02 February 2016

The importance of buy-in

The American Interest writes about the European immigration crisis:
However much the idea appeals to cosmopolitan utopians, it is not possible for such human communities to accommodate levels of migration beyond some ceiling. That ceiling is variable, and when there are large cultural and religious differences between the native population and newcomers, the ceiling drops. Europe's waning welcome, 'The American Interest', 1 February

'Such human communities' refers to 'polities that were relatively ethnically homogenous'. I agree that the 'ceiling is variable', but think the authors should have mentioned the importance of buy-in. It's unfortunate that hugely important issues, like immigration, are influenced less by ordinary people than by the usual benefactors and manipulators of an inaccessible policymaking environment. Especially when it is ordinary people who will experience most of the disadvantages of mass immigration, and it is ordinary people whose attitude to immigrants will do much to determine immigrants' loyalty to their new home. The usual benefactors and manipulators? Politicians, lobbyists, billionaires and ideologues.

It wouldn't be hard to involve the public in policymaking if we were to focus on outcomes rather than institutional funding and structures, legal processes, slogans and the celebrity status of policy proponents. Immigration is a relatively accessible issue, and the public should be consulted about it. I am certain the reception accorded to immigrants described in the article excerpted above would be less hostile if our leaders had thought to consult us on the issue.

So too with other policies: consultation generates buy-in, and our democracies face many urgent, big challenges for which buy-in from ordinary citizens will be crucial but is almost entirely absent. Climate change, for instance, health care, nuclear weaponry, or disaster prevention or, not least, the nature of the policymaking process itself. Expressing our policy goals in terms of outcomes, rather than impossible-to-follow procedures, would allow public consultation and with that, buy-in. Without buy-in, we're going to see continuing public disengagement from the policy process, which could express itself in ways that are dangerous to us all.

Social Policy Bonds are a means by which policymaking would be focused on outcomes rather than process. Under a bond regime, government would articulate society's goals and could back bonds that would reward their efficient achievement. By emphasising outcomes, rather than the supposed means of achieving them, policymaking would  become comprehensible to ordinary people. Buy-in would be one happy result: efficiency, brought about by market forces, would be another.

25 January 2016

Health screwups

The evidence is necessarily scanty, but the (US) Institute of Medicine in 1999 estimated (pdf) that at least 44 000 and perhaps as many as 98 000 citizens died each year in US hospitals and 1 million patients were injured from a range of mistakes. Since then, according to Joe and Teresa Graedon, there has been little, if any, improvement.
If medical mistakes and misadventures were a disease, there would be a great deal of hand wringing. We would have an organization comparable to the American Heart Association or the American Cancer Society to publicize the problem, and huge sums of tax dollars would be spent researching the causes and seeking solutions to all these screwups. Instead, the medical establishment mostly acts as if this problem were invisible. Top Screwups Doctors Make and How to Avoid Them, Joe Graedon and Teresa Graedon, 2011
My own view is that resources for health care are rarely allocated in ways that optimize returns. It might be that, as I suspect, efficiency counts for little against the charisma or leverage of top specialists, interest groups and celebrities when it comes to deciding which diseases, for instance, shall receive most funding. Or whether preventive medicine should receive more funding. Or, indeed, whether the most efficient ways of improving a population's health have less to do with medicine, and more to do with, as the Graedons persuasively suggest, introducing check lists and rigorous procedures in healthcare facilities. It's only a suspicion, but the point is that there are no incentives in place for people to find out whether it's true.

Applying the Social Policy Bond principle to health might be the solution. To 'health', note, not 'health care'. Why? Because health is not something that arises mainly, or even primarily, from the decisions made by institutions devoted to health care. It may well be the case that relatively costless changes in diet, exercise, tobacco consumption or (one of my pet hates) the frequency and volume at which emergency vehicle sirens are played would do more for health than, say, investments in statins or new technology. As with exposing and tackling the 'screwups' identified by the Graedons, there are no incentives for anyone to find all this out. Instead we have organizations, such as hospitals, health services, charities, interest groups, and corporations which all have their own agendas which might at times coincide with improving the health of the population, but might not, and even if they did, would not necessarily be doing so efficiently. The human and financial costs of such resource misallocation are huge. The Social Policy Bond concept applied to health, by targeting and rewarding improvements in the population's health, however achieved, might be the solution.

