I haven’t read the book yet, but I’m glad it’s been written. Businesses and government talk about ‘the market’ as though it’s an accurate summation of individual’s preference, weighted perhaps disproportionately in favour of the wealthy. But it’s worse than that. The wealthiest of all are not individuals but large corporations, and they have many ways in which they can bias the market against small enterprises, the public, the natural environment and the social environment. In this, they and our governments, nominally democratic as they are, engage in mutual back-scratching. Governments help large corporates by, amongst other measures, imposing protectionist barriers to imports, and creating a regulatory environment that imposes disproportionately high costs on smaller businesses. Wal-Mart and other mega-retailers are not the only beneficiaries; agribusiness, military suppliers and the construction industry also leap to mind. But it’s the big box sellers who most readily claim that their success is due to ‘the market’. It’s not, unless the market they are talking about is for policies, regulations and the souls of our representatives in government.
Stacy Mitchell's new book, Big Box Swindle, offers a compelling case for why uncontrolled proliferation of corporate chains undermines communities, competitive markets, and democracy. Mitchell provides a fine balance by detailing the big picture with extensive research while driving home the impact of problems with stories of real people, businesses and communities.
An especially interesting chapter is “Uncle Sam's Invisible Hand,” which reveals how government policies have played an immense role in shaping the retail and other commercial development. Some of these policies, such as directly subsidizing politically-powerful corporations, may be familiar to our readers, but Mitchell unearths many cases of more subtle government favoritism or discrimination that make clear the growth of corporate chains has not resulted from market forces alone. Source
30 March 2007
In a parliamentary system so debased by conflicts of interest that Lord Hailsham once described it as “an elective dictatorship”, the Lords could well play a role in balancing the interests of the people against the ruling party and its rent-seeking clients. An even better alternative would be a system of direct democracy that allowed citizens to look after their own interests.It’s perhaps as understandable as it is regrettable that the Swiss model of ‘direct democracy’ is rarely proposed in other countries. Switzerland has a federal structure whose 26 cantons have use assorted instruments of “direct democracy”, notably “initiatives” to change the canton’s constitution, and referendums to stop new laws, change existing ones, or prevent new public spending. Cantons vary in the ease with which these instruments can be used. Research by Bruno Frey and Alois Stutzer of the University of Zurich showed that, even after allowing for other variables, the more democratic the canton, the more people living there reported being happy. The effect is significant:
[T]he marginal effect of direct democracy on happiness [was found to be] nearly half as big as the effect of moving from the lowest monthly income band (SFr980-1,285, or $660-865) to the highest (SFr4,501 and above). SourceBy looking at the reported happiness of foreigners living in the Swiss cantons, the researchers found that it wasn’t just the effect of the decisions made by direct democracy that led to greater wellbeing. The participation in the process itself accounted for most of the increased happiness.
This is a position I have long advocated. A Social Policy Bond regime would specify outcomes to be targeted with public funds, but the language of outcomes is intrinsically more meaningful and more accessible to ordinary people. The current political system in most democracies rarely declares its goals in terms that mean anything to natural persons. Instead, its goals have more to do with gaining or retaining power, and usually mean favourable treatment to the most powerful lobbyists, especially government agencies and big business, largely at the expense of small businesses and ordinary citizens. The system gets away with this, because its goals are expressed vaguely and usually in the form of legalistic discussion about institutional structures and funding. Social Policy Bonds in contrast would subordinate all such processes to meaningful, explicit goals. This would draw more people into the political process. As the research into Swiss direct democracy shows, this is an end in itself, as well as a means to greater wellbeing.
