30 July 2007

Starting a drug habit

It's a tragedy that even developing countries like Brazil are subsidising the biofuels industry. As if they have no more pressing problems than expensive fuel. This policy is environmentally questionable, socially inequitable and will be financial nonsense as well. Like other perverse subsidies it is a short-term, televisual response to a set of long-term, global problems. How do such policies get made? Their stated objective sounds reasonable, at first hearing: to encourage local industry while giving a push to something green. But the real objective is to make life easier for agribusiness. Lobbyists for agribusiness the world over know this. They are the real beneficiaries of the farm policies that have done so much to depopulate the rural areas of the rich countries, to denude their countryside, to transfer wealth from food consumers to landowners and large corporates, and to hobble the food-rich developing countries on their path to prosperity. Brazil and the other Latin American countries should have learned from the west's mistakes.

Under a Social Policy Bond regime such corrupt policies would probably fall at the first hurdle. Few governments would get much support if they had openly to admit that their expensive subsidy programmes have one objective: to enrich the large agribusiness corporates. Instead, policy goals would be expressed in terms of outcomes for real people. A useful discipline, but one that evidently does not have to be followed by the Brazilian Government.

27 July 2007

Explicit goals

Commenting on an article about Henry Kissinger's role in US foreign policy, a Darian Diachock writes:

The pedestrian character of how these foreign policy wonks think fascinates me. You think ... PhD in some humanities field, experience in international trade, complex issues matrices, and so on. But no, it’s “We need to humiliate them,” or “We need to kick around some crappy little country to show we need business.” Makes you realize that it’s not brilliance but connections that results in high-level appointments. Certainly, the quality of thought isn’t “high-level”.
I would argue that any single mind, however brilliant, will be deficient when it comes to deciding what society's goals are and how to go about achieving them. When I write about Social Policy Bonds I tend to stress their efficiency as compared with current policymaking. But perhaps as important as any of those attributes is that they would change the way in which the very goals of policy are decided. The goals themselves would drive policy; under a bond regime a government would have to state its goals explicitly and transparently. Going to war for the petty reasons to which Mr Diachock refers, would be a hard sell. The goals of such an undertaking would have to be clearly stated. To attract investors they'd also have to be feasible and objectively verifiable. And, critically, they'd also have to be costed, in the sense that the maximum cost to taxpayers would be stipulated in advance.

The goals of many of our most costly policies are rarely specified very accurately. Governments are more comfortable with inputs (spending) decisions than with defining broad outcomes and rewarding those who achieve them, whoever they may be. It's partly for historical reasons and partly also because nobody likes to give up power. A Social Policy Bond regime would limit the power of government to specify how its goals shall be achieved, and who is to be charged with achieving them. But government could still articulate society's goals, and would still be responsible for raising the finance to reward the achievers. These are things it could do quite well; more so when it has to convince a skeptical market about the validity and feasibility of its goals rather than appeal to a few highly-placed ideologues with their own agendas.

26 July 2007

Adaptability versus bureaucracy

One of the features of Social Policy Bonds is that they encourage adaptive solutions to our social and environmental problems. The most significant determinants of our way of living were largely unanticipated. Corporations and their activities have led to great benefits (as well as costs) that have little to do with the personal gain of the entrepreneurs who set them up. These side-effects of individual self-interest (positive and negative externalities, as economists call them), in contrast to the plans of the private sector management, were unplanned. With the help of government intervention, they have led to a huge increase in the quality and quantity of life in the rich countries.

Until they grow big enough to influence government, most private sector companies adapt or go under. But their negative externalities of their activities are largely the responsibility of government, a monopoly. Government responds to social and environmental problems in ways that often do not adapt. Hugely wasteful, corrupt and malignant policies, such as farm subsidy programmes and other perverse subsidies, persist partly because they are too small in relation to the overall economies that support them.

Diversity helps: when people from democratic countries travel overseas, see the advantages of doing some things differently, and return home, that puts pressure on their governments to adapt. But what happens when government becomes so big that people cannot do this? Then there would be just one approved way of bringing about, say, climate stability and if that didn't work, then there would be little pressure chance of alternative approaches, despite the evident failure of the policy.

We may well need governments that have very large geographical remits: even a form of global government. And there probably are universal values that need protecting by such bodies. But such values are outcomes, not ways of achieving them. We can have universal values and goals, such as the eradication of world poverty, 100% literacy and numeracy, but we need diversity in the ways of achieving them. Then failed experiments will be terminated, and succesful ones widely adopted. A Social Policy Bond would be consistent with such an approach. It would target outcomes, not the ways of achieving them. Under a bond regime, those agencies, be they public or private sector, would survive and prosper only if they were efficient at achieving society's targeted goals.

