30 November 2008


Social Policy Bonds have many advantages over the current system of policymaking. Most important is their efficiency. As well, they would have stable objectives over time - which means that very long-term goals can be targeted. Another advantage is that they are explicit and transparent in what they are targeting. This is both an end in itself, and means of achieving buy-in on the part of the public, who would be far more likely to participate in the policymaking process when outcomes are being discussed, rather than the current opaque mix of funding arrangements, legalisms, or tinkering with institutional structures.

But another advantage, and one that I have not stressed before, is empowerment. Under the current system, those charged with achieving social and environmental goals are mostly employed either by government or by non-governmental organizations. The contrast between the performance of the two groups is compelling.

"Ask yourself," wrote John Fund of the Wall Street Journal more than a decade ago, "If you had a financial windfall and wanted to help the poor, would you even think about giving time or a check to the government?" I think we'd all answer with a resounding "no". We'd much rather give to charity or a non-governmental organization. We know they will be more motivated and make better use of their limited funds. Part of the explanation, I believe, is that they are empowered to make important decisions, in ways that government employees increasingly are not. Consider the proliferation of narrow targets with which UK Government attempts to shape its National Health Service. A recent one is the stipulation that doctors must give after-hours care in the form of appointments that last ten minutes, and only ten minutes:
[UK Prime Minister] Gordon Brown believes in pre-booked, ten-minute appointments and will not pay us the extended hours money if we do seven and a half minute appointments. I’m not prepared to fudge, or lie (some practices are, he said sanctimoniously) so my late evening surgery is now booked at ten-minute intervals. I will see twelve patients rather than the usual sixteen. I will enjoy having that little extra leeway. I may even be able to use some of the time to catch up on paperwork. NHS Blog Doctor
It's not just the inefficiency that this sort of directive generates, or the gaming of the system that will occur. It's also the resentment that such micro-management will inevitably breed. Applied with ever more abandon, such micro-goals take away the intelligence from any form of decision-making. They imply and generate a low level of trust, and reinforce a command-and-control hierarchy.

The contrast with a Social Policy Bond regime targeting broad social and environmental goals is stark. In the health sector we need only agree on and target broad indicators encompassing length and quality of life - not a simple matter, but one that would clarify exactly what government's role should be and one, moreover, that would empower and motivate health experts to go about achieving them in the most efficient ways they can. The obvious disenchantment that NHS Blog Doctor feels along with others whose autonomy is eroded by misguided application of narrow targets would be a thing of the past.

24 November 2008

Smoke and mirrors: the limitations

If the current inflation rate is really 6-9 percent instead of the 2-3 percent claimed by government and most U.S. money managers, then Washington's official estimates that the economy still grew at a rate of some 0.6 percent in the first quarter of 2008 become nonsense. Subtracting a 6-9 percent inflation rate from nominal GDP growth would identify an economy that was deteriorating and shrinking, not growing. Concerned foreign dollar-holders would become even more concerned. Kevin Phillips, Washington's Great 'No Inflation' Hoax

Marvellous. Even the numbers that policymakers target are a part of the commons that they have degraded. We are a long way now from government by the people for the people. Mr Phillips makes it clear that the erosion of accuracy in US growth, inflation and unemployment statistics has been mainly an opportunistic process, begun in the 1960s. Perhaps it was inevitable that large corporations and very wealthy individuals would use every available means to pervert the policymaking process. When the result is a serious possibility that taxpayers will now subsidise failing car manufacturers there is clearly something very wrong with the current ways in which we formulate policy.

Put simply, I think it's that ordinary people think it's all too complicated. Whether it's by expressing policy in terms of arcane legalisms, institutional structures, tedious processes or, as we now see, misleading numerical indicators, our disengagement from the world of policy is almost complete - to the great satisfaction of those who share the spoils. That is, the very rich, the larger corporations, and government agencies themselves.

Perhaps this is the time then to reorientate policy along Social Policy Bond lines: express policy goals in terms of outcomes that are comprehensible and meaningful to ordinary people. Economic growth, even when measured accurately, is not an end in itself. It is a means to various ends, including the eradication of poverty and the provision of public goods and services. Government would do better to target these goals directly than to try to fool us all with their smoke and mirror arrangements, whose credibility is fast disappearing.

22 November 2008

Incentives to preserve the commons

Lewis Lapham wrote:
The United States has been ridding itself of its First World status for as log as it has been privatizing its critical infrastructure (a k a the common good), at the same time despoiling the natural resource embodied in the health, welfare courage, and intelligence of its citizenry. Over the past eight years, under the absentee landlord economic policies of the Bush Administration, the stepped-up rate of disinvestment has resulted in ...Third World confusion and management.... Estate Sale, 'Harper's Magazine', May 2008 (subscription)
The people who devised American democracy probably never envisaged such irresponsibility from those entrusted with power. The constitutional checks and balances are mainly about process, not outcomes. In a large society, erosion of the commons is permitted, encouraged, or even necessary, when we vote for individuals, ideologies, image or economic abstractions. Highly aggregated, highly mobile societies, whose composition is constantly changing, cannot evolve the ways in which traditional commons used to be safeguarded. If we want to keep the benefits of living in such societies, where appeals to do the right thing are likely to be ignored until it's too late, we shall have to constrain our behaviour more directly than through legislation. All the incentives are to externalise social and environmental costs, and corporations and their mates in government are adept at finding effective ways of doing so.

