Small government: not an end in itself

Small government, despite what some thinktanks believe, is not an end in itself. I think the real issue is not so much the overall size of the state, but the distance between it and the voters. The rich countries in some ways have the worst of both worlds: big government that does (a) the wrong things and (b) some of the right things, badly. So the UK Government (for instance) maintains extravagant corporate welfare schemes, social engineering experiments, and high food prices, because that's what the French want. But it’s failing to do things like ensure safe streets and decent rates of basic literacy. If government were efficient, responsive and doing things that improved the welfare of real persons (rather than favoured corporations and lobby groups) and enjoyed popular support then I shouldn't see anything wrong with a big state. In other words, the issue is not the size of the state but what it does with the power and resources we give it. It all comes down to outcomes in the end. Small government may be a means towards that end, but it’s not an end in itself.

Humility

My blog is worth $0.00.
How much is your blog worth?

Extension transference

I’ve just started reading Beyond culture, by Edward T Hall, an anthropologist. The book is largely about ‘extension transference’; the process by which people misapply or are led by their ‘extensions’, which include language, tools and institutions. Bureaucracy, as I think Hall will point out later in the book, is another of these extensions. There are, I think, parallels between the way our minds not only use language, but are in important senses controlled by it; and the way our society is governed by institutions that no longer have objectives congruent with those of society. In both cases, the tool (or ‘extension’) has become overly influential, primarily concerned with its own survival, and dangerously controlling.

On a different note: my geocities mirror seems to be down, so to access the Social Policy Bonds site now and in the future, please change your bookmarks to http://SocialGoals.com.  

Bangkok's new airport

Bangkok’s new airport, at Suvarnabhumi, is scheduled to open next year. The around the airport will be designated Thailand’s 77th province. The current Thai Government intends it to rival Singapore as an Asian air hub.

Bangkok though already has a perfectly good airport at Don Muang, with two runways and a highly developed infrastructure. Surely there are more pressing priorities for this developing country than building a massive new airport, much further away from the city?

The new airport’s province will be called Suvarnabhumi Maha Nakhon: Suvarnabhumi the Great City. It will become ‘a modern economic centre’. Local landowners can expect a huge rise in the value of their land.

Actually the names of major land owners in the vicinity of the airport were revealed recently by the press. Most of the owners are known to have close relations with the ruling Thai Rak Thai party.

Source: How will Thailand compete with Singapore? ThaiDay, published with today’s ‘International Herald Tribune’.

Shock News: CAP rips off Europeans

Overall, the average UK household of four could be around £1,450 (€2,175; $2,600) per year better off in ten years’ time, compared to £1,360 (€2,020; $2,436) across the EU on average, if all global trade were liberalised, including removal of the C[ommon] A[gricultural] P[olicy], and the government and EU monies devoted to the CAP were spent instead on R&D. Source: Open Europe

The CAP diverts funds from the poor to wealthy landowners and trans-national agribusiness corporates, so getting rid of the CAP would benefit the poor disproportionately.

Perverse subsidies: a continuing story

Perverse subsidies are subsidies that are economically irrational, environmentally destructive and socially inequitable. Apart from agriculture (which is fairly well documented and quantified, especially by OECD), other recipients are the road transport and energy sectors. Subsidies to private road transport include the hidden costs of providing road users with roads, space and complementary traffic services such as highway patrols, traffic management, and paramedics. For the years 1991 and 1989, two different studies estimated the net subsidies to road transport in the US at $55 billion and $174 billion, respectively, or 1 and 3 per cent respectively of that country’s GDP. (The wide range reflects the different estimates for parking subsidies and for providing complementary traffic services.) Questionable on many grounds road funding — as well as funding for public transport schemes — would appear to be another example of middle-class welfare. Most of the benefits of these works go overwhelmingly to those who have more money to spend on travel, and more time in which to do so.

In the mid 1990s it was estimated that subsidies for energy in OECD countries were running at between $70 billion and $80 billion; their main purpose being to support energy production. Coal is most heavily subsidised, followed by nuclear energy and oil.

Estimates are bound to be imprecise, but it would be reasonable to put the total sums wasted on perverse subsidies in the developed countries at about 3 per cent of their combined GDP — this is equivalent to about 8 per cent of their governments’ total spending.

My case for Social Policy Bonds, or rather, against existing ways of spending on social and environmental goals, relies heavily on perverse subsidies. They, and all the other forms of corporate welfare, are significant in themselves, but their size and persistence also cast a heavy shadow over other government interventions. This is not an argument about big against small government; it is more about the distance between government and the people it is supposed to represent. However, big government does seem to be remote government, and remote government also seems to be unresponsive government.

And that’s how a few agribusiness corporates, pretending to represent family farmers, have done so much to destroy the landscape and social fabric of rural Europe, the US and Japan, have siphoned off billions that could have been spent on hospitals and schools and people in genuine need, and are even now threatening to derail the global trading system.

