22 May 2014

The moral case for tax avoidance

George Monbiot writes about Scotland's deer-stalking estates and grouse moors:
Though the estates pay next to nothing to the exchequer, and though they practise little that resembles farming, they receive millions in farm subsidies. The new basic payments system the Scottish government is introducing could worsen this injustice. [Andy] Wightman calculates that the ruler of Dubai could receive £439,000 for the estate in Wester Ross he owns; the Duke of Westminster could find himself enriched by £764,000 a year; and the Duke of Roxburgh by £950,000. I'd vote yes to rid Scotland of its feudal landowners, George Monbiot, 'the Guardian', 19 May
It's not so much the wastefulness of such subsidies, nor the environmental devastation they wreak, nor even the lunacy of taking money from ordinary people to subsidise wealthy aristocrats and monarchs. Rather, the issue is the persistence of such stupid, corrupt policies, which have hardly changed in the several decades since they were first exposed and their impacts quantified. We have no systems in place to act on the voluminous evidence of their disastrous (for more than 99 percent of the population) effects. This is one big disadvantage of making policy as if outcomes are irrelevant: nobody has incentives to terminate failed policies. Instead, the beneficiaries of lucrative-but-stupid policies, have every incentive to oppose their withdrawal, and the means by which to do so.

Mr Monbiot goes on to describe the visual impacts:
The hills in many parts look as if they have been camouflaged against military attack, as they have been burned in patches for grouse shooting. It is astonishing, in the 21st century, that people are still allowed to burn mountainsides – destroying their vegetation, roasting their wildlife, vaporising their carbon, creating a telluric eczema of sepia and grey blotches – for any purpose, let alone blasting highland chickens out of the air. Where the hills aren't burnt for grouse they are grazed to the roots by overstocked deer, maintained at vast densities to give the bankers waddling over the moors in tweed pantaloons a chance of shooting one.

19 May 2014

Eradicating war without blueprints

Richard English writes:

[T]o pursue the eradication of war would be as naïve as to pursue human or moral perfection; the effective curtailment of particular wars, or specific war-time brutality, almost certainly depends instead on recognizing our appalling capacity for (and even our historical tendency towards) justifying and practising violent atrocity. ...
For the prospect of establishing human behaviour along lines guided too closely by idealized blueprints probably exaggerates human capacity for improvement. Modern War, Richard English, 2013
I don't agree with the first clause; 'naive' implies that eradicating war will be impossible to achieve. I do agree that being 'guided too closely by idealized blueprints' will, in itself, not be sufficient to eradicate war, though it might be one necessary approach. This is where the Social Policy Bond principle enters the picture: we aim to eradicate war; we raise funding to achieve that goal, but we do not ourselves draw up blueprints as to how to achieve our goal, nor do we try identify who might best achieve it. Instead we issue Conflict Reduction Bonds (or Middle East Peace Bonds, or World Peace Bonds). These are no idealized blueprints: they are means by which motivate people to solve mankind's most grievous social problem.

Much that is good in this world has come about almost randomly, often as a by-product of some persons' pursuit of short-term financial gain. Or only after calamitous experience and exhaustion. I think we can do better: we can supply incentives for people to achieve social goals and let the market - the best way of allocating resources ever discovered - decide which approaches are best and which should be terminated. Idealized blueprints won't always work and, as Mr English also says, "most of our attempts to set out prophylactic measures and structures against modern war have seemed (and continue to appear) frequently doomed to blood-spattered failure." But sometimes, some of these approaches and institutions do actually work. A bond regime would encourage people to persist in those circumstances, and to explore, and refine other approaches too. I don't think that's naive.

14 May 2014

07 May 2014

Social goals: neither barmy nor simplistic

Yves Smith does us all a service in exhuming and refuting Milton Friedman's claim that "corporations exist to maximise shareholder value". Friedman wrote, in 1970:
That responsi­bility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while con­forming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.... The Social Responsibility of Business is to Increase its Profits, 'The New York Times Magazine', 13 September 1970
Perhaps that was believable back in 1970. Since then, it's become clear that the basic rules of society are there to be manipulated or ignored in pursuit of corporate earnings. As Mr Smith reminds us, corporations pursue corporate goals, rather than those of shareholders. Nevertheless, Mr Smith concludes:
Friedman’s simplistic, barmy idea found fertile ground. And it became self-reinforcing as executives learned to use it to line their wallets. The long-lived, difficult to displace but not lavishly paid corporate chieftain was over time supplanted by wildly overpaid straight-from-central-casting CEOs. Why worry overmuch about longevity if you can rake it in a 3 to 5 year tenure? ....  So again, repeat after me: “maximizing shareholder value” is an idea made up and promoted by economists, starting with Milton Friedman and his Chicago School cronies. And like many ideas that came out of the Chicago School, the public as large has suffered from treating a soundbite like a serious policy proposal.

All true and important. But perhaps the deeper and broader problem is the mismatch between metrics that become targets, and the well-being of society.

My hypothesis is this: In an older, less complicated, world the correlation between an accountant's view of a corporation and that corporation's success would be strong. So too would be the correlation between the success of a corporation and its contribution to social well-being. Since those days, as population has grown, as society has become more complex, and as our more basic needs have been more satisfied (largely thanks to the activities of these corporations), the correlations have become weaker. A corporation's success can have negative, non-market, impacts on the environment about which we feel more strongly. Its activities and products or services can contribute very little to social well-being, or even detract from it.

All this is not to deny that there are a lot of positive externalities arising from corporate activity. My point is that we have no systemic means of encouraging corporations to, in Friedman's words, conform to the  basic rules of society. If a corporation creates havoc in the social or physical environment, then we rely on government to put a stop to it: but often this is too little, too late, partly because of inevitable time lags, partly because government relies on corporate taxes, and partly because big business and government are just too close and corporations find it easy to subvert or ignore those basic rules.

Accountants' measures of success are less and less reliable indicators of social well-being. And the single over-arching accountancy-derived metric is that of Gross Domestic Product (or GDP per capita) which is explicitly or implicitly targeted by almost all governments (except, probably, that of Bhutan).

We need new targets; targets that correlate strongly with society's real aspirations. Targets that reinforce conformity with existing and enhanced basic rules; that countervail current incentives to subvert or ignore them.

That's where Social Policy Bonds could enter the arena. The bonds would act as a meta-system, into which corporate activity would fall. They would target broad social and environmental goals and reward people for achieving them. They would reduce the incentives for corporations, and their friends in government, to aim for goals that satisfy accountants as distinct from, or against, society and the environment. It's time we moved on from identifying the narrow, short-term goals of big business with those of ordinary members of society. They aren't identical; they can conflict, and they might even be diverging.