28 January 2006

Ninety per cent of Americans agree with me

A whopping 90% of Americans surveyed by a new Harris Interactive poll believe big business has too much power and influence in Washington D.C. Source
Not ‘business’, note, but ‘big business’. In fact, 92 per cent of respondents thought small businesses had too little power.

26 January 2006

Government to millionaires: here's more taxpayers' cash!

You might think that government would concentrate on doing the things that only a government can do: eradicate poverty, supply public services like law and order, defence...that sort of thing. But such matters are hardly very glamorous so government also wants to be an investment company, and we get grotesque stories like this, from New Zealand:

Director Peter Jackson's blockbuster King Kong has devoured at least $25 million of taxpayers' money from a government scheme to encourage big-budget movies. ...
Government is good at taking money from small businesses and ordinary people. But when it comes to dishing it out it's that familiar story...big is beautiful:

... The [New Zealand] Government's large budget production grant offers a rebate of 12.5 per cent of costs incurred in New Zealand. But it is available only to movies with a budget of more than $50 million, or to movies that cost between $15 million and $50 million if 70 per cent of their budget is spent here.

Once again, government extracts taxes from small businesses and ordinary working people, to pay for its own programmes and subsidise big business. If the New Zealand Labour Party had stood on a manifesto of subsidising the rich I'd have no objection to this policy. But you will not find this principle anywhere stated on its website. Bill Clinton's campaign advisor once said "politics is show business for ugly people". By trying to ingratiate themselves with the beautiful people using tax revenue, this New Zealand Government has revealed its distinctly ugly side.

24 January 2006

Looting the common wealth

We’re not just destroying our environment, we’re subsidising its destruction. Perverse subsidies take many forms, but this story presents an angle that is new – to me at least. Essentially the Bush administration in the US has expanded loopholes that allow the value of gas collected from public lands and coastal areas to be undervalued. The shortfall is estimated at a minimum of US$700 million.

21 January 2006

The smoking gun

We have become so accustomed to reading of children being knifed for their mobile telephones, men robbed and then gratuitously stabbed to death, and grannies beaten over the head for a few pence, that we are no longer surprised by it. But if you have a memory as long as mine, you will know how alarmingly we have descended. Source
So writes Bill Deedes, about crime in the UK. Looking at a broad indicator of crime, the number of indictable offences per thousand population in 1900 in England and Wales was 2.4 and in 1997 the figure was 89.1. Over the same period the population has increased by 63 per cent – far less than the increase in number of crimes. Even so, taking homicides (which in England and Wales include murder, manslaughter, and infanticide) the number per million population more than doubled from the early 1960s to 1997.

We can assume that the statistics are unequivocal and that crime has risen sharply in the past few decades. But can we blame government for the increase? Poor government performance may have had little to do with this. Indeed, government may have performed superbly, given the many diverse factors that contribute to lawlessness. As well, there is the question of how much weight we should attach to crime, compared to other areas in which similarly broad indicators show unequivocal improvements. For example: from 1901 to 1999 the life expectancy of new born children rose from 45 years for boys and 49 years for girls, to 75 years and 80 years respectively. Similar improvements can be seen for most of the measurable indicators of housing and education. In these areas, as in crime, government has played a large role.

The point is that a worsening of even quite broad indicators, even when government is spending increasing sums aimed at improving them, does not in itself prove poor government performance. There are simply too many other variables involved.

So what does constitute conclusive evidence that governments are inefficient? In two words: perverse subsidies. These can be defined as subsidies that are economically inefficient and environmentally destructive. In most cases they are also socially inequitable. They include policies that subsidise environmentally-intensive sectors or sub-sectors such energy, mining, fishing, forestry, transport, construction and intensive farming and agribusiness. They amount to hundreds of billions of dollars a year.

Perverse subsidies are nothing new, and neither is knowledge about their perversity. The abuse of resources that is the European Union’s Common Agricultural Policy has been known about, and quantified, for decades. Its environmental depredations and the burdens it imposes on developing countries have been estimated and documented for almost as long. Their size and persistence are all that is really required to show that government does indeed squander our resources, and they cast a shadow over all government programmes where the evidence appears at first sight more equivocal.

18 January 2006

Governments don't learn

[G]overnment bureaucracies non-self-evaluate. At a minimum, agencies with evaluative responsibilities are not invited to evaluate - they are kept out of the loop, their opinions unsought. At a maximum,government agencies actively suppress their own internal evaluative units and are discouraged from evaluating the beliefs and policies of other agencies.

