31 July 2006

Real people lose interest

Writing about the failure of the Doha round of multilateral trade talks, Clive Crook says:
Wherever you look, in the United States or abroad, you see capitulation to special interests and an utter lack of ambition and leadership.

Precisely so. We have a political system driven by everything except identifiable outcomes. So there's no correlation between what a party or politician says and what actually happens. Our economies are made increasingly complex by subsidies, favours and trade barriers that do everything to favour the large and global at the expense of the small and local. The result? Any relationships between policies and outcomes are further obscured. Unaware of what's really going on, real people give up. In our place are the corporations and the bureaucrats. It's in their interest, and their interest only, to allow governments to continue with their economic, social and environmental lunacies such as the agricultural subsidies, which as well as derailing Doha amount to a death sentence for Africans.

29 July 2006

Farm subsidies are evil

Daniel Davies writes about agricultural support on the Guardian's website, under the heading Africa does not need more expensive food. He believes that farm subsidies in the west reduce prices of food for African countries. It is true that there are some net food importing developing countries who would lose out in the short term if subsidised overproduction from the west were not available. However, the net losses to the developing world as a result of farm subsidies are much greater, I believe. Once I receive confirmation of registration from the Guardian, I will post a comment along these lines:

"Daniel, I don't think anybody objects to flat subsidies to farmers that are fully decoupled from production. The problem I think is that these are not the main way in which farmers in the rich countries are supported. I don't have the latest figures, but OECD data for 2003 show that market price support to agriculture in the rich countries amounted to US$160 billion. These mainly take the form of import barriers rather than budgetary subsidies. They raise consumer prices, hence they are transfers from consumers (not taxpayers) to farmers. The CAP's import barriers do therefore constitute a volume subsidy. The effects on the food-rich third world countries are cumulative; these barriers have been around for decades. So they may well help explain exactly why there are no good roads or railways in Africa. High tariffs not only inhibit exports; they also export price instability to the rest of the world. You say you can't have a development strategy based on low value-added commodities. Granted the sums of cash may not be large to us; but they would mean more to Africa. And didn't Argentina, New Zealand and Australia start out on their route to prosperity by exporting bulk agricultural commodities?"

27 July 2006

Making aid work

An important article from Abhit Vinayak Banerjee describes what happened when a group of economists tried to get aid organisations to spend a few minutes saying where their help was going after the 2005 earthquake in northern Pakistan. The economists wanted to make sure the aid was going to the right people.

All that was needed was an office or Web site to which everyone could report the names and locations of the villages where they had sent aid and the amounts sent. … So, with the help of some contacts in the IT industry and some students at Lahore University, they designed a simple form and approached donors with a simple request: whenever you send out a consignment, please fill out one of these. There were paper copies available as well as a Web-based form and a call center. The reaction, when it was not actually hostile, tended to be derisive: “Are you mad? You to want us to spend time filling out forms when people are dying? We need to go and go fast.” Go where? the economists wanted to ask. But nobody seemed to care.

In many ways this episode captures very well one of the core problems with delivering aid: institutional laziness. Here many of the standard problems were not an issue: the donors and the intermediaries were both genuinely trying to help.

As Banerjee points out, this episode is symptomatic of aid programmes. I would argue also that it is typical of all programs run by government agencies. There is simply no incentive to be efficient.  One result:

Primary education, and particularly the question of how to get more children to attend primary school, provides a fine test case because a number of the standard strategies have been subject to randomized evaluations. The cheapest strategy for getting children to spend more time in school, by some distance, turns out to be giving them deworming medicine so that they are sick less often. The cost, by this method, of getting one more child to attend primary school for a year is $3.25. The most expensive strategy among those that are frequently recommended (for example by the World Bank, which also recommends deworming) is a conditional cash-transfer program, such as Progresa in Mexico, where the mother gets extra welfare payments if her children go to school. This costs about $6,000 per additional child per year, mainly because most of the mothers who benefit from it would have sent their children to school even if there were no such incentive. This is a difference of more than 1,800 times.

Banerjee is optimistic that two of disciplines applying to, for example, the pharmaceutical drugs industry can help. These are randomised trials (where possible), and using evidence to support funding decisions. Indeed, as he says, a number of the larger philanthropic organisations are now basing their decisions on evidence.

