20 December 2011

Half full

It's nearly the end of the year, so time to sum up my view of where policymaking in general and Social Policy Bonds in particular are headed. The latter is easy to summarise: I have had a few expressions of intellectual interest in Social Policy Bonds, but the bond concept remains untested. More generally though, I think the concept of payment for results is gradually gaining ground in government circles. This is generally a positive trend, though I have reservations. Chief amongst these is that the 'results' targeted are rarely outcomes that are meaningful to ordinary people. More often they are outputs of existing organisations, as measured by criteria intrinsic to that organisation. So results targeted include things like 'savings made' or (increasingly) number of employees sacked. In recent history it has usually been the case that well-meaning intentions to improve social and environmental outcomes founder on the solid, immovable rocks of existing institutions and their ways of doing things.

But I remain optimistic that something like Social Policy Bonds will eventually be issued. One reason is that society and the environment are becoming increasingly complex, so that existing methods are becoming useless. We only need to look at climate change for a spectacular and costly example of failure to manage human affairs. The other reason is that the existing system's failings are becoming obvious to all. Our economic system has been gamed to benefit the one percent - or 0.1 percent - and our political systems throw up uninspiring candidates for whom the concerns of most of us and the environment appear well down the list of things to worry about. It's clear that the current system cannot continue. I remain hopeful that someone, somewhere, in the public or private sector, will issue Social Policy Bonds for a worthwhile goal, and enable the concept to be tested, discussed, refined and eventually deployed to solve some of the world's urgent social and environmental problems.

30 November 2011


Who benefits from the Common Agricultural Policy, which consumes 43 percent of the European Union's budget and costs households $296 per annum? Well:
The Duke of Devonshire gets £390,000, the Duke of Buccleuch £405,000, the Earl of Plymouth £560,000, the Earl of Moray £770,000, the Duke of Westminster £820,000. The Vestey family takes £1.2m. You'll be pleased to hear that the previous owner of their Thurlow estate – Edmund Vestey, who died in 2008 – managed his tax affairs so efficiently that in one year his businesses paid just £10. We're all paying for Europe's gift to our aristocrats and utility companies, George Monbiot, 28 November
This insanity has been documented, qualified and widely promulgated continuously for thirty years. It is not the transfers from the poor to the rich that are inexcusable; it is their persistence over three decades and many administrations. Their persistence underlines the inadequacy of the current policymaking approach: there is no self-correcting mechanism for policies that are self-evidently absurd. Current policymaking is so arcane, so inaccessible to ordinary human beings, that only the powerful - individuals, corporations, government agencies or trade unions - have the resources to negotiate it and make it serve their purposes. And their purposes not only differ from those of most people; they conflict with them.

Complex societies don't need to have a complex policymaking process. Government could, as under a Social Policy Bond regime, target a few broad, widely agreed goals, such as better health, universal literacy, lower crime rates and a cleaner environment. Rather than try to achieve these goals itself and distract itself with easily gamed legislation and regulation, government could concentrate on articulating society's goals and raising the revenue for their achievement. Things that government, in fact, can do very well, and which, indeed, only government can do. The actual achievement of our social and environmental goals would best be contracted out to a motivated private sector, where incentives, diverse approaches and adaptiveness could all serve social purposes.

The Common Agricultural Policy, and the persistence of its lunatic subsidies to the rich at the expense of the poor, is the logical endpoint of the contrary approach, which only the powerful have the time and resources to subvert.

