13 December 2010

Going where government cannot go

In many policy areas, government does about a good a job as we could expect any single agency to do. Government does well when it's clear what sort of action is required, and when it alone has the organising capacity and authority to get things done. These are generally areas where the problems are obvious, have obvious causes, and where the ways of solving them have been tried, tested and (by and large) successful. Much of the low-hanging fruit has been picked. In most developed countries sanitation is universal or at least widespread, as are literacy and basic health, education and housing. But there are still serious problems, which our current political system seems incapable of addressing.

Perhaps most important are the potentially catastrophic events, often man-made, which our political system is adept at postponing into a fast-approaching future. But, as well, and equally as significant to many, are those policy areas where government has done a lot, but is trying to do more - and failing. And, because it's still trying, it has crowded out initiatives from others, so that the problems remain unsolved.

Take crime, for instance. Most of the heavy lifting has been done. By the standards of even 100 years ago rates of almost all crime are low. But crime still blights many lives and we could perhaps open up crime prevention to diverse, adaptive approaches, of the sort that government cannot follow. Similarly with infant mortality, domestic violence, basic education, health and, more broadly, poverty. Government probably can't do much more than it's already doing so long as it monopolises the actual attempts to alleviate these problems. The single agency, top-down approach tends to be inflexible, incapable of adapting to differing or rapidly changing circumstances.

Government can't solve these problems, but it can tax its population under the pretext of trying to do so. And that's where Social Policy Bonds could enter the picture. Rather than try to reduce crime still further (or raise literacy to 100 percent, or whatever), which it is not doing efficiently, it could contract out the achievement of these goals to the private sector. Under a bond regime it would still be aiming for the same goals, and it would still be the ultimate source of revenue for funding their achievement, but it would be investors in the bonds who would actually achieve them. They would be motivated by the consequent rise in the value of their bonds, as they help achieve the targeted goal.

The same reasoning applies at all levels, and to problems, such as the ending of war or the avoidance of catastrophe, where government hasn't even picked the low-hanging fruit.

For more about Social Policy Bonds, click here. For the application of the Social Policy Bond principle to catastrophe, click here.

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