Tuesday, May 31, 2011

Does the OECD's 'better life index' sound like fun?

I am not sure the OECD’s better life index is meant to be fun. But I have had some fun playing with it. The index is interactive. The fun comes from giving different weight to 11 different criteria (or topics as they are described by the OECD) and then observing how this affects rankings of well-being of OECD countries.

The criteria used in the index are: housing, income, jobs, community (individuals’ perceptions of the quality of their support networks), education, environment (air pollution by tiny particulate matter), governance (voting and transparency), health, life satisfaction, safety (assaults and homicide) and work-life balance (working mothers, total hours worked and leisure).

Under the default setting, with all criteria being given equal weight, the countries that come out on top are Australia, New Zealand, Canada and Sweden. If you suppress all criteria other than income, Luxembourg is a long way ahead of the field, followed by the United States and Switzerland. The income measure used in the study (reflecting household financial income and wealth) has Australia in 14th place and New Zealand in 25th place.

The substantial difference between the outcomes of these weighting systems is interesting. In a previous post I observed that all well-being indicators tend to tell similar stories about well-being levels in different countries. The two observations are actually consistent. My research covered a larger number of countries, including many poor countries as well as the wealthy democracies of the OECD. Well-being indicators tend to tell a similar story when wealthy countries are compared with poor countries, but can tell different stories when wealthy countries are compared to each other.

Equal weighting of a range of indicators and a focus on income alone seems to me to be equally arbitrary approaches to well-being comparisons. Well-being is obviously affected by factors other than income, but it would be difficult to argue that all relevant factors are equally important. Value judgements have to be made to determine appropriate weights. An appropriate weighting system might be derived by conducting surveys to obtain weights reflecting the values of people in different countries. Alternatively, surveys could be used to obtain weights reflecting the values of people with different political views in particular countries, or across the whole of the OECD.

In the absence of such survey evidence, I have looked at the rankings for three somewhat extreme political groups drawn from my own imagination: Scrooges, Socioholics and Warm Fuzzies. As I imagine them, all three groups perceive governance and safety as being important to well-being. The Scrooges add income as the only additional factor. The Socioholics add housing, jobs, education and health in addition to income. The Warm Fuzzies exclude income and all the additional factors added by the Socioholics, but replace those factors with community, environment, life satisfaction and work-life balance.

So, which countries come out on top of the welfare rankings according to the values of these three political groups?

Scrooges: The countries that come out on top are Australia, Luxembourg and the United States. New Zealand is placed about 8th, behind Sweden, Austria, Canada and UK.

Socioholics: Australia and Canada come out on top, followed by New Zealand and the United States.

Warm Fuzzies: Australia, Denmark and Sweden are on top, followed by New Zealand, Canada and Norway.

What do I get out of this? My main observation is that Australia seems to come out fairly well, whatever coloured political lenses you use. The well-being of New Zealanders also looks fairly good, particularly if you adopt either a Socioholic or Warm Fuzzy perspective.

Having had some fun, the more serious question that comes to mind is whether a focus on the OECD’s well-being indicators (and other similar constructions) is likely to distract political attention away from much-needed economic reforms to improve the economic strength of some economies. For example, if well-being indicators suggest that people in some lovely country (New Zealand comes to mind) tend to enjoy living standards substantially higher than other countries with comparable per capita GDP levels, there may be a tendency for the government of that country to become complacent about establishing conditions more favourable to further improvement of living standards.


Roger Kerr, executive director of the New Zealand Business Roundtable, has commented on the OECD's well-being index here (with a reference to this blog).

My subsequent posts on the OECD's well-being index are:
Do well-being indicators all tend to tell similar stories about OECD countries?
How could the OECD's well-being indicators be improved?

I would also like to draw attention to posts by David Giles on his 'Econometrics Beat' blog: here and here.

Sunday, May 29, 2011

Has preventative health care become code for paternalism?

‘The Taskforce says that prevention is everyone’s business – and we call on the state, territory and local governments, on non-government and peak organisations, health professionals and practitioners, communities, families and on individuals to contribute towards making Australia the healthiest country by 2020.’ (Extract from ‘Taking Preventative Action’, the federal government’s response to the Report of the National Preventative Health Taskforce).

I find the sentiments in the quoted passage objectionable for two reasons. First, preventative health care is not ‘everyone’s business’. Individual adults have primary responsibility for their own preventative health care because no-one is better able to exercise that responsibility than they are. Individuals who are persuaded that preventative health care is a collective responsibility could be expected to look increasingly to the various levels of government, non-government organisations, health professionals and practitioners, communities and families – everyone except themselves - to accept responsibility for what they eat, drink and inhale.

Second, the goal of making Australia the healthiest country by 2020 is being put forward as though it is self-evidently desirable collective good that should be pursued by any and every means available to everyone. The goal is not self-evidently desirable. Individual health is not a collective good. And the end does not justify the means that are being proposed to pursue it.

If you delve behind the spin about making Australia the healthiest country my 2020, the underlying goal seems to be to raise average life expectancy in Australia to the highest level in the world by reducing the incidence of chronic disease. What does this entail? It would be hard to object to the goal of enabling individual Australians to reduce their risk of chronic disease. The problem is that the government’s strategy is more about achieving national goals than providing better opportunities for individuals - more about behaviour modification than about ‘enabling’ individuals to reduce their health risks.

