Pluralism versus central planning

The Social Policy Bond mechanism encourages diverse responses to social and environmental issues. It does this via market forces. Unfortunately, many believe that market forces must inevitably conflict with social goals. This is understandable, since in recent decades an enhanced role for markets has made many people very wealthy indeed, while the less well-off have gained relatively little and many social and environmental problems appear to have worsened.

So it is important to remind ourselves that market forces and self-interest can serve public, as well as private, goals. Often, these private goals coincide with social goals, so that, for instance, the market routinely performs vital tasks such as food distribution and the provision of such indispensables as home medicines, baby needs, furniture and other consumer goods. These are exceedingly complex tasks but, left to the multiplicity of agents operating in reasonably competitive markets, they are accomplished in ways that fulfil not only the private goals of the firms and consumers involved but also society’s goal of efficient supply of goods and services. This feat results from the combination of the self-interest of large numbers of market players, and their ability to react appropriately to ever-changing circumstances.

Some would attribute the triumph of the western market economies over the state-controlled, centrally-planned economies of the Soviet Union and its satellites to the victory of materialist motivations over political ideals. But it is more likely that the efficiencies and incentives of pluralism had won out over central direction; in short, that decentralisation and diversity had triumphed over dirigisme and central planning.

Governments tend to be centralist in their instincts. In practice, this has meant that market forces are rarely allowed to play a significant role in organising the production and distribution of those goods and services that governments supply. Government agencies also operate in a non-competitive environment, which discourages self-evaluation. Since governments in the developed countries now spend on average about 37 per cent of national income, these are significant deficiencies. One result is that public services, such as health, education and housing, seem perpetually to be in crisis. Another is that crime and the fear of crime are soaring. I recently spent several weeks in a compact, English city during the summer, and was surprised at how dead the city centre was after 6pm, even on warm, dry days.

Yet another result of the central planning is that large sums of consumers’ and taxpayers’ money are spent on perverse subsidies to sectors such as agriculture, road transport and energy. Perverse subsidies are those that are economically inefficient, socially divisive and environmentally destructive. They also favour the large and global over the small and local. So, for instance, in the US about 88 per cent of support to the agriculture sector goes to the largest (in terms of gross sales) 25 per cent of the farmers. Perverse subsidies are significant: those for agriculture in the developed countries alone amount to more than $300 billion annually.

Social Policy Bonds would enable governments to continue to set society's goals, and the market to achieve them. Clarity and single-mindedness in achieving social goals are important, and governments can have those qualities. But diverse and adaptive solutions are necessary to achieve these goals, and that is where markets, through Social Policy Bonds, can play their part.