27 March 2007
Propaganda has become more sophisticated and possibly more effective than it was during the Soviet years, when television was a tool used to sustain an ideology. The goal today is simpler: to support the Kremlin and its corporate interests.These quotes, and the entire article, show clearly that in Russia, as in other countries:
Putin is proud of Russia's economic achievements…. "When I became President, our foreign-currency and gold reserves stood at twelve billion dollars, and now they have increased by eighty billion over the first half of this year alone, and currently come to a total of around two hundred and seventy billion," he said. "We have paid off our debts in full. …" He added, "But none of this would mean anything if it did not bring change to people's lives," noting that incomes and pensions have risen nearly ten per cent each year since he became President. Nevertheless, the country is literally dying. When Boris Yeltsin took office, the Russian population stood at nearly a hundred and fifty million. By 2050, most official projections suggest, the number may fall below a hundred million. In describing the new Russia, neither Putin nor his loyalists mention the country's rapidly expanding AIDS epidemic, its endemic alcoholism, or the vast differences in incomes among its citizens. Kremlin, Inc, ‘New Yorker’, 29 January (my emphases)
- Government and corporations have their own agenda, which often conflicts with that of ordinary citizens; and
- A high or rising Gross Domestic Product – which I believe is the de facto target of most governments – says very little about the wellbeing of a society.
26 March 2007
Of course, it’s not just Iran, and it’s not just petrol. It’s most of the rich countries, many of the poor countries, and it’s agriculture, energy and water. How do governments find themselves taking funds from poor people to give to the rich to help them destroy the environment? Often such subsidies start out as well intentioned. There’s a food shortage? Subsidise farmers to produce more. But the subsidies mainly goes to the owners of the least elastically supplied input. In the case of agriculture, this is farmland. Wealthy landowners are the big gainers therefore, along with the agribusiness corporates that supply the increased volume of inputs and process the expanded volume of outputs. Cutting subsidies is far more difficult than starting them. Their beneficiaries have the means and the motivation to resist meaningful reform. Government is frightened of punishing its friends (and, very often, paymasters) in the business world, so takes the path of least resistance. It’s ordinary people who suffer, as well as the environment.
Such nonsense is only possible where there is a disconnect between government and the people it’s supposed to represent. And such a disconnect is guaranteed when policy is expressed in terms of vague, mutually conflicting, and uncosted goals. That happens when we trust government to do the right thing. But in our complex economies, neither government nor anyone else has much understanding of all the relationships between cause and effect. Obscenities like Iran’s subsidies to motorists, or the European Union’s subsidies to wealthy aristocrats are the result.
Either we tolerate this insanity, until its financial, social and environmental costs destroy the planet completely, or we reduce our economic units to the size at which we can understand its linkages – probably something like the village level. The latter course has its attractions, but couldn’t hope to sustain the population we already have. Or we introduce outcome-based government: something along the lines of Social Policy Bonds, where all policies, activities, and institutional goals are subordinated to social and environmental objectives that are chosen by, and meaningful to, ordinary people; as distinct from wealthy individuals or corporations.
23 March 2007
The organic farmer gets a minuscule share of the price of a loaf of bread. The solution to this is for the organic farmer to become a producer of food, not just organic agricultural commodities. But the local zoning people tell me that if I grind my grain into flour and bake bread with the flour that these are "industrial processes" and that they will take whatever action it takes to stop me. …On the other hand, I have a friend in Bangkok whose next-door-neighbours house a small gem processing operation, which runs most of the night, at high volume.
22 March 2007
- Core government spending is now almost NZ$20 billion a year higher than it was in 2000, a 32% increase in real terms.
- Total government spending now makes up 40% of GDP, compared to 35% in Australia.
- The available social indicators we have show negligible improvements since 2000. Life expectancy, infant mortality, hospital outputs, literacy, violent crime, suicide, poverty and income inequality have barely changed despite a massive increase in social spending.
- Around the world there is little relationship between higher public spending and better social outcomes.
- A major explanation for why this spending has been ineffectual is because of middle class welfare. A large proportion of government spending is simply recycled (or ‘churned’) straight back to those who paid the tax in the first place.
That itself, though, is grounds for concern. We have strong suspicions that government spending could be more efficient; that middle class (and corporate) welfare is wasteful and, if it were transparent, would be unpopular; that more broadly, the gap between government – even the government of a population of 4 million – is widening. But, as another of the report’s conclusions says:
- The [New Zealand] government has little specific information on how effective [its] extra spending has been. We lack information on outputs and outcomes from the public sector, which makes it difficult to measure exactly what return taxpayers are receiving for their investment.