The government claims that analysis of ‘the drivers of preventable chronic disease demonstrates that a small number of modifiable risk factors are responsible for the greatest share of the burden’. The behavioural risk factors led by obesity, tobacco and alcohol apparently account for nearly one-third of Australia’s total burden of disease and injury. The chronic conditions for which some of these factors are implicated include heart disease, stroke, kidney disease, arthritis, osteoporosis, lung cancer, colorectal cancer, depression and oral health problems.

Since these risk factors stem from individual lifestyles it is obviously desirable for individuals to be aware of them. There may be a role for governments in provision of this information. Perhaps governments should also be involved in helping people in various ways to live more healthy lifestyles. It is questionable how far governments should go down this path, but it is difficult to object to modest efforts by governments to improve opportunities for people to live healthier lifestyles.

However, rather than helping people to help themselves the federal government has chosen the path of Skinnerian behaviour modification. It has chosen to drive changes in behaviour through what it describes as the ‘world’s strongest tobacco crackdown’. (This is one instance when I hope the government doesn’t actually mean what it says – some people in Bhutan have apparently been jailed recently for possession of more than small amounts of tobacco products.) The government’s strategy also involves ‘changing the culture of binge drinking’ and ‘tackling obesity’, but in this post I will focus on smoking.

Some of the tactics being used in the tobacco crackdown involve information and persuasion but there is also an element of punishment involved. The tobacco excise has been increased to over $10 for a packet of 30 cigarettes and legislation is proposed to require cigarettes to be sold in plain packaging. It seems to me that this amounts to persecution of smokers and their families. It will reduce the amount of household budgets available to be spent on other products and encourage some to avoid excise by obtaining tobacco from illegal sources.

As a former smoker, I am probably more strongly against smoking than most people who have never smoked. I encourage other people to quit smoking and discourage young people from taking up the habit. But having given up smoking several times, I know how hard this can be. Governments have no basis on which to judge that people are not in their right mind if they consider that the pleasures they might obtain from additional years of life are not worth the pain of giving up smoking.

In my view this question of whether smokers are capable of judging what is in their own best interests is at the crux of the matter. The politicians and bureaucrats who seek to modify the behaviour of smokers may see themselves as enhancing the capability of these people to have lives that they ‘have reason to value’, in accordance with well-being criteria proposed by Amartya Sen. If so, their attitudes highlight a major problem with Sen’s approach. Governments have no business deciding what kinds of lives individuals have reason to value.

Thursday, May 26, 2011

Is Australia's mateship ethic being lost in the big cities?

This question was raised by Shona in a guest post about volunteering in the eastern suburbs of Sydney. I don’t feel qualified to provide an authoritative answer, but that feeling does not always prevent me from providing comments on other matters outside my area of expertise. Perhaps someone will tell me if my comments are wide of the mark.

Mateship was identified by Russel Ward as an important component of the ‘Australian identity’ – the ideas about themselves that Australians tend to identify with - in his book, ‘The Australian Legend’, first published in 1958. Ward suggested that this mateship ethic stemmed mainly from the loneliness of life in the Australian inland. In his later book, ‘Australia’, Ward explained mateship in these terms:

‘In reaction to their loneliness, to the sundering distances and to the harshness of nature, men tended to help and trust each other. This is not to claim of course that Australians are in fact notably more altruistic than other people, but merely that they tend to value collective aid and mutual aid more highly than do, for example, Americans; just as they value less highly rugged individualism’ (1967: 9).

I am not entirely comfortable with those comparisons with America. I agree that Australians probably do tend to place less value on rugged individualism than do Americans. For example, surveys show that the percentage of Australians who consider it to be important to encourage children to develop qualities of both independence and determination is lower than in the US. However, Ward himself claimed that ‘fierce independence’ was a component of Australian identity. Ward also observed in ‘Australia’ that in the third quarter of the 19th century Australian political sentiment was ‘strongly individualistic and not markedly either collectivist or nationalist’ (p 79).

Has the propensity of Australians to form voluntary associations for mutual benefit been any greater than that of Americans? I doubt it. Remember the observations of Alexis de Tocqueville in ‘Democracy in America’ (published in 1835) :

‘Americans of all ages, all conditions, and all dispositions constantly form associations. They have not only commercial and manufacturing companies, in which all take part, but associations of a thousand other kinds, religious, moral, serious, futile, general or restricted, enormous or diminutive. The Americans make associations to give entertainments, to found seminaries, to build inns, to construct churches, to diffuse books, to send missionaries to the antipodes; in this manner they found hospitals, prisons, and schools’ (II, 2, V).

Ward seems to be on firmer ground in suggesting that the early dominance of large-scale grazing properties in the Australia farm sector (in contrast to the dominance of smaller-holder agriculture in the US frontier until about 1870) led to a situation where much of the work was done by people – shearers, drovers etc. – who did not perceive their interests to be closely aligned with those of property owners (p. 60). This can be linked to the subsequent development of trade unions, major strikes, the rise of the Australian Labor Party and the advance of state collectivism – which tended to displace voluntary associations for mutual benefit.

It is worth noting at this point that mateship has a downside as well as an upside. The downside of mateship is that it can mean ‘looking after your mates’ at the expense of other people. For a long time this aspect of mateship supported racial discrimination, compulsory unionism and abuse of trade union power, high trade barriers protecting some industries at the expense of others, discrimination against women and various forms of corruption. Some aspects of this negative form of mateship are still evident in the activities of some interest groups, as well as some politicians, unionists, businessmen and public servants in the big cities as well as the rest of the country.

At last I think I am now ready to focus on the positive side of the mateship ethic and the specific question of whether it has been lost in the big cities. Volunteering is more common among those living in parts of the states outside the capital cities (38% of those surveyed by the ABS in 2006 versus 32% for the capital cities). When I look more closely, however, the difference is most marked in Victoria and New South Wales and non-existent in Queensland - the state with the highest average rate of volunteering (38%). In both Sydney and Melbourne, 30%, of those surveyed were engaged in volunteering, but in the rest of the two states the proportion was 41% in Victoria and 37% in New South Wales.

There are strong reasons based on self-interest to expect rates of volunteering to be higher in small rural communities than in major capital cities. In a small rural communities people are exposed to greater risk of natural disasters such as bush fires and floods and depend to a larger extent on voluntary help from each other to avoid harm to their families when disaster threatens. In most small communities people who had a reputation for free-riding (sponging on their mates) would probably not be denied help in the event of disaster, but few people would be prepared to take that chance.

Would people in Sydney and Melbourne show a strong spirit of mateship if these cities were threatened by a major disaster? I’m not sure. When a substantial part of Queensland was flooded earlier this year, it was obvious that many people in the rural areas showed great acts of kindness to each other. As the flood waters approached Brisbane I wondered whether this community spirit would be replaced by an attitude of just helping family and close friends. Such concerns were unwarranted. After the flooding many people in Brisbane volunteered spontaneously to help strangers to clean up their properties. This suggests to me that the best aspects of the mateship ethic is still alive and well in Brisbane. I can’t be as confident that people would help each other to the same extent in the event of a disaster in Sydney or Melbourne – but I hope I am being too pessimistic.

I rarely write a postscript so soon after writing an article. However, after checking the World Values Survey data on qualities that parents consider important in children I found that the situation has turned around between 2000 and 2006/7 surveys. In the later survey 64% of Australians identified independence as a desirable child quality versus 54% in the US. The percentages identifying determination/perseverence as desirable were 50% among Australians and 40% among Americans. That suggests to me that Australians might now place a higher value on rugged individualism than US citizens.

A comparison of active membership of voluntary organizations in the US and Australia does not suggest that volunteering is more important in one than the other. Americans are about twice as likely as Australians to be active members of a church, but Australians are about twice as likely as Americans to be active members of a sporting organization. (That lines up with the view that sport is the national religion of Australia). Active membership of 'Arts, music and educational' organizations and charitable organizations is much the same in both countries.

Tuesday, May 24, 2011

Why are people reluctant to volunteer at playgroups in the eastern suburbs of Sydney?

This post - the 300th on this blog - is a guest post by Shona. This is the fourth post in a series on volunteering. Earlier contributions can be found here, here and here. Shona has provided the following additional comments:

My thoughts continue down the path of not why do people volunteer, but rather, why don’t people volunteer.

I loved your reference to Australian mateship ethic, described by Russel Ward, in your comments on my first contribution. Having recently studied arduously for my citizenship test, I too am familiar with the ideas about the harsh environment bringing people together. Perhaps our playgroup is suffering from the opposite of this. We live in the affluent eastern suburbs of Sydney – a beautiful but densely populated area, hardly a harsh environment to live. As you know more about Ward’s work perhaps you could discuss this aspect further. Has the mateship ethic been lost in the large conurbations?

The dynamics of playgroups are unique in many ways so I’m not sure the theories relevant elsewhere apply. People with young children moving into the area look up the local playgroup and head there straight away – even more so than people who have lived here for years before starting families. People moving into the area see it as the best way to make friends and connect.

Playgroups are a unique form of volunteer community groups – any action of one person has an immediate effect, one that can be benefitted from by that person immediately, but also shared by the free riders. Still, this is perhaps more tangible than other volunteering efforts such as environmental or social work, where someone’s actions don’t necessarily result in direct benefits to the individual. That to my mind is altruistic action and I commend it – if only I had more time! That is when the dynamics of volunteering that you write about are more relevant.

I’ve noticed two breeds of volunteers – obviously I am going to place myself in the more favourable of the two groups. One which selflessly carries out work with little fuss, without taking the task or themselves too seriously (I could go on but I won’t). And the other, where they take the role far too seriously and make it almost political or personal. I had a conversation with a friend at playgroup a few years ago. She had been heavily involved in the local surf club and as a result, was put off from volunteering for any other community organization. When I asked her why, she said that it became all too political. (I have some other great examples, but I don’t want to bore you or embarrass anyone concerned). It only takes one bad experience or story of another’s experience to put someone off.

Back to my original point – I still cannot understand why people don’t volunteer, whether this is for the session they attend, in whatever form, or to a more long-term role. I agree, the timescales of a bigger role may put people off. Maybe some people do such a great job, they think it is a hard job or a hard act to follow (I say that in regard to two day leaders that have just finished an eight month stint and not myself!). I’d be interested to discuss any other barriers. One friend also suggested that people won’t commit (even for a month) if they are thinking of moving out of the area. Given this is an expensive area to live, this could be the reasoning for many attendees. However, at least two of our volunteers last year were both here on a temporary basis (not knowing how long for) and both have moved back overseas.

Monday, May 23, 2011

How well can volunteering be explained by a naive economic model?

I should begin by defining what I mean by a naïve economic model. The naïve model I have in mind is a conventional neoclassical model, with a few bells and whistles added. The bells and whistles are necessary because so called ‘rational economic man’ who is the basis of conventional neoclassical economics doesn’t practice altruism. There are probably still some economists who claim that everything everyone does is for a selfish reason, but I am not one of them. While I recognize that a lot of people do a lot of noble things for their own satisfaction, I see no reason to doubt people when they claim to be motivated by altruism.

