27 February 2008

The Martindale approach to policy

Monoculture in agriculture is like the Martindale system in roulette: your near-certain, small, steady gains are balanced by the tiny chance of disaster. In agriculture the disaster could take the form of a pest against which an entire region's single variety crop has no resistance. In policy it could take the form of high oil prices, which threaten the road transport system. In both cases government played its part in favouring uniform, global models at the expense of diversity. Most of the ludicrously high levels of subsidy paid to agriculture in the rich countries (US$268 billion in 2006) end up with the largest landowners and large agribusiness corporates. They bid up farmland values, making it necessary to maximise yields per hectare, encouraging the use (and raising the price) of purchased inputs. The result is the dreary and fragile monoculture of field after field planted with oilseed rape or (coming soon) biofuel-yielding crops, in response to the current consensus of Brussels bureaucrats. As the level at which critical decisions gets higher and higher, it's not only the distance between the decision-makers and those affected that increases: it's also the seriousness of the disaster that could strike if the decision-makers get it wrong.

I'm thinking also of policies like Kyoto, which put much of the world's environmentalist resources into one supposed climate-stabilising idea: cutting back anthropogenic greenhouse gas emissions. If that turns out not to be a viable way of solving the problem, then the consequences for all of us could be catastrophic. The Social Policy Bond principle understands that governments can have good, popular intentions, and are often the only bodies that can pay for their achievement. Something like climate change demands action at the very highest level. But a uniform and static approach to a social problem is rarely optimal.

25 February 2008

Military blunders and policy

Victor Davis Hanson, writing for the Claremont Institute, takes us on a quick canter through some American military blunders, both tactical and strategic and right up to present-day Iraq. Intelligence failures, huge battlefield miscalculations, inferior materiel, poor leadership: all have been features of US military campaigns throughout history. Just one example:
We often read of the tragedy of the September 1944 Arnheim campaign. Impossible logistics, bad weather, lousy intelligence, tactical imbecility, and much more doomed the "Market Garden" operation and led to the infamous "A Bridge Too Far" catastrophe. Thousands of Anglo-American troops were needlessly killed or wounded—after the Allies had recently crushed an entire German army group in the west (though they let 100,000 Wehrmacht troops escape at Falaise). The foolery of Market Garden also ate up scarce resources, manpower, and gasoline at precisely the time the American Third Army was nearing the Rhine without much major opposition. Once Allied armies stalled for want of supplies, they would be unable to cross the border of the Reich for another half year. The Germans used the breathing space after their victory in Holland to rush defenders to the so-called Siegfried Line, which had been theretofore mostly undefended.
The picture is not entirely bleak. We 'live and learn, learn and live'. At least until Vietnam, there was 'a sort of tragic acceptance of military error as inherent in war.' Mistakes are bound to occur 'in the context of human imperfection, emotion, and fear.'
Though Presidents Lincoln and Truman were both reviled, Americans still felt that ultimately the American system of transparency and self-criticism would correct wartime mistakes.
And there lies the hope. Transparency about what is happening and freedom to criticise. But also the capacity to adapt to fast-changing circumstances. Mechanisms that terminate failed ventures. I'm sometimes disturbed by the every increasing level of aggregation at which decisions are made. Big business and government between them determine to an increasing extent, how we live (see here and here, for examples). This is not only a matter of the large corporates' growing dominance over the world's economic activity; it's also about governments' effects on our behaviour, through regulation and intrusion, and their tight links with big business. Big government tends to mean remote and unwieldy government. It best understands and does deals with big business, and tends to favour the big and global at the expense of the small and local.

But perhaps most dangerous is the tendency of big government - or any large monopolistic organization - to continue doing things with diminishing attention given to whether they are effective and efficient. The military blunders that Mr Hanson describes could not be allowed to run their course indefinitely. The costs of allowing failed approaches to continue were huge and obvious. Most of our social and environmental problems are slower-moving and not as immediately compelling. Nuclear proliferation, for example (the subject of my previous post), or climate change, or loss of social cohesion: decisions are made at such high levels of aggregation that there is little room for alternative approaches, and little incentive for people to try them.