As I believe, it’s not just aid. There are few incentives for any government agency or policymaker to get things right for any but the most publicity-rich short-term initiative. There are two main reasons. First, given the complexity of our society the relationships between any particular policy or programme and an actual outcome are difficult to identify. Second, there are no incentives for anybody to identify such relationships. Politicians and officials aren’t paid according to how objective criteria. Government organisations don’t benefit if they become more efficient – often the reverse is true and they are disbanded if their ostensible reason for existing is actually achieved.

What we have seen in aid, less obviously tragic perhaps, we see in the western countries too: the persistence of corrupt, environmentally disastrous policies, such as the mad farm support schemes that have just recently derailed the Doha round of trade talks, threatening the entire world trading system.

26 July 2006

Nothing positive here

Trade barriers are subsidies to favoured groups. Except when erected to protect animal, plant or human life they are essentially rewards to those corporations who have most muscle over government. So the collapse of the Doha Round is particularly depressing for those, like me, who believe that economies and governments are supposed to serve natural persons, as distinct from corporations, not the other way round.

The broader question is why governments are now so remote from their populations that the interests of corporations matter more to them than those of the people they are supposed to represent. Is it a function of size alone? There does seem to be circular relationship: corporations lobby for subsidies and spending on a certain type of infrastructure; a type that favours large corporations at the expense of small businesses and the environment. So our economic system becomes more complex, and more dependent not just on that complexity, but on the growth of that complexity. Interdependence, alienation and the remoteness of decision making all rise inexorably. People lose sight of how their best interests will be served. Somewhere along the way, the system becomes more important to policymakers than the wellbeing of the people whom it's supposed to serve. But the system resists organic change. Its main beneficiaries, large corporations and government agencies, find it easier to feed at the government trough.

The collapse of the Doha Round blights the prospects of millions in the developing countries. It will keep many of them in poverty and despair. Unfortunately the connection is too obscure and slow-moving for television, and our elected representatives and their paymasters in the large corporations will carry on regardless, subsidising the rich at the expense of the poor.

23 July 2006

Solitudinem faciunt...

It's too late to do anything much to stop the current wars or to avoid the imminent ones, but we can at least set in place mechanisms to prevent those violent political conflicts that are not yet inevitable. I've blogged before on the need to inject incentives into peace building. An equally fundamental question though, is what constitutes peace? This is not just an abstract point. A Social Policy Bond regime targeting peace would differ radically from the conventional, and not always successful, approaches. Most markedly it would not directly try to address war's alleged causes; or rather, it would not prejudge what those causes are.

Such an approach has (in my view) great merit. War is so complex that it is not always obvious, even after a long conflict has ended, what its ‘root causes’ were, and perhaps the very notion of a ‘root cause’ needs questioning. It implies that factors such as ‘poverty’ or ‘ethnicity’ can be removed from their social context, and somehow dealt with, and that then a desired result will follow. But human societies are complex. Poverty can feed grievance, but grievance can be a result of poverty. No single formula, no single set of parameters will always lead to conflict, and guarantee freedom from conflict. Indeed, even the notion of ‘causation’ in this context is questionable. Perhaps Tolstoy summed it up best:
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.
If we were going to issue Social Policy Bonds that target the elimination of violent conflict, how exactly would we define our goals? Peace - the absence of open war, the minimising of numerical casualties - would probably not suffice. Regimes can pile up armaments and blackmail neighbouring countries into making concessions or suffer the consequences. Under such circumstances, the open outbreak of military conflict would be unlikely, but it's hardly the sort of peace that we'd like to target.

I have no definitive answers, but I think that apart from the numbers of soldiers and civilians killed in armed conflicts, we could include elements such as the expenditure on armaments, numbers of full-time equivalents in the military, and mass media indicators of impending conflict. This last is interesting: there appears to be strong evidence that the underlying intentions of governments can be accurately gauged by a systematic analysis of opinion-leading articles in the mass media, regardless of the relative openness of the media in question. (See Getting to war: predicting international conflict with mass media indicators, W. Ben Hunt, University of Michigan Press, 1997.) Such analysis allows the prediction of both the likelihood of conflict and what form of conflict - military, diplomatic or economic - will occur. This sort of indicator could be useful as a target where military conflict has not begun, but appears possible, and where other data are scarce.

Once we have a set of indicators for peace, we could set about issuing Conflict Reduction Bonds, with national, regional or global objectives. We'd most probably have to refine the indicators over time, but the important point is that we'd be building a strong and highly motivated coaltion for peace - in contrast to the current mess, under which the most dedicated individuals and groups seeking peace are the least rewarded, and the most highly rewarded are those who sell weapons of war.