So, in terms of the naïve model I have in mind, the objective functions that individuals follow in making choices take some account of the well-being of other people (i.e. I am assuming interdependent utilities). That means that individuals might volunteer to do something even if they perceive that this involves some cost to their own well-being. The extent that they do this would depend on the net cost in terms of loss of individual well-being and the extent that their actions affect the collective benefit they seek to obtain by volunteering. The main potential source of net loss of individual well-being would be the value to the individual of opportunities foregone from use of time in volunteering, which would be offset to the extent that the individual obtains satisfaction from volunteering, or from recognition of her efforts. The effect of individual actions on the collective benefit being sought would depend on the size of the group seeking the collective benefit. In a large groups the actions of each individual tend make a small contribution to the objective being sought, so there would be a greater incentive to free-ride on the efforts of others.

The naïve model suggests to me that people would tend to volunteer to a greater extent when they had fewer opportunities for paid employment. It therefore suggests that volunteering would tend to decline if workforce participation increased. It also suggests that volunteering would be a substitute for other forms of charitable giving – people with time on their hands would tend to volunteer their time and people in well-paying jobs that give them little leisure would be more inclined to put their hands in their pockets to make financial donations. It also suggests that people would tend to volunteer to a greater extent in small, well-defined communities (e.g. country towns) where their efforts are more likely to be recognized that in major urban centres where individuals are more likely to get lost in the crowd.

How well does this naïve model explain volunteering in Australia? Not particularly well. The first point I noticed when I looked at the relevant section of the Productivity Commission’s recent report on ‘Contribution of the Not-for-profit sector’, is that there has been a consistent upward trend in rates of volunteering across all age groups over the last decade, although this has been offset to some extent by a decline in the average number of hours volunteered. This has occurred at a time when labour force participation has continued to increase.

As might be expected, ABS data show that volunteering rates are higher among women than among men. The difference is confined mainly to the 35-44 year age group – when most female volunteering could be expected to be associated with school canteens etc. People with young children are the group most likely to volunteer regularly, but they spend fewer hours per week volunteering than do people with older children and older people without children.

Again, as expected, the rate of volunteering is higher outside capital cities than within capital cities. But the difference is not huge. The rate for regular participation in voluntary work was 19% in capital cities and 23% outside capital cities in 2006.

The naïve model would not predict that employed people would be more likely to volunteer than unemployed people. For women, although those in full-time employment had the lowest rates of regular volunteering, those who were employed part-time had higher rates of regular volunteering than those classified as unemployed. For men, rates of volunteering for those in full-time and part-time employment were the same and higher than for those who were unemployed.

The most surprising departure from the naïve model relates to donations of money as a substitute for donation of time. I know such substitution does occur, but it doesn’t show up at an aggregate level in the ABS survey data. Volunteers are much more likely to have donated money or contributed financial assistance to someone outside the family in the last 12 months than non-volunteers.

In order to explain non-volunteering we seem to need a model of behaviour that recognizes that volunteers and non-volunteers have different personal characteristics. It seems that non-volunteers tend to have relatively weak links to the community in general. The evidence suggests that they are much less likely to have attended a community event recently. They are also less likely to agree with the proposition that most people can be trusted.

Other posts on volunteering:
This is the third in a series of post on volunteering. In the first post, Shona discussed her experience in a volunteer role in a community playgroup. In the second post I discussed some research on the determinants of volunteering.

Friday, May 20, 2011

What does research show about determinants of volunteering?

In the preceding post, What determines who volunteers?, Shona discussed her experience in getting parents to volunteer to help in running a play group. In this post I discuss some Australian research which suggests that volunteers fall into several distinct groups.

A paper by Sara Dolnicar and Melanie Randle, ‘What Moves Which Volunteers to Donate Their Time?’ uses data collected from a national survey of volunteer work conducted by the Australian in 2000 to segment the ‘market’ for volunteer work. The authors use motivations as a basis for statistical techniques that enable them to identify distinct subgroups of volunteers.

Six sub-groups were identified as follows:

• Classic volunteers are involved to do something worthwhile, gain personal satisfaction, and help others. They are older, less frequently active in the workforce, and very active in their volunteering efforts.

• Dedicated volunteers contribute the most hours per year to an average of six volunteering organizations.

• Personally involved volunteers appear to participate in volunteering temporarily, as long as (most probably) their child is part of an organization that relies on parental support.

• Volunteers for personal satisfaction and altruists (two sub-groups) are motivated by gaining their own satisfaction and represent the least distinct segments, with altruists doing the most work in the area of befriending and listening to people.

• Niche volunteers are young, new to volunteering, highly educated and state a variety of rather atypical reasons for volunteering, like feeling obliged to volunteer and having slid into volunteering rather passively, gaining work experience or as a result of religious beliefs.

These research findings are interesting but they don’t shed a great deal of light on the issues that Shona raised. The potential volunteers that Shona was most interested in would be in the ‘personally involved’ sub-group. The question is why some people become more involved than others.

Perhaps the people who are most involved are motivated, consciously or unconsciously, by the feelings they get from volunteering. Recent research findings suggest that it feels good to be good (but I am not sure that we needed researchers to tell us that).

