10 July 2018

Solitudinem fecerunt consilium canis cibum*

Douglas Rushkoff, after chatting to 'five super-wealthy guys — yes, all men — from the upper echelon of the hedge fund world', fills us in on their priorities:
they were preparing for a digital future that had a whole lot less to do with making the world a better place than it did with transcending the human condition altogether and insulating themselves from a very real and present danger of climate change, rising sea levels, mass migrations, global pandemics, nativist panic, and resource depletion. For them, the future of technology is really about just one thing: escape. Survival of the Richest, Douglas Rushkoff, 5 July
It's an unedifying picture. Would it look any different if a coalition of governments, non-governmental organisations, philanthropists, and the public backed Social Policy Bonds, aimed at solving our global problems?  It might just be that our current policymaking systems are so obviously inadequate that even those of us not wealthy enough to contemplate escape are so resigned or distracted that we remain passive when confronted by an array of potentially calamitous social and environmental problems. Perhaps a more coherent, well-financed, range of policy goals would encourage the super-rich to solve our problems rather than attempt to escape them, and enable more of the rest of us to be employed in such solutions, rather than in devising ingenious ways of advertising dog food. Possibly not, but isn't it worth a try?

*The Latin, according to Google Translate, for They make a desert and advertise dog food

02 July 2018

Target world peace actively, explicitly

John Lanchester quotes Adam Smith:
‘Commerce and manufactures gradually introduced order and good government, and with them, the liberty and security of individuals, among the inhabitants of the country, who had before lived almost in a continual state of war with their neighbours and of servile dependency on their superiors. This, though that has been the least observed, is by far the most important of all their effects.’ After the Fall, John Lanchester, 'London Review of Books', dated 5 July
Mr Lanchester doubts that this still applies: 'elites seem to have moved from defending capitalism on moral grounds to defending it on the grounds of realism. They say: this is just the way the world works,' and then writes cogently and readably about the crash of 2008, subsequent policy changes, and inequality. My focus here though is on the Adam Smith's point: "So according to the godfather of economics, ‘by far the most important of all the effects’ of commerce is its benign impact on wider society."

Francis Fukuyama pointed out that, once you have a common agreement to engage in voluntary, good-faith transactions, people engaging in market transactions can be highly individualistic and do not even need to like each other. It's hard to disagree, but trade, and especially international trade, can be disrupted by politics, with rancorous results. So here's my question: instead of relying on a highly politicised world trading system to achieve peace between countries, why not reward people directly for achieving peace? Perhaps it's because we believe at some level, like the ancient Greeks, that war is part of the natural order of things, so there's no point trying to do anything about it. Or perhaps it's because we think that bodies like the United Nations will succeed in bringing about world peace. Or it could be because our politicians and bureaucrats, and many of the rest of us, don't think there's much point looking too far ahead; and achieving a sustained period of world peace, by any definition, is going to be a long-term undertaking.

Which is where the Social Policy Bond principle applied to violent political conflict, can play a role. No single way of stopping war will work. We therefore need to encourage diverse, adaptive solutions, including feedback mechanisms that ensure that promising approaches are encouraged and, crucially, that failing approaches are terminated. It's unlikely that existing organisations, however well resourced, however well meaning, could do this, even if they had proper incentives. Organisations have their own objectives, of which the over-riding one is self-perpetuation; they have few incentives to be imaginative in their approaches to social problems. What is needed are highly motivated new organisations, whose goals are exactly congruent with society’s. Under a Conflict Reduction Bond regime these organisations might not have a stable structure, nor a stable composition, but their societally defined goal would be stable: a sustained period of peace would be the raison d’etre of such organisations. Their rewards would be inextricably tied to their achieving it. Conflict Reduction Bonds would be redeemable only when absence of conflict had been sustained for a defined period. These bonds would contract the achievement of peace to the market, instead of to the inevitably poorly-resourced, distracted or corrupted bureaucracies that are currently charged with the task. Peace, then, would not be an incidental side-effect of commerce and an ever more rickety world trading system, but the direct, targeted, explicitly rewarded a goal for highly motivated coalitions and their agents.

