17 April 2014

Non-random incentives for world peace

The average person is now roughly 20 times less likely to die violently than the average person was in the Stone Age. The Slaughter Bench of History  Ian Morris, 'The Atlantic', 11 April
How did this come about?  According to Professor Morris:

For most of our time on earth, we have been aggressive, violent animals, because aggression and violence have paid off. But in the 10,000 years since we invented productive war, we have evolved culturally to become less violent—because that pays off even better.
I can't argue with Professor Morris. Human beings are rational, and respond rationally to the incentives on offer. It's tragic, though, that the incentives not to prosecute war seem to have come about quite randomly; through experimentation over millennia with every sort of conflict, fought with ever-improving technology, at calamitous human cost.

I think we can do better - and we should. Instead of relying on the slow, random and painful process of learning through direct experience, we could actively create or magnify the incentives for peace. We could, simply, make a conscious, deliberate decision to increase the incentives for people to avoid war.

How? We could apply the Social Policy Bond principle to violent political conflict. We could issue World Peace Bonds or, say, Middle East Peace Bonds. We don't have to know how people who invest in these bonds will use their expected returns from bondholding to reduce the chances of conflict breaking out. Nor do we need to know who, exactly, will buy the bonds and undertake peace-building activities. What we would do, by issuing Peace Bonds, is motivate people who are currently pre-occupied with other, probably less socially beneficial, concerns, to get involved in peace-building and explore, refine and implement the most efficient ways of ending war. 

War has been a curse for generations and remains an existential threat: the full title of Professor Morris's piece excerpted above is: How war created civilization over the past 10,000 years—and threatens to destroy it in the next 40. Peace Bonds could generate bigger incentives to end war far less randomly and at lesser human cost, than through the the current process of random blundering accompanied by painfully slow, fitful, learning; a process that may yet culminate in unrestrained nuclear conflict with the deaths of millions.

12 April 2014

Metrics for peace

Social Policy Bonds have their most marked advantage over conventional policy when trying to solve complex solutions for which there is no single, knowable, solution. Climate change (or some of its impacts), crime, or infant mortality in the poorest countries are examples of such problems, as too is violent political conflict: war or civil war.

For issuers of World Peace Bonds, or Middle East Peace Bonds the challenge is not how to achieve peace - that will be left to bondholders - but how to define it in such a way that its achievement will robustly and verifiably have brought about societies in which most of us would be happy to live.

A start would be to issue bonds that would become redeemable when there has been no nuclear explosion that kills more than, say 100 people before 1 January 2050. We could of course issue bonds targeting nuclear peace for decades beyond that date. Similarly, we could target sustained periods of peace relative to today's world: bonds that would become redeemable if the annual numbers of people killed in conflict fall below 50 percent of the average levels from 2007-2012, say, for a period of 10 years.

But a ruthless and powerful dictator could impose those sorts of peace by simple blackmail. We could perhaps therefore combine our main peace goal with other conditions that will have to be satisfied for the bonds to be redeemed. These could include broad quality of life indicators, including the well-being of all communities in a population. It might also be worthwhile to classify as outcomes such essentials for war as weapons, or the sums spent on them, or the number of men and women under arms, and target these for reduction too. We might also want to target attitudes of people towards people of different countries, ethnicities or religions, in ways that will discourage politicians and others from provoking conflict.

Feeding into such attitudes, or possibly as another target to be considered by bond issuers might be to encourage intermarriage between communities that are currently antogonistic. For most governments, advocating or even discussing such an idea would be political suicide. But for holders of Middle East Peace Bonds, for example, it would merely be another tool that can choose to use or not, depending on their view of how effective it will be. Under a bond regime targeting the end of violence between communities in conflict, no official programme of sponsored intermarriage need be contemplated. Bondholders, though, could do, or cause to be done, things that governments cannot do. There would be no sinister motives underlying their actions; their motive, clear and comprehensible to all, would be explicitly mercenary with no sinister overtones: to raise the value of their bond holdings. As human beings, most of us agree that anything that resolves conflict peacefully and at a bearable cost should be encouraged. Apart from fanatics, even the devout on both sides of most conflicts, away from public fora and in their cooler moments, would put human survival above ethnic purity or identity politics. Even a little intermarriage between two warring factions could go a long way.