It seems to me that human nature has evolved in such a way that people have a natural desire to contribute voluntarily to activities that are best undertaken collectively. If that makes sense then perhaps it would be more productive to try to explain why a substantial proportion of people are reluctant to volunteer. One idea that has crossed my own mind from time to time as a member of voluntary organizations is that I don’t want to be left ‘holding the baby’. (That expression might not be entirely appropriate in a discussion of volunteering in play groups, but for some reason I can’t resist using it.) It may be worth exploring whether people would be less reluctant to take on onerous voluntary roles if they had some assurance that they could readily pass them on to other members after a defined period.

Thursday, May 19, 2011

What determines who volunteers?

This post stems from a discussion I had with Shona a couple of days ago. I had to admit that although I strongly support volunteering I don’t know much about it, or about the characteristics of people who volunteer versus those who free ride on the efforts of others.

Shona agreed to write this guest post about her experience in the hope that it might lead to further discussion of this important issue. Shona writes:

I’ve been involved in a volunteer role at my local playgroup for two and a half years now and over that time I have taken an interest in the types of people that volunteer compared to those that don’t.

The whole point of a community playgroup is that everyone pitches in and helps, thus keeping operating costs to a minimum whilst providing maximum benefit to the kids. There are parents and carers that take on more formal roles, key holders, treasurer, secretary and co-ordinator. But this in theory should simply provide other parents and carers a framework in which to enjoy playgroup. Simple game theory in practice – everyone contributes a small thing for everyone’s greater gain.

Every time someone vacates one of these formal roles, it is my job as co-ordinator, to fill them. I watch people, I see who comes regularly, I look at who pitches in. I also notice those that turn up late, leave early, and make sure they are no-where to be seen when help is required (we’re not talking anything major here, just cutting up fruit for morning tea, putting toys away, etc).

My approach is to narrow down suitable candidates; it is futile asking the group as a whole – no-one ever comes forward, in fact, if we were in a school yard, you would actually see a line of individuals take a huge theatrical step backwards. I approach people individually, quietly, and ask them if they would take on a small role. I think I have about a 30% success rate. The interesting thing is the dynamics of the group that says yes and the dynamics of the group that says no.

The people who I think will say yes can be described as follows. They have a child of an age where they are not clingy or over-dependent on their carer. They attend regularly, either weekly or more than once a week and know many of the other attendees. They have also been attending for more than 6 months and therefore know how the playgroup works. They attend both for their kids benefit, and their own – they have made friends and appreciate the adult interaction. They generally have good communication skills and have contributed more than their share during their visits.

Amazingly, after they say no (on the grounds that they don’t attend regularly), they stop attending as regularly as if to prove they can’t commit to something.

The people who do say yes surprise me every time. They often have two kids, the youngest usually new-born or very young. They are often new members, but do attend regularly, usually more than once a week. They don’t necessarily know how playgroup works but want to learn. I feel guilty accepting their gracious help – but I guess I am one of those people too.

In writing this, I realise it is quite clear cut. Those that have attended for a long period are used to free riding – why contribute? Someone else will step up. Those that are new aren’t aware of the free-riders, they want to contribute and make connections within the community. Finally, I suspect that the longer a person stays in any of the formal roles, the less likely other people are likely to step into those roles. Perhaps we should only have day-leaders (the face of those official roles) on a very short rotation.

My two years are up, it is time to move on, but any tips I can provide my successor (should I be able to find one), would be more than welcome.

Monday, May 16, 2011

What do NSW solar panel owners have in common with mining investors?

‘So you think I am a cranky old fool, do you?’ I knew it was Jim before I turned around to see who was talking. I referred to Jim as a cranky old fool on this blog a couple of weeks ago. At this point I should make sure readers are aware that this Jim is unlike any other Jim I have ever met. He is a royalist. He thinks incentives to put solar panels on roofs of houses are an abomination because the high costs of this method of generating electricity are borne by taxpayers and other users of electricity. And he asks difficult questions. A lot of the people I know avoid Jim when they see him coming. Perhaps that is why he sneaks up on people and just starts talking.

Anyhow, Jim isn’t such a bad old coot. He wasn’t even particularly upset with me for calling him a cranky old fool. After he had my attention, he said: ‘You know that photo of Sydney you have on your blog – the one with the cloud over most of it?’ I replied: ‘Yes, I’ve been thinking about replacing it with a photo I took on a sunny day, now that the dreadful Labor government has been swept out of office’. Jim said: ‘Don’t do that. Find a photo with a darker cloud!’

I was surprised to hear this from Jim. I had never thought of him as a Labor supporter. So, I asked him to explain. As I did so I couldn’t help looking at my watch. I knew I was about to be sucked in to a discussion that might take some time.

Jim asked: ‘What do you think of the decision of the New South Wales government to reduce the feed-in tariff that they will pay people who have installed solar panels?’ I said I didn’t have an opinion. I added that I thought the decision would make him happy because I remembered that he thought solar panels were an abomination.

Jim scowled and just asked another question: ‘What do you think of the proposed mining rent tax?’ I explained that I thought the latest proposal wasn’t quite as bad as the tax first proposed last year. I mentioned something I wrote last year explaining that the main problem was sovereign risk. I argued that when governments enter into agreements with mining companies they should honour those agreements whatever happens, rather than insisting on a higher share of profits because the price of minerals has gone up. I concluded my little speech by suggesting that if this tax is introduced investors will become more wary about signing any kind of agreement with any government in Australia.

Jim said: ‘That is precisely my point about the solar panels. The feed-in tariff specified in those agreements must be one of the worst deals that any government has ever made. But for a new government to just tear up the agreement is one of the lowest acts of bastardry that has ever been perpetrated on investors anywhere in the world’.