A Social Policy Bond regime would be different: the targeted outcome would be costed by the market, under competitive bidding. The value of the bonds would rise and fall continuously, according to how remote the market thinks the outcome is to being achieved. Such information is invaluable to potential investors in the bonds, as well as policymakers. It tells them, and anyone else, which projects are likely to succeed. More compellingly, it tells us which projects should be terminated – something that happens all too rarely under the current system, where taxpayer-funded institutions and activities have their own momentum that keeps them going well after their ‘best-before’ date.
20 March 2007
the interesting thing for us is the list of brands produced by Menu Foods. The company makes 42 different brands of cat food and 61 brands of dog food … [and] each of the brands has a large number of flavor varieties. The list of brands is breathtaking. Some are store brands for all the US's major and minor supermarket chains. … [O]thers are lesser-known general varieties…. Still others are so-called "nutritional" pet foods, premium high-cost brands….Pseudo-variety describes the way in which a highly concentrated industry using similar methods can produce a dazzling array of "choices" at every price point and quality level.Oligopoly Watch reminds us how and how much, industries become concentrated. The relevance from my viewpoint is not so much that such concentration is necessarily a bad thing, but that it occurs because government is systematically biased in favour of big business, at the expense not only of small business but of ordinary people too. It is government that subsidises, whether directly indirectly by such means as import barriers or military contracts, its cronies in big business, and it is government that creates a regulatory environment that imposes higher costs on small than big firms. The petfood moguls might tell you that it’s ‘the market’ that made them so successful; so too might other large agribusiness corporates, the oil companies, and the car manufacturers or aircraft makers. But that’s misleading: the market they refer to is the market as mediated by government. And that’s quite a different thing.
18 March 2007
If we could wave a wand and housing prices go up 10 percent, the subprime mortgage problem would disappear. SourceOur policymakers have become so bewitched by the numbers that they fail to see what they represent. Sure, a rise in house prices would solve one problem; but one’s person’s increase in housing equity’s is another’s missed chance of home-ownership. In a conflict between competing groups of people, it seems that it’s policymakers will favour those groups that
- have greater lobbying power
- are hit most visibly,
- are hit most suddenly.
17 March 2007
Another form of CYA [Cover Your A**] security is the overly specific countermeasures we see during big events like the Olympics and the Oscars, or in protecting small towns. In all those cases, those in charge of the specific security don't dare return the money with a message "use this for more effective general countermeasures." If they were wrong and something happened, they'd lose their jobs. Bruce Schneier 15 MarchMr Schneier hits the nail on the head. The real goal of so many bureaucratic activities comes not from being successful, nor even from avoiding failure, but from avoiding one’s exposure as a failure. Tried, tested and failed methods will almost always win out over new and imaginative measures: if something hasn’t been done before the penalties for failure are far higher than sticking to the script even if failure is thereby assured.
15 March 2007
We live in a world of concepts, in a world of thought. We try to solve all our problems, from the most mechanical to psychological problems of the greatest depth, by means of thought. J Krishnamurti, You are the World, Harper and Row, 1972
What, then, of the [British] government's new, untried and dictatorially imposed new method of selecting junior doctors? It is part of its drive, conscious or unconscious, to destroy the independence first of the professions and then of citizens themselves. Its goal is a perfectly administered state (perfect, that is, in the sense that everything is administered and nothing is spontaneous or developed organically, not perfect in the sense that everything functions as well as possible). Theodore Dalrymple, 8 March 2007.
Just as thinking has taken over from instinct, insight, intelligence or intuition in our individual lives, so is government control taking over many of the functions that as families, communities or societies we were used to doing for ourselves. I’m pessimistic about where the logical end point of this is: perhaps one of the better destinations would be a (relatively) benign police state like Singapore, where freedoms are restricted (by western standards), energies are almost entirely devoted to raising national income, punishments for stepping out of line are severe and the crime rate is low. Not the worst society, by any means, but the famous Straits Times headline hints at some of what’s missing: “Let’s have spontaneous fun – and here’s how”.
