In late 1995, a powerful earthquake hit the southern part of Israel, raising again the question of whether Israelis are adequately prepared, should ever the threatening "big one" arrive. Governments around the world repeatedly face similar dilemmas of addressing "latent time bombs," i.e., warnings about potential, sudden disasters that might occur. These are dilemmas, because neither preparing for potential threats nor ignoring them is without cost. One would want to be prepared adequately for severe droughts, floods, earthquakes, acid rain, a massive leakage of toxic material, a financial crisis in the Social Security System, or the outbreak of so-called mad cow disease. But given our limited capacity to predict accurately such events and their
Address requests for reprints to: Dr. D. Dery, Political Science Department , Hebrew University of Jerusalem, Mount Scopus, Jerusalem 91905 Israel.
consequences, there is no escape from premature or even wasted prepa- ration.
In theory, the "precautionary principle pervades analysis and action in all risk issues" (Wildavsky 1995, p. 8; see also Breyer 1993). This principle holds that government should intervene, even when we suspect but cannot prove a risk. The crucial question, writes a proponent of worst-case, safety- first rules, "is not whether we can prove conclusively that disaster really lurks ahead, but rather whether we can afford to be unprepared for its not unlikely occurrence" (Stephen Schneider, cited in Wildavsky 1996, p. 443).
In practice, government is reluctant to take precautionary action in a number of notable cases. Disasters still happen, even though they might have been prevented or at least their magnitude reduced. So why is govern- ment prone to intervene beforehand, in the case of potentially hazardous substances, but afterward in the case of potential time bombs? Why is it that environmental regulations seem exempt from "blame avoidance politics," where officeholders are motivated primarily by the desire to avoid blame for unpopular decisions (Weaver 1986), whereas other policies are not?
My personal observation of three latent time bombs in Israel, two of which later exploded, has motivated this exploratory study. These latent time bombs are described in section 2; they concern a financial collapse, a drought and a mass immigration. Section 3 discusses the motivations for government either to act or refrain from action against latent time bombs. Section 4 analyses further the distribution of costs related to government action and inaction. Section 5 concludes the differences between latent time bombs and nonsudden environmental threats.
2. Three Examples of Latent Time Bombs
In the three cases that follow, Israeli government faced credible warnings regarding very significant events: the collapse of the financial markets, a severe drought, and an unprecedented wave of immigrants from the former Soviet Union. 1 In all three instances, government adopted a do-nothing policy; if costs were to be incurred, they would be taken care of when predicted events are at bay. In two of these cases, the collapse of the financial markets and mass immigration, the predictions were on target. However, although it seems now clear that early intervention in the stock market would have been advantageous, it is questionable that a parallel effect would have been secured in the case of mass immigration. The predicted 1991 crisis in the water economy was falsified, but it is plain that nature has not solved Israel's water problems. Without some drastic changes in water policy (see Dery and Salomon, 1997), the dire conditions faced in
Mass immigration to Israel is widely considered a blessing, not a disaster nor a threatening event. The predicted wave of immigrants, however, qualifies as a latent time bomb, due to the assumption that a potential grand opportunity might be lost (in the sense of both, foregone benefits and added costs) unless a large-scale prepratory action is set in motion.
LATENT TIME BOMBS IN PUBLIC POLICY 415
1990 are bound to recur, with no assurance that nature will once again come to the rescue.
2A. Collapse of the Financial Markets
According to Marshall Sarnat, "In many ways, the year 1983 was for Israel what 1929 was for the U.S. In January 1983, the market for non-bank shares collapsed, and by year's end, investors were left with only about 20 cents on the dollar. [ . . . ] Nine months later, the capital market was rocked by an even more far-reaching crisis--the collapse of the market for bank shares" (Sarnat 1991, p. 3). In the Fall of 1983, investors dumped their bank shares in favor of dollar-denominated investments. The banks found themselves "saddled with over $900 million worth of repurchased shares, while lacking the necessary financial means to continue the support of their shares in the market. The government intervened and the bank shares were converted, for all practical purposes, into government bonds." In one stroke, Sarnat continues, "Israel's internal debt was increased by almost $7 billion, the capital market was paralyzed, and the government found itself the unwilling owner of the nation's banking system" (1991, p. 4).
