26 February 2010


I refer to the standards of debate and the aspirations of some of our political representatives:
Mr Farage [UK Independence Party] drew jeers on Wednesday when he told the chamber of the European Parliament that Mr Van Rompuy had "the charisma of a damp rag" and the appearance of a "low-grade bank clerk". Source
It seems it's now respectable to judge our leaders by their appearance or whether they have charisma or not. Our political process is so corrupted and obscure that, it seems, we rely on a politician's image when it comes deciding whether or not they're worth voting for. Mr Farage is probably in sympathy with a large part of the electorate in this. It's the system that's at fault, and the fault is that we have become habituated to judging politicians by anything except outcomes. In a rational society outcomes would matter most. The problem is that society is so complex, and the political process so arcane, that identifying cause and effect in politics is largely impossible.

One result is the disengagement of ordinary people from the policymaking process. Corporations and lobbyists take their place. In a vicious circle, the wide gap between politicians and the people they are supposed to represent grows every larger. The current system makes it too easy for politicians and bureaucrats to evade or deflect censure for their inefficient or bad policies.

Social Policy Bonds would, I think, have many advantages. One is that they would refocus political debate on outcomes that are meaningful to ordinary people. In stark contrast to the current system, rewards would be inextricably linked to achievement of these outcomes, and the outcomes would be clear, explicit and stable. More people could be involved in the policymaking process; they would also have more realistic views about what can be achieved with public funds and about the inevitable trade-offs that have to be made. One huge benefit is that people would buy in to the process and the resulting goals. In such a process, we'd assign the personality or appearance of politicians correctly - as zero.

24 February 2010

Crisis of capitalism

Capitalism succeeds mainly because of creative destruction: the failure of businesses that respond inefficiently or not at all to the concerns of ordinary people, as manifested in a relatively free market. It fails when businesses become so big that they constitute monopolies, or so powerful that they can manipulate the trade and regulatory environment to suit their short-term interests at the expense of the longer-term interests of society and the environment. Such failure takes the form of inefficiency and a widening gap between government and big business on the one hand, and ordinary people and smaller enterprises on the other.

We are beginning to see a crisis of capitalism playing out now. Government and big business have done their best to subvert creative destruction, and are powerful enough to succeed. They are the most influential entities in our societies and they are big enough to distort or eliminate the market's way of responding to individuals' wishes. The result will be more central planning, and the increased alienation of ordinary people from the political process.

Social Policy Bonds might be a way of reconciling the need for centralised guidance of our large societies with the equally important need for efficiency - and freedom. They would contract out the achievement of our social and environmental goals to the private sector. Inefficient players would find themselves bid out of their part of the contract. Our goals would still be large scale, but the organizations of people with a vested interest in achieving them - holders of Social Policy Bonds - could be of any size, with a constantly varying composition. More important, these organizations would be subject to creative destruction. That's a marked contrast to the current system, under which the organizations supposed to help achieve our social goals are government agencies, whose immunity from creative destruction and whose close relationship to big business are at risk of discrediting the best features of capitalism and market forces for a long time to come.

17 February 2010

Gaming the system, again

Further to my previous post about Mickey Mouse micro-objectives in education: here's a story that describes something else that can happen when incentives are perverse: teachers changing their students' answers on tests from wrong to correct.

15 February 2010

Use broad, meaningful, numbers

Severe winter weather in England. Some schools decide to close, others to stay open. Marjorie Clarke from Devon, in a letter to 'the Independent', explains why:
[I]f a school decides to close, it will not affect the official attendance record, but if it opens and only half the pupils attend, this will be counted as poor attendance.... Letters, 'The Week', 16 January
...and the school penalised accordingly. School attendance records like this constitute another in the UK's prolific series of Mickey Mouse micro-objectives.

Using numerical indicators and targets is perhaps a regrettable, but largely inevitable part of governing large, complex societies. My work on Social Policy Bonds has convinced me that those numbers that are used should be as broad as possible, and inextricably linked to what we are really trying to achieve. There needs to be more clarity about means and ends. School attendance, for instance, however measured, is not a social goal: better educational outcomes are.

So my advice to the UK Government, or any well-intentioned body aiming to achieve meaningful social and environmental goals, is to think carefully about what you want to achieve and, as far as possible, reward people for achieving. It sounds simple, and it's the underlying principle of Social Policy Bonds. But with the odd exception it's rarely been deployed, and when it has (see here, for one example), it's seldom by governments, who are responsible for by far the biggest sums supposedly devoted to achieving social goals.