In Krishnamurti’s view, continuous, unflinching, choiceless, self-observation is sufficient to put thought in its place. What would do the same to government? As it is, there is widespread dissatisfaction with government, but it’s either diffuse, inarticulate, and expressed as disengagement from the political process; or it’s ideologically driven, funded and beholden to corporate interests. There are well-meaning lobby groups who work through the political process but, when it comes to reinstating the societal intelligence that is being eroded by government, they are for the most part ineffectual. Perhaps we have reached the point where government is so dominant that any action to rein in government and restore societal autonomy has to work through government. Turkeys voting for Christmas?
I think that Social Policy Bonds, through their focus on outcomes, offer a way out of the predicament. Policy subordinated to outcomes – outcomes that are meaningful to natural persons, not corporations – would close the gap between people and their representatives in government. I suspect that specifying such outcomes would clarify what people think should be government’s role in our society. Social Policy Bonds would also contract out the achievement of social and environmental goals to the private sector; again serving to rein in government control, and encourage diverse, more local, less monolithic, solutions to our social problems. It’s likely that while government resources and articulation of our goals are necessary, withdrawal of governmental control over how goals shall be achieved would reinstate some of society’s own skills and problem-solving abilities, many of which are being steadily undermined by government. That would be an end in itself, but would also, in my view, mean a more resilient, more resourceful and healthier society.
13 March 2007
Perhaps the sophistication of modern financial structures means that the distribution of risks and the design of governance structures can be finely tuned to the needs of individual investors and the businesses they fund. Or perhaps there is a miasma of complexity and confusion in which everyone persuades themselves that the uncertainties of business have been landed on someone else. John Kay, Financial Times, 13 MarchProfessor Kay is writing about private equity, but I am not sure his forebodings don’t apply to policymaking and its impacts on the environment and society. If they do, then it would be for similar reasons. I suspect the complexities in the worlds of finance and policymaking can work in society’s favour if behaviour is ethical and people trust each other. Economic complexity, based on the division of labour, works well under such circumstances. But it’s not obviously better than stone age economics in complex economies, with their alienation, asymmetries of information and power, extreme interdependence, and widespread availability of highly destructive weapons. One becomes nostalgic for a simpler, more comprehensible world.
Can we have the benefits of complexity without its costs? Social Policy Bonds would recast politics, by starting out with broad, comprehensible and meaningful outcomes, to which all policy programmes would be subordinated. The world’s complexities, manifold, ever-changing and hence unknowable to the elite caste of current policymakers, would be pored over by anyone with an interest in investing in the bonds. Efficiency, not status or chance, would determine how well people are rewarded for achieving social outcomes.
12 March 2007
But one of the reasons I advocate Climate Stability Bonds is that those who back them need not have a strong opinion one way or the other as to the seriousness of climate change. Assume that the governments of the world decide to issue Climate Stability Bonds, which would become redeemable for a large sum once climate stability had been achieved and sustained. If the consensus of the market for the bonds is that the climate is already stable, then the bonds would sell for a quite high price. The governments would not lose much by redeeming the bonds, as the bonds would not appreciate very much. If the buyers of the bonds were wrong, it would be they, not the governments, who would lose money.
If the market believes climate change is happening and that therefore climate stability will be difficult to achieve, it will attach a low value to the bonds when they are issued. Bond purchasers would stand to make large sums if they help bring about climate stability.
The crucial point is that under a Climate Stability Bond regime it would not be up to governments, the United Nations, or any panel of experts to make a one-time only assessment of the seriousness of climate change. Under a bond regime it would be the market that would be highly motivated to inform itself about all aspects of climate change, because it stands to gain most if they get it right. And investors in the bonds would be so motivated on a continuous basis, as the market for the bonds would be constantly generating opportunities for gain to successful gatherers and interpreters of the flow of data about climate change.
A Climate Stability Bond regime would thereby bring onside the skeptics, or those who are just reluctant to pay large upfront costs for an uncertain gain. It would contract out not only the achievement of climate stability, but also the assessment of how serious a problem it is. The costs of a poor assessment would be borne by investors in the bonds, rather than taxpayers. Action to bring about climate stability – and I mean action, not empty, expensive gestures like Kyoto – would, I believe, therefore be more forthcoming.
