26 October 2009

Plundering the future

A scary post on the UK's national debt concludes:
if we wanted to be cautious - admittedly not something our present rulers have been much good at - we'd say our real national debt is now in the range £7-8 trillion. Or around £300 grand for every single household. Wat Tyler, Latest on Real National Debt, 19 October
That works out at slightly more than £100000 per person. When people point out to me some of the difficulties of a Social Policy Bond regime, my response is simple: such a regime would by no means be easy to implement, but it would be better than the current system. One of the difficulties of a bond regime would be in trying to anticipate and target for elimination, all such negatives as plundering the future, whether by building up debt, or destroying the physical environment. Surely, I'm asked, we'd simply transfer problems to unforeseeable policy areas? A first answer then would be that the current system doesn't even attempt to address such concerns. There's very little, for instance, environmental accounting, and we all know now that there's very little account taken of the financial needs of future generations. The current system relies on postponing problems for at least as long as it takes a new set of politicians to take over, during which time they accumulate and their effects become catastrophic.

How could a Social Policy Bond regime be worse? It could actually be a lot better. We couldn't foresee, 50 years ago, the shape of future environmental catastrophes (the ozone hole, for instance, or climate change). But if Social Policy Bonds were around then, we could have issued something like Disaster Prevention Bonds, that would have given incentives for people to avoid all the impacts on humans of all catastrophes, however caused. People who undertook research into the long-term impacts of CFCs, or fossil fuel burning could have expected to receive additional funding from holders of Disaster Prevention Bonds. By focusing on outcomes, rather than their causes, Social Policy Bonds issued now could do a lot to prevent the building up of all disasters, environmental, financial or social, even if their full scale would not be apparent for decades to come.

21 October 2009

Objectives and outcomes

John Kay writes that, after the fall of France in 1940:
neither Churchill nor any other British leader could have had any realistic conception of how that goal [victory] would be achieved. Even if the Germans failed to invade Britain, a British invasion of Europe without overwhelming assistance and support was inconceivable. Churchill understood that American participation in the war was a precondition but had no means, and no plan, for bringing this about. The events that changed the direction of the war – the failed German attack on Russia and the Japanese bombing of Pearl Harbor – were neither predictable nor predicted. ... Maintain a clear sense of long-term objectives but acknowledge the limits on your day-to-day actions. The gravest errors in the financial and business world are made, not by those who control or know too little, but by those who control or know less than they think. True survivors do not clutch at straws, 'Financial Times', 21 October
It's amazing what can be done if you have a clear, long-term goal in mind. Unforeseeable events are immediately interpreted in relation to that goal. One's entire attitude of mind is orientated toward achieving the goal. When our leaders' goals coincide with public benefit, then the possibilities are immense. But what happens when they don't?

Very much what we have now. Serious environmental challenges that are not being addressed. The piling up of conventional weapons and the proliferation of nuclear warheads. The subordination of global outcomes to the nutters and ideologues, whether they be 'religious' or political extremists. The drift toward financial collapse, and economic ruin. The alienation of the moderates. The continuing fraying of the social fabric.... Our politicians are letting us down: their goals, if they have them, are political survival, and the possibility of personal (or familial) enrichment. Our bureaucrats don't want to rock the boat. It seems as if our policymaking system, like our legal, or (in the US) healthcare systems, are divorced and diverging from public needs.

Unless there's an obvious, and preferably (tele)visual crisis on our hands, we don't think in terms of clear, long-term goals. A Social Policy Bond regime could change that. We could aim to address urgent, meaningful global problems such as war, climate change, or disasters of any sort. We could focus on regional conflict, or national problems such as unemployment. In all cases, a bond regime would start off with clear, transparent, meaningful long-term goals. Investors in the bonds, and the wider public, would then have a strong interest in seeing targeted objectives become outcomes.

18 October 2009

Everyone's doing it...

