Biases of big government

The problem with big government is that it is generally remote government. Remoteness means that government is unresponsive to the real needs of real people and has wildly different priorities from real people. Big government has more in common with other big organisations (corporations, trade unions, other governments) than with the people it's supposed to represent. All these institutions have two main things in common:

• Their over-arching objective is self-perpetuation; and
• When monitoring their performance, they rely heavily on easily quantifiable data.

Self-perpetuation for most of us, most of the time, is a goal with which we can identify as individuals. Some organisations, brought into being to address genuine grievances can, knowlingly or not, perpetuate or entrench the causes of their grievances: they see the entire world through the prism of the cause that validates their raison d'etre; and that can be problematic.

But the reliance on quantifiable data is, I think, equally dispiriting. A benevolent welfare state cannot discriminate between the deserving poor, and those who would benefit more from being refused (say) unemployment assistance and so more motivated to find work. The criteria for receiving such assistance will be numerical data, mainly wealth and income.

Given that we have big government, one way of solving the sort of mismatch between numerical aggregate measures of wellbeing, and actual wellbeing, would be to have sensible numerical targets. Take the unemployment example: instead of detailed, legalistic criteria for the process of applying for unemployment benefit, a truly benign government could set a broad target for total unemployment, and contract out the achievement of that lower target to the private sector. (Click here for one suggestion.) The private sector would be motivated to encourage those unemployed at the margin - those least unwilling or unable to go to work - to find jobs. This is in contrast to a bureaucracy, which has no such clear motivation. The proliferation if meaningless micro-targets, and the bureaucratic need for self-perpetuation, combine in this and many other instances, to form a vicious circle, or a downward spiral, which cannot respond sensibly to cases of individual human need.

Bureaucrats and lobbyists versus the people

New Zealand has released a draft forestry strategy to take into account climate change. Or rather, the fossilized science underpinning Kyoto – and that’s the problem. There’s a lot of internal consistency: to tax nitrogen fertilizer so as to reduce emissions of nitrous oxide; to spend NZ$100 million over five years to encourage new forest plantings. There’s also a lot of elegant economics: tradeable permits for agricultural emissions and offset schemes from tree planting.

All very worthy and, as I say, entirely consistent with the premises underlying Kyoto.

Unfortunately these premises are flawed. Kyoto is not, ultimately, concerned with climate change. Its sole focus is to reduce net anthropogenic greenhouse gas emissions. They are not at all the same thing:

1. Reducing anthropogenic greenhouse gases might not be the best way of reducing the concentration of greenhouse gases in the atmosphere;

1. Reducing the concentration of greenhouse gases in the atmosphere might not be the best way of preventing or mitigating climate change; and

1. Preventing climate change might not be the best way of preventing the worst effects of climate-induced catastrophe.

Even if our ultimate goal were solely to reduce net greenhouse gas emissions, Kyoto would be inefficient. Kyoto, and the New Zealand Government, are telling us not only that greenhouse gas emissions must be cut, but how to cut them. They are putting in place their own fixed assumptions about the relative contributions that greenhouse gases make to the climate change problem, and similar assumptions as to the contributions that planting trees rather than crops make to solving it. Such assumptions are based on old science: it is in the nature of top-down, micro-managed, bureaucratically administered regimes that they cannot readily adapt; and our scientific knowledge is expanding very rapidly indeed. Even accepting the premises of Kyoto, then, the current responses are inherently inflexible and inefficient – which matters a lot, given the colossal costs involved.

How would Climate Stability Bonds be better? First, they wouldn’t assume that cutting greenhouse gas emissions is the best way of tackling climate change. But even if it were found that doing so is the best way, holders of Climate Reduction Bonds would have strong incentives to do be more efficient. They would want and would have wider scope for action. For example, they wouldn't be bound by political correctness or realpolitik of the sort that exempts some countries that emit huge quantities of greenhouse gases from any disciplines at all. They would simply buy these regimes off or otherwise undermine opposition to the necessary disciplines.

There is an important presentational aspect too. Kyoto doesn't focus on a desirable outcome: it's focused on processes and activities. So it is now so politicized, and its money flows so unpalatable, that it is seen as an imposition; in the rich countries it's seen as an imposition by the greenies on everyone else, and in the poor countries it's seen as an imposition by the rich countries on them. And to industries, such as the forestry industry, it’s seen as a government-imposed threat to their wealth, or an opportunity to seek subsidies from that same government. Either way, it diverts the attention of some clever people away from managing their business efficiently, and into lobbying the government for special treatment.

