We're in this together

Al Gore’s mansion, located in the posh Belle Meade area of Nashville, consumes more electricity every month than the average American household uses in an entire year, according to the Nashville Electric Service. Source

An informed discussion here looks more closely at some of the details: Mr Gore buys carbon offsets, the number of people in his household is (probably) larger than average, but the costs of the offsets are tax deductible, and policymakers are couching the problem of anthropogenic climate change ‘in moral terms and by their own standard acting highly immorally.’ And then, what is Mr Gore supposed to do? ‘apparently the only way for him not to be a hypocrite is to move into a cave’. All these points are interesting, and seem quite valid to me. But they don’t really address the issue: for whatever reason, we are all in this together.

It’s easy to forget this, because we have left it all to government, and that has come up with a one-size-fits-all, top down, imposed pseudo-solution – Kyoto – with high up-front costs, and very little in the way of benefits. Most people, with justification, instinctively resent this sort of policy.

We desperately need people to buy in to solving the climate change problem. Kyoto doesn’t do this. Kyoto has become politicized; so much so that anybody who questions it is assumed to be an environmental vandal. (This itself is indicative of Kyoto’s limitations: people who are secure in their beliefs don’t feel threatened when those beliefs are questioned.)

It is for all these reasons that I believe Climate Stability Bonds would be an improvement over Kyoto. Climate Stability Bonds would be backed by the world’s governments. They would be redeemable once a specified climate stability goal had been achieved and sustained. They would be freely tradable and their value would rise or fall as the targeted goal become more or less likely to be achieved. The goal could be specified as a combination of climate and other indicators. The bonds would not prejudge the best ways of achieving their goal. They would reward the achievement of climate stability, however it is achieved. Investors in the bonds would have incentives to respond quickly and appropriately to new knowledge about what is causing climate change and to new ways of dealing with it. Governments would be the ultimate source of finance for achieving climate stability, but the private sector would allocate society’s scarce resources.

A Climate Stability Bond regime would express its aims in terms that people can understand. Its explicit goal would be climate stability. If people understand what a policy is all about, they can participate more in its development, refinement and implementation. This matters hugely when, as with climate change, we might have to rein in activities to which we have become accustomed.

Environmental stunts: do they help?

Sometimes I wonder whether the environmental movement is so much posturing; an exercise in belonging, rather than an expression of concern for the environment.

Demonstrating against coal-fired power, nine Greenpeace protesters scaled a 150 metre high chimney stack at Huntly Power Station, in New Zealand’s North Island yesterday. It appears the protestors did some minor damage to the stack.

I wonder what they are trying to prove with these puerile, illegal stunts. Their cause may be good, but their actions will do a lot to alienate much of the public from the entire environmental agenda – well, that’s what I think. As the spokesman for the power company puts it:

There are 1.3 million people who get their power from this station in the upper North Island and if we cut this station off now there would be a lot of people who [will be] cold and in the dark this winter. Source

It’s all part of the politicization of the environment. We need to recognize that we are all beneficiaries of the damage that power plants and much other infrastructure do to the environment. We are all in this together. Sure, the protestors probably do have a smaller environmental ‘footprint’ than most of the rest of us. But they need us on their side if we are to improve environmental outcomes – as against the media profile of Greenpeace. Stunts like smack of sanctimony and smugness. They don’t help.

Buy-in

In my efforts to promulgate Social Policy Bonds I’ve usually emphasised their efficiency, which arises from a number of sources, including their harnessing of market forces, and their diversity and capacity to adapt to changing circumstances. I’ve also stressed their transparency: because the bonds target outcomes, people understand them more.

This, in turn, means another hugely important benefit: buy-in. If people understand what a policy is all about, they can participate more in its development, refinement and implementation. A Social Policy Bond regime would express its goals as outcomes that are meaningful to real people. Such outcomes would be more comprehensible to more people than the current unstated or unconsidered, vague, or platitudinous goals that characterise current policymaking. Discussion about outcomes, rather than the alleged means of achieving them, would be more accessible. If people have the chance of participating in such discussion, they will understand the limitations and trade-offs that are intrinsic to public policymaking. This means quite a few things, but to my mind the most important is buy-in: the reconnection of citizens with their policymakers; the sharing of responsibility and concern for policy initiatives.

