27 September 2008

Conspiracy to distract - or just too much information?

Peter W Galbraith writes:
John McCain proclaims his goal [in Iraq]to be victory and says we are now winning in Iraq .... He considers victory to be an Iraq that is "a democratic ally." George W. Bush has defined victory as a unified, democratic, and stable Iraq. Neither man explained how he will transform Iraq's ruling theocrats into democrats, diminish Iran's vast influence in Baghdad, or reconcile Kurds and Sunnis to Iraq's new order. Remarkably, neither the Democrats nor the press has challenged them to do so. Is This a 'Victory'?
Is there too much information about? Do we miss the forest for the trees? It's easier to believe not so much that there is a conspiracy to keep us focused on the celebrities, sport or petty politics, but that, being ceaselessly bombarded with information and entertainment, we lose perspective. That goes not only for ourselves as citizens and voters, but perhaps also for the decision makers and the media. The Democrats and the press have little incentive to focus on what's important, because that's not we, as voters, are urging them to do, even supposing they do have the capacity. With our shrinking attention spans, and the sheer volume of information and entertainment available, we tend to focus on the immediate, the visual, and, often, the trivial. Disasters that are too slow moving or too complex for the visual media - the unravelling of our financial system, nuclear proliferation, for instance - cannot compete with the proverbial skate-boarding rhinoceros or the religious beliefs of would-be political leaders.

One way a Social Policy Bond regime would be an improvement over the current system is that it would focus our resources, if not our constant attention, on what is important. We can all understand outcomes, even if we don't know how to reach them. Indeed, we cannot be expected to know how to achieve them, because that often takes a long time and is rarely amenable to a single, simple, predictable approach. Experimentation, the exploration of alternatives, the termination of failed methods: all these are essential to finding the best solutions to our social and environmental problems. Under a bond regime, we might still follow trivial issues, but most of our scarce resources would be channeled into achieving social goals. Right from the outset, and at every time thereafter until they are achieved, we'd know exactly what those goals are.

24 September 2008

The market: a means not an end

Recent research showed that of the 121 fisheries using Individual Transferable Quotas 14% were over-fished to the point of exhaustion. By contrast, those fisheries without ITQs suffered twice the rate of collapse (28%). David Bollier takes up the story:
The New York Times faithfully trumpeted the news: “Privately Owned Fisheries May Help Shore Up Stocks.” But are ITQs truly effective because they rely upon a “market-based system”? Or do they work because they set overall fishing limits, a commons-based solution?
Mr Bollier was pointed to research by Seth Macinko and Daniel W. Bromley, who have written:
All the talk about rights-based fishing and [ITQs] is a red herring that throws all of us off the track of what is important. [ITQs] do not work because they are rights, or because they are property rights…. [They] work because they involve an assigned catch, as opposed to having catch be determined competitively.
This chimes with my belief that the market is only a means to various ends. They can be effective and efficient, but it when it comes to crucial social and environmental goals, markets must be subordinated to specified outcomes. Markets allocate resources efficiently; but that's a fairly limited vision. If we are to use their formidable efficiencies to solve social and environmental problems, they need to be constrained by the political process. A Social Policy Bond regime would do that: specific outcomes would be debated and agreed. Social Policy Bonds would be issued that targeted these goals. Until the goals were achieved, the bonds would not be redeemed. Their value would be inextricably dependent on how well investors achieve social goals.

22 September 2008

Government should help people, not sectors

I see the US bailout of its financial sector as another, and probably the most disastrous, in the long line of perverse subsidies that have done so much to waste scarce resources, divert taxpayer and consumer funds from the poor to the rich, and devastate the social and physical environment. From agriculture to fisheries, road transport to energy, these perverse subsidies invariably favour the large and global at the expense of the small and local, and corporations and abstract economic variables at the expense of ordinary people.

