26 July 2007

Adaptability versus bureaucracy

One of the features of Social Policy Bonds is that they encourage adaptive solutions to our social and environmental problems. The most significant determinants of our way of living were largely unanticipated. Corporations and their activities have led to great benefits (as well as costs) that have little to do with the personal gain of the entrepreneurs who set them up. These side-effects of individual self-interest (positive and negative externalities, as economists call them), in contrast to the plans of the private sector management, were unplanned. With the help of government intervention, they have led to a huge increase in the quality and quantity of life in the rich countries.

Until they grow big enough to influence government, most private sector companies adapt or go under. But their negative externalities of their activities are largely the responsibility of government, a monopoly. Government responds to social and environmental problems in ways that often do not adapt. Hugely wasteful, corrupt and malignant policies, such as farm subsidy programmes and other perverse subsidies, persist partly because they are too small in relation to the overall economies that support them.

Diversity helps: when people from democratic countries travel overseas, see the advantages of doing some things differently, and return home, that puts pressure on their governments to adapt. But what happens when government becomes so big that people cannot do this? Then there would be just one approved way of bringing about, say, climate stability and if that didn't work, then there would be little pressure chance of alternative approaches, despite the evident failure of the policy.

We may well need governments that have very large geographical remits: even a form of global government. And there probably are universal values that need protecting by such bodies. But such values are outcomes, not ways of achieving them. We can have universal values and goals, such as the eradication of world poverty, 100% literacy and numeracy, but we need diversity in the ways of achieving them. Then failed experiments will be terminated, and succesful ones widely adopted. A Social Policy Bond would be consistent with such an approach. It would target outcomes, not the ways of achieving them. Under a bond regime, those agencies, be they public or private sector, would survive and prosper only if they were efficient at achieving society's targeted goals.

No comments: