08 November 2014

Measureable versus immeasurable goals

Theodore Dalrymple writes:
[W]e suffer nowadays from an unease in talking about what cannot be easily measured, such as life expectancy. If I say something that would once have seemed perfectly obvious, such as that loneliness is undesirable, someone will demand the evidence. Life expectancy can be measured; and we are inclined to believe that what can easily be measured must be more important than what cannot. The result is a lot of pseudo-thought. ‘Hell is other people?’, Theodore Dalrymple, 'Salisbury Review', 20 October
In our large, complex societies, government bodies have enlarged their role and largely supplanted families, extended families, and communities in supplying a range of welfare services to a large proportion of their populations. Increasingly, and of necessity, government relies numerical indicators to manage its resource allocation.

But this use of indicators is relatively recent, unsystematic and unsophisticated. Few indicators are targeted explicitly for a sustained period: the targeted range of inflation is a rare exception, as is the coherent range of indicators presented in the UK Government’s attempt to tackle poverty.  Other indicators, such as the length of hospital waiting lists, don’t measure what matters to people or are prone to manipulation. Even when numerical goals are clear and meaningful they are rarely costed, they are almost always too narrow, and they are largely chosen to mesh in with the goals and capabilities of existing institutional structures. Those broad targets that are targeted with some degree of consistency tend to be economic aggregates, such as the inflation rate, or the rate of growth of Gross Domestic Product — which appears to be de facto indicator par excellence of rich and poor countries alike. But GDP’s shortcomings as a single indicator of the health of an economy are well known.

What would a Social Policy Bond regime, though, say about those things that cannot readily be measured, like loneliness? In the absence of objective, reliable indicators of mental well-being perhaps the best approach would be for government to step back and target only those quantifiable indicators or goals that are inextricably linked to those sorts of well-being that we can measure. But that would not be enough: some government activities aimed at, to take our current discussion, lengthening life expectancy could well increase loneliness. Think, for instance, of government support for roads, which may well have the effect of both lengthening life expectancy and increasing loneliness.

Facing this dilemma, I have a response, rather than an answer. A Social Policy Bond would set policy targets by consensus. People understand outcomes more than the means of achieving them, and so could and would participate in the policymaking process, including the setting and relative priority of social goals. There would be more buy-in to policy, which itself might go some way toward relieving the negative impacts of certain decisions. There's no perfect solution, but a bond regime, because of this additional opportunity for public participation that it offers, and because it forces clarity over exactly what we want to achieve as a society, could help to resolve conflicts between measurable and immeasurable goals.

16 October 2014

GDP versus mental well-being

I posted recently about how a the framing of healthcare issues as medical problems can lead to sub-optimal outcomes, drawing on the work of Dr Jocalyn Clark. I suspect it's symptomatic of a broader problem.

Western societies are built around the assumption that a healthy economy will either solve all our problems, or allow us to do so. In this sense, we are framing all our problems as economic. Now a successful economy does actually solve many of our problems, but there are parts of our economy that if successful, actually are in conflict with our goals as human beings.

Part of the problem is the definition of success that we use. Almost always we mean the accountants' definition of success: economic activity: Gross Domestic Product, which is equivalent to the volume of money times the velocity of circulation. GDP, or GDP, per capita has become the de facto goal of society. A higher GDP means a higher potential to achieve all our goals, we reason. Even if much of its gains are concentrated in relatively few pairs of hands, and even if certain generators of GDP create negative impacts, a higher GDP means we can compensate the losers - even if we don't actually do that.

There's a big flaw in this, similar to that which Dr Clark identified: we are framing all our social problems as economic ones. Very often this framing is not explicit: it's part of who we are and the society we live in.

In my work on Social Policy Bonds, I've attempted to make clear that economic growth is not actually an end in itself, but a means to various ends that it would be more efficient to target directly. If, for instance, we want to reduce crime, then we'd do better to reward people for reducing crime rather than simply increasing the funding of bodies that are supposed to be fighting crime. The Social Policy Bond framing allows for all sorts of experimentation with non-conventional ways of reducing crime. Under our current system there are few funds systematically given to help people run youth centres in areas of high youth unemployment. Under a bond regime, people would have incentives to fund such centres in places doing so would maximise the reduction in crime per dollar outlay.