This matters hugely when government has to rein in activities to which we have become accustomed, in the face of new threats. I am thinking of climate change specifically, where we need a coherent response to an unforeseen but urgent challenge. Of course buy-in would be desirable in other areas too. The current system discourages buy-in, partly because our societies are so complex, that virtually any effect – good or bad – can be plausibly traced back to virtually any cause. And partly because political debate, centred as it is on arcane legal argument or stultifying discussion of institutional funding or structures, contributes so much to the widening gap between politicians and the people they are supposed to represent. Social Policy Bonds, because of their focus on outcomes, would help close that gap.

The rise of therapeutic politics

When looking at policymaking bodies, what is particularly striking is how unimportant outcomes are in determining both how policy is made, and who makes it.

…policies are often adopted on the basis of less careful analysis than their importance warrants, leaving wide room for mistakes and misperceptions. Forces of knowledge destruction are often stronger than those favoring knowledge creation. Hence states have an inherent tendency toward primitive thought, and the conduct of public affairs is often polluted by myth, misinformation, and flimsy analysis. Why states believe foolish ideas: non-self-evaluation by states and societies, Stephen Van Evera, MIT Political Science Department and Securities Studies Program, 10 January 2002, version 3.5.

In our complex economies, outcomes can be difficult to trace accurately to the events and people that generated them. Our extreme specialisation increases the length of the chain between producers and consumers and the time lags between cause and effect. Moreover, it increases people’s alienation from each other, particularly between policymakers and stakeholders. The result is that appearances, personalities, and emotional appeal assume a great importance.

Therapeutic politics eschews matters of policy and principle and attempts to establish a point of contact in the domain of the emotion with an otherwise estranged electorate. …. The shift in rhetoric from standing up for what is ‘right’ to upholding what one feels good about signifies the incorporation of emotionalism into the heart of political decision-making. Therapy culture, Frank Furedi, Routledge, 2004 (Chapter 3, pp 60-61).

I don't know how they work this out

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Centralized shop window policy

Writing about the increasing uniformity of shop window displays in the US, Paco Underhill writes:

[Owing] to the structure of retail chains, window displays are designed by specialists and contained in loose-leaf binders stored in a central office somewhere, intended to work equally well in every setting, meaning they don’t work particularly well in any setting.

There’s a striking similarity here with government; another large organisation trying to control everything from one centre. The consequences of failure though are more serious than a few lost sales when government is involved. They can be seen in schools that fail to educate, soaring crime rates, and worsening environmental problems. There is an extreme aversion to adaptive, diverse policies. Schools aren’t allowed to fail; crime is seen as a problem solely of punishment and prisons; climate change must be tackled almost exclusively by reducing anthropogenic greenhouse gas emissions.

Life would be quite different under a Social Policy Bond regime. Yes, there would be uniformity – but of targeted outcomes, rather than the ways to achieve them. It would be up to the private sector to explore and implement the most cost-effective programmes. Investors in Social Policy Bonds would have built-in incentives to be efficient. Until then, though, social and environmental policy will suffer from being overly centralized, and as unappealing as an ‘average’ shop window display. Mr Underhill concluding his chapter on shop windows might as well be writing about government policymaking:

There still are window dressers here and there – in Manhattan you’ll find them in the best stores, and everywhere else in America you’ll find them in the smallest ones. But in between those extremes, windows are now dressed long distance. They’re one-size-fits-all.

Subsidising planetary destruction

What does our political system do when an industry is systematically destroying its own resource base? Subsidise it of course. This is lunacy:

Most of the high seas catch from deeper waters is carried out by bottom trawling which involves dragging massive nets along the sea bed – a practice which can destroy deep-sea corals and sponge beds that have taken centuries or millennia to grow. Source

This practice, environmentally disastrous as it is, is profitable only because of subsidies; half of which are fuel subsidies. From the same article:

“The unregulated catches by these roving bandits are utterly unsustainable. With globalised markets, the economic drivers of over-fishing are physically removed and so fishermen have no stake in the natural systems they affect. While it may be a good short-term business practice to fish out stocks and move on, we now see global declines of targeted species.”

The major villains in this particular madness are South Korea, Japan and Russia, but most rich countries continue to subsidise insanely destructive practices in agriculture, transport and energy.

Entrenching welfare

One in three households across Britain is now dependent on the state for at least half its income, it emerged today. Official government figures showed that more than seven million households are getting most of their income from government handouts. Source

Sure government is generally inefficient and ineffective, but so are large corporations and almost any large organisation of any sort. And it’s probably not healthy that so many households do depend on the welfare state for so much of their income. But worse in my view is that such dependence becomes entrenched. It is, in fact, dependence. Like a drug habit, welfare programmes are easy to start and very difficult to end. And I don’t mean just the benefits that go to needy households, but also those far more sumptuous welfare payments – also known as subsidies, or import barriers – that flow into the coffers of large business corporates. It’s very rare that their provisions contain effective sunset clauses. The payments help fund the lobbyists that oppose their removal. Other beneficiaries are the programme administrators: another effective resistance force against policy reform.

Politics as priesthood

Excerpts from India, by Shashi Tharoor:

In modern India …intellectuals remained aloof from the quotidian concerns of governmental policy…. Intellectuals were a deprived breed, shorn of that which made their elitist forebears respected – influence over the wielders of power. The spread of education had ended the Brahminical monopoly on intellectualism, but learning was now a means to an end, and the end that mattered was power. Anyone could be an intellectual, but only a few could exercise real authority. …

Despite the prolific punditry, the only ‘abstract’ thinkers’ whom [Indian] politicians bothered to consult were their astrologers.

I read this on the same day that a UNICEF report was released showing that New Zealand's children and teenagers are more likely to die before their 19th birthday than those from any other developed country. Wellington’s a small town but even here I think I detect not so much a disconnect between intellectuals and policymakers, but disconnects between (1) intellectuals and the people and (2) policymakers and the people. And learning does appear to be a means to certain ends; the ends becoming more and more about private goals, and less and less about benefiting wider society.

This is all subjective of course, but if true, what does it amount to? I think it does matter, because the specialisation of labour that works well in purely economic terms does not work when policymaking becomes a priesthood, removed from the concerns of ordinary people.

A few years ago New Zealand’s Government declared its economic objective: to return New Zealand's per capita income to the top half of the OECD and to maintain that standing. It’s a concern to me that GDP per capita is put on such a pedestal. Its flaws as a measure of social wellbeing are large and well known. A big national income can might be necessary to achieve certain ends, but it is not sufficient. Or perhaps the New Zealand Government’s goals do not include the welfare of children. In this sense, our political class might be just as removed from those of ordinary people as India’s. Then again, the UNICEF Report is not entirely to be trusted.

'You might as well smoke'

Compared to smoking cigarettes, use of Western smokeless tobacco (ST) products is associated with a very small risk of life-threatening disease …. This means that smokers can realize substantial health benefits by switching to ST, an obvious substitute. But consumers and policy makers have little chance of learning that ST is much less dangerous than smoking because popular information provided by experts and advocates overstates the health risks from ST relative to cigarettes. Source

Carl Phillips and the other authors of You might as well smoke; the misleading and harmful public message about smokeless tobacco refer mainly to US health sources, including federally funded bodies. They do a thorough job of showing the biased information against smokeless tobacco but, understandably, they do not attempt to explain why it’s biased. I think it’s worth speculating on the reasons, because they apply to other policy areas, and I am thinking here of such varied, crucial issues such as broader health concerns, climate change, the use of market forces, and education.

In trying to promulgate the Social Policy Bond idea I frequently encounter opposition to the deployment of market forces to achieve social goals. In essence, my opponents are less interested in outcomes than in the motivations of people working to achieve these outcomes. Or perhaps they are trying to identify themselves as more compassionate or caring than the ‘private sector’ taken as a whole. I hasten to add that there are ‘pro-market’ people who oppose Social Policy Bonds for the opposite reason: that there’s no need for government intervention of any kind to help achieve social or environmental objectives. For both groups, outcomes are deemed less important than ideology or process.

It’s the same in other policy areas. Most of us aren’t climate experts, and the arguments about climate change are now so politicized now that people will make their minds up based such irrelevant concerns as the stridency or smugness of one faction or another. The chances of getting coherent effective global action against climate change is in my view negligible. When our leaders choose make policy, the effect of that policy on the climate outcome comes very low on the list of the things they worry about.