17 November 2011

Targeting outcomes: there's no alternative

When it comes to climate change, the uselessness of the current policy approach is plain. The way we do things now is: get the government or some bureaucracy to identify some activity that has an effect, then try to encourage or discourage that activity. In our complex society, that way of doing things is increasingly futile. Take climate change. Current reasoning has it that (1) climate change is caused by man's greenhouse gas emissions and that (2) cutting back those emissions will stabilise the climate. There are huge scientific uncertainties here, but let's move on to step (3) we need to cut back those emissions. So we end up with the Kyoto process, whereby some, but not all, countries say they will cut their emissions. And in the unlikely event that those countries do actually cut their emissions what do we find?
[A] significant and growing share of global emissions are from the production of internationally traded goods and services. Although this finding may follow directly from increases in international trade itself, it could have unintended consequences for climate policy, as it leads to a spatial disconnect between the point of consumption and the emissions in production. Source
or, as Naomi Klein puts it:
the rise in emissions from goods produced in developing countries but consumed in industrialized ones was six times greater than the emissions savings of industrialized countries. Capitalism vs the climate, 'The Nation', 28 November
We're going nowhere on climate change, because we refuse to accept that, if we want to stop the climate changing, we have to target climate change. We have to reward the achievement of climate stability. What we shouldn't do is exactly what we are doing: using fossilised science to prejudge how we shall achieve climate stability, and building all our hopes and a huge bureaucracy on top of that science only to find that: the science is faulty or outdated and the bureaucracy is failing anyway. In short, cutting back emissions may or may not be helpful but, either way, we're not even doing that.

I really don't think there's a better way of tackling climate change and its consequences than Climate Stability Bonds. Nothing, in the years since my paper was published, has changed my view.

12 November 2011

Consult on ends, rather than means

From a letter to the editor of the London Times:
Sir, Your endorsement of the Greek referendum so that the Greek people can determine their own future surprised me. Personally, I will endorse referendums on economic policy once we also put the question of what medicine doctors should use to cure certain illnesses to a public vote. Jacob Williamson, 'The Times', 4 November
Mr Williamson has a point: economic policymaking is now so complex and specialised that consultation with the public might well be a bad idea. On the other hand, harsh austerity measures need quite a lot of buy-in if they are to be successful; the sort of buy-in that might only be possible with public approval.

The answer could be to consult the public on meaningful outcomes, rather than on policies that may or may not achieve them. We understand the ends more readily than the means. When we buy a plane ticket, we are concerned more with the destination than the identity of the pilot or the detailed operation of the plane. Social Policy Bonds are a means by which the public can articulate the goals and priorities of policy. Under a bond regime, social and environmental outcomes would not only be identified and targeted, but also continually costed via the market for the bonds. Referendums about policy goals then would be a meaningful exercise, one that encourage broad engagement with the policymaking process, and the buy-in that's necessary for difficult decisions.

29 October 2011

Matt Taibbi gets it

Matt Taibbi writes:
Our world isn't about ideology anymore. It's about complexity. We live in a complex bureaucratic state with complex laws and complex business practices, and the few organizations with the corporate willpower to master these complexities will inevitably own the political power. Griftopia
This is something I have been saying for years (here, here, here and here, for examples). Complexity has had the effect of excluding ordinary people from the policymaking process. My suggestion is to reformulate policy in terms of outcomes that are meaningful to ordinary people - as distinct from corporations, government bodies or billionaires. Social Policy Bonds would do that, and they would channel market forces into the achievement of these outcomes.

The logical end-point of the alternative - policy made by the rich for the rich - is being played out before us. But even if the political process weren't being subverted by the powerful, our society is so complex that the effects of even well-intentioned policy measures can rarely be identified. Typically, if such identification is attempted at all (which it hardly ever is) there are too many variables, linkages, unquantifiables and time lags to get a handle on cause and effect. As well, there are very few incentives to get policy right. A policy's impact horizon usually extends beyond politicians' time in office, and few bureaucrats work within a system that rewards achievement rather than activity.

A Social Policy Bond regime could change all that. It would create a coalition of people and organizations whose interests were exactly congruent with those of ordinary people, and who would be motivated to monitor continuously how efficient and effective were their initiatives.

