08 June 2008

Social Policy Bonds for counterintuitive solutions

It's the counterintuitive nature of solutions to complex problems that makes me think Social Policy Bonds have a lot to offer. A US study found that transportation accounted for only 11 percent of the total greenhouse gas emissions generated as a result of a typical household's food consumption. Growing and harvesting the food accounted for 83 percent of the total. Focusing on 'food miles' can therefore give a misleading impression of a food's environmental impact. So often, our first impressions of how to solve social and environmental problems go awry. These problems are often not amenable to the top-down, centralised, one-size-fits-all approach that government follows. Preventing climate change may not be most efficiently done by restricting food imports, or even by cutting back on greenhouse gas emissions. Reducing crime rates may mean a lot more than increasing funding for the police, or putting up more CCTV cameras. Increased expenditure for health services or schooling might not be the best way of improving wealth or education....

A Social Policy Bond regime would reward people for achieving our social and environmental goals, however they do so. Bondholders have incentives to seek optimal solutions - which might not be the obvious ones. Typically, for complex problems, the best approach will be a mosaic of different, adaptive projects, initiatives and policies. No single, centralised body can follow that approach, and especially not one steeped in a bureaucratic culture. Social Policy Bonds for complex, long-term problems, will probably lead to the creation of a new type of organisation: one whose every activity is subordinated to the solution of the targeted problem. Such organisations might well perform some of the same activities as government nowadays - but it would have incentives to do so efficiently, and to pursue other activities whether they are 'obvious' or not, so long as they are also efficient.

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