Closing the gap

A week ago I blogged about the widening gap between voters and the people who are supposed to represent us. 'We might well be reaching a tipping-point when we all feel it's our right - or duty - to game the system for the benefit of ourselves and our families.' For a similar view, beginning with examples from sport, read the article by Will Hutton in today's Observer:

What is dangerous is that when cheating reaches a certain mass, it becomes impossible to contain. Rules become there to be broken. Those who dive on the football field will hardly think an annulled suspension for a couple of matches for Arsenal's Eduardo sufficient deterrent not to try it themselves – and the football authorities have to be careful in their sanctions, because diving is so rife. Equally, governments find it hard to challenge the accounting industry, along with much of the financial services' so-called structured (cheating) investment operations, built around advising the rich how to avoid (and even evade) tax. Too many people have been allowed for too long to build a career on advising others how to cheat. ....

There is a change in society that has driven the growth of cheating – from sportsmanship to business ethics – over the last generation. It is not that there was some cheat-free golden age. Back in the 1960s and '70s there were sports cheats and some businesses bent the rules. However, most CEOs of public companies were like Courtaulds' Sir Arthur Knight, punctiliously filing every penny of his income and refusing "tax efficiency" schemes on principle as dodges to help the rich avoid their civic responsibilities. He strongly believed he was a privileged member of a community whose rules he wanted to respect. I know a few CEOs like him now, but it is a culture that is fast disappearing.

The problem is that the social sanctions against cheating are becoming ever harder to operate as communities disintegrate. ....

The outstripping of the top 0.1% from the rest – in sport and business alike – has undermined the core belief in reciprocity on which association and rule-keeping depends. If the top does not need the approval of others – because the distance between us in income, wealth and status has grown so vast – then we cannot make them feel the harm that they do. They do not feel the consequences of not paying tax, rigging markets or bending the rules. They can behave unfairly without consequence. The leaders set the tone; the rest follow and so cheating becomes the norm. We now live in a society so cynical that cheating has become the norm, 'The Observer', 27 September

As I said in my post, the end-point of widespread cheating is not a pretty sight, but we are moving toward it so long as the ends of politicians are different from the ends of ordinary people. And unfortunately, they seem to be both wide and diverging.

Social Policy Bonds cannot, themselves, rebuild communities - not immediately anyway. But they could be a way of bridging the gap between politicians and public. By focusing political debate on outcomes, rather than process, spending or activity, they could boost public participation in the policymaking process. Under a bond regime it would be more difficult for large corporations or government agencies to influence or dictate the direction of policy. The distinction between leaders and the rest of us would diminish.

Going nowhere, doing nothing

Kyoto’s approach has not obviously paid off. Global carbon-dioxide emissions have grown by 25% since the protocol was adopted in 1997. That is partly because the treaty left out big emissions sources such as deforestation ..., but also because potential participants were put off by the idea of internationally binding commitments. Avoiding a crash at Copenhagen, 'Economist', 26 September

Quite. There are no meaningful incentives actually to comply with Kyoto. All the costs are upfront and obvious; all the benefits well into the future, and diffuse. The fact is that if we want to cut emissions, we have to provide incentives to cut emissions. I'd go further: if we want to reduce climate instability (or the damage done by climate instability) then we have to provide incentives to reduce climate instability. All the portentous talk and well-intentioned but meaningless declarations of intent by the world's top politicians will not alter these facts.

We're all Siberians now

Colin Thubron quotes 'Shamil', an inhabitant of Severbaikalk, at the northern tip of Lake Baikal:

Young people don't feel connected with this country, because its system isn't ours. It's an old people's system. It comes from another time. So we'll go to America, or anywhere that will free us. It's not that we don't love Russia, it's just that we have to live properly. We're young men born into an old man's world. Colin Thubron, In Siberia (page 151)

Old people as individuals probably do feel some responsibility for their legacy. But old people collectively, acting politically, are different. They are bequeathing a world in which environmental challenges are addressed, if at all, when it's too late to do much about them. Similarly for man-made challenges, such as the risk of nuclear catastrophe. The systems supposed to solve global problems, and many national problems, have been given over to organizations that take an old-fashioned view of problem-solving; a command-and-control paradigm that relies on top-down identification of the causes of a problems, and the hand-picking of the most politically correct solutions. It is in that sense that we are all Siberians.