So far, so (relatively) conventional. But suppose our problems have little to do with resources, or even with the allocation of scarce resources, but with economic activity itself? Take the recently highlighted (in the UK) studies showing that loneliness is a big and growing problem for both young and old. Loneliness and alienation are to some degree a product of our economic system, which is entirely dependent on specialization of labour. As well, consumption of goods and services is, along with government spending and investment, one of the drivers of GDP. We have a society with an over-arching, and not always explicit, imperative to buy things. We maximize GDP by buying things for ourselves, rather than sharing. Government can also contribute to social alienation by, for examples, subsidising environmental destruction, or encouraging without consulting the public mass unselective immigration with a view to keeping wages low and property values high (or to help it retain power or simply out of spite). Government looks at its own accounting flows, and knows well that increasing economic activity raises its tax revenues.

Our current system, then, is inherently geared to the monetisation of just about everything. A Social Policy Bond regime could actually subvert such a system. It could undermine the transactional way of conducting our affairs, and encourage other, less mercenary activities, where those would be the most efficient and effective ways of reaching our actual, explicit, goals. Doing so would not be its goal, but it could arise out of the goals we specify which would, one hopes, be more congruent with society's real goals than our current implicit goal of ever-increasing economic growth. There's an obvious paradox: a bond regime would pay people to achieve our goals, but if achieving our goals requires the cessation of payments and the ending of a transaction-based activity, then under a bond regime that is exactly what will occur. Bondholders have incentives to look for the most efficient ways of achieving our goals, regardless of whether they involve money flows or not. Under the current policymaking system, with its perverse incentives and its over-arching goal of maximising the number of transactions (so raising GDP), it is extremely unlikely to occur. The bias under the current system is always towards more transactions, more money flows and so more alienation and loneliness. And what is our society's default response to loneliness and depression? To increase economic activity still further: by manufacturing and marketing powerful drugs.

A well-specified Social Policy Bond regime would target for improvement reliable indicators of mental well-being. The effects of doing so, we cannot anticipate. But the possibilities are as immense as they are apparently paradoxical: the bonds, utterly dependent on financial flows as they are, could reverse the extreme specialisation of our society, the extreme individualistic nature of our consumption patterns, and the entirely transactional way in which we more and more see the world.

27 September 2014

Bertrand Russell anticipates Social Policy Bonds

Bertrand Russell (1872-1970) wrote: 
There is one peculiarly pernicious application of the doctrine that human nature cannot be changed. This is the dogmatic assertion that there will always be wars, because we are so constituted that we feel a need of them. .... If political organization were such as to make war obviously unprofitable, there is nothing in human nature that would compel its occurrence, or make average people unhappy because of its not occurring. Exactly the same arguments that are now used about the impossibility of preventing war were formerly used in defence of duelling, yet few of us feel thwarted because we are not allowed to fight duels. An outline of intellectual rubbish, first published 1943,from 'The Basic Writings of Bertrand Russell', Routledge Classics 2009
Incentives are important and so too is belief that we can end war. Of course, nobody knows how to end even a single conflict, but much human progress has happened serendipitously, with no overall plan. I think we can do better than that, and issue Conflict Reduction Bonds, for instance, which supply incentives for people to find ways of ending conflict that we cannot know in advance. The causes of war are many, complex and volatile. No organization as currently structured can possibly anticipate and address them. We need new types of organization that have incentives to research, adapt, and address all likely causes of war. War and any form of violent political conflict are too important to be left to government or the generals.

26 September 2014

Is global health overmedicalised?

Are we overmedicalising global health? is the title of a recent podcast by Dr Jocalyn Clark, who has also written an article (which I haven't read) on the subject. It's a great question, and one that needs answering. My suspicion is that, as in other policy areas, approaches are too much determined by existing institutions and their outlook and goals. These goals don't always coincide with those of society; sometimes they could even be in conflict with them. In global health, Dr Clark says, there is:

...a medicalisation of these global health problems which occurs when global health issues, which are so strongly linked to poverty and inequity, instead get defined and framed in medical terms and then the solutions developed for them are similarly medicalised.
As society becomes more complex, relationships between cause and effect in physical and mental health, and also in crime, environmental well-being, illiteracy and many other areas, become less easy to identify. But current approaches rely largely on government institutions to make a stab at identifying these relationships and then try to do something to influence them and so improve outcomes. For simple relationships, this can work well and, indeed, government might be the only organization that can deal with certain social and environmental problems. But for complex relationships, especially those that vary markedly over space and time, approaches that rely on government are going to be inefficient at best and in conflict with wider goals at worst. We need, instead, to subordinate institutional structures, outlook and goals to outcomes. And these outcomes must be broad, societal outcomes, rather than those articulated by  existing institutions.