How does it come about that government ends up subsidising the forces that have done so much to make live miserable for natural persons? The motivations start out as well intended, and even apparently necessary. After the second world war, food availability was critical and governments (mistakenly) identified it with local food production. So government got into the business of intervention; imposing trade barriers, providing open-ended guarantees to farmers, and all the rest. That logic led us to structural surpluses to be dumped onto the third world, undermining developing countries' own food production. It also bid up the price of farmland at home, intensifying agriculture at great cost to the environment and animal welfare, and making it difficult for ordinary people to enter farming, unless they were lucky enough to inherit farmland. Worse, the bidding up of asset values made it very difficult for government to contemplate withdrawing its support. Like a drug habit, subsidies were easy to start, difficult to end. And of course, the subsidies created a whole new set of lobbyists whose entire raison d'etre is to oppose their withdrawal.

It's a similar story with the other sectors. Government intervenes for short-term but well-intentioned reasons. The sector becomes dependent on government for its survival, and ends up, in effect, a nationalised industry. When the sector is small, the financial burden is perhaps bearable, though it still represents a diversion of scarce resources from things that could be valuable - education, health care etc - into things that are worse than useless: overcapitalized farming and fishing, grotesque overinvestment in road transport and dependence on fossil fuels, for instance.

But the latest perverse subsidy - to the financial sector - is bigger than all of these. How it will play out is difficult to foresee. But it seems that institutions that were 'too big to fail' are to be replaced by even bigger institutions. And if the history of previous perverse subsidies is anything to go by, the US financial sector will become another ward of state for a long long time.

The root cause of this tragic misallocation of resources is the lack of clarity at the highest levels about what government is actually for. It's not there to prop up ailing sectors. It's not there to save particular corporations. And it's not there to bolster asset values or abstract economic variables like the rate of growth or GDP per capita. Government's purpose is to supply public goods and services, and beyond that to provide a basic minimum level of health, education and welfare for all. Once it starts trying to work out how to achieve these things it goes awry. Government is a centralized, top-down decisionmaking body. It does not and cannot do adaptation or diversity - and it is precisely adaptation and diversity that a vibrant, prosperous market economy needs. By its latest massive intervention and bailout it will throttle the US economy, institutionalise the corrupt incentives that led to the crisis in the first place, and deny disadvantaged Americans the help they need.

What the US Government should do is something it should have done a long time ago: realign its policy to serve its ordinary citizens. All its policies and all its interventions should be subordinated to the provision of public goods and services, the maintenance of a decent social and physical environment, and a safety net for all. Sadly, its bailout of the finance sector looks like taking it further away from those guiding principles.

19 September 2008

Thinking aloud

This week's financial turmoil speaks to me of a confusion in high places between policy ends and means, but I confess I have no easy answers. It shouldn't have got to this point, of course, where taxpayers prop up the financial system, rather than the other way round. Under a Social Policy Bond regime the health or otherwise of any single industry - financial, agricultural, manufacturing or whatever - would be subordinated to goals that are meaningful to ordinary people. In other words, instead of targeting the health of particular sectors ('means') we'd target objectives like literacy, physical and mental health, environmental well-being and the eradication of poverty. Government objectives are currently too obscure or too mutually conflicting, so that it's not in any people's interests to prevent this sort of catastrophe. Or rather, the oversight is done by government agencies, which, as in any other policy area, is not rewarded in line with its achievement. This is the same sort of oversight that has led to nuclear proliferation, for instance, with all its attendant, catastrophic, dangers.

A Social Policy Bond regime would reward the successful, sustained, avoidance of catastrophe, however caused. And it would inject market incentives into the maintenance and improvement of the standard of living of natural persons, rather than abstractions such as 'the financial sector'.

17 September 2008

Disaster Prevention Bonds

A new short article about applying the Social Policy Bond principle to the prevention of humanitarian disasters can be found here.

13 September 2008

Who decides what is a social problem?