09 February 2010

Zombie politics

Describing the reaction of those conservatives in the US who now accept the mainstream scientific position on climate change, Jonathan Chait says:
[R]ather than proceed from that premise to some program of reduced emissions, they have feverishly devised a series of rationales for unlimited carbon use. Some have embraced fantastical geoengineering schemes--massive machines, for example, that would suck carbon out of the sky--with the rabid certainty of a science-fiction nut. Others insist that limiting U.S. emissions will do nothing to help force developing nations to do the same. Still other conservatives argue that the future world will be richer and thus able to cope with whatever calamities a hotter planet will bring. The telling thing here is not that these arguments are provably wrong, though they are highly speculative. It’s that those conservatives who have accepted climate-change science immediately jumped to some other reason to oppose government action. ... [V]irtually no conservative intellectuals seem to settle, even temporarily, on the view that climate change is real and that government regulation is therefore appropriate. They cling to climate-science skepticism like a life preserver, and then, when they can’t hold on any more, they grasp immediately for a different rationale. If government intervention appears to be the answer, they must change the question. Jonathan Chait, The rise of Republican nihilism, 'The New Republic', 30 December 2009
It wouldn't matter so much of these deadbeat political parties were subject to genuine competition or the sort of market disciplines that they themselves claim they would like to see in the economy. Sadly, though, they and their corporate paymasters are together powerful and self-interested enough to stifle any chance of real reform. Ideology becomes a means by which to paper over the widening gap between politicians' interests and those of ordinary people. It can't go on indefinitely, but it could well be that any worthwhile convergence will be preceded by some sort of catastrophe.

One way of avoiding that would be a gradual transition to a Social Policy Bond regime. If that seems drastic and far fetched, then at the very least we should start to express policy goals in terms of meaningful outcomes, rather than as ideological counters, activities or spending on government agencies.

08 February 2010

Social Policy Bonds: an alternative to policy mashup

Jaron Lanier:
If everything is a mashup of everything, then everything becomes the same, gradually .... You need to have membrane walls to have creative evolution. The reason the Beatles are the Beatles is they evolved initially somewhat separately at a club in Hamburg (Germany) and at this funny club in Liverpool. If everybody is on Ed Sullivan all the time, you can't ever get a Beatles; everything will be the same. Silicon Valley visionary says life online needs some humanity, 24 January
A policymaking culture where there is only one solution to a given problem is unlikely to be effective. Government policy is increasingly centralised, and so becoming less capable of dealing with diverse populations and circumstances. Even if a policy applied very widely is efficient to begin with it will be unable to respond creatively to changing circumstances.

There's nothing wrong with wanting a uniformly agreed outcome, such as universal literacy, or reduced crime rates. But it is folly to imagine that a single approach can be efficient in supplying one. People differ, circumstances vary, and times change. Governments are too big and cumbersome to respond, and they much prefer a uniform approach to anything more administratively untidy.

Social Policy Bonds might be the answer. They would reward people for achieving outcomes as broad as world peace or the eradication of global hunger, but they would not stipulate how these goals shall be achieved. That would be up to investors in the bonds, who would have every incentive to seek out and implement any of a wide and expanding array of approaches, varying according to space, population and time. The contrast with the current policy mashup is stark.

02 February 2010

Galbraith and government

While [J K Galbraith] is perfectly able to see the defects of businessmen — their inclination to megalomania, greed, hypocrisy, and special pleading — he is quite unable to see the same traits in government bureaucrats.... A man who has devoted his life to the study of economics — and occupies one of the most prestigious chairs in the subject in the world — does not appear to understand that the existence of thousands of corporations, as well as the possibility of starting new ones, introduces a significant difference from a situation in which there is a single employer under very tight political control. The Galbraith Revival, Theodore Dalrymple, 'City Journal', Winter 2010
It's a common mistake, and an easy one to make for those of us lucky enough to live in societies with a history of benign and not-too-disastrous public policy. But the limitations of the single-employer approach are increasingly apparent. Dr Dalrymple mentions "the fact that Britain spends nearly $100,000 per child on public education, and yet a fifth of the population is unable to read with facility or do simple arithmetic...". I would point also to the persistence of poverty and disease in the poorer countries, the failure to eradicate war, and the increasing risk of catastrophic environmental or nculear disaster. We do, I think, need an explicit focus on such problems, and government is big and (generally) sufficiently well intentioned to provide it. But we also need a large array of diverse approaches and problem-solving bodies that can adapt their approach quickly to changing circumstances. We need in particular, a means by which inefficient solutions to social problems are terminated quickly. And government, however big and well intentioned, cannot effectively manage diverse, adaptive approaches. No single organization can.

Social Policy Bonds could square that circle. Under a bond regime, government, whether national or supra-national, is big enough to target global social problems and to raise the revenue for their achievement. It could stimulate diverse, adaptive solutions by issuing the bonds, which would be redeemed only when targeted outcomes - world peace, for example, or climate stability - had been achieved. Government can perform these tasks without getting involved in actually achieving these goals: such achievement would, under a bond regime, be contracted out to agencies (mainly private sector) who would be highly motivated to explore and implement only the most efficient solutions to our problems. Government would then function not as the monopolistic 'single employer', but more as the articulator of society's goals and the agency that transfers our scarce resources to the people who help achieve them.