...I mean, misdirecting or abusing taxpayer funds (sigh):
The [UK] Department for International Development (DfID) claims to be “leading the UK government’s fight against world poverty”. However, by 2011 it will have spent over £1bn of taxpayers’ money on propaganda, according to Fake Aid, a new report from International Policy Network. Recipients of this money include trade unions and other partisan political organisations in the UK. Examples include:

--£1.2 million given to the Trades Union Congress (TUC) since 2003 for activities including: lobbying, hiring new staff and a Caribbean-themed party to celebrate “International Women’s Day” in the UK. DfID also paid the TUC to hold lessons in how to apply for DfID funds.

--£300,000 to the National Union of Teachers to “enable them [teachers] to become global agents of change”. ...

The report highlights the waste of DfID funds on political campaigning while a child dies every 30 seconds from malaria in poor countries. “The money DfID is wasting in this year alone could in principle treat 230 million people suffering from malaria,” concluded [one of the report’s authors, IPN's Julian Harris. Over £1bn of UK foreign “aid” used to spread propaganda, International Policy Network
Our government agencies are too removed from the world of ordinary people to attend to their stated remits. They are far more concerned with self-perpetuation. In this, they are like any other large organization. Big private sector corporations are not inherently different; there is an element of competition which helps to keep them honest, but once they have become big they often find it more profitable to manipulate government regulations, and subvert competition and free markets, than to engage with them. It's a flaw intrinsic to any large institution: government agencies, corporations, universities, trade unions etc. Perhaps it's built into our psychology: words, thinking, concepts and ideals so often screen us from reality, creating a self-perpetuating secondary reality that separates us from the truth. At the individual level, meditation, music, humour of breathing techniques can all be used to steer us back to the real world. But what to do with organizations?

Perhaps Social Policy Bonds, with their insistent emphasis on meaningful outcomes as the measure of success, are the answer. Under a bond regime, all activities would be subordinated to social and environmental goals. The bonds would build the need for efficiency in achieving stated outcomes into an organization's everyday thinking, as well as longer-term projects. Organizational thinking then would become exactly congruent with societal thinking. The DfID grants described above, and far more wasteful expenditures, would be unthinkable under a bond regime. Bondholders who engaged in inefficient or corrupt spending would quickly find themselves outbid for their bonds by more efficient operators. And 'efficiency' in a Social Policy Bond regime means efficiency in achieving social goals - not simply in managing to keep an organization going.

14 October 2009

Not fit for purpose: our justice and healthcare systems

Two podcasts from the Cato Institute, the Criminalization of (Almost) Everything, and How American Health Care Killed My Father, go a long way in showing how far removed our legal and healthcare systems are from the interests of ordinary people. The costs, financial and human, are huge; the waste extraordinary. Unfortunately, efforts to re-orientate the systems in piecemeal fashion are also likely to be very costly. As well, they'll require more regulation and more government intervention. The problem is one of capture by vested interests, including government agencies; nothing is changing there, so the divergence between the goals of each system and the public is likely to continue.

Social Policy Bonds are a meta-system. If any current correctional or healthcare (or education, or environmental, or whatever) system were actually efficient and meeting defined needs, then under a Social Policy Bond regime little would change. But even if the starting point were the same, you would not get, under a bond regime, the gradual evolution of systems to serve the service-supplying institutions and other vested interests rather than ordinary citizens. Social Policy Bonds subordinate all activities, programmes and projects to targeted, meaningful social and environmental goals. Under the current system, it's the institutions - generally public or private sector monopolies - that call the shots. And their over-arching goal has little to do with public benefit. Quite simply, it's self-perpetuation.

10 October 2009

Anything except outcomes

The Nobel Peace Prize committee has been awarded to US President Barack Obama "for his extraordinary efforts to strengthen international diplomacy and cooperation between peoples." That is, for efforts, rather than achievements. Or perhaps it's for hope? Or for who the President is, rather than what he's done? This sort of nonsense is one reason why we are in such dire trouble. We reward anything - activity, image, inputs, outputs, victimhood - anything ... except outcomes.

