13 April 2009

Incentives are important

In a remarkable illustration of the power of lobbying in Washington, a study released last week found that a single tax break in 2004 earned companies $220 for every dollar they spent on the issue -- a 22,000 percent rate of return on their investment. The study by researchers at the University of Kansas underscores the central reason that lobbying has become a $3 billion-a-year industry in Washington: It pays. Investments Can Yield More on K Street, Study Indicates (registration), Dan Eggen, 'Washington Post'
It's sad that only highly-paid specialists have ready access to the people in power. The political process is so legalistic and arcane that ordinary people haven't the time or the legalistic knowledge to get involved. One solution might be for policy to be expressed primarily in terms of outcomes.

If Social Policy Bonds were issued, there would be still be scope for lobbyists, but their focus would be on the precise definition of targeted outcomes. Take climate change for example. The definition of a climate stability target could include any combination of a wide array of scientific, financial and human indicators. Discussion of these and their targeted values would no doubt be protracted and esoteric. But there is a difference between such debate and the current lobbyists' efforts. Currently, lobbyists represent the bodies that pay them: they will argue that, for instance, cutting back carbon dioxide emissions hurts 'the coal industry'. The trade-off between such pain and the goal of emission reduction would then be made opaquely; even the decision-makers would be making subjective judgements.

It would be different under a bond regime. Lobbyists for the coal industry would have to argue not that cutting back emissions from coal burning would hurt the coal industry, but that the targeted climate stability goal was inappropriate. The relationship between coal burning and climate change would be for investors in Climate Stability Bonds to explore, rather than policymakers. The policy debate, centring as it would on outcomes, will be accessible to far more people than the restricted group of specialists who currently have an interest in policymaking.

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