Wednesday, November 27, 2002

Straight Thinking 101, part 8

Making Sustainable Decisions in a world of Finite Resources


kairos focus web:

The essential economic problem is the finiteness of resources, so that we must trade-off one desirable thing against another: consumption and savings/investments, for instance. As the ongoing case in Acts 27 shows, this is compounded by uncertainty: we are often forced to choose alternatives, where we cannot know the consequences beyond reasonable doubt and dispute.

On the ship in Fair Havens, the issue, as we saw earlier, was that the probable state of the weather was uncertain, specifically it was at least possible that a good wind would come up and stay long enough to make a better harbour before the winter storms set in. However, Paul challenged this thinking, because the likely damage from being caught in such a storm far outweighed the likely benefits from taking the risk of sailing out.

So, the decision was one where two desirable, but partly conflicting objectives had to be traded off:

(1) The desire for a more comfortable port and better harbour

(2) The desire to avoid being caught in a winter storm

The Centurion asked the experts (who obviously had been recommending the venture) and, with majority support, the ship set sail when a gentle south wind showed up.

We know now that this was in fact an unwise choice, but how could a better – more sustainable – decision have been made?

The obvious answer is: “when we have all the facts, and have heard all the alternatives.” Unfortunately, this is impossible for finite men in the face of windows of opportunity that may slam shut while we deliberate and study.

So, we need a criterion for decisions under uncertainty.

Walter Williams, in a WND commentary ( , states the required criterion well:

“Suppose leaving your workplace you see a full-grown tiger standing outside the door. Most people would endeavor to leave the area in great dispatch. That prediction isn't all that interesting, but the question why is . . . . [Most of us wouldn’t] endeavor to obtain more information, like petting him on the head and doing other friendly things to determine whether he's dangerous. Most people would quickly calculate that the likely cost of an additional unit of information about the tiger exceeds any benefit and wouldn't bother to seek additional information. In other words, all they need to know is he's a tiger.”

That is, the decisive issue is whether it makes sense to “buy” an additional piece of information on the likely consequences of a decision. If the likely benefit is exceeded by the likely cost, then it is prudent to decide based on what you already know, believe and suspect.

In short, we trade off the expected costs and benefits of additional information that could make a difference to the decision in hand.

Similarly, and echoing the productivity equation discussed Monday, we should also ask what is the balance of costs and benefits for a venture of an additional unit of:





technology, and

natural resources.

That is, the appropriate place to stop investing in more ideas and things in a situation where we want to better meet our needs, is the point where the next unit added would cost more than it would benefit. (NB: the proper measure of that cost is the net benefit from the next best alternative use of that additional unit – the “opportunity cost.”)

So, a sustainable decision will meet the criterion of being a net benefit across time, relative to available likely alternatives and outcomes.

However, lurking beneath this is the capacity question: Are we able – that is, qualified -- to make the required judgements/decisions, and are we able to carry out the tasks that the decision requires? Do we have the required resources? Can we acquire such further resources as would be needed?

Every one of these economic questions clearly constrains the ability to better meet our present needs, and to see to it that future generations can meet their needs. Further, the implications of these questions force us to address the “supply” – that is, productive capacity -- side of the economy.

Returning to the general form of the productivity equation:

Y/L = A . f ( K/L, F/L, H/L, N/L )

So, if an economy is to be sustainable, it must address:

Y/L – does it produce enough per worker to meet the consumption and investment needs of this generation, with room for future ones to have a better hope?

A – does the country have a balance of current technology and ongoing innovation that makes it globally competitive across time in its key industries? And, as current history shows, it is only those countries where the potential rewards to the risks of innovation are high (that is, market-based economies that respect entrepreneurship and do not confiscate entrepreneurial profits) that have been able to remain in the forefront of the still evolving high-tech world.

K/L – What is the configuration of physical equipment available to the labour force? Is it able to support production that meets the global price-points for the markets? (And, since Caribbean countries are largely commodity producers and import substituters, the question is whether our cost structures are able to meet global prices, and whether we are migrating to more differentiated products with more value built in.)

F/L – Is there enough financial investment to sustain present plant, equipment and the skill level of the labour force? Are we adequately investing in the required migration path to high value-added industries and products? What is happening with the Research and Development required to create those new products across time?

H/L – Is the average level of education, training and experience of our labour force (especially in strategic industries) competitive? Or, are we forced to pay for a lot of rework and scrap, that drives up costs? Is our output of consistently high quality relative to the global standard? What about investments in the future labour force, through education and training? More subtly, what is the quality of relationships in our families, firms, institutions, schools, businesses and communities; for, much of the human capital exists in our ability to work together effectively. As a friend once said to me: things don’t add up, because they subtract and divide – if we undermine and devour one another, it is ultimately to the detriment of us all. (Cf. Gal. 5:13 - 26, in light of Jeremiah 29:1 - 7.)

N/L -- Our economies, notoriously, are heavily dependent on natural resources endowments: our land, sun, rain, watersheds, minerals, coasts, and seas. However, in many cases, we are heavily dependent on exploiting these resources directly to make our living, often through markets where there is an abundance of low-cost competition and/or substitutes. We must both better husband our environmental resources and shift our economic capacity to the high value added sector.

Clearly, these are stiff challenges, and they force hard choices in the face of a complex, perplexing, uncertain world.

But, if the Caribbean is to succeed, we must make those choices.

To those choices, we will next turn: the business of reformation and transformation towards truly sustainable societies in the Caribbean.

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