Most likely, under an enlightened Peace Bond regime, intermarriage, rather than being directly encouraged, would be the happy outcome of a range of projects aimed at increasing informal contacts between two sides of a conflict, including such trustbuilding measures as lower barriers to trade, school exchange visits, or mixed sports teams. One of the benefits of the Social Policy Bond concept is that it can stimulate actions like these including, if necessary, the direct sponsoring of intermarriage, or the birth of mixed-ethnicity children which, if governments were to undertake them directly, would be met by near universal disdain and opposition.






27 March 2014

Bad Policymaking

Ben Goldacre writes in Bad Pharma (2013):
[I]t’s possible for good people, in perversely designed systems, to casually perpetrate acts of great harm on strangers, sometimes without ever realising it. The current regulations – for companies, doctors and researchers – create perverse incentives; and we’ll have better luck fixing those broken systems than we will ever have trying to rid the world of avarice.
Dr Goldacre is discussing the medical profession, but his point applies to any regulatory system. In medicine, as in so many other policy areas, the complexity and obscurity of relationships between cause and effect make it easy to generate outcomes that are suboptimal at best and murderous at worst. Where large sums of money are at stake, the manipulation of a regulatory environment creates the means by which the minor tendency towards avarice (or, more politely, self-interest) of the few can be leveraged against the well-being of the many. Systems are put in place to deal with the problem when it becomes to obvious too ignore. But they themselves are subject to hijacking and gaming by the beneficiaries of the current regulatory environment. In short, we have no mechanisms to terminate failed policies, especially those that create or enrich powerful interest groups, including those who genuinely believe they are acting for the good of wider society.

We need to subordinate policymaking to society's needs, not those of interest groups whose over-arching goal, despite all their good intentions, vision statements and lofty idealism, is self-perpetuation. If one doubts this, one need only continue reading Bad Pharma, to see that universities and ethics committees deny doctors the opportunity to see crucial data from the many medical trials that result in unfavourable outcomes for the pharmaceutical industry. Even worse:
So universities and ethics committees may have failed us, but there is one group of people we might expect to step up, to try to show some leadership on missing trial data. These are the medical and academic professional bodies, the Royal Colleges of General Practice, Surgery and Physicians, the General Medical Council, the British Medical Association, the pharmacists’ organisations, the bodies representing each sub-specialty of academia, the respiratory physiologists, the pharmacologists, the Academy of Medical Sciences, and so on. These organisations have the opportunity to set the tone of academic and clinical medicine, in their codes of conduct, their aspirations, and in some cases their rules, since some have the ability to impose sanctions, and all have the ability to exclude those who fail to meet basic ethical standards. We have established, I hope, beyond any doubt, that non-publication of trials in humans is research misconduct, that it misleads doctors and harms patients around the world. Have these organisations used their powers, stood up and announced, prominently and fiercely, that this must stop, and that they will take action? One has: the Faculty of Pharmaceutical Medicine, a small organisation with 1,400 members. And none of the others have bothered. Not one.
Dr Goldacre speaks about the British environment, but there's nothing unique to the UK about his analysis.

So what can Social Policy Bonds do about this systemic failure to put the interests of ordinary people against those of powerful corporations and regulatory bodies?

Continuing with the example of medicine, Social Policy Bonds would target directly and explicitly that which the pharmaceutical industry, the professional bodies and the policymakers who create the regulatory environment all say they are trying to improve: the health of society. Government would continue to raise funds for the improvement of society's health, but instead of dispensing these funds in ways that benefit organizations that are supposed to put society's interests first would only those who achieve society's health goals. It would issue Health Bonds, redeemable only when these goals have been achieved and sustained. The goals would be broad and transparent, comprehensible to ordinary people and so not subject to the smoke-and-mirrors manipulation that features so prominently within our current framework. The bond mechanism would ensure that only activities that actually help achieve our health goals would be rewarded.

