War: Consequence of Negative Relationship Capital

The Achilles heel of humankind is negative relationship capital. In my last blog post, we saw that the more than $50 trillion worldwide financial loss from the global financial crisis is an indicator.

Another consequence of negative relationship capital is war.

Which war after World War II cost the most human lives?

It is not the Korean War. Nor is it the Vietnam War. It is the Congo War which involved eight African nations and 25 armed groups, and cost 5.4 million lives. Its root cause? Some believe that that war was not ethnically motivated but that it was fought to gain control over natural resources worth an estimated $24 trillion!

Ingrid Samset found that resource-based exports is correlated with conflict, and presence of a natural resource is correlated with civil wars that endure (see: “Natural resource wealth, conflict and peacebuilding”)

I will do something foolhardy: estimate the cost of the risk of global nuclear war. It is foolhardy because there will be people who will criticize my assumptions and/or my computations.

I will repeat the Bayesian approach I used in a paper I wrote a long time ago (“Consequences of Nuclear Attack on the Military Bases” in: Foreign Relations Journal 1(2):90-114, June 1986, Philippine Council for Foreign Relations). Basically, the Bayesian Theorem says that the expected cost of an uncertain event is the cost incurred if the event happens multiplied by the probability of the event occurring within a given time period. This is the same principle insurance companies use to compute annual premiums.

I will make the following assumptions:

  • A global nuclear war will result in 95% wipe-out of Gross World Product (which is estimated at $71 trillion/year).
  • The chance of this occurring is 1 in 100 years.
  • The average discount rate over the next decades is about 5% per annum (we cannot use prevailing T-bill rates which have been abnormally brought down by central banks during this global crisis, or else we may overestimate the cost).
  • Over 100 years, the NPV is practically that of a perpetuity = annual cost/discount rate.

The loss of GWP entails: annual cost of $590 billion and present value of $11.8 trillion (almost the US GDP of $14 trillion/year!).

Because this is the cost of a risk, we do not actually physically feel it before it actually happens. But that makes it no less real. A ship is insured at Lloyd’s because its owner would rather pay a small annual premium (a real cost) than face the (not yet real) risk of losing the value of the entire ship in case it sinks. Now, if there was a super-Lloyd’s willing to insure the world against the risk of global nuclear war, this super-Lloyd’s would charge us an annual premium not too far from $590 billion.

Yes, a fundamental weakness in planetary relationship capital is the Achilles heel of humankind.

What do you think?

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