While statements of risk are intended to provide more certainty, they also convey uncertainty. They are at once expressions of knowledge and expressions of ignorance: uncertain knowledge claims about contingent future events that cannot be fully known.
Border-spanning problems now frame our everyday lives. From climate change to the emergence of new technologies with unpredictable effects, our species is challenged to innovate in the ways we deal with the threats of harm that can begin in restricted domains but then spread uncontrollably. While doubts haunt us, our species’ constructive instincts are also awakened by the idea of risk.
Insurance Practices and Metaphors in the Governance of Risk
Human life has always been shrouded in a fog of uncertainty. Relatively recently in our history, however, the pragmatic logic of risk management began lifting some of that fog. Collective perceptions of the probability of prospective disasters formed the basis for new economic technologies. Although they did not promise immediate solutions to profound problems or guarantees of distributive justice, during the seventeenth century novel and functional social conventions and financial practices grounded in a particular worldview began to spread unevenly around the world.
Spreading from a European base, the fundamental idea of insurance rationalized and provided a moral foundation for constructive speculation in the cause of expanding commerce globally. Early innovative practices along this line encouraged efforts to reduce and manage the risks involved in maritime trade. They then helped strike new balances between profit making and burden sharing in one economic sector after another. Central to their evolution was the disciplined gathering of data and the systematic application of probabilistic reasoning. Eventually, they would become effective instruments through which governments, now often indirectly, could allocate values. As a burgeoning body of research would later assert, insurance became governance.
In retrospect, we can see such instruments taking the form of social and political experiments commonly categorized under the labels “insurance” and “reinsurance.” They ranged from private cooperatives to organized markets and corporate enterprises to government-sponsored programs to international organizations. They traced the rise of an ethic of personal responsibility for risk control during the early stages of capitalism to the socialization of risk and the construction of related national and international institutions in the wake of global crises from the eighteenth century to the twenty-first. An important question today is whether new experiments in insurance-as-governance going well beyond those of the recent past are necessary to manage complex and mounting risks such as those that climate change and generative artificial intelligence pose.
But first I want to underline the intimate connection between insurance arrangements, even when they seem mundane, and fundamental social and political choices. In other words, I’m interested in “who gets what, when, and how,” as Harold Lasswell subtitled his famous 1936 book, Politics. In such a context, governments can be compared and contrasted as providers of security, collective risk managers, and distributors of benefits and costs. An essentially functionalist approach develops naturally from such an intuition. As a standard textbook in the field put it, modern governments manage the key social functions of goal selection, decision making, resource mobilization, and policy design, implementation, and evaluation.Footnote 1 Over time, many governments of states have delegated some of these functions to other social actors, including insurance providers, even as they maintained the capacity to reverse that delegation. Max Weber put his finger on that very capacity when he emphasized the essential enabling characteristic of the state: its monopoly over the legitimate use of force.
Six decades after Lasswell wrote his book, the political and legal theorist Thomas Morawetz made the conceptual link in modern governance theory to insurance systems explicit, especially for liberal states governing market-based social systems. He also highlighted its variability across particular cases. “Insurance recapitulates politics … What options should we have? What arrangements should be compulsory? … How much freedom should persons have? How much risk should they bear? How should responsibilities and rights be allocated between individuals and the state? How should the liberal idea of autonomy be reconciled with egalitarian ideals and goals?”Footnote 2
All governments promise their constituents some degree of protection from dangers. If specific governments survive for any length of time, they have to somehow manage risks that won’t simply disappear on their own. Although the distribution of associated burdens and benefits does not necessarily aspire to notions of fairness, it usually does hold the promise of stability. Along this line, politics and psychology merge everywhere, and governance metaphors drawn from the history of insurance become intuitive. Explicit or implicit promises to provide financial support after disasters may be politically attractive but can never be entirely guaranteed. Risks can’t be entirely eliminated. Likewise, official declarations aimed at reinforcing personal responsibility and claiming never to provide bailouts can backfire. Imagine a Florida governor committed to an ideology of self-help and personal responsibility trying to get reelected after deciding in the wake of unusually destructive hurricanes not to provide any kind of last-resort public insurance option for constituents after private insurers have left the market.