Social Policy Bonds could possibly turn that disadvantage into a plus. Instead of dictating that the way we shall deal with climate change, for example, is to cut back on greenhouse gas emissions, a collection of world governments could define a global climate stability target, and reward those who who successfully achieve it, however they do so. The size of the targeting body serves to define the problem, and raise revenue for its achievement; things that a large authoritative body can do very well. But such a body cannot adapt to changing events or expanding knowledge rapidly enough, and that's where the multitude of holders of Climate Stability Bonds could help: they would have powerful incentives to terminate failed ventures, and choose only the most efficient solutions to the climate change problem.

23 February 2008

Nuclear peace or exotic cat food? It's up to us.

So what progress are we making with avoiding a nuclear conflict? In addition to the dangerous fragility of nuclear Pakistan, Joseph Cirincione tells us that the US (and the rest of the world) now face:
(1) a nuclear-armed North Korea; (2) the possibility of a Middle East with several nuclear states, Egypt, Turkey, and Saudi Arabia among them; (3) the increasing danger of weapons from other countries falling into the hands of terrorist groups, while American-led programs to secure nuclear bomb materials around the world are being neglected; (4) an upsurge in the pursuit of civilian nuclear power by many countries that could put them within reach of nuclear weapons capacity; and (5) the possibility that flaws in US and other command and control systems—including those exposed last August by the unauthorized flight from North Dakota to Louisiana of a B-52 bomber armed with six nuclear bombs —could result in the accidental or unauthorized use of nuclear weapons. The greatest threat to us all, 'New York Review of Books', 6 March 2008
I think this crisis is caused by the absence of any clear means of dealing with it. Nuclear proliferation demands a multiplicity of approaches. It cannot command the imagination of, for instance, climate change which, policymakers are convinced, can be addressed by cutting back on our greenhouse gas emissions. That may or may not work, but it is a coherent policy; one that thousands of government officials can work on, and one that all of us can understand whether or not we agree that it's worthwhile. Nuclear proliferation is different. It's probably at least as great a threat to our survival as climate change, but there's no single, over-arching way of dealing with it. Government is especially bad at dealing with issues like this, where solutions are unlikely to come from the limited repertoire of command and control bureaucracy. Unless Government identifies solutions that it can implement, it's discouraged and tends not to follow through. It lacks the imagination to conceive of non-bureaucratic solutions, and it's not keen on relinquishing control. The result is our current perilous position.

But government could deal with the problem. It could recognise that, while it doesn't have all the answers, it can at least mobilise the private sector to come up with solutions. The ingenuity and resources that go into pet food advertising campaigns, for instance, is phenomenal. (See here for cat food 'inspired by the tastes of Tuscany'.) To divert some of them into reducing the probability of a nuclear conflict would surely be a worthwhile initiative. Government could do this by issuing something along the lines of Conflict Resolution Bonds. It would define a set of nuclear peace targets, and back the bonds with rewards to be paid after specified periods during which a nuclear exchange does not occur. Bondholders would be motivated to bring about nuclear peace by whatever means they see as being efficient. They would not be limited to the solutions or activities that only government can implement. With a decent monetary incentive they could bring in our undoubted, boundless ingenuity to remove what is probably one of the greatest threats to our survival.

21 February 2008

Farm subsidies, continuing (unfortunately)

Guy Fawkes shows how easily politicians can be corrupted, even those on the left of the political spectrum; even those who once spoke out against the Common Agricultural Policy. Not much is black or white in politics and policymaking, but as P J O’Rourke put it seventeen years ago (in Parliament of Whores):
I spent two and a half years examining the American political process. All that time I was looking for a straight forward issue. But everything I investigated – election campaigns, the budget, lawmaking, the court system, bureaucracy, social policy – turned out to be more complicated than I had thought. There were always angles I hadn’t considered, aspects I hadn’t weighed, complexities I’d never dreamed of. Until I got to agriculture. Here at last is a simple problem with a simple solution. Drag the omnibus farm bill behind the barn, and kill it with an ax.