10 March 2007
Secondary schools that encourage their pupils to sit non-traditional subjects such as leisure studies and performing arts are bolstering their league table position at the expense of leading schools that focus on core disciplines, a unique analysis of exam results has shown. … Lancaster High School, a comprehensive ranked 478th by the DfES plummets more than a thousand places to 1,623 when “softer” subjects and vocational qualifications are excluded.This is but one illustration of how the use of badly thought out numerical indicators and targets influence behaviour for the worse. They point to a genuine problem for well-meaning policymakers whose remit covers any but the smallest community: which numbers to use and how to use them? The Social Policy Bond approach relies totally on numerical targets and so, increasingly, does current policymaking, for better or worse.
It seems to me that useful indicators and targets should be inextricably correlated with wellbeing. And we should be targeting the wellbeing of ordinary people – not corporations or institutions, which have entirely different goals that can and often do conflict with those of the public. Importantly too, our chosen targets should also be expressed in broad terms, mainly so that objectives that can conflict with each other are targeted by a single policy – or issue of Social Policy Bonds. This is in order to minimise the chances that people will achieve one targeted goal at the expense of another, untargeted component of wellbeing. Broad objectives also maximise efficiency gains, as they give wider scope for the deployment and shifting of scarce resources.
The need for broad targets highlights one of the difficulties I experience when trying to raise interest in the Social Policy Bond concept: they function best over a large scale, making small-scale experiments difficult to devise. Ideal policy areas for Social Policy Bonds are those where a large range of approaches and projects need to be explored, adapted, tried and (if unsuccessful) terminated or (if successful) adopted widely. Climate change is one example. Others are eradicating poverty, raising literacy, reducing crime rates, over large regions or whole countries. It’s difficult to devise experiments at that level, but an alternative might be a virtual experiment in a simulated world, such as at http://www.secondlife.com/.
07 March 2007
Arguably, the US sulphur dioxide trading programme of the 1990s helped business save money in meeting modest short-term reduction targets for a single substance. But global warming require a more radical solution: nothing less than a reorganisation of society and technology that will leave most remaining fossil fuels safely underground. Carbon trading...just encourages the industries most addicted to coal, oil and gas to carry on as before. Carry on pollutingI broadly agree with Mr Lohmann in that carbon trading will not meet the challenge. And it seems that, in New Zealand anyway, there is a very large bureaucracy devoted to administering carbon trading, and a similarly large effort on the corporate side devoted to gaming the system. Carbon trading looks elegant, but its goals are modest and:
Only big firms can afford to hire carbon accountants, liaise with officials and pay the costs of getting projects registered with the UN. Yet these are often the companies that local people battle hardest against in defence of their livelihoods and health.Carbon trading then seems likely to be a corporatist non-solution to the climate change problem. Something designed to keep economists busy, and to annoy and deceive the public with higher prices and the appearance that something’s being done.
Well, regular readers of this blog will know that I favour Climate Stability Bonds, which would prove as radical as necessary in meeting the challenge: their impact would be commensurate with the scale of the problem, rather than what is politically possible under the current – corrupt – system.
What’s necessary? Mr Lohmann suggests: “Public investment, shifting subsidies away from fossil fuels and toward renewables, conventional regulation, support for the work of communities already following or pioneering low-carbon ways of life, requiring that businesses pay the costs their competitors incur in developing green technologies…” Climate Stability Bonds would probably encourage investors to develop all these, and more, initiatives, and they would do so without the laborious, energy-sapping, process-obsessed negotiating that after a lengthy gestation has given birth to… carbon trading.
