Missing Link Friday – 26 November 2010

This week’s Missing Link Friday looks at who’s to blame for the toxic waste in your garage, asks whether car drivers and Tasmanians are paying their way and investigates the latest public policy fad — social investment bonds.

Help! Rich guys in top hats are filling my garage with stuff & poisoning third world children

Is your garage filling up with old tvs, dvd players and obsolete computers? Are you worried that if you send them to be recycled the lead and toxic chemicals inside will end up poisoning third-world children? At Larvatus Prodeo dk.au links to Annie Leonard’s latest video, The Story of Electronics. The video explains why these things happen and who’s responsible. It turns out that both you and the children are victims of greedy rich guys wearing top hats.

The rich guys in top hats are the CEOs of the companies who make that stuff that’s piling up in your garage. And the solution is to pester them with emails until they fix the problem in a way that allows us to keep buying their stuff without feeling bad about it.

While you’re at it, you might want to annoy your elected officials too. A few carefully cut and pasted emails might encourage them to pass laws that force the guys in top hats to behave decently. If you’re worried about the waste generated by all the lawyers needed to pass new laws, then you can rest easy. There’s a solution for that too.

Are car drivers paying their own way?

One of Annie Leonard’s complaints about the greedy rich guys in top hats is that they’re not paying for the costs they impose on others. These ‘externalities’ include the pollution caused by electronic waste dumped in places like Ghana. At the Melbourne Urbanist, Alan Davies is also looking at externalities when he asks: What costs society more – cars or public transport?

Alan links to a paper by Garry Glazebrook of the University of Technology Sydney. After considering costs such as congestion, accidents, greenhouse gas emissions, noise and government subsidies for roads and parking, Glazebrook concludes:

The analysis suggests that cars are in fact subsidised by society to a similar level to that of public transport, when environmental and other externalities are considered and not just financial subsidies to operators.

The economic argument for Tasmanian independence

According to West Australian MP Don Randall, Tasmania is a “leach on the teat” of the Australian economy. The comment sent Catallaxy’s Sinclair Davidson scurrying for data on the government money that flows into and out of Tasmania::

The Tasmanian economy is facing serious challenges but, with some honourable exceptions, policy elites in that State have been in denial for a long time. When I last looked at it Tasmanian own state tax revenue was less than 40 percent. Tasmanians, on average, receive more in welfare than they pay in taxation (source).

In the comments thread Peter Whiteford questions Sinclair’s analysis while Andrew Worthington wonders whether the mainland states should: " forcibly expel Tasmania from our cosy federation as it has failed (and probably always will) parity in fiscal capacity?" Sinclair suggests that independence might actually benefit Tasmanians by allowing them to have their own monetary policy.

Government too poor to pay for innovative social policy — greedy rich guys in top hats should take over

Off-balance sheet financing worked wonders for the finance industry and now those clever chaps from the City are offering to share their financial engineering expertise with government. Social impact bonds are the latest thing in the UK and now they’re coming to Australia.

According to the Centre for Social Impact, a "Social Impact Bond (SIB) is a financial instrument that pays a return to investors based on the achievement of agreed social outcomes." Charitable trusts, foundations and private investors put up the cash, social services agencies deliver the services, and government pays investors a return if the program gets results. Inspired by a UK scheme designed to rehabilitate ex-prisoners, the NSW Government and the Centre for Social Impact are introducing social impact bonds to Australia.

According to the Economist:

Social-impact bond is actually a misnomer: “social-impact special-purpose vehicle” would be more accurate, though also less marketable, given the current widespread suspicion of financial engineering, especially by governments engaging in off-balance-sheet financing. A special-purpose body will raise the money from investors, select the organisations that will do the work, and contract with the government. It will be overseen by an advisory board, not least to ensure that nothing too controversial is attempted to meet the targets. The right to a payout will be determined by an independent assessor. If the minimum performance target is not achieved, the investors get no money back—making the bond more equity-like than bond-like.

The scheme seems to be a response to political problems rather than financial ones. A few years ago blogger and economist John Quiggin suggested that one of the major motivations behind public private partnerships was: "the desire to deliver projects with the spurious appearance of no additional public debt". As with many PPPs, social investment bonds may turn out to cost taxpayers more, but may allow politicians to claim credit for balancing budgets and running surpluses.

There’s also the problem of identifying what programs are likely to work and should be funded. Perhaps the scheme’s supporters worry that politicians will choose to fund programs that test well in focus groups rather than programs that actually work.

A number of bloggers are sceptical about the social investment bond idea. At Triple Pundit Vale Jokisch warns that the social investment bonds idea will only work if it’s possible to accurately measure results — preferably within a few years. She writes" Programs with longer term impact and low cost of failure might be more difficult to fund if investors are seeking short-term liquidity (the pilot program is a 6 year bond) and if organizations can’t demonstrate the economic value being created."

SDJ at the pragmatist writes: "I just don’t see the need for all the chicanery around getting the liability for fixing [intractable social problems] off the public books when the liability sits there anyway." And a post at the BSSEC Blog questions whether there’s enough money available to the charitable and philanthropic sector to scale-up successful interventions.

To the extend that the bonds do succeed in addressing serious social problems, Paul at Though Cowards Flinch suggests that government may still end up funding interventions directly:

… once the model is established with the aid of private and charitable investors, it might be nice to see government employ its own financial muscle to create a nationwide approach to preventative and community health which is not state-driven for the sake of it, but where a renewed social democratic state fulfils an effective state role.

This is, one can argue, a very circuitous route to what is actually quite an obvious and straightforward destination, but there are mountainous interests in the way, and if the long way round is the only way we can get there, so be it.

Udpate: On the issue of public private partnerships, Troppo’s Nicholas Gruen has an article in Inside Story on PPPs and the problem of "fiscal populism". "Australian governments have embraced the notion that all debt is bad", says Nicholas, "But most of the time debt is only bad if it’s used to fund recurrent expenditure …"

Nicholas linked to this article in a recent post for Troppo.

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