30 April 2006

Kyoto may not go far enough

Whenever I write or speak against the Kyoto Protocol I'm often taken as an apologist for the anti-climate change lobby. Reading Tom Flannery's book, The Weather Makers makes me again want to stress that I am certainly not a climate change skeptic. I advocate that governments collectively issue Climate Stability Bonds, which would reward the achievement of a stable climate. It seems likely that this would entail massive government expenditure, but it would be up to the market, via the price it pays for the bonds when they are floated, to decide exactly how much would be spent. It would also be up to bondholders to decide how best to stabilise the climate. It may very well be that they will concentrate on reducing anthropogenic greenhouse gas emissions, as does Kyoto, but it's also likely that other projects will be considered and undertaken.

Flannery is beginning to convince me that Kyoto will be far too little far too late, even if it's actually implemented. If that's so then Climate Stability Bonds could see a greater transfer of resources into mitigating or preventing climate change than Kyoto. When the bonds are first issued, potential investors would decide how much they are worth. If they believe that governments aren't putting enough resources into redeeming the bonds, they will ignore the bond issue or buy the bonds for virtually nothing and just sit on them. At that point, the issuing governments would have to put in more resources and issue more bonds. The value of all Climate Stability Bonds would then rise as would-be bondholders see that they can make worthwhile gains by doing something to stabilise the climate.

What all this means is that the commitment to stabilise the climate would not be the result of bargaining and deals struck between the various members of the relevant bodies: that's what Kyoto is. Instead, the resources devoted to mitigating or preventing climate change would be decided by would-be investors in Climate Stability Bonds: these people have powerful incentives to get a handle on the climate change problem, and to investigate the least-cost ways of solving it. Climate change, in short, is too serious to be left to the top-down compromise that is the Kyoto Protocol.

27 April 2006

Become an insider by ..er..screwing everyone else

Many insiders work in the public sector: many who do not still enjoy the benefits of secure jobs, generous social welfare and high levels of public services. These armies of the privileged will not vote to give these privileges up[.] John Kay
John Kay takes a more sanguine view of the privileges than I do, and his case is well argued. He says that 'Europe’s economic problems are real, intractable and not very serious' and that most people who protest against, for example, the recent proposed French employment rules, were hoping to become insiders:
The victims are those who can never hope to become insiders – immigrant minorities, unemployed young people in sink housing estates.
Where I think I differ from John Kay is that I believe the privileges he refers to enlarge the number of outsiders and widen the gap between them and the insiders. Farm subsidies and barriers to agricultural imports, for instance, make food more expensive for everyone, but for the poor disporportionately. The same defence of privileges has contributed to rising house prices, and expanding the number of people who cannot expect to own their own homes, however hard they work. And while Kay may be right in that Europe's economic problems are not very serious that doesn't tell us very much. My previous post referred to the difference between economic success and social well being, which is to a great extent becoming a divergence. I also question whether in fact there is a majority of insiders in the affluent west. Insiders would feel some sense of coherence, not the alienation and pervasive anxiety that seem to be characteristic of our western lifestyle. We would feel more committed to the societies in which we live and engage more in the political process. We may all want to be insiders, but it's hardly a feature of a successful society if we the main route to becoming an insider is by screwing the government and everyone else.

26 April 2006

Economy or well being?

Here in Thailand, the difference between a successful economy, as indicated by a few well-chosen economic variables, and the welfare of much of the population is especially graphic. Focusing, in particular, on Gross Domestic Product per head, and its rate of growth, can obscure what's really going on. The failings of GDP as an indicator of social well being are well known and well documented: it fails to account for destruction of the physical and social environment and it takes no account of leisure time. There are other defects, but these are ones that strike me most forcibly in Bangkok. I doubt whether most Thais or anyone else for that matter, would rank maximising GDP per head as a high priority. A successful economy is a means to various ends, not an end in itself. The challenge to policymakers is to articulate what these ends are, and to help achieve them, rather than simply to chase growth in GDP at all costs.

22 April 2006

Farm subsidies: get rid of them all

United States' sugar subsidy policies, including barriers to imported sugar, have been widely and justifiably criticised for supporting a relatively small group of sugar producers at the expense of consumers, taxpayers, sugar-using industries, and the environment. A recent paper (pdf) on US sugar points to the New Zealand experience of withdrawing subsidies from farmers. I've written elsewhere about the irrationality of agricultural support. What's significant is how difficult it is to withdraw subsidies, often for reasons that are quite genuine. Take those agricultural subsidies that are paid according to volume of production (the majority). Economic theory and empirical evidence say that their main effect will be to raise the price of the least elastically supplied input, which in this case is farmland. Now many farmers will have borrowed money to pay for land inflated by the capitalised value of these subsidies. It's politically difficult to take away the subsidies and erode erode the asset base of such indebted farmers.