17 October 2011

Social Policy Bonds: absurd (at first sight)

Mark Schmitt, reviewing The Submerged State: How Invisible Government Policies Undermine American Democracy by Suzanne Mettler, writes:
We often hope that citizens will be able to deliberate thoughtfully about policy choices, but that is impossible if the policies are shrouded in complexity and in blurred responsibility. ... It is time for a new era of reinventing government, in which the goal is to establish certain clear, unambiguous public functions, and put energy and resources behind them — to row, and not merely to steer. Row! Row!, Mark Schmitt, 'The New Republic', 4 October
Exactly. This has been my theme for two decades now. Even if you do not think Social Policy Bonds are worth trying, you must surely agree with Mr Schmitt and myself that we, the public, cannot engage with current policymaking because of its complexity, and that it is time for reinventing government in such a way as to "establish certain clear, unambiguous" outcomes. Ok, I have substituted 'outcomes' for Mr Schmitt's "functions" because to me it is outcomes rather than processes that are important, and I think Mr Schmitt would agree with me.

So what about Social Policy Bonds? At first sight, I will admit that they do seem radical. They are likely to mean that the private sector tries to perform broad functions currently undertaken by government: the achievement of health, law and order, or environmental goals, for example. There are dangers in that, some of which I address in my book, others of which might not be anticipated. So I actually don't advocate that Social Policy Bonds be deployed widely. Not immediately, anyway. I do advocate that they be discussed, tried, refined, tried again, and then, perhaps, issued to solve our most urgent national and global problems.

The current system is failing us. Social Policy Bonds would represent a discontinuity in the way we approach policy. They are untried and untested. They use right-wing methods to achieve goals usually articulated by the so-called left. Yes, at first sight, they do seem absurd. But in defence of the Social Policy Bond concept, I call Albert Einstein, who said: “If at first, an idea isn't absurd, then there is no hope for it”.

07 October 2011

Government by distraction

Brendan O'Neill writes:
The otherworldly nature of [UK] party conferences is a consequence of some huge political shifts in recent years. It is the hollowing-out of the mainstream parties, their speedy and profound jettisoning of members and grassroots supporters and their subsequent disconnection from the public, which creates today’s strange and alien political culture. Meet the PC oligarchy that now rules Britain, 'Spiked', 6 October
Exactly so. At a time when we need maximum public participation and buy-in to policymaking, we have a system that is guaranteed to alienate ordinary people. Much can be explained by our politicians' relentless focus on things that are irrelevant to normal citizens: gestures, sound-bites, institutional structures, prestige projects, quirks of personality, Mickey-Mouse micro-targets, and many other distractions. We lose sight of the big issues: facts like unsustainable levels of government borrowing or the proliferation of nuclear weapons. Who benefits from government by smoke-and-mirrors? Those who can afford to pay think-tanks, lawyers and lobbyists to follow and influence the policymaking process. That means billionaires, big corporations, trade unions and other interest groups - including government agencies. It doesn't mean ordinary people.

Recasting policy in terms of outcomes could close the ever-widening gap between politicians and the people they are supposed to represent. Social Policy Bonds would refocus policy onto outcomes that are meaningful to ordinary people, who would be better able to understand and participate in policymaking. A bond regime would reward only those who help achieve our social and environmental goals. All government-financed initiatives would be undertaken with the aim of achieving these goals as efficiently as possible. And, in stark contrast to the current system, 'creative destruction' would operate: failed projects would be terminated.

06 October 2011

Five jumbo jet disasters a year in the UK

Despite clear improvements in road safety, the annual cost to the UK economy of all [road] deaths and injuries remains significant at around £13 billion (i.e. around 1% of GDP), with damage-only accidents estimated to cost a further £5 billion. Source (pdf), quoted on Man's Greatest Mistake
A shark attack anywhere in the world means instant headlines, as does a plane crash or a terrorist atrocity that kills a few dozen civilians. Rightly so, perhaps, but then we - or rather, policymakers - should make a lot more of the everyday killing that occurs on our roads. By some measures, the UK has the safest roads in Europe but even so, 1850 people were killed in 2010. Road accidents are so routine, or so difficult to film for televistion, they don't merit much in the way of media attention. Policymakers should do better. The most cost-effective way of saving lives would be to allocate funds across all life-threatening causes, however mundane and unspectacular.