On December 31, 1984, the Comptroller General submitted to the Knes- set a special report entitled "Bank Shares- -The Crisis of October 1983." A week later, the Knesset decided to institute a judicial Enquiry Commission headed by a supreme court judge, the eighth such commission since the establishment of the State, and the first judicial Enquiry Commission to have been instituted due to Comptroller General findings. 2 In his report, the Comptroller General pointed to the responsibility of three main supervisory agencies: the Ministry of Finance, the central bank (the Bank of Israel), and the Israel Securities Authority. All three have known at least since 1977 of the speculative manipulation (known as "regulation") of bank shares by seven banks and were aware of the implications of what Sarnat, a member of the Enquiry Commission, dubbed "a speculative Alice-in- Wonderland-like bubble" (1991, p. 3). Documents attesting to the dangers associated with the speculative promotion of stocks were found in the archives of all three public agencies (Report of the Comptroller General, 1984, p. 11). The first intervention plan (the Gadish Plan) was submitted to the Minister of Finance as early as September 1981. Two additional proposals were presented in December 1981 (the Document of Four, 3 and a Financial plan which was presented to the heads of the commercial banks.
2Following the recomendations of the Commission of Enquiry into the Intervention in the Trading of Bank Shares (April 1986), Israel's top bankers were discharged of their duties and found themselves on the defendant 's bench. In a trial that ended in February 1996, the court imposed on the bankers heavy fines (one banker was sentenced for 1 year conditional imprisonment). No charges were pressed against public officials.
~The four authors of this document were: the head of the stock market division in the Ministry of Finance, the chairman of the Israel Securities Authority, the supervisor of banks in the Bank of Israel and the chairmain of the Tel-Aviv Stock Exchange.
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A similar Finance proposal was presented again in March 1983). According to the Comptroller General, none of the three agencies in charge of super- vising the banks and the stock market had the courage to wage war on this manipulative promotion of bank shares (1984, p. 36). "Even when the Ministry of Finance has arrived in 1981 to the opinion that the promotion is very much like a time-bomb, it did not act to remove the incentives present to the banks to continue the promotion . . . . The Ministry was content with a 'do-nothing' policy" (1984, p. 85). Governors of the Bank of Israel and the commercial banks supervisors were similarly found to have adopted a "do-nothing" approach, lacking the bravery to put an end to the speculative manipulation (1984, p. 97).
2B. 1991 Drought
The situation at the beginning of 1990 was not caused by force majeure and was not the result of a single dry year or even consecutive dry years, but arose from improper management of water resources over the course of years (Comptroller General Report 1990/1992, p. 37).
In the years 1979 and 1986, the water economy in Israel has been in a state of crisis, but the crisis of 1990 was considered the most serious. Due to excess pumping from underground water reservoirs, which continued for many years, the accumulated "debt" reached in 1990 the magnitude of 1.6 billion cubic meters, nearly the nation's yearly consumption. The year 1990 was the first time ever in which the Water Commission reduced water quotas for agriculture in the course of the season. On March 20, 1990, emergency regulations were issued to reduce quotas (by 15% in the north- ern part of the country, and by 7% in the central region), and 3 months later a further reduction by 10% was enforced in all regions. Water allocation for household consumption and industry were reduced by 12% (Comptroller General Report 1990/1992).
The management of the water economy in Israel was not alerted by consistent warnings on expected severe water shortages and the dire conse- quences of overpumping. The 1990 crisis was anticipated already at the beginning of 1989/90 season. The Comptroller General Report recounts a number of forecasts undertaken by three different groups, including the Hydrological Service in the Water Commission, all anticipating a substantial reduction in water resources and basically recommending a cautious ap- proach. 4 However, "the Water Commissioner did not pay heed to the recommendations and did not reduce the quotas" (Comptroller General 1990/1992, p. 36). In December 1989, water allocation amounted to some 1.9 billion cubic meters, "more than the available amount of water . . . "
4 The 1990 Comptroller General Report identified 19 major reports and studies that were received during the past 20 years; one of these reports, dating back to 1983, used explicitly the term "time bomb" regarding continued water overdraft.
