Jonathan BostonInstitute for Governance and Policy StudiesSchool of GovernmentVictoria University of Wellington

June 2014

Governing for the Future:

Stewardship, Sustainability and the

Tyranny of the Present

1. Wise stewardship and farsightedness matter2. On balance, political systems are biased towards the

present – risk of intergenerational ‘buck-passing’3. Policy short-sightedness reflects:

a) The human condition, including analytical limits and uncertainty

b) Political factors – asymmetries, pay-off structures, etc.

4. Policy farsightedness can potentially be enhanced by:

a) Changing the locus of decision-makingb) Constraining decision-makersc) Changing the pay-off structure for decision-makingd) Better analytical methods and procedurese) More democratic policy processes

5. There are no ‘utopian’ solutions; need a combination of measures – at multiple levels of governance

The Argument

1. William Ascher, Bringing in the Future: Strategies for Farsightedness and Sustainability in Developing Countries (Chicago University Press, 2009)

2. Jonathan Boston et al (eds) Future-Proofing the State: Managing Risks, Responding to Crises and Building Resilience (ANU Press, 2014)

3. Alan Jacobs, Governing for the Long Term: Democracy and the Politics of Investment (Cambridge University Press, 2011)

4. House of Commons, Governing the Future, Public Administration Select Committee, March 2007

5. Special Issue of Policy Quarterly on ‘Affording Our Future: Statement of New Zealand Long-Term Fiscal Position’ (November 2013)

Some relevant literature

I don’t think we should care a stuff about future generations. They can take care of themselves.

It’s immoral to care for someone who hasn’t been born yet.

Owen McShane, NZ National Business Review

I never think of the future - it comes soon enough.Albert Einstein

Some views

When it comes to the future, there are three kinds of people: those who let it happen, those who make it happen, and those who wonder what happened.

John Richardson Jr

Life can only be understood backwards; but it must be lived forwards.

Søren Kierkegaard

… tomorrow belongs to the people who prepare for it today

African proverb

Some views

… in long-term political strategic forecasting, it's been shown that experts are just not better than a dice-throwing monkey.

Daniel Kahneman (Nobel laureate in economics)

On the GFC: In summary, the failure to foresee the timing, extent and severity of the crisis and to head it off, while it had many

causes, was principally a failure of the collective imagination of many bright people, both in this country and internationally, to

understand the risks to the system as a whole.A letter to the Queen from leading UK economists in response

to question as to why people didn’t see the GFC coming

Some views

1. Most religious and philosophical traditions commend foresight – proper planning for the future

2. Christian tradition: Creation care – wise stewardship of all resources Love of neighbour – across space and time The responsibility of knowledge – the responsible use of

gifts and talents Importance of ‘vision’, imagination and hope

3. Lack of foresight can result in great harm

Wise stewardship and farsightedness matter

4. Humanity’s capacity to predict the future is limited But there is much about which we can have reasonable confidence

5. Not all long-term thinking is good thinking

6. But there is still a strong case for: conceptualizing, imagining and visioning identifying major risks and vulnerabilities planning – to improve, develop, invest … ‘future-proofing’ – to minimize future harms and enhance

resilience

Wise stewardship and farsightedness matter

1. Failure of many societies throughout human history due to poor foresight – especially poor long-term management of critical resources (Jared Diamond, Collapse)

2. Democracies are ‘systematically biased in favour of the present’ (Thompson, 2005) – reasons:

elected governments want to satisfy voters’ preferences voters typically have high discount rates governments thus suffer ‘political myopia’ (Congleton,

1992) many other factors encourage intergenerational buck-

passing (see later)

3. Dictatorships face similar pressures, but:

less transparency, feedback less opportunity for policy learning weaker accountability and incentives for reform

Is there a problem?

The meaning of ‘the future’

1.Many different time-scales – near future/far future

2.Inter-generational dimensions – the futures of people alive today, the next generation, multiple generations

3.The relevant timescale will vary with the problem (climate change – implications for the far future)

Is there a problem?