In the proverbial battle between elephants, it’s the grass that gets crushed. With governments and the other Kyoto lobbyists, success is defined bureaucratically. As the New Scientist in its editorial of 25 November put it: “Some at the heart of the [UN climate] negotiations claim that the [recent meeting] in Nairobi has been a success. That’s baloney. The conference persuaded itself that a review of the [Kyoto] protocol in 2008 is a major outcome, but to an objective outsider it looks more like an excuse for inaction.” And for corporate interests, success is measured in terms of how much they will gain or lose as a result of whatever schemes, allegedly to mitigate climate change, are put in place by governments. While these games are being played, the losers, as so often, are we, the people.

Who cares about quality of life?

A couple of posts ago I castigated the New Zealand Prime Minister for her making GDP per capita as the Government's target par excellence - even at the expense of the welfare of infants and children. Perhaps this isn't the worst possible default target. The current 'Economist', describing UK Finance Minister Gordon Brown's Pre-budget Report says:

Mr Brown has little to say about the quality of people's lives; tellingly, he seeks to boost growth in GDP rather than GDP per person. Stripped of the verbiage, much of his speech could be seen as opening the way to more development in the crowded south-east, whose residents would be less able to object under the proposed planning reforms.

While you can increase GDP per capita by substituting paid childcare for unpaid, you can increase GDP merely by letting more people into your country. Et voila! A visionless politician's problems solved! A high GDP means influence, power; a seat at G8 summits. Quality of life? Who cares?

Smoke and mirrors

In Why I've lost my faith in Gordon Brown in the UK ‘Times’ yesterday,  Anatole Kaletsky says:

                                Perhaps the most worrying revelation about Mr
                                Brown’s approach to politics has been his
                                obsession with institutions and processes,
                                rather than results. Everyone knows that Mr
                                Brown’s proudest achievement has been the
                                restructuring of the Bank of England, but is it
                                possible that restructuring other government
                                departments is Mr Brown’s “big idea” for the
                                next decade? Following the merger of the Inland
                                Revenue with the Customs and Excise, Brown
                                allies hint at reorganising the Department of
                                Trade and Industry, revamping the Cabinet Office
                                and maybe even abolishing the Treasury itself.
                                Even more depressing is Mr Brown’s apparent
                                addiction to commissions and quangos run by
                                former businessmen, financiers, civil servants
                                and newspaper editors. It is as if the mere
                                appointment of these commissions is enough to
                                satisfy Mr Brown’s insatiable desire for
                                information and the appearance of governmental
                                activity.

Unfortunately, on this record Mr Brown is exactly in tune with current policymaking priorities. For political purposes, results hardly count. It’s cheaper and less effort to get Public Relations people to spin the facts, rather than to change them.* The parties tacitly conspire in this shell game, stressing in their election campaigns rhetoric and image, under an electoral system that allows voters a choice between Tweedledum and Tweedledee once every four or five years. Voters are seen as taxpayers or beneficiaries with Attention Deficit Disorder – a self-fulfilling belief system given that (as Kaletsky continues) educational policy itself is subordinated to meaningless spending targets:

                               On the substance of policy, meanwhile, Mr Brown
                                seems to have nothing of interest to say — or
                                do. Education, for example, is supposedly Mr
                                Brown’s top priority for the “next Labour
                                decade”. Yet his only positive idea in this
                                sphere is to keep spending more money on school
                                buildings and renovations, without any apparent
                                regard to what these schools teach or how, until
                                he achieves his newly proclaimed target — that
                                the average cost of educating state school
                                pupils should reach the amount now spent in
                                private schools.

This is gesture politics at its worst. Spending is not a legitimate policy goal. It is a means to ends, not an end in itself….unless, of course, Mr Brown’s real educational objective has more to do with placating the teaching unions than with actually educating the electorate of the future. The solution of course is to express policy goals in terms of results that are meaningful to real people. Meaningful goals for education, oddly enough, are educational goals: things like numeracy, literacy and the physical and intellectual well being of young people. Trickier to measure, to be sure, but far more relevant to real people than the lazy (or corrupt) pseudo-goal of ‘higher spending per pupil’.

* And if you think I am being overly cynical about the role of image-making in politics, check out this Mail on Sunday report that the British Government has agreed on a multi-million pound PR campaign to make British citizens feel better about the European Union. The plans, entitled Reframing the Debate, suggest promoting the ‘EU brand’ by linking it to popular or ‘warm’ European themes, like the Eurovision song contest, or the Cannes Film Festival - even though these have nothing to do with the EU.  It also suggests banning Ministers and officials from referring to unpopular EU institutions like the European Commission, places such as Brussels and Strasbourg, the euro, terms like 'Eurocrat' and 'EU directive' and controversial policies such as the Common Agricultural Policy and the EU Constitution.

