Owen abroad

Archive for the ‘Current affairs’ Category

There was an interesting article in last week’s Economist about the use of prizes to promote innovation. It was supportive of the idea in general, but it seemed to gloss over the economic  arguments.  I think it is a shame that the Economist did not take the opportunity to explain the economics of rewarding innovation, and in particular to explain in economic terms why our current arrangements do not do a good job of creating incentives for innovation that benefits developing countries.

You can think of patents as a kind of prize.  When you invent a new product, the government gives you the right to operate a temporary monopoly. This enables you to charge more than the marginal cost, and the premium is your “prize”. This arrangement has the huge advantage that it links your reward to the amount people are willing to pay for your invention, so it encourages innovations that people actually value.

This kind of prize as a reward for innovation may be fine for a new kind of vacuum cleaner, or for Lady Gaga’s latest album. But it has two big disadvantages which are especially relevant for people who live in developing countries.

First, the use of patents prevents some people from benefiting from the new technology if they are unable to pay the higher price.  If a company develops a drug for heart disease, or a more efficient form of solar panel, the patent will enable them to charge much more than marginal cost for their product. That’s how the inventor gets paid. But the result is that millions of people will not be able to afford that product – though they might be able to afford it at marginal cost. The temporary monopoly results in fewer people benefiting from new technologies than ought to benefit, in the sense that those people would be willing and able to pay the marginal cost.  This is potentially a big welfare cost to society as a whole. It means, for example, that people may die of heart disease because they can’t afford the high price of the drugs, even though they could buy the drug if it were sold at marginal cost; or they can’t use new fertilizers or seed technologies, even though the benefits to them of doing so exceed the cost.

Second, if we reward inventors by granting them temporary monopolies, we only create incentives to develop products for which there are likely to be enough consumers wealthy enough to pay a monopoly price.   Nobody will invent a vaccine against malaria, or a cassava plant that resists mosaic virus, based on the possible rewards they will get from charging high prices to its consumers.  So the patent system is a prize for people who invent cures for baldness, but not a prize for people who invent ways to prevent the spread of malaria.

For these reasons, other incentives, such as prizes, Advance Market Commitments, and similar mechanisms, may be effective either as alternatives or complements to the patent prize of a temporary monopoly, especially for technologies that would have benefits in developing countries.

The Economist quotes Tachi Yamada, the president of Global Health at the Gates Foundation, as suggesting that Advance Market Commitments or prizes may not work well for drugs that require a long time to develop:

Tachi Yamada of the Gates Foundation is a big believer in giving incentive prizes, but gives warning that it can take 15 years or more to bring a new drug to market, and that even AMC’s carrot of $1.5 billion for new vaccines may not be a big enough incentive. No prize could match the $20 billion or so a new blockbuster drug can earn in its lifetime. So, in some cases, says Dr Yamada, “market success is the real prize.”

This seems to reflect the suggestion that is sometimes made that Advance Market Commitments may not be appropriate for for early stage drugs, but the economics of this argument is faulty.

It is clearly true that the reward for bringing to market an early stage medicine, such as an AIDS or malaria vaccine, would need to be higher, both because of the greater uncertainty and risk of failure, and because the rewards are further in the future.  So an AMC for an early stage product would probably need to be larger than for a late stage product that just needs some tweaking for use in developing countries and some investment in bigger production facilities.  But let’s not overstate this.  The median total market size for new chemical entities that pharmaceutical companies actually bring to market is about $3-$4 billion.  Most medicines are not $20 billion blockbusters.  So $3-$4 billion is roughly the market size that the private sector considers sufficient reward to develop new medicines.   We don’t need to match the blockbusters.  An AMC of $4 billion might well be enough to incentivize the development of a malaria vaccine: and let’s not forget that if it turns out not to be enough, it won’t have cost the funders anything.

Furthermore, just as the firms discount the prize by the risk of failure, the funders should similarly discount the cost.  If there is a 25% chance that no vaccine will be developed (because the technology is uncertain) then firms will discount the “prize” – that is, the value of the committed market – when they make their investment decisions.  But in this case, the expected cost to the funders of a $4 billion pledge is $3 billion, and this is what they should include in their value for money calculation.  That means that even though the nominal amount that has to be promised for an early stage product needs to be higher for a given impact on R&D, to take account of the probability of failure, the expected cost to funders is not higher.

The same point can be put another way.  A high probability of failure makes all investment in R&D less attractive, but it does not make AMCs relatively less attractive than other forms of funding.  When the probability of failure is high, the expected return from each dollar spent encouraging innovation is lower. This is true if that dollar is spent up-front in the form of research grants of the kinds normally given by aid agencies and foundations (since the higher probability of failure reduces the expected benefits of the grant), or in the form of a prize or promised market (since the higher probability of failure reduces the expected benefit to firms, and so reduces the incentive for them to invest in R&D).  The effect is the same either way. Higher probability of failure is clearly bad, but it does not make AMCs relatively less efficient as a way to pay for research for early stage products.

Whether an AMC for an early stage product is good value for money depends ultimately on the value of the product.  If donors were to spend $4 billion buying a malaria vaccine for use in developing countries, it would be a hugely good investment, saving millions of lives a year at a fraction of the price of many other interventions. It would result in huge savings on trying to prevent malaria in other ways, or treat to treat malaria; and the resulting reduction in the burden of malaria would have huge economic benefits for developing countries. Given that there is no question that donors would want to spend at least $4 billion paying for a malaria vaccine to be used across the developing world, it is inefficient for them not to say so right away, and thereby create incentives for private sector investment in accelerating its development.  The risk of poor value for money in aid spending comes not from making the commitment, but from failing to do so.

When Dr Yamada says that “market success is the real prize”, he seems to be missing the point that market success is not a good way of rewarding innovation for developing countries.   If we rely on market success, in the form of a temporary monopoly, to reward innovation then we will exclude half the world’s population from being able to access technologies developed with rich markets in mind, such as drugs against cancer and heart disease, clean energy, new agricultural technologies, or new software.  And “market success” creates no incentive to develop technologies which primarily benefit the world’s poor such as a vaccine against malaria or a variety of cassava that resists the mosaic virus, because inventors know that the people in poor countries cannot afford the monopoly prices that would enable inventors to recover their costs.

Welcome to my world:

Fortunately my partner has reality-based beliefs.