Causes: interesting but irrelevant

Everyone agrees that Africans are desperately poor and typically endure governments that are, to varying degrees, corrupt and capricious. The dispute is about causes and consequences. One group--call it the poverty-first camp--believes African governments are so lousy precisely because their countries are so poor. The other group--the governance-first camp--holds that Africans are impoverished because their rulers keep them that way. The argument may seem pedantic, but there are billions of dollars at stake, and millions of lives. The fundamental question is whether those who are well-off can salve a continent's suffering, or if, for all our good intentions, Africans are really on their own. Why is Africa still poor?, Andrew Rice, The Nation, 24 Oct 2005

I disagree: I don't think looking for causes is necessary when it comes to devising policies that will eradicate poverty. Doing so might even be a distraction. In this, I share common ground with Tolstoy who, when writing about conflict, wrote:

The deeper we delve in search of these causes the more of them we discover, and each single cause or series of causes appears to us equally valid in itself, and equally false by its insignificance compared to the magnitude of the event. 'War and peace', Signet Classic, 1968 (page 730)

Life is so rich and varied that anybody can ascribe anything they don't like to a racial group, set of persons, ideas or sequence of events they don't like. This is the stuff of demonology, ideologues and party politics. Tyrants in some African countries seize any chance they can to blame colonisers for the problems they themselves inflict on their subjects.

I don't think it's necessary for any single person, ideology, government or international agency to try to explain why Africa is poor. Rather, the challenge is to set up a system that will subordinate all activity, policies and programmes to the desired outcome: the eradication of poverty. This is what Social Policy Bonds would do. We could issue Social Policy Bonds that would not be redeemed until poverty had been at a low level for a sustained period. We would, in effect, be contracting out the eradication of poverty to whoever will be most efficient at achieving that targeted outcome. Whoever buys the bonds might well spend some time trying to analyse causes of poverty, but they will be rewarded only if that is a necessary and efficient way of eradicating it. More likely, the people who buy bonds will just get on with the job. Looking for causes is probably best left to ideologues and academics.

Numerical indicators

In a tragic sort of way, inferior prenatal care could actually boost average life expectancy while lowering health care costs. Adequedate prenatal care may reduce the incidence of miscarriage, especially in the second half of pregnancy. Had my wife's perinatologist not detected her dilating cervix in the 22nd week of pregnancy, we would probably have lost our daughter. And she would have been a miscarriage statistic, not an infant mortality statistic.Source

This highlights the need to specify very carefully the sort of indicators that are targeted, whether under the current regime, or using Social Policy Bonds.

Incentives for development

After 43 years and $568 billion (in 2003 dollars) in foreign aid to the continent, Africa remains trapped in economic stagnation. Moreover, after $568 billion, donor officials apparently still have not gotten around to furnishing those 12-cent medicines to children to prevent half of all malaria deaths. With all the political and popular support for such ambitious programs, why then do comprehensive packages almost always fail to accomplish much good...?....

The biggest problem is that the rich people paying the bills do not share the same goals as the poor people they are trying to help. The wealthy have weak incentives to get the right amount of the right thing to those who need it; the poor are in no position to complain if they don’t. William Easterly, The Utopian Nightmare, Foreign Policy, Sept/Oct 2005

Exactly. I have been seen saying for years that our social and environmental problems are caused by perverse incentives. The big financial rewards in today's world are for those who can cater to the whims of the rich, by which I mean those who constitute much of the population of the developed countries and a tiny minority of those in the poor countries. One example: only 1 percent of all new medicines brought to market by multinational pharmaceutical companies between 1975 and 1997 were designed specifically to treat the tropical diseases plaguing the third world. In numbers, that means thirteen out of 1,223 medications. This is not a problem of lack of ingenuity or even compassion. It is a problem of incentives.

Social Policy Bonds would rejig the incentives on offer. Not blindly, so as to favour one set of people over the others, but in accordance with the wishes of those who put up the funds to redeem the bonds. The current mismatch has more to do with lack of transparency and deliberate deception than the wishes of those who put up the cash. Governments pay out hundreds of billions of dollars annually in explicit and indirect subsidies to (for instance) large agribusiness corporates, multinational energy companies, and arms manufacturers. If consumers and taxpayers were told explicitly that they were subsidising these bodies they would, I am certain, do so with less enthusiasm. Under the current system, this whole system of corporate welfare is fudged. Under a Social Policy Bond regime, the first thing taxpayers and government would decide would be: what are our goals? All spending decisions, all programmes, projects and initiatives, all institutional establishments and structures, would be subordinated to these goals.

A mirror image, in other words, of the current setup.

Environmentally harmful subsidies

In my current work, I'm citing the existence and persistence of environmentally harmful subsidies - similar to perverse subsidies - as solid evidence that government is inefficient. Though anecdotes abound, it's difficult sometimes to get an idea of just how inefficient, on a global scale, government is. But a workshop given by the OECD attempted to quantify environmentally harmful subsidies. The sums are staggering:

Subsidies probably total over $1 trillion per year. Around two thirds of the subsidies occur in OECD countries. Those OECD subsidies are heavily concentrated in agriculture, mining, road transport and manufacturing. Non-OECD countries mainly subsidise energy, water, fisheries and some agriculture. Relative to GDP, subsidies are twice as large in non-OECD countries. As a percentage of world GDP, global subsidies account for a staggering 4 per cent. Perhaps most notable of all, agricultural subsidies in OECD countries account for over 30% of all subsidies.

The workshop was done in 2002, but the dollars referred to are in 1994-98. It's not just the financial sums that matter: these are environmentally harmful subsidies, most generally paid to increase production. In agriculture this means switching to intensive production techniques and expanding production onto marginal lands and environmentally valuable areas such as woodlands, ponds and hedgerows.

Apart from OECD work, another useful source is Earth Track.