The premiums paid for private insurance are today widely understood to be bets that essentially “pay off” after disasters. Paying taxes is an involuntary but analogous bet, even if the extent and reliability of protection that taxes provide can vary with specific governmental structures and many other factors. Whether the functions of risk management and disaster recovery are delivered publicly or privately in the modern era, the language and evolving practice of insurance provide an evidently useful social technology.
As Morawetz puts it for a contemporary audience, “The jerry-built structures of the state and private insurance hardly allow us to leave behind the dangers that we first meet in Hobbes’s state of nature … [But] insurance is a rich metaphor, notwithstanding the fact that it has rarely inspired novelists and dramatists.” In practice, those structures can help ameliorate the effects of dangers we face, even if they cannot finally prevent us “from discovering the limits of our (or anyone’s) control over our destiny, from knowing fear in a radically contingent world.”Footnote 3
Pushing those limits outward forms the core of a vital political project in our world today. Contemporary adaptations of insurance practices and metaphors are worth paying attention to as an emerging global society struggles to address multiplying risks, even as the fog of uncertainty appears to thicken.
Pragmatism in the Midst of Uncertainty
Humanity today appears to be stumbling across an ill-defined terrain marked by both uncertainty and expanding risks, as well as by political limits that can seem insuperable. At the global level, great-power rivalries are resurgent. At the local level, populist or revolutionary movements unsettle established hierarchies in country after country. In between, it seems, some of us can sometimes agree on the identification of cross-border risks as well as on the design of shared rules and standards for managing them. But then we fail to put in place effective-enough or fair-enough policies to sustain and enforce them. Some of us assert that certain challenges require practices that definitively transcend the claims of nationalism underpinning the sovereign writs of existing states, but then we recoil from the full implications of that knowledge. Some of us have succeeded in building border-spanning economies, but we still oppose or have trouble imagining the transfer or pooling of adequate and effective authority to govern the intricate social interactions, shared interests, and unintended consequences of our success. Some of us know that government is the final source of security, however imperfect, in the face of uncertainty, but we cannot imagine how that function can reliably be delivered at the planetary level. The well-resourced pessimists among us prepare for disorder. The optimists call ever more assertively for “international cooperation.”
I am with the pragmatists, who see no choice but to struggle patiently and hopefully on the ambiguous and unstable middle ground where risk and uncertainty are difficult to disentangle and where liberal hopes exist in tension with the persistent claims of illiberal nationalism. Reasonable historical interpretations and at least some recent developments justify such a temporizing disposition. In the context of risks that inexorably span borders and generations, humans are capable of engaging in a complex, dynamic, and adaptive process of pushing back many sources of uncertainty. However, there’s no guarantee that we’ll succeed. Daunting generators of conflict, inequality, and injustice stand in the way. Even so, there are visible signs of incremental progress.
Ever more precise assessments of global risks and evolving public and private practices of insurance and reinsurance describe their basic form in a system decisively shaped by the intersection of philosophical liberalism, national politics, and capitalist economics.Footnote 4 Since accepted governmental authority underpins the legitimacy of those practices, any examination of specific risks that cross boundaries or analysis of conceptual distinctions between “public” and “private” raises unavoidable political questions. My aims in this book are to provide a systematic structure for framing such questions and then to draw out key implications for future global policymaking.
Whether they assign priority to groups or individuals, political questions center on assessments of risk, on struggles to prevent disasters, and on the management of emergencies when such disasters nevertheless occur. Evolving practices and metaphors of insurance shed useful light on the search for answers. It is no coincidence that they first arose early in the 250-year struggle between the ideologies of nationalism and liberalism in the shaping of our current global economic order.
