Evolutionary fitness

...5% of movies pay for the other 95%, and success or failure is unpredictable. The best the studios can hope to do is find contractual mechanisms that back success after it happens and thus leverage their profits. This was what they had with distributors and cinemas, and it worked. They just didn’t realise it was these deals and almost nothing else that was paying for their Cohiba cigars. The movie industry was what Arthur [de Vany]] loves best: “a complex, adaptive, decentralised system”. Exactly like the human body. Evolutionary Fitness: the diet that really works, Brian Appleyard [UK] 'Sunday Times', 17 August 2008

And exactly like human society. The problem is that top-down planning cannot deal with such a system: it much prefers to impose the idea of equilibria, steady states, homeostasis and normal distributions about the mean on systems to which they don't apply.

Almost all dietary and fitness regimes are based on a homeostatic view of the body – meaning it is a self-regulating system that maintains itself in a continuous, stable condition. The average is the ideal. So we are told to eat regular meals consisting of a balance of the food groups and to take regular exercise, dominated by steady aerobic activity like cycling or jogging. This is all wrong.

We have seen where this line of thinking takes us in banking and finance too (see my post about Black Swans). And I suspect it fails in other policy areas, such as welfare, health and education. Our tendency is to ignore or discount the possibility and impact of catastrophe.

This is one area where Social Policy Bonds can function as a societal insurance policy against large-scale disasters that policymakers would otherwise neglect. The cause of the the disaster need not be specified: the bonds would function in a similar way to increasingly popular catastrophe bonds, except that they would have the purpose - and the backing- of making it worthwhile for investors to prevent disasters happening. A national government (or a consortium of corporations, non-governmental organizations and concerned philanthropists) could issue Social Policy Bonds that would reward investors if an event killing more than, say 10000 of a country's citizens in any one 48-hour period, does not occur before a specified date.

Such Disaster Prevention Bonds would encourage investors to investigate all sources of potential disaster, impartially. Unlike current attempts at disaster prevention, then, they wouldn't concentrate on those disasters that have a high media profile, for example.

The concept could be scaled up: a collection of governments under the auspices of the United Nations or non-governmental organizations could issue similar bonds, aimed at preventing even larger-scale disasters, such as a nuclear exchange. It's also conceivable that, again, the private sector could issue bonds that could, for example, aim to defuse regional conflicts (preventing war), or lessen the impact of malaria or crop failure in specified parts of the world.