Tag Archive: change

Climate Change

In the last half century, some sociologists (e.g. Giddens, 1990; Beck, 1992) have suggested that our concerns with risk have shifted largely from what nature does to us to what we do to nature. Rather than being concerned with natural risks, we are increasingly concerned with manufactured risks.

Unlike natural risks, the risks that we manufacture are affected by how we perceive them. For example, consider the following apparent paradox. Road traffic increased thirtyfold in the last century, and common perceptions of the dangers of roads changed from roads as relatively safe places to roads as dangerous places. Yet the road-death figure per motor vehicle fell by about 100% (Adams 1995, p. 11, and statistics below).

The ‘objective’ measure of road safety is in contrast to perceptions of roads as unsafe. As social perceptions of road risk have changed, so too has our behaviour. Parents no longer allow their children to play in the road and they teach them to exercise greater vigilance when crossing the road. The risks we construct as a society are changed by our beliefs about them.

Stomach cancer causes more deaths than motor accidents by a ratio of more than two to one. Yet most people believe motor accidents cause more deaths. The news media are more likely to carry vivid accounts of motor accidents. Hence, we tend to overweight the incidence of motor accidents.

Rudolf Hausner, 1976, Adam objektiv, Novopanplatte mit Papier beklebt, Acryl, Harz?lfarben

For much of our evolution we have developed a range of cognitive mechanisms to cope with adverse environments in which resources are scarce. These include a range of simplifying and confidence-sustaining mental short cuts (heuristics) that help us to make quick decisions when pausing to undertake a full analysis would be unwise (Gigerenzer et al., 1999). However, these evolved modes of thinking also create some major traps:

  • Framing the problem
    • Medical decisions can be affected by whether outcomes are framed as likelihood of deaths or of saving patients.
  • Using information
    • First, we pay more attention to information that is easily available (availability heuristic).
    • Second, we overweight memories which are more easily retrievable – usually because they are emotionally vivid or have personal relevance (retrievability heuristic).
  • Problems of judgement
    • From birth, we start learning to filter information out and to prioritise, label and classify the phenomena we observe. This is a vital process. Without it we literally could not function in our day-to-day lives.
    • Many decisions need revisiting and updating as new information becomes available. However, most of us make insufficient anchoring adjustment: this is the tendency to fail to update one’s targets as the environment changes (Rutledge, 1993).
  • Post-decision evaluation
    • A common way in which we distort our understanding of events is to assume we have greater control of events than we really do. When we suffer from this illusion of control, we are likely to underestimate the risks of our actions and decisions and have problems in learning from experience as we discount information that suggests we are not in control (Fenton-O’Creevy et al., 2003).

While some risks can be quantified, many are unknown. In the face of such uncertainty our approach to risk depends on fundamental assumptions about the way the world works. Different social groups have different approaches to uncertainty. Schwarz and Thompson (1990) characterise these in terms of what they describe as four myths of nature. Adams (1995) has conceptualised them in terms of a ball on a surface. Imagine a ball on a surface. A small push on the ball has different effects depending on the shape of the surface.

Myths of nature (adapted from Adams, 1995, p. 34)

Those subscribing to the myth of nature as capricious see the world as essentially unpredictable. A small action could have entirely unpredictable consequences of unknown scale. Those who see nature as benign believe strongly in equilibrium. However strong the disturbance to the world, the status quo tends to be restored. Those who subscribe to the perverse/tolerant myth believe that, within limits, the world is predictable and tolerant of shocks to the system. However, pushing beyond those limits risks catastrophe. Those who see nature as ephemeral take a profoundly pessimistic view. Even small disturbances can lead to profound and potentially catastrophic changes. The world is fragile and precarious, and equilibrium can be overturned by even small actions.

For example, the different stances taken by different groups over climate change can be understood in these terms. Combined with some of the traps mentioned above, we can imagine why the topic is so hotly debated and with so little intelligence. Instead of taking heuristic shortcusts like the media, we should allow ourselves to consider more creative and effective soloutions, like birth control or new approaches to carbon-?neutral fuels. Actions against climate change need to be enforceable by reason and law – there is little point in blaming each other.

