Tag Archives: World Bank

Do no harm: when well-meaning public policies hurt society

Just as I prepare for Policy Making 2.0, I wonder if we are not missing something important there. I am as fond of technology, science-based modeling and data-powered approaches as the next guy. And yet, the technology, the modeling and the data crunching are just the glazing of the policy making cake. The dough beneath it, orienting the deployment of our technological wizardry, is the policy maker’s world view – and that is in bad need of an overhaul.

Let me explain. I find that the vast majority of policy makers – regardless of their political preferences – subscribe to a linear model of policy. An issue is detected; it works its way into the political discourse; an approach is found to tackle it and validated by democratic vote; leaders make it into regulation; such regulation is then enacted by the executive branch, to the desired effect. The linear model may sound reasonable end even “evidence based” if the process leading to crafting the response includes data processing. But it holds only if society is like a machine: relatively simple and tractable, with no second-order effects. If you believe this to be an acceptable approximation of reality, you’ll like the linear model just fine. Traditional economics does: I have sat in classes where optimal policy is computed by maximizing a social welfare function, itself the result of aggregating each individual’s utility function. If your economy is not at the maximum, you should (and you can, in principle) push it there by manipulating the price system (through taxes and subsidies), the level of economic activity (through tweaking taxes and spending) and financial constraints on economic agents (through interest rate fixing, quantitative easing, reserve requirements etc.) and regulation (like standard setting).

If you, like me, believe you are living in a highly nonlinear world, resembling an ecosystem much more than a machine, and better understood by a complex systems approach, then the linear model will not work for you. Neither will its tools – taxes, subsidies, spending, monetary policy, regulation – be reliable.

It’s not a just a matter of not working. I am becoming convinced that deploying these tools can be downright harmful. In trying to correct for a perceived distortion, the state applies some pressure to try to offset the distortion. But, all too often, the economy reorganizes as individuals try to take advantage of the state’s intervention. An example with regulation: to contrast the proliferation of short-term employment, a government might make it more expensive to hire on a temporary basis. And companies might respond more or less forcing would-be employees to start one-man businesses, so as to transform employees into suppliers. Result: even more insecurity for the people in question. Another example, this one with spending: a government decides to encourage R&D spending by funding joint research projects between companies and universities. Problem is, when companies see a business opportunity, they will typically not wait for public funding, but just go ahead with the project. Later, they might apply for funding to pay what they have already done – shifting the burden of paying for the R&D to the taxpayer while not generating any additional new product. Final result: much application forms writing, many projects (with high overhead) funded, but very few new products.

Both these things – give or take some important technicalities – have happened in Italy. The distortion of a local economy by massive public spending is visible to the naked eye: you talk to smart, entrepreneurial young people in Italy’s Mezzogiorno, and chances are they will be aware of the main programmes funded by the European Social Fund, the European Regional Development Fund and their national counterparts. A discouraging amount of their time goes into second-guessing funding agencies and writing applications with all the right buzzwords. And why not? It’s the biggest game in town. Italy’s Strategic National Framework allocates 125 billion euro to economic development over the 2007-2013 period (source, p. 236). That’s a lot of money. To give you a benchmark, World Bank lending commitments worldwide for the same period amount to less than 200 billion euro (source – the page, as I can’t seem to reference the graph directly).

Of these, 101 are concentrated in four regions in the Mezzogiorno (rightly) perceived as lagging behind. Regions are the main spending agencies in Italy: this allocation of resources means that the four regions in question need to juggle the administrative workload of funding, in an accountable way, an average of 3.5 billion euro per year on regional development projects alone – whereas the remaining 15 regions “only” allocate an average of 200+ million per year to the same end. Since money This results in chronic underspending by the least developed regions, who struggle to manage this flood of money.

This accounts for the distortion in incentives I mentioned above. While a great majority of public spending ends up going through traditional channels – incumbents and old boys networks, like everywhere – many of the best and brightest people in Italy’s Mezzogiorno end up spending a lot of time thinking on how to get a piece of the action. Recently, my friend Tiago Dias Miranda spent some time in Basilicata and reported:

[…] one of the first things that struck me was the fact everyone kept on talking about bandi, which at first I thought it had to do with music bands. Little did I know bandi means “competitions” [public sector tenders and calls for proposals]. […] unless there is an elephant in the room that I haven’t seen­­— this territory is highly subsidised, just like developing country receiving donations from the wealthy families.

Most people, within government and without, are aware of this effect of spending, but see it as a necessary evil. “We have to do something for lagging regions – they say – This way of doing things may be inefficient, but it does move things in the right direction, bringing about more work and opportunities.” But here’s the catch: this argument only holds if you accept the linear model. If the economy is complex enough, self-organizing effects begin to show. People on the ground try different things (in Basilicata many people have been exploring tourism services, for example), tinkering with their lives and economic activities. Some selection mechanism functionally similar to natural selection for evolution rewards the successful strategies and eradicates the unsuccessful ones. The former get imitated by more and more people, while the latter go extinct. This gives the system a measure of self-healing, of bouncing back – unless, that is, an injection of public spending keeps the attention of innovators on goals set by the funding agencies and off the tinkering-then-selecting activity.