18 July 2006

Measuring quality of life

Here in Cologne it is liberating to be able to walk around the city late at night and feel safe. It's difficult to do this in much of the English-speaking world. To some extent, fear of crime is subjective. Issuing Social Policy Bonds targeting this essential element of a decent quality of life relies on some reliable way of measuring it, or at least measuring how it changes. But it's important to try to quantify such variables under the current policymaking regime too; otherwise it will tend to be ignored, much like other critical components of a decent life, like social cohesion or (until recently) the physical environment. The need for objective data on these features is a function of the size and complexity of our societies. These rise inexorably, partly because of the influence of lobby groups especially large corporations and government agencies, which can use their muscle to maximise their short-term objectives. Social Policy Bonds would subordinate such goals to outcomes that are meaningful to natural persons. Targeting the safety of our streets and homes would be one way of doing this.

16 July 2006

Incentives for peace

The big problem is, of course, incentives. There's nothing intractable about ancient hatreds. If you think there is then check out the border between England and Scotland. It's very quiet these days, but it wasn't always like that. To bring about peace in the Middle East, I propose Middle East Peace Bonds.

12 July 2006

Government failure is catastrophic

In the 'world of truth' [ie markets] ... such disasters [as the Mao-induced famine in China that killed from 10 million to 60 million people] cannot happen. Mistakes, certainly, will be made - perhaps more frequently than under central planning. But the mistakes stay small; in market economies we call them 'experiments'. Tim Harford, The Undercover Economist, page 237
Spending time in provincial England is a reminder of just how bleak life can be when government fails. The physicial infrastructure of cities is very much a government creation, as is an education system driven by ideology. Government thought it knew best not only what to achieve, but how to achieve it. The intentions were good, the execution has been disastrous.

A Social Policy Bond regime would play to government's strengths: articulating what society wants and raising the revenue to finance achievement. But it would contract out to the market that process which the market does best: ensuring that scarce resources generate the maximum return to the taxpayer's dollar. Government would decide what to do; the private sector would decide how to do it.

11 July 2006

France: world champion of hypocrisy

Europe must be careful not to turn itself into a fortress just to keep out immigrants, a French minister has said. Addressing a European-African migration conference, French Interior Minister Nicolas Sarkozy said the concept of zero immigration was a dangerous myth. Ministers from 57 European and African nations are meeting in the Moroccan capital Rabat to discuss ways of dealing with migrants. BBC
The fact is, Mr Sarkozy, that it is your benighted France that has already turned Europe into a fortress. France, with its loathsome trade policy, has led Europe in refusing to allow imports of agricultural products from poor countries, especially in Africa. Through its support of the corrupt, insane Common Agricultural Policy, France has helped impoverish the third world, and made escape to the west the only option for hard-working Africans who want to make a better life for themselves and their families. Not content with that it is the ludicrous French elite that does its best to ingratiate itself with thugs and kleptocrats like Robert Mugabe, whose actions encourage immigration, legal and illegal, to the west.

10 July 2006

What's good about the status quo?

A Social Policy Bond regime would contract out the achievement of social and environmental objectives to the private sector by issuing tradeable bonds redeemable when specified goals have been achieved. The bonds could help meet new global and national challenges, such as climate change or crime reduction, but they should also specifically target the maintenance of some aspects of the status quo. Peace within secure borders, freedoms to live under fair laws, fair administration of justice...these are all of immense value - but tricky to define. Unfortunately, much like 'the environment' or 'quiet' or 'social cohesion' they tend for that reason to be taken as given by policymakers, and so exploited, until they are in such a parlous state that they can no longer be ignored.

Could these desirable features of our current way of life be targeted explicitly? It's an important question, worth posing even if we were not contemplating the issue of Social Policy Bonds targeting, for example, world peace. Why? Because many important defences against social or environmental disaster appear to be eroding. We face catastrophic risks arising from climate change and nuclear proliferation, but it's difficult not only to see progress being made, but also to conceive of a way of measuring whether we are moving towards or away from achieving our goals. So how to specify our goals and quantify progress towards them is not just an abstract question.

