Governing for the Future: Stewardship, Sustainability and the Tyranny of the Present

1. Governing for the Future:Stewardship, Sustainability and the Tyranny of the Present Jonathan Boston Institute for Governance and Policy Studies School of Government Victoria University of Wellington June 2014

2. The Argument • Wise stewardship and farsightedness matter • On balance, political systems are biased towards the present – risk of intergenerational ‘buck-passing’ • Policy short-sightedness reflects: • The human condition, including analytical limits and uncertainty • Political factors – asymmetries, pay-off structures, etc. • Policy farsightedness can potentially be enhanced by: • Changing the locus of decision-making • Constraining decision-makers • Changing the pay-off structure for decision-making • Better analytical methods and procedures • More democratic policy processes • There are no ‘utopian’ solutions; need a combination of measures – at multiple levels of governance

3. Some relevant literature • William Ascher, Bringing in the Future: Strategies for Farsightedness and Sustainability in Developing Countries (Chicago University Press, 2009) • Jonathan Boston et al (eds) Future-Proofing the State: Managing Risks, Responding to Crises and Building Resilience (ANU Press, 2014) • Alan Jacobs, Governing for the Long Term: Democracy and the Politics of Investment (Cambridge University Press, 2011) • House of Commons, Governing the Future, Public Administration Select Committee, March 2007 • Special Issue of Policy Quarterly on ‘Affording Our Future: Statement of New Zealand Long-Term Fiscal Position’ (November 2013)

4. Some views 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

5. 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

6. 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

7. Wise stewardship and farsightedness matter • Most religious and philosophical traditions commend foresight – proper planning for the future • 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 • Lack of foresight can result in great harm

8. Wise stewardship and farsightedness matter • Humanity’s capacity to predict the future is limited • But there is much about which we can have reasonable confidence • Not all long-term thinking is good thinking • 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

9. Is there a problem? • Failure of many societies throughout human history due to poor foresight – especially poor long-term management of critical resources (Jared Diamond, Collapse) • 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) • Dictatorships face similar pressures, but: • less transparency, feedback • less opportunity for policy learning • weaker accountability and incentives for reform

10. Is there a problem? The meaning of ‘the future’ • Many different time-scales – near future/far future • Inter-generational dimensions – the futures of people alive today, the next generation, multiple generations • The relevant timescale will vary with the problem (climate change – implications for the far future)

11. Is there a problem? • What constitutes adequate policy farsightedness? • Many possible criteria, contingent on policy domain: • Fiscal sustainability • Prudent levels of national debt • Prudent management of long-term risks (e.g. population ageing) • Environmental sustainability • Adequate maintenance of critical, non-substitutable natural capital • Remaining within planetary and sub-planetary boundaries • Adequate investment in infrastructure • Adequate investment in social well-being

12. Is there a problem? The empirical evidence suggests a varied picture • differences across policy domains, between countries and over time • Much evidence of policy short-sightedness • Some evidence of policy farsightedness • Some evidence of an excessive focus on the long-term • e.g. ‘white elephant’ infrastructure projects

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19. Public debt as a percentage of the GDP, 2011

20. Evidence of short-sightedness By individuals, families, organizations and governments • Fiscally unsustainable policy settings • pensions policies in many countries • levels of public debt • Environmentally unsustainable policy settings • inadequate conservation and environmental protection – fisheries management, water management, deforestation, soil erosion, etc. • inadequate efforts to reduce GHG emissions • Inadequate social investment • early childhood education • relief of child poverty • public health and preventative health care • Inadequate or misguided physical infrastructure investment • poor maintenance of infrastructure, especially in some developing countries • Low private savings in many countries • Massive production and consumption subsidies for the fossil fuel industry • US$550b per annum globally

21. Evidence of policy farsightedness Recent New Zealand examples: • Fiscal policy – Fiscal Responsibility Act (1994), requirement for regular Long-term Fiscal Statements by Treasury • Local government – long-term community plans • Pensions policy – ‘Cullen’ fund; Kiwi-saver • EQC earthquake fund • Institutions with long-term mandates • Parliamentary Commissioner for the Environment • Commissioner for Children • Previously – the Planning Council and Commission for the Future

22. Explaining Policy Short-Sightedness At least 4 major factors: • The human condition • Uncertainty • 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 • Limited or weak ‘danger’ signals and slow feedbacks

23. The human condition Various deeply rooted behavioural characteristics and dispositions • these affect individuals in their many and varied roles, including as decision-makers, and are often interconnected • 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 • Narrow self-interest • unwillingness to contribute to the collective effort required to secure certain long-term gains (free-riding)

24. The human condition • Analytical limitations ….of individuals and organizations • Multiple problems • Complexity • Limited (or excessive) information • 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 • Overload – tyranny of the urgent, can paralyze long-term thinking • Time scarcity and limited mental energy – reduces capacity for long-term thinking

25. The human condition • 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 • Unjustified faith in technological breakthroughs and ‘solutions’

26. Politically salient asymmetries that contribute to policy short-sightedness • The voting (or accountability) asymmetry • The cost-benefit asymmetry • The interest group asymmetry • The accounting asymmetry

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

28. Cost-benefit asymmetry • 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 • 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