Ravi Kanbur has written an interesting paper (pdf) about how he feels as someone who makes a good living from analysing and writing about poverty. Here is an extract, but it is worth reading the whole, thoughtful piece:

What is striking about the class of poverty professionals (of whom I am one) is that the good living (granted, not at the billionaire or millionaire level, but pretty good nevertheless) is made through the very process of analyzing, writing, recommending on poverty. To me, at least, this is discomforting and disconcerting. I feel slightly ashamed within myself when I turn up to a poverty conference (perhaps even one where I am the keynote speaker), having flown business class, staying in an expensive hotel and (sometimes) being paid handsomely for attending. I recall many years ago, when I was in my twenties, telling the anthropologist Mary Douglas about how I was starting to do consulting for the World Bank on poverty issues, and how important it was to do this work. “And it’s not too bad for one’s own poverty either, is it?” came her worldly, knowing, reply. The seeds of discomfort sown by that comment have germinated and taken root, and now won’t let go.

Ravi suggests that everyone working in development should reconnect with poverty through a poverty immersion:

each poverty professional should engage in an “exposure” to poverty (also known as “immersions”) every 12 to 18 months. I do not mean by this rural sector missions for aid agency officials, nor the running of training workshops by NGO staff. What I mean is well captured by Eyben (2004); these are exercises that “are designed for visitors to stay for a period of several days, living with their hosts as participants, as well as observers, in their daily lives. They are distinct from project monitoring or highly structured ‘red carpet’ trips when officials make brief visits to a village or an urban slum….”

A friend of mine from DFID did this recently and came back saying how valuable it was.  I am in favour of immersions, though I don’t think it gets close to addressing the problem that Ravi is grappling with.

This reminds me that in March 2008, the Conservative development spokesman (and, since yesterday, the UK Secretary of State for International Development) announced that all DFID staff would be required to undertake a week-long immersion living in a poorer community. Andrew Mitchell said:

These immersions will serve as a valuable ‘reality check’ from the usual round of meetings, paperwork and spreadsheets. It will help keep everyone at DfID focused on their core mission: serving and helping poor people to work their way, sustainably, out of poverty.

I hope that they will implement this proposal now that they are in Government, and I hope DFID’s new Ministers will consider doing an immersion themselves, perhaps during the summer recess.

(via Suvojit)

Tonight’s UK election debate between the party leaders focuses on foreign policy.  I expect there will be at least one question about international development.  If I were in the audience, I would ask this:

We understand that all the main parties are committed to increasing aid to 0.7% of GDP, with some relatively minor differences about how that would be used.  But if we are serious about development, we need to look beyond aid to address the circumstances in which developing countries are trying to establish economic growth and political stability.  Our other policies – for example, on trade, climate change or immigration – make a huge difference to how quickly poor countries can develop.  Will you, as Prime Minister, be willing to make changes to UK policies which are against the immediate interests of a group of UK citizens – for example, arms exporters or pharmaceutical firms – but which support our collective longer term interest in seeing a fairer, safer and more prosperous world?  If so, what concessions would you make?

The development policy discussion in the UK has focused too much on aid.  As I’ve argued here today, aid is important, because it helps to improve people’s lives while their countries are developing.  But I don’t think aid is the most important factor in accelerating development – for that it is much more important whether we adopt fair global polices on climate change, trade, agriculture, immigration, intellectual property, conflict, corruption and international governance.

The manifestos are largely quiet on how the political parties would address these issues, and they have not yet been pushed to address it.  I think this is because so many people who work in development are dependent for their income on aid, so they tend to judge parties’ policies by their willingness to increase it.  A worthy and notable exception is Alison Evans at ODI, who is always smart, who picks this up in her recent blog post on development in the election:

.. a crucial question is whether there is any a wider read-across from the manifestos to the international development agenda?  Development is not only about aid and there is a danger that the allure of the 0.7 debate can and will detract from a much wider set of policy concerns that impact on the prospects for growth and prosperity in developing countries.  Each of the manifestos cover growth, trade, immigration, security and climate change – all  areas in which the debate about international development policy and global poverty reduction is increasingly engaged – but  none of them spell out in any detail what this means for the way their governments would work on these agendas or how the funding would work. Where is the coherence between policies and between policies and implementation?

This is exactly the right question to ask (it is a pity that the post is entitled: “main parties pledge 0.7% for aid but how will it be spent?”). We have been assured that the three largest parties are committed to retaining DFID as a separate government department, with its own Cabinet Minister, and with a budget that rises to meet the UK’s commitment to increase aid to 0.7% of GDP.  But if they are serious about development then DFID will also need to have an important role right across the government, ensuring that the UK’s interests in development are taken into account when the government considers other policies from immigration to climate change.  That does not mean that the development interests should always trump the UK’s other national interests, but they should be considered and there will often be ways to adjust the details of the policy in a way that costs us little but has a huge impact on the developing world.

If we want to help to accelerate development, then some of the time we will need to put the UK’s broad, long-term interest in  building a safer, more equal and prosperous world ahead of the UK’s narrower and short-term commercial or political interests.  The most important international development question for the UK election should be: which of the political parties is willing to do that?

The UK General Election campaign could start as soon as next week, and it is already clear that one of the battlegrounds will be the relationship between the citizen and society. Both parties are keen to demonstrate that they don’t agree with Margaret Thatcher’s adage that “There is no such thing as society”.  Yesterday, the Conservative Party set out their “Big Society” ideas, including a new “neighbourhood army” of 5,000 professional community organisers.

As  Labour puts the finishing touches to its election manifesto, sources familiar with the process say that a new big idea is taking shape. The proposal is to extend the concept of  “earned autonomy” in public services  down to individuals.  Labour plans to put every citizen who has completed full-time education into prison.   Citizens will then be able to earn their way out, by getting a job and using their spare time for voluntary service to the community. When they demonstrate that they are not terrorists, and when they can prove that they do not have any kind of mental illness that predisposes them towards a crime, they will move first to an open prison from which they can get a job, and eventually to their own homes.   People close to Ministers say that they have been impressed with how well this approach has worked with asylum seekers, who start off imprisoned until they can demonstrate their value to society, and think that this approach would be popular in seats where Labour is alarmed by the rising popularity of the British National Party.