22 June 2018

Make Social Impact Bonds tradeable

It’s now thirty years since I first floated the idea Social Policy Bonds at a meeting of the Australian Agricultural Economics Society in Blenheim, New Zealand. My aim was to inject the market’s incentives and efficiencies into the achievement of social and environmental outcomes. Under a Social Policy Bond regime, bonds are issued on the free market for whatever price they will fetch. The bonds would be backed by either government or the private sector. They would not bear interest and would be redeemable for a fixed sum only when a targeted social or environmental objective has been achieved and sustained. The idea is that the holders of the bonds would form a coalition whose over-arching goal is exactly that of society: to achieve the targeted goal as quickly as possible.

If this sounds familiar, it’s because my work led to the creation of Social Impact Bonds of which about 60, involving investments of more than $200m, have been launched in 15 countries, aimed at meeting various social challenges. There are 32 in the UK alone, with such goals as reducing recidivism rates and housing rough sleepers in London.

There’s one important feature, though, about my original idea that differentiates it from Social Impact Bonds: my intention has always been that the bonds be tradeable, whereas SIBs, also known as ‘Pay for Success’ bonds, are not. This is, in fact, a critical difference, and it is one that makes me ambivalent about SIBs (with which I’ve had no involvement). I believe their lack of tradeability limits the usefulness of SIBs in several ways.

Most importantly, it means they can tackle only short-term problems. Investors will buy the bonds only if they expect to profit from them. Because SIBs are not tradeable, people will have to hold them to redemption to make a profit. That in turn means that would-be investors would want any targeted goal to have a realistic chance of being achieved within their time horizon, which might be quite short, and certainly within their lifetime. This narrows the scope of the goals we can target and, indeed, SIBs have invariably narrow goals. Because their goals are so limited, so too are the opportunities for shifting resources to and from different approaches to solving a particular problem, and varying them as circumstances change. With a short payback period, investors in SIBs have no incentive to research and experiment with innovative approaches that have anything other the shortest lead time or are otherwise almost risk free.

Another important reason why the bonds should be tradeable, is because the identity and composition of the groups best placed to achieve a targeted objective will change over time. Our most urgent and challenging social and environmental problems will require multiple steps before they are solved. The people who are best at step one will not necessarily be those who are best at step two and all subsequent steps. We cannot even specify in advance what step one, or indeed any step, will entail; still less can we identify those best placed to take these steps. Tradeability means there be a market for Social Policy Bonds, which will ensure that the bonds will find their way into the hands of the highest bidders for them – who will be the best-placed to advance progress towards society’s targeted goal most efficiently. When the bonds are not tradeable, then we have something similar to the the way social policy is currently implemented: government identifies some organisation (most likely an existing body, often one of its myriad own agencies), and pumps money into it. If this agency is paid for performance (as in Social Impact Bonds), it has an incentive to perform well. This might be an improvement on the way things are usually done. But if, as so often, one or all of the steps necessary to resolve the targeted problem optimally lie beyond the imagination or competence of such a designated agency, then we are going to be stuck with current (woeful) levels of under-achievement in social and environmental policy.

Social Policy Bonds have the advantage in that they not only do not stipulate how society's goals are to be achieved, nor who shall achieve them. They will leave those decisions to the market, which will favour the most cost-effective coalition of operators at every stage on the way to achieving social goals.

Another advantage of the bonds being tradeable is that a market for the bonds would generate extremely useful information both for would-be investors and for policymakers. The value of the bonds will rise and fall depending on whether the market thinks the targeted goal will be achieved more or less quickly. These prices, and their changes, will be immensely valuable to those having to decide where to allocate society’s scarce resources, be they in the public or private sector.

One of the problems with SIBs is that, because their goals are relatively narrow, the costs of monitoring progress toward or away from their achievement will always be a higher proportion of the total administrative costs than they would under a regime that could target broader goals. It's almost as easy (or not much more difficult) to monitor national crime indicators, say, as to look at the behaviour of group of a few hundred specific ex-prisoners in one part of the country over several years.

