30 December 2007

Risk communication

Discussing asymptomatic women aged 40-50 who have participated in mammography, Gerd Gigerenzer writes in his excellent book Calculated Risks (pp41-3):
The probability that one of these women has breast cancer is 0.8 percent. If a woman has breast cancer, the probability is 90 percent that she will have a positive mammogram. If a woman does not have breast cancer, the probability is 7 percent tht she will still have a postive mammogram. Imagine a woman who has a positive mammogram. What is the probability that she actually has breast cancer?
Of 24 physicians who were given this information only two gave the correct answer - which is 9 percent. Probabilities are difficult for most of us to get a handle on. Gigerenzer is a persuasive advocate for instead using natural frequencies:
Eight out of every 1000 women have breast cancer. Of thse 8 women with breast cancer, 7 will have a positive mammogram. Of the remaining 992 women who don't have breast cancer, some 70 will still have a positive mammogram. Imagine a sample of women who have positive mammograms in screening. How many of these women actually have breast cancer.
It's much easier to see from this that only 7 of the 77 women who test positive actually have breast cancer, and indeed most of 24 (different) physicians given the information in this form, estimated correctly. Gigerenzer also discusses AIDS testing and the often tragic reaction of people who test positive when they, their testers and their counsellors know nothing about how frequently such positives are false:
Since the first AIDS cases were described in 1981, more manpower and money have been poured into researching HIV than any other disease in history. Little, in contrast, has been done to educate the general public about what an HIV test result means. (p139-40)
Ignorance about risk bedevils the law courts as well:
Many students who spent much of their life avoiding statistics and psychology become lawyers. Out of some 175 accredited law schools in the United States, only one requires a course in basic statistics or research methods.... [S]tudents who excelled in critical thinking could not evaluate whether a conclusion drawn from statistical evidence was correct or incorrect. (p159)
I think the lessons from this are important for policymaking, and not just because many of our policymakers used to be lawyers. One lesson is that it's quite possible for even well-meaning professionals to have no idea about statistics and risk. As our economies and societies grow ever bigger and more complex, policymakers will rely more and more on statistics. Inferences drawn from them need to be robust. My feeling is that the ignorance that Gigerenzer documents thrives in the compartmentalized, specialized policy environment we have today. Doctors, lawyers and politicians don't know very much about risk and neither does most of the public. There's very little monitoring of policies for effectiveness and there's very little incentive to get policies right. You can't (easily) legislate for effective risk communication and understanding, but what you can do is throw the achievement of social goals open to the market - by using Social Policy Bonds for example - so that errors of the sort that Gigerenzer documents do not persist and entrench themselves.

29 December 2007

Marjane Satrapi

Graphic novelist Marjane Strapi was interviewed in April 2005 for Salon Magazine (gated, but the full text is here). She says:
If I have one message to give to the…American people, it's that the world is not divided into countries. The world is not divided between East and West. You are American, I am Iranian. We don't know each other, but we talk together and we understand each other perfectly. The difference between you and your government is much bigger than the difference between you and me. And the difference between me and my government is much bigger than the difference between me and you. And our governments are very much the same.
This is a compelling insight. It's especially poignant ("We, the people....") that Ms Satrapi can accurately point to the gap between the American government and American citizens. Big government need not necessarily be a problem in itself, but it tends to come with remote government - which, I believe, is. What's more, big government is self-entrenching. It is comfortable dealing with (and accepting campaign funding from) big corporations. Big business of all sorts enjoys explicit subsidies, as well as a favourable regulatory environment, and the implicit subsidies of a government-funded infrastructure and (often) economic protection. Governments confuse the fortunes of big business with those of the wider economy, and those of the wider economy with those of society. One result is that the individual citizen in most democratic western countries feels as remote from decision making as does the average Iranian citizen.

27 December 2007

Incentives to engage

According to Jim Giles, writing in the New Scientist (subscription), New York this year became the first city in a rich country to try to alleviate poverty by offering cash incentives to improve people's engagement in areas such as education, health and employment. Mexico was the pioneer. Top-down projects, such as subsidies for staple foods and healthcare were mostly unsuccessful. So the government gave cash payments to low-income families to be spent however they wanted, provdied they behaved in approved ways. FOr example, a family could earn about $20 a month by enrolling a child in primary school and ensuring that s/he attended regularly. Similar payments were made if children had regular health check-ups.

In the rich countries it is mainly the US that uses such incentives, and there only in a few isolated drug-treatment programmes. Whether they succeed in stopping drug abuse in the long term is uncertain.

It's a controversial approach, but one of which I approve.I'd prefer governments not to make the payments directly, but rather to set broad health, education and employment targets, and let the private sector work on achieving them. But accepting that reducing substance abuse (for instance) is an end in itself, I'd encourage the disconcertingly rare approach of setting a target and doing whatever is necessary to achieve it. The chosen methods may seem controversial, counterintuitive or as in this case, a subsidy to the undeserving or the dissolute, but so long as they are ethical and legal I think it would be irresponsible to rule them out.

24 December 2007

Ludicrous

The Accident and Emergency (A&E) departments in English hospitals have to ensure that 98 percent of patients transferred or discharged within four hours. If they fail, they are subject to financial penalties. One result is that, since these targets were imposed, more patients are transferred to hospital wards 'just in case'. This is costly in resource terms, but it benefits hospitals who receive as much as £1000 per admission, compared with about £100 for a patient treated in A&E. And, as The Times puts it:
The increase in admission through A&E could have another explanation, apart from the four-hour target. To admit more patients is greatly in the financial interests of hospitals because under payment by results they get paid much more. Using the system in this way is called “gaming” within the NHS and is frowned upon.
This the sort of nonsense that happens when a government imposes Mickey Mouse micro-targets. The letter of the intent is strictly adhered to; the spirit is ignored. I do agree that we need some sort of target for government funds, but such targets must be broad and meaningful to ordinary people. A&E throughput rates are irrelevant to the health of the population; if government is concerned about health then it should target health. Of course, defining health and measuring it is more difficult than measuring the length of stays in A&E departments, but with sufficient ingenuity - of the sort that is currently applied to gaming the system - it can and should be done.

23 December 2007

Politics as an Enterprise System

In a review of The Social Life of Information by John Seely Brown and Paul Duguid, Simon Head describes:

"enterprise systems," or ES, which bring together computer hardware and software to standardize and then monitor the entire range of tasks being done by a company's workforce.
It is ES that Wal-Mart has applied to the retail economy, to the great benefit of its shareholders.

Among manufacturers, wholesalers, and retailers like Wal-Mart, ES offers obvious economic advantages. It relies on electronic tags, sensors, and "smart" chips to identify goods and components at different stages of the production and distribution chain, a practice that has brought enormous gains in productivity. Such innovations allow managers to find out immediately not only that production and distribution are falling behind schedule, but also why.
But increasingly ES is being applied to bureaucracies, white-collar business, and universities. ES technologies reduce complex human activities to a series of processes that can be mapped out and programmed by a computer. Writing about the US, Mr Head continues:

Nowhere have these technologies been more rigorously applied to the white-collar workplace than in the health care industry. The practices of managed care organizations (MCOs) have provided a chilling demonstration of how enterprise systems can affect the work of even the most skilled professionals, in this case the physician. The goal is to standardize and speed up medical care so that insurance companies can benefit from the efficiencies of mass production: faster treatment of patients at reduced cost, with increased profits earned on increased market share.
This seems to work only from the very narrow perspective of the MCOs' accounts. Patients experience similar frustrations (and worse) to those that all of us feel when ringing a call-centre - where ES is also widely used.

And what about the workers? Mr Head mentions also The Culture of the New Capitalism, in which Richard Sennett

describes how the widespread use of enterprise systems has given top managers much greater latitude to direct and control corporate workforces, while at the same time making the jobs of everyday workers and professionals more rigid and bleak. The call centers of the "customer service" industry, where up to six million Americans work, provide an egregious example of how these workplace rigidities can make life miserable for employees. At call center companies such as AmTech and TeleTech, call center companies to whom many corporations outsource their "customer relations management," agents must follow a script displayed on their computer screens, spelling out the exact conversation, word for word, they must follow in their dealings with customers. Monitoring devices track every facet of their work: minutes spent per call, minutes spent between calls, minutes spent going to the bathroom. ...

The most powerful passages in Sennett's book describe how these unnerving changes are destroying aspects of white-collar employment that he believes are essential to the well-being of workers, whether they are nurses, call center agents, bank officers, or mid-level managers at Con Edison. He describes how the spread of ES has resulted in a declining emphasis on creativity and ingenuity of workers, and the destruction of a sense of community in the workplace by the ceaseless reengineering of the way businesses operate. The concept of a career has become increasingly meaningless in a setting in which employees have neither skills of which they might be proud nor an audience of independently minded fellow workers that might recognize their value.