Speaking on condition of anonymity, a minister familiar with the details of the manifesto said:

Hard working families will welcome these steps.  Honest, law abiding citizens have nothing to fear. Where individuals demonstrate the capacity and capability to do more we want to work with them to test how greater individual control can deliver more effectively and more efficiently.  We want a new relationship between the citizen and government, one based on a partnership approach to delivery. It is not sufficient to say that citizens should have more control and freedom; this is a partnership and citizens need to be clear as to what they are asking us for, and how changes will benefit everyone.   We are ready to cede control where individuals can demonstrate that they will use those freedoms effectively, but greater control must be balanced with responsibility and accountability.

Owen Barder
1 April, 2010

On January 13th, a leader in The Times and Kevin Watkins in The Guardian attacked the development policies of the UK Conservative Party, from opposite sides of the political spectrum.  The Times Leader says that the Conservatives are wrong to commit themselves to increase aid to 0.7% of GNI; and Kevin Watkins says that the Conservatives are wrong to want to reform the way aid is given.   Both attacks appear to be bone-headed efforts to make political mischief by undermining not just Conservative party policies but the mainstream consensus on development. Neither attack does credit to its perpetrator.

The Times criticizes the Conservative Party for their commitment to maintain the planned increases in development spending. The leader recycles discredited assertions about the negative effects of aid rather than offering solid analysis.  There isn’t a single reputable econometric study showing that aid causes harm through  exchange rate appreciations, corruption or slowing progress to democracy.   Peter Bauer, whom the leader article quotes, was criticising Cold War foreign assistance programmes which bear little resemblance to aid programmes today. Aid today is increasingly practical, targeted and measurable, just as The Times says it should be, and it works.

Britain was one of 147 countries which pledged we would “spare no effort” to meet the Millennium Development Goals. As The Times implies, we should not be judged on what we spend but on what we achieve. On this basis we are not yet doing enough to achieve the goals to which we are committed.  That is why it is important that Britain should continue to increase its world-class development programme, and press other nations to increase their spending too.  To resist this on the grounds that 0.7% is an arbitrary figure is a clever-sounding point for a debating society, not a reasoned argument against the commitment of all the main political parties to meet Britain’s international promises, and to press other countries to do the same.

From the other end of the political spectrum, Kevin Watkins in The Guardian seems to be determined to use development to score party political points – and to do so he has had to put himself in the strange position of arguing against the country-led approach to development which is supported by all main UK political parties.

Under the Labour Government Britain has helped build an international consensus that aid works best in support of a country’s own development strategy; that policies imposed from outside rarely work; and that governments should be accountable to their own citizens for their policies and actions.  Kevin Watkins rightly supports these points in other contexts. Yet he apparently won’t entertain the idea that other countries may have different views from his (and mine) about the best way to organise and fund public services.

I’ve read the Conservative Green Paper and it does not call for state services to be rolled back in developing countries. It says that governments should guarantee access to education for all their people; and that donors should fund that guarantee and support and encourage governments to choose whatever path enables them to expand education provision fast and effectively.  It does not propose or advocate market-based solutions in education: it says explicitly that the Conservatives would work with the public, not-for-profit and private sectors.

Kevin Watkins quotes the Green Paper saying “We bring a natural scepticism about government schemes“; this is the entire basis of his claim that “the Conservatives will use aid to roll back the state in key services“.  But it is clear when you read this sentence in context that the Conservatives are questioning the role of the government in aid, not planning to tell other countries how they should manage their public services.

There is now a valuable cross-party consensus on the need to use aid money to support countries’ own development priorities and programmes.  The challenge today is how to bring public sector reform to the aid business – including the possibility of some market-like disciplines to make aid more effective and accountable.  There are proposals in both the Government White Paper and the Conservative Green Paper to make aid more transparent and accountable and to link it more closely to results. Kevin Watkins might have used his space to tell us what he thinks about these ideas instead of trying to score party political points on development.

(By the way, I admire Kevin Watkins, but I’m not comfortable with the fact that a UNESCO official, paid from public funds, is using his position to make highly partisan and inaccurate attacks in the newspapers on the main UK opposition party. )

I’ve got no party political axe to grind: my interest is in supporting the best possible policies to accelerate development, so that the world is a fairer, happier and safer place for everyone.  It seems odd that the Conservatives should be attacked from both left and right for articulating development policies which seem to me squarely in the mainstream of development thinking.

The cross-party consensus that the UK’s development budget should continue to increase, and that British development policy is amongst the most effective in the world but nonetheless there is room for improvement, should be a matter of shared national pride, not scorn and sniping from whichever direction.  Let’s sustain that consensus, and not allow development policy to be used as a political football even in the heat of an election campaign.

Update: see Kevin’s reply in the comments.

When Google decided to set up a censored version of its search engine in China in 2006, I was among those who criticised the company for its decision (here and here).

As well thiking it was the wrong decision in principle, I worried that a company that says one thing (“Don’t Be Evil”) and does another will eventually suffer from the contradiction between their values and their actions.

So I applaud their announcement today that they are taking a new approach in China and their threat to pull out of the market.

(Ironically, Google’s own blog is censored here in Ethiopia. You cannot access blogspot blogs.)

Google is standing up to dictatorship and speaking out for free speech, and putting this ahead of their immediate commercial interests.

It is hard to imagine other companies standing up for their – and our – values in this way. (Can you imagine Microsoft withdrawing their Bing search engine instead of producing sanitized results?)

Bloggers are quick to criticise when companies do the wrong thing.  So let’s be equally unstinting in our praise when they do things right.

Good on yer, Google.

I am grateful to Oxfam’s Duncan Green for his fair and thoughtful review of my paper about improving aid, Beyond Planning: Markets and Networks for Better Aid.

I’m glad that Duncan and Chris, his Oxfam colleague,  endorse a key argument of the paper, which is that the development industry will improve through evolutionary change rather than grand design; and that a driver of this change will be better mechanisms feedback from the citizens of developing countries about what is working. The paper points out that this kind of evolutionary change comes from variation and selection – and that the aid business does not have enough of either to ensure evolution towards more effective aid.

Duncan and Chris  have reservations about the word “beneficiary” to describe the people in developing countries whom aid is intended to support.  I think that is a good point, and I’d be happy to use a different word if we can find a suitable alternative (I don’t think that “primary stakeholder” or “rights holder” takes the trick, since neither is sufficiently specific about who we mean).

