19 October 2016

The EU: killing its citizens and destroying rainforests

Craig Sams writes, in a letter to the New Scientist:
... In 1993 my company Whole Earth Foods launched a trans-fat-free spread, branded Superspread. Other manufacturers objected to our advertising: the Advertising Standards Authority banned it, effectively killing our product. We presented the ASA with the medical evidence, which was abundant 23 years ago. They accepted its validity but said we violated their code because we were “appealing to fear” by suggesting trans fats could damage your heart health. When Denmark banned trans fats the food industry replaced them with coconut and palm fats, and the EU was faced with a rapeseed oil glut, as that was the oil that was mostly hydrogenated. So the Renewable Transport Fuels Obligation required rapeseed oil to be blended with diesel. That requirement overshot. So we are now deforesting Indonesia to grow palm oil to make up the quota for vegetable oil in diesel. If there is anything to be learned from this tragic fiasco that continues to cost tens of thousands of lives annually and blights many more with ill health, it is that agricultural policy should never trump health policy. The tragic fiasco of trans fats, letter to the 'New Scientist', 16 October
In short, the European Union couldn't care less about the health of its subjects, and helps destroy Indonesian rainforests. It keeps on doing it. And there are no mechanisms in place either to stop the insanity, nor to make the decision makers accountable, nor even to identify the decision makers, still less to get rid of them. That's why I voted for Brexit, and hope that this whole tragic experiment, which began so nobly, gets dragged behind the barn and killed with an ax.

17 October 2016

How not to address climate change

How not to address climate change:

Government Subsidies to Fossil Fuels are 22 Times Larger than Government Support to Adaptation on Climate Change

That's the header to article by Laura Merrill, put online on 2 June by the Global Subsidies Initiative. And here's my suggestion.

14 October 2016

Make democracy work: target outcomes directly

George Monbiot writes about the weaknesses of democracy. He ends on a vague note but does ask: 'What if democracy doesn’t work? What if it never has and never will?' To which I would reply with another question: 'how do we know if it's working?'

I think there are two elements to an answer. One: democracy is working when people have buy-in to the way society runs. Two: it's working when things are generally getting better for ordinary people. The two go hand-in-hand. Buy-in is important, because unanimity over virtually anything in any large society is impossible and if we have been consulted we are more likely to go along with what wider society decides, even if it's not what we would choose. 

We do occasionally consult ordinary people over certain decisions. But - and this is where the other essential element comes in - these decisions are rarely expressed in terms of outcomes. Instead we are asked questions such as: which political party do you want to form the government? Whom do you want to be President?
Prospective politicians say what they hope to achieve; we vote for them on the basis of what they say and on factors such as their looks, delivery, public image, or their experience in or out of office. These attributes might tell us something about candidates' intentions but they tell us very little about the impact they will actually have on the things that matter to us.

Which is why I think policy should focus on broad, meaningful outcomes. Things like better health, a cleaner environment or, at a global level, world peace. We know something about how to achieve the first two of those examples: essentially, throw more money at them. But neither we nor any politician has a clue about how to achieve them with maximum efficiency. And world peace? We are completely clueless on that one.

Social Policy Bonds could be the answer. Instead of wasting time with political parties, public images, or simplistic and inescapably inadequate (at best) ideologies, we could instead move toward a policymaking system that targets outcomes directly. A bond regime would do that, and would inject the market's incentives and efficiencies into the every process needed to achieve our social and environmental goals. Because the bonds would be tradable, we could target goals that will require many approaches and that are inevitably going to take many years to achieve - such as, yes, world peace. Bondholders (or the people they contract) would have incentives to explore numerous approaches, to boost the successful ones and - something that seldom happens in the public sector nowadays - terminate the failures.

Our current policymaking systems fail because they don't engage the wider public. Buy-in is a lost cause. Political processes are arcane, legalistic, complex and time-consuming. The only people who follow it closely are those who have a strong financial interest in doing so; mainly big corporations, lobbyists and think-tanks. Social Policy Bonds could both widen public participation and achieve society's goals more efficiently. Then we'd know that democracy is working.