The Diversity of Risks in a System Both Integrating and Fragmenting
Social and political reactions to essentially liberal constructions of insurance, both in theory and in practice, include acquiescence, criticism, and resistance. Before we consider them, let’s look at how and why insurance practices and insurance metaphors have arisen in the search for ideas and instruments to imagine and manage risks that transcend political boundaries and then to sustainably distribute the burdens and responsibilities of living with them. In doing so, we must explore their imperfections and ask if more promising alternatives might be feasible in a world that is simultaneously integrating and fragmenting.
Many types of risks actually span political frontiers. Over time, their management has come to be delegated to conventional insurance markets. Some, like disaster risks associated with hurricanes and other natural events, have lately evoked innovations involving international capital markets. In this book, I typically label such risks “cross-national” or “cross-border.”
Beyond this category in much contemporary research, the terms global and systemic are often used interchangeably. This is a common source of confusion. “Systemic risk” refers specifically to the chance that a failure of one entity, such as a bank, firm, or municipality, will cascade to other entities it is connected to and cause the collapse of an entire industry, market, or society. In practice, the power to prevent such cascading failure has sometimes rested entirely within local or national boundaries. US authorities alone, for example, successfully managed systemic risk in 1984 by seizing Continental Illinois National Bank and Trust and preventing the collapse of markets that were just beginning to become intricately integrated across national borders. As we shall see later, in 2008 similar systemic risks were again managed, but only by the governments of the United States and other key nation-states acting collaboratively.
By way of distinction, global risks, like the risks associated with climate change, biodiversity loss, pandemics, and generative artificial intelligence, may be amenable to a degree of management or governance through insurance-like instruments. But the complexity of such risks and the fundamental uncertainty surrounding them suggests that they ultimately require intensely collaborative interventions resting on innovative forms of public authority spanning the planet – if they’re to be governed at all.
Risk and Uncertainty in Contemporary Society
Scholarly studies focusing on concepts of risk and uncertainty are legion, and we will encounter quite a few in this book. An award-winning study by the historian Jonathan Levy, for example, sees political struggles over bearing risk and its rewards as central to the history of capitalism in the United States.Footnote 5 Peter Katzenstein has sought to reorient the study of world politics away from predictable models of risk toward a more open-ended embrace of uncertainty.Footnote 6 Economists John Kay and Mervyn King similarly entreat investors and decision makers to pull back on commonplace notions that quantitative indicators of risk actually make the world more manageable.Footnote 7 Along this line, different social scientists have focused on proliferating sources of risk and uncertainty that defy containment within bounded markets or polities.
The sociologist Ulrich Beck, for example, placed a rather undifferentiated concept of global risks at the center of his field-opening studies. (I delve more deeply into that work later.) Like others we’ll encounter, he drew much needed attention to the social implications of revolutionary technological developments, from the harnessing of nuclear fission to the expansion of discrete production systems releasing massive volumes of greenhouse gases into an atmosphere shared by all of humanity.Footnote 8 If he were still alive, he would likely put recent advances in artificial intelligence into the same category.
The dominant ways that people in the modern world conceive of and speak about such risks evoke core elements of a widely shared social imaginary as well as an intuitive sense of the structure of relations of power. The undeniable background condition of such impressions is uncertainty. What seems indisputable today is that perceptions of global risks in this context foster a vague but enveloping sense of dread. Although he often elided the distinction between risk and uncertainty, Beck and his sometime colleague Anthony Giddens sought to harness both notions to push all societies in the direction of self-interested collaboration, if only to preempt increasingly probable catastrophes. They hoped that emancipatory catastrophism would encourage global solidarity. As Beck ultimately concluded, “In a world of global crises and dangers produced by civilization, the old differentiations between internal and external, national and international, us and them, lose their validity and a new cosmopolitan realism becomes essential.”Footnote 9
Compelling as it is at first glance, such thinking underestimates the possibility that it will induce not progressive social development but excessive caution and even stultifying precautionary paralysis. For example, it seems to downplay the stimulus to innovation that a dominant stream within liberal thought associates with embracing both risk and uncertainty.Footnote 10 It also fails to take fully into account the need to disentangle the causes and effects of coincident crises, such as climate change and biodiversity loss.Footnote 11
Remaining attentive to the complex political effects of uncertainty, my own sensibility is more pragmatic. In the fields of international relations and political economy, related debates framing the chapters that follow center on the contest between liberal aspirations and perennial struggles over power in an uncertain world.Footnote 12 Optimism can be justified, but only after clear-eyed observation and analysis of feasible collaborative responses to the daunting global challenges our species now confronts.
