How to Get the Biggest Bang for 10 Billion Bucks

Bjorn Lomborg | 28 Jul 2008
Wall Street Journal

If you had a spare $10 billion over the next four years, how would you spend it to achieve the most for humanity?

This is a small amount compared to rich-government budgets. But if we could set aside an extra $10 billion, we could achieve an awful lot.

To get the most bang for your buck -- and ensure that your generosity does the greatest good for the largest number of people -- you will need to prioritize, weighing up the costs and benefits of different options. Unfortunately, we too often focus on the most fashionable spending options, rather than the most rational. Spending an extra dollar cutting C02 to combat climate change generates less than one dollar of good, even when we add up all the economic and environmental benefits. In contrast, a dollar spent on research and development into cleaner energy technology generates $11 of economic good. If that dollar was spent combating heart disease in the third world, it would achieve more than twice that again.

Copenhagen Consensus commissioned eight of the world's top economists to identify the global challenges that can be solved most cost-effectively. Over the coming weeks, we will be challenging decision makers and opinion leaders to weigh in on this debate. We also encourage you to go to OpinionJournal.com and respond to this article with your own priorities.

But first, our economists describe how much your extra dollar can achieve in a few areas:

TRANSNATIONAL TERRORISM

Terrorism has become one of the biggest fears. Yet transnational terrorists take, on average, 420 lives each year and cause relatively little economic damage.

An extra $70 billion world-wide has been spent annually on homeland security since 2001. Although there has been a 34% drop in transnational terrorist attacks, there have been 67 more deaths, on average, each year.

This hike in the death toll is entirely predictable. Terrorists have responded rationally to the higher risks imposed by tougher security measures and shifted to fewer attacks that create more carnage.

Increased counterterrorism measures often simply transfer terrorists' attention elsewhere. Installing metal detectors in airports in 1973 decreased skyjackings but increased kidnappings. Fortifying American embassies reduced the number of embassy attacks, but increased the number of assassinations of diplomatic officials. Since counterterrorism measures were increased in Europe, the U.S. and Canada, there has been a clear shift in attacks against U.S. interests to the Middle East and Asia.

Politicians who choose to make counterterrorism a priority have stark options. Spending ever more money making targets "harder" is an easy choice for politicians -- although it will do little to genuinely reduce the terrorist threat.

Increasing defensive measures world-wide by 25% would cost at least $75 billion over five years. In the extremely unlikely scenario that attacks dropped by 25%, the world would save about $21 billion. That figure is reached by adding up the economic damage caused by terrorists, and by putting a high economic value on the lives lost.

But even in this best-case scenario, the costs will be at least three times higher than the benefits. Put another way, each extra dollar spent increasing defensive measures will generate -- at most -- about 30 cents of return.

We could save about 105 lives a year, globally. There are few areas where we would consider spending so much to do so little. To put this into context, 30,000 lives are lost annually on U.S. highways.

Fostering greater international cooperation to cut off terrorists' financing would be relatively cheap and quite effective. This would involve greater extradition of terrorists and clamping down on the charitable contributions, drug trafficking, counterfeit goods, commodity trading, and illicit activities that allow them to carry out their activities.

While this approach would do little to reduce the number of small events, such as "routine" bombings or political assassinations, it could significantly impede the spectacular attacks that involve a large amount of planning and resources. But this would be difficult to achieve, because nations jealously guard their autonomy over police and security matters. A single noncooperating nation could undo much of others' efforts.

Doubling the Interpol budget and allocating one-tenth of the International Monetary Fund's yearly financial monitoring and capacity-building budget to tracing terrorist funds would cost about $128 million annually. Stopping one catastrophic terrorist event would save the world at least $1 billion. Under these assumptions, this would mean a return of about $9 on each dollar spent.

(Figures based on research by Todd Sandler, University of Texas.)

CLIMATE CHANGE

There is unequivocal evidence that humans are changing the planet's climate. We are already committed to average temperature increases of about 1.1 degrees Fahrenheit, even without further rises in atmospheric carbon dioxide concentration.

The world has focused on mitigation -- reducing carbon emissions -- as its response to this challenge. The Kyoto Protocol was an international attempt to cut back on these emissions, and at the end of 2009 politicians will gather in Copenhagen to discuss Kyoto's successor. Although we don't focus on other possible solutions to this challenge, they do exist.

If mitigation -- economic measures like taxes or trading systems -- succeeded in capping industrialized emissions at 2010 levels, then the world would pump out 55 billion tons of carbon emissions in 2100, instead of 67 billion tons.

This is a difference of 18%; but the benefits would remain smaller than 0.5% of the world's GDP for more than 200 years. These benefits simply are not large enough to make the investment worthwhile.

Spending $800 billion (in total present-day terms) over 100 years solely on mitigating emissions would reduce temperature increases by just 0.4 degrees Fahrenheit by the end of this century.

