Gradual re-orientation of policy

On January 27th [Gordon Brown] announced a £2.3 billion ($3.2 billion) package of loan guarantees to support carmakers, the development of clean low-carbon cars and the skills to produce them. Another scheme, yet to be devised, will aim to stimulate demand by helping finance companies that lend money to buy cars. Mandy's Promise, 'Economist' 29 January

There's no real discontinuity between the perverse subsidies given to agriculture, the fishing industry and the fossil fuel sector over many decades, and the current bailouts of the finance and car-manufacturing sectors. In all cases short-term expediency and the interests of powerful corporate and government agencies are given a higher priority than those of ordinary people. This is little different from what the way we have treated our physical and social environment. My own feeling is that the logic of incremental adaptation has led us too far from our best interests, and that that is now becoming clearer to everybody. Whether the inevitable re-orientation of policy occurs peacefully and constructively is, I think, open to question. One way of minimising the inevitable pain could be to move towards a Social Policy Bond model.

Such an transition could occur gradually, with existing institutions that are charged with solving our social and environmental problems (mainly government agencies) having their funding reduced by a couple of percentage points a year, while funds are diverted to the redemption of Social Policy Bonds targeting the goals supposedly being achieved by these bodies. The existing institutions, if they were efficient, could work to achieve these goals, and expect to gain at least as much funding as they had before - but only if they were efficient. And their efficiency, and hence their funding, would be objectively assessable at all times via the market for the bonds.

My book goes into more detail about such a gradual transition, as it does about all aspects of the Social Policy Bond idea, but if you are interested you can also contact me directly, through a comment here or via the email address given in my profile page.

Condemned by governmental structures

From the Atomic Bazaar:

The construction of a [fission] bomb is not a casual project. The required machinery, the noise and especially the presence of team members who are unlikely to be locals provides the West with the last practical chance of self-defence.... In even the most chaotic neighborhoods... it would be difficult to keep the neighbors from asking inconvenient questions. [In Istanbul], Mombasa, Karachi, and every other city where a bomb could conceivably be built ... are urban collectives, ungovernable perhaps, but not necessarily uncontrolled. Western agencies that could find a way to lay traplines in their slums would have a better chance of stopping a terrorist attack than any port-inspection program, bureaucratic reshuffling, or military maneuvering can provide. Here again, though, there is little evidence that Western agencies are capable of emerging from their rigidly governmental frameworks. 'The Atomic Bazaar: The Rise of the Nuclear Poor', by William Langewiesche ((pp68-9) [My emphasis]

Precisely. People who work for government are, in my experience, well-meaning and hard-working. But they have no incentive to investigate untried solutions to problems - however serious those problems are. Like all organizations, government agencies have one single, over-arching goal, and that is self-perpetuation. Achieving social or environmental outcomes may or may not be consistent with that goal. Are we to be condemned to a future of nuclear warfare because government bodies are incapable of giving nuclear peace a higher priority than their own structures and procedures?

Here is my suggestion: a group comprising philanthropists, non-governmental organizations and other interested parties (public or private sector) back a particular application of the Social Policy Bond principle: Disaster Prevention Bonds. These would redeemable for a fixed sum once a sustained period of absence of a humanitarian disaster had passed. The type of disaster need not be specified: it could be natural as well as man made. The redemption terms would stipulate that they would become worthless the moment an unspecified calamity killed, say 20 000 of the world’s citizens by a single catastrophic event in any 48-hour period. Such a bond issue would provide incentives for people to investigate and explore ways of avoiding a nuclear exchange, as well as mitigating the effects of natural disasters. Their priority would transcend those of organizations currently working on those problems. Their over-riding criterion for the mix of projects they would initiate will be efficiency: the maximum reduction in the probability of a humanitarian disaster per dollar spent. That's in stark contrast to the existing bodies charged with safeguarding humanity's future who, despite the best of intentions, find it impossible to explore ways of doing things other than those that are tried, tested and failed.

Catastrophe: coming soon

From The atomic bazaar, by William Langewiesche:

[D]etailed knowledge of nuclear bomb-making has fully escaped into the public domain, placing nuclear arsenals within the reach of almost any nation. Once countries make that choice, their rivals will hear the same call. The United States, Russia, Britain, France, China, Israel, South Africa, India, Pakistan. North Korea and soon perhaps Iran. At least twenty other countries are in position to proceed. ... In Western capitals today there are quiet people, serious people, who, while recognizing the low probability of [a Hiroshima-type fission explosion] nonetheless worry that the successful use of just a single atomic bomb could bring the established order to its knees - or lay it out flat. The atomic bazaar: the rise of the nuclear poor (pages 13 and 19).