09 October 2016

Why I voted for Brexit

Some colleagues and friends were surprised by my voting for Britain to leave the European Union. I have tried to explain my reasons to them but, invariably, disappointingly, revealingly, they choose to ignore my arguments. It's not lack of interest in the topic: it's that they know they're right. I agree with them that the European project began as a noble, well-intentioned and extremely successful way of anchoring democracy and helping keep the peace in Europe. I also value its helping to free trade within Europe and its promoting democracy in eastern Europe. Where we differ is that they think the EU retains its noble character and continues to be a force for good. I disagree and these are my reasons why.

First, as I wrote here and here: the persistence of the Common Agricultural Policy, in the face of four decades of its environmental depredations, its raising of food prices for European families (by around 17%), and its subsidies to the extremely wealthy:
Greenpeace analysed the top recipients of CAP subsidies in the UK for the first time. Some 16 of the top 100 are owned or controlled by individuals or families who feature on the 2016 [UK's] Sunday Times rich list, receiving a total of £10.6m last year in “single payment scheme” subsidies alone, and £13.4m in total farm subsidies.... The Queen, aristocrats and Saudi prince among recipients of EU farm subsidies, the 'Guardian', 29 September
Worse than all this is the CAP's crippling of trade opportunities for Africa, with the tragic results that we are seeing in the Mediterranean. Some would say that the EU's refugee crisis is largely self-inflicted. Bad karma.

Now the EU, again led by France, wants to do to Latin America what it did to Africa:
But 13 European countries, led by France, want to scupper the talks [about a trade pact] because their farmers are scared of Mercosur [a trading bloc whose core countries are Brazil, Argentina, Paraguay and Uruguay], the world’s most competitive producer of grains and meat. They forced the EU to withdraw, at the last minute, proposed tariffs cuts on beef. A trade pact between the blocks would make shopping cheaper for 750m consumers. Mercosur's missed boat, the 'Economist', 14 May
This is no small matter: the Common Agricultural Policy, still swallows up 40 percent of the EU budget. The EU has had 40 years to solve the CAP problem, but it has failed. The persistence of the CAP, in the face of all the evidence of its destructive insanity shows very clearly that the EU is systemically incapable of reforming itself.

The EU's Common Fisheries Policy is another disaster, also with grave environmental implications.
The EU, meaning Brussels bureaucrats, knows the CFP is crazy. Top European Commission officials say the current quota system is indefensible. The problem is that certain key national governments, eg, France, Italy, Greece, Malta, Poland (it is a long list), are adamantly opposed to any reforms that would lead to wholesale restructuring and consolidation of fishing fleets. Britain and the EU, Bagehot's notebook, 13 January 2011
Again, the real problem is not simply that the CFP is deranged, corrupt and environmentally disastrous. It is that, even knowing this and having known it for decades, the decision-makers at the EU won't reform it. Worst of all we, the common people, cannot even identify who's making these decisions; still less boot them out of office.

Nor are the Eurocrats addressing the problems caused by a common currency - including high unemployment in southern Europe - or immigration.

I regard these two statements as axiomatic:
  • Big government is remote government, and 
  • People in power always overplay their hand. No exceptions. 
The EU has morphed into an unaccountable, anti-democratic, opaque, self-interested, coercive body. Its structure and activities are creating precisely those worst forms of nationalism that it was supposed to eradicate. The consequences of this threaten to negate all the undoubted good that European integration has brought about.

Divorce is always painful but sometimes it's necessary. Relationships, however glorious their beginning, frequently turn sour or abusive. Brexit might just be the shock that stimulates the EU to reform itself. I hope that happens, but I wouldn't bet on it.

04 October 2016

Limitations of the Payment by Results model

An interesting comment from Mr Toby Lowe on an article extolling the benefits of Payment by Results (PbR):
[I]n order for PbR to work, 'results' must be directly attributable to particular interventions .... In complex systems, results are never attributable to particular interventions, and so PbR cannot work. This is not a technical issue about measures, it is an inescapable consequence of the way that complex systems operate. Toby Lowe, commenting on The next step in payment by results by Rodney Schwartz, 28 September
You might think that this - valid - point undermines the Social Policy Bond concept. But I would disagree. PbR as practised today differs from Social Policy Bonds in that the bodies that are paid to perform better are (1) conventionally structured, and (2) generally known in advance.