And it is to achieve these broader goals that my original idea was intended. Goals such as improving the health of a population, eliminating poverty or achieving universal literacy. Social Policy Bonds could target global goals too: the ending of war, civil war, terrorism; the mitigation of climate change (or its negative impacts) or any global environmental problem, such as loss of biodiversity and preservation of the marine environment. These broad problems require a long-term outlook well beyond the purview of investors in Social Impact Bonds. To solve such problems, we shall need Social Policy Bonds which, because of their tradeability, will encourage the exploration, refinement and implementation of diverse, adaptive approaches.

Most people would agree that humankind faces huge and urgent challenges, including war, nuclear proliferation, climate change and poverty. Yet, while there is almost universal consensus that these challenges need to be met, our politics is crippled by venomous, divisive tribalism, obsessed by ideology and personality. The gaps between policy and goals, and between people and politicians grow ever wider. Social Policy Bonds, by injecting the market’s incentives into achieving humanity’s long-term ideals could help close these gaps.

A shorter version of this post appeared recently on the Alliance Magazine website.

16 June 2018

The environment: it's complicated

 From the current New Scientist
It turns out that vegan-friendly alternatives to fur and leather, as seen on display at Australia’s recent Fashion Week (above), can harm sea creatures, because they are made of that other pervasive ecovillain: plastic (see Vegan-friendly fashion is actually bad for the environment). The evidence is not yet clear, but some animal fabrics may be the least harmful choice overall. Such unintuitive outcomes crop up again and again when we try to make ethical lifestyle choices. As New Scientist has reported, ditching disposable plastic bags for a fetching cotton tote only pays off after you have used it 131 times, due to the large environmental burden of cotton – which is also an issue for clothes. Beware the bandwagon, 'New Scientist', 13 June
The sort of life-cycle analyses (LCAs) required to establish the environmental benefits or otherwise of shifts in our behaviour are bedevilled by boundary issues, measurement difficulties and the difficulty of weighting one type of environmental impact against another. They might be better than blandly assuming that vegan clothes are 'better' than animal fabrics, rail is better than air travel, solar power is better than coal-fired power stations, etc, but for the making of robust policy LCAs would need to be continually reassessed in the light of our ever-expanding knowledge of the environment and our ever-changing environmental priorities.

Government policy cannot be so responsive nor, probably, can any single organisation - at least not as currently structured. If government did use life-cycle analysis with the aim of altering our behaviour, it would necessarily do so on the basis of a one-time, limited, and possibly subjective assessment of environmental costs and benefits. It’s not good enough, but even worse would be what we largely have now: environmental policy based on corporate interests, 'what feels right', media stories and the launching of visually appealing initiatives that attract air time but are otherwise useless.

Social Policy Bonds would take a different approach. They would subordinate environmental policy to targeted environmental outcomes, which could be national or global. Say, for instance, that we wish to preserve the Earth's marine environment. A Social Policy Bond issue that rewarded the sustained achievement of such a goal would generate incentives for bondholders to bring it about at least cost. They might well carry out life-cycle analyses in their attempt to do so. But there is an important difference between the way do they would conduct their research and the way government, or any supra-government body would do so: bondholders have continuous long-term incentives to achieve our goal efficiently. This is likely to mean responding to and stimulating increased knowledge of scientific relationships, and technical advances. Investors might conduct LCAs, but they would do so in ways that optimise the benefit to the marine environment per dollar spent.

Effective environmental policy must take a long-term view and for national or global goals, will need to encourage diverse, adaptive approaches. The environment and our knowledge about it are just too complex for an 'it feels good', command-and-control approach that, for instance, brands animal-derived clothing, or plastic shopping bags as bad. Diverse, adaptive approaches to addressing complex problems are precisely the sort of responses that government does very badly. However, government does have crucial roles in articulating society’s environmental goals and in raising the revenue to
pay for their achievement: in the democratic countries government performs these functions quite well. But actually achieving society's social and environmental goals is a different matter. Such achievement requires continuous, well-informed and impartial decisions to be made about the allocation of scarce resources. For that purpose, Social Policy Bonds, with their incentives to achieve targeted outcomes efficiently would, I believe, be far better than the current ways in which environmental policy is formulated.