A Social Policy Bond regime would be different. The identification of causes of problems would be contracted out to investors in tradable bonds, which become redeemable for a large sum only when the targeted problem has been solved. No special political caste, or priesthood, would choose how to solve the problem; that would be left to powerfully motivated bondholders, or their competitors in the bond market. In such a way, failed solutions would be swiftly terminated, rather than, as now, continued indefinitely to save political face or to prolong the life of redundant, but politically powerful, vested interests. A Social Policy Bond regime would be a young person's system, in the sense that it would reward efficiency and success rather than seniority and control.

Into Africa

From ClubOrlov:

Medical reform has been attempted before, and the outcome can be foretold with some accuracy: efforts at reform will fail because any meaningful reform would be financially damaging to powerful vested interests, and so national bankruptcy will have to be an essential part of the work-out. Feelings of the electorate on the matter are irrelevant.

And from Rolling Stone:

Just as we have a medical system that is not really designed to care for the sick, we have a government that is not equipped to fix actual crises. What our government is good at is something else entirely: effecting the appearance of action, while leaving the actual reform behind in a diabolical labyrinth of ingenious legislative maneuvers.

The cynicism bodes ill but is quite justifiable. The gulf between voters and the people supposed to represent us is is wide and growing. We might well be reaching a tipping-point when we all feel it's our right - or duty - to game the system for the benefit of ourselves and our families.

It might be time to look at another way of formulating policy. The current way is obscure, complex and legalistic. It's far too arcane, time-consuming and open to manipulation to serve ordinary people.

Social Policy Bonds could be the answer. A bond regime would target outcomes that are meaningful to all members of society. All activities, research, programmes and initiatives would be devoted to achieving these outcomes at least cost to the taxpayer. Apart from the huge benefit of greater efficiency, Social Policy Bonds would be transparent. If the aim were to subsidise or buy off medical insurance companies, for example, that would have to be openly stated when the redemption terms for the bonds are drafted. Even US lawyers and lobbyists might find it irksome to insert such terms into a list of otherwise socially beneficial policy goals.

What's the alternative? Societies in which extracting whatever one can get away with for oneself and one's family are not pretty. Theordore Dalrymple writes about his experiences in Rhodesia:

The black doctors who earned the same salary as we whites could not achieve the same standard of living for a very simple reason: they had an immense number of social obligations. They were expected to provide for an ever-expanding circle of family members and people from their village, tribe, and province. An income that allowed a white to live like a lord scarcely raised a black above the level of his family. Mere equality of salary, therefore, was quite insufficient to procure for them the standard of living that they saw the whites had and that it was only human nature for them to believe themselves entitled to, on account of the superior talent that had allowed them to raise themselves above their fellows.

These obligations also explain the fact, often disdainfully remarked upon by former colonials, that when Africans moved into the beautiful villas of their former colonial masters, the houses swiftly degenerated into a species of superior, more spacious slum. The degeneration of colonial villas had nothing to do with the intellectual inability of Africans to maintain them. Rather, the fortunate inheritor of such a villa was soon overwhelmed by relatives and others who had a social claim upon him. They brought even their goats with them, and one goat can undo in an afternoon what it has taken decades to establish. Out of Africa, 'The American Conservative', 16 January 2006

Mickey Mouse indicators

Simon Darragh writes about his experiences of mental health care in the UK:

[A]bout nine years ago I was close to suicide again and found myself being taken into another hospital. Things had changed. Now we had the policy of ‘care in the community’. All notion of protection, of asylum, had gone: a patient (or was it ‘client’?) information leaflet explained that one’s stay would be as brief as possible. Nurses no longer spent much time with patients: they were closeted together in an office filling in ‘care plans’, and could get quite cross if one knocked on the door to point out that a patient was smashing up the furniture or another patient. Usually, in fact, knocks on the door were ignored. True, we saw psychiatrists as often as once a week, but their concern was to see whether we were ready to be discharged. We lived in dread of being called before the psychiatrist: many, including myself, tried to seem madder than we were in the hope of delaying discharge. I managed to stay a month – twice as long as the ‘target’ period – before being ejected despite my vigorous protests. I was soon back. Returning to the same hospital I expected the nurses to be surprised and disappointed to see me again; they batted not an eyelid. Soon I noticed familiar faces among the other patients; people who had been discharged during my earlier stay and who were back again. Nine years later I have lost count of how many times the NHS has ‘cured’ me of severe depression. Clearly the new policy is statistically – and that’s what counts – very successful. It must have cost them far more than one long stay, but they’ve had half a dozen cures instead of one. Simon Darragh, Letter to the Editor of London Review of Books, dated 24 September

Our big, complex societies do require the targeting of some sort of numerical indicator and mental health is an extremely difficult concept to quantify. But surely we can do better than the number of discharges from psychiatric hospital care? Such indicators are rather like economic variables: if they are too narrow, the tendency will be to game the system, consciously or not. I've blogged before about meaningless targets in the UK health system.