GDP: the default target for government policy

It’s about two years since I started this blog. In that time I haven’t detected much movement toward outcome-based policy. Instead, we are seeing the ascendancy of a political caste; people who are politicians first and foremost and always have been. Their concerns are not those of ordinary people, and their definitions of success or failure are entirely removed from those of the populations they are supposed to represent.

Take this example, from a 2005 statement by the New Zealand Prime Minister, Helen Clark:

Treasury estimates that our GDP per capita would rise by 5.1 per cent if we lifted our participation rates overall to the average of the top five OECD nations. That’s a worthwhile objective and at this time of labour shortage, it’s a good time to be pursuing it. In last year’s Statement I highlighted the need to increase women’s participation in the workforce, and a number of steps have been taken to do that.

In other words, an increase in GDP per capita has become an objective in itself. Anybody who has always lived and breathed politics is going to think like that: the things that matter to such a person are aggregated quantifiable data. The flaw is that such data do not accurately measure the well being of society. Devised primarily to measure the output of manufacturing economies, GDP does not take into account changes in the quality of the physical environment, nor the distribution of income, nor social problems such as crime and homelessness. It ignores human capital (the education and skills that are embodied in the work force) and it fails to account for leisure time or the unpaid work of parents or family members. It cannot account for these things because they do not generate a flow of money. When GDP becomes a target these failings become more important than a measurement error. They underlie policymakers’ favouring of the big and measurable.

Statistics like GDP should never have assumed the authority they have nowadays, but they have done so by default, because we have failed explicitly to target outcomes that are actually meaningful, whose quantifiable measures are correlated with societal well being, at least at the lower ends of their ranges. We should, for instance, be targeting such measures as infant mortality, basic numeracy and literacy, basic levels of education and housing, employment levels. At a global level meaningful targets would be the spread of nuclear weapons, violent political conflict, and critical environmental indicators, such as climate stability.

But politicians, especially career politicians, find it hard to think in this way. They are not ordinary people. Their identification of success with GDP per capita is exactly analogous to a corporation’s appetite for profits: an end in itself. Nothing else matters. So Ms Clark for all her ambition may well see a small tick upwards in the New Zealand GDP. It’s the children whose mothers join the workforce who will bear the consequences.

The rich world's farm policy is corrupt

I’ll leave it at that for today:

“A maverick dairyman named Hein Hettinga started bottling his own milk and selling it for as much as 20 cents a gallon less than the competition, exercising his right to work outside the rigid system that has controlled U.S. milk production for almost 70 years. Soon the effects were rippling through the state, helping to hold down retail prices at supermarkets and warehouse stores.

For three years, starting in 2003, a coalition of milk companies and dairies lobbied to crush an initiative by a maverick Arizona dairyman. Hein Hettinga chose to work outside the rigid system that has controlled U.S. milk production for almost 70 years. The milk lobby said he presented unfair competition because he chose to operate without federal price control. Hettinga fought back but was outgunned on the Hill. In March, Congress passed a bill that effectively ended his experiment….” Source:  Washingtonpost.com:

World targets in megadeaths

Two snippets from a newsletter sent out by Carbusters:

• The city of Guangzhou has banned battery-powered bicycles to make more room for the 870,000 cars on the streets. This will negatively affect the almost 100,000 residents who drive these bicycles, but will make space for automobiles, which are appearing on Guangzhou's streets at a rate of 150,000 per year [Reuters].

• On average, 3450 people die on the world's roads every day [RoadPeace].

I write about cars and the depredations they inflict on us all not because I think cars are evil, but because they show very clearly what happens when government and its policies become remote from ordinary people. As with so many government activities, the promotion at public expense of transport was a good idea – at first. Roads used to be as essential as decent sewerage. Now, largely because of the enormous growth in road traffic, any other way of getting about has become expensive or dangerous. We are so hooked on our cars, and the road lobby is so hooked on corporate welfare, that government can do little to stop the juggernaut, even when it kills people at the rate of one 9-11 a day – as well as maiming and mutilating tens of thousands. Oh, and poisons our atmosphere, devastates our cities and countryside, and goes a long way toward shredding our social fabric.

Some years ago when the Chinese Government was bundling Falun Gong meditators into trucks for torture and worse, the British people mounted a remarkably successful demonstration…against a small rise in petrol prices.

Environmental policy must be diverse and adaptive

It’s not at all clear whether oft-proposed shifts in the way we do things would actually benefit the environment. I’ve blogged already about the uncertainties over whether cloth nappies (diapers) are better for the environment than disposables, as is commonly assumed. In June 2004, ‘Modern Railways’ published an article (Rail loses the environmental advantage) pointing out that high-speed rail can consume more fuel per passenger than cars or even planes.

The current issue of the ‘Economist’ has published a letter questioning the environmental advantages of solar panels over fossil fuels:

Silicon fabrication factories are energy and water intensive and the manufacture of silicon wafers uses energy from traditional fossil-fuel power generators, with the same old pollution. Add the potential problems of disposal towards the end of a panel's life—they are frequently doped with toxic materials like arsenic—and solar power hardly seems like the environmentally benign solution it is often touted to be. Peijing The, ‘The Economist’, 9 December.

The sort of life-cycle analysis required to establish the environmental benefits or otherwise of shifts in our behaviour are bedevilled by boundary issues, measurement difficulties and the difficulty of weighting one type of environmental impact against another. They are better than blandly assuming that rail is ‘better’ than air travel, that solar power is better than coal-fired power stations, but for the making of robust policy they would need to be continually reassessed in the light of our ever-expanding knowledge of the environment and our ever-changing environmental priorities. Government policy cannot be so responsive: if government did use life-cycle analysis with the aim of altering our behaviour, it would probably do so on the basis of a one-time, necessarily limited, and possibly quite subjective assessment of environmental costs and benefits. It’s not good enough, but even worse would be what we largely have now: government environmental policy based on corporate interests, media stories and the launching of visually appealing initiatives that attract air time but otherwise achieve nothing.

Social Policy Bonds would take a different approach. They would subordinate environmental policy to targeted environmental outcomes. It might be, for instance, that society wishes to reduce its use of fossil fuels. A Social Policy Bond issue that rewarded achievement of such a reduction would generate incentives for bondholders to bring it about at least cost. They might well carry out life-cycle analyses in their attempt to do so. But there is an important difference between the way do they would conduct their research and the way government would do so: bondholders have incentives to achieve their goal efficiently. This is likely to mean responding to and stimulating: increased knowledge of scientific relationships, and technical advances.

A single environmental goal, such as reduction in fossil fuel use, entails diverse, adaptive responses. These are precisely the sort of responses that government does very badly. Government can and should articulate society’s environmental goals, and can help pay for their achievement: in the democratic countries it performs these functions quite well. But actually achieving these goals requires continuous, well-informed and impartial decisions to be made about the allocation of scarce resources. For that purpose, Social Policy Bonds, with their incentives to achieve targeted outcomes efficiently would, I believe, be far better than the current ways in which environmental policy is formulated.

Read this and weep...

...or Subsidising Planetary Destruction, part 94.

Last month the United Nations General Assembly discussed banning high-seas bottom trawling, which scrapes the sea-floor bare, devastating habitat and coral. But strip mining of the high seas for fish in this way is not only continuing: it is being subsidised.

The villains – or lunatics – in this particular policy area include Japan, Russia, South Korea, and Spain. And how are their destructive fishing operations subsidised? Mainly by the provision of low-cost fossil fuel! The Fisheries Economics Research Unit at the University of British Columbia’s Fisheries Centre estimates (pdf) that bottom trawl fleets operating in the high seas receive an average of US$152 million per year, which constitutes around 15 per cent of the total landed value of the fleet.  

Never mind the outcome, feel the sanctimony

An article in the UK Sunday Telegraph says that Chancellor Gordon Brown ‘has been launching transport reviews at the rate of nearly one a year since 1998’. According to the same article, in 2000 Brown proposed scrapping older lorries with a £100 million investment fund. ‘Asked about this recently, ministers said they did not fund any such schemes.’ In 2003, Mr Brown claimed that everyone on Jobseekers' Allowance would be assessed with a mandatory skills test. But ‘Ministers recently told the House: "There are no mandatory skills courses linked to Jobseeker's Allowance".’

This sort of thing is typical. Image is more important than reality; and who’s going to keep the politicians honest? Between policymaking and policy delivery there are manifold labyrinthine paths, obscured by the fog of committees, agencies, and the glossy outpourings of PR professionals. The goal is not to deliver outcomes, but to remain in power, and for that, in the ADD era, grandiose but vapid promises suffice. Unveil new well-intentioned initiatives, and you will look good on the tv news. And under the current regime there’s no need to bother about outcomes. All the good news can be ascribed to your policies; all the bad news to the confounding effects of unexpected events or the long-term fallout from the previous ruling party’s activities.

This randomized or – frankly – deceptive approach is just not good enough. It never was, but given the challenges face as a planet and a species, it could bring us to extinction. Kyoto, for instance, is typical: high-sounding principles; top-level agreements; elegant trading mechanisms…and the outcome? A possible negligible reduction in anthropogenic greenhouse gas emissions. Pitiful: the triumph of process over substance.

Policy and political careers should be subordinated to outcomes. Real, meaningful goals should be made explicit, then targeted. People should be rewarded for how efficiently they achieve societal goals. We can no longer afford the smoke and mirrors of the current political process. It’s not a matter of who gets elected any more: it’s a matter of survival.