This is bad enough, but what happens when bureaucracy and politicians adapt ES for their own purposes? In New Zealand and Australia it appears that the independence of public servants and their ability to offer impartial and objective advice to politicians is diminishing. Policymaking becomes a top-down, hierarchical process, designed to maximise the popularity - as measured, with ever less credibility by general elections - of the ruling political party. Officials become subject to the ennui that Sennett describes. Flair and originality are discouraged, process is king. We are all Wal-Mart employees now!

All this serves to widen the already big gap between politicians and ordinary people. Slipping through the cracks are such vital but difficult-to-measure concerns as the wellbeing of society. A Social Policy Bond regime could close this gap. The key is to target outcomes that are meaningful to ordinary people. Such outcomes would be inextricably linked to people's wellbeing. Goals would originate from the public, who would be motivated to participate in politics because their views would count. Such an approach requires that politicians relinquish some of their power. Frankly, and mainly for that reason, it will be a while before it happens. But the alternative of an ever-widening gap between politicians and the people they represent and the continuing alienation of people in government service at any level from meaningful employment is too dreadful to contemplate.

21 December 2007

Outcomes versus emotions as policy drivers

What should drive policy? Not ideology, I don't think, because it essentially faith based; the faith being that approaches that succeeded in the past will succeed today. (Paul Krugman has a column today on how conservative ideology has done much to precipitate the mortgage disaster in the US.) Not spending, because pumping money into activities or institutions is no guarantee efficiency in delivering outcomes will be maintained or improved. I'm also suspicious of top-down restructuring having worked in an organization that was restructured eight times in my 17-year career there. The immediate result was a loss of morale, losses of well-qualified employees, and waste of resources. There were short-term accountancy-type gains, but the main discernible goal seemed to be to enhance the curriculum vitae of those who planned the restructures. It's not only me who is skeptical of these sorts of policy driver. But there are worse, and one such is emotion.

A recent article on Science Daily is titled "The Effect of 'In-Your-Face' Political Television on Democracy". It reports on research showing that:
[T]he incivility and close-up camera angles that characterize much of today’s “in your face” televised political debate also causes audiences to react more emotionally and think of opposing views as less legitimate.
I think this finding is important. Television is vastly influential in politics. TV corporations have their own imperatives, and these have everything to do with audience figures (and subscription and advertizing revenue) and very little to do with fostering the mutual respect of opposing sides in political debates. Arguments are polarized, attitudes become extreme on all sides. In the US the influence of emotion as a policy driver seems to me to show in the attitudes towards, amongst others,smoking, guns, abortion and capital punishment. To this outsider there seems very little mutual respect on either side of those arguments, and the disease seems to be spreading within the US to immigration and welfare. And outside the US? I don't really know what television is like in other countries except perhaps New Zealand, where there also seems to be a descent into incivility.

It seems that emotion is supplanting other policy drivers. It's not too much of a surprise, because society is growing ever more complex as are the relationships between cause and effect in social and environmental policy. Emotion is easier to communicate and to exploit. But as a policy driver it has obvious faults. It's far too easy to manipulate for mercenary and more sinister ends. I'd much prefer to see meaningful outcomes drive policy. These could bypass the complexities of our economy and society, so they would be easy to understand. It's far simpler, say, to target violent crime, or climate change, than it is to make a case for (say) subsidizing leisure centres for youths or urging poor countries to stop building coal-fired power stations. These actions might be necessary and efficient, but it should be up to the market to make the case for carrying them out, rather than remote, cumbersome and monolithic central government. But that's not the only advantage of targeting outcomes: the other is that it would be direct and accessible to ordinary people. It would appeal to people's rationality, make us aware of trade-offs, encourage public participation and buy-in, and engender mutual respect amongst people with different views - in stark contrast to appealing to people's emotions.

17 December 2007

Ideology and AIDS in Africa

The history of the response to African AIDS can be divided into two phases: (1) fiddling while Rome burns, and then (2) trying to use the fiddles to put out the fire.
So writes William Easterly in the New York Review of Books. The World Bank and aid organizations were slow to act.
Western scientists flew into Africa, collected blood samples, and flew out, seemingly much more interested in getting recognition in the Western press than in communicating useful and sensitive knowledge to African leaders and the public.
Western scientists were tactless; western media played up to this:
[B]eing accused of promiscuity and having Africans labeled as the equivalents of Typhoid Mary did not make their leaders or the general population all that receptive to messages from Western scientists on how to confront the epidemic. Many Africans reacted with a mixture of denial and conspiracy theories. Maybe the CIA had targeted Africans during the cold war with a scientifically engineered virus....
Helen Epstein in The Invisible Cure, the book that Mr Easterly is reviewing, understands that the AIDS crisis in Africa is caused by 'concurrent relationships'. As Easterly puts it:
To oversimplify a little, Africa's AIDS tragedy is that it combines greater Western-style sexual equality for women with social norms that permit simultaneous long-term sexual relationships for both partners.
Infection rates in Uganda fell, largely because of its crucial 'Be Faithful' message. Tragically, this message has been ignored by ideologues of both the left (who favoured condom use) and the right (who favoured abstinence). A huge share of the current western effort:
has been concentrated on getting antiretrovirals [ARVs] to those in Africa with full-blown AIDS. There is nothing wrong with the urge to treat the sick, but in practice it has crowded out nearly every other response to the epidemic. ARVs are now reaching only a tiny minority of those in need and it will never be feasible to treat everyone. .... The "Be Faithful" message was neglected because it was not of interest to the bureaucracy concerned with AIDS. As Epstein muses acidly: "Zero Grazing" had "no multimillion-dollar bureaucracy to support it."

This appears to be another distressing case of well-meaning, hard-working people being hampered by their own ideology in their genuine efforts to alleviate a human disaster. I think this is a clear case where a Social Policy Bond approach that rewarded people for reducing AIDS infection rates, however they do so, would be far superior. Aid organizations, and others, would direct funds impartially to where they would generate the greatest return per dollar outlay. Idelogues would go somewhere else: Social Policy Bonds would enlarge and motivate the pool of people who are solely concerned to reduce the incidence of AIDS, rather than validating their worldview.

16 December 2007

Targeting longevity

If ever Social Policy Bonds were to be issued, they may well make use of existing sources of data that can be used, with some massaging. Though climate stability doesn't seem to be explicitly targeted, for example, there are large and increasing volumes of data on the world's climate and its variations over time and space. Now I read that Goldman Sachs is to compile publish a mortality index, tracking a "monthly a pool of 46,290 anonymous U.S. citizens over age 65". The rationale has nothing, unfortunately, to do with Social Policy Bonds, but this is the sort of information that would be helpful in targeting longevity, or some refinement of it, perhaps in countries where it is a reliable indicator of wellbeing. Note that, if the financial benefit that could be accrued by manipulating mortaility rates downwards were sufficiently high, the index could indeed stimulate longevity-reducing initiatives.

14 December 2007

Climate change and discount rates

A not-too-technical discussion on the discount rate to be applied to the dmaage caused by climate change is here. As I say in my comment there, I can't help thinking that the cost-benefit method, in being applied to climate change has little relevance or meaning. For one thing, it's being applied to the so-called costs of mitigation, but the uncertainties extend to the relationship between gas emissions and climate change. I'd prefer to see climate change tackled directly and in fact targeting climate stability, rather than gas emissions, and subordinating policy to that would make life much easier. I suggest agreeing on a target for climate stability, and contracting out the achievement of a stable climate to the market. This means no prejudging of how best to achieve the goal: mitigation might be necessary, but there will other, possibly more efficient solutions, as yet unthought of by those who would commit us to gas reductions and only gas reductions.

13 December 2007

Celebrity policing

Explicit, verifiable outcomes can function like a compass to policymakers. In their absence, there's no real measure of how well or badly our governments are doing. No real measure - but plenty of false ones, including the amount of funding a particular body receives or, increasingly nowadays, the media attention given to one's actions. The police aren't paid for performance: increased crime figures are routinely attributed to more comprehensive reporting... so how does a police force prove that it's effective? Not by reducing crime; not these days, but by appearing in a favourable light in the mass media. Writing about the UK, Mick Hume says:
[I]the day-to-day reality of policing, there is a discernible tendency to prioritise high-profile cases that might bring exposure and kudos rather than mere convictions. ... The police now seem to chase celebrities around almost as hard as the paparazzi do, often with farcical results....All of this is the flipside of the crisis of traditional authority that the police, like every other state institution, have suffered in recent years. They have attempted to rebrand the police as a ‘service’ rather than a ‘force’, indulged in very public self-flagellation over being ‘institutionally racist’, and done everything possible to distance themselves from the old image of ‘the heavy mob’. But the loss of a clear sense of mission has often left the police appearing paralysed, a crisis of self-confidence well illustrated after the successful prosecution of the Met on health and safety grounds over the shooting of Jean Charles de Menezes. Uncertain of how to regain authority and fearful of the results of doing anything decisive, the police have often been reduced to staging the sort of high-profile PR stunts discussed here, to give the appearance of being in command.
There are genuine problems in measuring how well police perform: it is not just crime that unravels the fabric of society but also fear of crime, which is inescapably subjective. Even so, some research into objectively verifiable measures would I am sure generate more relevant performance indicators than the number of high-profile media appearances by top policemen, which is what appears now to be one of our police force's main goals.

