26 April 2005

Why bother to buy Social Policy Bonds?

I am often asked why corporations or other agencies would bother to buy Social Policy Bonds. Those that are already trying to achieve social or environmental goals probably won't have much cash to spend on bonds and, unless they bought a great many, would hardly gain much by seeing the market value of their bonds rise.

I have two answers: first is that existing bodies could benefit substantially from holding Social Policy Bonds that target a remote objective (where the initial market price of the bonds would be very low). They could see the value of any bonds they buy multiply many times. But my main answer, which applies especially to larger projects, is that in the long run Social Policy Bonds would bring about new sorts of organisation: those dedicated financing the most efficient solutions to social and environmental problems. These organisations would, I think, end up owning large proportions of the bonds in circulation. They could subsidise the most cost-effective existing projects that are aimed at solving social problems; they could bribe socially destructive operations to reduce their activities; or they could help maximise returns from law enforcement. They could also finance research into the most promising new ways of achieving our social goals.

The profits of these bondholding organisations would be highly correlated with their success in solving social problems. Their profit-seeking would fit in exactly with the goals of wider society. Many bondholders, whether individuals or corporations, would be rich and, if their bonds were redeemed early, they would become richer. But this would be a socially beneficial way of acquiring wealth. What would be the implications of this? Two long-run possibilities:

  • It would enlarge the pool of talented people working to achieve social and environmental goals; and

  • As a way of accumulating wealth that is strictly correlated with wider public benefit, it could allow other, less socially beneficial ways, to be taxed more heavily.

    ZenTiger said...

    Hi Ronnie. Can you fix the links to Social Policy Bonds in Brief?

    Ronnie Horesh said...

    Thanks for the feedback. Will try to fix: meanwhile here is an alternative link to Social Policy Bonds in Brief.