There is an answer. A diverse society, with all sorts of information sources, will never agree about much, even if it could forget its ideological biases or prejudices. But if we target meaningful outcomes, and let the market decide how to achieve those outcomes, and how much achieving these outcomes will cost, then there is a chance of a coherent approach. That’s why I advocate Social Policy Bonds. Under a Social Policy Bond regime, if an outcome such as climate stability is deemed worthwhile, then it will be the market that decides exactly how many resources should be devoted to achieving it. Markets in Social Policy Bonds would be valuable not only because they allocate resources efficiently, but because of the enormous quantity of information they would generate about the cost of achieving targeted goals.

As a last resort, try incentives

From Manchester Online:

Hospitals are to be given cash bonuses - for keeping people alive. Regional health bosses are planning to try out a US system of rewarding trusts [that] have low death rates, levels of infection and readmissions.

I haven’t seen the details. It could be a step in the right direction; or, depending on the targets chosen, it could worsen matters, as has happened with the Mickey Mouse micro-targets used throughout the UK’s National Health Service. (See this blog, passim.) Expect opposition to any meaningful reform from the British trade unions.

Eat food. Not too much. Mostly plants.

From Unhappy Meals, by Michael Pollan:

"The problem with nutrient-by-nutrient nutrition science,” points out Marion Nestle, the New York University nutritionist, “is that it takes the nutrient out of the context of food, the food out of the context of diet and the diet out of the context of lifestyle.” If nutritional scientists know this, why do they do it anyway? Because a nutrient bias is built into the way science is done: scientists need individual variables they can isolate. Yet even the simplest food is a hopelessly complex thing to study, a virtual wilderness of chemical compounds, many of which exist in complex and dynamic relation to one another, and all of which together are in the process of changing from one state to another. So if you’re a nutritional scientist, you do the only thing you can do, given the tools at your disposal: break the thing down into its component parts and study those one by one, even if that means ignoring complex interactions and contexts, as well as the fact that the whole may be more than, or just different from, the sum of its parts. This is what we mean by reductionist science. ‘New York Times’, 28 January

Applying the same reductionism to policymaking can be just as problematic. The linkages between cause and effect in our increasingly complex world are ever more obscure. The number of variables, the interactions between them, and the time lags combine in such a way that successful policymaking is about as hit-and-miss as nutritional science. Mr Pollan ends his article with a list of ten recommendations for healthy eating. He begins it by simplifying those to just three: Eat food. Not too much. Mostly plants. Are there equivalent short but pithy maxims for policymakers? I believe so: Target outcomes. Make sure the outcomes are transparent, and meaningful to real people. Don’t be frightened of using markets.

Call of the private sector

Paco Underhill's Call of the Mall is an easy, entertaining description of America's shopping malls. What strikes me most is the quality and quantity of human ingenuity devoted to making shoppers buy more stuff. Why is it that it's the talented people in the private sector that reap massive rewards for achieving tasks that are essentially trivial? Why is that the public sector limps along attracting some dedicated, well-intentioned people, but failing to offer incentives to most of those who'd rather solve urgent social and environmental problems than head up the strategic planning unit of a single department store?

My contention is not only that such an asymmetry is wasteful, in that fewer resources are devoted to the tasks that would generate most payback, but that it's also a historical accident. There's no other reason for it.

Market forces have a terrible press, and in many instances, rightly so. There's been no restraint from those at the top of they private sector pyramid, with their grotesquely inflated 'compensation packages'. But the market's efficiencies and incentives can be made to serve social goals - if only we were to consider them with an open mind.

Social Policy Bonds are one way in which market forces can be channelled into the public good. They would reward people who achieve social and environmental goals at least cost to the public. These people might reap sumtuous rewards for so doing, but that's no reason to deny them their chance. In giving bondholders and their agents an opportunity to make large gains, a Social Policy Bond regime would both motivate those already working to achieve social goals, and attract a larger number of talented individuals into serving the public interest (as well as their own) rather than those of large corporations - like shopping mall operators.