11 December 2007

Image versus reality

Bill McKibben's book, The Age of Missing Information, was written 15 years ago, but it is still pertinent. Commenting on the sheer volume of television that we watch (25 or 30 hours per week) and the difficulty we have in hearing subtle but critical messages against it, McKibben says:
If God decided to deliver the Ten Commandments on the Today show, it's true he'd have an enormous audience. But the minute he was finished, or maybe after he'd gotten through six or seven, it would be time for a commercial and then a discussion with a pet psychiatrist about how to introduce your dog to your new baby (page 216).
Our politicians pander to this. Slow-moving stories without televisual appeal are ignored; campaigns that sound far-reaching and momentous are announced in response to headline news, They're usually ineffectual or destined to be forgotten as media attention moves onto something else. See, for instance, this story on the Bush Administration's response to the subprime lending problems in the US. This is government by manipulation: image is the over-riding priority. Appearing to be busy is crucial. Spend money, form committees, restructure: anything, anything at all, except agree on a meaningful outcome and subordinate policy to that.

08 December 2007

Subsidizing planetary destruction, continued

I haven't read the entire report Fishy Farms (pdf), by non-profit consumer organization Food and Water Watch, which describes the problems created by open ocean aquaculture in the US, but here are some of its conclusions:
• Each pound of fish sold by the University of New Hampshire’s demonstration project costs about $3,000 in our taxpayer dollars to produce.

• Aquaculture will not reduce pressure on wild fish populations. The industry is already the world’s largest user of fishmeal and fish oil, consuming 80 percent of the world’s fish oil and half the fishmeal each year.

• It can take two to six pounds of wild fish to produce one pound of some types of farmed fish.
Thankfully the subsidized research still seems to be at the experimental phase. Costs to US taxpayers have so far been limited to $25 million - not much compared the billions that routinely get spent on equally damaging agricultural subsidies. Fishy Farms is summarized here.

07 December 2007

Policy as if outcomes are irrelevant, continued

I can't add anything to this, by Matthew Parris:
[The UK] Department for Work and Pensions has a Director of Communications, a Head of Strategy and Planning, a Head of Strategic Communications, a Head of Communication Operations, a Head of Internal Communications, a Head of Network Services, a Head of Communications (Child Support Agency), a Head of Marketing (JobCentre Plus), a Head of Communications (JobCentre Plus), a Head of Customer Relations, and a Head of Customer Acquisition.

Some news requires no comment.

05 December 2007

Energy efficiency is not a goal

From Planet Ark:
American consumers are driving bigger gas-guzzling cars and buying more air conditioners and refrigerators as the overall energy efficiency of such products improves.... In what the study calls "the efficiency paradox," consumers have taken money saved from greater energy efficiency and spent it on more and bigger appliances and vehicles, consuming even more energy in the process.

"While seemingly perverse, improvements in energy efficiency result in more of the good being consumed -- not less," said Jeff Rubin, chief economist and chief strategist at CIBC World Markets, which conducted the study. The study concludes that stricter energy efficiency regulations aren't the answer to concerns over climate change and the depletion of oil supplies.
Exactly. Efficiency is not an end in itself; it's a means to an end, and governments would do better to target such ends rather than what they think is the best way of achieving them. This confusion bedevils government policy in many other areas: rather than target literacy, they target class sizes; rather than target unemployment, they introduce corrupt and wasteful import barriers; they rather than target global peace they pile up ever more weapons... the list goes on. "The problem is, energy efficiency is not the final objective," Rubin said. Indeed. Martin Wolf, of the Financial Times agrees. Discussing climate change he says:
Yes, we have a moral obligation to consider both the poor and future generations. Yes, the fact that the changes in the composition of the atmosphere are, to all intents and purposes, irreversible makes early and effective action essential. But acceptance of these points will not be sufficient to obtain meaningful action, instead of pious aspirations and much pretence. A good example of the latter is the proposition that it is enough to lower the carbon intensity of output. Alas, it is not, unless the reduction is very large indeed.

03 December 2007

Sacrifices

David Foster Wallace writes:
What if we chose to regard the 2,973 innocents killed in the atrocities of 9/11 not as victims but as democractic martyrs?... In other words, what if we chose to accept the fact that every few years, despite all reasonable precautions, some hundreds or thousands of us may die in the sort of ghastly terrorist attack that a democratic republic cannot 100-percent protect itself from without subverting the very principles that make it worth protecting? ... Would it be monstrous to refer to the 40,000-plus domestic highway deaths [in the US] we accept each year because the mobility and autonomy of the car are evidently worth that high price? The Atlantic, (subscription) November 2007
Mr Wallace, rightly in my view, laments the lack of a serious national conversation about the relevant tradeoffs. The discussion is about 'The American Idea' , and Mr Wallace goes on to ask:
What are the effects on the American idea of Guantanamo, Abu Ghraib, PATRIOT Acts I and II, warrantless surveillance...etc?
Even if they have made Americans safer 'are they worth it?'
Where and when was the public debate on whether they're worth it? Was there no such debate because we're not capable of having or demanding one? Why not?
All good questions. I wonder whether their answer is largely a technical one. Of course, people with power rarely relinquish it voluntarily. And there are highly effective lobby groups who will do a lot to prevent meaningful debates about policy priorities. But the real reason may be less sinister: it's that we are more consumed by process, gesture, symbol, media interest and activity when we are making policy, rather than outcomes. Nobody has strong incentives to monitor policies for their effectiveness, so that gets a very low priority. Trade-offs, such as that between road transport and alternatives, have to be painstakingly guessed at, long after policies are implemented and entrenched.

The Social Policy Bond principle, by obliging us consider the outcomes we want, would encourage discussion of trade-offs. It would not end the debate about sacrifices between, for example, safety and freedom that Mr Foster Wallace raises, but it would bring to the forefront the notion of such tradeoffs. By making them explicit, an Social Policy Bond regime could both make debate possible and bring about more public participation in it.

30 November 2007

Saturated fat and climate change

A story in the November issue of Men's Health, What if bad fat is actually good for you? by Nina Teicholz tells us that, after numerous studies, there is no convincing evidence that saturated fats are bad for you. But the far-reaching implications of this fact have been widely ignored. Of wider interest are the difficulty of getting work published that contradicts accepted dogma, and the disconnect between scientific fact and policymaking. Medical research is bedeviled by many of the problems that afflict analysis of social and environmental problems, especially extreme complexity and the difficulty of performing controlled experiments. So it seems quite plausible that beliefs and policies accepted by the broad establishment can diverge from reality in medicine just as much as in social welfare or environmental policy. Vested interests form and co-operate with each other to resist change. Very low priority is given to the essential (but admittedly complex and unexciting) task of monitoring policies for their effectiveness. It can take a crisis to force policy to adapt to reality.

One way of resolving this problem would be for policymakers to stay out of complex areas. The difficulty with this is that government has already moved in to such a degree that it has crowded out society's other ways of dealing with problems. We can actually see this process happening today when government, for reasons that appear compelling, becomes involved in such issues as disciplining children. Nothing necessarily wrong with this sort of encroachment but the danger is that they substitute for society's own coping mechanisms, which then disappear permanently - and that these evolved customs and taboos might have been more efficient than the policies that replaced them. We begin to depend on government intervention, even when such intervention defies all commonsense: take a look at the long and lamentable history of farm support policies for the best-documented example.

If withdrawal of government is no help, might not the answer lie in the replacement of a handful of experts by a diverse, adaptive group of motivated people? Very often, in matters of complex policy like, say, heart disease or climate change, we know exactly what we want: longer, healthier lives or climate stability. But we have no clear idea of how to get there, and probably the best approaches vary unforseeably with time, geographical area and a host of other variables. By targeting our desired outcomes, and rewarding people for achieving it, we could replicate, accelerate and even improve on the evolution of sensible, diverse, adaptive approaches that in natural societies, as in the individual organism, make for long-term well-being in ways that are socially and environmentally sustainable. This is the essence of the Social Policy Bond approach.

