44 K Grove
should likewise be indifferent to social risk, and avoid inefficient risk reduction investments.
In the mid-2000s, some development economists began questioning
the applicability of these arguments for developing states. Reflecting on
Hurricane Ivan’s (2004) catastrophic impact on Grenada’s economy, they
critiqued two assumptions underpinning Arrow-Lind. First, Arrow-Lind
assumes that the social cost of risk equals zero if individual losses are not
correlated. However, in Grenada, individual losses were highly correlated:
the catastrophic losses, totalling nearly 200 per cent of the country’s GDP,
affected nearly every sector and segment of society, and threatened the
state’s ability to provide basic services (Grove 2012). Thus, ‘small states
exposed to natural disasters that can affect the entire country, like small
Caribbean islands exposed to hurricanes, face a high social cost of catastrophic risk-bearing’ (Ghesquiere & Mahul 2007, p. 7). Second, ArrowLind assumes a negligible opportunity cost of post-disaster financing: in
theory, states can raise taxes or issue debt rather than shifting expenditures.
However, Grenada’s excessive losses created immediate liquidity problems
that quickly exceeded the state’s fiscal capacities. Unable to finance reconstruction through budget reallocations, the state’s post-disaster fiscal
outlook remained bleak: despite its efforts to generate capacity through
donor assistance, debt restructuring, and tax increases, ‘Grenada’s fiscal
situation remained challenging and the country still faced a financing
gap of 4.5 percent of GDP for 2005 with total debt projected to increase
to 150 percent of GDP’ (Ghesquiere & Mahul 2007, p. 17). Thus, ‘most
developing countries, and particularly small countries, do not have this
flexibility in their budget, making the opportunity cost of reserve high,
and thus the social cost of catastrophic risk bearing is high’ (Ghesquiere
& Mahul 2007, p. 8).
Thus, for some development economists, Ivan’s impact on the Grenadian
state demonstrated significant costs to ex-post relief that Arrow-Lind
could not account for. Indeed, just a few years before Ivan, the 2001 Third
Assessment Report (TAR) of the Intergovernmental Panel on Climate
Change (IPCC) dedicated a chapter to the impacts of climate change on
‘insurance and other financial services.’ The authors emphasised that the
effects of climate change would be greatest in developing countries, cautioning that, ‘several countries experience impact on GDP as a consequence
of natural disasters; damages have been as high as half of GDP in one case’
(Vellinga et al. 2001, p. 420). Ivan surpassed these damages in spectacular fashion, a feat that has been repeated, with devastating consequences,
in subsequent years. These events, and their catastrophic impacts, demonstrate a common refrain among critical scholars of the Anthropocene: the
asymmetry and planetary indifference that structures human-earth relations
in the Anthropocene (Clark 2010). These arguments emphasise how sublime
earthly forces far exceed human capacities to know and control the earth.
Rather than a stable backdrop of human activity, the Anthropocene signals
should likewise be indifferent to social risk, and avoid inefficient risk reduction investments.
In the mid-2000s, some development economists began questioning
the applicability of these arguments for developing states. Reflecting on
Hurricane Ivan’s (2004) catastrophic impact on Grenada’s economy, they
critiqued two assumptions underpinning Arrow-Lind. First, Arrow-Lind
assumes that the social cost of risk equals zero if individual losses are not
correlated. However, in Grenada, individual losses were highly correlated:
the catastrophic losses, totalling nearly 200 per cent of the country’s GDP,
affected nearly every sector and segment of society, and threatened the
state’s ability to provide basic services (Grove 2012). Thus, ‘small states
exposed to natural disasters that can affect the entire country, like small
Caribbean islands exposed to hurricanes, face a high social cost of catastrophic risk-bearing’ (Ghesquiere & Mahul 2007, p. 7). Second, ArrowLind assumes a negligible opportunity cost of post-disaster financing: in
theory, states can raise taxes or issue debt rather than shifting expenditures.
However, Grenada’s excessive losses created immediate liquidity problems
that quickly exceeded the state’s fiscal capacities. Unable to finance reconstruction through budget reallocations, the state’s post-disaster fiscal
outlook remained bleak: despite its efforts to generate capacity through
donor assistance, debt restructuring, and tax increases, ‘Grenada’s fiscal
situation remained challenging and the country still faced a financing
gap of 4.5 percent of GDP for 2005 with total debt projected to increase
to 150 percent of GDP’ (Ghesquiere & Mahul 2007, p. 17). Thus, ‘most
developing countries, and particularly small countries, do not have this
flexibility in their budget, making the opportunity cost of reserve high,
and thus the social cost of catastrophic risk bearing is high’ (Ghesquiere
& Mahul 2007, p. 8).
Thus, for some development economists, Ivan’s impact on the Grenadian
state demonstrated significant costs to ex-post relief that Arrow-Lind
could not account for. Indeed, just a few years before Ivan, the 2001 Third
Assessment Report (TAR) of the Intergovernmental Panel on Climate
Change (IPCC) dedicated a chapter to the impacts of climate change on
‘insurance and other financial services.’ The authors emphasised that the
effects of climate change would be greatest in developing countries, cautioning that, ‘several countries experience impact on GDP as a consequence
of natural disasters; damages have been as high as half of GDP in one case’
(Vellinga et al. 2001, p. 420). Ivan surpassed these damages in spectacular fashion, a feat that has been repeated, with devastating consequences,
in subsequent years. These events, and their catastrophic impacts, demonstrate a common refrain among critical scholars of the Anthropocene: the
asymmetry and planetary indifference that structures human-earth relations
in the Anthropocene (Clark 2010). These arguments emphasise how sublime
earthly forces far exceed human capacities to know and control the earth.
Rather than a stable backdrop of human activity, the Anthropocene signals