28 April 2010

Transparency and trade-offs

Notions of trade-off rarely make it into the public discourse. In the abstract, we know that taking resources from, for example, people who buy food to some of the wealthiest people in the land, means that ordinary people will have less to spend. But we find it very difficult actually to make some people worse off. Our policymaking system doesn't encourage us to limit expenditure on individual programmes, however ludicrous they might be, and even when it's rising insanely. The aggregate result is simply not sustainable. Joel Achenbach, says that the US national debt "which totaled $8,370,635,856,604.98 as of a few days ago, not even counting the trillions owed by the government to Social Security and other pilfered trust funds" and points out that:
In addition to running a budget deficit, Washington for years has had a massive deficit of political will. Over the past decade, lawmakers have avoided the kind of unpopular decisions -- tax increases, spending cuts or some combination -- needed to keep the debt under control. Federal Reserve Chairman Ben Bernanke testified recently that, for investors, the underlying problem with the debt isn't economic. "At some point, the markets will make a judgment about, really, not our economic capacity but our political ability, our political will, to achieve longer-term sustainability," he said. Joel Achenbach, The national debt and Washington's deficit of will, 'Washington Post', 25 April
One advantage of a Social Policy Bond regime would be its transparency, not only about what would be our social goals, but about their cost. When meaningful outcomes are targeted, people can enter into meaningful debate about which ones they value most. A bond regime would mean people choosing between outcomes, sensibly and rationally. It would be clear to everyone that choices are limited by available resources and that trade-offs are inevitable. Funding of outcomes means that any organizations that came about to achieve these outcomes would be entirely subordinated to society's goals rather than, as now, to the perceived need of every public sector organization to perpetuate itself. To see this, consider what would happen if government were pressured into setting an unrealistic objective under a Social Policy Bond regime: the market value of the bonds would be so low on flotation that the cost to society of achievement would be very high but, more importantly, it would be seen to be very high, well in advance of any government spending actually being incurred.

There are many other advantages of Social Policy Bonds over the current system, about which I have written at length in my book, which can be downloaded free of charge.

26 April 2010

Nobody knows, even assuming they care

[E]conomic historians will probably spend the next 75 years debating whether monetary or fiscal policy dragged the developed world out of [the current] recession, just as they still discuss whether the actions of the Roosevelt administration really shortened the Depression. Heat and Dust, the 'Economist' (subscription), 24 April
Cause and effect in economics, as in society and ecology, are nearly impossible to disentangle. There are too many variables and time lags. Conditions are never replicable; experiments are close-to-impossible. As well, the interests of politicians, bureaucrats, and technocrats are rarely exactly aligned with those of society. Yet the policymakers' influence is huge, as is the scale of the problems they attempt to solve. In short, we don't know how best to solve society's complex and urgent problems, and we can't be certain that policymakers really want to.

That's where Social Policy Bonds might offer an improvement over today's approach to policymaking which, as the excerpt above points out, is somewhat haphazard. A bond regime would mean that policymakers don't have to have advance knowledge of the best way of solving social problems: all they would have to do is target each problem, and supply a rough estimate of the maximum value to society of its solution. Investors and potential investors in the bonds would work out the best combination of ways in which the problem could be solved. They would be highly motivated to do so throughout the time it takes to solve the problem which, for broad, ambitious, social goals, could be years or decades - much longer than the usual planning horizon of politicians. And they would do so adaptively; continually monitoring the impacts of their approaches and projects so as to maximise their benefit per dollar spent. They would choose from a diverse array of possible approaches, because that would maximise their chances of above-normal success. And because bondholders' rewards would be inextricably linked to society's benefit, everyone would gain. Rather than the random approach to policy that generates the bewilderment described by the Economist, a Social Policy Bond regime would generate valuable information about those approaches that work and those that don't.

The contrast with today's top-down, one-time-only, one-size-fits-all approach is stark.

