Discounting: All Blacks Tackle 3-Year-Olds

A pivotal - and political - tool lurks at the heart of many of our systemic challenges

Perhaps twenty years ago, I found myself on the top deck of a Boeing 747 en route from Perth, Australia, to Cape Town, South Africa, alongside New Zealand’s All Blacks rugby team. They were huge, almost a separate species—and part-way across the ocean they convened in a squeezed circle and did a muted haka.

Truly awe-inspiring—which made an All Blacks reference on page 252 of Liliana Doganova’s fascinating book Discounting the Future resonate even more powerfully. Her reference to the work of sci-fi author Kim Stanley Robinson, concerns the collision of such man-mountains with a group of three-year-olds—but let me creep up on that, crabwise.

As part of my ongoing quest into the next stage in the evolution of the sustainability agenda, the book caught my eye in the Waterstones store on London’s Trafalgar Square, while I was en route to a lunch with a longstanding friend and colleague, Tom Burke, chairman of consultancy E3G.

I began reading the book several weeks later en route by Eurostar to Amsterdam for the B For Good Leaders conference, then re-read parts of it on an Iberia flight to Madrid a few days back— where I was due to speak at the South Summit 2024 event. And I found myself wishing that I had been able to read the book way back in 1968.

That astonishing year, I had dropped out of Economics at university, concluding—even then—that some elements of modern economics were like a cult, a set of beliefs as much as a set of methods. By contrast, the (dead) economists whose work lived on with me were both mutants, true system thinkers, Nikolai Kondratiev and Joseph Schumpeter.

Having switched to other subjects, among them sociology and city planning, I remained acutely aware that Economics is at once central to the world of business, which I have now spent fifty years trying to influence, and yet continues to suffers from a deep-rooted genetic defect. And, even back then, the process by which economists discount the future seemed the most obvious symptom of that flaw.

Sacrificing tomorrow on the altar of today

True, we can describe nature in mathematical and statistical terms, as in the spiral of the Nautilus shell or the operation of trophic levels in an ecosystem. But, once you factor in human nature, if you begin to think of nature as a machine, driven by algorithms which are discoverable and manipulable, you may well be on the road to ruin.

Economics needs to be reinvented, which is why I have spent a fair amount of time tracking the work of people like Joe Stiglitz, Mariana Mazzucato and Kate Haworth. And another source of inspiration has been Daniel Christian Wahl, whose work Volans has supported.

All these people have concluded that our economies produce perverse results because they suffer from structural dysfunctions. As Stiglitz has argued, whenever there are externalities—where the actions of an individual have impacts on others for which they do not pay or for which they are not compensated—markets often fail us. And discounting, as currently practiced, can make th situation (much) worse.

Despite this fact, discounting permeates market and policy practices. It means valuing things on the basis of the flows of costs and benefits that they are likely to generate in the future, with these future flows being literally dis-counted as they are translated in the present. And that’s where Kim Stanley Robinson outs in an appearance in Doganova’s book.

In a long quotation from KSR’s book The Ministry for the Future, she spotlights two characters, Dick and Mary, who are discussing discounting, exploring how it allows to ignore the needs of the future:

Dick: No one denies future people are going to be just as real as us. So there isn’t any moral justification for the discounting, it’s just for our own convenience. Plenty of economists acknowledged this….

Mary: But we do it anyway.

Dick: We kick their ass.

Mary: Easy to do when they’re not here to defend themselves!

Dick: True. I like to think of it as a rugby match, with present-day people as the New Zealand All Blacks, playing against a team of three-year-olds, who represent the people of the future. We kick their ass….

When asked what he does, Dick then explains that he works for the Ministry for the Future. “So we step in and play for the three-year-olds,” he explains. The key issue with discounting, including techniques like Net Present Value—unlike approaches involving plans, models and scenarios—is that no effort is made to understand what the future that is being discounted will look like—or should look like.

Discounting has a future, but….

In the end, Doganova does not dismiss discounting out of hand, though she sees it as fundamentally a political tool. Even today’s three-year-olds could benefit from the properly informed and directed use of such techniques. Indeed, she concludes that related tools would be used even within future Ministries for the Future.

One intriguing idea she embraces, one also proposed by KSR, is that of the “bell curve discount rate”—which encompasses seven past and future generations. And she recalls the way the 2007 Stern Review on climate economics advocated adjusting discount rates to benefit future generations, though it is hard to argue that any major government has yet taken on board that thinking.

Indeed, by the end of Discounting the Future I found myself wondering whether discounting could end up costing us not just our economies but, ultimately, our civilization?

Already, in terms of our economies, you see the malign consequences of this mindset and related techniques in the way that many American and European auto manufacturers chose to hunker down with their finely-tuned engineering of vehicles powered by internal combustion engines—when companies like Tesla (and now BYD) had already signalled where the future was driving us.

China, by contrast, cannily invested in a very different future—which is why the EU and USA are now scrambling to impose tariffs to slow the tsunamis of solar cells, windmill technology, batteries and electric vehicles pouring out of a country that somehow, perhaps because discounting was only part of the political equation, could still think around corners.