Under a Social Policy Bond regime, there would be similar problems in choosing the best indicators to target. But there would be much more ingenuity applied to devising them. They would be broad rather than narrow, and transparent. But most important, they would be inextricably tied to societal wellbeing, in a way that 'number of hospital discharges' plainly is not.
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Every 100 posts, I update progress on the Social Policy Bond idea. This is my 700th post, and there has been zero progress in the past few months. Sales of my book have been negligible, and after initial bursts of enthusiasm from one tv producer in particular, interest has fizzled out. The Social Policy Bonds concept has now been in the public arena for 20 years but, as far as I know, nobody issues them. I intend, though, to continue to post on this blog, and to maintain the main Social Policy Bonds website.

Corporate welfare: Wal-Mart

Around the time that the young Sam Walton opened his first stores, John Kennedy redeemed a presidential campaign promise by persuading Congress to extend the minimum wage to retail workers, who had until then not been covered by the law. Walton was furious. Now the goddamn federal government was telling him he had to pay his workers the $1.15 hourly minimum. Walton's response was to divide up his stores into individual companies whose revenues didn't exceed the $250,000 threshold. Eventually, though, a federal court ruled that this was simply a scheme to avoid paying the minimum wage, and he was ordered to pay his workers the accumulated sums he owed them, plus a double-time penalty thrown in for good measure. Wal-Mart cut the checks, but Walton also summoned the employees at a major cluster of his stores to a meeting. "I'll fire anyone who cashes the check," he told them. Harold Myerson, In Wal-Mart's Image, 11 September

Here are the types of subsidy that Wal-Mart receives, as documented by Good Jobs First (pdf).:

# Free or reduced-price land

# Infrastructure assistance

# Property tax breaks

# State corporate income tax credits

# Sales tax rebates

# Enterprise zone (and other zone) status

# Job training and worker recruitment funds

# Tax-exempt bond financing

# General grants

What sector shall we subsidise next?

When policy takes the form of targeting, you have to be very careful that your targets either are, or are inextricably and strongly correlated with, what you want to achieve. I've blogged many times about the meaninglessness of gross domestic product as a target (see here or here, for instance). Governments implicitly or explicitly target GDP per capita (as 'economic growth'), often with unfortunate results such as the degradation of the social or physical environment.

Here's another instance of policymakers getting it wrong. Not long ago governments were in thrall to the motor industry. Then came computers and IT. But today, or until recently, it was finance. Here's George Monbiot quoting UK Prime Minister Gordon Brown:

In 2004 he told an audience of bankers that “in budget after budget I want us to do even more to encourage the risk takers”. In 2007 he boasted that the City of London’s success was the result of the government “enhancing a risk based regulatory approach, as we did in resisting pressure for a British Sarbannes-Oxley after Enron and Worldcom”. The great cop-out, 8 September

The problem is deeper and more widespread than that of governments' complying with the wishes of their paymasters in big business. Our governments are democratic, so have to sell their degenerate thinking to the electorate. And, not being specialists, we too easily identify the success of particular sectors or, say, an increase in GDP, as improvements in societal wellbeing. This, they might have been at lower levels of development. But they are not always so, and our policymaking system has been too slow to recognise this.

It's hardly surprising. Society is so complex that it takes us too long to identify the causes of social and physical depredations, by which time it's very often to do much about them. The policymaking process to the outsider is too complex and arcane to follow closely. Perhaps Social Policy Bonds are the answer. They would subordinate all activity and funding to the achievement of social and environmental outcomes, rather than try to prejudge how best to achieve these outcomes. Insiders and outsiders would see clearly that a healthy finance, or IT, or whatever, sector is not an end in itself, but a means to various ends, and that government would be both more efficient and more transparent if it targeted these ends directly.