'Health care is but one determinant of health', says Dr Clark, rightly. Targeting broad health outcomes would be a more reliable way of achieving health goals than, as is done now, framing health goals in terms of existing institutions and existing approaches. One solution might be to adopt the Social Policy Bond principle and issue Health Bonds, which would inject market incentives into the achievement of our health goals and reward whoever achieves these goals, whoever they might be, and however they might do so.

06 September 2014

When government should step back: higher education

Marina Warner writes:
[T]here is a central contradiction in the [UK] government’s business model for higher education: you can’t inspire the citizenry, open their eyes and ears, achieve international standing, fill the intellectual granary of the country and replenish it, attract students from this country and beyond, keep up the reputation of the universities, expect your educators and scholars to be public citizens and serve on all kinds of bodies, if you pin them down to one-size-fits-all contracts, inflexible timetables, overflowing workloads, overcrowded classes. Diary, Marina Warner, 'London Review of Books' dated 11 September

Quite. There are some easily quantifiable benefits of education, such as universal literacy and numeracy, but not many. Government can and should target such goals and it could also usefully target attendance at approved educational establishments for children up to the age of 16 or 18. But when it comes to higher education, government should perhaps step back; it could still fund institutions if there's a public will for it, but there is a strong case for making its funding conditional only on certain minimum standards, rather try to apply the narrow, accountancy-based, short-term goals that are a feature of the business world. The demand for tertiary education is relatively informed; students relatively mobile. Government in this, and other policy areas, needs to exercise some humility. Diversity of funding sources, as between government and other sources, and within government, would also be helpful. I've done a short piece here on how an outcome-focused Social Policy Bond regime could approach education.

An update: released today (8 September) is a report done by the charity Save the Children, which says, referring to the UK: "The most comprehensive study of pre-school and primary school-aged children in a generation found disadvantaged children are the worst affected, with four in ten not reading well by the age of 11."

27 August 2014

Who cares about outcomes?

Politicians are skilled at doing the exact opposite of what they make us think they're doing. The policymaking process in the public mind is a tedious discussion of organizational structures, organizational funding, and regulation. The tedium is so ingrained that few of us take a deep interest unless we're being paid to. It's probably deliberate, at some level. So when politicians say they want to cut back on subsidies paid for fossil fuel consumption, it shouldn't really shock us that not only are such subsidies still being paid, they're actually increasing. The International Energy Agency tells us that:
The IEA’s latest estimates indicate that fossil-fuel consumption subsidies worldwide amounted to $544 billion in 2012, up from $523 billion in 2011, with subsidies to oil products representing over half of the total.World Energy Investment Outlook 2014, IEA, June 2014
As pointed out here, this is four times the level of aid given by the OECD's Development Assistance Committee ($134 billion in 2013). 

24 August 2014


I've long argued that social policy needs institutions that must be subordinated entirely to broad, meaningful outcomes. Instead, we have institutions whose over-arching purpose is self-perpetuation. Francis Fukuyama writes, wisely in my view:
The very stability of institutions, however, is also the source of political decay. Institutions are created to meet the demands of specific circumstances, but then circumstances change and institutions fail to adapt. One reason is cognitive: people develop mental models of how the world works and tend to stick to them, even in the face of contradictory evidence. Another reason is group interest: institutions create favored classes of insiders who develop a stake in the status quo and resist pressures to reform. America in DecayThe Sources of Political Dysfunction, Francis Fukuyama, 'Foreign Affairs', September/October
The current regime takes existing organizations as a given. Debate centres around their funding, composition, remit and structure. A Social Policy Bond regime would instead fund outcomes, and let bondholders decide on the optimal organizational form; one that, especially for remote social goals, would - or just as importantly - could change shape, size, and the projects it supports, constantly, in response to changing circumstances and our expanding knowledge.
[M]any [of the US's] political institutions have become increasingly dysfunctional. A combination of intellectual rigidity and the power of entrenched political actors is preventing those institutions from being reformed. And there is no guarantee that the situation will change much without a major shock to the political order.
Exactly. Social Policy Bonds would target outcomes directly, and let motivated bondholders and would-be bondholders compete continuously  to decide how best to achieve them. Intellectual rigidity under a bond regime would be penalised. Efficiency would be rewarded. All in stark contrast to the system not only in the US, but in much of the rest of the world. 

07 August 2014

Public service reform

The Economist talks about public service reform:
But voters, and thus politicians, are especially intolerant of civil-service inefficiency nowadays. One prompt is austerity. Another is technology, which is changing not only how public services are delivered—think of “massively open online courses” in education—but also the way they can be measured. Social networks enable users to grumble about hospital waiting-times and mathematics results. Perhaps the biggest pressure is the passing of time: private-sector workers are incredulous as to why civil servants should escape the creative destruction that has changed other offices around the world.
Quite. Why is it that the achievement of social goals remains (largely) a government monopoly? No good reason, other than vested interests and highly successful patch protection.

