Second Life

Calling for a new paradigm to deal with climate change, Ted Nordhaus and Michael Shellenberger advocate:

a new military-industrial-academic complex around clean-energy sciences, similar to the one we [the US] created around computer science in the 1950s and '60s. ...The goal would not be to subsidize clean energy in perpetuity, but rather to make the kinds of investments that ultimately bring the real price of clean energy down to the price of dirty-energy sources like coal in places like China. Doing all this will require a more optimistic narrative [than] Gore's An Inconvenient Truth. ... Cautionary tales ...tend to provoke fatalism, conservatism and survivalism ...not the rational embrace of environmental policies. Second Life: a manifesto for a new environmentalism, 'The New Republic', 24 September

I would add 'resignation, cynicism and despair'. Climate Stability Bonds as a way of dealing with climate change could be that different paradigm: under a Climate Stability Bond regime, people would be rewarded for stabilising the climate, however they do so. Kyoto conforms to the miserabilist paradigm that has spectacularly failed to address the problem. It punishes, people for doing something that (probably) does contribute to climate change. The costs are upfront, complex, administratively expensive. Any benefits are almost certainly going to be negligible and will take decades to appear. A Climate Stability Bonds regime would encourage people or governments to invest in exactly the ways that Nordhaus and Shellenberger advocate. It would focus on the outcome we all want to see: a stable climate; rather than the means of reaching it. Or the supposed means, for as James Lovelock puts it:

A rapid cutback in greenhouse gas emissions could speed up global warming, the veteran environmental maverick James Lovelock will warn in a lecture today. 'Daily Telegraph' 29 October

Microfinance

Jimmyjangles draws my attention to a newspaper article about Microplace (launched by eBay) which will allow:

ordinary investors to buy securities aimed at improving conditions in the world's poorest countries. MicroPlace, located at http://www.microplace.com/, will allow people to invest as little as $100 to support development in impoverished areas.

Microfinance is the supply of loans, savings, insurance and other basic financial services to low-income households and businesses, typically without collateral.

Microfinance is at work in more than 100 countries, and is generally provided by financial institutions or wealthier investors. It gained wider renown last October when Bangladeshi economist Muhammad Yunus, who pioneered it in 1976, and the Grameen Bank he founded won the Nobel Peace Prize."Capital markets are just waking up to this asset class," Tracey Pettengill Turner, the founder and general manager of MicroPlace, said."This is different because it is the first Web-based service for the everyday investor to invest in microfinance, and earn an investment return while addressing global poverty."

I like this idea. Once people invest capital in a region, then they take a wider interest in it. Political reform, improved governance, and development meaningful to ordinary people: all these are more likely to follow if there are outsiders concerned about how their investment is doing. This sort of development, arising from the bottom up, is infinitely better than the alternative.

Fascinating

A fascinating quote from the UK's Daily Telegraph:

Public-sector pensions cost taxpayers about £18 billion a year. Each family pays the equivalent of 91p in tax for public-sector pensions for every £1 they put towards their own retirement plans. 24 October

Social Policy Bonds (almost) applied!

Well, ok, not Social Policy Bonds, but rather the bond principle, of financially rewarding people who do things that lead to better outcomes for ordinary people:

Joaquim Chissano, a former President of Mozambique who led his country to peace after more than a decade of civil war killed a million of his citizens, became the first ever winner of a new £2.4 million ($5m) prize for achievement in Africa today. Mr Chissano, who was in power between 1986 and 2005, was awarded the Mo Ibrahim award for achievement in London by Kofi Annan, a former United Nations Secretary General. ...The $5 million prize was established by the Mo Ibrahim Foundation which was launched last year to boost governance in Africa. Dr Ibrahim, the founder of the African telecommunications company Celtel International, is one of Africa’s most successful business leaders. The Times, 22 October

Corporates

It's not enough to rail (as I frequently do) against the corporate influence on politics. While politicians and big business generally go hand-in-hand, there are nuances, as Paul Krugman points out:

The truth is that while the administration has lavished favors on some powerful, established corporations, the biggest scandals have involved companies that were small or didn't exist at all until they started getting huge contracts thanks to their political connections. Thus, Blackwater USA was a tiny business until it somehow became the leading supplier of mercenaries for the War on Terror (TM).