I agreed that the decision was dodgy but I said I didn’t think the rating agencies would downgrade the NSW government because of it. It might actually improve the finances of NSW. Jim said: ‘Look, you aren’t going to try to tell me that any investors should take any notice of the rating agencies after the global financial crisis. The real issue is whether anyone can be confident that the people running the NSW government at present are any more trustworthy than Jack Lang. Do you really think these people are more trustworthy than Jack Lang?’

Jim asks difficult questions. Jack Lang was the premier of NSW during the depression in the 1930s. One of the things he is remembered for is his efforts to stop payment of interest to overseas creditors until the financial situation improved in NSW. If he had succeeded this would have done enormous damage to Australia’s reputation as a destination for foreign investment. On the basis of recent performance I think the politicians running NSW at present and those currently running the Commonwealth government might default on interest payments if they had to deal with the kind of economic crisis confronting Australian politicians in the 1930s.

I told Jim that people would like him a lot more if he didn’t ask difficult questions.

Postsript: 7 June 2011

When I saw Jim this morning I asked him what he thought of the decision of the NSW government to honour their contractual obligation to people who had installed solar panels. Jim said he would have been more impressed if the Premier had made the decisions to back down because his conscience was troubling him rather than because he didn't have the numbers in the upper house to pass the legislation.

I suggested that in any case the cloud had lifted over Sydney and that I would find a better photo to put on my blog. Jim said: 'Don't do that! There is a new cloud over Sydney. They have decided to award the Sydney Peace Price to Noam Chomsky'.

I don't know who 'they' are, but if 'they' are interested in promoting peace 'they' should try to avoid provoking people like Jim.

Should we view human flourishing in terms of psychology, capablility or opportunity?

This question may seem like just another intellectual puzzle, but it is actually has important implications for the way we view public policy issues. My bottom line is that the way we answer this question if we are thinking about the flourishing of a close relative or friend might be quite inappropriate if we are thinking about the development of public policy.

I think the best place to begin my explanation is with a brief discussion of the three different perspectives. I don’t wish to imply that these are the only ways of looking at human flourishing – they just seem highly influential.

Flourish: A Visionary New Understanding of Happiness and Well-beingMartin Seligman is a leading exponent of the psychological perspective. In his recent book, ‘Flourish’, Seligman suggests that well-being theory ‘is essentially a theory of uncoerced choice, and its five elements comprise what free people will choose for their own sake’. The five elements he identifies are: positive emotion (pleasant experiences, happiness and life satisfaction); engagement (the flow state); relationships (positive relations with other people); meaning (belonging to and serving something bigger than yourself); and accomplishment (success, achievement, mastery). In an earlier post I suggested that Seligman has missed another important element that people seek for its own sake, namely control over their own lives. A more fundamental criticism of this approach is that it ignores all elements of well-being other than psychological well-being. For example, it seems reasonable to suppose that free people would usually choose to be healthy rather than ill even if their health made no contribution to their psychological well-being.

Capabilities and HappinessThe capability approach has been developed by Amartya Sen, an economist. Sen argues that a person’s capability reflects the alternative combination of functionings the person can attain and from which he or she can choose one collection. Functionings include objective criteria as being adequately nourished and being in good health as well as a range of other factors such as achieving self-respect and being socially integrated. In his contribution to ‘Capabilities and Happiness’ (2008, edited by Luigino Bruni et al) Sen notes that individuals may differ a good deal from each other in the weights they attach to different functionings. He seems unwilling, however, to leave the weighting exercise to the individuals concerned. He suggests that ‘the weighting exercise has to be done in terms of explicit valuations, drawing on the prevailing values in a given society’. He also refers to our capability ‘to achieve functionings that we have reason to value’.

The concept of opportunity proposed by Robert Sugden, also an economist, rests on ‘an understanding of persons as responsible rather than rational agents’. According to this view individuals may sometimes act foolishly but nevertheless accept responsibility for the consequences of their actions. The term ‘opportunity as mutual advantage’ expresses the idea that ‘one person’s opportunities cannot be specified independently of other people’s desires’. The freedom of some other person to seek out and take advantage of opportunities for mutual benefit encompasses his or her freedom to seek out and take advantage of opportunities to benefit you and me. Sugden implies that if everyone has opportunity in this sense, then you and I should see ourselves to be part of an economic system that is full of people who can expect to be rewarded for finding ways to benefit us (‘Opportunity as mutual advantage’, Economics and Philosophy (26)).

If we are considering the well-being of relatives and friends we might consider that opportunity, capability and psychology are all relevant to our assessment. For example, we might be able to think of people who have high levels of psychological well-being even though they have relatively low capability in some respects because we consider that they have not made good use of the opportunities available to them. We might be able to think of others who are unhappy even though they have high levels of capability and have had superior opportunities in life.

However, from a public policy perspective, what business does the government have in trying to improve the capability or psychological well-being of a person if this interferes with his or her status as a responsible agent? We might think that the capability and psychological well-being of such people would be improved if they drank less alcohol or gambled less, for example, but as far as I can see we have no right to prevent them from spending their income as they choose.

The situation becomes rather different if the government is offering some kind of benefit that is intended to improve the capability or well-being of some group. In that situation, it seems to me that the donors (taxpayers) have every right to attach conditions to the proposed benefit and the intended beneficiaries have every right to refuse to accept it if they don’t like the conditions attached.