Tiago’s observation that “everyone is talking about tenders” in Basilicata implies that, in a different situation, the same people would be talking about something else. Maybe they would start companies; maybe they would migrate; maybe they would squat abandoned buildings. But they are not doing those things, and this is actively harming the local economy and society, pushing it into a spiral of dependency. In medicine, this would be called iatrogenics; physician’s actions that harm the patient, despite the best intentions.

Per se, these observations are not new – Dambisa Moyo and others have eloquently argued that too much public spending – no matter how well meaning – can hurt a local economy. But they are counterintuitive, and they never made it into the mainstream. In Italy, certainly, the political discourse is all about how much money you can amass behind which goal; so, the point bears repeating.

More interestingly, I am thinking hard about ways to do two things to operationalize these ideas:

  1. diagnose when it is that local economies are complex enough to find an adaptive path towards improvements. This is harder than it sounds, because you have to choose an appropriate level for the analysis, and whichever level you choose you will likely have winners and losers within that level. For example, Italy is definitely big and complex enough to do interesting stuff, but historically it has tended to concentrate the action in the north, with southern regions lagging behind. If you look at the level of a small region, you are almost sure to find, again, areas that are quite dynamic and areas that are not.
  2. suggest tools that lend themselves well to a “do no harm” approach, that assumes you are doing public policy on a complex adaptive system, not on inert matter or on a simple machine.

These will be the subject of forthcoming posts.

Accountability by access: civile servants move onto Facebook

According to the World Bank’s noteworthy PSD Blog a senior official in the Kanpur district, in Northern India, has ordered his highest ranking subordinates to create personal Facebook profiles “at the earliest”, and associate them with the page of the district’s administration.

The idea is that officials, being more accessible to citizens, feel them breathing down their neck, and therefore be prompted to respond quickly to suggestions, complaints or applause (“Citizens are going to like this, as they will be able to track their complaints”)

I like the intuition: it’s in line with what I wrote in my book Wikicrazia, particularly in the chapters on “transparency” and “speaking in a human voice”. In the actual decision there remain a few kinks to iron out: one of them is that my Facebook profile is mine, not my employer’s, public authority or not. Maybe this problem could be addressed creating multiple accounts, or using platforms where users have a much better control on what they share with whom, like Diaspora.

What I find most interesting, however, is that the Kanpur district administration initiative stands for the idea that the more transparency, the better. Which, after all, is the opinion I thought was common ground to more or less all of us, until the Wikileaks affaire kicked in and several commentators (including authoritative ones, like Shirky) started making the statement (in my opinion without proving it) that government need secrecy by default to be able to function. Who is right? At a first glance, between Ms. Clinton’s Department of State and the Kanpur district administration, the latter seems more in sync in the times. We, the people, had to rethink privacy at the times of the Internet: it seems logical that public authorities rethink secrecy as well. Frankly, I don’t see that many alternatives: Wikileaks and entities like it are here to stay, like it or not.

Note: I have not been able to find the Facebook page in question – but I am in China, and Internet access is not always straightforward, so I try to stay away from long Google searches. Should a reader find it and point me to it, I would be grateful to her or him.

Accountability da accesso: i funzionari pubblici vanno su Facebook

Racconta il notevole PSD Blog della Banca Mondiale che un anonimo alto funzionario del governo del distretto di Kanpur, nell’India settentrionale, ha ordinato ai suoi collaboratori più alti in grado di creare “quanto prima” i loro profili personali su Facebook, e di associarlo alla pagina creata per l’amministrazione distrettuale stessa.

L’idea è che i funzionari, risultando più accessibili ai cittadini, ne sentano il fiato sul collo, e quindi siano spinti a uno sforzo per rispondere rapidamente a eventuali sollecitazioni, critiche o lodi. Rispondere, naturalmente, usando la pagina Facebook dell’amministrazione distrettuale. “Ai cittadini questo piacerà, perché saranno in grado di tracciare i loro suggerimenti e i loro reclami.”

L’intuizione mi piace molto: è in linea con quello che scrivo in Wikicrazia, in particolare nei capitoli sulla “trasparenza” e sul “parlare con voce umana”. Nella decisione in quanto tale rimangono alcuni problemi, e uno è che il mio profilo Facebook è mio, non del mio datore di lavoro, anche se questo è una pubblica amministrazione. Forse si potrebbe risolvere questo problema creando accounts multipli, o usando piattaforme in cui gli utenti hanno pieno controllo su cosa condividono con chi, come Diaspora.

La cosa che mi incuriosisce di più, però, è che l’iniziativa del distretto di Kanpur ribadisce che più trasparenza c’è e meglio è per tutti. Che poi è la cosa che pensavo fosse condivisa da tutti fino a che non è scoppiato l’affaire Wikileaks, e molti commentatori (anche autorevoli, come Shirky) hanno dichiarato – ma, a mio avviso, non dimostrato – che i governi hanno bisogno di segretezza per default per funzionare. Chi ha ragione? A occhio il distretto di Kanpur mi sembra più sintonizzato con i tempi: noi umani abbiamo dovuto ripensare la privacy al tempo della rete, sembra logico che anche i governi si trovino a ripensare la loro riservatezza – anche perché francamente non vedo molte alternative. I fenomeni alla Wikileaks non spariranno tanto presto.

Nota: non ho trovato la pagina Facebook in questione – ma sono in Cina, e l’accesso a Internet è un po’ problematico, per cui cerco di risparmiarmi ricerche dettagliate in rete. Se qualche lettore la trovasse e me la segnalasse mi farebbe una cortesia.