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.


Jeff Mowatt said...

Interesting Ronnie.

We have similar aims, I think

You came up on radar recently when someone commented on an Economist article.


We've been active as a business for social purpose and it was also interesting to see you blogging about Siberia where our first project took place.


From what I read on the Observer article, and between the lines, venture capitalists want to pass off both your efforts and ours as their own thinking.


Ronnie Horesh said...

Thanks Jeff; and thanks also for the P-CED link. Many years ago I did try to interest Sir Ronald Cohen in Social Policy Bonds; I don't remember his exact reply, but it wasn't enthusiastic. After reading the 'Economist' article I emailed to see if he and his organization think they could benefit from some of my work. I'll do a blog post if I hear anything. I'll probably do a post soon anyway on the 'Economist' article. Funnily enough, in the same issue there was an article about paying people not to destroy forests - at some point the movers and shakers there were interested in using the Social Policy Bond idea for that purpose. But nothing came of it.