29. Interest group asymmetry • Many policies involve a clash between concentrated and dispersed interests • Concentrated interests are typically well-resourced, and have strong incentives to lobby to protect their interests • Where interests are dispersed over space and time, there are weaker incentives and less capacity to mobilize politically • This creates a power imbalance or asymmetry

30. Accounting asymmetry • Financial and manufactured (built) capital is valued and accounted for, natural capital and ecosystem services are not • Firms’ financial statements do not include full effects of their activities on the environment; triple-bottom line accounting only modestly developed • National accounts ignores changes in natural capital and other environmental impacts • What is measured affects policy decisions; if measurements are partial and flawed, decisions will be distorted

31. Limited or weak danger signals Policy makers are more likely to take long-term risks seriously if there are clear danger signals, but: In many policy contexts: • No fixed ‘thresholds’, ‘boundaries’ or clear tipping points • Planetary boundaries • No agreement on what is ‘safe’ • 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’ • ‘Black swan’ events – rare, big surprises (Nassim Taleb)

32. Options for increasing policy farsightedness • Difficult to change the human condition, but some ‘nudging’ options (behavioural economics) • Focus here on ‘institutional’ options, but: • 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 • Need to learn from experience • Need realism about the effectiveness of the available ‘solutions’

33. Options for increasing policy farsightedness Five main approaches: • Change the locus of decision-making • Constrain decision-makers • Change the pay-off structure facing decision-makers – rebalancing solutions • Better analytical methods • Stronger democracy

34. Options for increasing policy farsightedness Changing the locus of decision-making • Supra-national solutions • Independent institutions – expert groups

35. Supra-national solutions • 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 • Relevant for the provision and management of global public goods – including the global commons (atmosphere, oceans, etc.) • Example – climate change policy in the European Union

36. Supra-national solutions Objections: • National opposition to power transfers and loss of sovereignty • Institutional design – membership, mandate, powers/decision rights, resources, etc. • Accountability and democratic legitimacy • Enforcement and compliance issues • Effectiveness - will supra-national bodies take the hard decisions?

37. Independent Institutions • Shift decision rights away from governments and parliaments to independent institutions, such as expert committees, that are not directly accountable to voters • Relevant for decisions on ‘technical’ or quasi-judicial matters requiring independence • Examples: independent central banks and monetary policy committees, independent regulatory bodies, fiscal councils, etc.

38. Independent Institutions Objections: • Opposition to the transfer of power – loss of political control, democratic deficit, etc. • Institutional design – membership, powers, mandate and resources • Risk of politicization of appointments • Accountability and democratic legitimacy – who guards the guardians? • Effectiveness (the GFC and central banks)

39. Constraining decision-makers Constrain the decision-rights of elected officials: • Constitutional constraints • Other constraining solutions

40. Constitutional Constraints • Constrain the decision rights of governments and parliaments via provisions in entrenched constitutions • Give constitutional protection to the interests of future generations • Potentially relevant to all decisions with significant long-term implications (the principle of affected interests)

41. Constitutional Constraints Objections: • Lack of a formal, entrenched constitution (NZ) • Opposition to any power transfer to the courts – loss of political control, democratic deficit, judicialization of politics, etc. • Nature of the constitutional provision – principles, rights, wording … • 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

42. Other constraining solutions • Upper Houses – with longer terms and different electoral arrangements • 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)

43. Rebalancing 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: • Change voter time preferences (?) • Strengthen the ‘voice’ for the future • Reduce the power of ‘vested’ interests • Invest more heavily in strategic/long-term thinking • Better political management of long-term issues But how? Many failures …

44. Rebalancing solutions Institutional mechanisms – rules, procedures, ‘voice’, etc. • 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 • 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 • Fiscal institutions • Comprehensive fiscal reporting • Periodic long-term fiscal statements • Independent budgetary agencies

45. Rebalancing solutions • Environmental institutions • Strengthen environmental planning, monitoring and reporting • Strengthen oversight bodies/guardians • 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) • Electoral institutions • Reduce the voting age • Reform electoral finance • Strengthen civil society • Increase public funding for research and development • Strengthen public interest broadcasting

46. Rebalancing solutions Better political management of long-term issues: • Issue framing • No-regrets approaches • Emphasis on co-benefits • Side-payments and short-term benefits • Independent, arms-length reviews • Cross-party consensus building and agreements

47. Rebalancing solutions Foresight initiatives and techniques: • Horizon scanning • Trend analysis • Modeling • Road mapping • Visioning • Scenarios • Gaming • Backcasting – actions required to achieve ‘x’ • Setting targets

48. Rebalancing solutions Objections: • Each of the proposed rebalancing solutions is open to objections of various kinds • 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 …

49. Better analytical methods Broaden the analytical frameworks used in policy advising: e.g. • NZ Treasury’s Living Standards Framework • Australian Treasury’s Well-being Framework Critical dimensions • Beyond GDP – well-being measures (Stiglitz et al.) • Approaches to discounting • Valuing of natural capital and ecosystem services • Analytical pluralism and multiple advocacy • Regular ‘foresight’ and strategic planning initiatives • Identifying and creating ‘danger’ signals

50. Stronger democracy • More transparency, openness and accountability • Greater citizen engagement and participation • More and better public consultation • Wider use of social media • Citizens’ juries • Greater use of collaborative governance processes for ‘wicked’ problems with significant long-term implications