This sort of thing subverts democracy, but appears to be systemic. One benefit of a Social Policy Bond regime is that politicians would be allocating funds to outcomes, rather than favoured lobby groups. Those outcomes, being meaningful and comprehensible to natural persons,. would be decided openly, with full public participation.

We are the ADD Generation

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

So there's very little sense of perspective. Dean Baker writes that Robert Novak...

...[t]he Washington Post columnist, dedicated his column today to a $1 million earmark (0.3 cents per person) for a museum dedicated to Woodstock. This may well be a waste of taxpayers' money, but it is wrong to imply that such waste amounts to a big factor in the budget or budget deficit. (For another comparison, the $1 million is approximately equal to what we'll spend in 3 minutes on the Iraq War.)

Indeed. Another case in point: the current issue of the Economist (subscription) talks about the cost of eradicating malaria:

A back-of-the-envelope estimate suggests it would cost about $9 billion a year for two or three decades to make and distribute the necessary vaccines, drugs and equipment.

This sounds like a lot, but take a look at this excerpt from A Subsidy Primer, by Ron Steenblik:

Recently, for example, the Environmental Working Group, an American non-profit organization, counted up all the direct payments made by the U.S. Government to farmers between 1994 and 2005 and found that ten percent of subsidy recipients collected 73 percent of all subsidies, amounting to $120.5 billion.

Literacy in Bangladesh

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

British Government favours UHT milk

The London Times reports that:

Officials at the [UK] Department for Environment, Food and Rural Affairs have made a serious proposal that consumers switch to UHT (Ultra-High Temperature or Ultra-Heat Treated) milk to reduce greenhouse gas emissions. It is part of a government strategy to ensure that some 90 per cent of milk on sale will not require refrigeration by 2020.

For all I know, this strategy might be justified. What concerns me is how it's arrived at. Refrigeration in supermarkets is a visible consumer of electricity and I suspect that's why the officials at DEFRA have picked on it. Have they compared it with other ways of reducing greenhouse gas emissions that may yield far more benefit? Why 90 per cent, rather than 80 or 95 per cent? Is a government agency the best placed to try to determine the trade-offs that consumers should make?

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

Climate change and geoengineering

Could geo-engineering prevent climate change? James Woudhuysen believes that:

[E]nvironmentalists tend to dismiss geo-engineering because, at root, they are not interested in halting climate change. For many today, both green activists and leading politicians, climate change is a moral and political issue rather than simply a practical problem. They see the ‘issue of climate change’ as a means to changing people’s behaviour and expectations, rather than simply as a byproduct of industrialisation that ought to be tackled by technological know-how. They are resistant to geo-engineering solutions because putting an end to climate change would rob them of their raison d’être.

I really don't know about that, but I do wonder whether there are more efficient or politically realistic ways of preventing climate change than the current approach, which relies exclusively on cutting our greenhouse gas emissions. What's disturbing is not so much why alternative solutions aren't being seriously considered, but simply the fact that they aren't. Probably the answer lies in the nature of the possible side-effects. They might be difficult to anticipate and disastrous. But so too might the effects of climate change or, indeed, those of emission cutbacks.

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

Who cares?

In Wellington's Dominion Post, Susannah Bailey of Greenpeace, points out some of the flaws in the New Zealand Government's greenhouse gas emissions trading scheme. Some of her views are here, but in the newspaper article she writes that the scheme:

isn't coupled with an overall emissions reduction target.... Officials have conceded that the main goal of the scheme is to meet our Kyoto liability at least cost rather than to achieve emission reductions. 11 October, page B7

Exactly: New Zealand might or might not reduce its greenhouse gas emissions; which might or might not do anything to prevent climate change. Who really cares? The sole certainty is that the trading scheme will require a whole new bureaucracy to administer, whose costs will be borne, upfront, by taxpayers. Some of us may be successfully deluded into thinking that something is actually being done about climate change. The Government can then pass on to other issues, like the 145 violent crimes being committed in New Zealand every day. Perhaps it can set up a free telephone hotline and attribute any further increase to 'improved reporting'.