Social Policy Bonds have amongst their advantages that of being able to target such broad goals as longevity. They reward outcomes, not activities. Under the current system, funding for activities that are supposed to improve longevity is allocated according to a range of often spurious criteria, such as media attention, past levels of funding, or the identity of likely victims. A Social Policy Bond regime would allow policymakers to target all threats to longevity (however defined) impartially. This cannot be done under the current system, as funding is allocated to bodies that have little interest and incentive to consider the overall health of the nation. Funding goes to bodies according to criteria that may have little to do with outcomes. It's funding as if outcomes - real outcomes that are meaningful to ordinary people - don't matter.

27 September 2011

Policy as if outcomes are irrelevant

More from Mark Steyn:
... both the [US] Occupational Safety and Health Administration (OSHA) and the Consumer Product Safety Commission (CPSC) were set up by a Congress that didn’t identify a single policy goal for these agencies and “provided no standards whatsoever” for their conduct. So they made it up as they went along. Where do you go to vote out the CPSC or OSHA? After America, page 85
Gestures approved by spin doctors, jobs for cronies, self-delusion: all these are key policy drivers under the current system. Outcomes? Nobody's very interested. Nobody, apart from paid lobbyists, even bothers to follow policymaking, so arcane are the debates, and so removed is our political caste from the people they are supposed to represent (and, as is becoming clear, from reality itself).

A Social Policy Bond regime would at the very beginning refocus attention on the question: what is government for? Policymaking would be about defining and prioritising targeted goals - goals that would be meaningful to ordinary people. That means targeting not organisational structures or funding, not appearances or gestures, but outcomes like reduced unemployment, a cleaner environment, low crime rates.... Things that matter to citizens, in other words. That would be a stark contrast to today's policymaking circus.

The economy's ok; shame about well-being

From the Economist:
The alarm [in the developed countries] over the threat to jobs from India and China echoes the anxiety about Japan’s rise in the 1970s and 1980s. America’s economy has survived the shake-up of its steel, electronics and car industries, as have other rich countries. Exporting Jobs, survey of the world economy, 'the Economist', 24 September
If we accept that the "economy" has indeed been able to "survive" then, whatever the "economy" is, it can't have much to do with employment, confidence, social cohesion or indeed anything that correlates with the well-being of the human population. Sadly our leaders are hypnotised by "the economy" and its well-being. They implicitly target things like average GDP per capita, regardless of how it's distributed and the consequences for the physical and social environment. I think we'd all benefit if, instead of fixating on "the economy", we targeted instead outcomes that are meaningful to ordinary people.

21 September 2011

Policy: for specialists only

One of the advantages of Social Policy Bonds is that they express policy in terms of meaningful outcomes. This means, as I said in my previous post, that the public can participate in the policymaking process. The benefits of this, in terms of greater public buy-in, are incalculable. Sadly, the current system is moving yet further in the opposite direction. In After America Mark Steyn discusses the US health care debate:
Through all the interminable health-care “debates” of Obama’s first year, did you read any of the proposed plans? Of course not. They’re huge and turgid and indigestible. Unless you’re a health-care lobbyist, a health-care think-tanker, a health-care correspondent, or some other fellow who’s paid directly or indirectly to plough through this stuff, why bother? None of the senators whose names are on the bills ever read ’em; why should you? (page 52)
Exactly so. Any relationship between what you would read and an outcome meaningful to you would be purely coincidental. Policy debate nowadays focusses almost exclusively on institutional structures, funding arrangements, legalisms, with some gestures and symbolic language thrown in.

19 September 2011

All over the place

With economics as with society and the environment, policymakers are confused. Their only consistent objective seems to be to hang on to power. On issue after issue, whether it's climate change, unemployment, crime or any social or environmental problem, policymakers will choose appearance over reality; the continuation of current policies beyond the point when they become destructive; the placating of powerful interest groups, especially donors to their political party; and the substitution of Mickey Mouse micro-objectives (agreements signed, funding allocated, pamphlets produced) for meaningful outcomes for ordinary people. There need be no conspiracy. Policymakers are simply too busy or too pre-occupied with the short term to consider long-term goals. Kicking the can down the road has become the default mode of operation. Not rocking the boat has become the default, over-arching political objective.