18 February 2008

Living on traffic islands

Discussing the life and novels of J G Ballard, Theodore Dalrymple points out, en passant, that
...it is the architects, with their modernist dreams of making the world anew according to implacably abstract principles, who have created the wasteland [in which one of the protagonists finds himself] in the first place. Ballard captures the socially isolating nature of modern architecture—and the modern way of life associated with it—with great symbolic force.
The architects, yes ... and the town planners too. As in so many other social and environmental aspects, government and big business have brought about a monoculture; a top-down, one-size-fits-all approach that might very well optimize some abstract economic indicators, but which leaves does very little for our psychological wellbeing. Subsidies to the energy and construction sectors play their part, as does an infrastructure that relentlessly favours the large and global at the expense of the small and local. The impact of the top-down approach to policy isn't always negative - sometimes it's desirable, sometimes necessary. The point is that, manifestly in architecture and town planning, the outcomes it mainly serves are of little interest to ordinary people - as against the large corporates and government agencies for whom administrative tidiness and consistency are ends in themselves.

We need instead a system that is responsive to genuine outcomes; not the academic economic figures that so bewitch our policymakers. A system that, because it subordinates activity to meaningful outcomes, will not stifle diverse approaches to reaching those outcomes. Social Policy Bonds are one way in which we can bring an end to the dreary, dangerous monoculture that threatens our physical and social wellbeing just as surely as it has stripped our agricultural land of wildlife and cloned our cities.

16 February 2008

How to create a lobby group

Describing the insane EU milk production quota scheme, the Economist (subscription) hits the nail smartly on the head:
It is an EU rule that unintended consequences, left for a few years, fossilise into special interests.
Smaller businesses' stupidity is for the most part self-terminating. If they don't succeed they go out of business. But larger corporations and governments are too big to fail, and their stupidity doesn't just linger: can be self-reinforcing. EU agricultural production subsidies were quickly capitalised into land values, and milk quotas in the Netherlands have taken the form of transferable, expensive, lump sum welfare entitlements. The Economist continues:
Older Dutch dairy farmers may hold quotas worth €1m, which they can sell when they retire. The financial impact on these folk would make it politically hard to scrap quotas overnight, say Dutch farm officials, even if it would help younger farmers, for whom quotas are a big disincentive. “The quota system was never meant to be a retirement scheme, but it has worked out that way,” says an official.

15 February 2008

No security without privacy

Some clear thinking from Bruce Schneier. He quotes a colleague of US Director of National Intelligence Michael McConnell, about a proposed plan to monitor all internet communications for security purposes, as saying 'privacy and security are a zero-sum game.' Schneier comments:
I'm sure they have that saying in their business. And it's precisely why, when people in their business are in charge of government, it becomes a police state. If privacy and security really were a zero-sum game, we would have seen mass immigration into the former East Germany and modern-day China. While it's true that police states like those have less street crime, no one argues that their citizens are fundamentally more secure. We've been told we have to trade off security and privacy so often -- in debates on security versus privacy, writing contests, polls, reasoned essays and political rhetoric -- that most of us don't even question the fundamental dichotomy. But it's a false one.
The debate, Schneier points out, 'isn't security versus privacy. It's liberty versus control.' Exactly. The familiar saying 'if all you've got is a hammer, you're going to see every problem as a nail' comes to mind. Control is something governments can do. It is, in fact, a large part of their raison d'etre, and justifiably: there are some things that only government can do, and one of them is creating statutes and maintaining order. But control isn't the only way of bringing about security, just as cutting anthropogenic greenhouse gas emissions isn't the only way of stabilising the climate. Government should do what it is good at: articulating our security needs and raising the revenue required to achieve them. But it should leave open just how those needs are to be met. Rather than impose questionable new controls, government could let the private sector devise the most efficient means of enhancing our security within the existing statutory framework.