All institutions have as their over-riding goal that of self-perpetuation. If the Nobel people were really concerned with peace, they'd reward one of the thousands of dedicated people working selflessly and successfully in dangerous areas trying to prevent or defuse conflict. But they are more concerned about raising the profile of their committee and their lucrative, ludicrous prizes. Is there any field of public life immune from celebrity worship?

09 October 2009

What exactly do we want?

People nevertheless use the stockmarket as a barometer of economic health. So a rise in equity markets can be (and has been) seen by governments and central bankers as evidence that the economy is headed in the right direction. That can lead to policy mistakes, such as a lax monetary stance, and further irrational exuberance. The nature of wealth, 'The Economist', 8 October
Our economies and societies are almost too big to govern in any way other than targeting highly aggregated data. Sadly, today that is being done opaquely, unsystematically, and almost unconsciously. In sum: badly. Social Policy Bonds are not utopian, but they would be better than the current system, under which appallingly inadequate indicators (not only stockmarket indices, but things like Gross Domestic Product or house prices) are implicitly or explicitly targeted because nobody's bothered to ask: what exactly do we want?

You couldn't get away with such ineptitude - bumbling at best, corrupt at worst - under a Social Policy Bond regime, because when issuing bonds you would have to be clear right at the start about desired outcomes. Nobody would target house prices, or GDP or share prices under a Social Policy Bond regime, because these are not ends in themselves. Indeed, the confusion between ends and means at the highest levels of policymaking probably explains much about why we may well be heading for social, environmental and economic disaster.

08 October 2009

The end of fish

Daniel Pauly writes:
One study, published in the prestigious journal Science, forecast that, by 2048, all commercial fish stocks will have “collapsed,” meaning that they will be generating 10 percent or less of their peak catches. ....There is no need for an end to fish, or to fishing for that matter. But there is an urgent need for governments to free themselves from the fishing-industrial complex ..., to stop subsidizing the fishing-industrial complex and awarding it fishing rights, when it should in fact pay for the privilege to fish. Daniel Pauly, Aquacalypse Now, 'The New Republic', 28 September
Yes, a vital first step, and one that we seem incapable of taking in agriculture as well as fisheries, is to stop subsidising environmental destruction. That's necessary, but hardly sufficient. Rejigging the incentives is crucial, as Mr Pauly suggests. But if, as Mr Pauly also says, '[t]he truth is that governments are the only entities that can prevent the end of fish,' then we are in a sorry state indeed (as we are when dealing with other urgent global challenges - see my previous post, about climate change). Government's incentives are different from those of the people they represent, and they are certainly different from the wider interests of the world's human population.

So how would Social Policy Bonds try to avert the impending collapse of world fisheries? First: stipulate a goal. Governments are more likely to agree on a desirable outcome, than they are the means of reaching it. And ordinary people are more likely to get involved when policy is seen to be about meaningful outcomes than about surreptitiously subsidising favoured interest groups. So we could expect that national governments, influenced by genuine public participation, will collectively decide that the survival of the world's fisheries are a worthwhile goal. The definition will be subject to negotiation and fine tuning of course. Most likely 'survival' would include an array of stock and flow variables that would have to fall into stipulated ranges for the target to be deemed met. But once the goal has been defined, governments, under the auspices of some global body, would undertake to redeem the 'Fisheries Survival Bonds' that they back, once the target had been met and sustained for a lengthy period.

The effect would be to generate financial incentives for people to take care of the world's fisheries. Of course there would be difficulties with this approach. But I'd expect they'd be mostly semantic (what is 'a fishery'? 'what is survival?') and technical (how do we measure the health of a fishery?) and therefore solvable. What's clear is that the current course is heading for calamity. Has anyone got any better idea?

07 October 2009

Kyoto's going nowhere

Talking to friends attending the United Nations climate change talks being held in Bangkok it's clear that any outcome will be political: representation is largely of nation states, by nation states. Influencing national governments are business people on the one side, who argue that any effective disciplines will undermine the economy; and people whose highest priority is the environment, for whom drastic reductions in greenhouse gas emissions are a necessary, but not sufficient, way of avoiding global catastrophe.