Technological Advance

One of the most famous studies ever conducted in economics was the study done by Edward Denisen. He found that the most important factor accounting for a full 28% of increased productivity, has been technological advance – just as growth theory suggests. And by the way, Denisen’s eighth category (legal-human environment) is a negative number. It estimates the negative impact that legal and regulatory constraints have had on productivity and growth. Which takes us to Ferguson (2012) who states that among the most deadly enemies of the rule of law is bad law (p.77).

  • While some economists and policy makers stress the need to increase capital investment,
  • others advocate measures to stimulate research and development and technological change.
  • Still a third group emphasizes the role of a better educated work force.

The Neoclassical growth model was pioneered by professor Robert Solow of MIT:

  • Major model components in this neoclassical growth model: Capital and technological change.
  • Primary tool: Aggregate Production Function (APF), which relates technology and inputs, like capital and labor, to total potential GDP.
  • Key concept: Capital deepening – the process of increasing the amount of capital per worker, e.g. more farm machinery and irrigation systems in farming, more railroads and highways in transportation, and more computers and communication systems in banking. In each of these industries societies have invested heavily in capital goods. And as a result, the output per worker has grown enormously.

The first major insight of the model is that in the absence of technological change, capital deepening does not lead to a proportional increase in output.

Reason: The law of diminishing returns – the basic idea is that as you add more and more capital to a fixed supply of labor, eventually the marginal product of capital must fall as the law of diminishing returns kicks in.

The second major insight of the neoclassical growth model is that while capital deepening can dramatically increase the productive output of an economy, it will eventually lead to economic stagnation in the absence of technological change.

At this point, the economy enters a steady state in which, without technological change, both capital incomes and wages end up stagnating.
In the long run, equilibrium of the neoclassical growth model makes it clear that if economic growth consists only of accumulating capital through replicating factories with existing methods of production, then people’s standard of living will eventually stop rising. And that’s why we must come to understand the importance of technological change in averting this fate, as modern economies in this century have so obviously done.

This leads to the third major insight of the neoclassical growth model. It is ultimately only through technological change that we can avoid the trap of economic stagnation.

Technological change represents both advances in production processes, and the introduction of new and improved goods and services. It also includes new managerial techniques, as well as new forms of business organisation.

Common Sense

  • “We always did it this way!”

Storey and Salaman found that:

“[…] there is a tension between existing organisational strengths and innovation. […] In some cases, senior managers […] made a virtue out of the ways in which established structures limited innovation and argued that such control was necessary and desirable. In these cases, if innovation was to be tolerated and even encouraged, this was only so within the parameters of existing assumptions, structures and systems.”

(Storey and Salaman, 2005, p. 219)

Cultures consist of complex webs of interrelated factors. People may not see the need for change. This was described as the resilience of existing cultures (Hendry and Hope, 1994).

  • “We never did it this way!”

Many established organisations find it difficult to innovate. Some of the reasons for this are

“[… ] structural and cultural inertia, internal politics, complacency, fear of cannibalising existing products, fear of destroying existing competencies, satisfaction with the status quo, and a general lack of incentive to abandon a certain present (which is profitable) for an uncertain future.”

(Markides, 2002, pp. 246–7)

Hendry and Hope (1994) found that mismatches between individual and organisational values hinder organisational change. If individuals are to accept change, they need to trust their organisation and the behaviour of their managers.

  • “No one has done this before!”

Storey and Salaman sought to understand why managers have resisted innovation:

“The answer appears to be that they hold deep, emotionally-based attitudes which inure them to the intellectual arguments. These managers regard themselves as guardians of the integrity and traditions of the organisations. They explained their stance on innovation as justified by the need to curtail the ‘risks’ of innovation. It was, they said, underpinned by the need to ensure that valuable resources were not ‘squandered’ on ‘self-indulgent’ initiatives. Far from seeing this attitude as a negative, they converted it into a claimed strength.”

(Storey and Salaman, 2005, pp. 157–8)

Hendry and Hope (1994) found that contradictions in the desired culture can represent strong barriers to change and innovation. Change may represent management’s quest for control, yet what they proclaim is autonomy and innovation.