I examine the ground on which policies and instruments are actually developing as their essential objectives become clearer and the absence of action becomes ever less defensible. That ground was clearly exposed during the first half of the twentieth century by collaborative innovations informed by the history and logic of insurance. Robust intergovernmental institutions grew from earlier political experiments inspired essentially by confederal principles justifying only minimal burden-sharing obligations. I explore the contemporary limits of those principles and the possibilities of transcending them. Attention to actual experience across diverse issue areas, I conclude, indicates that serious political transformation is possible if we can harness the pragmatic intuitions and compromises underpinning more ambitious insurance-like experiments not only in the management of shared risks but also in collaborative government aimed at limiting sources of uncertainty.
The pioneering work of political scientist James Rosenau began sketching the same terrain by developing an insight often attributed to Herbert Simon. Late in his life, Rosenau, a leading analyst of the domestic politics of foreign policy, cast his gaze at the level of the system as a whole. He was among the first to introduce complexity theory to our fields as he described a world that was simultaneously integrating and fragmenting. On his optimistic days, he imagined that world being governed as a complex adaptive system “without government.”Footnote 13 Along this line, he began thinking plausibly, realistically, and hopefully about the fluid contemporary meaning of state sovereignty and about the kinds of political arrangements that might come next as our species confronted the ambiguities of managing risk and coping with uncertainty in open and unstable physical, social, and political environments.Footnote 14
Like Rosenau, I think such arrangements in practice can be understood as experiments aimed at shifting and sharing burdens posed by risks that cannot be contained within national boundaries. In principle, they can reconstitute structures of government. Such a reconstitution, I conclude, is not only possible but likely when existing governments harness in innovative ways what the distinguished economic historian Harold James called the “insuring instinct.”Footnote 15
As we shall see, only a few centuries ago that instinct enveloped and transcended the psychological roles previously played in earlier human societies by luck, chance, destiny, and blind faith. It presaged the collective reimagining of what came to be widely understood as risks-to-be-managed through political and market mechanisms.Footnote 16 A remarkable and rapid process of social and political transformation ensued, even if fundamental uncertainties were never really displaced and, indeed, deepened over time. It is no coincidence that insurance markets and the modern state evolved simultaneously as institutions aimed at providing protection. It is also no coincidence that both are adapting as demands for protection change in character as well as scope.
Contemporary transformations of both state and market involve the development of new forms of political delegation. In a world reshaped by the vast expansion of global financial markets, for example, relationships among private insurers, reinsurers, and governmental actors have also changed. Such relationships reallocate values across time and space and constitute novel structures of preventive governance. More generally, they encourage anticipatory collaboration and challenge authorities with the capacity to decide and to build technical networks with the objective of preempting crises and facilitating resilience when disasters nevertheless occur.Footnote 17
The process of building collaborative global governing structures in a rapidly changing world continues to feature instrumental experiments to manage the ever-more-complicated distribution of the benefits and costs of managing expansive risks. Not surprisingly, contestation over the common good deepens along the way. While one systemic crisis after another spawns partially constructive reactions from the political authorities actually underpinning contemporary markets, their own capacities for autonomous action are attenuated.Footnote 18 At the same time, slow-moving planetary threats with irreversible effects grow, and risk becomes more difficult to differentiate from uncertainty just as the systemic distribution of state power is becoming more dispersed.