But it should, I believe, be done. It would at first sight seem reasonable to offer some form of compensation, or to signal in advance that the subsidies are going to end in X years. But it would be kindest of all never to get involved in subsidising farming in the first place. It would be far better to subsidise poor, deserving people, not the most effective lobbyists. The possibility that the government will withdraw of subsidies is a legitimate business risk, and those who invest in subsidy-inflated assets should be prepared to accept it.

19 April 2006

The law of social diversity

It appears that as in the natural world, our social world requires symbiotic and complex relationships to produce a healthy system. ... "Now why should that be? [Steve] Rayner [of the Pacific Northwest National Laboratory] asks. "If you have only hierarchy, like in most governments and in business, and something goes wrong or you encounter a new situation that's not working, the only solution available to you is more hierarchy."
This quote (and the title of this post) is from Naked Ape to Superspecies, by David Suzuki and Holly Dressel. More and more, it seems to me, our way of doing things at the national or global level is a projection of the way our individual intellects work. We find it difficult to relinquish control, whether to markets, the 'vibrant civic society' that Adam Smith saw as a precondition for successful markets or, at the individual level, to our instincts or insight. The complexity of our social and environmental problems is simply too great for a single organisation, however large, to grasp. We need diverse, adaptive solutions, not top-down, one-size-fits-all, fossilised approaches. Humankind has tremendous ingenuity, but much of it is devoted to frivolous pursuits - tv commercials for dogfood - at a time when our planet and social systems face alarming crises.

Social Policy Bonds would channel our ingenuity into the public good. People would have powerful incentives to solve social problems, and their rewards would correlate with their success in doing so. Social Policy Bonds, by targeting and rewarding the achievement of targeted outcomes would stimulate the necessarily diverse and adapative solutions to our complex problems. Governments that issue the bonds would relinquish control over how to solve these problems, but would be responsible for deciding which problems to solve and for raising the revenue with which to reward successful problem-solvers.

17 April 2006

Social Policy Bonds aren't perfect

It's difficult to specify in quantifiable terms exactly what we want, when 'we' are society acting through a government. It's even quite difficult to do so as individuals. For most of us, happiness cannot be readily expressed as a list of numerical indicators. We should probably all feel happier with incremental increases in bank balances, salaries, or years of healthy life, but for most of us our overall level of happiness is more a state of mind than a list of numerical circumstances.

This makes specifying targets for a Social Policy Bond regime difficult. Take something that seems readily quantifiable, such as climate change. Critical questions immiediately arise: do we want to mitigate or prevent climate change? climate change is likely to increase flooding, drought, storms and (in some countries) food shortages - would we be better off targeting these detrimental human outcomes, rather than climatic variables? But then what about the entire global ecology - is it to be valued solely in terms of the services it provides to humans?

Important and difficult questions to be sure, but exactly the same questions arise however we attempt to address climate change. When decision-making on behalf of our large and complex economies, let alone at global level, we do unfortunately have to look at quantifiable measures of success, otherwise we cannot reliably monitor how well we are doing. Gone are the days when a government could, for instance, recognise that Ms A receiving unemployment benefit (say) does in fact benefit from such a payment, while Mr B's long-term interests would be best served by putting some pressure on him to find a job. Perhaps the necessarily out-of-touch nature of a big, remote, government, and its expanding role in our lives, has something to do with our endemic anxiety and depression.

There are no simple answers, except perhaps to note that it's mostly at lower levels of income, nutrition, wealth, or environmental status, that well-chosen numerical variables correlate most strongly with what most of us would consider improvements. Social Policy Bonds are not perfect: they don't avoid this difficulty. In fact, they entirely subordinate policy to specified, targeted, quantifiable outcomes. While this can be irksome, especially to those who benefit from unspecified, obscure or mutually conflicting goals under the current regime, it's actually an advantage from society's point of view. Under a Social Policy Bond regime, hard decisions about what we want to achieve could not be ducked, as at present: they would, in fact, have to be made explicit to all of us, right at the beginning of the policymaking process.