1. What constitutes adequate policy farsightedness?

2. Many possible criteria, contingent on policy domain:

a. Fiscal sustainability Prudent levels of national debt Prudent management of long-term risks (e.g. population ageing)

b. Environmental sustainability Adequate maintenance of critical, non-substitutable natural capital Remaining within planetary and sub-planetary boundaries

c. Adequate investment in infrastructure

d. Adequate investment in social well-being

Is there a problem?

The empirical evidence suggests a varied picture

differences across policy domains, between countries and over time

1. Much evidence of policy short-sightedness

2. Some evidence of policy farsightedness

3. Some evidence of an excessive focus on the long-term

e.g. ‘white elephant’ infrastructure projects

Is there a problem?

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Public debt as a percentage of the GDP, 2011

By individuals, families, organizations and governments

1.Fiscally unsustainable policy settings pensions policies in many countries levels of public debt

2.Environmentally unsustainable policy settings inadequate conservation and environmental protection – fisheries management, water

management, deforestation, soil erosion, etc. inadequate efforts to reduce GHG emissions

3.Inadequate social investment early childhood education relief of child poverty public health and preventative health care

4.Inadequate or misguided physical infrastructure investment poor maintenance of infrastructure, especially in some developing countries

5.Low private savings in many countries

6.Massive production and consumption subsidies for the fossil fuel industry

US$550b per annum globally

Evidence of short-sightedness

Recent New Zealand examples:

1.Fiscal policy – Fiscal Responsibility Act (1994), requirement for regular Long-term Fiscal Statements by Treasury2.Local government – long-term community plans3.Pensions policy – ‘Cullen’ fund; Kiwi-saver4.EQC earthquake fund5.Institutions with long-term mandates

Parliamentary Commissioner for the Environment Commissioner for Children Previously – the Planning Council and Commission for the Future

Evidence of policy farsightedness

At least 4 major factors:1. The human condition2. Uncertainty3. Political or institutional factors

Various salient asymmetries Particular patterns of inter-temporal trade-offs or pay-offs

structures Powerful vested interests – resistance to change Failure to integrate the longer-term into current decision-

making

4. Limited or weak ‘danger’ signals and slow feedbacks

Explaining Policy Short-Sightedness

Various deeply rooted behavioural characteristics and dispositions

these affect individuals in their many and varied roles, including as decision-makers, and are often interconnected

1.High private discount rates, myopia, pure impatience, procrastination, irrational exuberance

solving many problems and generating long-term improvements requires short-term (economic) sacrifices; delayed gratification

2.Narrow self-interest unwillingness to contribute to the collective effort required to secure

certain long-term gains (free-riding)

The human condition

3. Analytical limitations ….of individuals and organizations

Multiple problems

1. Complexity 2. Limited (or excessive) information3. How humans manage uncertainty

Uncertainty over future gains can reinforce impatience, by reducing the value that people place on possible losses and gains

Uncertainty can also encourage misguided optimism about the future, resulting in complacency and passivity

4. Overload – tyranny of the urgent, can paralyze long-term thinking

Time scarcity and limited mental energy – reduces capacity for long-term thinking

The human condition

4. Role of heuristics – analytic short-cuts and habits (Kahneman et al)

Biases in judgement and assessment of risks undervaluing of long-term risks underestimating future benefits cognitive bias in favour of the status quo – due to loss aversion and

the endowment effect

5. Unjustified faith in technological breakthroughs and ‘solutions’

The human condition

1. The voting (or accountability) asymmetry

2. The cost-benefit asymmetry3. The interest group asymmetry4. The accounting asymmetry

Politically salient asymmetries that contribute to policy short-sightedness

1.Elected governments are primarily concerned with the satisfaction of voters’ interests

The very young and future generations have no vote or political power

Voters tend to be self-interested and myopic and have short memories

Constitutional and other protections for the interests of future generations are generally weak and often ineffective

Governments are held accountable for their actions (or inactions) on the basis of current impacts and conditions; they are much less accountable for the future impacts of their actions (or inactions)

2.Hence, strong incentives on democratically-elected officials to avoid short-term costs designed to deliver long-term benefits (or minimize long-term risks)