The quote is from Why states believe foolish ideas by Steven van Evera, which is well worth reading in full. We need to be reminded that around 40 per cent of the rich world's income is spent by organisations that resist, almost to the death, the idea of examining their policy blunders and learning from them. I mean, of course, governments. Van Evera says that even in the world wars of the 20th century, when policy mistakes could have grievous consequences: 'the belligerents made large errors without carefully assessing their options. Even rudimentary analysis often would have exposed these errors but was omitted.'

In my limited experience, it is often the smallest decisions in government that receive most scrutiny: whom to offer a three-month contract; which brand of computer printer to buy; that sort of thing. The larger decisions often escape detailed analysis. Sometimes this is unavoidable but what is inexcusable is that lessons from policymaking disasters are never learned. It's now estimated that the war in Iraq will cost the US about 10 times more than the White House projected. This calculation was done by a non-governmental body and it's a safe bet that it will never be referred to when similar enterprises are considered in the future.

14 January 2006

Abandon your principles!

The important thing in moral life is to do what is right, not to expound the principle which makes it so; and so often the principle eludes us, even when the rightness of the act is clear. England, Roger Scruton (page 114)

Regular readers of this blog will be aware of my periodic outbursts against ideology as a policy driver. How often do we speak with good, well-meaning people who are committed to a particular political party, or who identify themselves with a particular political grouping? Then you come across their blind spot, where application of their ideology led to undeniably unfortunate results…but they can’t see that. We probably all have such blind spots. The richness and complexity of history, and the application of selective memory mean that most of us can plausibly attribute all the bad things that happen to the beliefs, politicians, countries or cultures that we don’t like, and all the good things to the successes of the ideology that we favour.

It’s just not good enough now, if it ever were. In an increasingly complex world, relationships between policy programmes and their outcomes are ever more difficult to identify and the consequences of failure ever more disastrous. Our lazy tendency to impose a binary worldview on such potential crises as climate change, terrorism or a nuclear-armed Iran could easily prove fatal – to all of us.

It’s time to quit looking for an all-embracing ideology that tells us whom we can rely on, or how best to approach every political, social or environmental problem. We cannot rely on any god, religion, political approach or economic belief system. All the evidence is that they insufficiently diverse and adaptive to a very complex, dynamic world.

The solution? Subordinate all policy to outcomes. It’s much easier to get consensus on what we as a society want to achieve. A government can then issue Social Policy Bonds. And if we don’t want to get a government involved, and we have a clear idea about what we want to achieve, and sufficient wealth (or wealthy sympathisers) we can issue our own Social Policy Bonds. Ditch ideology, and think in terms of outcomes. Or, as a memorable line in Southern Comfort put it:

Comes a time when you have to abandon principles and do what’s right.

10 January 2006

Government should concentrate on eradicating poverty

Contrary to expectation, there appears to be no link between the size of the welfare state and the level of well-being within it. In countries with generous social security schemes, people are not healthier or happier than in equally affluent countries where the state is less open-handed. Increases or reductions in social security expenditure are not related to a rise or fall in the level of health and happiness either. Source given here.
In my forthcoming book I argue that, when it comes to targeting societal well-being, the case for government intervention is strongest when there is a high correlation between government spending and measurable indicators of social welfare. It is mainly at lower levels of real income and wealth that the correlation between a quantifiable indicator and social welfare is strong and therefore valid as a guide to policymakers. At higher levels of income numerical targeting can be futile or even counter-productive. I suspect this is what lies behind the research that led to the conclusion quoted above. It is the poor who are also most in need of government intervention and it is the poor who would most benefit from it by any objective criteria. But too much government spending has been hijacked into the provision of subsidies to corporations, the wealthy and the middle class. From at least one angle then, western countries have the worst of both worlds: big and remote government, large (absolute) tax revenues, co-existing with pockets of real poverty.

08 January 2006

Policymakers need numbers

Accepting that our societies are big and complex, policymakers need to base their decisions on quantifiable data. This applies under the current policymaking system, and would also apply in a Social Policy Bond regime. It poses serious problems in trying to measure societal well-being, but fortunately more and more indicators of elements of well-being are becoming quantifiable. This story is about a new electronic nose that can sense and monitor low concentrations of gases and odours.  

06 January 2006

Eminent domain

Eminent domain in the United States, or compulsory purchase in the UK and New Zealand, gives the state the power to appropriate private property for its own use. This use is supposed to be in the larger public interest. But in the US (at least) eminent domain is being abused. In the nineteenth century and much of the twentieth, the individual states did invoke eminent domain primarily for public uses, seizing smallholder land to build roads, parks, railroads, hospitals, and military bases. But since then the public good has been redefined, so that it now interpreted as including economic growth that generates increased tax revenue for a local authority. Condemnation Nation by Joshua Kurlantzick describes how city governments in the US combine with large real estate developers and 'big-box' retailers to exploit eminent domain for their own purposes. The losers are homeowners and small businesses.