One answer may be to redress the balance: issue Social Policy Bonds that have as their explicit goal the preservation of the commons. Devise ways of measuring environmental health (not too difficult) and social cohesion (more difficult, but not impossible) that can be targeted. Monetary incentives for the preservation of the commons need not compromise principles of trust, character and stewardship. Social Policy Bonds that rewarded the maintenance of the common good would simply mean that people who want to benefit the commons have have more resources with which to do so.

19 November 2008

I think these explain a lot

All these are taken from Harper's Index, 'Harper's Magazine', August:
  • Number of US gas stations where the group Pray at the Pump has gathered to ask God to lower the price: 12

  • Total donations that John McCain received from the oil and gas industry in June [2008]: $1,100,000

  • Portion of this that came after he endorsed new offshore drilling on June 16: 3/4

13 November 2008

"How could these companies be so bad for so long?"

Thomas L Friedman asks the question:
Last September ... the chief executive of Chrysler [was] explaining why the auto industry, at that time, needed $25 billion in loan guarantees. It wasn't a bailout, he said. It was a way to enable the car companies to retool for innovation. I could not help but shout back at the TV screen: "We have to subsidize Detroit so that it will innovate? What business were you people in other than innovation?"

How could these companies be so bad for so long? Clearly the combination of a very un-innovative business culture, visionless management and overly generous labor contracts explains a lot of it. It led to a situation whereby General Motors could make money only by selling big, gas-guzzling SUVs and trucks. Therefore, instead of focusing on making money by innovating around fuel efficiency, productivity and design, GM threw way too much energy into lobbying and maneuvering to protect its gas guzzlers. This included striking special deals with Congress that allowed the Detroit automakers to count the mileage of gas guzzlers as being less than they really were - provided they made some cars flex-fuel capable for ethanol. It included special offers of $1.99-a-gallon gasoline for a year to any customer who purchased a gas guzzler. And it included endless lobbying to block Congress from raising the miles-per-gallon requirements. The result was an industry that became brain-dead. How to fix a flat, 'International Herald Tribune', 13 November
I'm getting a bit fed up of lobbyists telling us that the health of the economy depends on the health of the finance sector, the housing sector or the car industry. If it does, then 'the economy' is, to put it bluntly, not worth defending. What government should be about is looking after the wellbeing of actual people, not particular industries, failing corporations or abstract economic variables. If social and environmental wellbeing require a smaller or more responsive finance sector or car industry, and if that means some adjustment costs for these industries then so be it.
I'll go out on a limb here and say that taking taxpayers' money on such a scale and giving it so transparently to inefficient corporations is politically unsustainable. True, governments in the west have done this with agriculture for a long time now, but the disastrous effects of such transfers - on consumers, taxpayers, animal welfare and the environment - have been too slow-moving to arouse public anger. Bailing out the car industry and the bankers though, I think, is different.

What the French Revolution, writes William Doyle
most certainly was not, was a single event. It was a series of developments, bewildering to most contemporaries which stretched over a number of years. It was a sustained period of uncertainty, disorder, and conflict....
If our governments can't come up with any better solutions to the current financial crisis than by bailing out on a massive scale the deadbeats in industry and finance then I fear for the future.

11 November 2008

Car madness

Once again, it's time to ask: what is government for?

From 'the Australian', 11 November:

Car industry praises $6.2bn assistance package

Car companies and component makers believe the Rudd Government's [Australian]$6.2billion assistance package will help safeguard the future of the automotive industry in Australia.
Meanwhile Associated Press is reporting that
President-elect Obama suggested to President Bush that the administration immediately help struggling U.S. automakers, aides to the Democrat say, in the first face-to-face meeting the pair had since Obama's election victory.

And the BBC's Robert Peston reports on another possibility:

For me, the most interesting story of the past 24 hours is that VW, the stressed German carmaker, is trying to raise €2.8bn (£2.2bn) from the European Central Bank. It plans to raise cash from the ECB in exchange for €2.8bn of securities backed by car loans. In effect, the ECB - and ultimately taxpayers in the eurozone - would be financing purchases of automobiles. Crikey, is all that comes to mind. What next? [My italics]
Indeed. As I have said many times, it's the persistence of this sort of mad subsidy that defies explanation. We know they redistribute our scarce resources to large corporates at the expense of ordinary people and the environment. We've known this for decades, but at a time of crisis, we cannot stop ourselves throwing more money in the direction of what are some of the least socially and environmentally sensitive corporations on the planet. This is, it seems to me, a failure of our entire system of government.