LATENT TIME BOMBS IN PUBLIC POLICY 417
(Comptroller General 1990/1992, p. 37). The decision not to reduce the allocations at that stage, "was courting disaster." This decision "further worsened the already serious situation, but it was the manner in which water resources were managed over a long period, which had caused the crisis situation" (Comptroller General 1990/1992). The State Comptroller Re- port, issued in December 1990, warned that "In fact, the country no longer has water reserves in its reservoirs. Today, there is real danger of an impossi- bility of supplying water in the required amount and quality even in the short-term" (Comptroller General 1990/1992, p. 60). But then came the winter of 1991, which in a matter of weeks falsified the alarming warnings.
2C. Mass Immigration from the Soviet Union
The possibility of mass immigration from the former Soviet Union has been on the public agenda since the beginning of 1989. First there were rumors and leakages of official forecasts, but toward the end of 1989, a dramatic development seemed imminent. As early as January 1989, the Israeli Parlia- ment (Knesset) demanded that the cabinet "develop right away, in conjunc- tion with all relevant parties, a comprehensive immigrant absorption pro- gram with all that this implies" (Report of the Comptroller General 1992, p. 15). In 1989 the number of immigrants (a total of 24,000) doubled that of the previous year, but during 1990 there were 200,000 immigrants. "We are in a state of emergency" proclaimed Mr. Meridor, Minister of Justice, "we must break working procedures, shorten processes and procedures, and stop worrying about different 'holdings"' (Haaretz, May 14, 1990). But government were caught virtually unprepared. According to the Comptrol- ler General, " . . . as a rule, the government ministries which it examined had not prepared operational plans for dealing with mass immigration. Existing plans were for the most part partial, general, and not ready for immediate implementation" (1992, p. 16).
The government budget for 1990 was based on an estimated total of 40,000 immigrants in 1990. Soon it had to be updated so as to face reality; the updated budget for 1990 assumed the arrival of 220,000 immigrants. The 1991 budget took note of "the wave of mass immigration from the Soviet Union" and proclaimed that "the central aim of the budget is there- fore, the successful absorption of the immigration wave, and an accelerated rate of economic growth" (Israel, Ministry of Finance 1990, p. 17). 5 A system, which for nearly a decade has become accustomed to dealing with some 15,000 immigrants a year, was abruptly required to manage about 20,000 per month. Such a magnitude of immigrants requires not only a greater share of state resources (estimated cost of absorbing 100,000 immi- grants was three billion U.S. dollars), but also a new absorption policy.
5This recognition of successful absorption of immigrants as one of the most important objectives of the state budget is repeated in the Principles of the State Budget, for the years 1992-1995.
4 1 8 DAVID DERY
"Immigration on the anticipated scale", the Comptroller General wrote when the expected wave of immigrants became a reality, "means a signifi- cant change in society and economy, and macroeconomic policy must be reconsidered. Decisions should be made at the national level regarding the goals of absorption policy, in order to work out a new 'game plan' for absorption without direct government intervention" (1992, p. 15).
3. Reaction to Latent Time Bombs
In a preventive society, the people in charge of raising the alarm will rule (Wildavsky 1995, p. 445).
One might argue that inaction of government in the face of threats such as financial collapse and drought is no surprise whatsoever. Even if prompted to take preparatory action, government may not know what to do, and erroneous intervention may be worse than none at all. 6 Furthermore, inspection of isolated cases may create the wrong impression that govern- ment has had no other problems or emergencies to address 7 than the latent time bombs. It may further be argued that in the absence of immediate, rather than projected problems, that is, in the absence of a constituency, it would seem reasonable to expect that government attention and other scarce resources be directed elsewhere.