I don’t want to put words in Duncan’s mouth, but I detect from his review that he is more sceptical than me about the value of markets. He dismisses without much fanfare the  the idea of giving more choice to the, er, “intended beneficiaries” (aka primary stakeholders and rights-holders):

Where I think he is wrong is a largely market based philosophy for creating incentives based on New Public Management theories of expanding choice more than voice. … This in turn requires some quite fundamental organisational change with in aid agencies, as well as establishing more citizen to citizen links possibly using new social media.’

That is an unfair characterisation of my view: I am in favour of choice AND voice.  A large part of the paper, especially when talking about networks, is precisely about how citizens can have more voice, and I talk explicitly about citizens links through new social media.  But there are huge problems to overcome in achieving this, because the “intended beneficiaries” are geographically and politically remote from decision-makers in aid agencies, which means their voice is dimly heard, if at all.

While I agree with Duncan on the need to ensure that people have voice, I find it surprising that he (in common with many people who regard themselves as progressive) is so reluctant to give choice where possible as well.   Duncan’s (excellent) book is called From Poverty To Power – and I believe that giving people direct control of resources and allowing them to choose what services they want, and from whom, can be one of the most important ways of empowering people.  Duncan calls this a “technocratic/new labour enthusiasm for using market mechanisms” – but the idea of giving the poor more direct control of resources goes back long before New Labour:  Oxfam’s honorary President, Amartya Sen, got a Nobel prize for his 1982 book, Poverty and Famines: An Essay on Entitlement and Deprivation, which argued that it would be better to give people money than food in a famine.

I have not swallowed the New Public Management story hook, line and sinker, but I do believe that there have been positive experiences (for example, from the publication of league tables, and the distinction between purchaser and provider).  While I think we should learn from new public management, my paper describes in some detail the shortcomings of a market-only approach, especially as it relates to foreign assistance.  I hoped my paper would be an elegant synthesis of some of the best (and proven) tools of this school of thought with lessons from other approaches, especially the use of complementary mechanisms of networks, voice, regulation and planning.

The aid industry has almost entirely evaded the reform of public services over the last decade.   There is no measurement of results; no distinction between purchaser and provider; no customer choice.  Presumably the lack of reform is partly because the shortcomings of the industry are felt by people with no political power or voice in the political systems of donor countries. The incumbent service providers are politically powerful, well organised, and deeply conservative about any change that affects their interests.  The aid system has, over time, drawn to it people who are sceptical about the value of markets and choice, saddling developing countries instead with five year plans and long coordination meetings.  No politician in a donor country is enthusiastic to take on these vested interests, in order to improve services for people they will never meet and who have no vote in the election.

Michael Clemens from the Center for Global Development talks about immigration – which he describes as “The Biggest Idea in Development that No One Really Tried“.  In this TED-talk style video, he addresses criticisms of open borders such as the idea that open immigration would impoverish rich countries (it wouldn’t), and that it is politically impossible (so too, once, was the abolition of slavery).
 

Michael’s approach is an enviable combination of analytical rigour and strong ethicaal principles.  This 25 minute video is a powerful argument for why we can, and should, remove government restrictions on where people can live and work.

Aid budgets are limited by the amounts that rich countries are willing to allocate for foreign assistance.  There are limits to the generosity of parliaments, finance ministries and taxpayers.  At the same time, in developing countries there is not enough money to pay for everyone’s basic needs for food, water, shelter, health and education.

Because the total resources available are less than the needs, it is very important how they are used.  If poor decisions are made about the allocation of precious aid resources, the result can be additional suffering and death for millions of people.

This post why I think that attempts from outside to argue for aid to be earmarked for particular causes can lead to unnecessary deaths and suffering.  Aid works, but it could work better, and many sectoral advocates are not helping.

***

A striking example is the amount of money donors earmark for spending on HIV and AIDS here in Ethiopia.

Government spending on health in Ethiopia comes to about $4 per person per year.  According to OECD/DAC data, foreign aid for health in 2007 added about $5.15 per person to the government’s resources, bringing the total of government and aid resources to about $9 – $10 per person per year. (As an aside: health spending per person per year in the UK is about $2,000 per person per year; in the US it is about $4,500.)

According to the World Health Organisation (WHO), in Ethiopia about 65% of the population (52 million people) live in areas at risk of malaria. Malaria is the leading cause of health problems, responsible for about 27% of deaths; and malaria epidemics are increasing. The HIV/AIDS prevalence rate among adults is 2.1% (2007) – that’s about 1.6 million people living with HIV.

Of $5.15 per head provided in aid for health to Ethiopia in 2007, about $3.18 per head was earmarked for HIV  while about $0.26 cents per head was allocated to malaria control.  Given the relatively low burden of HIV, earmarking 60% of health aid for HIV is excessive relative to other needs for health spending.

Of course it is right that we should try to make sure that everybody with HIV has access to medicines to keep them healthy, and we should work to prevent spread of the disease. But we should also make sure that people have bednets and drugs to stop malaria, provide childhood vaccination to prevent easily preventable diseases, ensure access to contraception and safe abortions, and, above all, enough funding to provide basic health services that would save thousands of lives and suffering.  Yet we are not willing to provide enough money to do all of this.  It is in this context that it is damaging to earmark 60% of health aid to HIV.

This excessive funding of HIV relative to other health needs is damaging in at least three ways.

First, aid money is not being spent in ways which would yield biggest impact. Take this analysis from the Open Budgets Blog:

Using these estimates, it would cost an additional US$29.7 million to treat all of the 540,000 kids who died from pneumonia/diarrhea in Nigeria and Ethiopia. Were this money to come out of the HIV budget, it would reduce the number of HIV patients that could be provided treatment by about 61,240. So, using these admittedly very rough estimates, our current allocation of resources from the pot of money for disease treatment suggests that we value the life of a person with HIV at 8.8 times the value of the life of a child with pneumonia.

Another way of looking at this is that reallocating resources from HIV to treating pneumonia and diarrhea in Ethiopia and Nigeria alone would have saved nearly half a million additional lives in one year.

Second, the misallocation of aid money sucks scarce resources (administrators, doctors, political attention) from other programmes which would have more impact. As Rakesh notes:

In Tanzania, I have seen any number of health centers which lack water and toilets, where women cannot deliver their babies safely, but which has a new building with 4 air conditioners and 2 Land Cruisers and weekly workshops on AIDS.

I wrote about this problem in 2007 after visiting a clinic in Burkina Faso which had been starved of medical workers by the recruitment drive by the local PEPFAR-funded clinic. And Laurie Garrett wrote in Foreign Affairs about the impact on basic health facilities of funding linked to specific diseases.