17 January 2016

Insiders, outsiders, and world peace

The Economist describes the French labour market as...:
 ...divided into “insiders”, those with permanent, protected, full-time jobs, and “outsiders”, whose work is insecure and temporary. .... And France’s biggest unions, for all their revolutionary rhetoric, have become talented and conservative defenders of insider privileges, at the price of shutting too many young people out of decent jobs altogether. Fighting French unemployment: mode d'emploi, 'The Economist', 16 January
It seems to be the way of all big organizations, be they trade unions, religious institutions, government bodies, large corporations or political parties. They start out well intentioned but at some point their interests diverge from those of the people they purport to represent, and their over-arching goal becomes self-perpetuation. Sometimes, especially during their early years, these bodies have interests that coincide with those of their members. Later, institutional growth or survival becomes an end in itself. Even when they do represent their members, large organizations do so only in their members' capacity as members - as distinct from human beings with interests that are longer term and broader than those encompassed by their membership. People outside these bodies suffer, either directly, because the organizations' rules benefit insiders at the expense of outsiders, or less directly, in that people expend a great deal of time and energy trying to become insiders because, largely thanks to big organizations' ways of working, that's the only way to improve one's quality of life. So, for instance, we see large corporations manipulating the regulatory environment to keep out smaller companies.

My own thinking is that of course there must be large organizations - including countries with borders - but they must be made to keep to their principles and so have broader goals than self-perpetuation. Many of our social and environmental goals are the responsibility of the large bureaucracies that, in common with other other large bodies, have self-perpetuation as their ultimate goal. That is why I think Social Policy Bonds could help. Under a bond regime the structure and composition of organizations responsible for achieving our social goals would be constantly changing. The market for the bonds would see to it that the people working for these organizations would be paid according to their efficiency in achieving our goals - which coincide exactly with society's goals. The market for would ensure that only the most efficient approaches to solving our social problems would flourish, and that unsuccessful approaches would be terminated. 

The organizations' structure, composition and all their activities, would be subordinated to the outcomes that we, as a society, want to see achieved. These new types of organization, because of the way the market for Social Policy Bonds work, would always have powerful incentives to achieve our social goals. For all these reasons, Social Policy Bonds mean that we could meaningfully target long-term, urgent, but  hitherto idealistic-sounding goals such as the achievement of world peace.

10 January 2016

No one is in charge

'The Economist' writes:
Global problems are not tackled[,] because governments fail to co-operate; voters get angrier and push their leaders into more nationalistic positions. And it is hard to see things changing this year, with no country likely to take the lead. America will be consumed by its presidential election, Europe by refugees and fear of terrorism, China by its adjustment to slower growth. No one is in charge. Loathe thy neigbour, 'The Economist', 9 January
The column excerpted above is concerned mainly with the refugee crisis and economic problems. But other global concerns come to mind: the impacts of climate change, nuclear proliferation, or military tensions in south-east Asia and elsewhere. These are potentially serious problems that could lead to the death, injury or homelessness of millions of people and have devastating effects on the environnment. Our current political system ensures that those whose lives would be shattered by, say, nuclear war have little sway over how policy is made. There is a huge and widening gap between the concerns of ordinary people and those who make policy. It's not the policymakers who are at fault: it's the system.

Nobody is in charge, as the column says. That's bad enough. But worse is that nobody has an incentive to stop what they're doing at the moment and look for solutions to these global problems. Under the current regime the costs of giving up an income are upfront and certain. The benefits of helping solve global problems are remote and nebulous. International bodies like the United Nations agencies or non-governmental bodies do tackle some large-scale problems, but their efforts are haphazard and the people who work for them are not paid in ways that reward success. Some are corrupt.

Many of us, sensing the inadequacy of humanity's attempts to think globally, fall prey to some ideology that imposes meaning on our predicament. Such ideology can take the form of wishful thinking, at best, or a sort of revenge psychology, at worst. All ideologies, though, are insufficient to solve our global problems, in that they see one or other top-down, uniform and unresponsive mechanism as the solution. These ideologies are mutually incompatible and their leaders mostly corrupt, incompetent or insane. But helpless people facing huge uncertainties will seek reassurance from anybody who promises salvation in this world or the next.

A better policymaking system would help. Social Policy Bonds, issued with the backing of all governments, supplemented by contributions from philanthropists and ordinary people, would articulate people's wishes for a world of peace, reduced poverty, and environmental health, to take three of our most urgent and serious challenges. It would separate the articulation of our wishes from their achievement. People - all people - would be in charge of specifying our broad, global goals. But the achievement of our goals would be in the hands of new types of organization: coalitions of people, government or not, who at any one time would have incentives to find the most efficient solutions to our global problems. These new organizations would take a long-term view, targeting goals that might seem remote and unachievable, but that are necessary for humanity. Goals such as a thirty-year period of nuclear peace, or the reduction of adverse climatic events. The organizations would probably have changing compositions and structures, and would have incentives to co-operate with each other. Their goals would be exactly the same as humanity's. The bond regime would reward them in ways that correlate directly with their efficiency.

The Social Policy Bond mechanism would see to it that market forces would serve humanity as a whole, by allocating our resources - all our resources - where they can do most good. The world needs diverse, adaptive approaches to our global problems. The current system does not and cannot supply them. Social Policy Bonds can. 

31 December 2015

Social Policy Bonds: the past and the future

In the past year there has been a rise in the number of issues of Social Impact Bonds - the non-tradable variant of Social Policy Bonds, about which I have had mixed feelings. They essentially function as performance-related bonuses to service providers. Because they aren't tradable, they favour existing bodies and so, in my view, can be gamed or manipulated more readily than could Social Policy Bonds. However, there are social services that are currently so poorly provisioned that SIBs could well represent an improvement over existing policy. And they might be a first step - perhaps even a necessary first step - to the issuing of Social Policy Bonds. Tradability would greatly expand the range of goals that could be targeted, and I discuss this and other advantages of Social Policy Bonds over SIBs here and here. (You could also search for "SIBs" on this blog.) This wikipedia page summarises where SIBs are being issued and other details.

As far as I know, Social Policy Bonds are not being issued anywhere. I believe, though, that the need for outcome-based policy is becoming increasingly urgent. Society grows ever more complex, and its problems ever less amenable to solution with our existing government machinery. As ever, there is a much broader consensus about the outcomes we wish to see than the possible means of achieving them. The gap between governments and the people they are supposed to represent keeps widening. The recent Paris meeting, which was supposed to address climate change, is the example par excellence of policymaking entirely disconnected from citizens. It will fail for several reasons, foremost of which is the total absence of buy-in from ordinary people - that is, people who aren't involved in policymaking or lobbying. With efforts to address global problems, there would be huge benefits arising from a market-based solution, which in economic theory and on all the evidence would optimise resource allocation.

For reasons of both buy-in and efficiency, then, and because of our increasingly interlinked world, I remain optimistic that Social Policy Bonds will play a role in achieving social and environmental outcomes in the future. Perhaps not in 2016 but, I think, within the next ten years.

17 December 2015

Paris will fail

Why I think the Paris deal on climate change, which concluded on 12 December, will fail.
  • It may not be enough. It targets, using ossified science, cuts in greenhouse gas emissions. But what if that achieves nothing? What if the climate continues to change much more than expected, because the deal's underlying calculations and assumptions are wrong? What then? The emission cuts are a supposed means to unspecified, but crucial, ends. It would be preferable to do the hard work of identifying exactly and explicitly what those ends are, expressed in terms of impacts on human, animal and plant life, perhaps combined with social and financial targets. Then we could target those ends directly and, importantly, measure progress toward them more accurately.

  • It may be too much, in the sense that resources could be diverted into reducing gas emissions and away from projects that could have a much more positive impact on human, animal and plant life. 

  • No buy-in. Ordinary people don't know or care about greenhouse gas emission volumes. What we do understand is adverse climatic events, and their effects on humanity and the environment. If we were to target those directly not only would we be solving real problems more efficiently, we'd also have more public understanding and commitment to the process. In short, you would get buy-in from the public, which is as essential as it is absent from the Paris agreement.
That said, the $100 billion to be transferred from the rich countries (that is, their taxpayers) to the developing countries (that is, their governments) to adapt to climate change could be useful - if that's where the money actually ends up. But, on past form, what isn't spent on luxury goods or otherwise squandered will end up in Swiss bank accounts.

To read more about how Social Policy Bonds could be applied to climate change see my paper here, or recent blog posts here, here and here.

08 December 2015

Metrics for climate change

The Economist discusses metrics for climate change:

[T]aking the world’s temperature is not as easy as it sounds. Different parts of the planet warm at different rates, as do different layers of the atmosphere, so all sorts of corrections have to be applied to arrive at a single number. A truly simple, and arguably better, approach would be to use concentrations of greenhouse gases—the cause of the warming—as putative maxima. These gases mix rapidly into the atmosphere, so are easily sampled in ways that brook little dissent. Goal difference, 'the Economist, 5 December

I disagree, partly because greenhouse gases are not the sole cause of warming: we do not know, for instance, how big are the relative contributions of deforestation (through changes in albedo as well as carbon emissions) or different cloud types. Some proportion of climate change also comes from natural (non-anthropogenic) events. At least as importantly, our views about the greenhouse gases' relative contributions change dramatically with our growing scientific knowledge. There would, then seem to be a pragmatic basis, as well as the case for broader public engagement, for instead targeting for reduction the impacts on human, animal and plant life of adverse climatic events.