12 April 2006

'I don't know what to do' is not good enough

Nuclear weapons under the control of the current Iranian regime are scary. Is there anything we can do apart from try to distract ourselves or take the fatalistic approach? Well yes there is. We could issue Nuclear Peace Bonds. To do this we'd have to be prepared to contribute or raise funds that would be paid out if there were no use of Iranian nuclear weapons over the next, say, 10 years. The bonds could carry provisos stipulating that certain other, slightly less scary scenarios, would not be played out: for example, conventional military action resulting in large numbers of deaths.

That's just an idea, but it does show that we do not either have to continue to disengage from the political process, or pretend that these challenges don't concern us or that we can and should no nothing about them. Of course, some of our lethargy is because we feel powerless in the face of large-scale problems like Iranian nukes, or climate change, or other potential catastrophes. But we are not as powerless as we think. We might not know how to respond, but Social Policy Bonds give us a means by which we can contract out the response to those best able to meet whichever problems we target. For more on issuing your own Social Policy Bonds take a look at this 18-page pdf publication, which takes the example of bonds promoting female literacy in Pakistan. We don't have to know all the answers. All we need are concern, and access to enough cash to motivate others to find the answers.

● Chapters 4-6 of my core text, Injecting incentives into the achievement of social and environmental goals can be downloaded free of charge here. It's a 224kB pdf file.

09 April 2006

Goals must correlate with welfare

The Cruncher (February) is wrong to conclude that the [UK's] N[ational] H[ealth] S[service] comes out poorly just because British five-year cancer survival rates are lower than in other countries. An alternative explanation is that Britain does not waste money on extensive testing procedures for diseases it cannot cure. For such diseases, and many cancers are among them, earlier diagnosis merely serves to raise the number of years between the identification of the disease and death—it does not affect expected mortality. Peter Sugarman
This illustrates the danger of relying too heavily on seemingly appropriate but overly narrow indicators, whether under the current regime of micro-managed Mickey Mouse indicators devised by bureaucrats, or under a Social Policy Bond regime. We need, as a society, to think very clearly about the role of government and what we want our taxpayer contributions to achieve. These decisions today are largely made by lobby groups, coporate interests, politicians and bureaucrats whose over-riding goal is to retain power. A Social Policy Bond regime would express its objectives in terms of meaningful outcomes, which would be discussed and refined rather than, as now, falling out of long, complex, inaccessible, adminstrative procedures.

06 April 2006

Nature therapy

Referrring to the communities in which 75 million Americans live, Richard Louv says:

Try to put up a basketball hoop in some of these communities, let alone build a tree house. The message to kids and parents is very clear: nature's in the past. It doesn't count anymore. The future's in electronics. The bogeyman lives in the woods. Playing outdoors is illicit and maybe even illegal.
It's an important topic. As the introduction to Louv's interview says, 'after tens of thousands of years of children playing and working primarily outdoors, the last few generations have seen such interaction with nature vanish almost entirely.' Louv argues that this has incalculable implications for children's physical and mental health, and for the future of environmentalism. At last research linking nature to healthy child development is starting to be investigated.

What does this have to do with Social Policy Bonds? Conventional ways of trying to solve health problems such as Attention Deficit Disorder or vaguer feelings of anxiety and depression involve specific, targeted, treatments, which can be biochemical, psychological or psychiatric. There's very little interest in trying to prevent such problems because there are no institutions that can benefit from doing so. The massed ranks of drug companies, psychologists and psychiatrists, while they individually may suspect that 'nature therapy' can invigorate communities, do not belong to organisations that can act on that suspicion. There are no incentives in place to prevent health problems by living closer to nature. Government-run health services are influenced by narrowly-based interest groups. Something as diffuse, unprofitable and poorly researched as nature therapy stands little chance of becoming policy under the current set-up in most countries.

A Social Policy Bond regime would be different. Society would target broad physical and mental health goals. Bondholders would have powerful incentives to seek out whichever ways of achieving these goals will maximise benefits per dollar outlay. There would be no prejudices in favour of existing ways of doing things or existing institutions and lobby groups. Existing studies already show that 'prisoners in prisons, people in the infirmary - those who have a view of a natural landscape heal faster.' A Social Policy Bond regime would act on such research, rather than be sidetracked into safeguarding vested interests.