13 February 2008

Social Policy Bonds and prediction markets

I haven't thought much about prediction markets, which are:
...speculative markets created for the purpose of making predictions. Assets are created whose final cash value is tied to a particular event (e.g., will the next US president be a Republican) or parameter (e.g., total sales next quarter). The current market prices can then be interpreted as predictions of the probability of the event or the expected value of the parameter. Prediction markets are thus structured as betting exchanges, without any risk for the bookmaker. Wikipedia
There appears to be some evidence that they are better than pundits at forecasting election results or share prices. I've tended to ignore them because their focus is on speculation or (possibly) hedging against possible events, rather than generating incentives to modify behaviour and bring about positive changes. But they are, in principle, not very different from Social Policy Bonds. An organization could enter a prediction market and place a bet against , say, literacy in Pakistan rising to 99%. If the bet were big enough, that would create an incentive for people not only to take take the bet and wait passively for literacy to rise, but actively to help the process along, perhaps by initiating new projects or financing existing literacy-raising schemes on the expectation of winning their bet.

It strikes me that we could start with smaller objectives, using one of the current prediction market platforms. Does anyone have a pet project they want to see carried out? If you have suggestions or would like to discuss this possibility, please email me directly.

11 February 2008

Bureaucrats versus policymaking

Reviewing The Trouble with Physics, by Lee Smolin, Mike Alder writes:
The gradual corruption of enterprises by bureaucracy appears to be inevitable. Once any enterprise becomes successful, it is doomed to be taken over by those for whom power and prestige are the central aspects of their lives. The forms are prsereved, but the content is lost. Rituals replicate endlessly. Thes would seem to be a constant of human nature; the trick is to recognize when it has happened and not be fooled by the rhetoric. And if can happen to Christianity it can appen to anything. Including Science. Bureaucrats versus science (apparently unavailable right now), 'Quadrant', December 2007
It's certainly happened to universities and research. Lamenting the failure of theoretical physicists to come up with radical innovations or dramatic shifts in our thinking, Alder continues, summarising Smolin:
Financial managers need to defend expenditures on the basis of maximising their expected return.... That inevitably means that the currently favoured paradigme gets almost all the money. ... So everyone goes for the best bet, and if it happens to be wrong, we all go bust. .... Philosophers who are good are beyond price, but the mediocre are useless. Scientests tend to be technicians more than philosphers, but the system of rewards doled out by the bureaucrats in charge of the universities these days favours the technicians. It is so much easier to measure their output.
The same is happening in the world of policymaking. You don't get penalised if you advocate a tried, tested and failed policy. But try something different, and if it's not a success in a roaringly obvious way, you will suffer the consequences. Better to play safe and do the conventional thing. And if you want to be creative, go into advertising. Bureaucracy stifles creative policymaking just as surely as it has oppressed religion and theoretical physics.

We need a system that encourages innovation, and Social Policy Bonds may be the answer. Under a bond regime successful policies would be rewarded, however unfashionable or outlandish they might seem; while failed policies would be terminated - in the interests of everybody: bondholders, society and the environment alike. As well, the bonds would encourage diverse approaches, and ones that adapt over time - again, unlike the monoculture that prevails increasinly not only in politics, but in our rural environment, our urban environment, religion and science.

08 February 2008

Subsidising planetary destruction: biofuels

What is it about driving cars that makes us irrational? Clearing natural land to grow biofuels is clearly madness:
The clearance of grassland releases 93 times the amount of greenhouse gas that would be saved by the fuel made annually on that land, said Joseph Fargione, lead author of [one study], and a scientist at the Nature Conservancy. “So for the next 93 years you’re making climate change, just at the time when we need to be bringing down carbon emissions.” Studies deem biofuels a greenhouse threat, Elizabeth Rosenthal, 'New York Times', 8 February

The decisions about how to prevent climate change are being taken by a handful of politicians on the basis of what...a hunch? Whatever bests suits motorists? Least political resistance? The short-term interests of agribusiness combines? Whatever the basis, it's got very little to do with preventing climate change and verges on the insane. A Climate Stability Bond regime would be different. Decisions about how best to prevent climate change would be made by a large group of people who would be highly motivated to bring about climate stability as efficiently as possible. It's the size of the group, their diversity and their motivation that make all the difference. The current system is certain to be unnecessarily expensive, politically divisive and have ghastly consequences for the land. Now the latest science shows it's going to nothing to prevent climate change. Madness.