Third, the misallocation of aid money creates perverse, possibly lethal, incentives.  Here in Ethiopia the existence of huge amounts of aid money for AIDS chasing too few people with HIV means that there is a kind of welfare state emerging for people with HIV.  It is not perhaps the welfare state we see in many European countries, but it is much better resourced than is available for people without HIV.  As well as free health care, people living with HIV are supported to find work, and their children get free education.  NGOs fall over themselves to get people living with HIV and their families onto their lists.

The result is that some Ethiopians emerge from being told the results of their voluntary HIV tests in tears because they don’t have the disease and so do not qualify for this assistance. The quality of life for them and their families would be better if they did; and their life expectancy could well be higher, given the access to health services that would be unlocked.  There are even rumours here in Addis Ababa that some people are deliberately getting themselves infected, so that they can give their children a better start in life.

***

I have used the example of HIV because the misallocation is particularly egregious here in Ethiopia (as it is in some other countries in sub-Saharan Africa). But I do not want this to be misunderstood as an attack on AIDS activists, or on funding for HIV in particular.  Some of my best friends – indeed, some members of my family – are AIDS advocates and they are among the most committed and well intentioned development advocates.  If they had been listened to earlier, a great deal of suffering in sub-Saharan Africa and elsewhere could have been avoided; and the path to development would not have been so long and arduous for the countries most affected by AIDS.  These advocates are merely one group among many making the case (and earmarking funds) for their cause.

Look, for example, at this recent paper by ODI on education (funded by the Hewlett Foundation) which complains that while funding for basic education has grown in real terms it has not grown as a share of total aid. The paper is all about how education advocates can do more to “capture” the global stage and compete with health spending. (“Capture” is their word, not mine).  And I am not picking on education either.  There are endless demands from activists to commit more money to agriculture, microfinance, water, maternal mortality and a long list of other important issues.

The development industry seems to be riddled with people whose main job is to divert money  to their good cause.   The advocates are united by a strong belief in the priority that should be given to their sector (education, water, AIDS etc). They convince themselves that they are speaking for real interests of the poor, which they consider to be unaccountably neglected by everyone else. Within many aid agencies there is a permanent state of low intensity bureaucratic warfare for resources, sucking up the time and attention of staff as they fight to defend and expand funding for the causes they work on.  They deliberately stoke up pressure in private alliances with civil society organisations – many of whom they fund – to raise the political stakes through conferences, international declarations, and publications with the aim of committing funders to spend a larger share of aid resources on their issue.  Territory is captured and held by way of international commitments in summit communiques.  But for the aid budget as a whole these are zero sum games, and everyone would be better off – and many lives would be saved – if it stopped.

The advocates might defend themselves by saying that they are trying to bring more money into development, not to reallocate aid from one cause to another.  But as they know, or ought to know, that is not how development budgets work.  The UK commitment to spend $15 billion on education by 2015 does not advance by one day the path to UK aid reaching 0.7% of GDP.  Either the commitment is meaningless, because that much money would have been spent on education anyway; or it has resulted in a reallocation of aid within a fixed total to education from something else which would otherwise have been a higher priority.

The earmarking of funds within a fixed total takes money from one good cause and puts it into another. If the money moves to a lower priority, the result is additional suffering, more deaths, a longer journey to economic development, and the need to give more aid, for longer, than if choices were driven by locally-determined, well-informed, evidence-based decisions about needs and priorities.

Here in Ethiopia, the Minister for Health is very clear sighted and articulate about the health priorities for his country, and the need to allocate resources to building effective basic health systems.  Within the limited resources it is able to control, the Ethiopian health ministry makes intelligent decisions about priorities, understanding the variations within the country as well as between countries.  They have much more detailed and specific understanding of the issues that affect people here than well-meaning activists in Europe or America.  Furthermore, it is their country and their path to development, not ours.

***

What do we need to do differently? I set out in a recent  CGD Working Paper the need to address the political economy of aid.

First, we should be much more rigorous and systematic about defining and measuring results from aid so that well-informed choices can be made.  There is a huge and expensive industry of “monitoring and evaluation”, most of the results of which is worth less than a pitcher of spit. We should dismantle it, and use a fraction of the money to fund a smaller, more sharply focused, more rigorous, international, independent collection of real evidence about the cost effectiveness of development interventions.  (Tentative steps in this direction are, of course, being fiercely resisted by the trade union of evaluators.)

Second, we should try to stop earmarking aid; we should make more use of results to demonstrate that aid is effective. The Paris and Accra agendas for aid effectiveness, which have been agreed by all the donor nations, require donors to respect the development priorities of aid recipients.  But there has been almost no change on the ground in this direction.  One step towards doing this is to put in place simple but rigorous ways to measure and attribute results, so that donors can be confident about  (and can explain to taxpayers) how their aid has been used.  If we cannot produce compelling evidence about what aid has achieved, it should be no surprise that ministers and taxpayers want to determine in advance how the money will be spent.

Third, we should stop creating global funds, and merge or close the ones we have got.  The existence of bureaucracies whose raison d’etre is to spend money in a particular sector or in a particular way creates incentives to promote resource misallocation because it protects jobs and institutional budgets.

Fourth, we must massively increase the transparency of past, present and future aid, so that informed decisions can be taken about how resources are allocated (not just between countries and sectors but within them).  Under current arrangements, donors publish details of their aid up to 23 months after it has been spent. Donors need to publish detailed information about their current and planned future activities so that governments, donors and the private sector can identify the gaps where additional resources would have most effect.

Fifth, we should, as a development community, heap scorn and opprobrium on anyone caught advocating for more resources in their sector.  We need stronger social norms in development that frown upon this kind of anti-social behaviour.

***

You may think that this is all a bit over the top.  Arguments about the architecture of aid may sound rather abstract and rarified, but aid is a scarce, precious resource and it is no exaggeration to say that if we spend it badly, the result is the avoidable deaths of literally millions of people.

Martin Wolf in the Financial Times says he is calling for “a debate” about immigration but his article is, in truth, a thinly-veiled diatribe against immigration on the grounds that it harms the economy, the environment and society.

The most important step in his argument is the first one.   Wolf says:

I, for one, have no difficulty with arguing that immigration is a privilege, not a right. Most people agree.