Some might suggest that the alternatives to accepting a benefit with strong conditions attached could sometimes be so unpalatable that the conditions amount to coercion. I don’t accept that economic incentives ever force people to do anything. Nevertheless, if a person chooses to die rather than accept the conditions attached to a benefit, the question arises of whether this should be viewed as the choice of a responsible agent. Paternalistic intervention may be warranted to protect people who are not of sound mind as well as children.

However, there are also difficult issues involved in considering government proposals to improve the psychological health of children. The recent Australian Government Budget proposes a health and well-being check for 3 year old children on the grounds that ‘around 15.4 per cent of all children and adolescents (those aged up to seventeen years) have a mental disorder’. Internationally renowned experts are apparently telling the government that ‘there is a growing body of evidence showing that you can identify kids with (or at risk of) conduct disorders or poor development very early – from three years old’. The government claims: ‘Intervening early means building strong and resilient children, and avoiding behavioural or mental health issues that can persist for the rest of a person’s life’.

Should I be concerned about this proposal? Perhaps it just offers parents better opportunities to ensure that children get services necessary for their psychological wellbeing. On the other hand, it could be the thin end of a large wedge leading to greater use of pharmaceutical products to control behaviour of children and greater government intervention in family life. I wish I could be more confident that the proposed intervention will actually build strong and resilient children.

On reflection, the paragraph beginning 'Some might suggest that the alternatives to accepting a benefit ... ' doesn't adequately capture the ideas I would like to express. In my view, although welfare systems should be directed to a large extent toward helping people to help themselves, communities should have an over-riding commitment to meeting basic needs of people who have no other means of support.

Tuesday, May 10, 2011

Has Australia's media dropped the ball in reporting on Asia and the Pacific?

I don’t normally write about the media, but there are times when it seems to be necessary for me to write about the things that are on my mind before I can think about much else.

I was prompted to begin thinking about this question on Sunday by a post by Jim Belshaw on his blog, Personal Reflections. Jim’s post was about the recent ASEAN Summit chaired by the Indonesian President, Susilo Bambang Yudhoyono (SYB). The President’s speech mentions that Indonesia is in the process of finishing the Master Plan Percepatan dan Perluasan Pembangunan Ekonomi Indonesia (Master Plan for Acceleration and Expanded Economic Growth of Indonesia/MP3EI), intended to boost the development of six economic corridors in Indonesia. The President claims that this initiative will awaken ASEAN’s economy and speed up the construction of ASEAN connectivity as well as boosting Indonesia’s national economy and intra-Indonesian connectivity.

Jim Belshaw mentioned that he didn’t know what the six economic corridors in Indonesia were and implied that the Australian media’s reporting and analysis of events in Indonesia and the region is deficient. He also notes that there seemed to be no coverage of the ASEAN conference in the Australian media.

I didn’t know what the six economic corridors were either. It turns out that each of the economic corridors corresponds to a region of Indonesia and its economic specialization; for example, as might be expected Java has a focus on industry and services and other islands focus more heavily on agriculture, mining etc. The planning has a strong emphasis of infrastructure development and connectivity.

The planned areas of economic specialization seem to make sense in terms of comparative advantage. That raises the question in my mind of why the Indonesian government thinks it needs a Master Plan. Perhaps it is best viewed as a political hand waving exercise rather than an exercise in constructivist rationalism. A few years ago, when Australian media seemed to report more thoroughly on Indonesia, there was a strong focus on whether the central government would be able to maintain legitimacy in a nation with such disparate elements located on different islands. Perhaps the Master Plan should be viewed in that context as a concept that might help to instil or maintain common purpose. But SBY is presenting the plan as also having implications for ASEAN connectivity. Connectivity suggests to me that fibre optic cable might play a large role in the plan. Who knows what it means? What we do know is that the success or otherwise of economic development in Indonesia has important implications for Australia.

Shortly after reading Jim Belshaw’s blog I visited the East Asia Forum and read a post by Peter Drysdale on why the Doha round of international trade negotiations matters to Asia and the Pacific. Drysdale writes:

“In Washington, the Trans Pacific Partnership (TPP) is all the rage. Does it matter if we get yet another pseudo ‘free trade’ agreement, between the US and group of eight partners who in the total scheme of things are pretty insignificant?
It certainly would matter, being absent from Doha.
A rum deal like the one that is shaping up might be of little economic consequence (of somewhat more economic consequence in the unlikely event that Japan signed on) but it would be of considerable political consequence.
In the context of an insecure global trading system it would be a bold statement taking the world in another direction. It would drive a wedge down the middle of the Pacific, not only or mainly economically but also politically — between the United States, its partners and China. It would entrench the adversarial political psychology that is developing in US-China relations in a way that would be very difficult to unravel for a long time. That might matter less if the WTO was not also in disarray. It matters a lot, as that prospect grows daily”.

I think Peter Drysdale has good reasons for concern, but I would also like to see discussion of the implications of Washington’s focus on TPP in the Financial Review and The Australian – to name a couple of papers that I read.

That got me thinking about media coverage of other issues in the region that have implications for Australia. The issue that is probably most important to us is the future of economic development in China and in particular how long China will be able to maintain the economic strategy adopted post-GFC of a very high level of investment in infrastructure. A lot depends on the quality of the infrastructure investment that is being undertaken. I have probably seen general discussions of the issues involved in the Australia media, but if the investment program begins to produce a lot of white elephants I am not confident that I will see that reported and discussed in the Australian media before it begins to impact out terms of trade.

