Dreaming of Incremental Change

“I don’t believe you change hearts, I believe you change laws, you change allocation of resources, you change the way systems operate. You’re not going to change every heart. You’re not. But at the end of the day, we can do a whole lot to change some hearts, and change some systems, and create more opportunities for people who deserve to have them.” — Hillary Clinton to Black Lives Matter activists, NYT, the Atlantic

Gosh, that sounds rather sterile and maybe even unambitious. Hillary’s plan is to make incremental changes to the system from the inside. Meanwhile Bernie makes a case for revolutionary change.

“What this campaign is about is not just electing a president, it is transforming America. To do that we need millions of people — people who have given up on the political process, people who are demoralized, people who don’t believe that government listens to them. We need to bring those people together to stand up loudly and clearly and to say ‘Enough is enough.’ This country belongs to all of us, not just wealthy campaign donors.” — Bernie Sanders, Bustle

Which approach is more effective for a president?

My understanding of governance and the American political system has evolved over the years to value both incremental changers and revolutionaries. About a decade ago I decided to primarily work on climate change. I went back and forth between believing we needed to focus our efforts on changing the system from the inside and believing that only radical activism can induce change. In graduate school, I learned a lot about the policymaking process, activism and theories of change, economics, and also how the financial industry interacts with corporate management.

For any given issue there is ecosystem of outsiders and insiders whose activities in the aggregate shape policies or corporate reforms. This analysis is probably most relevant for reforming the private sector rather than civil rights.

The role of outsiders is pretty straightforward. Since outside activists have the most visibility to the public, their activities are pretty well-understood by most people. They apply pressure to their targets by publicizing bad behavior and demands for redress. The effectiveness of activists depends on the extent that they can motivate the public. What is the role of insiders, then?

Well, the relationship between activists and their targets is usually adversarial so there is no trust. Caring about the well-being of the targets does not serve the purpose of gaining publicity for outsiders. This is one major reason why targets would rather work with insiders who will not publicize setbacks and missteps, but who still have credibility with the public.

A key component of gaining a target’s trust is looking and sounding like a peer. People are influenced by the behavior and values of their peers, which determine the social norms most relevant to them. As a result, in addition to getting access to the decision-making process, insiders have a chance of influencing the target socially.

Even if the target agrees to reforming their practices, implementing changes might be a long and convoluted process. Insiders help enumerate all the steps in detail and set up oversight processes. Yes, this is where commitments get watered down. The target might only agree to some modest reforms or no reforms at all in the end. Still, some insiders may choose to stay engaged rather than burn the bridges in hopes that the political winds may shift in their favor eventually.

Responsible Investing

To illustrate the dynamic, let’s look at the movement for making financial investments more environmentally and socially responsible. Both outsiders and insiders are major players in the ecosystem for reforming the private sector. A couple of very substantial incremental changes have been achieved in recent years.

In this corner of the universe, the various fossil fuel divestment groups at universities are quintessential outside activists. They are demanding that university endowments divest from fossil fuels. Insiders include UN PRI (Principles for Responsible Investment), which is a project initiated by the United Nations that has convinced most of the biggest asset owners to commit to investing responsibly while best practices are still being established. Other insiders are Sustainalytics and MSCI, which rate corporate performance on environmental issues as well as other issues. The ultimate insiders, though, are asset managers like Blackrock and regulators like the SEC (Securities and Exchange Commission) and the DOL (Department of Labor).

All of these groups have been very active in pursuing more responsible investing. The outsider groups have been successful in raising the profile of responsible investing, forcing endowments or investors to address the issue. While most investors don’t think that divesting from fossil fuels is the right response, they have committed more resources to determining what is and engaging with relevant insiders. This has given insiders room to promote a variety of incremental changes for investors to adopt.

The SEC and DOL have made some very meaningful contributions lately. In Feb 2010, the SEC issued guidance on reporting climate change risk, where they officially required companies to disclose whether and if so how their operations may be affected by climate change or climate change legislation in 10K filings. This means that the analysis around the financial impacts of climate change as well as the corporate contribution to climate change will be much better quality. And if not, shareholders will have more legal grounds to demand better information and better practices.