A Health Bond regime would be a drastic change from any existing health care system. In my book, which is freely downloadable from my website, I describe how we could move gradually from current systems to such a regime. Health Bonds would lead to a new type of organization: ones whose interests are entirely congruent with those of society. The current system, as Dr Goldacre makes inescapably clear, is broken to the extent that it kills many of the people it's supposed to beneft. I propose instead that we revolutionise health policy by putting the interests of ordinary citizens above those of vested interests.

15 March 2014

Insanity

From Bloomberg Businessweek:

Global fuel subsidies cost as much as $1.9 trillion a year.... In 2011, US subsidies for petroleum products were more than 2 percent of GDP. ...
Egypt spends 9 percent of [its] GDP to keep gasoline prices low. ... The IMF says 61 percent of gasoline subsidies goes to the richest 20 percent of citizens, who own cars....Why fuel subsidies in developing nations are an economic addiction, and The cheap fuel trap, Brendan Greeley, 'Bloomberg Businessweek', dated 17 March
What is it about our policymaking system that perpetuates this insanity? It's clear that the fossil fuel industries are powerful and so can lobby effectively for the subsidised extraction and consumption of their products. And we might not have known, at first, what we know now: that these subsidies transfer funds from the poor to the rich, accelerate the destruction of our environment, and are extremely wasteful. But now that we do know...what then? It's the persistence of these insane subsidies, in the face of decades of evidence of the social and environmental damage they do that is the biggest indictment of our current policymaking system.

Policies as crazy as these get implemented because they sound quite plausible. Reducing the cost of fuel, say, 'stimulates the economy, which creates jobs and benefits everybody'. Nobody bothers to ask why, if we are intent on giving out scarce resources to favoured groups, we don't give them directly to the people we say are going to benefit: poorer people, let's suppose, who can then make their own decisions about the sort of society they want to live in. Our current system takes some plausible-sounding relationship and makes it the basis of policy. That can work well when social and environmental relationships are easy to identify and don't change much over time. It works less well when we are talking about much more complex, intricate relationships, with thousands of variables and time lags. To reduce the negative impacts of climate change, for instance, or to bring about world peace: these are beyond the scope of any organization that first identifies (or claims to) a relationship between cause and effect and then formulates policy accordingly.

The better alternative is to target outcomes directly, and let motivated people work out the best ways of achieving them. These ways will vary dramatically over time and space, the more so for bigger goals. A Social Policy Bond regime would not only target these outcomes and reward people for achieving them; it would also inject the market's incentives and efficiencies, ensuring that they would be achieved in the most cost-effective ways possible.

The old way of making policy has been corrupted, such that we cannot even discontinue our most obvious, spectacularly stupid and destructive subsidy schemes. It's time to target outcomes directly, and contract out the achievement of our social and environmental goals to people who will be rewarded, not because they are powerful or smart or well connected, but because they achieve society's goals most efficiently. 




11 March 2014

No excuses

"National Security", "family farms", "international aid" and now "climate change": a small sample of concepts that become corrupted by government and used to justify transfers of resources from the poor to the rich.

Under the current policymaking regime, politicians can get away with using phrases like these to justify setting up departments and initiating activities that sound as though they will help deal with a problem, but end up shoring up vested interests. They can do this because they absolutely refuse to reward the achievement of explicit, agreed, meaningful outcomes. Instead they channel funds into organizations whose names suggest to the naive that they are striving to achieve an outcome or deal with a problem. These can be government agencies, supra-national government organizations, or large and favoured corporations.

This came about largely because setting up bureaucracies for many social and environmental problems was originally the most efficient way of solving them. Society was less complex, the linkages less intricate, the time lags shorter. The nature of, responsibility for, and solutions to, our most glaring problems were often easier to identify than nowadays.

But times have changed. Nobody today can identify how to achieve world peace, though the need to do so is probably greater than at any time in history. Nobody really knows how to tackle climate change: the much-vaunted greenhouse gas explanation may or may not be totally wrong, and anyway cutting emissions might not be the best solution or, more likely, might just be one of many necessary approaches.

