27 November 2012

Creative self-entrenchment

The much-vaunted creative destruction that is supposed to underpin the wealth-generating bits of our economy fails to operate where government is concerned. Rather than terminate failed policies, government has powerful incentives to buy off the vested interests grown already rich from its largesse. Twelve years ago I wrote about the corrupt, insane agricultural policies of the rich world. At that time, the way these policies transfer wealth from the poor to the rich, their waste, their disastrous effects on the environment and animal welfare; all were well known and quantified, not least by the OECD - and had been for years. Yet, as George Monbiot eloquently points out, these policies persist:
It is a source of perpetual wonder that the people of Europe tolerate this robbery. Farm subsidies are the 21st century equivalent of feudal aid: the taxes mediaeval vassals were forced to pay their lords for the privilege of being sat upon. The fat of the land, 26 November
There is no systematic mechanism (pdf) for getting rid of discredited policies. If they are run by government, or any other monopoly, ludicrous policies are more likely to persist, at great cost to the rest of society, than be discontinued. They enrich powerful people, who use a small proportion of government's own largesse to lobby against their withdrawal. This is self-entrenchment and, as government accounts for every more of society's spending, it has hugely distorting, wasteful effects on our economy.

We need instead a system that will terminate failed policies. One that will supply incentives for people to solve problems, rather than to turn up for work for organisations that claim to solve problems. That is where Social Policy Bonds could come in. They would create a coalition of interests whose sole raison d'etre would be to achieve society's goals as efficiently as possible. The bonds would stimulate diverse, adaptive solutions to our social and environmental problems, and they would do so regardless of the identity or provenance of the investors. Under a bond regime, in stark contrast to today's politicians and bureaucrats, people would lose their own money if they persisted in failed projects.

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