10 November 2008

Avoiding disaster, nuclear or otherwise

Reviewing The Culture of War by Martin van Creveld, Barry Gewen writes:
The world came perilously close to nuclear war during the Cuban missile crisis, and as more and more countries acquire nuclear weapons, it requires a real leap of faith to believe that deterrence will continue to work at all times in all places. And that's not to mention nuclear terrorism.
I share Mr Gewen's pessimism. Many believe that there's something intrinsic in our nature that means our species will persist. With some this is a religious belief, with others it's an expression of faith in our rationality or self-interest. For myself, and as with other existential challenges, I don't think we should rely on such feelings. I think we could do more, and that we should be concerned not so much about the survival of the human race, but about the potential loss of millions of lives.

One way of addressing the challenge would be to issue Disaster Prevention Bonds, which could act so as to moderate or countervail the incentives currently on offer to the people and corporations who are quite happy to militarize our planet. These bonds could function as an insurance policy, rewarding people who work to avoid human catastrophes of any sort, specified or not. Disaster Prevention Bonds would not prejudge how human calamities shall be avoided, but would simply reward the sustained non-occurrence of such calamities. Under a bond regime, diverse, adaptive approaches that are efficient would be rewarded. Failing policies would be swiftly terminated.

Nuclear proliferation and environmental disaster are only two of the existential challenges we face. Others are looming and we cannot anticipate all of them. Under a Disaster Prevention Bond regime there would be no need to. The outcome - the avoidance of millions of avoidable deaths - would be specified, but not the means of achieving it. They would seem to me to be more reliable than crossing our fingers and hoping for the best.

08 November 2008

Big government is monoculture

While one might quibble with the technicalities and the source, the Heritage Foundation's Index of Government Dependency does tell a convincing story: in the United States, as William Beach puts it "depen­dency on government has grown steadily and at an alarming rate in recent decades." Mark Steyn writes: "While few electorates consciously choose to leap left, a couple more steps every election, and eventually societies reach a tipping point." This appears to happen regardless of whether ruling parties are supposedly from the left or right, and regardless of the rhetoric about tax cuts, freedom, or rolling back the frontiers of state.

Does it matter? I think it does; partly because big government is generally remote government, and that is a loss in itself. But remote government is also cumbersome and inefficient. It's unresponsive to events. It can crowd out more efficient, more local ways of doing things. Being big, cumbersome and fond of one-size-fits-all policies, it generates the vulnerabilities of any monoculture. It is extremely exposed to disruptive, unanticipated events, and because of its size, the impact of its failure can be devastating. The current financial crisis is one symptom of this. Another is climate change, which in large part is a product of governments' favouring an infrastructure - and agriculture - that is entirely dependent on fossil fuels; often by subsidy, and almost universally by socialising the costs of fossil fuel use.

One answer could be Social Policy Bonds. Government would still take on the responsibility for raising revenue and targeting such desirable goals as the eradication of poverty or the end of violent political conflict. It would raise revenue to achieve such goals - something it can do very effectively. But by issuing Social Policy Bonds, it would contract out the actual achievement to the market. Organizations would be set up whose structure and activities were entirely subordinated to the targeted goals. Diverse, adaptive solutions would arise the product of our limitless ingenuity and the incentives that would be on offer. In short, by issuing Social Policy Bonds we could achieve important, broad social goals without the huge, coercive and monolithic government that we currently think is necessary.

04 November 2008

Make campaigning meaningful: focus on outcomes

[T]he opposite of competition is not solidarity, but monopolies and the maintenance of privilege. ...too much state spending involves taking money from the many, who pay taxes and consume goods, and handing it to the few: ex-state monopolies, special interests, regional favourites or incumbents. As a rule of thumb...politicians will rarely challenge interests that feature in children's books: such as farmers, fishermen, firemen and those who build exciting things. Europe's baleful bail-outs, 'The Economist', 1 November
It is not the size of these subsidies or their wastefulness or their contribution to environmental collapse and social injustice, but their persistence in the face of the overwhelming evidence of their perversity that makes one despair about the political system that cannot eliminate them. Consider some of the issues that did get the attention of the media in the US election campaign: the offhand comments of close relatives and pastors of the candidates; similarly casual comments about 'spreading the wealth'; costs of the candidates' clothes.... There's nothing necessarily wrong with raising these issues. It is just a pity that in the absence of any debate about substance we try to infer what the candidates' real intentions or character are from their behaviour. One of the benefits of a Social Policy Bond approach is that political debate would we could avoid this nonsense and focus directly on the outcomes that candidates say the want to achieve.