Yet we persist in attempting to solve problems only after a single cause has been identified. Once that happens, the response of government is to channel resources into bodies and activities that ostensibly deal with the cause of the problem, but whose own exists depends on failing to be efficient at doing so. Somewhere along the way, accountability is lost. So to help 'family farms' taxpayers and consumers spends billion on higher food prices to support wealthy landowners. 'National security' has become an excuse for mass surveillance, the setting up of an embryonic police state, and ruinously expensive accumulation of weapons systems. 'International aid' is a byword for corruption and waste.


Climate change looks like going the same way: becoming an excuse to set up massive bureaucracies that will allegedly cut greenhouse gas emissions - or what were thought to be greenhouse gas emissions back in the 1990s.

With Social Policy Bonds, there's no excuse for this sort of deception. Instead of vaguely targeting 'terrorism', or 'climate change', or 'rural poverty', we can specify exactly what it is we want to achieve. So if there is a societal consensus that poor people should pay more for their food so that enormously wealthy landowners can afford a second helicopter, we could choose to do exactly that. But if we actually want to help poor people, or to alleviate the problems caused by adverse climatic events, or to achieve world peace, then we can issue Social Policy Bonds that reward people only when they have achieved these goals. We do not have to wait until cause and effect have been identified; nor till the optimal solutions have been found. Under a Social Policy Bond regime it would be bondholders who would do all that; and the more efficient they are at doing so, they more they will be rewarded. Diverse, adaptive approaches are going to be necessary to solve our most urgent social and environmental problems. The current policymaking environment stifles such approaches. A Social Policy Bond regime, in contrast, would encourage them.

03 March 2014

Place your bets

What is government for? Obviously, it's for distributing taxpayer funds to those who are most in need:
The much-anticipated first film of “The Hobbit” trilogy [could] gross about $3 billion. So how much taxpayer money, would you guess, did Warner Bros. Entertainment Inc. need to produce the films based on the J.R.R. Tolkien book? The answer is zero. The studios are investment companies, and the films are almost certain to be immensely profitable. But now you aren’t thinking like a studio. The real question is: How much taxpayer money can Warner Bros. demand from the government of New Zealand to keep production there (rather than, say, in Australia or the Czech Republic)? That answer turns out to be about $120 million, plus the revision of New Zealand’s labor laws to forbid collective bargaining among film-production contractors, plus the passage of three-strikes Internet-disconnection laws for online copyright infringement, plus enthusiastic and, it turns out, illegal cooperation in the shutdown of the pirate-friendly digital storage site Megaupload and the arrest of its owner, Kim Dotcom. Kill the Hobbit Subsidies to Save Regular Earth, Joe Karaganis, 'Bloomberg View', 4 December 2012

The Government is talking up lavishing taxpayers' dollars on Avatar sequels - but the Treasury has already panned the spending as a turkey. As part of the deal announced yesterday by Prime Minister John Key, two fellow ministers and Avatar director James Cameron, the movies' producers will get at least $125 million in taxpayers' money in return for spending at least $500m making the films in New Zealand. Critical Eye on Avatar Deal, Ben Heather, 17 December 2013
This is government as an investment company: thinking it knows how best to gamble with other people's money. Or it's a desperate attempt by politicians to associate themselves with something glamorous, at the expense of the millions of people who aren't as photogenic, so must pay for government and its whimsical bets. Either way, doling out millions to rich corporations is irresponsible at best, corrupt at worst. Governments can get away with this because they don't formulate policy in terms of outcomes. In our currently policymaking environment it's quite acceptable for politicians to act on the basis that, for instance, cutting back greenhouse gases will solve the climate change problem, or that building more roads will boost economic growth or, indeed, that boosting economic growth will enhance people's well-being.

The days when easily identifiable cause-effect relationships were significant enough to drive policy effectively and efficiently are gone. Society is too complex, the time lags too great, the linkages too murky, for that to work any longer. A better alternative would be to target outcomes, and let motivated people work out how best to achieve them, through adaptive, diverse approaches. A Social Policy Bond would do this and, as well, inject the market's incentives and efficiencies into every stage of every such approach.

For more details, see the SocialGoals.com website which, if you haven't been there recently, has been polished a bit, and now includes, on this page, links to pdf files of all the chapters in my book. 