Both these features multiply the opportunities for gaming and manipulation. Bodies that are paid by results under current regimes are service providers that have a persistent composition and identity, and mainly for that reason are committed to a fairly limited range of activities. The 'results' for which these bodies are paid, though termed 'outcomes' are therefore quite narrow. So a body can, for instance, game the PbR scheme by simply exporting a targeted problem to areas not covered by that scheme. More importantly, the very scope of the 'outcomes' targeted is greatly restricted in time and space by the constraints imposed by the structures and activities of existing organizations. I belive that to tackle broad social problems we need a new type of organization; one of protean structure and composition, so that at each point along the outcome-achieving path it forms a coalition of the bodies that will be most efficient at solving the targeted problem. Social Policy Bonds would bring about such organizations.

What about the difficulty of attributing results to interventions in complex societies? Again, I agree with Mr Lowe. But under a Social Policy Bond regime, there would rarely be a need for direct, deliberate (and manipulable) attribution. Take for example the goal of targeting a nation's health for sustained improvement over, say, thirty years, as measured by a combination of such indicators as longevity, infant mortality and quality adjusted life years. Under a Social Policy Bond regime, such Health Bonds would be valued not by some cash-doling bureaucracy, but by the market for the bonds. Any activities undertaken by holders of the bonds would raise the value of their bonds only if they, in the market's view, make the early achievement of society's health goal more likely. Bondholders can undertake, or finance, a vast range of health-improving activities, some of which might benefit from a PbR approach, others of which will not (and might even conflict with one). It will be for motivated bondholders to decide. Such broad outcomes, undertaken by bodies that come and go during the lifetime of the bonds and overseen by a motivated market, cannot be manipulated. The complexity of the interventions and their effects is matched by the complexity of the bondholders', their coalition and the vast range of approaches that they will try in their efforts to achieve the targeted goal. Direct attribution of payment to successful interventions is no more necessary in such a long-term, broad project than it is to employees of a hospital.

Most of the PbR schemes that are being talked about involve Social Impact Bonds (also known as Payment for Success bonds), which are non-tradeable versions of Social Policy Bonds. I have discussed the limitations of such bonds, and my ambivalence toward them, here and here and in many posts in this blog: here and here, for examples, or search this blog for Social Impact Bonds. Long ago I did a post on New Public Management, which is also relevant.

27 September 2016

Policymaking is incomprehensible to outsiders

Lee Drutman writes:
The organizations that are most likely to be the winners in the modern policymaking process are those that:
•  are able to lobby on multiple issues over multiple years;
•  can pay the increasingly high price of entry necessary for effective participation; and
•  gain from policy complexity, both because it gives them more opportunities to insert narrow provisions with limited public scrutiny and because they are more capable of supplying expertise to overworked staffers.
More and more, the only organizations that are capable of marshaling the resources to do all these effectively are business organizations,—both individual companies and the associations that represent them. The business of America is lobbying, Lee Drutman, 2016
I've long railed against the increased complexity of policymaking in western countries. It is now too complicated for ordinary people to follow. So, on the one hand we have government and big business in a mutually enabling relationship, and on the other we have ordinary people and small enterprises. The gap is widening and so we see rising and potentially dangerous levels of alienation and cynicism.

Social Policy Bonds could narrow that gap. Ordinary people understand broad national or global goals, such as better health, a cleaner environment, or world peace. Governments could target these goals by issuing Social Policy Bonds. The current system is arcane, long-winded and incomprehensible to outsiders - presumably by accident rather than design. It's focussed on process and decisions about funding and organizational composition and structure. It rewards activity, rather than outcomes.

Achieving goals such as better health or world peace would in most cases mean that governments relinquish control over those organizations that are currently charged with achieving these goals. Governments, naturally, are not keen to do so willingly, so perhaps the first issuers of Social Policy Bonds will be philanthropists, non-governmental organizations or members of the public: or some coalition of all three, who would put up the funds necessary to redeem the bonds. I discuss the transition to a Social Policy Bond regime here and in chapter 4 of my book.

24 September 2016

Polluter Pays Principle: Social Policy Bonds as a meta-system

The Polluter Pays Principle (PPP) says simply that those who pollute the environment must pay for the damage they have caused. The idea originated in the 1970s when members of OECD countries sought a means by which pollution control costs would be financed by the polluters rather than the public in general. Its principal defect is that it does not guarantee efficiency of pollution control and environmental protection.

