments that have engaged in any kind of major military procurement deserve the same. Many blanch when presented with the full bill for the military preparedness that is a sine qua non of sovereignty and the protection of national interests at home and abroad.

The government’s real failing, then, has been its unwillingness to say to Canadians what the real cost is of being a serious country in a dangerous and uncertain world. That would be a defence debate worth getting excited about.

In that debate, question No. 1 would be how a middle power like Canada can protect its sovereignty and its interests from threats without impoverishing itself? The answer is by being part of a military alliance based on shared interests and values, like democracy, the rule of law, justice, and respect for human rights.

That means we collaborate with the American-led Western alliance. No serious person would suggest that we could throw our lot in with, say, China or Russia, the only alternatives worth mentioning.

Membership has its privileges, but also its costs. If we expect our allies to come to our aid if attacked, we must reciprocate. That means government has a double task. Not only must it take the measures necessary to keep the country safe and free, but it must show the alliance that it can shoulder a reasonable share of collective defence, based on alliance-wide assessments of international threats and unpredictable contingencies (Libya anyone?).

If you’re with me so far, the next question is, in such an alliance, what constraints am I under in buying military equipment like fighter jets? Answer: the benefits to everyone are huge if everybody has roughly the same equipment. When Sweden sent some of its Gripen fighters to participate in the Libyan campaign, they ended up grounded in Italy because American jets used an incompatible fuel.

Under “interoperability” the same fuels, spare parts, airborne fuelling technologies, weaponry, and signalling distinguishing friend from foe, all are simply given. Costs are lowered by spreading them across all allies; our own servicemen and women are made safer and more effective.

Now having eliminated most of the alternative fighter jets worldwide for reasons of alliance management and interoperability, we come to a crucial question: of those remaining, how do you choose one?

Based on the debate around the F-35s, one might conclude that everyone from the auditor general, the Parliamentary budget officer, the opposition and most newspaper editorialists, the answer is cost. We should hold an open competition and choose the cheapest fighter good enough to do the job.

Rubbish.

Why?

We are on the cusp of a great change in fighter jet technology. The old standard, so-called fourth generation, still has some life in it, but it will soon be in its dotage. Fifth generation jets have information technology, weaponry, stealth capabilities and other overwhelming advantages. Yes, not all the bugs have been worked out, but they will be. The stakes are simply too high.

America is getting out of the fourth generation business and putting all its eggs in the F-35 basket. It will not fail to solve the plane’s problems.

European manufacturers are stumbling in the technology race; they will not make the shift to fifth generation. That means a future with only three cutting edge fifth generation planes: the American, the Russian and eventually the Chinese.

Final question: if in coming decades, God forbid, Canada needs to fly combat missions against enemies with the latest technology, do we intend to win, or to send our pilots into combat with outdated equipment that was “good enough” years ago when we bought them in a time of technological ferment?

You have now gone through the thought process that led most of our allies, the Canadian military, and governments, both Liberal and Tory, to conclude that there is no realistic alternative to the F-35. They are right and the government should have the courage to say so and defend the price tag that goes with it.

Brian Lee Crowley is the managing director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: www.macdonaldlaurier.ca.

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The Giant Slayer

By Brian Lee Crowley, Ottawa Citizen, April 7, 2012

Seeking a cure for pipeline madness

By Brian Lee Crowley, Ottawa Citizen, March 24, 2012

Most successful fishing nations give fishers a right to a share of the catch before they go out to fish

These tradeable shares, owned by the fishermen, are called Individual Transferable Quotas, or ITQs

By Brian Lee Crowley, The Hill Times, March 19, 2012

Writing in the National Postlast Wednesday John Ivison said that Ottawa was finally getting serious about fishery reform on the East Coast.

Not before time. The fishery should be a source of wealth and prosperity for Atlantic communities, not a social program and gateway to EI benefits as it is today. It would have to be a genuine industry, managed both sustainably and profitably.

Otherwise, it will die as the older generation retires and there is no one to take their place.

The fishery’s central problem lies squarely in the absurd fiction that managing the resource via central planning will ever be anything but an abject failure. That’s why Ivison’s story, which says Ottawa is considering an approach based on markets and incentives, is such good news, if true.

As I wrote several years ago when I lived in Atlantic Canada, our politicians control access to the fishery, but don’t benefit from its sound management. Fish don’t vote, but people in coastal communities do, and they want more access to the resource and the EI access that comes with it. The result: politicians allow too many people to do too much fishing until stocks collapse.

The most successful fishing nations in the world today abandoned this approach long ago. They give each fishermen a right to a share of the catch before they go out to fish. These tradeable shares, owned by the fishermen, are called Individual Transferable Quotas, or ITQs.

Fishermen don’t just get a right to put their nets in the water. If the science determines there are 100 tonnes of fish available, each fisherman gets a right to catch a specific percentage of that stock, usually based on past fishing history. The season’s over when they’ve caught their quota, unless they buy more from other quota holders. If they want to leave fish in the water to multiply, no one else can swoop in and catch them. And if they want to lease or sell their quota to someone else, they’re free to do so— something they cannot do with their licences today.

The evidence of the success of ITQs, in general, is impressive. In New Zealand, Iceland, Alaska and elsewhere it is hardly an exaggeration to say that the fisheries management and performance have been revolutionized. Ironically, it is Canadians like Peter Pearse and Tony Scott of UBC who pioneered this approach to fish management and have seen their ideas transform fisheries abroad, but too little at home.

ITQs end the traditional destructive “race to fish” because fishermen no longer have to beat the other fishermen to the fish; their share of the catch is guaranteed. Less money has to be spent on growing catching power, and finding ways around DFO’s controls on gear. Catching your quota when and where you want means enhanced safety; fishermen can stay at home if the weather is dangerous, for example.

Fishermen get better prices for their catch. Quota holders fish when prices are high, and take more time to clean and handle the fish to enhance their value. Fishermen can earn a better living, even when catching fewer fish.

On the West Coast, where quota fisheries are widespread, fishermen like them. That’s doubly significant because many of those same fishermen fought their introduction tooth and nail. One reason for the change of heart is that ITQ fisheries, being profitable, have the means and the incentive to fish efficiently and can pay higher wages to productive on-boat workers.

The story is similar in Atlantic Canada, where about half of fish landed by value are caught under some form of property rights. I know of at least one Nova Scotia ITQ fishery where the fishermen volunteered to fish unallocated quota and use the money to finance more and better science so that they could better understand the fish stocks in which they now have a direct and quantifiable interest.

What ITQ fisheries we have in Canada have improved conservation, profitability, safety, and fishermen’s incomes while getting the industry to shoulder the costs of its own science and policing. And now fishermen increasingly police each other, because someone over-fishing their quota is now stealing from his neighbour’s quota. There is no third party surveillance system more powerful than this. These are all huge victories.

But the extension of the quota system to new fisheries in Atlantic Canada has slowed because reform lacks a champion willing to tackle inertia and vested interests. A government wanting to change the culture of Atlantic coastal communities for the better could do a lot worse than putting the fishery on a businesslike basis with ITQs. Add a dollop of EI reform and the east coast fishery would be transformed from subsidy sinkhole to a source of prosperity for Canada and for coastal communities themselves.

Brian Lee Crowley is the managing director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: www.macdonaldlaurier.ca.

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