The voting asymmetry

1. The costs and benefits of certain policies (e.g. climate change) may be significantly different with respect to the key dimensions of time, certainty, visibility and tangibility

2. Problems arise particularly when:

The costs are mainly short-to-medium term (front-loaded), but the benefits are mainly long-term (back-loaded), as this implies short-term pain for long-term gain

The costs are relatively certain and visible, but the benefits are less certain and less visible or tangible

Cost-benefit asymmetry

1. Many policies involve a clash between concentrated and dispersed interests

2. Concentrated interests are typically well-resourced, and have strong incentives to lobby to protect their interests

3. Where interests are dispersed over space and time, there are weaker incentives and less capacity to mobilize politically

4. This creates a power imbalance or asymmetry

Interest group asymmetry

1. Financial and manufactured (built) capital is valued and accounted for, natural capital and ecosystem services are not

2. Firms’ financial statements do not include full effects of their activities on the environment; triple-bottom line accounting only modestly developed

3. National accounts ignores changes in natural capital and other environmental impacts

4. What is measured affects policy decisions; if measurements are partial and flawed, decisions will be distorted

Accounting asymmetry

Policy makers are more likely to take long-term risks seriously if there are clear danger signals, but:

In many policy contexts:

1.No fixed ‘thresholds’, ‘boundaries’ or clear tipping points Planetary boundaries

2.No agreement on what is ‘safe’3.Weak countervailing forces or danger signals

Bond markets provide signals (via interest rates) on national debt levels

No equivalent to bond markets in many areas Feedbacks of possible ‘failure’ are often absent until ‘crisis’

4.‘Black swan’ events – rare, big surprises (Nassim Taleb)

Limited or weak danger signals

1. Difficult to change the human condition, but some ‘nudging’ options (behavioural economics)

2. Focus here on ‘institutional’ options, but:

1. Need to be clear about the problem(s) Is it protecting/providing public goods, ensuring fiscal

sustainability, investing adequately in infrastructure or … ‘Solutions’ need to be context specific

2. Need to learn from experience3. Need realism about the effectiveness of the

available ‘solutions’

Options for increasing policy farsightedness

Five main approaches:

1.Change the locus of decision-making

2.Constrain decision-makers

3.Change the pay-off structure facing decision-makers – rebalancing solutions

4.Better analytical methods

5.Stronger democracy

Options for increasing policy farsightedness

Changing the locus of decision-making

i. Supra-national solutions

ii. Independent institutions – expert groups

Options for increasing policy farsightedness

1. Shift decision rights from nation states to regional or global entities that are subject to a different incentive structure, and less exposed to short-term electoral/political pressures

2. Relevant for the provision and management of global public goods – including the global commons (atmosphere, oceans, etc.)

3. Example – climate change policy in the European Union

Supra-national solutions

Objections:

1. National opposition to power transfers and loss of sovereignty

2. Institutional design – membership, mandate, powers/decision rights, resources, etc.

3. Accountability and democratic legitimacy4. Enforcement and compliance issues5. Effectiveness - will supra-national bodies take

the hard decisions?

Supra-national solutions

1. Shift decision rights away from governments and parliaments to independent institutions, such as expert committees, that are not directly accountable to voters

2. Relevant for decisions on ‘technical’ or quasi-judicial matters requiring independence

3. Examples: independent central banks and monetary policy committees, independent regulatory bodies, fiscal councils, etc.

Independent Institutions

Objections:

1.Opposition to the transfer of power – loss of political control, democratic deficit, etc.2.Institutional design – membership, powers, mandate and resources3.Risk of politicization of appointments4.Accountability and democratic legitimacy – who guards the guardians?5.Effectiveness (the GFC and central banks)

Independent Institutions

Constrain the decision-rights of elected officials:

i. Constitutional constraints

ii. Other constraining solutions

Constraining decision-makers

1. Constrain the decision rights of governments and parliaments via provisions in entrenched constitutions

2. Give constitutional protection to the interests of future generations

3. Potentially relevant to all decisions with significant long-term implications (the principle of affected interests)

Constitutional Constraints

Objections:

1. Lack of a formal, entrenched constitution (NZ)2. Opposition to any power transfer to the courts – loss of

political control, democratic deficit, judicialization of politics, etc.

