Being an economist requires the ability to critically and analytically think through data in order to best understand the factors influencing supply and demand. The consumer’s choice in consumption becomes the economist’s indicator of market trends. More often than not, economists become caught up in a utilitarian and pragmatic mindset to count these choices and to quickly apply labels to the trends they find; there’s a shortage, maybe a surplus, or the marginal cost of production is too high and the return on investment is too low, or after a certain point in time we must reevaluate the opportunity costs.
However, in a recent podcast by Freakonomics radio, Joel Werner reports on an example of economists and policymakers who actually didn’t even bother to examine the return on investment (ROI) on their proposed goals. This would be interesting, and humorous to say the least, if maybe it was just the local mom and pop grocery store down the street trying to inductively conclude what perks would make their products sell best. However, these economists and policymakers are quite possibly the farthest from this example. We’re talking about the United Nations prioritizing humanitarian relief and aid, and we’re anticipating the $2.5 TRILLION dollars to be spent by the United Nations over the next 15 years in the Post-2015 Millennium Development Goals.
Does this baffle you? It should, and it definitely bothered Bjørn Lomborg, the political scientist heading the Copenhagen Consensus Project, a global think thank aimed towards prioritizing the world’s greatest problems and helping governments and philanthropists spend their money most efficiently based on hard facts.
How is it that the United Nations would fail to provide a cost-benefit analysis to examine the ROI of their investments? If you like TED Talks, you can find Lomborg trying to answer this question around 10 years ago in a short video about how most people prioritize the world’s greatest problems. He concluded:
Of course, you have to ask yourself, why on Earth was such a list never done before? And one reason is that prioritization is incredibly uncomfortable. Nobody wants to do this. Of course, every organization would love to be on the top of such a list. But every organization would also hate to be not on the top of the list.
As one would may imagine, money this big can impact a lot of people in many different ways. The answers aren’t just economic anymore, they become sentimental, political, and emotional. Back to the Freakonomics transcript, Lomborg puts these uncomfortable decisions into practical applications:
…the World Health Organization has a disease priorities project where they’ve actually looked at what’s the bang for the buck for more than 300 different diseases. But when you’re a doctor, and you’re out there, and you’re confronted with a specific type of patients at your place, so you see malaria, or you see schistosomiasis, or you see some other disease, it’s really hard to say well maybe I should be somewhere else on the planet doing something else. You’re going to say, ‘I want to cure this disease.’ But there’s a lot more we can do for this amount of money. Just to give you one example, you can probably save one person from dying from malaria for about $1,000. You can probably save one person from dying from HIV/AIDs for about $10,000. Now, both are good deals, but you have to ask yourself, ‘Don’t we want to first save 10 people from malaria before you save one person from HIV?’
A lot goes into answering these questions. Many people might have their life work either torn down or validated by the final list. What then, are the conclusions? The full 74-page report of the Preliminary Benefit-Cost Assessment compiled by an open working group of 30 of the world’s top economists brought together through the Copenhagen Consensus Project analyzed and reordered the U.N.’s goals to come up with what they perceived to be a more efficient and manageable list via color codings of phenomenal, good, fair, poor, and not enough knowledge. However, to save you from reading the whole report, Matt Ridley reported a few months ago in his article in the Wall Street Journal, Smart Aid for the World’s Poor, a condensed list of priorities based off of the Preliminary Benefit-Cost Assessment. He concluded that the five major goals should be:
1. Reduce malnutrition. When children get better food, they develop their brains, stay in school longer and end up becoming far more productive members of society. Every dollar spent to alleviate malnutrition brings $59 of benefits.
2. Tackle malaria and tuberculosis. These two diseases debilitate huge populations in poor countries, but they are largely preventable and curable. In the most harshly affected countries, two people often do one person’s work because one of them is sick. Benefit to cost ratio: 35 to 1.
3. Boost preprimary education, which costs little and has lifelong benefits by getting children started on learning. 30 to 1.
4. Provide universal access to sexual and reproductive health, which would save the lives of mothers and infants while enabling women to be more economically productive. It would also lower birthrates (when fewer children die, people have fewer children). Benefits could be as high as 150.
5. Expand free trade. This isn’t considered sexy in the development industry, and it may seem remote from humanitarian issues, but free trade often delivers phenomenal improvements to the welfare of the poor in surprisingly quick time, as the example of China has demonstrated in recent years. One of the discoveries of the Copenhagen Consensus process is that incremental goals such as expanding free trade are often better than supposedly “transformational” goals. A successful Doha Round of the World Trade Organization could deliver annual benefits of $3 trillion for the developing world by 2020, rising to $100 trillion by the end of the century.
These are obviously just the answers of one organization found in the summary of one journalist. There are also other ways the U.N. could better prioritize and manage its list. In a recent article in the Economist, Tim Allen, the head of International Development at LSE and research director for its Justice and Security Research Programme, talks about the ignorance of the international community and hopes that through more fieldwork, research teams can get on the ground and more realistically solve international problems by working with those who need aid and finding from them what it is they actually need.
Either way, all of this information is largely macro -economical, -sociological, -political level, arguing about how one organization should spend a larger amount of money than what a vast majority of countries accounted for in their GDP of last year. How do we bring this lesson back to scale? We can begin by setting smarter and more accurate goals. We can question basic assumptions and ask ourselves to step outside our own perspectives. We can question daily the bases of our assumptions and actions.
In all honesty, due to the subjective nature of life, there may never really be a conclusive and satisfactory answer. But, the question Lomborg is asking is essential. There is only so much time we have to spend with our families, with our communities, and with whatever we decide our live purpose to be. What better way to take advantage of the time we have now be creating efficient solutions and direct answers to our economic, social, and political problems? In the end, the time really is now.