In Australia today, there is a ‘social policy establishment’ that defines what ‘social problems’ are and prescribes the policies needed to resolve them. It includes academics working in universities and research institutes, welfare state professionals, political activists working in the nonprofit sector, social affairs journalists and commentators employed in the media, and bureaucrats employed in federal and state governments to research social problems and advise ministers on the best solutions. Most of these people believe similar things and think in similar ways. They were educated in the same kinds of degree courses, reading the same books and internalising the same basic theories and perspectives. They interact regularly at seminars and conferences where they reaffirm the core ideas they share. They referee each other’s writings, award each other research contracts, and evaluate each other’s job applications. They often live in the same neighbourhoods, send their children to the same schools, and read the same newspapers and periodicals. Collectively, they ‘know’ what our society is like, and they ‘know’ what needs to be done to improve it. Six social policy myths, Centre for Independent Studies

These authors argue that inequality, for instance, is labelled a social problem when, in fact, it isn't a real one. I think their argument is valid so far as it goes. I agree that the group doing the labelling is too small narrow and unrepresentative, and I believe that widening this group would be an end in itself. But the main difficulty is that even when there is a wide consensus over what constitutes a social (or environmental) problem, there is very little linkage between the resulting policy and the problem's solution. Somewhere along the way, policies become corrupted. They generate interest groups that are adept at manipulating government action in their favour. So instead of addressing poverty directly, with explicit, clear goals the achievement of which they will be held accountable, government policies end up subsidising the wealthy (the western world's agricultural policies, for instance) or the destruction of the environment (agriculture, fisheries and transport policy).

This grotesque disjunction between what people what government to do and what it actually does is not so much a result of an unrepresentative group of people deciding what are social problems (though that is a factor), but rather a result of the way in which government bodies operate. In particular, there is no link between their effectiveness in achieving social goals, and how much they contribute to that achievement. They have no incentives to do well, nor to terminate failed policies. Indeed, if they are extremely successful, they are likely to be disbanded.

A Social Policy Bond regime would inextricably link the solution of social problems to incentives. Markets would allocate funding. And it would be in investors' interest to end disastrous, or even merely inefficient, programmes - in stark contrast to the current system.

11 September 2008

More about car parking

I've posted before about the hidden costs of 'free' car parking, in relation to The High Cost of Free Parking by Donald Shoup. Writing about Australia in particular, Christian Seibert concludes:
Minimum parking regulations are costing Australia. A standard component of the urban planning frameworks of our towns and cities, they distort transport choices, skewing them away from walking, cycling, and public transport. They encourage the growth of sprawling cities that do not reflect their inhabitants’ true land-use preferences. They make housing more expensive, a particular concern given that housing affordability is a major issue in Australia. They harm those on low incomes, because they make basic goods, services, and housing more expensive for those who can least afford cars and so benefit least from parking. Finally, the parking lots built to meet minimum parking regulations blight our urban landscapes. There’s No Such Thing as a Free Parking Space
I agree. Minimum parking regulations are a typically well-intended, but ultimately destructive, over-reaction to a highly visible symptom. Policymakers can't see the forest for the trees and they confuse means with ends; the result is unpleasant and dangerous cities for everyone. Oh, and no solution to parking problems either. Social Policy Bonds would make us focus on objectives, rather than supposed means of getting there. And if there are no clear, agreed, unambiguous objectives, then we'd leave that policy area alone.

10 September 2008

A multitude of inventions

William D. Nordhaus writes:
The history of technology suggests that we should avoid trying to pick the winners in our search for revolutionary energy technologies. Radical invention is fundamentally unpredictable. Who could have predicted the nature of modern electronics, biotechnology, or communications a century ago? Similarly, it is a safe bet that we have only the foggiest ideas about the technologies that will save the globe from climate change a century hence. We should avoid thinking that we need a climate Manhattan Project to develop the key technology. It seems likely that new climate-friendly technologies will be the cumulative outcome of a multitude of inventions, many coming from small inventors, and originating in unrelated fields. 'The Question of Global Warming': An Exchange, 'New York Review of Books' [my emphasis]
Exactly. The key principle is that government can supply incentives for the endeavours of the inventors, but it cannot get too closely identified with them, because if it does, it won't terminate failed inventions. A Social Policy Bond regime could channel government incentives into finding solutions to the climate change problem, or other quantifiable problems. In that way, government could do what only government can do, and what it does best: articulating society's goals and raising the revenue required to achieve them. But through the Social Policy Bond mechanism it would let the market does what it does best: allocating scarce resources to meet our goals with maximum efficiency. For more about Social Policy Bonds and climate change, read this short paper about Climate Stability Bonds.