The CAP is killing Europe as well as Africans

For dealing with illegal immigrants from Africa:

[t]he EU’s official strategy also involves tackling the European black market, and sending large dollops of aid to Africa to ‘create better conditions of daily life’ in migrants’ countries of origin, and to encourage transit nations like Mauritania to shut down migration routes. Source
A better solution would be to allow free trade between the EU and Africa. This would mean dismantling the Common Agricultural Policy and other trade barriers that do so much to keep Africans poor (or kills them). It would give Africans a chance to develop without having to leave their cultures (and in many cases, families) behind. It would mean that the only immigrants into Europe would be willing immigrants. What chance is there of that happening? With France still in the EU and still, shamefully, being allowed to blackmail the rest of Europe into submission the chances are precisely nil.

04 April 2006


Tim Coates, a former head of Waterstone's (a book store), is trying to persuade the British Government to spend more on books for libraries. His comments on the UK are worth quoting at length (my emphasis):

Half the management in this country is public sector. The rules are different: income does not depend on judgment, efficiency or perfomance; cash is available; there is no such thing as bankruptcy and nor are there the disciplines, anxieties, skills and systems which are used to avoid it. Employment is secure and very well paid. Projects thrive on persuasive plans but rarely on actual outcomes. To a private sector manager, the regime is unfamiliar.

We have become used to the idea that only a small portion of charitable donations each their intended recipients; we should get used to the idea that the great part of the money we thought was for public service will never reach any public beneficiary. We live in an economy which is the travelling equivalent of a crowded roundabout. Huge amounts of public funds travel on a journey which goes nowhere in an unpleasant and wasteful manner.

For seven years I have studied the public library service in both central and local government where most of the operation is managed. This is a £1.2bn pa operation which has no accounts, no boards of directors, no planning or budgeting, no measurement of performance and no management of the kind a garage mechanic would recognise. It is a disaster from the tip of its branches to the lengths of it ancient roots. Use of the service has fallen to half its rather successful level of twenty years ago and no one can even agree whether that is a good thing or a bad one. No junior manager learns the basic skills of "yes" or "no" from his senior- because he, or she never learned those skills either. The operation is a national disgrace and nobody even knows.

We have an extremely and potentially devastating problem of the economy in this country and it is the management of public sector activities. We worry about political incompetence, global warming and the management of our soccer team. We should be sensible and start worrying about the management of public services. That really is frightening.

03 April 2006

Transport targets should favour pedestrians

Even relatively enlightened agencies don't really know what to do for pedestrians. Road congestion, because it's more visual, seems to drive transport policy, even for enlightened local authorities. Here in New Zealand the Greater Wellington Regional Council has proposed its 10-year plan entitled A Sustainable Region. I approve of the plan's designating clear, explicit and (mostly) quantifiable targets to be achieved by 30 June 2016, for the environment, water supply, parks etc. Its transport targets included these:

  • At least 80% of all trips up to 1 km and 60% of all trips between 1 and 2 kms will be walked or cycled (74% and 19% respectively in 2004; and
  • Average congestion on selected roads will remain below 20 seconds delay per km travelled despite traffic growth (currently 20 seconds delay per km).
My submission was:

"Making Wellington more pedestrian-friendly would be better for the environment and people's health. It would make Wellington city centre more vibrant and more pleasurable for shopping and walking in. My main quibble is with your congestion objective. Car drivers inflict huge social and environmental costs on all of us. They are not charged per km travelled, so about the only check on car use is congestion. The objective of reducing congestion could be used to justify more road building, but car users are already over-catered for in Wellington. If you doubt this try crossing Taranaki St at Courtenay Place, or just see how little time pedestrians get to cross the road at any junction. Wellington should be a great walking city, but cars get priority over pedestrians at all junctions. Not only that, there is little law enforcement, so cars get away with dangerous life-threatening manoeuvres all the time. Reducing congestion without any law enforcement will simply lead to more car use, more deaths and injuries, and reduced walking.

As for cyclists: in the city centre, they are frankly a menace. I would approve of measures to cater for responsible cyclists, but merely making increased cycle use a target without any such measures and without any more law enforcement would further imperil pedestrians.

A further point: I hope you will consider introducing a scheme that will favour buses at traffic lights, which would speed up their journeys and help fulfil the public transport objective.

So my pleas can be summarised thus:

1. Give higher priority to pedestrians and buses on the city's roads.

2. Curb car-driving, perhaps by charging for using the city centre's roads and making it more pleasant to walk and use buses as per my point 1.

3. Introduce some effective law enforcement against irresponsible car-drivers and cyclists who constantly get away with performing illegal, dangerous manoeuvres making life - literally - difficult for pedestrians.

Thanks for the opportunity to submit."