For more about application of the Social Policy Bond principle to the environment see here

13 June 2018

Superbugs: disastrously misaligned incentives:

William Hall and others write: 
When asked what she would do with a useful new antibiotic, the chief medical officer for England, Sally Davis, said that the drug “would need a stewardship program”—that is, that systems would have to be in place to make sure that the antibiotic was only prescribed when absolutely necessary. Indeed, limiting unnecessary use is essential to keep bacteria from becoming resistant to new antibiotics, and thus essential for our continued health.
While this is a cogent strategy, it doesn’t coincide with the marketing goals of the drug industry: “When a really useful new antibiotic is found, the company that invests in it cannot rely on high sales for return on investment.”  William Hall et al, Superbugs: an arms race against bacteria, quoted by Jerome Groopman, The bugs are winning, 'New York Review of Books', dated 28 June
The interests of the drug companies - and of those who target, implictly or explicitly GDP - don't merely fail to coincide: they are in conflict with each other. Discovering and manufacturing a new antibiotic is expensive so, when a pharmaceutical company succeeds, it has every incentive to maximise sales in the relatively short period before its patent runs out. With such misaligned objectives, you'd hope government would take the long view and give the health of its citizens (and, incidentally, the welfare of farm animals fed prodigious quantities of antibiotics so that they'll grow more rapidly) a higher priority than the short-term interests of pharmaceutical companies. But no: it's the farmers and the pharmas who override the interests of ordinary people. You know, those of us who can't afford to follow and manipulate an absurdly complex policymaking process, nor pay others to do so.

The authors of Superbugs estimate that the total number of people dying annually from resistant microbes is at least 1.5 million and, extrapolating from US estimates, they estimate the costs to health services at about $57 billion and the loss in world productivity at $174 billion. There are currently no financial incentives for anyone to take the long-term view, though it's in almost everybody's interests for somebody - most likely government - actually to do so. As individuals, we know what needs to be done: ensure that doses of antibiotics are carefully regulated and that research into new antibiotics continues. Developing effective antibiotics, Hall et al write, should be recognised as a public good, which would justify government intervention. They blame short-term thinking for the absence of such intervention.

Applying the Social Policy Bond principle to the health field could be one way of meeting the challenge, and might be easier and less contentious for government to do than more direct intervention. Government could issue Health Bonds aiming for improvements in the general health of the population over a period of decades. One necessary approach would then be to optimise the use of, and research into antibiotics. Doing this would generate rises in the value of the bonds, and so reward investors. Government would have to do little more than raise the funds for the bonds' redemption and articulate, with the help of experts and input from the public, health goals for the population. After that, it would be up to bondholders to pursue these goals. The overarching objective of investors in the bonds would then coincide with those broad, long-term goals. The investors, and the people they contract, would have incentives to bring about society's health goals as efficiently as possible - a stark contrast with the current system.

10 June 2018

Outcome-based policy and buy-in

In my efforts to promulgate Social Policy Bonds I’ve usually emphasised their efficiency, which arises from a number of sources, including their harnessing of market forces, their encouragement of diverse, long-term approaches, and their capacity to adapt to changing circumstances. I’ve also stressed their transparency: because the bonds target broad, meaningful outcomes, ordinary people will understand them more.

This, in turn, means another hugely important benefit: buy-in. When we understand what a policy is all about, we can participate more in its development, refinement and implementation. This would apply even if our views are over-ridden by others: at least, we'd have been consulted. A Social Policy Bond regime would express its goals as outcomes that are meaningful to real people. Such outcomes would be more comprehensible to more people than the current unstated or unconsidered, vague, or platitudinous goals that characterise current policymaking all over the western democracies. Discussion about outcomes, rather than the alleged means of achieving them, would be more accessible than current policymakers' emphasis on legal pathways, funding arrangements, institutional structures and composition, and other arcana. You might even think the system has been specifically designed to keep ordinary citizens out of it.

