Seemingly inadvertently yesterday, David Cameron made a commitment to legislation that would force utilities to ensure their customers were always on the cheapest tariff for their energy supplies.
The proposal has been met with some derision and now seems to be unravelling, but it’s problematic principally because it does not go nearly far enough.
In this, as in many markets, the odds are stacked against the consumer. Tariffs have proliferated, becoming increasingly difficult to compare, making informed decisions almost impossible. Few people really understand what they’re buying.
This is not simply a problem for the ill-educated. As I pointed out in a paper for the Long Finance initiative, MBA students prove incapable of determining which mortgage offers them a better deal, even when dealing with fewer parameters than are offered to British borrowers.
A massive information asymmetry is at work. Companies understand their customers’ cognitive biases. They crunch the likely impact of millions of buying decisions. And they frame choices in ways that turn what should be plain-vanilla commodities into much more profitable branded products.
There is only one answer to this: redesign markets from the consumers’ point of view. There are two main tasks.
First: enable the creation of technologies that level the playing field for consumers.
If you venture into a complex market without representation, you are asking to be fleeced. Traditional agents (people), however, are expensive, and their role as honest brokers has often been eroded when they are paid by the seller, not the buyer.
Technology can solve this problem. It is now a very simple task to design an intelligent agent that scours the market on behalf of a consumer, inviting bids and accepting them, based on criteria that its master has specified.
Here’s how it might work in the utility market.
Here’s a brief video of an event I attended yesterday, held by the Franco-British Council, about new French and British government initiatives to measure well-being.
News here that David Cameron has approved the establishment of a ‘behavioural insight’ unit, led by policy advisor David Halpern, to find ways to implement the ideas of behavioural psychologist Richard Thaler, who is also apparently working with the unit.
Thaler is, together with Cass Sunstein, the author of Nudge, a study of humans’ poor and often irrational decision-making processes (such as preferring books with easy-to-remember one-word titles) and how governments can manipulate or ‘nudge’ these processes towards more enlightened choices.
Putting a picture of a fly on a urinal, for example, nudges people to pee more in the urinal, and less on the floor. Creating bins that make a funny noise when you drop things into them encourages people to put more rubbish into them. And so on!
There are other, more far-reaching ways you can use behavioural psychology to affect public decision-making. For example, if you present a policy decision to citizens, you could either offer them a box to tick to sign up to it, or a box to tick if they want to opt out of it. Making people tick a box to opt out makes us more likely to opt in.
Why? Because we’re lazy, bored, distracted, inert and irrational creatures. We’re monkeys, so the government needs to present our choices in such a way as to make us pick the right banana.
Thaler and Sunstein call this sort of social manipulation ‘libertarian paternalism’. People are still free to choose how to live. But, knowing that homo dufus often makes bad decisions, governments and companies should structure the choices they prresent so they pick the more enlightened option.
There are two ripostes to this approach. (more…)
Today sees the publication of Organizing for Influence: UK Foreign Policy in An Age of Uncertainty (pdf), a new report authored by David and me, published by the Royal Institute of International Affairs. This is one of the first two publications from Chatham House’s project on rethinking Britain’s overall foreign policy role; the other, also out today, is a scene-setter by Chatham House’s director Robin Niblett. (Still to come are in-depth papers on Britain and… the global economy; the US and Europe; the rising powers; energy and climate; the developing world; and security and defence.)
In our report, we observe that while foreign policy and global issues barely got a mention during the general election campaign, it’s a racing certainty that the new coalition won’t have the luxury of ignoring them in government. As we’ve argued before, globalization is in the midst of what we term a ‘long crisis’. As an open economy and society, Britain is especially exposed. The government’s international workload is about to increase, perhaps dramatically. And given the need to reduce the deficit, it’s going to find itself stretched to the limit.
All this means, we think, that the government needs to work to upgrade and reform all aspects of its international programme. For one thing, that means making clear strategic choices – specifically, we think, seeing Britain’s international agenda through three overlapping lenses:
– First, national security. For us, this is about the direct threats to Britain, within a relatively short timescale – 5-10 years or so. It should not be about the longer-term or non-security risks like climate, scarcity or global economic risks. While we very much welcome the coalition’s creation of a National Security Council and appointment of the UK’s first National Security Adviser, we argue that if it tries to cover the whole of foreign policy, then we’ll be back to a storyline we know all too well: the urgent crowds out the essential, and preventive action gives way to fire-fighting.
– Second, global risks and the global system. We have to look at these issues separately from national security, we argue. For one thing, the amount of risk that’s tolerable in each is totally different. Any failure on the national security front can be disastrous. On global system issues, on the other hand, you have to take risks if you want to get anywhere – to be a venture capitalist, not a bank manager.
– Finally, fragile states. National security is fine as a lens when you’re looking at countries where the UK actually has troops deployed, like Afghanistan. But it’s the wrong lens for looking at places like Nigeria – where the challenge has much more to do with taking a long-term, political economy based approach to questions of governance, resilience and ‘development diplomacy’.
What does all this mean in practice?
A dramatic overhaul of the Foreign Office’s London HQ, for one thing – turning it into something that looks a lot more like the Cabinet Office (with at least half of senior policy posts filled from other government departments, and a lot more recruitment from outside government too), so that it can finally be the department for global issues that it should have become years ago.
A much tighter focus on fragile states at DFID, too – which we argue should close down its offices in ‘good-performing’ countries like Tanzania in favour of putting its aid through partnerships with other donors, or the multilateral system, and focusing its staff much more heavily on the really difficult cases. It’s staff, not cash, that’s DFID’s scarcest resource, so that’s what it needs to prioritise. (Did you know that DFID has only 2,586 people – to the Foreign Office’s 14,549?)
Plus a bunch more recommendations besides – including more ambassadors for issues (like we already have on climate and arms control), a tighter focus on the alliances and networks that could really magnify UK influence (especially the EU, G20 and NATO), a much bigger role for Parliament in foreign policy, and – perhaps the farthest reaching change of all – allocating budgets to strategies rather than departments, on the basis of first-principles reviews of UK objectives, capabilities and performance on the 3 areas of national security, global systems and fragile states.
Read the whole thing – all comments, as ever, very welcome. We’re also doing an event on the report at Chatham House on 9 June, and will be running the concluding session of the Institute’s two day conference on Britain’s future foreign policy role on 13 and 14 July.