I suppose things could be worse. Well, they are worse: as well as distributing scarce funds from the poor to the rich, government takes from taxpayers to subsidise the destruction of our environment. It makes our involuntary donations to Warner Brothers look like enlightened policy:
The UN Development Programme says rich countries should switch some of the staggering $35 billion a year they spend subsidising fishing on the high seas (through things like cheap fuel and vessel-buy-back programmes) to creating marine reserves—protected areas like national parks. In deep water, 'The Economist', 22 February (subscription)

22 February 2014

Nobody's perfect

Freeman Dyson reviews Brilliant Blunders, by Mario Livio, "a lively account of five wrong theories proposed by five great scientists during the last two centuries." The examples Livio writes about: 
give for nonexpert readers a good picture of the way science works. .... Wrong theories are not an impediment to the progress of science. They are a central part of the struggle. .... The five chief characters in Livio’s drama are Charles Darwin, William Thomson (Lord Kelvin), Linus Pauling, Fred Hoyle, and Albert Einstein. Each of them made major contributions to the understanding of nature, and each believed firmly in a theory that turned out to be wrong..... [W]rong ideas can be helpful or unhelpful to the search for truth. No matter whether wrong ideas are helpful or unhelpful, they are in any case unavoidable. The case for blunders, Freeman Dyson, 'New York Review of Books' dated 6 March
Even more so in social policy, where underlying relationships change over time and are rarely independent of the psychic makeup of the principal actors and stakeholders. We need to encourage diverse approaches to our social problems, and ones that can adapt when they are seen to be inefficient or counter-productive. As with science, though, social policy practitioners, be they politicians, bureaucrats, academics or members of think-tanks, frequebtly commit their egoes - and public funds - to deficient theories or ideologies.

The chief difference between science and other human enterprises such as warfare and politics is that brilliant blunders in science are less costly.
Quite: when great scientists commit themselves to wrong ideas the costs can be high, but when politicians do so they can be calamitous.

Social Policy Bonds would penalise failed or inefficient pseudo-solutions to our social problems, and reward only the most cost-effective ways of achieving our social goals. Bondholders would be motivated to terminate failing projects and divert funds into only the ones that are cost effective. If they don't do this quickly enough, others would bid more for the bonds than they are worth to the current holders. The bonds, being tradeable, would always be in the hands of people who are motivated to be efficient. Commitment to wrong theories would be penalised in immediate, pecuniary ways - a stark contrast with the current policymaking system, within which failed policies, instead of being terminated, often receive more and more funding in an effort to shore up vested interests.

17 February 2014

Greenhouse gases, recidivist rates, cholesterol, and the one percent

What do greenhouse gas emissions, recidivist rates and cholesterol readings have in common? They are all surrogate indicators; that is, they are things that governments target, thinking (or pretending to think) that by doing so they are benefiting society. They aren't. Whether the associated loose thinking - or just plain dishonesty - originates in government or in the people who pay governments to shape the regulatory environment in their favour, surrogate indicators have little to do with human well-being.

Perhaps we need to ask in whose interest it is that we target things like greenhouse gas emissions, or recividist rates or cholesterol readings? Surely, if we want to reduce the adverse impacts of climate change on humans and the environment, we'd be better off, with all the scientific uncertainties, to target reductions in those negative impacts? Similarly, if we actually want to reduce crime rates, why don't we target crime rates rather than recidivist rates, which have very little, if anything, to do with crime? And if we want to target physical health, why don't we reward improvements in physical health, rather than encourage the mass ingestion of statins, whose long-term effects are nebulous at best and dangerous at worst?

One reason that I am a less-than-enthusiastic supporter of Social Impact Bonds is that they are targeting recidivism rates. Their targeting of an indicator that has nothing to do with things that matter to ordinary people risks discrediting the whole idea of channeling the market's incentives and efficiencies into the public good. We have had plenty of recent and disastrous experience of financial instruments being gamed to death, with calamitous effects on ordinary hard-working citizens. So we need to be very careful about introducing new financial instruments. There is, unfortunately, every reason to be cynical. Bankers, consultants, the financial services sector, big corporations, government agencies and even non-governmental organizations all have made lots of money doing things that are purportedly in the public interest, but in fact have done nothing for ordinary people.