We need to reconnect policymakers with the people they are supposed to represent. The current policymaking mechanism, focused as it is on legislation, arcane discussions about institutional structures and funding, sound-bites and personality, serves only to widen the gap between the government and the people.

One way of bridging that gap might be for all of us to think in terms of the outcomes we want to see from policy, rather than supposed means of achieving them. At the very highest level objectives such as "economic growth" have now become irrelevant to, or even in conflict with, the aspirations of ordinary people. On a crowded planet, with ever more complex social arrangements, something as vague as GDP per capita correlates very little with human well-being. Why not, then target more directly things that really matter: physical and mental health, low crime rates, universal literacy, a cleaner environment? That is what a Social Policy Regime would look like. A few broad - negotiated - social and environmental goals, to which all government-financed activities would be subordinated. People can understand objectives, even if we (those of us who aren't paid lobbyists) are turned off by legal and political processes. Under a bond regime we could engage with policymaking and, crucially, feel that our voices have been heard. Such a policymaking system would, I think, be not only more efficient than the current, failing, mechanism, but also would generate buy-in from the public; something that is essential if we are goiing to solve the urgent, critical social and environmental problems that we face.

06 September 2011

Propping up interest groups: everyone loses

John Kay, explaining the current financial crisis, writes:
The subtle but important distinction between policies that support a market economy and those that support the interests of established large firms was not widely appreciated by policy makers on either right or left. A good crisis gone to waste, 30 August
Governments make this mistake often: they identify the success of the economy with that of large corporations - which often just happen to be big contributors to their party funds. Failing corporations, just like failed policies, are not allowed to expire, but are instead propped up with taxpayer funds. The 'creative destruction' on which our economic system depends, doesn't operate: instead government policy takes over from market discipline. Diversity goes and, with it, the ability of our political and economic system to adapt. What we are seeing now: social, political, evironmental and economic crisis, is largely a result of government propping up special interest groups. The short-term beneficiaries are the bosses of big corporations and the visionless politicians who buy them off. The losers are...well...everybody else.

We urgently need to move toward a system that rewards favourable outcomes. Not, as under the current system, those who say they're going to deliver them or who may have delivered those outcomes in the past, but cannot efficiently do so now. That's where a Social Policy Bond regime could help. Only those who actually and efficiently achieve targeted social and environmental outcomes would be rewarded. In stark contrast with the current system their identity would be entirely subordinated to their efficiency and effectiveness.

01 September 2011

Subsidising the rich

Or rather, transferring resources from the poor (and the environment) to the wealthier members of society.
The richest 10 per cent of the population receive four times as much public spending on transport as the poorest 10 per cent. Source
It's the usual fare: policy as if meaningful outcomes for ordinary people don't matter.

28 August 2011

Reason and prejudice

According to Hugo Mercier, we've been reasoning about reason all wrong. Reasoning is very good at what it probably evolved to let us do—argue in favor of what we believe and try to convince others that we're right. Did reason evolve for arguing?, 'Point of Inquiry', 15 August
According to this theory (elaborated in the POI podcast), the function of reasoning is argumentative. If I have understood it correctly it says that we use reasoning to convince others of our beliefs and prejudices. So "reasoning works well as an argumentative device, but quite poorly otherwise." If we accept this theory, what would it mean for policymaking and policymakers? In an age of extreme specialisation, making policy, or choosing amongst alternative policies, will often be done only by perhaps a single person, who will decide not according to reason and logic, but according to his or her unchallenged beliefs. In this respect, the theory is similar to the that of natural selection. The implication of both theories is that policymakers, even experts, should have some humility.