The assertion that “immigration is a privilege not a right” seems to me to be the wrong starting point.  I would begin with an opposite premise that seems to me to be much more basic and compelling:  “The burden of proof rests on those who would restrict human freedom.” If someone wants to move from one part of the planet to another, to live and work and raise their family, then we ought to have a very good reason before we set up a system to stop them.

To construct his argument, Martin Wolf wants us to believe both the following claims:

1. Immigration has a negative impact on the existing population; and
2. We ought to pay more attention to the interests of the existing population than the interests of the migrants.

On the first leg of this argument, Martin Wolf (under the guise of “calling for a debate”) claims that immigration is harmful to the economy, environment and society of the existing population.  As it happens, I don’t agree with any of this, though since that is not the point I want to focus on, I shall restrict myself to pointing to the economic and social success of countries that have been open to large-scale immigration.   But while I think the first leg of the argument is wrong, it is the second leg of the argument that I most want to challenge.

I doubt if anyone would seriously contest the view that even if if immigration causes some harm to the existing population, this harm is in total is far less than the very significant benefits to the migrants themselves.   So the case for restricting the freedom of people to live where they choose can only be made if you accept that we should pay more attention to the interests of the existing population than to the interests of the migrants.

There is no question that it is a widely-held view that we should give more weight to the interests of the existing population.  For example, Wolf says:

My view is that the interests of the existing citizens are of decisive weight, though we should also place some weight, too, on the interests of immigrants.

Perhaps I was born with faulty wiring, but I simply do not understand this view.

I believe we should give equal weight to the rights and interests of every human being. The idea that the interests of people born in our own country should weigh more in our moral calculus than the interests of people born elsewhere is, in my view, indefensible.  To say that we will less attention to the interests of another human  because they happen to have been born far away is organised racism, directly comparable with the pass laws under apartheid.

The United States Declaration of Independence asserts:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.

The Declaration of Independence does not limit its assertion of equality to people born within a single country. Nor is the pursuit of happiness bounded by national borders created by man. (This is just as well, as in the period following US independence one third of Europe’s population migrated to the Americas.)

Of course, the view that we should give equal weight to the interests of all human beings is unlikely to get very far in political systems designed to represent the interests of the citizens within existing borders.  But just because a political system makes it possible to ignore the rights and interests of a group of people who are weakly represented in it does not mean that it is morally right to do so.

My view is that the burden of proof lies with those who would restrict the freedom of people to live anywhere they choose.   This argument would require, at minimum, weighing up the costs and benefits of a restriction to show that we are better off in total if we curtail this freedom.  A case could only be made by placing more weight on the interests of the existing population than on the interests of other people.  I understand that there is a a widely-held view that we should do exactly that, but I nonetheless think it is profoundly wrong.   When we weigh up the argument for a policy to restrict people’s freedom based on the benefits that such a restriction will bring, we should place equal weight on the rights and interests of all people, and not privilege the interests of some people who happen to be like ourselves.  The case for restricting immigration rests on denying the equal humanity of people born abroad.  I hope that, over time, we will come to see this with the same moral outrage as we now view slavery and apartheid.

When I was a teenager, I visited Berlin, and read the grafitti on the Berlin Wall that said “No wall can stand forever”.  Now on the twentieth anniversary of the fall of the Berlin Wall, we look back with horror at the way the wall was used to keep people in.  Perhaps in another twenty years we will look back with equal disgust at the walls we build today to keep people out.

Daniel Kaufmann and Mushtaq Khan talk about corruption in the latest edition of Development Drums.

Though they come from quite different points of view, there is quite a lot of convergence between them. They agree that there is much more corruption in poor countries than in rich countries; that nobody should put too much faith in econometrics to decide whether corruption is a reason that poor countries remain poor; and that you do not fight corruption by fighting corruption.  But whereas Daniel Kaufmann believes that you have to tackle corruption to create the conditions for markets to work and to to create economic growth and prosperity, Mushtaq Khan believes that you should focus on policies to promote growth and that a certain amount of corruption is an inevitable (albeit undesirable) corolloray of the transition to a capitalist economy. I hope you find the discussion between them as interesting as I did.

What strikes me about all this is that this is a topic on which there is a serious gap between mainstream public opinion and the opinion of many (but by no means all) development “experts”.  Most people believe that corruption is a one of the most important reasons why poor countries remain poor; and yet a lot of people working in development seem to be willing to tolerate some corruption as an inevitable fact of life in poor countries.   My view is that this is a topic on which we need to see much more convergence of thinking, based on sound evidence and analysis, and that this is an important step if the development business is to regain and retain the trust of the people paying for development assistance.

Where do I come down?  I guess somewhere in between. Corruption is clearly a very serious problem which robs the poor most of all, and deprives millions of people of access to service and of the opportunity to earn a living.  In some countries, it is a major obstacle to economic growth (I think Nigeria is such a country). But there are many different causes of poverty, and there are some poor countries that have very little corruption (Ethiopia, where I live, is such a country).  And there are striking examples across history of countries that have experienced rapid industrialisation despite having quite high levels of corruption at the time (including Indonesia, Thailand, Korea, Japan) – in many cases, corruption is something that is tackled after the establishment of an industrialised capitalist economy with a strong middle class, not before.

I do think that many people working in development are too complacent about corruption.  The poor, like all of us, have dreams of a better life, and they are not helped by a poverty of aspiration on our part.

There are some countries – such as Nigeria – in which corruption is clearly a major obstacle to investment and growth.  There are other countries – such as Ethiopia – in which there is very little corruption which are nonetheless very poor, so it cannot be the case that eliminating corruption is the main driver of development.  And a lot of industrialized countries had long periods of rapid economic growth despite widespread corruption – which in many cases they sorted out after they became rich, not as a pre-requisite to growth.

On the first World Pneumonia Day, spare a thought for the mothers and fathers of the five thousand children who will be killed today by pneumonia.

Pause for a moment in silent thanks to the staff of the GAVI Alliance which works to get immunisation to children in developing countries.

If you pay taxes in Italy, the UK, Canada, Norway, or Russia, pat yourself on the back.  Your government has contributed to a market-based financing mechanism called the Advance Market Commitment, or AMC.  This provides  an incentive for vaccine makers to produce suitable vaccines in the necessary quantities at an affordable price for developing countries. The result is that GAVI has been able to reduce the current price of existing pneumococcal vaccines by up to 90%.

In the past, it often took 15 or 20 years before vaccines developed for rich countries were sold at affordable prices in developing countries.  Because of the Advance Market Commitment, four vaccine suppliers are now offering pneumo vaccines, specifically developed for the the developing world at affordable prices.