The PPP assigns environmental rights to those who benefit from environmental improvement, so polluters pay. The Beneficiary Pays Principle (BPP), on the other hand, says that whoever benefits from a cleaner environment should bear the costs of pollution control. 

Especially for diffuse sources of pollution, it's not always obvious who should pay: the polluter or the beneficiary. One of the virtues of a Social Policy Bond regime is that it would leave it to holders of Environmental Policy Bonds to decide how to allocate the costs of a cleanup. They would do so not according to the the subjective and possibly divisive criterion of 'fairness', but on the basis of which principle will be more efficient at ensuring the maximum reduction in pollution per dollar spent. 
Social Policy Bonds are versatile in that respect; they also scale up. So: assume that we want to target global levels of air pollutants, according to their lethality. A global fund, backed by contributions from governments and possibly non-governmental organization, could be set up to reward bondholders once a targeted reduction in global air pollution levels has been achieved and sustained. No single approach - PPP or BPP or any other - will work best over the entire planet for a period of (say) decades. Instead, a mosaic of approaches, varying with time and space, will maximise the pollution reduction per dollar spent by our global fund. There will be some circumstances, especially when polluters can be clearly identified, where the PPP will work best. But even under very similar circumstances, politics might make that approach unacceptable.

The crucial points are that the Social Policy Bond principle:
  1. is versatile enough to encompass both the PPP and the BPP, or any combination; and
  2. maximises efficiency, expressed as maximum reduction in pollution per dollar spent.
Social Policy Bonds are, then, a meta-system. They do not dictate how goals shall be achieved, nor who shall achieve them. They do require some source of funding, but raising funds for widely agreed environmental outcomes is likely to be less contentious than the current system, whereby contributors and beneficiaries have to be identified in advance of projects that for the most part reward activity rather than success.

21 September 2016

Industry concentration discredits market forces

The 'Economist' writes about the direction in which our economies appear to be heading: briefly, the concentration of business into fewer big companies:
The share of GDP generated by America’s 100 biggest companies rose from about 33% in 1994 to 46% in 2013. The five largest banks account for 45% of banking assets, up from 25% in 2000. In the home of the entrepreneur, the number of startups is lower than it has been at any time since the 1970s. More firms are dying than being born. A giant problem, the 'Economist', 17 September
The dangers of such concentration extend beyond the 'too big to fail' paradigm that in the past few years has brought about a massive transfer of wealth from the poor and middle class to banks and wealthy investors. It's the usual scenario: government and big business on the one side, ordinary people and small enterprises on the other. I have two objections to increasing industry concentration: first, that it widens the gap between governments and the people they are supposed to represent. This results in a public disengaged from policymaking, which can lead to flawed policymaking or, just as bad, the creation of otherwise good policies that have no buy-in.

My other objection is simply that industry concentration discredits our economic systems in general and markets in particular. The 'Economist' identifies technology and globalisation as two of its causes. But, as the journal points out, some of the consolidation of business represents the triumph of the anti-market approach. Big business is adept at taking advantage of and manipulating trade rules and other important parts of the regulatory environment to stifle competition:
Regulation inevitably imposes a disproportionate burden on smaller companies because compliance has a high fixed cost. ... The complexity of the American system also serves to penalise small firms. The country’s tax code runs to more than 3.4m words. The Dodd-Frank bill was 2,319 pages long. Big organisations can afford to employ experts who can work their way through these mountains of legislation; indeed, Dodd-Frank was quickly dubbed the “Lawyers’ and Consultants’ Full-Employment act”. General Electric has 900 people working in its tax division. Why giants thrive, the 'Economist', 17 September
Society needs some guidance. Not, heaven forbid, central planning, but some sense of direction over where both market and anti-market forces are taking us. We're now on a path that is taking western countries into a world of entrenched wealth and class differences and widespread, growing alienation. It's not a healthy outlook.

Which is where Social Policy Bonds could enter the picture. A bond regime wouldn't randomly allow influential players to throw their weight around with the government (if we're lucky) coming in to deal with the adverse consequences or (if we're unlucky) being co-opted to join with big business in stifling competition and extracting funds from taxpayers. In contrast, Social Policy Bonds would reward people who achieve universally wished for social and environmental outcomes. They would do so in ways that inject the market's incentives and efficiencies into the achievement of social goals. The skills and energies of, for instance, those 900 tax experts working for General Electric, would be channelled into socially useful projects. Incentives matter and we need to give big business and its pals in government incentives to work for all citizens, and not just for their own narrow short-term interests. 