27 November 2007

Nobody really knows

In today's London Times Gerald Baker describes some of the bad things happening to the US economy. For instance: the US dollar has fallen by 40 percent in the past 5½ years:
If you had asked the average gloomy economist back then what would be the implications of such a steep fall in the dollar, the answer would have included a good deal of pessimistic conventional wisdom. Such a sharp drop in the value of the currency would, it was generally assumed, spell real trouble for the value of US assets. Demand for US Treasury bonds would surely fall sharply. In fact, the decline in the dollar’s value would be both cause and effect of a flight from dollar-denominated assets. Interest rates, which move inversely to bond prices, would, therefore, surge, presumably prompting a serious retrenchment. Foreigners would surely offload many of their US equities, too, and Americans would not be far behind them.

Then there would be an inflationary surge. A 40 per cent decline in the dollar’s value, would, other things being equal, push up import prices by a similar amount and the feed-through to the broader economy would be swift and painful. The Times, 27 November
But what has actually happened? Mr Baker continues:
In the past 5½ years, US Treasury prices actually have soared. In early 2002 the yield on the benchmark ten-year Treasury was about 5.5 per cent. It is now about 4 per cent. Equities, on a broad measure, are up by about 50 per cent in the past five years. Inflation? It has gone up, but hardly enough to notice. In December 2002, the core consumer price index ...was up 1.9 per cent from a year earlier. Last month it was up to 2.2 per cent.

Now there are lots of specific reasons that explain these unexpectedly benign outcomes: foreign central banks still buying US Treasuries; global savings keeping demand strong for all US assets; prices held low by international competition. And it is still true that we face serious challenges. But when you think of all the factors that could have produced disaster in the past five years – not just a dollar collapse but soaring oil prices and an overextended housing market – you have to conclude that something quite fundamental has changed. The US and global economies continue to demonstrate a remarkable structural resilience and flexibility unseen in modern history.
Remarkable, yes, and unforeseen, even by the experts. It reminds me of work done by Eban Goodstein, which shows that not only interest groups, but disinterested commenatators routinely overstate the costs of pollution control. The link doesn't seem to be working right now, but here is one example Goodstein gives:
Asbestos. When the Occupational Safety and Health Administration (OSHA) instituted regulations covering exposure to asbestos in the early 1970s, they hired a consulting firm to estimate the cost of compliance. Two later studies found that the original prediction for the cost of compliance was more than double the actual cost, because of overly static assumptions.
The common factor between the poor performance of experts at prediction is probably complexity rather than self-interest. From the point of view of a Social Policy Bond advocate, the implication is that subordinating policies to outcomes can work: if there are sufficient incentives, then large numbers of motivated people can defy the doomsters. Costs of implementing valuable social and environmental policies cannot be predicted by experts, so why not target desirable outcomes - however seemingly unrealistic or idealistic - and let the market worry about the cost? We may well be pleasantly surprised.

25 November 2007

Privatizing libraries

There may be no more eloquent statement about the erosion of our [ie, the United States'] civic connectedness than the news that public libraries around the country are starting to outsource their daily operations. Yes, public libraries are being privatized. This should not be entirely surprising, given how jails, highways and even military operations are being privatized these days. Yet it does raise the distressing question – If libraries are vulnerable, where will this momentum for dismantling our civic institutions end? David Bollier

I can't add much to Mr Bollier's piece. I do recommend you read his and other posts that appear in OnTheCommons. Privatized libraries are one aspect of the deterioration of our commons. If asked, I am sure most of us would decry environmental pollution, unsafe streets, and other symptoms of an eroding public life. There are trade-offs of course: less pollution means (often) a lower material standard of living; lower crime can mean a more intrusive police force, and privitized libraries could mean lower property taxes. These trade-offs are made via the political process. The problem is that this process is weighted heavily in favour of sectoral interests, which tend to favour big business at the expense of small businesses and individuals, and numbers (as in GDP per capita) at the expense of things that cannot easily be quantified, like the state of the commons. The process, in short, is unrepresentative.

The sort of outcomes that Social Policy Bonds would best target - broad social and environmental goals - would most probably not directly mention the ownership of libraries. But a bond regime would, because it does target outcomes, draw more people into the policymaking process. Once involved, people would be more aware of the trade-offs and more concerned about our deterioriating commons. We might make choices that result in the commons' continued erosion - though I doubt that - but at least we'd be doing so with our eyes open.

23 November 2007

Why we have green leaves and Kyoto

From a letter by Raymond Firestone to the New York Review of Books:
[N]atural selection proceeds via a narrow point-to-point pathway, not a wide all-encompassing one. in solving any given problem it can make use of only what happens to be available at that particular time.
Black leaves might be superior to green, but no new structure will appear...
unless it is immediately adaptive.... Thus green leaves dominate beacause they happen to have come along before black ones, and also because chance uncovered no route from green to black that was adaptive at every new step. NYRB, 11 October, page 49
Is there something analogous to our societies here? Perhaps so. I don't think we can assume, for instance, that left to their own devices our vast number of decision-making bodies, including not only corporations, individuals, interest groups and non-governmental organizations but government agencies as well, will somehow generate solutions to such universally recognised problems as climate change, famine or war.

What's missing, in my view, is the focus in both evolution and society, on the immediate. Bodies like the United Nations refect our own limitations: they do genuinely want to see an end to (say) climate change, but as an institution its focus is on the immediate: it looks at what it thinks is the next step forward. But the direction of such a step is limited by its imagination, which means that policy evolution will be overly based on what is current. Rather than stipulate a desirable end point (climate stability, for instance), our decision-makers are prepared to delegate only the next step of policy implementation to the wider population. So we get a huge political and financial effort directed at reducing anthropogenic emissions of greenhouse gases. (And even this will be done at less than maximum efficiency.) There will, as a result be incremental change - better fuel efficiency here, more expensive power there - but larger adaptations, which might be dramatically more efficient, are not envisaged nor encouraged by our current political process.

The Social Policy Bond principle is different. It contracts out the achievement of broad social and environmental goals, like climate stability or world peace, to entire populations of would-be investors. So a broader, more highly motivated coalition would decide on the direction and magnitude of the most efficient ways of achieving society's goals. I think that would be an improvement.

21 November 2007

Disaster capitalism

From Harper's Index, October:
  • Average grade for US infrastructure given by the American Society of Civil Engineers in 2005: D

  • Percentage change since 1990 in the average size of an American Master bathroom: +50
This seems to me to typify a trend seen in most of the western countries: a degredation of the commons at a time of rising private affluence. This theme is explored in more depth in the same issue of Harper's, in an article by Naomi Klein: Disaster Capitalism (subscription):
    [D]isasters have become the preferred moments for advancing a vision of a ruthlessly divided world, one in which the very idea of a public sphere has no place at all. ... [Katrina] was created and deepened by public infrastructure that was on its last legs; in the years since, the disaster itself has been used as an excuse to finish the job. ... Not so long ago, disasters were periods of social leveling, rare moments when atomized communities put divisions aside and pullted together. Today they are moments when we are hurled further apart, when we lurch into a radically segregated future whre some of us will fall off the map and others will ascend to a parallel privatized state, one equipped with well paved highways and skyways, safe bridges, boutique charter schools ....
    Importantly, if Ms Klein's thesis is accurate, there's no self-correcting mechanism, as she is well aware:
    The disaster-capitalism complex does not deliberately scheme to create the cataclysms on which it fees...but there is plenty of evidence that its component industries work very hard indeed to make sure that current disastrous trends continue unchallenged. Large oil companies have bankrolled the climate-change-denial movement for years....
    My impression is that something similar seems to be happening in both the UK and New Zealand. Whether this is a product of right-wing think tanks, ethnic diversity (or rapidly changing ethnic diversity), the welfare state, or the discredited economics of socialist alternatives, I don't know and in a sense it doesn't matter. If there's widely agreed to be a problem, then the Social Policy Bond principle is about motivating people to solve it, rather than channelling resources into identifying its cause.

    By its nature, the commons is a difficult thing to define and quantify. For instance, random crimes of violence might rise, but that could deter people from exposing themselves to them; they stay at home or drive everywhere, and crime rates fall. But we can try to get a handle on the non-subjective aspects and we can try to encourage the people who generate solutions. A thriving economy does generate more material wealth, but governments that are beholden to large corporations are unlikely to do a good job of alleviating our social and environmental problems. The sort of questions that a Social Policy Bond regime would stimulate - along the lines of: what do we want as a society? - could go a long way to avoiding the disaster capitalism that Ms Klein writes about.

    19 November 2007

    The limits of a free market

    More from Clive James (in a chapter written about the British General election of 2001):
    The New Britain is philistine to the core. It is one of the cruellist paradoxes of my time in Britain that its onece fruitful broadcasting system now reinforces the stupidities it was brought into being to ameliorate. ... [W]hen Margaret Thatcher removed the quality requirement from the ITV [Independent TV] franchise bids, she blew the whistle for the rush to triviality. It was a crime bred from the capital error of thinking that an ideology can be a view of life. The free market has an unrivalled capacity to harness brains. But the free market does not have a mind, and its bastard child, managerialism, is not a thing of the spirit: just a toy for the untalented. The Meaning of Recognition (page 169)
    I agree with Mr James here. The key, I think, is to harness the brains not solely to the performance of corporations, but to the social good. That is the Social Policy Bond principle: to channel the free market's incentives and efficiencies into achieving social and environmental goals.