Outcomes a better policy driver than advocacy research

In his discussion about child-rearing techniques Frank Furedi tells us:

The experience of the past tells us that when science is used to provide legitimacy to speculation, there is always a possibility that we will find what we are looking for. Researchers sometimes admit that they are looking for research-based evidence to justify a cause. ... Most of what goes by the name of parenting research is best described as advocacy research. Advocacy research does not set out to discover what's not known it seeks to convince and influence public opinion. [Emphasis in original] Paranoid Parenting: abandon your anxieties and be a good parent (pages 156, 160)

Of course it's not only in parenting that you can generate figures that confirm your prejudices. My own field, economics, is another obvious case in point. It's an important consideration in the world of policymaking. Mr Furedi raises the questions of breastfeeding or smacking children. Similar reservations arise in other fields: crime, for instance, or mental health. What exactly is the role of government when research findings are inconclusive and controversial?

Social Policy Bond could help. They would stipulate a targeted outcome, rather than the supposed means of achieving it. So if society's goal is, for instance, to reduce lung cancer rates, then a bond issue would - probably - lead to the sort of restrictions on smoking that we now see. But if the goal is to reduce crimes committed by young people, where the scientific evidence on raising children is far more equivocal, investors in bonds would have to investigate and explore a much wider range of alternative approaches, the nature of which need not be specified in advance. Advocacy research would be regarded with far more skepticism than currently, because investors in bonds targeting youth crime would be looking for results, rather than confirmation of their prejudices. They would have powerful incentives to find only the most efficient ways of reducing youth crime, and to that extent would be impartial in their observations and conclusions.

Social Policy Bonds' focus on outcomes would have the same impartiality in helping achieve a wide range of social goals where research findings are vague or hotly disputed, and so we are collectively paralysed into inaction. They include larger ones about which I have written many times before, such as climate change or the prevention of natural or man-made catastrophes.

What really drives policy?

There's no one single driver of course. In many countries ideology is one of the biggest. In the UK, ideological egalitarianism has been an important driver of education policy, for instance. Personality and imagery are also important. But in the US, increasingly and overwhelmingly, corporate money is the biggest policy driver. Paul Krugman explains why health care reform is now far harder to contemplate than it was during President Nixon's time:

[O]ur political system’s ability to deal with real problems has been degraded to such an extent that I sometimes wonder whether the country is still governable. As many people have pointed out, Nixon’s proposal for health care reform looks a lot like Democratic proposals today.

Nixon also embraced tighter regulation of insurers, calling on states to “approve specific plans, oversee rates, ensure adequate disclosure, require an annual audit and take other appropriate measures.” No illusions there about how the magic of the marketplace solves all problems. So what happened to the days when a Republican president could sound so nonideological, and offer such a reasonable proposal? Part of the answer is that the right-wing fringe ...over one of our two major parties [the Republicans].

But there’s another reason health care reform is much harder now than it would have been under Nixon: the vast expansion of corporate influence. ... The health insurance industry, in particular, saw its premiums go from 1.5 percent of G.D.P. in 1970 to 5.5 percent in 2007, so that a once minor player has become a political behemoth, one that is currently spending $1.4 million a day lobbying Congress. Missing Richard Nixon, 30 August

Even that might not be reprehensible if corporate lobbying power were correlated in some way to people's preferences. But, as Noam Chomsky has pointed out, corporate power is instead used to manipulate markets and distort the regulatory environment.The winners are the big corporations. The losers are smaller businesses, ordinary people, and the environment.

We need a better policy driver. Policy is complex; there are too many variables and time lags for any but the specialist to have any idea what's going on, and even they get it wrong frequently and in big ways. Corporate interests are adept at filling this vacuum, and Mr Krugman well describes one, but only one, of the policy areas that they have adapted to their own purposes.

Social Policy Bonds could be the answer by which the interests of all of us could be represented and achieved. Social Policy Bonds would subordinate all policies, all activities and institutions, to socially desired outcomes. Corporate power would result from success in achieving these outcomes, rather than a determinant of policy. Under a bond regime corporations and their interests would be entirely subordinated to the goals of policy. And because policy goals are more readily comprehensible to the public than the myriad complex ways in which they are supposedly achieved, these goals would generate public participation in their formulation and, crucially, buy-in. Sadly both are missing when it comes to making health policy in the US; and to much policy elsewhere: one reason why the political system of the US and other countries has become incapable, as Mr Krugman puts it, of dealing with real problems.