09 September 2009

What sector shall we subsidise next?

When policy takes the form of targeting, you have to be very careful that your targets either are, or are inextricably and strongly correlated with, what you want to achieve. I've blogged many times about the meaninglessness of gross domestic product as a target (see here or here, for instance). Governments implicitly or explicitly target GDP per capita (as 'economic growth'), often with unfortunate results such as the degradation of the social or physical environment.

Here's another instance of policymakers getting it wrong. Not long ago governments were in thrall to the motor industry. Then came computers and IT. But today, or until recently, it was finance. Here's George Monbiot quoting UK Prime Minister Gordon Brown:
In 2004 he told an audience of bankers that “in budget after budget I want us to do even more to encourage the risk takers”. In 2007 he boasted that the City of London’s success was the result of the government “enhancing a risk based regulatory approach, as we did in resisting pressure for a British Sarbannes-Oxley after Enron and Worldcom”. The great cop-out, 8 September
The problem is deeper and more widespread than that of governments' complying with the wishes of their paymasters in big business. Our governments are democratic, so have to sell their degenerate thinking to the electorate. And, not being specialists, we too easily identify the success of particular sectors or, say, an increase in GDP, as improvements in societal wellbeing. This, they might have been at lower levels of development. But they are not always so, and our policymaking system has been too slow to recognise this.

It's hardly surprising. Society is so complex that it takes us too long to identify the causes of social and physical depredations, by which time it's very often to do much about them. The policymaking process to the outsider is too complex and arcane to follow closely. Perhaps Social Policy Bonds are the answer. They would subordinate all activity and funding to the achievement of social and environmental outcomes, rather than try to prejudge how best to achieve these outcomes. Insiders and outsiders would see clearly that a healthy finance, or IT, or whatever, sector is not an end in itself, but a means to various ends, and that government would be both more efficient and more transparent if it targeted these ends directly.

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