Everywhere, it seems, government and big business have interests that are at least different from, and often opposed to, those of small businesses and natural persons. Eminent domain is similar to other manipulations of the legislative and regulatory environment, and corporate welfare, which might have started out as well-meaning initiatives genuinely aimed at the larger public interest but have been so abused so that they now achieve the opposite.

I've added a link to Reclaimdemocracy.org, which hosts the excellent Kurlantizick article, to the list of other blogs and sites in the right hand column. Its slogan is 'restoring citizen authority over corporations': a necessary objective, I think. Social Policy Bonds, because of their focus on outcomes, could help. In the case of eminent domain, the city governments that abuse it are doing so to increase their tax revenues. Doing so has become their objective, much as increasing per capita Gross Domestic Product has become the de facto objective of national governments. A Social Policy Bond regime would start out by clarifying and targeting not abstractions like tax revenue or economic growth, but outcomes that are meaningful to natural persons.

04 January 2006

More about Climate Stability Bonds

My article about Climate Stability Bonds in Wellington’s newspaper prompted one correspondent to suspect that my sole intention is to sink the Kyoto agreement. What is disappointing is that climate change and how we should respond have become so politicised that everybody is suspected of having a hidden agenda. So let me be clear: my intention is not solely to sink Kyoto. It’s to get something going that will most effectively deal with the concerns of the many scientists who think climate change is happening at an alarming rate and those who either don’t think climate change is happening or who believe that we can’t do anything about it if it is happening.

With such a vast range of views, and so much at stake, it’s no wonder climate change has polarised opinion. But, as my article suggests, climate change is one potential catastrophe that should not be delegated to the usual suspects. Unfortunately Kyoto and the reaction to it are typical of what happens when policy is subordinated to the agendas of existing institutions and governments. We get an effort that manages to be wildly expensive and ineffectual and so unpopular that it alienates vast sections of the public from its premises, let alone its supposed solution.

Climate Stability Bonds might not be perfect, but I think they are far better than Kyoto in achieving what we actually want to achieve: a stable climate. Climate Stability Bonds would not bear interest: they would be issued by a consortium of interested bodies for whatever price they would fetch when auctioned. They would be redeemable for a fixed sum only when the climate had stabilised. Stability could be defined in terms of an index of measures of the climate, its variability, and the effects of the climate on human, animal and plant life. If world opinion thinks climate change is not happening, the issuers would receive a high price for the bonds when they are floated. If the bonds fetch a low price, bondholders would gain a lot by doing whatever they can to bring about the issuers’ targeted goal of climate stability. They could sell their bonds at any time, to those who think they can do better at further stabilising the climate and who could therefore bid more for the bonds. Bondholders have direct incentives to achieve the climate stability goal.

Climate Stability Bonds would reward those who help achieve a stable climate, however they go about it. The issuers would set the goal, the market for the bonds would allocate society’s scarce resources not in proportion to bondholders’ efforts, but to their success in achieving that goal.

Click here to read a published article which goes into more detail about Climate Stability Bonds. Details of how to order my book on Climate Stability Bonds can be found here.

01 January 2006

Ideology destroys neighbourhoods

By applying theories from the incipient quasi-sciences of psychology and sociology, architects invented new forms of buildings and cities that they believed would transform their inhabitants into the most benevolent of creatures. Suburban Nation (page 238)
The excellent source of that quote (subtitle: The Rise of Sprawl and the Decline of the American Dream) makes painful reading. I wrote below about one of the consequences of government policies that systematically favour suburban sprawl and car-based settlement patterns. Others are equally tragic: for instance, the excess deaths from air pollution in the US (estimated at between 50 000 and 125 000 annually).

While vested interests, such as those of developers and highway construction firms, play their part in this dolorous tale so too does ideology, as the quote shows. You might think that urban and architectural planning disasters are so obvious we’d stop building them. But the organisations responsible, whether government or private sector are just like any others. They are poor self-evaluators. Myths, false propaganda, and anachronistic beliefs persist in the absence of strong evaluative institutions to test ideas against logic and evidence. Organisations turn against their own evaluative units as they threaten jobs and the status of incumbents. Organisations will attack their own thinking apparatus if that apparatus ever does become effective.

Ideology and organisational survival become ends in themselves. The consequences for ordinary people and communities, conscripted into the ideological experiments of people like the architects referred to above, can be disastrous.

A Social Policy Bond regime would not be driven by any ideology with its theories and abstractions. Instead it would stipulate and reward only transparent, explicit, targeted social and environmental outcomes – outcomes, moreover, that are meaningful to natural persons, as distinct from corporate bodies or ideologues.

Mike Linksvayer has kindly named this blog his best policy blog of 2005. Thanks Mike!