This is aid at its best: creating financial incentives for companies to bring their expertise and innovation to the table to solve some of the world’s most pressing problems.  Donors only pay for vaccines that actually get delivered and used. This money will save the lives of about seven million children over the next 20 years.

We owe a debt to Michael Kremer and Rachel Glennerster for the idea, to the Center for Global Development (especially Ruth Levine) for developing a practical proposal, to Carlos Monticelli from the Italian Finance Ministry who steered a group of donors to make it happen, to the Bill and Melinda Gates Foundation for paying for background research, to Orin Levine, Gargee Ghosh, Amy Batson, John Hurvitz, Andrew Jones, Susan McAdams, and many others for making it happen.

And to the countless bureaucrats and nay-sayers who thought it could never happen: yah-booh-sucks.

Not according to Michael Clemens at the Center for Global Development.  Read his “Think Again” piece in Foreign Policy.

Here’s a sample:

This common idea that skilled emigration amounts to “stealing” requires a cartoonish set of assumptions about developing countries. First, it requires us to assume that developing countries possess a finite stock of skilled workers, a stock depleted by one for every departure. In fact, people respond to the incentives created by migration: Enormous numbers of skilled workers from developing countries have been induced to acquire their skills by the opportunity of high earnings abroad. This is why the Philippines, which sends more nurses abroad than any other developing country, still has more nurses per capita at home than Britain does.

There are bad reasons and good reasons for supporting the use of innovative finance for development. Unfortunately, some development advocates seem williing to back any proposal that they think might raise more money for development, instead of focusing on mechanisms that will improve the way that money is used.

When is innovative finance good?

Innovative finance can improve the effectiveness of aid spending. There are at least four ways this can work.

First, innovative finance can improve intertemporal optimisation.  Aid budgets are often given from year to the next, which makes it difficult to spend the money at the best time.   For some spending, it makes sense to spend today to save money tomorrow (for example, spending money to eliminate smallpox reduced the need for health care spending later on).   It is not always sensible to bring forward spending – particularly if you believe that there are diminishing returns to some kinds of aid spending. The International Finance Facility for Immunisation is a good example of how spending tomorrow’s aid today can be sensible, because future generations benefit from the increase in herd immunity in today’s beneficiaries.

Second, innovative finance can create a commitment technology.   There are many benefits to being able to make commitments – which is why in normal life we have mechanisms such as contracts and warranties.   We need commitments to deal with dynamic inconsistency and to allocate risks.  But constraints on aid agencies make it very hard for them to make commitments about aid.  A good example of an effective forward commitment is the Advance Market Commitment, which guarantees manufacturers a more lucrative price if they develop and produce a new medical product for developing countries.  Forward commitments enable governments to invest in reforms which have costs over several years, or firms to invest in new products for developing countries.

Third, innovative finance can change incentives both for donors and recipients.  For example, funding schemes that link payments to results may reduce the incentives of donors to micromanage the way aid is used.  If payments to organisations are linked to demand (eg through a virtual voucher scheme) they may improve their services for beneficiaries.

Fourth, innovative finance can improve the allocation of risk.  Insurance pools may diversify risk, and permit rapid increases in funding in the case of disasters.  We can pool medicines, for example, so that they are available to whoever needs them first.  Stabilization funds with automatic disbursement criteria can ensure that finance is rapidly available, without strings, where and when it is needed.

In each of these four cases, well-designed innovative finance can increase the productivity of aid spending.  As aid becomes demonstrably more effective, so in the long run we can make the case for greater investment.

When is innovative finance not good?

While there are excellent reasons to identify innovative ways to give aid, the need to increase funding is not one of them.  I am in favour of a large increase in aid, but not in favour of achieving it by distorting rational decision-making on taxation and spending.   Many development advocates support schemes to tax financial transactions (a so called “Tobin Tax”) or airline tickets, or a new global lottery (a tax on the poor), if these are used to pay for increased foreign assistance.    I understand the desire to get aid any way we can, but I don’t respect this kind of opportunism.

We should determine the structure and level of taxes on the basis of evidence about the most effective (or least damaging) ways of raising the revenues we need; and we should decide the level of spending on the public’s various priorities based on how we will do the greatest good.  Linking a particular kind of spending to a particular revenue  cannot improve choices about spending or tax, and may unnecessarily constrain them.

Conclusion

Some particularly misguided proposals involving introducing taxes on goods or services we would not normally considering taxing (such as investment in information technology).  By linking these proposal to the (rightly appealing) goal of increasing aid spending, we are in danger of being seduced into doing the wrong things for the right reasons.

Innovative finance holds rich possibilities for accelerating poverty reduction by making aid money work better.  If we can find ways to relax the institutional constraints on spending money at the right time, or increase our ability to make rational commitments, we can make aid money work harder.  In time, this may mean that taxpayers and donors are willing to spend more.  But we should not invent mechanisms whose main effect is to bypass our existing processes for making sensible decisions about tax and spending.

I’ve just watched Steve Jobs at the Apple event today. I was glad he paid tribute to the man whose liver he received, and that he called on others to register as organ donors.

But it is  less impressive to see people come to this issue only after they themselves need an organ.  I don’t recall Mr Jobs using his celebrity to promote this issue before.

I think it would be a good idea to introduce the presumption that people who register as organ donors will jump the queue if they themselves subsequently need an organ.  Perhaps that would focus some minds.

For the record, if I should die, please use anything that still works; and sent the rest to med school for dissection training or whatever they do.  I won’t care then, and as a person living today I like to think that I might be useful.

Over on Huffington Post, Seth Berkley and Orin Levine make a plea for the United States to consider an Advance Market Commitment for an AIDS vaccine:

Traditionally it has taken up to 20 years for new vaccines to reach children in developing countries. The AMC can fix this inequity. Through the pneumococcal AMC, and with the support of the GAVI Alliance which administers it, children in Rwanda and the Gambia are benefiting from pneumococcal vaccines even before children in wealthy countries such as Austria and Japan. What’s more, the mechanism is spurring development and deployment of two newer vaccines that extend protection against strains of pneumococcal disease most common in the developing world. Thanks to such advances, the accelerated use of pneumococcal vaccination is projected to save 5 to 7 million lives by 2030.