    16 November 2007

    Conflicts between interest groups

    Clive James writes:
    [W]e tend to believe that there is some natural state of justice to which political life would revert if only the conflicts between interest groups could be resolved. but whatever justice we enjoy arose from the conflicts between interest groups, and no such natural state of justice has ever existed. The only natural state is unjust.... The Meaning of Recognition, page 4
    Indeed, the unplanned effects of the things our species sets out to do can be beneficial as well as disastrous. Adam Smith's Invisible Hand generates material benefits, as does government planning. But they also create social and environmental problems, and only partly because of market failure. In my view, the world is too small now for the solution of social and environmental problems to be left to chance. But on the other hand, government usually does a terrible job in actually achieving our social goals. There is a middle way, between the happenstance of a free market approach to solving our problems, and the coercive, and (often) ham-fisted, inefficient way of central planning. Let government do what it does best: articulating society's goals and raising the revenue to achieve them. And let the market do what it does best: allocating that revenue to the most efficient achievers of the goals that government targets.

    This is what Social Policy Bonds attempt to do. They would, I believe, achieve our social and environmental goals more efficiently and less randomly than the current system. The planet as a whole cannot afford either the time for the conflict between interest groups to be resolved or the collateral damage that such a conflict is inflicting on our ever smaller planet.

    14 November 2007

    Subsidies to the rich, continued

    The European Court of Auditors submits its annual report on EU expenditure. As has been the case for more than 10 years it refuses to approve it:
    The Court again gives an adverse opinion on the legality and regularity of the majority of EU expenditure: primarily the part of agricultural spending not covered by IACS, structural policies, internal policies and a significant proportion of external actions. In these areas there is still a material level of errors found in the payments to final beneficiaries, albeit to different levels. Source: farmsubsidy.org
    In the chapter on farm subsidies, the report says:

    the Single Payment Scheme has led to a substantial increase in the number of hectares in respect of which direct aid is paid and beneficiaries. The Court has also noted among them railway companies (England), horse riding/breeding clubs (Germany and Sweden) and golf/leisure clubs and city councils (Denmark and England).

    As farmsubsidy.org says:

    Little of this is any surprise to the farmsubsidy.org network, whose members have been finding unexpected recipients of farm subsidies alongside the many royal recipients (Queen Elizabeth, Prince Albert of Monaco, the Duchess of Alba etc) and corporate beneficiaries Arla, Campina, Nestle, Philip Morris, Tate and Lyle etc). Who would have thought that Lufthansa and Gate Gourmet are getting six figure payouts in farm aid every year? This has been hidden from the public for decades, but transparency is finally bringing it all out into the open.

    12 November 2007

    Political parties

    Reacting to an article by Simon Jenkins in the London Review of Books, correspondent Neil Forster writes:
    One can but admire the energy that Simon Jenkins displays rowing strongly as he does when deciding on the treatment best calculated to cure our ailing democracy (LRB, 20 September). But that energy rather goes to waste once you appreciate just how regressive Jenkins’s basic proposal is: that the political parties in this country set about ‘re-engaging with the public’. How they’re to do this he doesn’t so far as I can see tell us. More important, why on earth should they want to re-engage with the public when they are doing very nicely thank you without making any such noble attempt?
    The discussion is about how political parties (in the UK) should be funded at a time when party memberships are vanishingly low. I'm not an enthusiastic supporter of political parties, or any institution that selects on the basis of ideology. Society is too complex and fast-changing for ideologues to keep up, and that's one reason for the universally acknowledged widening gap between politicians and the people they are supposed to represent. Perhaps new sorts of political organization are needed.

    Mr Forster continues:
    'A party in receipt of state money loses its incentive to build its base,’ according to Jenkins. Unable as I am to perceive any such incentive as existing in our current circumstances, we might as well cut our losses and accept that state funding would be a whole lot more predictable and transparent than the haphazard system we at present live under, with all its murky opportunities for corruption.
    His suggestion does sound like an improvement over the current system. But the 're-engagement with the public' that Mr Jenkins talks about could actually occur if political parties, as I suggest, orientate their ideas, language and manifestoes towards outcomes, rather than sell their image, make meaningless gestures, or discuss structures, activities or funding arrangements.

    10 November 2007

    Solving disputes

    The current Economist summarises one conclusion of Civil Paths to Peace: Report of the Commonwealth Commission on Respect and Understanding:

    The existence of lots of competing affiliations which pull people in different ways is the best hope of silencing gloomy talk of a “clash of civilisations” (with religion, and Islam in particular, often seen as the defining characteristic for giant global blocks). Such thinking is “deeply flawed on a conceptual level and deeply divisive in practice,” the report says. Don't dare put me in a box, 'The Economist', 8 November (subscription, probably)
    There is a lot in this. The putting in boxes can be a self-reinforcing process, a vicious circle. Some fanatics of (say) a religious or ethnic group pull some sort of stunt that alienates everybody else. The people in the group begin to feel shunned or victimized. That reinforces their sense of identity and, not coincidentally, the power of their fanatical leaders. One can see this happening, perhaps almost as disastrously, with environmental groups. Debate about matters such as climate change is almost as politicized and polarized as is discussion about the Middle East. One result is the democracies' identity politics or gesture politics. Meaningful solutions to complex social and environmental problems is often postponed until either attitudes have hardened irrreparably, or it's too late to do much about the underlying issues anyway.

    A Social Policy Bond regime that targeted conflict (by, for instance, issuing World Peace Bonds) would probably defuse tensions between groups before they arise. Investors probably wouldn't even take the identities of these groups as a given. They might decide that the most efficient way of reducing violent political conflict would be to subsidize intermarriage between people of different race or religion, or perhaps to encourage mixed schooling, exchange visits between schoolchildren of different culture.

    The authors, continues the Economist, say that:
    At a minimum...the authorities who are trying to keep inter-communal peace should not empower people whose authority depends on keeping divisions sharp.
    Exactly. One thing is certain: currently there are too few incentives for people who want to tackle such issues, and too many to those who foment violent conflict. World Peace Bonds could do something to redress the balance.

    08 November 2007

    I don't mind...

    ...when failed policy experiments are terminated. In this context, I disagree with Matthew Paris:
    Before he became Prime Minister I devoted a page in The Times to the detailed story of just one of Gordon Brown's barking mad ideas. Small in itself, it provided ...a useful vignette on what is wrong with his brain. Mr Brown had proposed and forced through a plan for troublemaking teenagers to be paid — in vouchers usable at municipal leisure centres — £20 for every week in which they didn't make trouble. Of course you or I can see at once that this one's a turkey too; but a pilot scheme was duly required, and duly failed, and the whole thing was called off. Gobble, gobble! Another turkey from Farmer Brown, Matthew Paris, 'The Times', 8 November [My emphasis]
    It's the failed policies that aren't stopped that are the problem. I think, we need to encourage more potential turkeys, provided people have incentives to terminate them when they don't work.

    05 November 2007

    Growth and poverty

    It's widely assumed that economic growth will help eradicate poverty. The new economics foundation questions this in its publication Growth Isn't Working, published in January 2006. "Either we are told that a rising tide lifts all boats, or that, rather than sharing the cake more evenly, it is better to bake a larger one" (page 25). We assume that growth, and in western countries anyway, our redistributive policies, will alleviate poverty. But nef's skepticism is, I think, justified. In the west many government interventions help make the rich richer, at the expense of poorer people and, often, the environment. High food prices, as Oxfam (pdf) found, mean that wealthy landowners like the Dukes of Westminster, Marlborough and Bedford, Lords Illife and de Ramsey and the Earl of Leicester can each receive subsidies from the public of up to £370 000 a year for growing their cereal crops.

    For myself, I think that if we are serious about eradicating poverty, then we should reward people for eradicating poverty. Simple, yes? Much simpler and less prone to corruption or breakdown than the current system, which regards the ending of poverty as an inevitable byproduct of economic growth and state intervention. Recently I have been working on an essay about applying the Social Policy Bond principle to poverty in the developing world. The issuing of bonds that would appreciate in value with the reduction of poverty is made much simpler by work already done to calculate the Human Development Index. This measure, though limited, could be refined not solely as a measure of poverty, but to be a target in a bond regime that would indicate where in the world our limited resources for poverty alleviation would do most good.

    04 November 2007

    Context and complexity in social systems

    One of the benefits of expressing policy goals in terms of outcomes is that it contracts out the identification of complex relationships to a wider pool of people than does the conventional policy approach. With something like climate change, such complexity is largely about the scientific relationships between cause and effect. The Kyoto process assumes the primacy of anthropogenic greenhouse gas emissions, not only as the cause of climate change but as the best way of dealing with the problem.