What is going on in India? I was just starting to get used to the idea of India as a high-growth country and a rapidly expanding market for Australian exports, and then it hosted the Commonwealth Games. The games themselves seem to have been a success, but problems with their organization have raised questions about the quality of public administration in India. It is hardly news that the quality of public administration is poor anywhere in the world, but governments do tend to try to put their best feet forward when organizing major international events. Does the quality of public administration in India actually make much difference to India’s future growth prospects? That question might be a bit too profound for the media to tackle, but perhaps Australian journalists should be discussing evidence of whether poor quality of public administration in India is having any effect on foreign investment in that country.

Then there is New Zealand. A few years ago the NZ government set up a Taskforce to advise it on policies it could adopt to catch up to Australian living standards by 2025. This 2025 Taskforce submitted a couple of reports, but the NZ Prime Minister announced a few days ago that it will now be closed down. What does that mean? Has the NZ government abandoned all hope of catching up to Australia’s living standards? If so, what are the implications for Australia? Perhaps it just means that we will be able to look to NZ as a source of labour, the price of NZ sauvignon blanc will remain within our reach and even more of us will be able to afford to have holidays there beyond 2025. Is it too much to ask for a less frivolous discussion of the relevant issues in Australia’s news media?

Is the Australian media to blame for its poor coverage of the Asia and Pacific region or does this just reflect the ‘insular internationalist’ perspective of Australians? The term ‘insular internationalist’ is one coined by Michael Wesley, who observes that Australians have become wealthier and safer than ever before by enmeshing with the world – becoming more a part of the world economy than ever before. He says:
‘We travel more than we've ever travelled before; we have more people who were born outside of this country living among us than ever before, and yet you can see a steady trend of a withdrawal of interest about the outside world, a withdrawal of real skills for dealing with the outside world among the general population in Australia’.

I don’t think that Australians are as insular as Wesley suggests. It seems to me that a substantial and growing number of us will look elsewhere if we can’t find decent coverage of Asia and the Pacific in the conventional Australian news media.

Friday, May 6, 2011

Did J S Mill really claim that violations of free trade have nothing to do with liberty?

J. S. Mill: 'On Liberty' and Other Writings‘Again, trade is a social act. Whoever undertakes to sell any description of goods to the public, does what affects the interests of other persons, and of society in general; and thus his conduct, in principle, comes within the jurisdiction of society’ … . The ‘so-called doctrine of Free Trade … rests on grounds different from, though equally solid with, the principle of liberty … . Restrictions on trade, or on production for purposes of trade, are indeed restraints; and all restraints qua restraint, is an evil: but the restraints in question affect only that part of conduct which society is competent to restrain, and are wrong solely because they do not really produce the results which it is desired to produce by them.’ J S Mill, ‘On Liberty’, 1859, Ch. 5

This passage has puzzled me since I was a young man. It seems to me that individual liberty is obviously violated when governments intervene in trade. If a government imposes a tax on a good for the purposes of assisting the producers of a close substitute, this must be just as much an infringement of the liberty of consumers as when it imposes a sin tax on a good to discourage consumers from purchasing that good.

However, it is now clearer to me what Mill was trying to say. The first key to the puzzle is that Mill refers to ‘the principle of individual liberty’ rather than just ‘individual liberty’. What Mill means by the principle of individual liberty is explained a couple of paragraphs earlier as the maxim ‘that the individual is not accountable to society for his actions, in so far as these concern the interests of no person but himself’. According to that view, the individual should be accountable to society for ‘actions that are prejudicial to the interests of others’.

The Constitution of Liberty: The Definitive Edition (The Collected Works of F. A. Hayek)Friedrich Hayek and others have noted that the distinction that Mill sought to make between actions that affect the acting person and actions that affect others is not very useful because there is hardly any action that may not conceivably affect others in some way. According to Hayek the relevant issue is whether it is reasonable for the affected persons to expect legal protection from the action concerned (‘Constitution of Liberty’, 1960, p 145).

Now, in the paragraph immediately prior to his discussion of international trade, Mill acknowledges that damage to the interests of others does not necessarily justify the interference of society. In this context he discussed the views of society toward various forms of contest in which people who succeed benefit ‘from the loss of others’. He notes: ‘society admits no right, either legal or moral, in the disappointed competitors to immunity from this kind of suffering’.

The second key to the puzzle is that in the passage quoted above Mill suggests that all restraints are evil. If Mill is referring to coercion, as seems likely, then it seems to me that at this point he is close to recognizing the merits of the definition of liberty that Hayek later adopted. Hayek defined liberty as ‘a state in which coercion of some by others is reduced as much as possible in society’ (‘Constitution of Liberty’, p 11). This definition meets Mill’s desire to acknowledge that restraints are necessary to protect citizens from force and fraud, and may be appropriate under some other circumstances where individual conduct adversely affects the interests of others.

Mill seems to have been attempting to establish that the attitude of society toward individual conduct should depend on where it lies on a spectrum. At one end of the spectrum, where conduct affects only the individual actor, other people have no right to intervene. At the other end, force and fraud should obviously be illegal. At other points on the spectrum the effects of individual conduct on the welfare of society are ‘open to discussion’. (Mill uses these words are used in the introductory paragraphs of Ch. IV.)

In asserting that the ‘doctrine’ of free trade rests on equally solid ground to ‘the principle of liberty’ Mill is clearly implying that in our discussion of trade there should be a strong presumption that free trade enhances the general welfare of society. It follows that he must believe that government intervention in trade is generally an unwarranted form of coercion. That seems to me to be just another way of saying that such intervention is generally an unwarranted interference with individual liberty.