17 August 2009

Complexity and catastrophe

With time lags and great complexity, it's all too easy for people to game a system, consciously or not, so that they benefit in the short term by either spreading the costs of their activities to society in general (socialising them) or by postponing them to future generations. In a sense, mankind has been doing that since the time of Malthus; and our existence as well as our very high material standard of living are the happy outcome of unforeseeable technologies arising that do much more than solve old problems. But I wonder whether we can still afford to do this when we bump up against finite limits. Dissemination of successful technologies has, so far, and with a couple of close shaves, outpaced our destructive tendencies. But there is no inevitability about that it will continue to do so.

We don't know what are the biggest threats to our existence: nuclear proliferation? Climate change? Impact with an asteroid? What the credit crunch and climate change appear to tell us is that disaster are probably unfolding now, but we have no idea what forms they will take. Still less do we have a political system capable of defusing enormous threats before they become perilously close to reality.

This is perhaps where Social Policy Bonds score heavily over the current way of doing things , which is essentially a passive approach, characterised by too much or too little action when it's too late. Under a bond regime we can prescribe an outcome and contract out its achievement to a number of investors, who will have incentives to cooperate to bring about this outcome. Social Policy Bonds could function as an insurance policy against specified or unspecified catastrophe. Backers of Disaster Prevention Bonds, whether they be government or private sector philanthropists, could choose to reward the continuing absence of major human catastrophe without specifying the nature of the catastrophe, and without themselves having to pick out potential solutions. In that way, the complexity that allows us to ignore unfolding disasters can work in humanity's favour, by selecting efficient, effective solutions.

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