Given such a consequence, the large number of countries involved, the multiplicity of possible causes of conflict, and our total uncertainty as to where the greatest dangers lie, I think this is one policy area where incentives to achieve a result - the absence of nuclear explosion - should be supplied, however that result is to be achieved. In that way, people would investigate and implement those ways that do most to reduce the probability of a nuclear explosion per dollar spent. Application of the Social Policy Bond principle - see my essay on Conflict Reduction Bonds - would ensure that the incentives are always in the hands of those best placed to achieve the target.

Nuclear conflict, like conflict in general, needs a diverse, adaptive approach. One shaped by our dire need to avoid catastrophe, whatever its source, rather than by the structures, goals and funding of bureaucracies. Unfortunately, it is the latter that have the traction.

Social Policy Bonds as a metasystem

A jarring commentary by Theodore Dalrymple on seeing two schizophrenics in the Paris Metro, obviously in some discomfort and distress, but being ignored by the passengers:

[W]hat really struck me about the scrawlers [of slogans on adversting posters] of the Réaumur-Sébastopol station was their passionate certainty about large and distant abstractions; while at the same time, no one among many thousands knew, apparently, what to do in practice about the two individuals who were causing some inconvenience, displeasure, and even fear to those same thousands. Reading the Signs, 'City Journal' 6 January

Social Policy Bonds are a meta-system. They don't assume, as do most of us, that government will do the things that we cannot currently do, or choose not to do. Government is never slow to expand its role ('With government, mission creep is the defining feature' says Mark Steyn), and we acquiesce too easily in letting it. But a Social Policy Bond regime would reward people for achieving targeted social goals, however they do so and whatever their identity, provided only that they are efficient. If government cannot provide decent care for disturbed people, then others, including volunteers, should be given the resources to enable them to do the job. A Social Policy Bond regime would alocate resources impartially, with efficiency in achieving targeted goals being the sole criterion for allocating taxpayer funds.

Miswanting

Citing work by US psychologists Daniel Gilbert and Timothy Wilson, Elizabeth Farrelly writes about 'miswanting', which is:

our tendency to want all the wrong things, things that are wrong not just morally or environmentally but even in their capacity to deliver the satisfaction they promise. ... [M]iswanting occurs because we are hardwired to mispredict both the intensity and the duration of our emotional response to getting what we desire. Blubberland: the dangers of happiness

We make better decisions when we are not distracted by the salience factor:

Salience is the intensity or vividness of perception that makes us much more susceptible to the immediate objects of our senses - to what we see and feel - than things we abstractly know.

The implications for the way we live are profound, not least in policymaking, which is often diverted from a rational course by the immediacy of televisual events. So our oceans are overfished, because the plight of small fishing communities is much more salient than the environmental catastrophe of depleted seas - and, indeed, the long-term prospects for the fishing communities themselves. It's par for the course when policy is expressed in terms other than meaningful outcomes. Government funding and legislation can all too easily be diverted into compelling causes at the expense of our long-term goals. We, for instance, still subsidising not only fisheries, but large agri-business corporates and fossil fuel extraction and consumption.

A Social Policy Bond regime would be far less susceptible to the manipulation of the salience factor. We might still choose to subsidise the destruction of the seas or large cash transfers from the poor to the enormously wealthy, for example, but it would have to be done with our eyes open, and with some degree of consensus. Somehow, I think that our collective consciousness, would find more deserving causes.

Getting away with it

Politicians and government bureaucrats can always escape or deflect censure for their failed policies because of the complexity of our social system. In the same way economists - public or private sector - can excuse their failure to foresee catastrophic events:

But if a doctor repeatedly deemed patients to be healthy that were soon found to have Stage Four cancer that was at least six years in the making, the doctor would be a likely candidate for a malpractice suit. Yet we have heard nary a peep about the almost willful blindness of economists to the crisis-in-its-making, with the result that their central role in policy development remains beyond question. Why so little self-recrimination among economists?