Both theories support my contention that policy approaches should be subordinated to outcomes. Politicians in democratic countries are good at articulating social goals, and good at raising the revenue necessary for their achievement. But they are not so good at working out how to achieve these goals. Even with a public administration degree, they still won’t be perfect. They subvert natural selection, by favouring top-down, one-size-fits-all approaches, which are not always appropriate, and by failing to terminate failed approaches. And, if we accept Dr Mercier's theory, they are also likely to favour approaches that accord with their own ideology and a priori beliefs, rather than those that can be supported by evidence.

This is where Social Policy Bonds could help. Many goals are not amenable to the top-down approach. But a bond regime would reward successful outcomes however they are achieved. Governments could set social and environmental goals, without having to think of how to achieve them. That would require some humility, of course, as well as politicians' relinquishing some of their power. For that reason and others it's probably more likely that non-governmental actors - NGOs or philanthropists, for instance - will be the first to issue Social Policy Bonds.

16 August 2011

Solitudinem faciunt...

Jean Bricmont and Diana Johnstone discuss the NATO intervention in Libya:
Despite the efforts of a few isolated individuals, there is no popular movement in Europe capable of stopping or even slowing the NATO onslaught. The only hope may be the collapse of the rebels, or opposition in the United States, or a decision by ruling oligarchies to cut the expenses. But meanwhile, the European left has missed its opportunity to come back to life by opposing one of the most blatantly inexcusable wars in history. Europe itself will suffer from this moral bankruptcy. Who Will Save Libya From Its Western Saviours?, 'Counterpunch', 16 August
There are no guarantees against this sort of madness, but western governments that are focused on bringing about the achievement of a few broad, well-defined, explicit social and environmental objectives would find it awkward to explain how taking sides in Libya could help their society's well-being...let alone that of any other society. It's clear that there's no internal mechanism to limit the scope of government, whether at home or overseas. Desperately needed is some discipline that would re-orientate government so that it concentrates on outcomes that are meaningful to ordinary people. The accumulation of sovereign debt in the developed countries is the most obvious and ominous symptom; but the pointless, destructive and barely opposed intervention in Libya is a particularly poignant example.

13 August 2011

It's obvious really

It's obvious that governments should spend within their means, shouldn't debase the currency, and shouldn't destroy the environment and social cohesion. But today's policymakers operate in a fog of obscurity and micromanagement. They are preoccupied with ideology, activities, institutional structures, spending plans, image and news management. In such an environment, it's too easy to lose sight of principles. Attention spans shorten; the focus shifts from the long term and crucial to the short term and flippant. Problems that can't manifest themselves as dramatic tv footage are neglected.

Expressing policy in terms of broad, desirable goals, as Social Policy Bonds do, could get us out of this predicament. We could issue bonds that become redeemable at the end of a sustained period of, for instance, world peace, fiscal continence, contained inflation and unemployment, and low levels of environmental destruction.

It's unlikely to happen. Governments just don't think like that. It's unfortunate that, at a time when governments are big, democratic and influential enough to articulate society's goals accurately and to raise the revenue to achieve these goals, they cannot relinquish their control over how these goals shall be achieved. Instead, they centralise more and more, as if power is an end in itself. Big government doesn't have to be remote, one-size-fits-all, rigid, error-prone and a threat to the well-being of mankind and every other species. But, because it fails to measure success in terms of explicit, meaningful outcomes, that's precisely what it has become.

03 August 2011

Who cares about policy?

Mick Hume writes that political life in the UK:
...becomes less about what you believe in or achieve, and more about how you appear, where you are seen and who you consort with. Personal image and style become all-important. That is why we find ourselves in a bizarre situation where a Tory prime minister can, on a given day, get more stick in the media for refusing to tip an Italian who did not deliver cappuccino to his table than for failing to deliver anything much in the way of a government programme. How British politics became trivial pursuits, Mick Hume, 3 August
Mr Hume talks about our celebrity political culture, which is partly a result of the lack of any ideological underpinnings to political parties. For me, though, ideology is at least as removed from society's well-being as celebrity. In either case, the interests of ordinary people are removed from the political agenda. Politicians are driven by ideology or by their wish to associate themselves with celebrities, either as an end in itself, or as a means of staying in power, or to distract the masses from matters of substance.