09 September 2008

The myth of the tragedy of the commons

Community management isn't an infallible way of protecting shared resources: some communities have mismanaged common resources, and some commons may have been overused to extinction. But no commons-based community has capitalism's built-in drive to put current profits ahead of the well-being of future generations. Ian Angus, The Myth of the Tragedy of the Commons

This is an important essay. The 'tragedy of the commons' myth has provided intellectual backing for the destruction of many of those things, difficult to define and more difficult still to quantify, that give life meaning. As Mr Angus points out, self-regulation by communities was the way in which the commons were looked after. The notion of communities itself is disappearing (largely, in my view, for the reasons identified by Robert Putnam: too much immigration and diversity). Could Social Policy Bonds help preserve the commons? One way might be to target those benefits that real, self-regulating communities generate, and reward people for achieving them - or for removing the obstacles to their achievement.

Take crime. Freedom to walk around cities at night is one of those difficult-to-quantify things that has been lost, at least in the countries I know best, New Zealand and the UK. Current efforts to reduce street crime seem to focus on better policing or increased surveillance; but perhaps more thinking out of the box is required. A Social Policy Bond rewarding safer streets (measured by, say, something like a sophisticated footfalls: crime ratio), could see the emergence of more subtle and less obvious approaches. These could include the provision of entertainment facilities for young potential robbers; better street lighting; deregulated taxis; subsidised public transport. Together an optimal combination of measures could bring about not just the benefits of the commons, but also the community that self-regulates.

There's little in our current political approach that enhances community. Friction between individuals is inevitable, but our current ways of dealing with it tend to encourage even greater mutual isolation, mirroring the institutional structures that government embodies and understands. Problems like those of crime or the preservation of scarce resources or the maintenance of other aspects of the commons are not always amenable to the straightforward, cause-and-effect, one-size-fits-all, top-down approach that government does best. A Social Policy Bond regime, targeting desirable, broad outcomes of the sort that the community evolved to provide, could be one answer to the question: how do we best preserve the commons?

05 September 2008

Fossil fuel subsidies: Norman Myers interview

From an interview with Norman Myers, environmental scientist:
it is absolutely urgent that we begin calculating the cost of climate change, and pass the cost on to the people who are doing the burning and emitting. .... The number of people who die each year in China because of air pollution is in the order of 400,000. That’s a huge mortality rate, and the cost should be built into the price of fossil fuels.
Why then do governments continue to subsidise fossil fuel extraction and use?
Well, it’s partially inertia. Fossil fuels play a very large role in our economies, and to phase them out would cause a lot of disruption. However, it will not be nearly as difficult as living in a world that has been ravaged by climate change. The other reason is the influence of lobbyists. In Washington, for example, there are large numbers of lobbyists who whisper in the ears of Congress in order to keep subsidies to fossil fuels in place. I believe that lobbyists are spending as much as US$250 million a month in the United States, much of which goes to lobbying on behalf of the fossil fuels.
As with agriculture, fisheries and road transport, fossil fuel subsidies have always been perverse. Right now they appear to be suicidal as well. They are the sort of policies that get implemented when nobody thinks about outcomes but only about the supposed means of reaching them. The tragedy is that they don't stop even when the evidence about their perversity is overwhelming, and has been overwhelming for decades.

A Social Policy Bond regime would be different. From the start it would clarify what are society's goals, and what, like, say, cheap, easy transport, are not necessarily goals at all. And then it would inextricably link rewards to the achievement of them. A government-backed bond regime wouldn't spend billions of taxpayer funds on corrupt, insane policies that are financial and environmental disasters. It would subordinate all projects, all activities, all institutions to the goals themselves. Apart from much greater efficiency, there would be a lot more transparency. Current institutional structures, both public and private sector, would be threatened, to the extent that they impede rather than assist achievement of social goals. Mr Myers is writing a book titled How Institutions Block Our Road to Sustainability. It should make interesting reading.