13 March 2009

Centralization: costs and benefits

"The food system is so centralized that, when a food crisis hits like it did this year, we are less able to react," said Eric Holt Gimenez, executive director of Food First/Institute for Food and Development Policy. "We get these tremendous spikes in commodity prices. ... It also shows up at the cash register." Our Hungry Planet, Chris Serres, Startribune.com (cited in an Oligopoly Watch post about Cargill)

Centralisation doesn't always work against societal wellbeing. Indeed, in my view it's essential for such tasks as articulating society's needs and wishes, and for raising the revenue needed for public goods and services. But extreme centralization, I think, has two main, overlapping, problems. First, it fosters corporatism, and works in favour of big companies at the expense of small enterprises and the interests of ordinary people. Second, and more relevant to the Social Policy Bond idea, is that it creates a policy monoculture. As Mr Gimenez indicates, this can mean a disastrous sluggishness; it also inhibits diversity of response, and so limits the degree to which successful policies and projects can supplant the failures.

For all these reasons, Social Policy Bonds could score heavily over our increasingly centralized policymaking decisions. Under a Social Policy Bond regime national governments or supra-national bodies like the United Nations could do what they are best at: setting long-term social and environmental goals, expressed in terms of outcomes that are meaningful to ordinary people. But rather than spawn a centralized bureaucracy supposedly aimed at achieving these goals, the bonds would be bought by private investors, who would have powerful incentives to co-operate with each other to achieve targeted goals as cost-effectively as possible. With Social Policy Bonds we could enjoy the benefits of centralization and the benefits of a multitude of competing, diverse, adaptive programmes and projects.

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