In October of last year, the DOL issued new guidance for fiduciaries of retirement plans, stating that under the Employee Retirement Income Security Act (ERISA)

“…environmental, social, and governance factors may have a direct relationship to the economic and financial value of an investment. When they do, these factors are more than just tiebreakers, but rather are proper components of the fiduciary’s analysis of the economic and financial merits of competing investment choices.”

This means that fiduciaries should take environmental, social, and governance issues into account to ensure investments do not erode the welfare of beneficiaries outside their retirement funds. This is an even bigger deal than the SEC requirement to disclose climate change risks. This rule covers all pension and retirement plans so that beneficiaries will be able to hold their fiduciaries up to a higher standard. This paves the way for retirement and pension funds to implement a variety of responsible investing strategies including fossil fuel divestment.

The guidelines by the SEC and DOL are written using very neutral formal prose, and on their faces, don’t seem to be very impressive regulations. They don’t ban fracking, tax gasoline, create a carbon emissions trading scheme, or require power plants to be more efficient. But in fact, these changes would be necessary even if those other policies were implemented. They are incremental but systemic changes to the financial industry and corporate management. The guidelines pave the way for some of the other ones as investors get better at calculating the long-term impacts of climate change on their portfolios. The indifferent language has the added benefit of being harder for the right to use in campaigning (hopefully).

The Presidency

I believe the presidency is a great place for an incremental changer. There are many agencies in the executive branch that can issue guidance and rules to elaborate upon existing legislation such as the SEC and DOL. These agencies have some leeway in how they enforce these rules as well. Other than overseeing these agencies, the president spends most of her time strategizing with her party in Congress to pass heavily negotiated legislation and a budget with incrementally favorable line-items. There is not much use for speeches in this arena because insiders are unlikely to be swayed by skilled rhetoric. Organizing the public would be useful in theory, but so far it has not been effective, mostly because the demands must come from particular districts where Republicans or more conservative Democrats are from. Sam Stein at the Huffington Post describes why Obama’s Organizing for America was unsuccessful in pressuring Congress.

“…redistricting has not just given Republicans firm control of the House until 2022, it’s made the party’s members more responsive to their ideological base.”

Most of the day to day work for the president and his allies in Congress requires intricate knowledge of the policy levers available to agencies and where each Congress-member stands on every issue. It is best if the president comes in with this knowledge so he can get started right away. This includes already being familiar with the menu of policy recommendations of all the major think tanks and policy experts. For example, the SEC and DOL rules regarding responsible investing emerged from the work by UN PRI as well as other NGO’s and activists.

By most accounts, Hillary has this knowledge and is a skilled policy wonk. She apparently values staying in the game, a mark of a consummate insider. She is often accused of being “in bed with corporate interests.” But after looking at her record and her thoughts on governance, I think it’s more likely that she feels it’s important to resist the greater influence of the right from the inside even if it means she must compromise. Again, the inside is where the decisions are made for allocating resources as well as setting the agenda. Because of this, she must also endure constant criticisms from both the right and the left. I appreciate her willingness to hold down the fort, and I think the presidency is the ultimate fort so I am supporting her over Bernie Sanders for the Democratic nomination.

There is still room for revolutionary change. Concerned citizens should absolutely keep insisting on better oversight of the financial sector, campaign finance reform, more progressive taxes, social justice, etc. It can even be helpful to insiders to make somewhat unrealistic demands because then insiders are better positioned to negotiate for a more favorable compromise.

The revolution can’t be led by the President or probably even most legislators. With a better understanding about what politicians actually do, we could apply pressure more strategically; for example by promoting more progressive candidates to Congress, state legislatures, and even agency appointments. Activists could raise the profile of more progressive ideas of think tanks. Cutting down the influence of insider allies is almost certainly not helpful, especially since the left already struggles with having enough resources to hold on to power much less promote their colleagues.

I encourage everyone to learn more about the policy-making process, and I will also try to publicize the more mundane but no less meaningful skirmishes. Let’s go change systems, laws, and resource allocation!