The losers aren't being compensated

Mark Weisbrot writes:

Free-trade advocates...always make distorted statements such as “the average household has gained $10,000 from free trade.” Now, if a hedge-fund manager makes an extra billion dollars, it can raise the average income in his town or suburb quite a bit. But it doesn’t do much for others in the area; and in fact it is likely to be at the rest of the public’s expense.

Quite so. Free trade can benefit everybody, but only if the losers are compensated. Otherwise it's only the abstract concepts 'the economy' or 'the country' that benefit. There's very little compensation going on, as far as I can see.

Social Policy Bonds: do they have a future?

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

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

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

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

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

Subsidising fisheries destruction (continued)

The European Commission recently released a list of fishing vessels that have received EU fisheries subsidies between 2000 and the beginning of 2007, reports Global Subsidies Initiative:

The top ten vessels received some €30 million [between them]. The top two vessels were Spanish boats Albatun Dos and Albatun Tres; each receiving €4 318 440 for their construction. Notably, a number of subsidy recipients identified in the EC list have been cited with illegal, unreported and unregulated (IUU) fishing. Infractions included using illegal nets, misreporting catches in logbooks, and falsifying sales records. However, a full accounting of subsidy recipients who have been cited with IUU fishing is currently impossible, given that there is no public record of vessels that have been issued citations. “It is outrageous that taxpayers’ money has financed criminals who destroy the marine environment and undermine legal fishing activities,” said Markus Knigge, European Marine Programme Officer with the WWF.

If people were allowed to vote on whether their taxes should be used to fund environmental destruction, and voted 'yes', then I'd find it difficult to argue against them. But we are not given such an opportunity. This subsidised, permanent, destruction of a scarce, living resource, for the benefit of the short-term prospects of a few giftless politicians is despicable.

Let the voters decide

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

Complexity demands an outcome-based approach

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

From the Gospel of Food by Barry Glassner (quoting research, and words, of Ichiro Kawachi):

[R]esearch shows that death and sickness rates from cancer, heart disease, and other major illnesses in the US are higher in states where participation in civic life is low, racial prejudice is high, or a large gap exists between the incomes of the rich and poor and of women and men. 'Policies that appear to have little to do with health, like macroeconomic policies to reduce the level of income inequality, can have a major impact on driving down the rates of illness in society.' (page 30) (My emphasis.)

Diverse, adaptive approaches are needed, but they must be subordinated to outcomes: if they do not help achieve the targeted outcome, they should not continue to be funded. Only markets markets give investors the incentive to explore and experiment with diverse approaches to compelex social and environmental problems - and to terminate failing projects. The contrast with government when dealing with complex problems is stark.

Climate change: how to decide who pays

Cass Sunstein points out that:

[i]t is increasingly clear that the world would be better off with an international agreement to control greenhouse gas emissions. What remains poorly understood is that the likely costs and benefits of emissions controls are highly variable across nations.

The US and China, large emitters of greenhouse gases, are not likely to be the leading victims of climate change. Indeed, and with all the usual caveats, Russia is expected to gain. The biggest projected losers from climate change are India and Africa. The mismatch between the large emitters and and those most at risk contributes to the current policy stalemate. Adding to the complexity, a country like China could point to cumulative emissions as a basis on which to allocate blame and so responsibility for cutting emissions: Sunstein gives a table showing that the US emitted 29% of the total (anthropogenic) carbon dioxide from 1850-2002; China 7.6%. Or perhaps per capita emissions should be the criterion? On that basis, the US emitting 19.7 tonnes of CO2 (in 2002) is far more culpable than China (3.7 tonnes).

Sunstein concludes that:

Because of its wealth, its high per capita emissions rate, and its past contributions, the moral obligations of the United States are especially insistent. What remains clear is that the United States cannot do much about the problem without the participation of developing countries, above all China. For this reason, it is appropriate for the United States to take active steps, perhaps including unilateral action, in order to increase the likelihood that such countries will be willing to participate in the future.

Agreed, appropriate yes, but also unlikely. Sunstein's discussion is compelling, but I'd still prefer to see an outcome-based approach, such as Climate Stability Bonds that would rely on upfront cash incentives, instead of the vagaries of moral suasion. The two are need not be in conflict of course. but I'd rather back a regime that rewards self interest. At the highly aggregated level of countries, that seems to me more likely to work, and that, after all, is what really matters.