On the other hand, government inaction with respect to latent time bombs seems peculiar, particularly in light of what Wildavsky depicted as "the monumental reversal" of comprehensiveness (Wildavsky 1995, pp. 429-430). In the past, comprehensiveness, as opposed to incrementalism, 8 demanded that before acting we must have full knowledge of alternative courses of action and their likely consequences. Now the argument has been reversed completely: "a lack of comprehensiveness now requires preventive action by government. If all is not known, that is, if a product or practice is not proved safe, then it must be banned or restricted" (Wildavsky 1995, p. 430). So, the precautionary principle explains government 's propensity to intervene, as is demonstrated in regulation of hazardous materials. The question remains: Why does government not intervene in the case of latent time bombs?
First, the reasons for which intervention prior to the event would be ex- pected:
6 U.S. government reaction to the swine flu scare of 1976 is an example of ill-advised early intervention, apparently triggered solely by a "worst-case" scenario (Neustadt and May 1986, pp. 48-57).
7In the case of the stock market collapse, for example, one would note that 1981 was an election year (general elections were held in November 1981) or that, beginning in June 1982, a controversial war was waged in Lebanon,
~Comprehensiveness in decision-making "requires the abrogation of uncertainty by demanding full knowledge of consequences before action is taken" (Wildavsky 1995, p. 429). By contrast, in "incremen- talism" the demand for knowledge is significantly reduced by making small changes that can be easily modified or reversed in light of actual consequences.
L A T E N T T I M E B O M B S IN P U B L I C P O L I C Y 419
1. The events in question are significant; if they do take place they will seriously affect the well-being of a large number of people.
2. The warnings in this class of latent time bombs are deemed credible by the officials in charge. They represent the best guesses or predictions of informed experts; one cannot reject them easily as imaginary or ri- diculous.
3. In these cases, it is reasonable to assume that government can do something before the events in question occur so as to alleviate, if not completely prevent, expected hardships.
Second, the one reason for which nonintervention until after the event would be expected:
4. The costs associated with advance preparation for latent time bombs are significant and highly visible 9 (although, presumably, lower than the costs that would be inflicted should the events in question actually occur). Normal cost-avoidance behavior means that the significant costs associated with prepratory intervention tend to be postponed. The visibility of such costs underscores the political difficulty associ- ated with cost distribution. Early intervention in light of a latent time bomb entails the imposition of concrete losses on concrete citizens. 1° The alternative of "letting nature take its course," that is, letting indifferent nature engage in cost distribution, is much more attractive.
One substantial difference between latent time bombs and hazardous sub- stance is this high visibility of costs associated with early intervention. The propensity to intervene in the case of potentially risky substances might be due to the availability of an intervention strategy, regulation, of which the costs are hidden, or at least difficult to discern. "The precautionary principle is a marvelous piece of rhetoric," writes Wildavsky. "It places the speaker on the side of the ci t izen--I am acting for your hea l th- -and portrays opponents of the contemplated ban or regulation as indifferent or hostile to public's health" (Wildavsky 1995, p. 428). The rhetoric is powerful not only because it seems to present a choice between health and money, but also because the choice can be construed as a choice between your health and someone else's money. If there are no discernable costs, there can be no benefit-cost analysis, and the road is open for worst-case benefits-only analysis, which invariably means more regulation. H
Another notable difference between latent time bombs and latent hazard- ous substances relates to the suddenness of the predicted event. Warnings about risky substances do not foreshadow a dramatic incident, which (per- haps ironically) can be a significant political incentive to postpone interven-
9 Cost visibility means a clear connect ion be tween the decisions t aken and the costs incurred. "~ This is also one of the reasons that r e t r enchment decisions are politically unat t ract ive (see Pierson 1994). ~ For cost es t imat ions and benefit-cost analysis of regulat ion see Breyer 1982, 1993.
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tion. In an actual state of emergency, government can mobilize more easily the political and economic resources required to repair actual damages than when faced with only a possible emergency.