To that end, all in positions of power and influence have a vested interest, no doubt manifested sub-consciously, in increasing the complexity our social organization. In that way we can be sure that their mistakes, or favouring of chosen sectors or corporations, can always be shrouded in obscurity. Economists often talk of the 'tragedy of the commons', but the tragedies occur not when ownership of a resource is undefined, but rather when it's hidden, constantly changing or otherwise too complicated to ascribe to any accountable person. If we are going to have accountability for social and environmental failure, we need to bring some clarity into the policymaking process. I think this can best be done by rewarding meaningful outcomes, perhaps by issuing Social Policy Bonds. (This is one reason, incidentally, why I dislike proportional representation, at least in the form that it takes in New Zealand: the electoral process itself is unnecessarily complicated for most ordinary people, while the horse-trading that goes on between parties after the election is also inaccessible to most. I'm open to persuasion about this, however.)

Perils of incremental adaptation

From Harper's Index:

Average percentage by which a bar-smoking ban in a US county increases the rate of drunk-driving fatalities: 13 Harper's Magazine, July 2008

The source cited is Scott Adams, University of Wisconsin-Milwaukee, and this link (pdf) takes us to Adams' paper showing that the increase in road deaths arises from the extra distances that smokers travel to reach a bar where smoking is allowed. This illustrates a larger truth: that incremental evolution and adaptation along lines determined by current institutional structures often takes us away from the goals we actually want to achieve. In this instance pressure, presumably from anti-smoking lobbyists and well-meaning healthcare agencies, generates a rise in road deaths. Nobody actually has a strong incentive to look at the big picture.

A Social Policy Bond regime would be different. Broad outcomes, such as the general health of an entire population, could be targeted, giving people incentives to help improve it - rather than, as at present, to work on things (such as smoking restrictions) that sound helpful but that actually do nothing for the wellbeing of the population.

Incentives to be responsible

In the course of a long article about Italy's woes, Alexander Stille writes:

Italy has half a million people who have been retired for more than forty years. The cost of paying for much of this was deferred, creating Italy's huge debt. It takes about 10 percent of GDP just to service it. Italy Against Itself, 'New York Review of Books', 4 December 2008 (subscription)

Sometimes you wonder whether our complex social and economic organization is just a device for obscuring our irresponsibility. The costs of our behaviour - on future generations, past generations, our the environment - might even outweigh the benefits of specialisation. I'm not convinced, either, that the benefits to this generation are that compelling. At college we learned that alienation and interdependence were the disadvantages of specialisation; nowadays much these are supplemented by extreme uncertainty.

I think it's time to rein in the influence of so-called 'market' forces - those manipulations and distortions of real markets that work against the interests of ordinary people. A Social Policy Bond regime would be one way of inextricably linking rewards to socially desirable outcomes: something that we do not have at present when, for instance, it's claimed that 'a rising tide lifts all boats', or that wealth 'trickles down' from the super-rich to society as a whole. Social Policy Bonds targeting social and environmental outcomes couldn't be manipulated or used to obscure baser motives. They would subordinate all activities and institutional funding to the actual achievement of targeted goals. Opportunities to game the system would disappear - in stark contrast to the corrupt politics that seems to bedevil even the richer, developed countries.

The unimportance of getting it right

If non-financial incentives carried much weight, then it would be helpful if they could correlate in some way with desirable social or environmental outcomes. They would then perform some tiny act of offsetting the financial incentives that are on offer to those whose activities end up degrading our wellbeing. Unfortunately though, in the UK at least, the royal honours system has largely followed the prevailing trend and been given over to celebrities, sportspeople or entertainers. Or, as this letter to the Times (2 January), points out, to those civil servants whose approaches are tried, tested - and failed:

Sir, Courtiers in days of yore used to know that it was far better to be wrong in grand company than to be right on your own — so it is today. The Permanent Secretary to the Treasury, a Gordon Brown insider, Nick MacPherson, gets a knighthood for presiding over the management of the economy that has led to the most dangerous financial boom in living memory and which has resulted in the present bust and deep recession. By contrast, the eminent economist Roger Bootle gets nothing, despite having many times warned us that deflation was a more dangerous enemy than inflation and that Mr Brown and the Bank of England should stop worrying unnecessarily about inflation and should, instead, take steps to stem the flow of irresponsible debt, which has fuelled the unsustainable property boom.
Stephen Porter
London NW6