Prescribed ends

Economics is the allocation of resources so as better to achieve prescribed ends. Who prescribes these ends? In most countries it appears that nobody bothers, and the ends are decided, by default, by bodies such as large corporations and government agencies. Apart from the inflation rate, which is explicitly targeted in countries like the UK and New Zealand, most other policy objectives are obscure or unstated. The UK does deserve a pat on the back for its targeting of child poverty, and it and other governments are beginning to realise that what really matters are outcomes, not amount spent, nor activities or outputs. That said, governments unfortunately subordinate their social and environmental policy not to outcomes but, most often, to existing institutional structures. It is these that in large part receive tax revenues and dictate how they shall be spent. They are most often government agencies, which are not known for being responsive, adaptive or efficient.

Social Policy Bonds would in contrast subordinate all policymaking to desired outcomes. So instead of assuming relationships between cause and effect that might be only temporary and tenuous, they would reward only the achievement of outcomes - whoever achieves them and however they are achieved.

This means that if society sees climate change as a problem, it would reward people for stabilising the climate - not (as with the Kyoto Protocol) for reducing greenhouse gas emissions. If war, anywhere in the world, is a problem, people could issue bonds that reward the achievement of peace - rather than fund the activities of institutions (including governments) that very often inflame conflict.

Social Policy Bonds would formulate policy in terms of ends. They could be issued by individuals or groups, by local or central governments, or by non-governmental organisations. They are explained briefly here. For more details, see the Social Policy Bond website. I will discuss how a Social Policy Bond regime leads to the efficient allocation of resources in my next post.