24 July 2007

Post 399

It's my 399th post on this blog, and maybe time to take stock. In the past couple of years there have been the odd flurries of interest in the Social Policy Bond concept, including at political levels maybe one degree of separation away from the very highest, but to my knowledge nothing has so far come of any of them. There seems to be a bit more interest in judging the performance of some agencies by outcomes, but I'm not aware of anything like the contracting out of outcomes (as against outputs) to the private sector, and especially not via anything like Social Policy Bonds, which would facilitate a fluid, protean structure subordinated entirely to the targeted social goal. My own work in Social Policy Bonds is therefore something of a holding operation. I write about one or two essays a year for the occasional competition. I maintain this blog, but after years of trying I rarely seek the interest of politicians, the media, and (especially) philanthopic organisations and publishers. I'm most disappointed by the philanthropists. My dozens of emails to anyone connected with established philanthropic bodies are, without a single exception, ignored.

For these reasons I'm particularly glad to read comments on this blog. To a degree, having made the work available is an end in itself. And I take some comfort from reading the lives of people like Thomas Bayes, whose contribution to probability theory was discovered only after his death.

21 July 2007

Chomsky on the Middle East

Professor Noam Chomsky, in an essay that encompasses a lot more, puts it accurately and eloquently:
The most extreme protectionism was during the Reagan years—accompanied, as usual, by eloquent odes to liberalism, for others. Reagan virtually doubled protective barriers, and also turned to the usual device, the Pentagon, to overcome management failures and “reindustrialize America,” the slogan of the business press. Furthermore, high levels of protectionism are built into the so-called “free trade agreements,” designed to protect the powerful and privileged, in the traditional manner. Imminent Crises: Threats and Opportunities
It's a long essay, and one that points to the huge gap between ordinary people, in rich and poor countries, and the governments that are supposed to represent them.

20 July 2007

Japanese bureaucracy, continued

How did it come about that the Japanese ceded so much power to the bureaucrats (see my previous post)? More from: Dogs and Demons: the Fall of Modern Japan:
Before World War II, the bureaucrats had already consolidated power but had to share it with the armed forces and the big zaibatsu business cartels. After the war, with the army and the zaibatsu discredited, politicians, the press, and the public consigned their fate to bureaucrats, allowing them near-dictatorial powers and asking no questions. For a while, the system worked reasonably well....
Alex Kerr gives a full account of the damage that the bureaucrats are now doing, but the Japanese bureaucrats seem to have entrenched their power so deeply and pervasively that any change will occur only very late in the day, and is likely to be very stressful. The worry is that it is not just Japan; that the influence of government and big business, acting together as they generally do, is becoming as self-entrenching in the west as in Japan. That may sound far-fetched but a single mad policy, the Common Agricultural Policy, has already done much to devastate the physical and social environment of the European Union's rural sector. It is still, decades after its faults were clearly identified, transferring wealth from the poor to the rich, and wasting billions of taxpayer and consumer dollars.

In that instance at least, there is nothing intrinsically self-limiting in bureaucrats' powers. Perhaps it's the comparatively small size of agriculture in Europe that allows it to continue to be subsidised in this corrupt, insane manner. While the CAP costs billions of dollars, it still represents only a small proportion of the EU's Gross Domestic Product. But it, and other perverse subsidies - or rather, their persistence in the face of widespread knowledge of their perversity - should be a warning. We need mechanisms that terminate failed policies rather than entrench them.

My suggestion, Social Policy Bonds, would do that by subordinating activities and funding to explicit, targeted, verifiable outcomes, rather than vaguely expressed declarations of intent that can easily be ignored.

18 July 2007

Japanese bureaucracy

Reading Dogs and Demons: the Fall of Modern Japan, one is struck by how resistant the Japanese administrative class is to change, despite the disastrous effects its failings are having on the country, including the destruction of its natural environment. Here the author, Alex Kerr, contrasts the theoretical love of the Japanese people for nature, with what is actually going on:

It is impossible to get through a single day in Japan without seeeing some reference - in paper, plastic, chrome, celluloid, or neon - to autumn foliage, spring blosssoms, flowing rivers, and seaside pines. Yet it is very possible to go for months or even years without seeing the real thing in its unspoiled form. Camouflaged by propaganda and symbols, supported by a complacent public, and directed by a bureaucracy on autopilot, the line of tanks moves on: laying concrete over rivers and seashores, reforesting the hills [with a cedar monoculture], and dumping industrial waste.
Bureaucracy the world over is not subject to the checks and balances of the private sector. This can work to everyone's benefit, as when it does things that only governments can do, and does them well. A military victory, for instance, or successful economic planning - as in post-war Japan. But there's no self-limiting humility, little adaptivity to a changing world, certainly no internal pressure to change. Any such pressure has to come from the outside. But if government becomes too large, too monolithic, too powerful or too closed, it can resist such change, at the expense of its population, for decades. The worry is that the governments of the western countries are becoming like that of Japan, and the USSR: willing to use their powers, and the cynicism of an increasingly disengaged electorate, to resist change, and so enhance their capacity to enlarge their role - and ensure when inevitable change does come, that it will be painful, while in the meantime overseeing the destruction of the social and physical environment.

Against that, is the shrinking planet; people travel more and have greater access to information. They can, then, become more aware of the failings of their bureaucracy at home. Governments can resist that only by blocking travel and information flows, which is more and more difficult to do. But acting in the other direction are:

  • migration; whereby the most amitious and energetic of the mis-governed countries are more inclined to migrate than to improve things at home; and

  • the growth of the centralised superstate, along European lines, whereby a single bureaucracy encompasses enlarges an enlarged area, making it more difficult for people to compare its performance with other bureaucracies.
Indeed, the impression one gets reading Chomsky is of the use of power of the world's dominant bureaucracy - that of the the US - to subdue the independence of others. From many points of view, this is a bad thing, though possibly not the worst alternative. But it's bad in particular from the risk management point of view. Diversity of bureaucracies and the ability of people to compare them is one way, perhaps the most effective benign way, of getting them to represent their people's interests rather than their own.

The methods of the Japanese bureaucracy in the post-war decades were largely successful in achieving its aims, which were in turn largely compatible with those of the Japanese population. Those linkages may have broken in Japan and be fraying in much of the rest of the world, but a Social Policy Bond regime could bring them together again. Goals would be explicit, broad and agreed with greater public participation. Bureaucracy would articulate these goals, and raise the finance for their achievement. It would not direct funds directly to its cronies, but contract out the achievment of society's goals to the private sector, via competitive bidding. Amongst many other benefits, large-scale corruption of the sort that has destroyed so much of Japan's environment, would be a thing of the past.

15 July 2007

The limits of scholarly focus; or give greed a chance

From Chapter 1 of Another Blood Century: Future Warfare, by Colin Gray:

If an apparently convincing general solution to the problem of war were achievable, it is probable that someone would have discovered it by now. The fact that none such has yet been promoted suggests that the scholarly campaign against war may have been thoroughly misconceived. ... [War] is simply too rich a subject to be captured, let alone prospectively controlled, by the conclusions of general theory.
In this, writes Professor Gray, war is similar to disease: individual maladies can be treated and even cured but 'disease per se does not lend itself to direct scientific assault'.

I agree with this, as far as it goes, but I am more optimistic. Poverty has been reduced not because people have deliberately set out to do so, but largely as the byproduct - or positive externality - of people and corporations maximising their wellbeing in the market. Yes, government intervention and private philanthropy have played a large role in distributing some of this wealth to the poor and into the provision of public services, but the ultimate source of the funding for this was mainly the private sector. In the west the effects of disease as a whole have, in fact, been drastically reduced, though as Professor Gray says, this is not because scholars or intellectuals decided to focus attention on all disease and target it for reduction.

Scholars aren't going to bring about world peace. I don't know whether greater wealth is more or less likely to reduce the level of violent political conflict in the world. Perhaps the trickle-down effect of higher incomes and reduced poverty will make war less likely. Or perhaps by raising the stakes, and the availability and destructive power of weapons, it will have the opposite effect. But I think we can do more than simply be passive observers of the effects of globalised wealth generation on the incidence of war.

A Social Policy Bond regime would target all violent political conflict, including wars within and between states. It would not directly generate solutions to the problem of war, but it would give incentives to those who are currently engaged in conflict reduction and conflict resolution. It would also enlarge the numbers of people willing and able to work toward those ends. We don't need systems, ideologies, more government intervention or more scholarship. Neither should we sit back and hope that war will be reduced or eradicated as a spin-off from world development. What we do need are adaptive, diverse solutions to the problems of potential or actual armed conflict in all its myriad manifestations. To see how the Social Policy Bond principle could be applied to one particular field of conflict (the Middle East), read Peace Bonds: Give Greed a Chance.