05 March 2007
There is much in [his] argument; and it is easy to share the exasperation he seems to feel with some exiled lobbyists. Some have so lost sight of the ends in pursuing the means that each new government sanction or consumer-boycott-induced withdrawal of a foreign investor is celebrated as a triumph in itself.This confusion between means and ends is rife in the world today. Instead of societal goals, aspirations and values, ever more of our lives is determined by institutional goals, especially those of the larger organisations including government and its myriad agencies. It is all totally understandable, and quite rational given the incentives under which we currently operate. But it is also quite at odds with our broader purposes as a society. The exiled Burmese about whom Thant Myint-U writes would probably rationalise their support of a boycott of Burmese-made products as a way of further isolating the Burmese junta, and presumably hastening its end. This is questionable, but what is not up for debate is that the quality of life of the average Burmese suffers. As Thant Myint-U puts it:
[I]magine for a moment that somehow, miraculously, extremely tight sanctions were possible – involving China, India and Thailand – and that these brought the government to its knees, without a dollar or renminbi left to pay for vital imports. While there is a possibility that reasonable heads would prevail, there is also a very good chance that the army leadership would stay in their Führerbunker until the bitter end, as the country collapsed into anarchy around them. Many of those who support sanctions hope that greater outside pressure would lead to disagreements within the army. Nothing could be more dangerous: the country could easily fall apart into dozens of competing military factions, insurgent armies and drug warlord militias. If that happened, all the troops in Iraq and Afghanistan wouldn’t be enough to put Burma back together; it would be a disaster for Asia.But then what are well-meaning supporters of the Burmese to do? In my view, they should define exactly what they want to achieve: presumably an end to the military dictatorship and some increase in the broadly-defined quality of life of the poorest and average Burmese. Then they could contract out the achievement of their targeted objective to whoever is best-placed to do the necessary work, perhaps by issuing 'Burma Democracy Bonds', on the Social Policy Bond principle. It would be up to the investors in these bonds to achieve this goal as efficiently as possible. They might try to achieve the goal in ways that a group of high-minded exiles cannot: they could bribe the most pliable of the current junta with one-way first-class tickets to the golfing resort of their choice for an indefinitely long holiday. They could finance the operation of a credible government-in-exile, with attendant media coverage. Whatever their course of action, it would never lose sight of its actual aims, because that would mean less financial reward for the investors. I realize that this sounds far-fetched, but the alternative has been tried for a long time, and it isn't working.
Burma is just one example. There are others, where the aims as expressed through actions of certain spokespeople - perhaps more cynical and less high-minded - are completely at odds with those of the people they are supposed to represent. The Palestinians spring to mind most readily, but such hijacking of the societal good by those who think or say they know how best to achieve it is unfortunately a common, and seemingly inevitable, aspect of current politics. I have blogged below, about environmental organisations and how, in my view anyway, the naive actions of some of their membership are more likely to repel than attract potential supporters and so reduce the chances of actually helping bring about the environmental goals they say they wish to achieve. Especially in politics and the environment, we find that institutions - sometimes unconsciously, I am sure - come to see their own goals as more important than those of society.
My suggestion is that we try subordinating all our actions to agreed, explicit, transparent and meaningful outcomes. Contract out the achievement of our social and environmental goals to the private sector, without prejudice as to how they shall be achieved. Given the complexity of our society, with its distractions, its profusion of linkages and time lags that, I believe, is the only way we can be sure that our goals aren't corrupted and our energies aren't dissipated.
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04 March 2007
02 March 2007
A report from the European Environment Agency, to be released next week, highlights the role subsidies play in choices of transport. The report found €270bn-€290bn is spent annually in Europe in transport subsidies. Almost half goes to road transport, which the EEA said was "one of the least environmentally friendly" transport modes. Disentangling the web of transport subsidies is complex, and the EEA will next month release a study showing in more detail how taxpayers fund road transport systems.It’s perhaps a heroic assumption, but I do think that if there were transparency about where taxpayer and consumer funds go, I don’t believe we’d be quite so keen to subsidise the destruction of our planet. Or that we’d want to transfer funds from the poor to the rich, which is what most transport subsidies do, along with most other perverse subsidies – also known as environmentally harmful subsidies. It’s why I advocate, outcome-based policy, even if the full Social Policy Bond regimen is a bit too radical for today. We can’t do a great deal about the complexity of our economies or society, and that is what allows these ludicrous, corrupt subsidies to persist, but we can try to subordinate policy to transparent, meaningful, outcomes. Our failure to do this is not only environmentally irresponsible, fiscally wasteful, and socially inequitable: it also widens the gap between policymakers and the people they are supposed to represent.
As Norman Myers says: For every $1 going into solar power or wind power, there are $15 of government subsidy going into fossil fuels, which is crazy.