Ideology, celebrity, or the interests of the rich and powerful: in every case the drivers of our politics are not delivering meaningful outcomes to ordinary people. Social Policy Bonds, aside from their efficiency, could re-orientate politics entirely towards the achievement of social and environmental outcomes. Under a bond regime, politics would focus on the targeting of such outcomes, their relative priority and their cost. All actions set in train by such policymaking would be subordinated to the achievement of these outcomes. Ideology, celebrity and other nonsenses - currently absurdly important - would be seen, accurately, for what they are: self-indulgences.

23 July 2011

Complexity used to favour the rich

Government and big business have interests that often conflict with ordinary people and smaller businesses. They habitually use complexity to benefit themselves, at the expense of small, local enterprises and natural persons.

...leading members of the [US] Senate are seriously considering giving the most profitable companies in the world a total tax holiday as a reward for their last seven years of systematic tax avoidance. Hundreds of billions of potential tax dollars would disappear from the Treasury. And there isn’t a peep from anyone, anywhere, on this issue. We’re seriously talking about defaulting on our debt, and cutting Medicare and Social Security, so that Google can keep paying its current 2.4 percent effective tax rate and GE, a company that received a $140 billion bailout en route to worldwide 2010 profits of $14 billion, can not only keep paying no taxes at all, but receive a $3.2 billion tax credit from the federal government. And nobody appears to give a ****. What the hell is wrong with people? Have we all lost our minds? Corporate tax holiday in debt ceiling deal: where's the uproar? Matt Taibbi, 22 July

Complexity, obscurity, and just the plain boredom of the policymaking process are being exploited by powerful interests. They can get away with this, because policy is expressed in terms that are so incomprehensible or vague that they deter outsiders - that's those of us who should be in uproar - from getting involved.

Social Policy Bonds would be different. They would target explicit goals that are meaningful to ordinary people: cutting the crime rate, reducing unemployment, reducing pollution, for instance. The public would take an interest because it can understand outcomes. The bonds could close the gap between the public and the policymakers, which is now not only wide, but widening. Perhaps disastrously so.

20 July 2011

The EU: a top-down, one-size-fits-all institution

Frank Furedi writes:
From its inception, the EU was an elitist managerial project that was able to construct and promote its agenda without having to respond directly to popular pressure. Decisions are never arrived at through public debate, and the majority of EU laws are formulated by the hundreds of secret working groups set up by the Council of the EU. Most of the sessions of the Council of Ministers are held in private, and the EU’s unelected European Commission has the sole right to put forward legislation. Why the EU is so clueless about the Euro crisis, 20 July
It's arguable that global crises require global solutions, and EU-wide crises require EU-wide solutions. But I would argue that solutions need to arise from below, rather than imposed from above. They need to be diverse and adaptive. Big government, while necessary to articulate our goals and to raise the revenue for achievement, is rarely best placed to achieve them. The decision-making bodies of big government, such as those that Mr Furedi writes about, might be well meaning and hard-working, and they might even perform adequately when a crisis requires a big, one-size-fits-all, top-down solution. But they tend to be remote, and unresponsive to local circumstances and changing events. The entire EU exercise and, in particular, the Euro, are the apotheosis of big, remote government. They might well be neither responsive nor diverse enough to go on for much longer.

It's too late for the EU, but a Social Policy Bond regime would distinguish between the (1) the articulation and revenue-raising part of government, and (2) the achievement of social and environmental goals.

17 July 2011

Targeting GNP: the logical conclusion

Gross National Product, in the absence of any other explicit indicator, is often targeted implicitly; as if GNP, or GNP per head, indicate anything meaningful to ordinary people. This is one example of what happens when governments insist on targeting GNP.