The rest of this analysis concentrates on this factor of visible cost distribu- tion. First, I shall concentrate on two distinct components of public policy: substantive payoffs vis-a-vis power payoffs. Secondly, to carry the argument a bit further, or perhaps just to clarify it, I shall apply the notion of Pareto improvement to the behavior of one decision-maker (or a group of decision- makers). Given the properties of latent time bombs outlined above, there would seem to arise conflict between these two types of utilities (substantive payoffs and power payoffs) for the same person. If so, the question arises as to what that decision-maker would consider to be an improvement.
One of the ways Wildavsky depicts the essence of policy analysis is a hybrid of two-thirds politics (social interaction) and one-third planning (intellectual cogitation). Policy analysis "uses intellect to help guide rather than replace social interaction" (1979, p. 124). In the same vein Majone (1989, p. 80) suggests that the purpose of analysis is not merely to know (planning) what is the correct policy in a given field, but to ensure that the policy will be chosen and implemented (politics). According to Altshuler (1979, p. 12), the main function of the decision rules policy-makers employ is to "maximize the capacity of decision-makers to define the policy game as one of winners without losers, and thereby to produce the greatest possible ratio of satisfied to dissatisfied constituents" (1979, p. 12). Policy innovations, he maintains, "will be found attractive politically in accord with the fit between their own imperatives and the maintenance imperatives of political decision-makers" (1979, p. 94).
In every policy issue we can identify two main components, politics, or power payoffs, and planning, or substantive payoffs. "The Politics of . . . " is a recurrent title of books and articles, signifying that there is more to policy making than substantive costs and benefits. Or, as economists are bound to put it, "When we say that the cure is simple, we mean that, from an economic point of view, it is easy to understand and that it could be carried out without great expenditure; from the political point of view, however, there may be most serious difficulties" (Hirshliefer et al. 1973, p. 367).
A similar distinction, between "technical payoffs" and "power payoffs," was introduced by Downs (1967) to analyze the desirability and the likely effects of computerized urban-data systems on urban decision-making. Technical payoffs have to do with improvements in data inputs, processing, and outputs that are potentially beneficial to all participants in the decision making process. Power payoffs "are gains in one person's decision making
LATENT TIME BOMBS IN PUBLIC POLICY 421
effectiveness made at the expense of another person's. (1967, pp. 251-252). 12 Every change, each and every instance of policy-making, has both substan- tive and power repercussions. Normally we suspect that what is good for political actors is not necessarily good for society, but we tend to accept the reverse, namely that political actors associated with a substantive im- provement would be rewarded.
There are, however, instances, such as our latent time bombs, where attemtps to bring about substantive gains, that is, undertaking "to do the right thing," entails power losses. Under such conditions, decision-makers face the choice either of taking action before a catastrophe erupts or of waiting. This choice entails answering a basic question: Who pays? One may add two related questions--When will costs be incurred? and What is their probability of occurrence?a3--but the predominant question is of cost allocation.
4A. Power Payoffs and Substantive Payoffs It is useful to pursue the distinction between power payoffs and substantive payoffs with the help of "Pareto improvement." According to Pareto, a change that harms no one and improves the lot of some people is an improvement. Point I in Figure 1 depicts the initial distribution of utilities between person X and person Y. The shaded area in Figure 1 depicts the improvement zone, representing utility gains to one person or group (either X or Y) that do not entail harm to the other, plus utility gains to both (up to a limit, represented by the utility possibility curve PxPy).
Clearly this zone defines the notion of improvement (sidestepping the question of interpersonal comparison), but it does not designate the set of possible moves. In Figure 2, this notion of an improvement zone is retained, except that the utilities on the two axis do not represent two persons (or groups) but different utilities to the same person (or group). In line with the distinction made in the previous section, these utilities have to do with power payoffs (P) and substantive payoffs (S) that accrue to the same actor(s).
With this depiction a distinctive characteristic of latent time bombs is more easily discernible: moves from the initial position (I) to the improve- ment zone are no longer possible; attempts to bring about substantive improvements entail political sacrifices and vice versa. If I is the initial position, and M represents some minimal conditions below which political
12In this scheme there are also "final payoffs," actual improvements in government or private action, that somehow combine technical and power payoffs.
