Risk and Recession

On BBC Radio 4’s Today Programme, on 21 December, Professor Sir David King, former Chief Scientific Advisor to the UK Government, was asked to comment on the recent unusually cold weather.  In particular, he was asked whether the severe snow falls last winter and this are likely to be part of a long term trend that the Government should prepare for, of one-off quirks.

North Atlantic Oscillation

Sir David answered the question with a considered description of the North Atlantic Oscillation and our inability to predict, with certainty, the duration of any phase – including the one we are in.

Risk Management is the first to go

However, it’s what he said about risk that struck a chord with me.  If we are due a number of severe winters (and, incidentally, some hot summers too – in the 1960s, the phase ran for around a decade) the potential adverse impact on the UK economy is huge.  The return on investment in the resources and infrastructure we need to manage extreme weather  would therefore be high.

However, there is no certainty except this.  In a tough economic regime, such as our now, it is the risk management that is one of the first investments to get abandoned.  This is true in tight budget projects, in political choices and in our personal and domestic arrangements.  Sir David made a passionate plea for a massive scale Europe-wide investment in computing power to support our research effort into understanding our climate and weather systems, but acknowledged that it is an unlikely outcome.

Fallacy or Politics?

So, is this a fallacy?  Should the availability of funds, or the political will to commit them, influence our judgement about risk mitigation?  Clearly, whether to invest is a political decision, regardless of the cold logic of risk levels and likelihoods.  But here is the fallacy: too many political decisions in democratic nations are made with an eye on one time horizon before any other: the next election.

The “so what?”

Investing huge sums of money in the UK’s severe weather capability will be tough in our current economic condition.  Not investing risks further worsening our economy.  The simple fact is that the UK is a rich nation, so politicians should make the decision based on the best estimates of risk.

And if your project is cash-strapped, then ask yourself whether savings on risk management is a false economy and maybe you need to be a little less ambitious and save some money in another area of your project.

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