3. Nature of the constitutional provision – principles, rights, wording …

4. Effectiveness problem of interpreting a constitutional right to a

‘decent’ environment or determining the nature of the ‘interests of future generations’

reluctance of courts to override legislature existing constitutional provisions in various countries

have been little used

Constitutional Constraints

1. Upper Houses – with longer terms and different electoral arrangements

2. Procedural constraints – e.g. Require all cabinet papers to consider the implications of

proposed policy changes for the interests of future generations

Require the Prime Minister to report to Parliament on any bills or major policy initiatives that may threaten the interests of future generations – on advice from an independent body (Bill of Rights example)

Other constraining solutions

Aim: change the pay-structure for decisions with long-term implications

i.e. increase the incentives on politicians to take ‘farsighted’ decisions

Many options:

1.Change voter time preferences (?) 2.Strengthen the ‘voice’ for the future3.Reduce the power of ‘vested’ interests4.Invest more heavily in strategic/long-term thinking5.Better political management of long-term issues

But how? Many failures …

Rebalancing solutions

Institutional mechanisms – rules, procedures, ‘voice’, etc.

1.Legislative institutions Parliamentary Committee for the Future (Finland) or Futures Forum (Scottish

model) Report on the Future each parliamentary term (Finland) Prime Ministerial speech on long-term issues each parliamentary term Regular long-term policy reviews and evaluation processes

2.Executive institutions Periodic cabinet long-term strategy meetings High-level, long-term advisory groups/strategy units Stronger strategic planning procedures Stewardship responsibilities for senior managers

3.Fiscal institutions Comprehensive fiscal reporting Periodic long-term fiscal statements Independent budgetary agencies

Rebalancing solutions

4. Environmental institutions Strengthen environmental planning, monitoring and reporting Strengthen oversight bodies/guardians

5. Independent advisory bodies and watchdog organizations Strengthen existing watchdogs Create new institutions – Commission for the Future Generations (Hungary,

Israel – 2001-06), Sustainable Development Commission (UK – 2000-11)

6. Electoral institutions Reduce the voting age Reform electoral finance

7. Strengthen civil society Increase public funding for research and development Strengthen public interest broadcasting

Rebalancing solutions

Better political management of long-term issues:

1. Issue framing2. No-regrets approaches3. Emphasis on co-benefits4. Side-payments and short-term benefits5. Independent, arms-length reviews6. Cross-party consensus building and agreements

Rebalancing solutions

Foresight initiatives and techniques:

1. Horizon scanning2. Trend analysis3. Modeling4. Road mapping5. Visioning6. Scenarios7. Gaming8. Backcasting – actions required to achieve ‘x’9. Setting targets

Rebalancing solutions

Objections: 1. Each of the proposed rebalancing solutions is open to

objections of various kinds

2. None of the proposed solutions is likely to have a major impact on policy making

But multiple and systemic reforms are likely to help rather than hinder the quest …

Rebalancing solutions

Broaden the analytical frameworks used in policy advising: e.g.NZ Treasury’s Living Standards FrameworkAustralian Treasury’s Well-being Framework

Critical dimensions1. Beyond GDP – well-being measures (Stiglitz et al.)2. Approaches to discounting3. Valuing of natural capital and ecosystem services4. Analytical pluralism and multiple advocacy5. Regular ‘foresight’ and strategic planning initiatives6. Identifying and creating ‘danger’ signals

Better analytical methods

1. More transparency, openness and accountability

2. Greater citizen engagement and participation More and better public consultation Wider use of social media Citizens’ juries

3. Greater use of collaborative governance processes for ‘wicked’ problems with significant long-term implications

Stronger democracy

1. Governing for the future is critically important

2. Globally and locally – evidence of many problems and poor decisions

3. No single solution or easy remedies4. Need a mix of:

More constraints on decision-making New and better institutional arrangements (at multiple

governmental levels) Better analytical methods Stronger democratic processes

Conclusions