~3,,When,, has to do with whether the costs will be borne immediately (in the case of intervention), or in a more distant future. This question of timing is by no means negligible (e.g. consider a decision that has to be made in an election year). The probability question entails the choice between the (near) certainty that substantial costs will be incurred if action is taken, and a high probability, although smaller than near certainty, if it is not.
422 DAVID DERY
Change\ l Utility gain
Y
X
Change\ Utility gain
FIGURE 1. The Zone of Improvement. I depicts the initial distribution of utilities between person (X) and person (Y). PxPy is the utility possibility curve.
actors cease to be viable, the only alternatives are those in the L-shaped area divided to three boxes, L-l, L-2, and L-3. L-2 represents alternatives with substantive gains (relative to the initial position) that entail political sacrifices, and L-1 represents the reverse. L-3 alternatives, requiring both political and substantive costs, are clearly inferior to both L-1 and L-2 alternatives. The hypothesis that under conditions of latent time-bombs, political actors would rather wait than act can be re-introduced as the following: Political actors will seek alternatives in the L-1 box (wait) rather than in the L-2 box (act).
This hypothesis would seem to be supported by the following consider- ations:
1. When a crisis erupts it is difficult to tell in advance who will be hurt, while in taking action beforehand one is required to clearly designate would-be losers. Moreover, precautionary action requires decision makers to convert "statistical victims" into actual victims (see Fried 1970, pp. 207-218), when it is neither certain nor easily demonstrable that the public should suffer any hardships. Imposed hardships, Elster (1983, p. 90) advises, are tolerable if shared by all, reminidng us of
L A T E N T T I M E BOMBS IN P U B L I C P O L I C Y 423
P
Change\ utility gain
M
S II
Change\ Utility gain
FIGURE 2. The "L-Zone". I depicts the initial position of a given politi- cal actor(s) with regard to power payoffs (P) and substantive payoffs (S). M represents some minimum level of political power that is needed for political action.
Tocqueville's observation: "it is the inequality of burden, not its weight, which usually provokes resistance" (Elster 1983, p. 89).
2. In crisis, when a demonstrated need to intervene is available, govern- ment can more easily mobilize the agreement required to impose substantial universal suffering.
3. If a natural disaster takes its course, decision-makers may assume that it would be possible to spread overall costs thinly over large numbers, early intervention more likely entails relatively high per capita costs to those designated as would-be losers.
4. Decision-makers who choose to intervene beforehand may further associate themselves with the cause of suffering, rather than point to some inescapable force majeure. "Resistance is provoked not by the state in which citizens find themselves, but by the causal process in which it is originated" (Elster 1983, p. 90).
In short, to defer action is to let somebody else engage in the ungrateful business of distributing costs.
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5. Conclusion
My attempt in this exploratory article has been to characterize explicitly a class of significant events-- la tent time bombs that governments repeatedly confront. With the help of three examples, taken from the Israeli context, four characteristics of latent time bombs were delineated: (1) they concern major events; (2) predictions about them are credible; (3) early intervention is understood to be possible and potentially beneficial; and (4) costs associ- ated with advance preparation are significant and highly visible. Given the first three characteristics one would probably expect early intervention, but the fourth attribute makes such intervention very unlikely, primarily due to the need to engage in cost distribution. It is thus hypothesized that confronting latent time bombs, government is more likely to take action after, rather than before, threatening events occur. A complementary argu- ment to the same effect suggests that at times of crisis, government can more easily mobilize political and economic resources than when facing a potential threat.
Noting the propensity to "err on the side of safety" in the case of hazard- ous substances, the study also sought to distinguish between such cases and those that belong to the class of latent time bombs. The main difference in these two cases is the visibility of intervention costs and the distribution of these costs. In the case of latent hazardous substances, the propensity to intervene may be accounted for by the availability of an intervention mode, i.e., regulation, whose costs are difficult to discern and are, at any rate, spread thinly over the entire population.
I gratefully acknowledge the support of the Mandel Institute. 1 thank Israel Scheffler and V. A. Howard, co-directors of the Philosophy of Education Research Center at Harvard University, for providing me with the opportunity to pursue scholarship and build friendship.
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