Acts of God and Acts of Humanity: a response to Colin Hay

Nick O’Donovan

At the end of the Monty Python film The Life of Brian, the titular hero is advised to “look on the bright side of life” as “this’ll help things turn out for the best”. Reading Colin Hay’s compelling account of environmental catastrophe and its consequences for the welfare state, this scene springs to mind. This is not only because in the film this advice is delivered by a character who, like Brian, is in the process of being crucified at Calvary – an all-too-appropriate metaphor for the climate crisis in which we find ourselves. It is also because viewing the facts of our predicament through a slightly more optimistic lens may help things turn out for the better, revealing opportunities for action that could help us to defend both the welfare state and a habitable planet.

To recap: Hay argues that in mainstream analyses of the modern welfare state, welfare policy is presented as a way of insulating both individual citizens and the macro-level economy from external shocks. Welfare insures individuals against circumstances, conditions or life events that might disrupt their earning power (such as disability, illness, unemployment or parenthood). It works by ‘decommodifying’ these entitlements, rendering them independent of market performance or participation. At the same time, the welfare state also insures individuals (and society as a whole) against macro-level systemic risks. Sometimes this insurance is explicit (the state provides unemployment benefits in the event of a severe economic downturn, stabilising aggregate demand and reducing poverty), though often it is implicit (bailing out banks when there is no money to withdraw from the ATM, paying workers to stay at home during a lethal pandemic, rebuilding a city after a devastating flood).

Hay’s concern is that this latter category of insurance – which he classifies as insurance against ‘uninsurable’ risks, with the state acting as ‘provider of last resort’ – will constitute an ever-greater share of welfare spending as the climate crisis deepens and ‘last resort’ interventions become both more frequent and more expensive. This results in an ever-mounting pile of public debt, which justifies the retrenchment of conventional welfare spending in-between crises. Climate-induced austerity will dissolve differences between different welfare states, overriding their historically distinct trajectories and forcing them to converge towards a minimalist model of last-resort crisis management (albeit with the pace of convergence dictated by their differential exposure to climate catastrophe).[i] And even that endpoint may not prove fiscally sustainable for very long.

Sadly, there is little to disagree with in terms of the ecological fundamentals of Hay’s analysis. However, there is a flaw in his account, creating cracks through which the light gets in (if we choose to look for it). This flaw lies in Hay’s conceptualisation of risks as ‘uninsurable’, a term that he uses in three distinct senses, not all of which apply equally to the risks of climate catastrophe.

Firstly, Hay contends that a risk is uninsurable when, by definition, insurance cannot be provided through market-based mechanisms. This applies to risks associated with market collapse, whether triggered by a financial crisis, a global pandemic, the outbreak of war or environmental catastrophe. Market-based insurance against market collapse is effectively worthless, as the circumstances under which a claim can be made are also circumstances under which it is highly unlikely that any private insurance provider will be in a position to pay out. It is this sense of uninsurability that underpins Hay’s critique of the idea that the welfare state ‘decommodifies’ risk: the insurance in question could not be meaningfully offered as a marketable commodity in the first place.

The second sense in which a risk might be uninsurable is where it is unaffordable: where individuals ‘cannot afford the market-determined price’ for insurance against said risk.[ii] However, unaffordability is not exclusively a question of individual insurance and market prices. Insurance against risk might also be unaffordable at the collective level, where the collectivity (usually the state) is unable to mobilise enough resources (public and private, domestic and international) to respond adequately to the crisis.

Thirdly, a risk might be uninsurable when it is unquantifiable. This is a risk that cannot be anticipated in any way, that defies the actuarial logic of insurance altogether. In such cases, market-based insurance may well be of little value. However, this is not (necessarily or solely) because such insurance is too expensive or because private insurers will have collapsed before they are able to compensate policy-holders. It may simply be because policies are worded so tightly that they exclude the precise novel circumstances that arise, and customers are similarly unable to anticipate and stipulate the coverage that they actually require. The mismatch between business interruption insurance policies and the circumstances of the COVID-19 pandemic offer a useful illustration of this dynamic: some policies only covered certain pre-specified diseases, whereas others only covered business closure due to disease outbreaks on-site.