15 September 2016

New world disorder

Walter Russel Mead writes about the world we actually live in:
The problem isn’t that the goals of the liberal internationalists are bad goals. They are excellent goals: no war, the spread of democracy and human rights, limits on weapons of mass destruction, strong institutions. The world they dream of is a much better world than the one we have now. And the liberal internationalists are also right that the world can’t afford to go on in the old way. Given 21st century technology and the vulnerability of our large urban populations to anything that disrupts the intricate networks on which we all depend, old-fashioned great-power politics with its precarious balance of power shored up by recurring wars is a recipe for utter disaster and, maybe, the annihilation of the human race. But the difficulty that over and over sinks hopeful efforts by liberal internationalists is this: Liberal internationalist methods won’t achieve liberal internationalist goals. It’s Kim Jong-un’s World; We’re Just Living In It, Walter Russell Mead, 'The American interest', 9 September (my emphasis)
It's not an optimistic view, but it's one that I mostly share. A world in which North Korea and other small, poor countries acquire nuclear weapons is not going to be safe for the liberal values under which most of us, mainly in the west, are lucky enough to live. We can see the pessimistic scenarios as a clash of civilizations, or a clash of values, or shifts in geopolitical power, but I choose to see it as a problem of perverse incentives.

To be simplistic, but not wholly inaccurate: for most of the people in politics, more power is an end in itself. Solution of social problems can be a means to that end but, for example, whipping up nationalistic fervour at the expense of improving your citizens' well being can work just as well, with Kim Jong-un being today's exemplar par excellence. Our political systems reward the acquisition of power and on the international stage as currently set up is strongly correlated with the acquisition of nuclear weapons.

Social Policy Bonds can drastically re-orientate the operating incentives and reward the proliferation not of nuclear weapons but of what Mr Russell Mead calls liberal internationalist values. I would assign a high priority to ensuring sustained nuclear peace, but we could also strive for 'the spread of democracy and human rights'. Social Policy Bonds with sufficient backing and a long-term focus could give incentives for people to focus on achieving these goals. The current system will always be vulnerable to people like Kim Jong-un (or worse) because it does not encourage people to find ways of stopping those who are psychopathically hungry for power from ascending into influential positions. There's very little upside to seeking to depose Mr Kim. We need to change that. Nuclear Peace Bonds could help to do this. Mr Russell Mead continues his article saying that '[p]ower, not communiqu├ęs, is what makes the world go round.' But money correlates strongly with power. And while it's nice that our cats and dogs have a huge range of foods to choose from, I'd like to think that, given the choice, they'd rather see some of that human ingenuity channelled into making the world safe from nuclear apocalypse. 
The first cross-border Social Impact Bond has been issued. I have no involvement in this project, and I have written about my reservations about SIBs here and here. However, I have always hoped that the bonds would be used on a level higher than the national level, as in my post above. It might be that these first cross-border SIBs are a necessary first step toward internationally-backed tradeable Social Policy Bonds. 

08 September 2016

Health: better late than never

The Economist looks at the UK's National Health Service
A better model [than the NHS]would be to give health providers a budget based on the population they serve, and pay them according to their ability to meet targets of better public health. This would increase the incentives to use new technology that would give patients more responsibility for their own health. If private outfits can do this with a profit margin to spare, good for them. Bitter Pills, the 'Economist', dated 10 September
Quite right. The current system is staffed by dedicated, well-intentioned, hard-working people, but its goals, explicit or implicit, have little to do with raising the general health of the population. In this the NHS is like many other social services: it began at a time when (1) relationships between cause and effect were easier to identify and (2) resources and expectations were constrained, so that only the most urgent and obvious challenges could be met. Times have changed. Society is more complex, time lags more important, and expectations are higher.

Targeting broad, general, health outcomes, and injecting market incentives into doing so, would greatly improve society's well being, as the Economist (belatedly), suggests. My 2013 essay on applying the Social Policy Bond principle to health goes into more detail.