13 July 2007

Rail and the environment

From the London Times:

[S]ome trains on rural lines, such as the diesel Sprinter, are less efficient than 4x4s because they are often almost empty. Douglas Alexander, when he was Transport Secretary, said last year: “If ten or fewer people travel in a Sprinter, it would be less environmentally damaging to give them each a Land Rover Freelander and tell them to drive.”
The better environmental choice between alternatives is not always obvious, and a lot of damage can be done by people in powerful positions prejudging how environmental objectives are to be achieved. They would do better to help specify these goals, and allocate funds for their achievement, but to contract out the actual achievement to people who will be motivated to do so efficiently and quickly. A Social Policy Bond regime would encourage the exploration and application of the best ways of achieving the specified goals, and it would do so impartially. It would not assume, for instance, that rail, because it has apparently been the sounder environmental alternative in the past, will always continue to be so, under all circumstances. No handful of politicians or experts, however eminent or well meaning, can hope to keep track of the multifarious changing facts in the way that markets do. The information and the motivation are just not there.

11 July 2007

The role of GDP

Questioning the supplanting of Gross Domestic Product by an array of alternative indicators, Daniel Ben-Ami writes:
The first point to note is that the attack on GDP is generally based on a caricature. Countless commentators have made the point, often as if it is their original insight, that GDP is not a perfect measure of human wellbeing. However, it would be hard to find anyone who would have made such a claim for GDP in the first place. No one – except perhaps the most hardcore economics geeks – cares about GDP numbers for their own sake.
I disagree. Perhaps nobody will admit to caring about GDP for its own sake, but it does seem to have become a de facto target for governments that either have no clear objective beyond staying in power, or an array of meaningless micro-targets that have little to do with well-being or can anyway be easily manipulated, at great deadweight cost to society. I also disagree with the author when he casts aspersions on the Millenium Development Goals.

These commit world leaders to such targets as eradicating extreme poverty and hunger, achieving universal primary education and reducing child mortality.
The first two of these I see as unquestionably valid goals; the last needs some qualification.

Nevertheless Mr Ben-Ami is, I think, correct to talk about the unpriced positive externalities arising from economic growth. I don't see much of this in the literature - though I have posted about it, and it's reassuring to see it mentioned by someone else.

...if anything, GDP statistics underestimate the human benefits of economic growth. Having a larger economy itself has important benefits.

08 July 2007

'The Ideology of Development'

William Easterly writes:

Like all ideologies, Development promises a comprehensive final answer to all of society’s problems, from poverty and illiteracy to violence and despotic rulers. It shares the common ideological characteristic of suggesting there is only one correct answer, and it tolerates little dissent. It deduces this unique answer for everyone from a general theory that purports to apply to everyone, everywhere. Foreign Policy
Exactly. I'm bemused when commentators blame politicians for not having a coherent ideology or not being true to their party's principles. Ideological rigidity is a curse. It does nothing to achieve outcomes that are of interest to ordinary people, as distinct from ideologues and party hacks. We need adaptive, diverse strategies, not top-down, one-size-fits-all belief systems; they've been tried and and they have failed; they failed not because 'they were never fully adopted' but because ideology implies ... well, let Professor Easterly explain:
The ideology of Development is not only about having experts design your free market for you; it is about having the experts design a comprehensive, technical plan to solve all the problems of the poor. These experts see poverty as a purely technological problem, to be solved by engineering and the natural sciences, ignoring messy social sciences such as economics, politics, and sociology. [Jeffrey] Sachs, Columbia University’s celebrity economist, is one of its main proprietors. He is now recycling his theories of overnight shock therapy, which failed so miserably in Russia, into promises of overnight global poverty reduction. “Africa’s problems,” he has said, “are … solvable with practical and proven technologies.” His own plan features hundreds of expert interventions to solve every last problem of the poor—from green manure, breast-feeding education, and bicycles to solar-energy systems, school uniforms for aids orphans, and windmills. Not to mention such critical interventions as “counseling and information services for men to address their reproductive health needs.” All this will be done, Sachs says, by “a united and effective United Nations country team, which coordinates in one place the work of the U.N. specialized agencies, the IMF, and the World Bank.”

So the admirable concern of rich countries for the tragedies of world poverty is thus channeled into fattening the international aid bureaucracy, the self-appointed priesthood of Development. Like other ideologies, this thinking favors collective goals such as national poverty reduction, national economic growth, and the global
Millennium Development Goals, over the aspirations of individuals.
Actually I think national poverty reduction a laudable goal, though I share Professor Easterly's doubts about aid bureaucracy's other objectives.

