The true comparison

As so often, John Kay sums it up succinctly:

Regulation by rules invites compliance with the rules rather than the objective of the rules, and the more extensive the rules the easier it is to lose sight of the objective.

I'm sometimes asked what would happen if, for instance, holders of Social Policy Bonds targeting crime in a particular region simply laid on a shuttle bus service for burglars into an adjacent region. If, in short, the intent behind a bond issue were undermined while remaining within the letter of the bonds' redemption terms. There are difficulties with such negative-but-legal ways of achieving Social Policy Bonds' stated objectives but, and this is a crucial point, exactly the same difficulties apply under the current system. More generally, the proper comparison of a Social Policy Bond-based regime should be with the best of the current system, rather than some unattainable utopia.

Social Policy Bonds do need discussion, application on a small scale, and refinement before they can be widely applied to large social and environmental problems. Even then, they would have their drawbacks. But, in my view, at least until they have been tried and tested, they offer significant improvements over the current, activity- or institution- based ways of trying to improve social wellbeing. Under a bond regime, we'd still rely on people's willingness to comply with the spirit of bond issues. But that's exactly the same as under the current regime. As Mr Kay goes on to say:

It is hard, perhaps impossible, to remain honest when the culture is corrupt; hard, perhaps impossible, to live on an MP’s salary when others exploit the allowance system and accept dubious consultancies; hard, perhaps impossible, to manage a bank prudently when your competitors inflate profits by operating differently. That is why values of integrity, of public service, and of responsible stewardship of the money of others can never be replaced by rules or imposed by regulation.