That is why I suggest that Social Policy Bonds target only metrics that are, or are inextricably linked to, indicators of societal well being. The bond mechanism allows for that sort of targeting, because it does not specify how our goals shall  be achieved, nor who shall achieve them. Unfortunately, without that sort of guarantee, there is every reason to expect that the well-meaning targeting of rhetorically persuasive but flawed indicators will continue to enrich only the one percent.

09 February 2014

The system's broken

 The Economist discusses the US Farm Bill, passed on 4 February:
[M]ore than 10,000 policyholders received over $100,000 from crop-insurance subsidies in 2011. The new bill tries to cap the amount that any one farmer can receive; but if the weather is bad, it could lead to higher payouts than planned. Taken together, these subsidies distort behaviour and trade in unhelpful ways. They have created products that make no economic sense in the rest of the world, such as making sugar from corn. As a penalty for keeping cotton subsidies in place, the World Trade Organisation’s rules require the American government to pay $147m a year to compensate farmers in Brazil. A trillion in the trough, 'The Economist', 8 February
It's the persistence for decades of these economically and environmentally disastrous policies that indict our entire policymaking system. Yes, policymakers will make mistakes; all the more reason why we should have systems in place to ensure that failed policies are terminated. But instead, we have the systems that ensure that appalling policies become more and more entrenched because of political inertia, because they subsidise resistance to their termination, or because they become capitalised into high asset values that would create genuine but temporary hardship if they were withdrawn. Governments have a long history of meddling in agriculture; they persist even though it's been known for decades that they are, to put it kindly, irrational.

And corrupt. The Economist continues:
How could Congress write such a law? One answer can be found in the register of political donations. The ten members of the House, nine Republicans and one Democrat, who accepted most money from agriculture lobbyists took in an average of $225,000 in political contributions during 2013, according to Open Secrets, which tracks donations—almost as much as some farmers received in return.
Not much is black or white in politics and policymaking, but as P J O’Rourke put it twenty-three years ago (in Parliament of Whores):
I spent two and a half years examining the American political process. All that time I was looking for a straight forward issue. But everything I investigated – election campaigns, the budget, lawmaking, the court system, bureaucracy, social policy – turned out to be more complicated than I had thought. There were always angles I hadn’t considered, aspects I hadn’t weighed, complexities I’d never dreamed of. Until I got to agriculture. Here at last is a simple problem with a simple solution. Drag the omnibus farm bill behind the barn, and kill it with an ax.

01 February 2014

Another useless indicator creeps in

Social Policy Bonds embody two main principles: targeting outcomes; and the use of markets to achieve these outcomes most efficiently. Even if discussion of Social Policy Bonds just leads to a rational discussion of which outcomes we want to achieve, then my work on the bonds would not be in vain.

I've discussed the futility of over-narrow objectives before, when discussing  Social Impact Bonds. (See also why I think the bonds must be tradeable.) But broad indicators too can, by default, become de facto targets, and they can be similiarly flawed; by which I mean that they are not inextricably linked to society's well-being. We have a tendency not to think through the implications of certain indicators: the biggest one is GDP. But another that is creeping into policymaking dicussion is five-year survival rates for cancer. The Economist casually slips it into an article about managing heatlh care:
Deciding where to seek treatment might seem simple for a German diagnosed with prostate cancer. The five-year survival rate hardly varies from one clinic to the next.... Need to know, 'the Economist', 2 February
But the five-year survival rate is meaningless:
[I]n the U.S. prostate cancer is being diagnosed earlier, a lead-time bias, and the cancer is being over diagnosed, that is, a pseudodisease is detected" in the form of screening-detected abnormalities that "meet the pathologic definition of cancer but will never progress to cause symptoms in the patient’s lifetime." Source (Scroll down to Incorrect metrics.)
The article in the Economist ends:
[D]octors ... have long focused on clinical outcomes such as infection and re-admission rates. But by thinking about what matters to patients, providers can improve care and lower costs at the same time.
Exactly so. We need to be focusing on broad, meaningful indictors of well-being, such as Quality Adjust Life Years, and target those, rather than casually accept the use of flawed measures such as five-year survival rates.