    But complexity manifests itself in social systems as well, and again the Social Policy Bond approach, which subordinates process to targeted outcomes, could be preferable. In an excellent article about the US educational system, Peter Schrag writing about America's apparently poor performance despite higher spending and smaller class sizes:
    In fact, a lot of such international comparisons lack context and are therefore debatable, because of the relative paucity of social services in this country - as opposed to the universal preschool, health care, and similar generous children's services provided in other developed nations - our schools are forced to serve as a fallback social-service system for milions of American children. Schoolhouse Crock (subscription), 'Harper's Magazine', September 2007
    It's difficult to see how the current policy approach can address the inherent complexities. Instead of targeting educational outcomes explicitly, it is more inclined to increase funding for schools. The answer might lie in (say) better pre-school or healthcare or counselling for single parents or whatever, but the current system offers no incentives to explore these possibilities. And the individuals embedded in the system - teachers, bureaucrats - are almost certain to see more funding for their particular element of the system as the solution.

    A Social Policy Bond regime would be different. It would target the outcomes and, essentially, contract out the achievement of these outcomes to the market: a much wider, more motivated pool of people, who need not be afraid of offending existing interest groups or terminating failed experiments in their search for answers. My most recent essay about applying the Social Policy Bond approach to education, in this case to raising the literacy rate in Bangladesh, can be found here (pdf). Others can be found via the SocialGoals.com website.

    02 November 2007

    Biofuels

    I have a lot of sympathy for Oxfam as reported by the BBC, in their concern about proposals to extract transport fuel from plants. There are all sorts of problems: most obviously the unclear net fossil fuel cost of such fuel. As well, the alacrity with which western politicians are keen to jump on this bandwagon should itself be grounds for suspicion. Here in the west we sacrifice our cities, our air quality, hundreds of thousands of our citizens annually, our communities, and significant proportions of our animal and plant life to road transport, so I suppose in that accounting that the fate of several million poor people in other parts of the world, who will now have to compete with biofuel corporates, is of minor concern. It's another example of government as if outcomes are irrelevant. Transport is a means to various ends; not an end in itself. Government should be concerned about ends, not means. The risk that our fossil fuels will run out should be borne by fossil fuel users, not taxpayers or third world farmers.

    29 October 2007

    Second Life

    Calling for a new paradigm to deal with climate change, Ted Nordhaus and Michael Shellenberger advocate:
    a new military-industrial-academic complex around clean-energy sciences, similar to the one we [the US] created around computer science in the 1950s and '60s. ...The goal would not be to subsidize clean energy in perpetuity, but rather to make the kinds of investments that ultimately bring the real price of clean energy down to the price of dirty-energy sources like coal in places like China. Doing all this will require a more optimistic narrative [than] Gore's An Inconvenient Truth. ... Cautionary tales ...tend to provoke fatalism, conservatism and survivalism ...not the rational embrace of environmental policies. Second Life: a manifesto for a new environmentalism, 'The New Republic', 24 September
    I would add 'resignation, cynicism and despair'. Climate Stability Bonds as a way of dealing with climate change could be that different paradigm: under a Climate Stability Bond regime, people would be rewarded for stabilising the climate, however they do so. Kyoto conforms to the miserabilist paradigm that has spectacularly failed to address the problem. It punishes, people for doing something that (probably) does contribute to climate change. The costs are upfront, complex, administratively expensive. Any benefits are almost certainly going to be negligible and will take decades to appear. A Climate Stability Bonds regime would encourage people or governments to invest in exactly the ways that Nordhaus and Shellenberger advocate. It would focus on the outcome we all want to see: a stable climate; rather than the means of reaching it. Or the supposed means, for as James Lovelock puts it:
    A rapid cutback in greenhouse gas emissions could speed up global warming, the veteran environmental maverick James Lovelock will warn in a lecture today. 'Daily Telegraph' 29 October

    25 October 2007

    Microfinance

    Jimmyjangles draws my attention to a newspaper article about Microplace (launched by eBay) which will allow:
    ordinary investors to buy securities aimed at improving conditions in the world's poorest countries. MicroPlace, located at http://www.microplace.com/, will allow people to invest as little as $100 to support development in impoverished areas.
    Microfinance is the supply of loans, savings, insurance and other basic financial services to low-income households and businesses, typically without collateral.
    Microfinance is at work in more than 100 countries, and is generally provided by financial institutions or wealthier investors. It gained wider renown last October when Bangladeshi economist Muhammad Yunus, who pioneered it in 1976, and the Grameen Bank he founded won the Nobel Peace Prize."Capital markets are just waking up to this asset class," Tracey Pettengill Turner, the founder and general manager of MicroPlace, said."This is different because it is the first Web-based service for the everyday investor to invest in microfinance, and earn an investment return while addressing global poverty."
    I like this idea. Once people invest capital in a region, then they take a wider interest in it. Political reform, improved governance, and development meaningful to ordinary people: all these are more likely to follow if there are outsiders concerned about how their investment is doing. This sort of development, arising from the bottom up, is infinitely better than the alternative.

    24 October 2007

    Fascinating

    A fascinating quote from the UK's Daily Telegraph:
    Public-sector pensions cost taxpayers about £18 billion a year. Each family pays the equivalent of 91p in tax for public-sector pensions for every £1 they put towards their own retirement plans. 24 October

    22 October 2007

    Social Policy Bonds (almost) applied!

    Well, ok, not Social Policy Bonds, but rather the bond principle, of financially rewarding people who do things that lead to better outcomes for ordinary people:
    Joaquim Chissano, a former President of Mozambique who led his country to peace after more than a decade of civil war killed a million of his citizens, became the first ever winner of a new £2.4 million ($5m) prize for achievement in Africa today. Mr Chissano, who was in power between 1986 and 2005, was awarded the Mo Ibrahim award for achievement in London by Kofi Annan, a former United Nations Secretary General. ...The $5 million prize was established by the Mo Ibrahim Foundation which was launched last year to boost governance in Africa. Dr Ibrahim, the founder of the African telecommunications company Celtel International, is one of Africa’s most successful business leaders. The Times, 22 October

    Corporates

    It's not enough to rail (as I frequently do) against the corporate influence on politics. While politicians and big business generally go hand-in-hand, there are nuances, as Paul Krugman points out:
    The truth is that while the administration has lavished favors on some powerful, established corporations, the biggest scandals have involved companies that were small or didn't exist at all until they started getting huge contracts thanks to their political connections. Thus, Blackwater USA was a tiny business until it somehow became the leading supplier of mercenaries for the War on Terror (TM).
    This sort of thing subverts democracy, but appears to be systemic. One benefit of a Social Policy Bond regime is that politicians would be allocating funds to outcomes, rather than favoured lobby groups. Those outcomes, being meaningful and comprehensible to natural persons,. would be decided openly, with full public participation.

    19 October 2007

    We are the ADD Generation

    Rather than the 'Me Generation', or 'Generation X', I've often thought that we are really the 'ADD Generation', where ADD stands for Attention Deficit Disorder. Our politics is, essentially, media driven, and the mass media have a short attention span with little time for subtlety, or for events that cannot entertain when shown on television.

    So there's very little sense of perspective. Dean Baker writes that Robert Novak...
    ...[t]he Washington Post columnist, dedicated his column today to a $1 million earmark (0.3 cents per person) for a museum dedicated to Woodstock. This may well be a waste of taxpayers' money, but it is wrong to imply that such waste amounts to a big factor in the budget or budget deficit. (For another comparison, the $1 million is approximately equal to what we'll spend in 3 minutes on the Iraq War.)
    Indeed. Another case in point: the current issue of the Economist (subscription) talks about the cost of eradicating malaria:
    A back-of-the-envelope estimate suggests it would cost about $9 billion a year for two or three decades to make and distribute the necessary vaccines, drugs and equipment.
    This sounds like a lot, but take a look at this excerpt from A Subsidy Primer, by Ron Steenblik:
    Recently, for example, the Environmental Working Group, an American non-profit organization, counted up all the direct payments made by the U.S. Government to farmers between 1994 and 2005 and found that ten percent of subsidy recipients collected 73 percent of all subsidies, amounting to $120.5 billion.

    17 October 2007

    Literacy in Bangladesh

    Sadly, but not unexpectedly, my essay on applying the Social Policy Bond principle to the problem of illiteracy in Bangladesh, did not win a Quadir Prize. However, it was helpful to have a reason to summarise my latest thoughts about the bonds, and I have posted my essay here. It's a pdf file, about 120k in length.