The idea (which is mainly down to Michael Kremer at Harvard) is simple: donors promise in advance that if somebody invents and delivers a vaccine that meets certain requirements, then donors will  pay for it to be bought in large quantities.  That promise may provide sufficient certainty for the private sector to invest in developing new products, and to build large-scale manufacturing facilities.  Take a look at this video to see what a difference Michael’s idea is already making.

From a public policy point of view, a nice feature of this schemes is that if it doesn’t work, it doesn’t cost anything.  If you make a promise to purchase an AIDS vaccine when one is developed, but scientists are unable to crack the puzzle, then you have not spent a dime.  You are only committed to buying an AIDS vaccine when it is developed – which, let’s face it, you would have done anyway. By making a firm commitment in advance, you change the incentives for the private sector.  (The economics is set out here in an article in The Economists’ Voice.)

This scheme is designed to tackle an economic problem that runs deep in most market  economies. We typically set up incentives for firms to innovate by promising them a temporary monopoly (through patents) if they are successful. This enables a firm to charge a premium for a limited period to recoup its investment and to compensate it for the risk it has taken.  But this scheme only works if the consumers are willing and able to pay that premium.  (And even then, it has a social and economic cost because it excludes consumers too poor to pay the premium).  The scheme doesn’t work at all for products most of whose consumers are very poor – such as people who get malaria or who need cassava plants that are resistant to attack by the mosaic virus.  That’s why firms spend ten times as much hunting for a cure for baldness as they do hunting for a cure for malaria.  The Advance Market Commitment makes investment in those products much more attractive to the private sector, because now there is an opportunity to charge a premium (paid by the donors) even though the ultimate consumers are poor.

We will be in a better position to judge the effectiveness of the pneumococcal AMC when kids are actually getting injections paid for under the AMC. An important test will be whether we see pharmaceutical firms returning to the development and large-scale production of vaccines for developing countries (and there are some early signs that this is happening).

But the Pneumococcal AMC has already taught us that it is possible to navigate the legal, financial, commercial and political waters to put in place a legally-binding multi-donor commitment to buy a future product. This is the result of outstanding work done by the Center for Global Development (in which I am proud to have played a small, walk-on part).  Early nay-sayers complained that an AMC was theoretically attractive but impossible in practice.  CGD played a critical role by developing a practical way of implementing the idea, which opened the door to the implementation of the pneumo AMC.

Now that it has been shown that an AMC is technically possible, we should be looking at:

• designing an AMC for an “early stage” vaccine such as AIDS;
  It is occasionally said that an AMC works for a late stage product – ie one that has already been largely developed but needs incentives to get it produced – but that it would not be appropriate for products still requiring substantial research and development.  There is no logic to this argument. The original modelling for an AMC was done for an early stage vaccine, and I have never seen a cogent case against using the approach (alongside conventional government funding for basic research) for products at an early stage of development.
• how to get the United States involved
  This approach – of providing incentives for private sector entrepreneurship and risk taking  to be involved in products for developing countries – ought to appeal to US policy-makers, and I have never understood why the US stood aside from the first AMC. There are some technicalities involved making commitments in the US budget process but these are not insurmountable.  Let’s hope the US will be part of the next AMCs.
• using the AMC approach for other health products
  In principle, the AMC could be used to encourage the development and manufacture of a range of other health products such as drugs, diagnostics and surgical instruments
• using the AMC to promote other forms of other research and development
  we should consider whether the AMC might be a good approach for donor funding of other forms of research and development for products mainly used in the developing world, such as new agricultural varieties, solar energy products, and ways of providing clean water.
• the possibilities for other forms of “pull” incentive for research and development
  The AMC is not the only possible pull mechanism to incentivise research for products needed in developing countries. For example, donors might set up schemes to buy out patents, prizes or other rewards for success (e.g. payments linked to DALY’s averted or social rates of return). We should look again at the costs and benefits of these different ways of getting the private sector involved.

I love this idea for making money from people who believe that the rapture is coming:

We are a group of dedicated animal lovers, and atheists. Each Eternal Earth-Bound Pet representative is a confirmed atheist, and as such will still be here on Earth after you’ve received your reward. Our network of animal activists are committed to step in when you step up to Jesus.  We are currently active in 20 states and growing. Our representatives have been screened to ensure that they are atheists, animal lovers, are moral / ethical with no criminal background, have the ability and desire to rescue your pet and the means to retrieve them and ensure their care for your pet’s natural life.

I wonder if anyone is actually buying this insurance?

It worries me that people who are interested in reducing world poverty leap so readily on the Tobin Tax bandwagon.

There are three questions to answer:

• should we spend more on reducing global poverty?
  (my answer: yes, if we have to)
• should we tax transactions in financial markets?
  (my answer: maybe, though I am not persuaded)
• should we link aid budgets to revenues from such a tax?
  (my answer: definitely not)

My answers are explained below the fold.

I can see why some people are attracted by a combination of extra money for the world’s poor and a poke in the eye for the unacceptable face of capitalism.  But to support the Tobin Tax on these grounds is at best opportunism, and at worst reveals a hostility to the functioning of markets which will, in the end, not serve the poor.

Read the rest of this entry »

Adair Turner, Chair of the Financial Services Authority, says that the FSA should not be expected to curb city bonuses:

Lord Turner, head of the Financial Services Authority, said it was “economic illiteracy” to expect his organisation to be able to dictate to banks what they paid their staff.

He complains that is is beyond the remit of the FSA:

“My message was . . . stop telling the FSA to go beyond its remit and to start imposing limitations on the level of bonuses, which it is neither within our legal power or our practical ability to do,” he said.

Well, up to a point, Lord Copper.

It all depends on why you want to curb city bonuses:

• concerns about social inequality
  If inequality is your motivation, Adair Turner is right. This is for the Government to sort out, not the FSA.
• concerns about the cost to the banks
  If you are worried about the cost of salaries, this is for the shareholders to sort out. Again, since the Government is a big shareholder in a number of the banks, the Government could take steps to address it.
• concerns that bank staff have incentives to take unnecessary risks
  But this is squarely the business of the regulator.  If you think that the bonus culture leads city folk to take risks with our money because the bonuses reward short term payback and do not sufficiently penalise long run losses, then this is something the FSA should sort out.

So it is not economically illiterate to think that the FSA should look at city bonuses, if there are concerns that they might create incentives for risky behaviour that we want to avoid. (I have no idea whether the FSA  the legal powers to do so: but that is a different point.)