07 February 2008

I don't know what the policy is, but we need to change it

One of the benefits of the Social Policy Bond approach is that it clarifies what politics and politicians are for. It's policy as if outcomes matter, yes, and politics as if there's a purpose to it, other than being a politician. We haven't got there yet. Commenting on the two US Democratic Party front runners, Mick Hume sums it up:
The argument between them has thus become one of how to bring change about, what style to pursue it with, rather than anything substantive about what exactly that change might entail. For all the weeks of debate, not one clear political division between the rival Democrat candidates of ‘change’ has emerged, beyond the posturing about what they did or didn’t say about the Iraq war five years ago. Apparently the plan is just to ‘change’ first, then decide what to do later.

04 February 2008

Philanthropy and profitability can go hand-in-hand

Reviewing The Power of Unreasonable People: How Social Entrepreneurs Create Markets That Change the World by By John Elkington and Pamela Hartigan, the Economist (subscription) says:

If you are setting out to save the world rather than to make a profit, it is perhaps not surprising that financial institutions are less likely to give you money than your friends and family, or trusts and foundations. .... If the business plan does not set profitability as a goal, then investors are likely to see it as philanthropy, not investment.

It's a shame that the attainment of important social and environmental goals is either assumed to arise from a growing economy, or given over to bodies - mostly government agencies - that, for nebulous historical reasons, do not reward employees according to how well they achieve their stated objectives. The result is that the goals go largely unachieved - and wealthy corporations and individuals become even more wealthy, often at some cost to society as a whole and the environment.

Social Policy Bonds change all that. They would channel the market's incentives and efficiencies into the solution of social problems. These are the same incentives that have generated enormous wealth in the private sector, lifted millions out of poverty, but at the same time worsened other social and environmental problems. Social Policy Bonds would mean that profitability and philanthropy could go hand-in-hand. If any philanthropist or anybody connected to any philanthropic organization would like to know more, please contact me directly. For reasons that I can well understand, no single such organization has ever replied to a single one of my emails.

02 February 2008

Society is not chess

Looking to chess for lessons about economics, John Kay writes:
Planned regimes have often succeeded when they have ploughed resources into the achievement of narrowly defined objectives. We smile when we read of the All Union Chess Section, under the Supreme Council for Physical Education. Its director, filled with bile and Marxist rhetoric, proposed shock brigades to spearhead five-year plans for chess. But it worked. Most of the world’s best chess players became so as a result of the endeavours of the Supreme Council. If chess was the battleground between free enterprise and state planning, state planning won. But the real battlefield was not chess but consumer goods and military hardware. Although the Soviet Union produced great chess players by directing resources to the game, the cars and computers it produced were inferior and few. Planned economies were unable to cope with the diversity of consumer needs and the constantly changing requirements of modern technology. 'Financial Times', 29 January
The battlefield, I believe, moved since then, a little distance away from consumer needs and towards the needs of society and the environment. Society's needs might be less diverse than consumer needs, and less rapidly evolving, but our knowledge about the best ways of achieving them are nevertheless rapidly changing. For big social and enivornmental problems, like war or climate change, central planning isn't going to work any more than it did for the Soviet Union's wider economy. Such problems are more like the provision of consumer goods than chess: they need diverse, adaptive and imaginative approaches for their solution.

Unfortunately, so far at least, those charged with solving our major social problems still think in terms of central planning. If they ever do acknowledge the need for pluralist and responsive solutions, they could do worse than consider Social Policy Bonds, which would allow them still to define society's broader goals and raise the revenue for their achievement. Our politicians and bureaucrats would have to relinquish their control over how these revenues are spent; so they would lose some powers, yes. But society and the environment could benefit greatly.