    16 October 2007

    British Government favours UHT milk

    The London Times reports that:
    Officials at the [UK] Department for Environment, Food and Rural Affairs have made a serious proposal that consumers switch to UHT (Ultra-High Temperature or Ultra-Heat Treated) milk to reduce greenhouse gas emissions. It is part of a government strategy to ensure that some 90 per cent of milk on sale will not require refrigeration by 2020.
    For all I know, this strategy might be justified. What concerns me is how it's arrived at. Refrigeration in supermarkets is a visible consumer of electricity and I suspect that's why the officials at DEFRA have picked on it. Have they compared it with other ways of reducing greenhouse gas emissions that may yield far more benefit? Why 90 per cent, rather than 80 or 95 per cent? Is a government agency the best placed to try to determine the trade-offs that consumers should make?

    I think that if a government wants to reduce greenhouse gas emissions, then it should give consumers the option of how best to do so. I'd rather see government tackle target climate change itself rather than greenhouse gas emissions, but if it insists on targeting the latter, it should set broad targets and let the market decide on how they are to be met.

    14 October 2007

    Climate change and geoengineering

    Could geo-engineering prevent climate change? James Woudhuysen believes that:
    [E]nvironmentalists tend to dismiss geo-engineering because, at root, they are not interested in halting climate change. For many today, both green activists and leading politicians, climate change is a moral and political issue rather than simply a practical problem. They see the ‘issue of climate change’ as a means to changing people’s behaviour and expectations, rather than simply as a byproduct of industrialisation that ought to be tackled by technological know-how. They are resistant to geo-engineering solutions because putting an end to climate change would rob them of their raison d’ĂȘtre.
    I really don't know about that, but I do wonder whether there are more efficient or politically realistic ways of preventing climate change than the current approach, which relies exclusively on cutting our greenhouse gas emissions. What's disturbing is not so much why alternative solutions aren't being seriously considered, but simply the fact that they aren't. Probably the answer lies in the nature of the possible side-effects. They might be difficult to anticipate and disastrous. But so too might the effects of climate change or, indeed, those of emission cutbacks.

    I see geo-engineering approaches as a subset of a large array of possible (partial) solutions. A Climate Stability Bond regime would encourage people to explore and enlarge this array, and to pursue only the most promising projects. The mix of projects would be diverse and adaptive. Possible negative effects of, for instance, geo-engineering - or, for that matter, cutbacks of greenhouse gas emissions - could be avoided by stipulating that Climate Stability Bonds shall not be redeemed if these effects are too large.

    12 October 2007

    Who cares?

    In Wellington's Dominion Post, Susannah Bailey of Greenpeace, points out some of the flaws in the New Zealand Government's greenhouse gas emissions trading scheme. Some of her views are here, but in the newspaper article she writes that the scheme:
    isn't coupled with an overall emissions reduction target.... Officials have conceded that the main goal of the scheme is to meet our Kyoto liability at least cost rather than to achieve emission reductions. 11 October, page B7
    Exactly: New Zealand might or might not reduce its greenhouse gas emissions; which might or might not do anything to prevent climate change. Who really cares? The sole certainty is that the trading scheme will require a whole new bureaucracy to administer, whose costs will be borne, upfront, by taxpayers. Some of us may be successfully deluded into thinking that something is actually being done about climate change. The Government can then pass on to other issues, like the 145 violent crimes being committed in New Zealand every day. Perhaps it can set up a free telephone hotline and attribute any further increase to 'improved reporting'.

    The losers aren't being compensated

    Mark Weisbrot writes:
    Free-trade advocates...always make distorted statements such as “the average household has gained $10,000 from free trade.” Now, if a hedge-fund manager makes an extra billion dollars, it can raise the average income in his town or suburb quite a bit. But it doesn’t do much for others in the area; and in fact it is likely to be at the rest of the public’s expense.
    Quite so. Free trade can benefit everybody, but only if the losers are compensated. Otherwise it's only the abstract concepts 'the economy' or 'the country' that benefit. There's very little compensation going on, as far as I can see.

    10 October 2007

    Social Policy Bonds: do they have a future?

    Social Policy Bonds haven't made much progress in policymaking circles in the last few years. I'm not even sure that policymakers think any more in terms of outcomes than they used to. But I am still optimistic that Social Policy Bonds, or something like them, will play some role in the future. Why?

    First, because of a combination of an increasingly complex world, and the growing gap between policymakers and the people they are supposed to represent. Politicians and their officials have inherited a decision-making system that is, essentially, about rewarding interest groups, be they corporations, government agencies, organized labour, or lobbyists for environmental, ethnic, sexual or religious bodies. What's missing from this is buy-in from ordinary people, in our capacity as ordinary people, rather than members of an interest group. Without buy-in, the current political system will become increasingly vulnerable.

    But our economy, society and environment are becoming ever more complex, which means that the wishes of most citizens cannot be satisfied either by submitting to the interests of sectoral groups, nor by centralized, top-down decisions about funding, activities, or instititutional structures. I think therefore that the decisions that government makes will increasingly have to be expressed and subordinated to outcomes that are meaningful to real people. Social Policy Bonds are one way of doing that: policymakers reward the achievement of social goals, regardless of how they are achieved. They relinquish their control over the 'how', because that is something that they don't do very well.

    Underpinning this scenario is the increasing transparency about policy failures. Our political class knows less about how to achieve certain goals, but the public knows more about their failure to do so.

    I see nothing to interrupt any of these trends. For that reason I think that somewhere down the track Social Policy Bonds may become a significant policy instrument.

    08 October 2007

    Subsidising fisheries destruction (continued)

    The European Commission recently released a list of fishing vessels that have received EU fisheries subsidies between 2000 and the beginning of 2007, reports Global Subsidies Initiative:
    The top ten vessels received some €30 million [between them]. The top two vessels were Spanish boats Albatun Dos and Albatun Tres; each receiving €4 318 440 for their construction. Notably, a number of subsidy recipients identified in the EC list have been cited with illegal, unreported and unregulated (IUU) fishing. Infractions included using illegal nets, misreporting catches in logbooks, and falsifying sales records. However, a full accounting of subsidy recipients who have been cited with IUU fishing is currently impossible, given that there is no public record of vessels that have been issued citations. “It is outrageous that taxpayers’ money has financed criminals who destroy the marine environment and undermine legal fishing activities,” said Markus Knigge, European Marine Programme Officer with the WWF.
    If people were allowed to vote on whether their taxes should be used to fund environmental destruction, and voted 'yes', then I'd find it difficult to argue against them. But we are not given such an opportunity. This subsidised, permanent, destruction of a scarce, living resource, for the benefit of the short-term prospects of a few giftless politicians is despicable.

    07 October 2007

    Let the voters decide

    Why not have referendums on free trade? Costa Rica is doing, though as Mark Weisbrot writes, voters can be blackmailed into coming up with the 'right' answer. A leaked government memo suggested that mayors of Costa Rican cities be told that they would “not get a penny from the government for the next three years” if they did not deliver a majority of voters for the Central America Free Trade Agreement.

    03 October 2007

    Complexity demands an outcome-based approach

    Government thinks in terms of institutions, and that can create problems. For instance, it's not at all clear that the best way of raising literacy is to increase funds for schools. Or that to reduce crime, the best use of our scarce resources is to fund more police. The linkages are too complex for any single body to grasp; especially ones like government agencies, which typically operate top-down programmes that however badly they fail, are never terminated. No complex policymaking environment is immune:

    From the Gospel of Food by Barry Glassner (quoting research, and words, of Ichiro Kawachi):
    [R]esearch shows that death and sickness rates from cancer, heart disease, and other major illnesses in the US are higher in states where participation in civic life is low, racial prejudice is high, or a large gap exists between the incomes of the rich and poor and of women and men. 'Policies that appear to have little to do with health, like macroeconomic policies to reduce the level of income inequality, can have a major impact on driving down the rates of illness in society.' (page 30) (My emphasis.)
    Diverse, adaptive approaches are needed, but they must be subordinated to outcomes: if they do not help achieve the targeted outcome, they should not continue to be funded. Only markets markets give investors the incentive to explore and experiment with diverse approaches to compelex social and environmental problems - and to terminate failing projects. The contrast with government when dealing with complex problems is stark.

    01 October 2007

    Climate change: how to decide who pays

    Cass Sunstein points out that:
    [i]t is increasingly clear that the world would be better off with an international agreement to control greenhouse gas emissions. What remains poorly understood is that the likely costs and benefits of emissions controls are highly variable across nations.
    The US and China, large emitters of greenhouse gases, are not likely to be the leading victims of climate change. Indeed, and with all the usual caveats, Russia is expected to gain. The biggest projected losers from climate change are India and Africa. The mismatch between the large emitters and and those most at risk contributes to the current policy stalemate. Adding to the complexity, a country like China could point to cumulative emissions as a basis on which to allocate blame and so responsibility for cutting emissions: Sunstein gives a table showing that the US emitted 29% of the total (anthropogenic) carbon dioxide from 1850-2002; China 7.6%. Or perhaps per capita emissions should be the criterion? On that basis, the US emitting 19.7 tonnes of CO2 (in 2002) is far more culpable than China (3.7 tonnes).