24 April 2010

UK election

Asked about my interest in the UK election, I do not say that there's no difference between the parties. The winner would surely do things differently from the losing parties. But I do say that the nature of that difference and its implications cannot be known in advance. In 1997, former British Prime Minister, Tony Blair, said that his priorities would be 'education, education and education'. The results, after 13 years, have been dismal: 'teaching to the test', a switch to less demanding subjects, and grade inflation.
Although the current Labour government has doubled spending on schools since coming to power in 1997, pupils are falling behind their counterparts in other rich countries. Their recent showing in the tests of 15-year-olds' reading, mathemantics and science skills...has been sobering. Between 2000 and 2006 Britain tumbled down the OECD's rankings in all of them.... A classroom revolution (subscription), 'The Economist', 24 April
Politicians should talk about outcomes, not intentions. And election campaigning should discuss outcomes, rather than intentions, platitudes, spending plans, or vague and often conflicting so-called priorities.

19 April 2010

More on Social Impact Bonds

I've blogged before about Social Impact Bonds and how they adopt one of the principles of Social Policy Bonds: that of linking rewards to outcomes. Unfortunately, in my view, it appears that the recipients of such rewards are to be those agencies already working to achieve the specified outcomes. This limits not only the efficiency of the bonds but, perhaps more crucially, their range of operation. Existing bodies tend to have expertise in doing specified things in a certain way. Their vision is limited by the specificity of these things. Any stipulated goals, under a Social Impact Bond regime would, I believe, therefore be too narrowly defined to allow for broad social and environmental goals and the creative destruction of those that are unpromising. Sadly, therefore, it would seem that Social Impact Bonds are afflicted by that bane of policymaking worldwide: their effectiveness and efficiency are subordinate to current institutional structures. To that extent then, Social Impact Bonds represent only an incremental improvement over conventional policymaking. Under a Social Impact Bond regime our social and environmental objectives, would continue to be driven not by society's wishes, but by the organisational needs and limited vision of those currently supposed to be supplying them. To me, that's a recipe for failure.

Nevertheless, I have emailed both the Young Foundation and Social Finance (as well as the Economist, which publicised Social Impact Bonds) and invited them to make use of my work on Social Policy Bonds if they wish. None of these organisations has responded to any of my emails.

14 April 2010

No vision = mass apathy

In trying to explain the mass apathy around the forthcoming British election, Anatole Kaletsky writes:
A more convincing explanation [than colourless] personalities or [expenses scandals is with respect to] ideas. There are plenty of new policies in the manifestos. Some are even quite good, such as the Tory plan to finance new schools run by parent co-operatives or Labour’s promise of a green investment bank to finance energy technologies that cannot compete commercially with fossil fuels. The problem for all parties, as many commentators have noted, is the absence of any overarching narratives, ideological worldview or even tribal and class loyalties to link these scattered ideas. The old politics is dead. But where is the new?, Anatole Kaletsky, 'The Times', 14 April
I think Mr Kaletsky is onto something here. There's no coherence behind the ideas; only sound-bite sops to interest groups. Such ideas as there are pay lip service to efficiency or value for taxpayers' money, but there's no compelling vision. He goes on:
What Britain will need in the next five years is not less government and more market or vice versa, but a whole new agenda of policies combining and adapting the principles of market and political competition to promote objectives ranging from stable financial markets and clean energy to efficient social services that neither markets nor bureaucratic institutions can achieve on their own.
That's where some combination of outcome-based policies and market incentives could play a role. I'm still hopeful that one day Social Policy Bonds will at least be considered. There are a few straws in the wind, in the form of policies that link rewards to outcomes (Social Impact Bonds for example) - but they are few, and they don't have the breadth or fluidity of Social Policy Bonds. Government at all levels does find it hard to relinquish control, and rarely does so without a struggle. So, in contrast to my earlier thinking, I now believe private entrepreneurs or groups of philanthropists will be the first to try out the bond principle.

10 April 2010

Policy by and for large organizations

This court, although it regards the arguments presented in favour of removal in this case to be of grave significance, nevertheless deems it necessary to consider the good of the Universal Church together with that of the petitioner, and it is also unable to make light of the detriment that granting the dispensation can provoke with the community of Christ's faithful, particularly regarding the young age of the petitioner. English translation of an excerpt from a letter to Oakland Bishop John S Cummins, signed by Cardinal Joseph Ratzinger, 1985. (My emphasis)
Without making too much of an out-of-context translation of an extract from a single piece of correspondence, we can at least recognise just how powerful is the over-arching institutional goal of self-perpetuation, even when it conflicts with justice, humanity or rationality.