If people have the chance of participating in such discussion, we shall come to understand the limitations and trade-offs that are intrinsic to public policymaking. This means quite a few things, but to my mind buy-in is the most important. It's likely this would reconnect citizens with our policymakers; it would entail the sharing of responsibility and concern for policy initiatives.

This matters hugely when government has to do things that hurt people's narrow, short- or medium-term interests. Dealing with environmental depredations for instance; or raising taxes for a multitude of purposes. The current system discourages buy-in because it's difficult to follow. As such, it's easily influenced by the wealthy or powerful, be they in the private- or public sector. This does much to widen the gap between politicians and the people they are supposed to represent. Social Policy Bonds, because of their focus on outcomes, would help close that gap.

25 May 2018

Heart disease: too complicated for government

When the cause of a social problem cannot - yet - clearly be identified then targeting the outcome we wish to achieve, and rewarding people for achieving it, could be the way to go. This is the Social Policy Bond approach. Many social and environmental problems fall into that category, including climate change, crime, poor health and war. We need long-term, diverse, adaptive approaches to the solutions of these problems - unfortunately these are exactly the sort of approaches that government is ill-equipped to discover.

The same limitations apply in microcosm in some areas of medicine; those such as cardio-vascular disease (CVD), for instance, where the relationship between high LDL and CVD appears to be too complex to form a basis for sound policy. Unfortunately, once a hypothesis is widely accepted, it becomes difficult to dislodge. Dr Malcolm Kendrick writes:
If your hypothesis is that a raised LDL causes CVD, then finding someone with extremely high LDL, and no CVD, refutes your hypothesis. Unfortunately, but predictably, the authors of the paper have not questioned the LDL approach. Instead, they fully accept that LDL does cause CVD. So, this man must represent ‘a paradox’. They have phrased it thus:
Further efforts are underway to interrogate why our patient has escaped the damaging consequences of familial hypercholesterolemia [FM] and could inform future efforts in drug discovery and therapy development.’
To rephrase their statement. We know that high LDL causes CVD. This man has extremely high LDL, with no CVD, so something must be protecting him. I have an alternative, and much simpler explanation: LDL does not cause CVD. My explanation has the advantage that it fits the facts of this case perfectly, with no need to start looking for any alternative explanation. Very high LDL and no cardiovascular disease – at all!, Dr Malcolm Kendrick, 12 May
Dr Kendrick goes on to to cite the longest and one of the world's largest studies of people diagnosed with familial hypercholesterolaemia (FH). Contrary to current popular thinking it shows that 'people with FH have a lower than expected overall mortality rate – in comparison to the ‘normal’ population. Or, to put this another way. If you have FH, you live longer than the average person.'

This to me means that government policymakers should be more humble: when it comes to complex problems outside their expertise, they should admit to themselves that they don't know the best solutions. That doesn't mean they should do nothing: government can, and should, identify our social problems and raise the revenue to help solve them. It can actually do those quite well. But when it comes to solving our complex problems, it should consider issuing Social Policy Bonds, which do not presuppose how our problems shall be solved, nor who is best placed to solve them.

For more about Social Policy Bonds see here. For application of the Social Policy Bond principle to health, see here.

15 May 2018

Government by intuition

In our complex, interlinked societies, it's increasingly difficult to identify cause and effect. This matters when making policy, because policy is supposed to have a beneficial effect. Linkages are sometimes easy to identify: that between, say, water quality and infectious disease rates, for instance. Others are much more difficult and, with our scientific knowledge rapidly growing, often impossible: So, facing problems such as crime or war or nuclear proliferation, where there are huge numbers of contributing variables, and our knowledge of relationships is both imperfect and expanding, should government do nothing, waiting for certainty?

What governments actually do is create bureaucracies, or shovel funds into bodies that might once have been successful (when society was simpler) but have become useless or, worse, obstacles in the way of achieving our goals.

A much better approach, in my view, is to target long-term outcomes, and let investors decide, continuously, what are the best approaches to solving our problems. Especially for longer-term goals, the optimal mix of approaches will vary with time in ways that nobody, including governments, can foresee. We need to reward people for coming up with new, efficient, solutions to our problems, many of which are so complex that only diverse, adaptive approaches will work. These are precisely the sorts of solutions that governments cannot identify. That, in essence is the Social Policy Bond approach.