Subsidies for the rich in Chicago

Looking at the distribution of subsidies to state-granted economic development subsidies to the Chicago region, Good Jobs First found, amongst other things, that:  

[T]he ability of core-area workers to take advantage of the new employment opportunities in the collar counties is limited by the fact that the vast majority of  subsidized workplaces in the newly developing suburban areas are not easily accessible by public transportation from the city. This means that for the many car-less workers in low-income, especially minority, communities, those jobs are effectively out of reach. Gold Collar (pdf)

The ‘collar counties’ are more prosperous than Cook County, which forms central Chicago. This sort of thing is one reason why I much prefer the targeting of outcomes when it comes to spending taxpayer funds. If its goal is the economic development of poor areas, then that is what a government should explicitly target. Funds should be contingent on meeting that goal. It’s just not good enough instead to set up institutions that have that goal as their stated objective. That’s where a Social Policy Bond regime scores heavily over the current system: it rewards people only when targeted goals have been achieved. Government goals and those of investors in the bonds are congruent. Bondholders gain most when they achieve social and environmental goals, as articulated by government, most quickly and efficiently.

The contrast with the current system is stark. The story told in ‘Gold Collar’ applies to colossal quantities of government revenues, all over the world. It’s one of waste, inefficiency, environmental destruction and corruption.

Global Subsidies Initiative

I’ve added a link to the Global Subsidies Initiative in the blogroll (right-hand sidebar). As New Zealand taxpayer, I’m pleased that core funding for the GSI is provided by the Government of New Zealand – as well as the Swedish and Dutch Governments.

“In December 2005 the GSI was launched to put a spotlight on subsidies—transfers of public money to private interests—and how they undermine efforts to put the world economy on a path toward sustainable development. Subsidies are powerful instruments. They can play a legitimate role in securing public goods that would otherwise remain beyond reach. But they can also be easily subverted. The interests of lobbyists and the electoral ambitions of office-holders can hijack public policy. Therefore, the GSI starts from the premise that full transparency and public accountability for the stated aims of public expenditure must be the cornerstones of any subsidy program. But the case for scrutiny goes further.” Read on…

Corporate welfare for casino operators

Thank you Oligopoly Watch for highlighting this story:

A few years after New Jersey legalized gambling and allowed casinos to open in Atlantic City in 1977, the state mandated that a portion of revenues to be set aside to improve "blighted areas," especially in run-down Atlantic City, a noble aim.

But according to a New York Times story ("Atlantic City Casinos Reap Anti-Blight Fund" 1/28/2007), over the past decade the moneys have been diverted to quite unintended target - the casinos themselves. According to the story, over $400 million out of a total of $1.8 billion since it was started) has been diverted from the state-run Casino Reinvestment Development Authority to projects that should have been paid for by the casinos themselves.

The pattern is a familiar one: government and large corporations engaging in mutual back-scratching at the expense of the social and physical environment. The corporations, grown rich on taxpayer-funded subsidies, can afford the very lobbying that perpetuates their subsidies. It’s a vicious circle. When I talk about Social Policy Bonds I usually emphasise their efficiency. But they have another great advantage: transparency. Expressing policy in terms of targeted outcomes does mean that ordinary people can follow what’s going on. Under a bond regime we might even choose to subsidise casinos or other large and wealthy corporations – but at least we’d be doing so with our eyes open. Under the current regime, there are legions of lawyers, politicians and bureaucrats who have every interest in obscuring the truth. As Ologopoly Watch continues:

Getting the tax dollars you pay in to be given right back in the form of subsidies is a great deal for the big companies. The ability to threaten to move, to play off one state against another, leads to tax breaks for companies that hardly need the money, while big social needs are unmet. Further more in this case, the casinos are directly responsible for some of the poverty and misery (drugs, prostitution, bankruptcy) that later cost the state in terms of law enforcement, hospitalization, and/or incarcerations.

For pity's sake, target poverty outcomes

From an interesting and controversial essay in ‘Sp!ked’:

In re-describing poverty as ‘vulnerability to climate change’, the result appears to be a rejection of aspirations to modernise agriculture. Instead, there is the opposite emphasis: the design of plans that reinforce the social and economic marginalisation of many African people. Rather than development being safeguarded by the modernisation and transformation of African society, underdevelopment is subsidised through the provision of social support for subsistence farming and nomadic pastoralism. …

The ‘adaptation agenda’ allows Western governments, international institutions and international NGOs to claim they are doing something positive to address the impact of global warming but the consequences for Africa could be disastrous. ‘Learning from the poor’, ‘empowering the poor’ and strategies to increase their ‘resilience’, end up patronising Africa’s poor and supporting an anti-development agenda that would consign Africa to a future of poverty - and climate dependency. Forcing Africans to ‘adapt’ to poverty, Prof. David Chandler, 1 February