I am in the comfortable intellectual position of being able to accommodate the wishes of both sides. By issuing Climate Stability Bonds, we shouldn't need to take a position on (a) whether catastrophic climate change is happening, or (b) what is causing it if it is happening, or (c) how best to deal with it, whatever is going on. Issuers of Climate Stability Bonds would only need to define objectively the boundaries of acceptable climate, impacts of climate, or rate of change of climate. They then need issue bonds redeemable for a fixed sum only when the array of stipulated climate variables fall within their ranges for a sustained period of time. Everything else would be left to potential and actual investors in the bonds.

If climate change is not actually happening (as some still believe), then the cost to governments of achieving climate stability will be minimal. They would issue bonds that would fetch a high prices, relative to their redemption price, on the open market. If it is happening, then investors in the bonds would be powerfully motivated to stop it. They might well choose to cut back on greenhouse gas emissions, but even if - as with Kyoto - that is their only solution, they would go about it more efficiently than the cumbersome, inefficient and divisive way that we are currently pursuing. More likely they would research, explore and implement all sorts of ways of reducing climate instability: their investigations would be impartial as between country or method. Their projects would be entirely subordinated to results, and these would be entirely defined by how much climate instability they would achieve per dollar spent. There would be all sorts of costs to taxpayers and consumers; but under a bond regime, in stark contrast to the current system, these would be minimised. And the costs of failure would be borne not by taxpayers, but by bondholders.

04 October 2009

Social Policy Bonds become mainstream!

Well almost: to readers of this blog, this will sound familiar:
A more innovative idea, perhaps, is the “social impact bond”, the brainchild of Social Finance. The idea is to attract private capital into solving a deep-rooted problem that is soaking up public money. Take, for example, reoffending by released prisoners, which costs the British government millions of pounds a year. A social-impact bond could raise money to pay for the expansion of organisations with the expertise to reduce reoffending rates. The more money the organisations save the government, the higher the return the bond would pay investors. This goes beyond a standard public-private partnership, which is expected to provide the same service as the state, but more cheaply. The social-impact bond would reward better social outcomes and not merely cut costs. A place in society, 'The Economist', 26 September
I have emailed Social Finance to see if they are interested in the work I have done on Social Policy Bonds. I am glad that the idea of rewarding socially and environmentally beneficial outcomes, as against activities, inputs, outputs or gestures, is becoming more widely accepted. It's 20 years since I first floated the Social Policy Bond idea into the public arena - and about 19 years since I sent information about it to 'The Economist'.

02 October 2009

Evolution in business and public policy

I've talked about evolution as against command-and-control many times. Evolution has the big advantage that it implies the termination of failed projects and programmes. This is especially important when, as in public policy, the suppliers of services are (usually) government-funded monopolies: there's no competition to ensure selection for efficiency. John Kay sums up the role of evolution in business:
Businesses are also complex systems. We tend to infer design where there was only adaptation and improvisation, and to attribute successful business outcomes to the realisation of some deliberate plan. .... Large and complex corporations not only are, but could only be, the product of incremental change and adaptation. The specific mechanisms of organisational evolution differ from those of biological evolution. But their common essential characteristic is inexact replication. Such replication is associated with a tendency to favour modifications that improve the fit between the organism and the environment. There is a better shortened explanation of the success of evolution than the survival of the fittest. It is that “evolution is smarter than you”. Evolution is the real hidden hand in business, John Kay, 'Financial Times', 30 September
Social Policy Bonds would introduce evolution into the provision of public services. Under a bond regime, government could continue to stipulate and reward the achievement of agreed social and environmental outcomes. But the bonds would, in effect, contract out the achievement of these goals to the private sector. Investors in the bonds would compete with each other to supply goal-achieving services. The more efficient they think they will be, the more they will bid for the bonds. Once holdings have been allocated on that basis, the incentives will be to co-operate with other bondholders to achieve goals as efficiently as possible. Unlike biological evolution, which has only reproductive success as its over-arching goal, Social Policy Bonds would have objectives that are, or are strongly correlated with, social and environmental wellbeing.