31 May 2008

More madness

How does it happen that we not only allow the destruction of the planet, but subsidise it? Even the poor countries are at it. A story in the current issue of the Economist (subscription) tells us that India subsidises diesel consumption at a cost of between 2-3 percent of GDP. The same story tells us that an IMF study of five emerging economies found that the richest 20 percent of households received 42 percent of total fuel subsidies; the bottom 20 percent less than 10 percent.

One of the arguments underpinning my advocacy of Social Policy Bonds is that there is no systemic way that compels governments to terminate their failed policies. Indeed, the pressure acts in the opposite direction: you subsidise people or corporations, make them richer, and so give them both the means and motivation to resist removing the subsidies. In the developing countries the victims as ever are the poor.

Social Policy Bonds could end that cycle. All activities, all spending, are subordinated to the goal of targeted social or environmental objective. We could still subsidise the destruction of the environment to allow the rich to drive their cars if we wanted - but we'd have to be upfront about it. Somehow, I don't see that happening.

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