Fundamental political questions are beginning to focus not only on whether leading states and the markets they influence can cope but also on whether others will follow. As in the past, crises, in and beyond markets, provide opportunities to adapt governing capacities and justify new governing instruments.Footnote 19 Ever since they first appeared, insurance practices and metaphors have helped construct instruments and justify ideas to manage crises. They have opened pathways to the transformation of essential governing structures. We are living in another such moment.
Overview of This Book
Chapter 2 recounts the rise of the concept of risk and the early modern practice of insurance as it evolved from communal attempts, mainly in Europe between the seventeenth and nineteenth centuries, to discipline and commodify earlier forms of speculation. The processes eventually involved in risk assessment, pooling, and diversification were neither inevitable nor entirely capricious. Their evolution was complicated and indeterminate, and the chapter explores how accommodating structures of government developed in tandem.
It also digs into the rapidly expanding and increasingly complicated scholarship focused on the governance of risk and uncertainty as considerations of their consequences migrate over time and geographic space. Despite unavoidable technicalities, it notes how leading business firms around the world, not just in the insurance industry, came to base their strategies on sophisticated models that take for granted commonplace, even simplistic, notions of risk. Those strategies are nevertheless dynamic, and they shape larger structures within which firms and people interact. As collective impressions of risk and practices aimed at managing them become more complex, or as a shared sense of uncertainty rises, structural change can be gradual or abrupt. To employ the images made famous in Donald Mackenzie’s study of finance theory, the models behind firm strategies are engines, not cameras. Sociologists are surely right that we need to understand how such models drive change in vital social and political structures.Footnote 20
Chapter 3 sets out a conceptual framework for thinking systematically about old and new risks perceived to have a global dimension. It uses the complexity of those worldwide risks and the timeline of the disasters they portend to build the analytical scaffolding for understanding our current dynamic governing practices evolving to manage them in their diversity. It also sets out the scope conditions both for feasible insurance practices and for the utility of insurance metaphors. As risk complexity deepens and time horizons lengthen, the potential role of market mechanisms shrink, and collaborative government becomes necessary. The three chapters that follow set out illustrative cases of that evolving process.
The first case focuses on relatively simple risks and increasingly cross-border insurance and reinsurance markets. The second explores fascinating and intricate collective instruments engaging both private and public actors that have aimed over the past seven decades to insure more complex risks associated with the commercial production of nuclear energy. The third case examines the risks and sources of uncertainty associated with globalizing finance, which persistently call for innovative political instruments for threat assessment, disaster prevention, and emergency management.
The final chapters survey even more complex and long-term dilemmas that are top of mind these days when contemplating phenomena such as climate change, biodiversity loss, and microbial pandemics. Close observers commonly see them posing not risks but existential threats. To be sure, the domestic and international politics surrounding the assignment and acceptance of liability here are excruciatingly contentious. At the same time, the crucial task of designing effective, legitimate, and sustainable global governing instruments may still be inspired by metaphors drawn from the history of insurance and reinsurance.
The insuring instinct remains irrepressible. The history and contemporary promise of insurance and reinsurance structures and networks do not promise near-term tranquility or infinite expansibility. Nor do the language and logic of insurance define ultimate solutions to all problems requiring collective action. Especially in an era of dramatic technological change, heightened political instability, and the constant possibility of military conflict, uncertainty remains undeniable. History nevertheless calls to mind pragmatic engagements with the principles and practices of insurance in similarly difficult circumstances. Political experiments aimed at harnessing the benefits of integration without entirely sacrificing the values of autonomy have sometimes developed. When they have succeeded. as in the formation of stable federations, they have pushed forward prior limits on managing risks and coping with uncertainty. Such experiments sustain the hope that human ingenuity has not yet reached its limit.
