07 March 2011

Special interests benefit from obscurity and complexity

John Lanchester writes of the former chief economist of the International Monetary Fund:
[Simon Johnson's] day job involved going into crisis-struck countries and banging heads together to get them to accept reforms as a price of IMF aid. He acquired an extensive experience of countries which had effectively been captured by a ruling elite who governed entirely in their own interests. His startling conclusion about the current crisis is that the US has become of those countries. As the banking sector got richer, its power and influence over US government policy increased - power and influence which the bankers weren't at all afraid to use. John Lanchester, in Whoops!
Or rather 'abuse'. It's becoming a familiar pattern: special interests deploy complexity and obscurity as devices by which they can attract taxpayer funds away from a disengaged public. More regulation seems to be the obvious solution; but that adds to the complexity and obscurity. My suggestion, is, instead, to target outcomes, in such a way that ordinary people engage in policymaking and ensure that rewards are inextricably linked to the public interest rather than, as now, the private interests of those wealthy enough to pay lobbyists and lawyers to manipulate policy for their own purposes.

Social Policy Bonds would do that. One target, for instance, could be the 'sustained avoidance of financial and economic collapse'. Such a collapse could be targeted as an array of financial, economic and social indicators, which would all have to fall within a defined range for a sustained period before the bonds would be redeemed.

More generally, bonds could be issued that targeted any sort of disaster, defined in terms of a combination of, amongst other things, numbers of deaths and serious injuries caused, financial costs, numbers of homeless, and an array of other social, physical and financial indicators. See my paper on Disaster Prevention Bonds. The Social Policy Bond principle though, is a broad one. Essentially, society would decide on what it wants to see, and target the achievement of these goals. It's 'policy as if outcomes mattered', where the outcomes are those that favour society as whole not, as now, a cartel of interest groups and their lobbyists.

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