Not all ‘uninsurable’ crises are uninsurable in the same way: they involve different combinations of these different senses of the term. The Global Financial Crisis, for example, featured a market collapse that rendered associated risks ‘uninsurable’ in the first sense. However, though the costs were colossal they ultimately proved affordable for most capitalist democracies, courtesy of coordinated action (and dollar liquidity swap lines) – albeit some, such as Greece, struggled to mobilise resources and suffered severe legitimation crises as a result. Although the risks involved stood outside the quantitative models prevalent within the financial sector (including those used by regulators, auditors and credit rating agencies), they were not wholly unquantifiable, as some analysts had been warning about them for several years (and/or adopting market positions to profit from the risks they had quantified). The COVID-19 pandemic offered a clearer example of unquantifiable risk, both due to its novel characteristics and due to the absence of data on behavioural and policy responses at the global level. Lockdowns in the US and Europe threatened to destabilise market mechanisms, absent government intervention, highlighting the unmarketable nature of the risks involved. For the most part, though, the risks proved affordable (at least in the short-run, in more affluent democracies), largely through a renewed bout of central bank money creation.

How do the uninsurable risks associated with catastrophic climate change compare, and what does this teach us about the prospects for the welfare state? ‘Natural’ disasters such as wildfires, floods, lightning strikes, crop failures, tornadoes and storms are increasing in frequency and severity due to anthropogenic climate change, but this does not render them unquantifiable – it merely adjusts the trend line that they follow. Contrary to popular belief, it is extremely rare for modern insurance policies to contain blanket exclusions for such ‘acts of God’ precisely because the risks in question are quantifiable. True, some of the risks associated with climate crisis are less predictable than extreme weather events. For example, risks of geopolitical conflict due to resource scarcity and population displacement are harder to quantify due to the relative lack of historical datapoints, and even ecological trends are obscured by uncertainty around the timing and impact of tipping points such as the thawing of the Siberian permafrost, the dieback of the Amazon rainforest, or the disintegration of the West Antarctic ice sheet. Nevertheless, an important part of the uninsurability of catastrophic climate change is bound up with the individual unaffordability of insurance. Consequently, following climate-related disasters, there will be increasing calls for the state to intervene to protect the uninsured, potentially limiting the resources available to provide conventional forms of welfare. As Hay points out, states that are particularly exposed to these disasters could rapidly find themselves in a position where they are forced to default on their debts – they, too, become uninsurable, as the costs of climate crisis become collectively unaffordable.

However, the quantifiability of these risks highlights another possible path for welfare states. Spending now – on resilient foundational infrastructure, on the transition to less energy-intensive patterns of living and working, on non-hydrocarbon energy sources – can mitigate some of the consequences of climate disasters and slow the pace of climate change. Indeed, given the size of the fiscal risks ahead, it would be reckless not to make these investments. Crisis pre-emption as well as crisis response might be understood as proper functions of the welfare state as insurer of last resort, at least delaying the doomsday scenario envisaged by Hay. But this also raises an important question. Where resources are constrained, whether by economic or political limitations, how should progressives allocate welfare spending between curbing climate crisis and more conventional forms of welfare? The choice is not straightforward either politically or economically: delaying measures to tackle poverty may alienate important parts of progressives’ electoral coalitions, and might also damage productivity growth to the detriment of the state’s future fiscal capacity. Furthermore, it is possible that progressives will be defeated by political rivals who will choose neither type of welfare spending, opting instead to roll back the state informed by misguided notions of austerity that ultimately hasten both fiscal crisis and legitimation crisis. Nevertheless, the point remains that all of these are choices – at least, in most affluent democracies, for the time being.[iii] Just as the climate crisis should rightly be understood as endogenous to modern capitalism, so responses to it should be understood as human choices rather than acts of God.

Nick O’Donovan is a Senior Lecturer at Keele University

[i] The contrast with Hay’s own previous work, arguing against the claim that globalisation and market liberalisation were causing convergence in European welfare models, is striking.

[ii] Hay equivocates as to whether this is true uninsurability, at one point arguing that risks are insurable where ‘there is a market-determined insurance premium (whether one can afford to pay it or not’.

[iii] The situation is sadly very different in parts of the world where the ecological crisis is already far more acute, and where governments do not enjoy the exorbitant privilege associated with occupying the upper echelons of the international currency hierarchy.