The Economist goes on to talk about pay and the need for long-term, strategic thinking. Politicians love to restructure and re-prioritize, to tinker with funding, and to appoint placemen in powerful positions. The remedies the journal suggests include better pay, reduced security for top public service positions and, perhaps, appointing some overlord who takes an exceptionally long-term view.

I have another suggestion: target broad, meaningful outcomes, and let a motivated market decide on organizational structures, composition and the projects they undertake. Under a Social Policy Bond regime there might or might not be 'destruction' of such organizations, as envisaged by the Economist and as occurs in a well-functioning private sector, but such destruction is a means not an end. Social Policy Bonds would ensure that any such destruction would occur only if it were truly 'creative' in the sense of better achieving society's goals, as defined in the redemption terms of the Bonds. 

It's likely that a new type of organization would result: one subordinated to the efficient achievement of meaningful social and environmental outcomes rather than, as now, the caprice of powerful interests, be they government or private sector.

26 July 2014

New procurement in Barcelona and Philadelphia

Christopher Swope writes about changes in procurement in the cities of Barcelona and Philadelphia: 
Typically when cities buy goods or services, they spell out in strict detail exactly what it is they want to buy. But that level of specificity stifles innovation, because it restrains the inventiveness of companies who might bid on the work. It also limits the pool of bidders to established companies familiar with the sort of solution the tender asks for. Barcelona’s less proscriptive approach turns the old system on its head. Rather than laying out exactly what it wants to buy (say, bike lockers), Barcelona is laying out six problems it wants to fix (such as reducing bike theft). How Barcelona and Philadelphia Are Turning Procurement Upside Down, citylab, 18 July

Anyone familiar with Social Policy Bonds will see the similarity: specify outcomes, rather than the supposed means of achieving them: 
Responses could involve buying things, but they might also suggest new services, regulatory changes or any other means of accomplishing the goal.
Excellent - as far as it goes. This procurement system will stimulate diverse, innovative solutions. The difference, and it's a big one, between this mechanism and Social Policy Bonds, lies in how these various possible solutions are decided upon and rewarded.

It appears that after gathering together various diverse possible approaches, a selection is made, presumably of those approaches deemed (I'm not clear by whom) to be the most promising. And the reward?
Anyone around the world with a creative idea, including startup companies or even individuals, has a shot at a contract and all the market legitimacy that comes with that.
It's an improvement over the current system, but in comparison with Social Policy Bonds, I think it has weaknesses:
  • The selection of the most promising approaches might be open to favouritism, image, or corruption - in short, qualities that have little to do with efficiency. More seriously, it's a one-off selection, made under circumstances that will be very likely to change so as to make the selection sub-optimal. 

  • Once the selected approaches are made and implemented, there seems to be no further discipline: the team working on the selected approaches has little incentive to be or remain efficient. They've won the contract; there's every incentive to sit back and relax. 

Things would be different under a Social Policy Bond regime, whereby bondholders, that is those who are charged with implementing solutions, can continue to reap the rewards of doing so only if, in the eyes of motivated competitors, they are the most cost-effective provider of solutions. There is a continuous incentive on bondholders to be efficient. If they are seen to be inefficient, their bonds will be worth more to operators who think they can be more efficient, who will then buy them.

Also, under a bond regime, taxpayers (or whoever else backs the bonds) lose nothing if the specified goal isn't achieved. And if the goal is achieved, rewards will tend to be distributed to bondholders according to the contribution they make to achieving it, and their efficiency in doing so. All this makes a Social Policy Bond regime more versatile than this new procurement initiative, and one more capable of achieving larger, more remote goals, for which a single, unvarying, combination of operators is unlikely to remain at all times the team best placed to achieve society's goals efficiently.

12 July 2014

War and peace, and GDP

Readers interested in a meta-solution to the conflicts in the Middle East could do worse than read my short piece on Peace Bonds. Defining peace in terms robust enough for our purposes might not be easy, but the necessary thinking will help clarify exactly what we want to achieve. As in many other policy areas, there are plenty of statistics already being gathered and with some verification and supplementation a combination of them could be targeted by a Peace Bond regime. See, for instance, this site, for some indicators that we could target. 

On another note, David Pilling asks: has GDP outgrown its use? As I have repeatedly posted (here, for instance), the answer is an unqualified yes.