When you add up the benefits of that spending -- from the slightly lower temperatures -- the returns are only $685 billion. For each extra dollar spent, we would get 90 cents of benefits -- and this is even when things like environmental damage are taken into account.

A continued narrow focus on mitigation alone will clearly not solve the climate problem. One problem right now: Although politicians base their decisions on the assumption that low-carbon energy technology is being rapidly developed, that is not the case. These technologies just do not exist. Wind and solar power are available -- at a high expense -- but suffer from intermittency. Researchers need to develop better ways to store electricity when those renewable sources are offline.

If we took that $800 billion and spent it on research and development into clean energy, the results would be remarkably better. In comparison with the 90-cent return from investing solely in mitigation, each dollar spent on research and development would generate $11 of benefits.

(Figures based on research by Gary Yohe, Wesleyan University, and Christopher Green, McGill University.)

DISEASES

Life expectancy is decreasing in some parts of the world. Ten million children will die this year in poor nations. This figure would be just one million if child mortality rates were the same as in rich countries.

The hurdle is not just poverty -- some poor nations have reasonably good health conditions -- but getting cheap treatment and prevention methods to the Third World. There are many ways that we could spend a little money very wisely to make a big difference.

Some health problems receive a lot of publicity. Investment in other areas we hear less about could make a big difference -- such as heart disease in developing nations. Cheap drugs, widely available in rich countries, can manage two major components of cardiovascular risk: hypertension and high cholesterol levels. Simple drugs can also be highly effective in reducing mortality among the millions of adults world-wide who already have some form of vascular disease or diabetes.

In poor countries, where heart disease represents more than a quarter of the death toll, these cheap drugs are often unavailable. Spending just $200 million getting them to poor countries would avert 300,000 deaths each year. The lower burden on health systems, and the economic benefits, mean that an extra dollar spent on heart disease in a developing nation would achieve $25 worth of good.

Much more could be done to reduce the scourge of communicable diseases. In poor countries, malaria will claim more than one million lives this year -- most of them among children under five. Measures to reduce its transmission are simple: more bed nets, preventive treatment for pregnant women, and more indoor spraying with DDT.

Treating malaria is becoming harder because of growing resistance of the malaria parasite to the cheapest, most common antimalarial drugs. Some poor nations cannot afford the new artimisinin combination therapies that work best, and need financial support.

It makes sense to combine prevention options like bed nets with subsidies on the new treatments for poor nations. Spending $500 million would save 500,000 lives a year -- most of them children.

Each dollar spent on ensuring people are healthier and more productive would generate $20 in benefits.

(Figures based on research by Dean Jamison, U.S. National Institutes of Health.)

HUNGER

The food crisis has reminded us that hunger and malnutrition is a daily reality for many in South Asia and sub-Saharan Africa. Malnutrition in mothers and their young children will claim 3.5 million lives this year. Global food stocks are at historic lows. Food riots have erupted in West Africa and South Asia. Progress is distressingly slow on the United Nations' goal of halving the number of hungry people by 2015.

Individual tragedy and national hardship go hand in hand. Shortened lives mean less economic output and income. Hunger leaves people more susceptible to disease, requiring more health-care spending. Those who survive the effects of malnutrition are less productive; physical and mental impairment means children benefit less from education.

There is an obvious focus in improving the quantity of food consumed in developing countries. But it is also vital to improve the quality of diets, especially for children. Eighty percent of the world's undernourished children are in South Asia and sub-Saharan Africa. There are massive benefits from increasing the micronutrients that are lacking in poor communities' diets.

Providing micronutrients -- particularly vitamin A and zinc -- to 80% of the 140 million or so undernourished children in the world would require a commitment of just $60 million annually, a small fraction of the billions spent each year battling terrorism or combating climate change. The economic gains from improved productivity and a lower burden on the health system would eventually clear $1 billion a year. Every dollar spent, therefore, would generate economic benefits worth $17.

Investing in research to make technological improvements to developing-country agriculture provides the opportunity to improve access to micronutrients. It also reduces the cost of food by increasing the incomes of landless laborers. Biofortification can be achieved through genetic modification, or through other methods. Spending $60 million a year would be enough to develop two staple crops such as rice and wheat fortified with micronutrients for about 40 countries across South Asia and sub-Saharan Africa.

The improved nutrition would lead to higher productivity and fewer health problems. Each extra dollar spent would generate economic benefits worth $16.

(Figures based on research by Susan Horton, Wilfrid Laurier University.)

Finding the most cost-effective ways to tackle the world's problems is no simple challenge and should not be left to professional economists alone. Please go to OpinionJournal.com to add your voices to this important debate about prioritization.

Mr. Lomborg is the director of the Copenhagen Consensus. For more information please visit www.copenhagenconsensus.com.

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