If we assume that it is worth channeling scarce resources into retaining some degree of climate stability then under a Climate Stability Bond regime, we should have explicitly to quantify climate stability, in such a way that maintaining (or increasing) it can be explictly and objectively verified. This sounds very difficult, and indeed it is, but exactly the same difficulties apply when attempting to monitor the success or otherwise of alternative ways of preventing or mitigating climate change, including the Kyoto agreement to limit anthropogenic emissions of greeenhouse gases.

08 July 2006

Sprawl is subsidised

I argue that smart growth is actually a conservative notion, because it saves money. It saves money because cities and towns don't have to extend infrastructure so far. You're taking advantage of existing infrastructure with redevelopment, and you're also leveling the playing field. Those who believe in the free market shouldn't like government picking winners and losers, and that's exactly what government has done over the last half century in terms of favoring sprawl. What smart growth does is level the playing field - make it as easy to build in the city or in older suburbs as it is out in the countryside. Anthony Flint in an interview with Grist Magazine

05 July 2006

Contracting out UK Government services

From the [UK] Guardian of 3 July:
The government is creating a new generation of multimillionaires and turning charities into multimillion-pound businesses by contracting out services provided by the state, a report commissioned by the Whitehall trade union the Public and Commercial Services union, reveals today.
I'm pleased with this. It's not Social Policy Bonds, because the contracts don't appear to be tradeable, and the newspaper article talks about the provision of services, rather than the achievement of outcomes but it's a start. Naturally it provokes opposition from the ideologues:
Mark Serwotka, PCS [Public and Commercial Services Union] general secretary, said: "There is a real danger that government plans to increase the role of the private and voluntary sector in the provision of public services will mean a step back to a model of prewar welfare provision. The fear is that this is 'soft' privatisation, with the voluntary sector opening up services for contests which can subsequently be won by the private sector."

03 July 2006

Entrepreneurs and managers

Arriving in Germany from the UK dramatises the difference between entrepreneurship and managment. The British have historically been pre-eminent at setting up enterprises, but not at all good at managing them. That appears to be Germany's forte, at least in my initial experience. In contrast to the UK, public transport is well-organised and clean. But, as Richard D North says in a fascinating essay:
The Continentals pay for their orderliness. Only the most crushing civilisations can keep violence at bay. Perhaps France can do it, except when its over-wrought tidiness of society gives way to revolution or upheaval. They saw violence in the 90s, and was suburban. It was a revolt against Corbusier-in-exile, against the peripheral estate, in which neither of the traditional continental virtues - self-conscious urbanism and full-bloodied ruralism - is expressed. The German historic propensity to break out of dullness into violence is the expression of a society which doesn't understand the need for routine hooliganism, the British triumph.

Is this relevant to Social Policy Bonds? Perhaps: a bond regime could convert management and bureaucracy into a profit-seeking endeavour. It would grant supernormal profits to people who excel at achieving stated social or environmental goals. It would, in short, inject entrepreneurial incentives into solving our problems. Our current system sets up institutions mostly either government or run along bureaucratic lines, that provide only civil service type incentives the to their employees. There is little correlation between the financial rewards to, say, UN peace-keepers, or researchers into climate change mitigation strategies and their success in achieving their objectives. They are paid salaries on the basis that they turn up to work. But meeting our serious global challenges needs more than good management. Social Policy Bonds could play a part in channeling some of our awesome ingenuity and creativity away into achieving public sector goals.

02 July 2006

Why England lost the World Cup

I know very little about football, but even I could see, watching England’s match against Portugal yesterday, that England played well only after their captain had retired injured and their star player had been sent off. I wonder whether there’s something in the English psychology that values a win – in any field – only when it’s against the odds? Deep down the players perhaps know just how pampered they are. On the 90th anniversary of the beginning of the Battle of the Somme did they feel undeserving of the fabulous material rewards they’d receive for winning a football game? These players are on contracts of several tens of thousands of pounds per week. They had nothing to prove by winning until they had a real battle on their hands. Only then did they play to their full potential.

There is a wider policy question. In the UK, as in most other western countries, the government tries to help people who are out of work. It gives cash payments to the unemployed. Because such schemes are run nationally, they cannot and do not discriminate between those who need the money and those who would actually be better off without government help. There is such a class of person, and there’s no telling how big it is. But it is a downside of remote government that welfare programmes delivering cash benefits to people on the condition that they do nothing with their lives is likely to stifle any sense of pride and achievement. As with the multi-millionaire footballers (whose salaries aren’t paid by the taxpayer, thankfully), this generosity gives people no challenge to overcome, nothing to play for.