14 March 2010

Social Policy Bonds: an alternative to the bolshevik approach

Comparing the relative economic performance of Russia and China, David Ellerman writes:
Another part of the pragmatic approach, also evident in China, is the willingness to allow parallel experiments in different parts of the country and then foster horizontal learning and the propagation of the successful experiments. This is an important part of the alternative to the bolshevik/jacobin approach of legislating the brave new world from the capital city to be applied uniformly across the country. Pragmatism versus economics ideology in the post-socialist transition: China versus Russia(pdf), David Ellerman, real-world economics review, issue no. 52, 10 March
This explains much of the relative economic success of China. Unfortunately it's not the way most of our social and large-scale environmental problems are tackled. For these, government agencies are usually in charge, and they adopt the top-down approach. They are also far more tolerant of failed experiments than any moderately sized private sector business can afford to be. (The largest corporations can often suppress competition so their inefficiencies can persist.) So while a competitive private sector fosters efficiency, the public sector does not. This is not only a waste of resources; it also limits our vision of what government - and only government - can do. When the public sector becomes a byword for inefficiency we don't, for example, even imagine that it can tackle such tenacious and seemingly intractable problems as violent political conflict, for instance, or global poverty.

And that's where Social Policy Bonds come in. Under a bond regime government would still do what it does best - and what only government can do: tackle large-scale social and environmental problems, and raise the revenue to reward people who solve them. But, by issuing the bonds, government would, in effect, contract out the achievement of our social goals to the private sector who would have exactly the same incentives to be efficient as any but the largest corporations have today to achieve their more limited goals. The current approach to tackling our most urgent and challenging goals is what Mr Ellerman would call bolshevik or jacobin. Social Policy Bonds would be the pragmatic alternative.

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