I have no expertise in development economics, but this argument, and others like it, seem to me to cry out in favour of the outcomes-based approach that I do advocate. Thousands of learned books and papers discuss the reasons for poverty in the poor countries. One decade it’s institutions or governance that is seen as the problem; the next it’s colonial history, or evolutionary psychology. The assumption seems to be that once we locate the cause of poverty, we can set about tackling it. But who is trying to identify that cause? Essentially the professional priesthood of policymakers: government employees, academics and ideologically committed think-tankers. Many of them are well-intentioned, no doubt, and there are legions of heroes around the world, working for charities who eschew the theory and are actually trying to eradicate poverty. They are not helped, in my view, by the policy people, pre-occupied as they are with finding theories that validate their prejudices.

Here’s my idea. Subordinate all approaches to the desired outcome: the eradication of poverty. Contract out the solution to the market. Then a larger group of motivated people will actually go about reducing poverty without prejudice as to what causes it. They may spend time trying to find the causes but under a Social Policy Bond regime they would do so only if that were to maximise the reduction in poverty per dollar spent in reducing it. Otherwise they will leave the identification of causes to the theoreticians and ideologues - where it belongs, along with their endless, futile, debates.

Ideology trumps educational standards

The current ‘Economist’ in its survey of Britain (subscription):

But a passionate ideological debate about selection in English education (Scotland, Wales and Northern Ireland have their own systems) has got in the way. Politicians have been so intent either to defend or to oppose selection by academic ability that they have failed to set up a system of rigorous and useful qualifications for those whose interests are not academic. Standards have suffered in the name of inclusion, and vocational training has been chaotic. Meanwhile the great divide between public and private education has remained as important as ever. Clever Stuff, ‘Economist’, 1 February.

This is what happens when ideology drives policy. The policymakers and their hangers-on – well-intentioned, no doubt, and smart, certainly – lose sight of their original goal. They assume that they know best how to achieve their desired outcome. Eliminating selection was the supposed means to their end of equal opportunity for all, in the context of the English educational system. One outcome has been that grammar schools became fee-paying, and divisions widened. The ideologues didn’t achieve their stated goal, but that was probably supplanted in their minds by the outcomes they did achieve: they strengthened their identity, reinforced their ideology, and bonded more closely with people who felt the same way. Oh, and the pupils suffering from their muddle-headed idealism? Who cares…who really cares?

RSS

I don’t use RSS or fully understand it. I have been trying and (almost certainly) failing to add RSS feed to my blog via blogger.com. However, it seems that feedyes.com allows readers to create RSS feeds for themselves. You simply type in the site url and immediately receive the RSS feed.

The measurement tail wags the policy dog: family violence in New Zealand

A disturbing story from the BBC about family violence in New Zealand:

The perception that New Zealand has one of the worst rates of domestic violence in the developed world is now common. But violence within families is by nature hard to quantify, and Mike Doolan, former Chief Social Worker and currently a researcher at Canterbury University [Christchurch, New Zealand], said the claim is "impossible to prove". New Zealand falls into a group of developed countries with "moderate to moderately-high" child homicide rates, he said. But international systems for recording other types of abuse vary, comparisons are unreliable and New Zealand may simply be better at monitoring the problem than other nations.

For me there are two main policy issues, both of which point to the need for some humility amongst policymakers. First, the difficulty of quantifying the size of the problem, alluded to in the excerpt above. Second, the question of what any government can or should do to address family violence.

The two are linked. Government routinely amasses a plethora of economic statistics, partly because it’s easier to do so; partly because they can all be reduced to dollars and so compared readily with each other. The availability of financial data tends to make them a high priority for policymakers, whether explicitly or not. And the casualties of that sort of bias tend to be those things that cannot be easily monetised: including the physical environment and the social environment.

I offer no simple solutions to those problems, except to say that, under a Social Policy Bond regime, ordinary people would have more say over the outcomes they want to see targeted. If massive cuts in family violence became a policy priority, then the measurement problems referred to would become far less daunting. People would be motivated to solve them, and in doing that they would make the actual policy goal more feasible.