The Social Policy Bond approach is different. It subordinates ideology to targeted outcomes. Any organization that comes in to being as a result of Social Policy Bonds will have goals that are exactly congruent with those specified in the bonds themselves. Its structure and motivation would be those that are most efficient at achieving those goals, which would be society's targeted social and environmental objectives.

05 July 2007

I like this

From the UK Guardian:

Voters [in the UK] will be given powers to decide how ten of millions of pounds should be spent in their neighbourhood under radical plans being unveiled today. In a potentially dramatic extension of direct democracy, councils will have to hold ballots before deciding where money should be targeted. It would mean that, for the first time, people could direct cash to areas that concern them most, such as parks, curbing antisocial behaviour, targeting drug trouble spots or cleaning up litter.
I think this is a good idea. It's part way toward a Social Policy Bond approach. Ideally the funding would be directed at specified outcomes, and there would be competition to achieve these outcomes. But even so, if this initiative takes off I think it would represent a big improvement over the current system. Voters are better educated and have access to more information than they ever did when the current form of elections was set up. Direct democracy would encourage people to participate in the decisions that affect their lives - and end in itself (may need subscription) as well as a means to further ends.

04 July 2007

Subsidies to the rich

It's not just the UK that the transfers funds from the poor to the rich via farm subsidies. It's painful reading but you can read here about how the US fails to look after the members of its military who suffer Post Traumatic Stress Syndrome:
The PTSD label is not only stigmatizing, but its symptoms are often mistaken for personality disorders and are blamed for behavioral problems like insubordination and substance abuse, resulting in a one-way ticket out of the military with no retirement pay or benefits.
And here, about Maurice Wilder, "newly crowned king of the subsidies":
He received $2.5 million in farm handouts from 2003 to 2005 ...making him the single biggest single recipient. Even the Bush administration is becoming embarrassed by the welfare state created for farmers. The president is thinking of limiting handouts to farmers to an adjusted $200,000 per household.

03 July 2007

Nappies: latest news

The latest on cloth versus paper nappies (diapers):

[A] four-year research project ... found that the impact of burying disposable nappies in landfill sites was matched by the energy consumed and greenhouse gases generated by washing reusables or transporting them to laundries. Thisislondon.co.uk
Environmental impact is a difficult concept to measure. How is one to weight the environmental impact of (say) washing cloth nappies in water heated to 100 degrees Celsius, against that of the harvest, transport and disposal in landfill of their paper subsitute? At great cost (the study referred to in the quote above cost £30 million and took four years) you could probably compare the impact in terms of any one environmental indicator, such as water use, landfill volume, or even carbon footprint (assuming resolution of boundary issues). But even assuming a complete and accurate Life Cycle Analysis, there is no objective way of weighting the different impacts.

Social Policy Bonds applied to environmental issues have huge informational advantages over some conventional policies, particularly on a large scale. For instance, rather than try to evaluate the diverse impacts of the vast and ever-changing panoply of consumer goods and services, a bond regime would take a few broad indicators - regional landfill volume, air quality, climate stability - express its goals in terms of thresholds that must not be breached, then reward the achievement of those goals. Just how those goals are to be achieved is left up to investors in the bonds, competing with other would-be investors to find the most cost-effective ways of doing so. For more about Social Policy Bonds applied to environmental problems, click here.

01 July 2007

More mess

More from Daniel Finkelstein:

The best way of making good collective judgments is to aggregate many independent points of view. But tidy politics works on the opposite principle. it is organised as a conspiracy in which everyone defends everyone else's mistakes. Advice from a chimp (1) No experts (2) More mess, 'The Times', 27 June
Unity, in other words, is more important to our politics, than outcomes. That's not so surprising. Political parties are only institutions, and like all large organizations their goals are not necessarily those of the individuals within them, let alone those non-members they purport to represent. Large corporate organizations do adapt - or they go under. So do political organizations, even including the largest, most securre of them all: ruling governments. The tragedy is that their death throes can be protracted and drag many thousands of people with them. It's little comfort to know that the most reviled and hated regimes will one day come to an end; or even that corrupt, insane political programmes - step forward, Common Agricultural Policy! - are unsustainable in the long run. The long run can be very long, and the damage done to people and the environment by, say, the Soviet Union or the CAP, is largely irreversible.

Perhaps we need to look at a new type of institution. One whose structure and activities are a byproduct of the outcome it targets, rather than the other way round.