    Sunstein concludes that:
    Because of its wealth, its high per capita emissions rate, and its past contributions, the moral obligations of the United States are especially insistent. What remains clear is that the United States cannot do much about the problem without the participation of developing countries, above all China. For this reason, it is appropriate for the United States to take active steps, perhaps including unilateral action, in order to increase the likelihood that such countries will be willing to participate in the future.
    Agreed, appropriate yes, but also unlikely. Sunstein's discussion is compelling, but I'd still prefer to see an outcome-based approach, such as Climate Stability Bonds that would rely on upfront cash incentives, instead of the vagaries of moral suasion. The two are need not be in conflict of course. but I'd rather back a regime that rewards self interest. At the highly aggregated level of countries, that seems to me more likely to work, and that, after all, is what really matters.

    29 September 2007

    Markets and 'markets', continued

    Dean Baker writes:
    The key flaw in the stance that most progressives have taken on economic issues is that they have accepted a framing whereby conservatives are assumed to support market outcomes, while progressives want to rely on the government. This framing leads progressives to futilely lash out against markets,rather than examining the factors that lead to undesirable market outcomes. The market is just a tool, and in fact a very useful one. It makes no more sense to lash out against markets than to lash out against the wheel. The reality is that conservatives have been quite actively using the power of the government to shape market outcomes in ways that redistribute income upward.
    This is from the preface to The Conservative Nanny State published last year and available as a free download. I'm not sure I'd go along with all Mr Baker's suggestions, but the book is well worth reading.

    26 September 2007

    Tax breaks for the rich

    I've long been suspicious and wary of the way in which most western countries subsidise home ownership. Partly because the subsidies are paid out in ways that divert funds from more productive investment; partly because they make it difficult for even hard-working ordinary people who aren't lucky enough to inherit property, to own a house; and partly because the wider economy begins to rely on unrealistically appreciating house values - so much so that government has a vested interest in continuing to prop them up.

    Writing about the US, David Morris says:
    For all but the very rich, houses represent the single largest source of lifetime financial savings. A low rate of home ownership, and the resulting low rate of savings, is particularly high among blacks and Hispanics. In 2005, government provided $150 billion to homeowners in tax subsidies. But the way the subsidies were structured did little to raise home ownership among these groups. Why not replace the housing tax deductions with a level refundable tax credit? .... Economists Richard Green ... and Kerry Vandell ... have examined such a system and predicted that it could increase overall home ownership by 3 to 5 percentage points. Even more impressive, a housing tax credit could increase home ownership by up to 8 percentage points among the lowest-income households.
    Robert Brenner, in the Guardian writes that, following the crash and recession of 2000-01:
    central banks turned again to the inflation of asset prices. By reducing real short-term interest rates to zero for three years, they facilitated an explosion of household borrowing that contributed to, and fed on, rocketing house prices. Inflated household wealth enabled increased consumer spending that, in turn, drove the expansion. Personal consumption plus residential investment accounted for 90-100% of the growth of GDP in the first five years of the current cycle. However, the housing sector alone was responsible for raising the growth of GDP by more than 40%, obscuring just how weak the recovery was.The rise in demand revived the economy.
    Unfortunately, it's difficult to see how this merry-go-round can stop. Like a drug habit, or other poorly-thought out subsidies, these tax breaks become very difficult to end, even when the evidence of their woeful economic and social impacts has become obvious to all.

    25 September 2007

    Regulation and big business

    One of the ways in which big business and its pals in government conspire against small businesses and ordinary people is by manipulating the regulatory environment.

    Oligopoly Watch asks why large corporations in the US are asking the Government for more regulation. Part of the answer is that:
    [w]hat big corporations want is for the federal government to set standards that will overrule even tougher state standards. These has been a rise in regulation from a growing number of states, led by California, to make up for the gaps in regulation presided over the Bush administration, which has systematically weakened rules and defunded regulatory agencies.
    As well, though, regulations can be used as unfair, non-tariff barriers to trade:
    [W]hy is Altria (Philip Morris) calling for the regulations of cigarettes and General Electric and Phillips joining to push for more regulation of light bulbs? Pure self-interest, a new strategy in an old war, one of getting the government to help big companies maintain market share. All of the new regulations will be used to set a barrier to entry for smaller (usually Chinese) companies into the market. In these cases, it is easier for the established players to conform to a higher level of regulation....
    When I worked in the agricultural policy area I saw a lot of this. In one memorable example involving European Union legislation in the UK:
    A snail farmer was told to tile his packing room, which was classed as an abattoir, up to the ceiling to catch the blood. BBC 1 TV Country File 8 February 1998
    This sort of thing happens not only because government and big business are inevitably biased against smaller concerns, but also because they are government is more comfortable, and sees a larger role for itself, in regulating processes and activities, rather than outcomes. Ordinary people are the losers.

    22 September 2007

    Trumping ideology

    Reviewing Super Crunchers, by Ian Ayres, the Economist (dated 13 September)says:
    The sheer quantity of data and the computer power now available make it possible for automated processes to surpass human experts in fields as diverse as rating wines, writing film dialogue and choosing titles for books.

    Even the occasional government is accepting that properly analysed data trump ideological conviction. Mr Ayres sings the praises of Mexico's Progresa/Oportunidades programme, which gave assistance to poor people only if their children attended health clinics and schools. It was tried out on 506 randomly selected villages. The results were so convincing that the programme was expanded 100-fold despite a change of government.
    The merit, it seems to me of such a policy approach is that unsuccessful experiments will be terminated: it's genuinely Policy as if Outcomes Mattered.

    21 September 2007

    Charisma-driven politics

    Discussing British politics, the Bagehot column in the current Economist (subscription, probably) hits the nail on the head:
    [P]olicy is a decreasingly important factor in politics generally—certainly compared with the genuinely ideological clashes of the 1980s. Part of the explanation for that trend is that Labour and the Tories now agree about so much, even if they conceal their similarity by narcissistically inflating small differences. [Prime Minister] Brown's omnivorous pilfering of everyone else's best ideas is blurring the distinction more than ever (which hurts the Lib Dems, since this coalescence has made grumpy Labour and Tory voters readier to switch straight to the other big party). Part of it is the influence of digital media on how political opinions are formed. That has made having a charismatic and ideally photogenic leader vital....
    It's no bad thing, in my view, that ideology's influence is lessening. I'd prefer though that policy were instead driven by outcomes rather than visual imagery.

    18 September 2007

    Interesting

    From Harper's Index:

    Percentage of American adults held in either prisons or mental institutions in 1953 and today, respectively: 0.67, 0.68

    Percentage of these adults in 1953 who were in mental institutions: 75

    Percentage today who are in prisons: 97

    Source: Harper's Magazine, April 2007 (page 17)

    Those figures might go a long way toward explaining the rise in crime rates over the past five decades. Currently, despite talk of 'joined-up government', mental health and crime are seen in the west as two almost wholly distinct policy remits. It's certainly convenient, administratively, to do so. But in doing so do we optimize social welfare? I don't know what projects a Social Policy Bond regime aiming to reduce crime would stimulate, but investors would at least have incentives to explore the linkages and answer such questions.

    16 September 2007

    The Political Class

    Writing about the Political Class in Britain, Peter Oborne says:
    Unlike the old Establishment, the Political Class depends directly or indirectly on the state for its special privileges, career structure and increasingly for its financial support. This visceral connection distinguishes it from all previous British governing elites, which were connected much more closely to civil society and were frequently hostile or indifferent to central government. Until recent times members of British ruling elites owed their status to the position they occupied outside Westminster. Today, in an important reversal, it is the position they occupy in Westminster that grants them their status in civil society. The Political Class is distinguished from earlier governing elites by a lack of experience of and connection with other ways of life.
    A complex economy and the division of labour explain much of this disconnect between politicians and the citizens they are supposed to represent. Is there any way of closing the gap? One way might be to adopt one of the principles of a Social Policy Bond regime: debate policy in terms of targeted, explicit outcomes. Currently when our politicians talk to us it's often about funding arrangements, institutional structures, or the activities of government agencies. And what they talk to us about is often equally peripheral: people or events for which there is compelling tv footage; anecdotes and images that support an agenda that isn't always clear to us, the public.

    A Social Policy Bond regime would recast political debate. Social and environmental outcomes would be the starting point of politics. Politicians would have to choose between such outcomes but in doing so they would consult ordinary people, who could participate in policymaking because they understand its terms. Compromises and trade-offs would still have to be made; there would still be pressure on resources and there would still be disagreements about priorities. But policy outcomes - unlike the arcana of current politics - are things that ordinary people can understand. Their participation in policymaking could help close the ever-widening divide between government and the people.