Alternatively, we could opt for an easy life:
Peter Navarro, the head of the White House National Trade Council, told an interviewer, “My function, really, as an economist is to try to provide the underlying analytics that confirm [President Trump's] intuition. ...” Trump vs. the 'Deep State', Evan Osnos, 'New Yorker', dated 21 May
Unfortunately, Mr Navarro's way of doing things predominates.

12 May 2018

Safety, going backwards

Charles Hugh Smith, writes about US attitudes to health and safety:
If you've bought a new vehicle recently, you may have noticed some "safety features" that strike many as Nanny State over-reach. You can't change radio stations, for example, if the vehicle is in reverse. ...  The narrowness of this obsession with safety comes into focus if we ask: how can a society so obsessed with safety have spawned an opioid addiction crisis that kills tens of thousands of people and ruins the lives of millions of Americans? How Safe Are We? Our Blindness to Systemic Dangers, Charles Hugh Smith, 10 May
An excellent question. The safety bureaucracy has goals that differ markedly from those of the health care sector, and both have goals that have little to do with maximising the well-being of citizens per dollar spent. And that should be the guiding criterion for both health and safety: from the policy point of view, they shouldn't be distinct.

Policy decisions about health policy, broadly interpreted to include safety, are heavily influenced by the public profile of a disease or its victims, rather than on what would best meet the needs of society. It’s also a question of diet, exercise, transport, and culture. Recent research shows, for instance, the beneficial effects on health of green spaces in our cities (see here (pdf) for instance). The way government is structured, with its discrete bureaucracies and funding bodies, makes it unlikely that such benefits will influence funding decisions.

We cannot expect a government nor any single organisation to identify the huge numbers of variables, with all their time lags and interactions, that influence the nation’s health - and to do so dynamically, taking into account our rapidly expanding scientific knowledge. We can, though, devise a system that rewards people who explore and implement the most cost-effective health solutions, even when circumstances and knowledge are changing continuously. I have tried to show how this can be done with my essay on Health Bonds, which would aim to distribute scarce government funds to where they would do most good, as measured by such indicators as Disability Adjusted Life Years. Under a Health Bond regime, investors in the bonds would have continuous incentives to maximise their returns on the bonds at all times: their objective, assuming we have carefully defined our targeted health goal, will be exactly congruent with those of society. Bondholders might well decide that, for instance, we should implement measures to switch off the ability to flip radio stations while a car is going backwards - but only if they think that to be one of the most cost-effective ways of reaching society's health goal. Indeed, Health Bonds would ensure that every decision, every activity, that bondholders contemplate or implement will be entirely subordinated to that objective. A stark contrast with the current system, under which officials have goals entirely distinct from, and sometimes in conflict with, the broader interests of society.

03 May 2018

Subsidising planetary destruction or: Another reason to leave the EU

If you are serious about tackling climate change, the best approach, and the one I've advocated for years - decades - is to reward people for tackling climate change. Not to reduce greenhouse gas emissions, and certainly not to subsidise the production or use of biofuels. So, of course, subsidising biofuels, which means cutting down rainforests, is what the European Union, with its corrupt, psychotic subsidy regime, is paying people to do:
Half of all the palm oil imported by Europe is turned into biodiesel and blended into conventional fuel to power cars and trucks. This misguided attempt to "green" fuels is actually tripling carbon emissions, not reducing them. What's more, the practice is subsidised by the European Union. In other words, taxpayers are paying to destroy rainforests and accelerate climate change. The real palm oil problem: it’s not just in your food, 'New Scientist', 2 May

The loopholes in the way international carbon accounts are calculated mean that emissions from biomass are never counted. The New Scientist article quotes Tim Searchinger of Princeton University: 'You could cut down the Amazon, ship the trees to Europe to replace coal and that would count as a 100 per cent greenhouse gas reduction.'

There are plenty of suggestions in the UK media about how some of the people who voted for Brexit might have regrets. I don't.