14 November 2010

Catastrophe avoidance: we're not doing it

Stepping back from the society's turmoil for a moment, it's pretty clear that we aren't developing ways of dealing with our social and environmental problems. The negative impacts of a person or firm's profit-making used to be either small, or uncertain, or simply ignored because society as a whole counted for too little against the power of wealth. There was much distress, then, as costs of economic activity were socialised, while most of the gains accrued to the few. In response, we have laws, rules, and regulations. But the disparity between the wealth of the corporate sector and the ever more constricted and degraded lives of most individuals has rarely been so striking as today. On the whole, the aggregation of corporate incentives is not, these days, seen as improving the quality of life of most of the population. The planet is too small for the corporate sector's bye-products, social and environmental, to be absorbed or ignored as in the past. And corporate incentives now influence (to put it mildly) much of government: the form of organisation whose legitimacy is entirely based on its role in enhancing the lives of most of its citizens. No wonder, then, that we are facing multiple crises, taking the forms of cynicism and despair about politics, and threats of massive financial, economic and environmental disruption.

In response, I believe we need to make a conscious effort to re-align incentives. Society and the environment are too complex and rapidly changing for market failure to be addressed by laws, regulations and small-scale tax or price adjustments. We urgently need to give priority to things that really matter. I'd target, above all else, the avoidance of catastrophe, however caused.

Social Policy Bonds are one way in which we can give catastrophe avoidance the priority it deserves. It's clear now that it needs explicitly to be targeted, and Disaster Prevention Bonds are one way of rewarding people for maintaining a habitable planet. How would they work? Governments (and non-governmental organisations) would set up a fund that would be used to redeem bonds, issued on the open market, that would become valuable after a sustained period during which no major disaster has occurred. Investors in the bonds would have incentives to anticipate potential catastrophes and seek out those ways of avoiding them that are most cost-effective. The advantages over the current way of doing things are many: The exact nature of the catastrophe need not be known in advance. We'd stimulate a diverse, adaptive range of approaches. Cost-effectiveness is built into the bond mechanism. In effect, we'd be creating a new, protean, type of organisation: one that, in contrast to the current multiplicity of, mostly, ineffective bureaucracies, would be motivated not merely to turn up for work and perform various activities, but actually to achieve an explicit, urgent, and vital goal: the survival of human beings on planet Earth.

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