Every large organization is the same, whether it be a religious body, a large corporation, a trade union, university or a government agency: institutional survival is first and foremost. And, since government policy is made by and for large organizations, and government policy is now the single most important determinant of human and environmental wellbeing...well, we have a problem. The problem takes the form of social and environmental collapse. My previous post talked about subsidised over-fishing, but we face a broader challenge on many fronts. As nuclear weapons proliferate, as the climate (almost certainly) seems to be on the verge of alarming instability, policymaking hasn't adapted. While paying lip service to humanitarian concerns, we rarely see the explicit targeting of such meaningful goals as the avoidance of catastrophe, the stabilising of the climate, or the prevention of war. Instead, the existing array of incentives, the ones that have done so much to bring us mayhem in many different manifestations, continue to enrich the powerful and to finance any opposition to their reform or removal. Like the Roman Catholic Church, our most powerful institutions - governments - hold as their highest priority, self-perpetuation. Justice, humanity or even economic rationality don't stand a chance.

All this is well documented and unoriginal. Where I perhaps differ is in offering Social Policy Bonds as a corrective: a way of re-orienting government policy, and the massive incentives it offers, to favour the achievement of goals with which individuals can identify.

06 April 2010

Subsidising planetary destruction

Or: read and weep. Or: why am I not surprised?:
EU subsidy payments are helping to fund the overfishing of depleted stocks such as cod and bluefin tuna, according to new research. The Poseidon Aquatic Resource Management consultancy and Pew Environment Group analysed data from the EU's 'Financial Instrument for Fisheries Guidance', which paid almost £4 billion in fishing subsidies between 2000-2006. EU subsidies linked to overfishing, 'The Ecologist', 31 March
The good news is that:
17 per cent of the subsidy payments went towards measures that would clearly result in a reduced fishing capacity ....
The bad news is that:
29 per cent helped to fund what the study defined as 'negative measures', including modernising the fleet and constructing new and more powerful fishing vessels.
And the ugly news is that:
The study's authors said they were stopped from analysing the funding from current subsidy scheme, the European Fisheries Fund (EFF), running from 2007-2013, because of new EU disclosure rules. 'Transparency has been removed with the new funding instrument....' said Markus Knigge, policy and research director at the Pew Environment Group.
This sums up all we really need to know about policymaking today. The only outcomes our political class is concerned about are the short-term ones favoured by corporations and lobbyists. When the disastrous nature of their policies threatens to become public, their first instinct is to suppress further investigation. It's a self-perpetuating and self-reinforcing system. It's corrupt and it's insane. Social Policy Bonds would not be perfect. But, with their targeting of transparent, explicit, meaningful goals, they would be far better than the system we have today, under which we are not only destroying the planet, we are subsidising its destruction.

02 April 2010

'The Myth of Europe's High Taxes'

SIR – Thank you for enlightening us about health care. Were it not for your cogent arguments I would never have realised that what America needs are increased taxes, a massive expansion of the federal government, less personal responsibility, more price-fixing and hundreds of billions of dollars added to the deficit to finance one of the biggest entitlement programmes in our history. Now I better understand why our forefathers risked their lives to separate themselves from Britain. Letter to the editor of the Economist (subscription), Cary Alberstone, Camarillo, California, 31 March (my emphasis)

Mr Alberstone believes that Americans pay lower taxes than the British. But all is not as it seems:
Do Americans really pay fewer taxes than Europeans? Contrary to conventional wisdom, the answer surprisingly is: not really. That’s because in return for their taxes, Europeans – even those unemployed during these tough times – have access to a generous support system for families and individuals that most Americans can only imagine. That includes not only quality health care but also child care, a good retirement pension, inexpensive college education, job retraining, paid sick leave, paid parental leave (after a birth or to care for sick children), ample vacations, affordable housing, adequate senior care and more. In order to receive the same level of benefits as Europeans, most Americans have to fork out a lot of out-of-pocket payments, in addition to our taxes. These payments often are in the form of fees, surcharges, higher tuition, insurance premiums, co-payments and other hidden charges. Steven Hill, The Myth of Europe's High Taxes, OnTheCommons.org, 23 February
Any decent outcome-based policymaking process wouldn't be particularly interested in tax figures of the sort that mean so much to Mr Alberstone. It would instead be concerned with meaningful social outcomes and their total cost to society. More important than how public goods and services are paid for, is their efficiency and their cost to society as a whole.