Dealing with risks has always been part and parcel of the human condition. We are forced to act in a world of uncertainty about whether an event – leading to good or bad outcomes – will occur. As David Hume pointed out centuries ago, we cannot even be absolutely sure that the sun will rise tomorrow even though it has done so for eons. We can, however, believe that there is a very high probability that it will so rise because of our experience. So, we measure risks in terms of probability and if we are prudent, we take efforts to reduce the probability of unfavourable outcomes to our actions and increase the favourable ones.
Risk management has always been integrally connected with survival strategies ever since early hunters figured out it was better for them to hunt in bands. In commerce, insurance was certainly a major innovation that acted to reduce the dangers of taking risks as was the decision by Governments to allow the formation of corporations as legal “bodies”. The latter allowed risks to be taken by individuals without their personal assets being threatened. Ever since the financial meltdown of 2008 in the developed countries, “Risk Management” has taken on a higher profile since it is now accepted that the crisis was precipitated by financial firms practising extremely loose credit risk management. Guyanese bankers and businesses should take note.
While those man-made risks have brought us low, newer ones such as global warming have augmented older risks originating from the workings of Mother Nature. The extraordinary rainfall over the last year led to massive losses from floods. On global warming, the recently-concluded COP26 in Glasgow did not actually give much room for optimism. The risks of our coastland, including Georgetown, being inundated from rising seas have increased exponentially.
Not much has changed structurally since the “UN Development Report 2014” honed in on “Risk and Opportunity: Managing risk for Development”. The issue of “risk” was placed at the centre of its efforts to stimulate development in the present aura of doubt and uncertainty that pervades the global recovery efforts. There has been, of course, the discovery of over 10 billion barrels of oil off our shores, but this does not alter the fundamental point about managing risks. In fact, Ghana ignored those lessons after they struck oil in 2007 and are still paying for their precipitate excessive borrowing. We might never be able to know the future, but we can reduce uncertainty about it.
As the report noted, there are “the missed development opportunities that arise when necessary risks are not taken. Pursuing opportunities requires taking risks, but many people, especially the poor, are often reluctant to do so, because they fear the potential negative consequences. Failure to act can trap people in poverty, leaving them vulnerable to negative shocks and even less able to pursue opportunities that would otherwise improve their well-being.”
With the world becoming ever more interlinked, leaders in every sphere of activity, but especially those at the helm of States, cannot remain passive in the face of burgeoning risks. They have to change from being “crisis fighters” to becoming “proactive and systematic risk managers”. In our own Caricom, while some countries such as Guyana were able to maintain healthy rates of growth even before oil was struck, most of the other members headed in the opposite direction, because they refused to deal with risks posed by their macroeconomic fundamentals such as debt-GDP ratios.
Maybe they will now take the same advice from the UN: “Protecting hard-won development gains by building resilience to risk is essential to achieving prosperity. That is true whether one is grappling with natural disasters, pandemics, financial crises, a wave of crime at the community level, or the severe illness of a household’s chief provider. Risk can never be completely eliminated. But people and institutions can build resilience to risk by applying a balanced approach that includes structural policy measures, community-based prevention, insurance, education, training, and effective regulation.”