Climate Stability Bonds could set such impact reduction goals. If, in time, and with the market's incentives on offer, bondholders decide that the best way of achieving such goals is to reduce certain greenhouse gas emissions, then that is what they will do. But it would seem hubristic and inefficient for governments or UN bodies to assume that that this is the best way of achieving meaningful reductions in those impacts. There are too many uncertainties, and the science upon which such a policy is based is inescapably ossified. See also my other recent posts on this question.

03 December 2015

But who allocates the funds?

From 'the Economist', in a feature about climate change:
Energy firms do not spend a lot on research because there is no product differentiation in energy (electrons are electrons) and thus nothing exciting to sell until the price falls below that of the existing technology. So taxpayers will have to stump up most of the cash. If more money were forthcoming, a good deal of it would be wasted on dead-end projects. But that is the nature of research and development. Second-best solutions, 'the Economist', 28 November
I'm not sure whether funding research into alternative ways of generating electricity is a goal that ordinary people would find meaningful. But putting that aside, and assuming that 'taxpayers will have to stump up most of the cash', there are better ways of allocating that funding than via the usual activity-based, outcomes-don't-matter, formula that typifies government research programmes.

My proposal would be for the government to do what it's good at: (1) raising the necessary funding and (2) specifying a goal to be achieved, but then to bow out and allow a motivated private sector to allocate the funding to its chosen projects - something that economic theory, and all the evidence, suggest it can do more efficiently than the central planners in government. Social Policy Bonds could directly target cleaner electricity production, though I'd prefer they target broader and more obviously meaningful goals. Either way, a bond regime would lead to diverse, adaptive projects and bondholders would have powerful incentives to back only the most efficient ways of achieving whatever goal is specified. When government allocates funding, all sorts of criteria other than maximising returns per taxpayer dollar creep in. And we don't need to go beyond the energy sector to see that.

27 November 2015

Climate change, again

I posed this question before but it bears repeating: are we more concerned about climate change, or about the impacts of climate change on human, animal and plant life? The popular assumption is that the most efficient way of mitigating the negative impacts of climate change is to reduce that which current science suggests are one of its major causes: greenhouse gas emissions. But we don't know that for certain, and we don't know the degree to which we can do anything about it. And we'll never know whether any of the costly policies suggested in this article will have had any impact whatsoever. It would seem preferable to spend our scarce resources on dealing with the impacts of adverse climatic events - whether they're caused by greenhouse gases or not. Floods are just as devastating whether caused by greenhouse gas (ghg) emissions or not. Climate Stability Bonds would, in fact, encourage ghg emission cuts if they are found to be the most efficient way of dealing with the adverse impacts of climate change on human, animal and plant life.

When I wrote along the above lines to an internet comment forum, one respondent said: 'What you don't do is cause a problem, then ignore it while you "fix" the symptoms.' My response is that we should not be dogmatic about whether we tackle causes or symptoms. The 'cause' of a large proportion of the crime problem is 'young men': we don't force all boys to undergo a sex change just so we can save money on a justice system.

There are undoubtedly symptoms whose root causes we can identify readily and address. There are others whose root causes are currently unknown or too expensive to tackle. We could still, with Social Policy Bonds, target the symptoms for solution and motivate bondholders to work out whether or not the best way of dealing with them is to go after possible root causes. There are problems whose root causes might never be unambiguously identified. But if we issue Conflict Reduction Bonds, for instance, there's no need to resign ourselves to living on a planet wracked by war.

21 November 2015

The bias against unglamorous diseases

From a letter to the editor of the Economist:
[R]oughly speaking, mental health receives only about half the research funding it should in America, based on its health burden. The problem is that many interest groups lobby Congress vigorously for research funding for their disease. Patients with mental illness do not yet exert that kind of political pressure. letter from Michael Hanna of Mercury Medical Research & Writing, 'the Economist' dated 21 November
It's striking how unrelated is healthcare funding to need. Medical experts have little capacity or incentive to see beyond their own institution or speciality. Government - and not only in the US - responds to pressure from interest groups and allocates funds accordingly. Slipping through the cracks are unglamorous diseases including mental illness. Even within a class of diseases, such as cancer, funding discrepancies are stark: this paper looks at the UK. I think government here is failing in its purpose. It should target for improvement the broad health of all its citizens rather than merely respond to lobbyists, however dedicated, sincere and hard working. It should, as far as possible, be impartial as to the causes of ill health, and direct resources to where they can return the biggest health benefit per dollar spent. Applying the Social Policy Bond principle to health could do this. For more, see my short paper on Health Bonds.