29 March 2010

Command and control versus evolution

When it comes to generating wealth we accept that a Darwinian approach is best. This is not only on the basis of economic theory, but on empirical evidence. Success, broadly defined, comes from the creative destruction of inefficient or ineffective firms, and the redeployment of society's scarce resources into more profitable investments.

For a mixture of ethical and historical reasons, we don't adopt the same approach when looking at social and environmental problems. Here the model tends to be command-and-control. This approach can work; indeed sometimes it is the only answer, despite occasional resistance. Thus, The Times, editorialising (on 1 August 1854) against measures to provide basic sanitation in London:
[W]e prefer to take our chance of cholera and the rest than be bullied into health.
Sometimes, though, government or any big organization gets it wrong. And when these organizations are too big, there's very little we can do about it, except perhaps wait for their folly to antagonise coalitions of interests (natural or man-made) that are big enough to oppose them. In the ensuing conflict - between reality and nature, between opposing coalitions - large numbers of people are generally killed. It's a sort of Darwinism, but not one whose terms people would choose to accept, because its destructive power is immediate, large scale and permanent, and any benefits too nebulous and remote.

If we accept, though, that a global population of more than six billion requires big government and large corporations, we can try to supplant this clumsy, destructive way of proceeding with something less haphazard. And that's where Social Policy Bonds can come in. A Social Policy Bond regime could combine the benefits of creative destruction with those of the command-and-control approach. The difference is that instead of prescribing how social goals are to be achieved, government (or non-governmental organizations, or philanthropists) would limit themselves to setting these goals and raising the revenue required to achieve them. The market for Social Policy Bonds would bring about the termination of inefficient projects, and motivate would-be investors to seek out and implement only those projects - or combinations of projects - that are efficient and effective.

Under a bond regime, creative destruction would play its part in selecting for efficiency, while command-and-control would do what it's best at: prescribing meaningful social and environmental outcomes for the benefit of large populations.


Hugh Barnard said...

I do so agree with this and described a microcosm in this little paper:
Sensor networks and social policy bonds

Ronnie Horesh said...

Thanks Hugh; I've put a link to your paper on my home site.