05 July 2011

Taking command of the long term

Greece has 800,000 civil servants, of whom 150,000 are on course to lose their jobs. The very existence of those jobs may well be a symptom of the three c’s, ‘corruption, cronyism, clientelism’, but that’s not how it feels to the person in the job, who was supposed to do what? Turn down the job offer, in the absence of alternative employment, because it was somehow bad for Greece to have so many public sector workers earning an OK living? Where is the agency in that person’s life, the meaningful space for political-economic action? She is made the scapegoat, the victim, of decisions made at altitudes far above her daily life – and the same goes for all the people undergoing ‘austerity’, not just in Greece. Once Greece Goes..., John Lanchester, 'London Review of Books' online, 30 June
We live and work within a policy framework decided by people at high altitude. Or perhaps 'decided' is too purposeful. Policymakers are only a little less victims of the system within which they operate than ordinary workers. They have few definite, long-term objectives to work for. Perhaps the maximisation of economic growth (or growth per head) which, if it considered at all is assumed to generate enough resources to solve every sort of problem - even those it creates. Other guidelines are even more vague or rarely articulated. The avoidance of social upheaval; the avoidance of 'too much' pollution, or unemployment, or crime, or whatever. Because these guidelines are vague, or seldom made explicit, they have the status of declarations of intent. All this means that society's actual long-term guidelines are either decided by default, or subject to the manipulation of the powerful; including large corporations, government agencies, and the largest trade unions.

So we find, and not only in Greece, explosions in public sector employment, and public debt. We'd all be better off society's longer-term goals, including debt levels, were openly debated and made explicit. They need not be absolute, but there would be incentives for people to achieve them.

Social Policy Bonds, because they are tradeable, could be used to target long-term goals, including guidelines within which, say, debt, or crime, or pollutions must lie. Societal goals, such as limited debt levels, are more stable over time than the supposed ways of achieving them, and we could all benefit if they were targeted explicitly. Outcomes targeted under a bond regime could include those whose origins are uncertain or contested. Just because policymakers don't know all the causes of crime, or climate change, say, does not mean that they cannot explicitly target them and, in effect, contract out the work of identifying cause and effect to a motivated private sector.

26 June 2011

Subsidising planetary destruction

The International Energy Agency does valuable work in quantifying the subsidies to fossil fuel production and consumption.
We estimated that consumer subsidies [for fossil fuels] were worth US$ 312 billion in 2009. In the current economic climate, this is a significant amount of money which could be used to more directly tackle priorities such as poverty alleviation, health or education. Our modelling also showed that if subsidies are reformed by 2020, global energy demand could be reduced by 5%. This has significant implications for energy markets and efforts to combat climate change. International Energy Agency’s Senior Energy Analyst Amos Bromhead in conversation with 'Subsidy Watch', April 2011
It's scandalous that these subsidies continue. They transfer funds from the poor to the rich. They do nothing to help the poor that could not be better done by more-targeted assistance. And they subsidise environmental depredation. In this, energy subsidies have much in common with agricultural subsidies, still continuing decades after their lunacy was exposed and quantified. One example from last year:
What could be more outrageous than the hefty subsidies the U.S. government lavishes on rich American cotton farmers? How about the hefty subsidies the U.S. government is about to start lavishing on rich Brazilian cotton farmers? If that sounds implausible or insane, well, welcome to U.S. agricultural policy, where the implausible and the insane are the routine. Our perplexing $147.3 million–a-year handout to Brazilian agribusiness, part of a last-minute deal to head off an arcane trade dispute, barely even qualified as news .... If you're perplexed, here's the short explanation: We're shoveling our taxpayer dollars to Brazilian farmers to make sure we can keep shoveling our taxpayer dollars to American farmers — which is, after all, the overriding purpose of U.S. agricultural policy. Why the US Is Also Giving Brazilians Farm Subsidies, by Michael Grunwald 9 April 2010
The gap between the governments we have and the people they are supposed to represent hardly looks like closing. Ordinary people, along with planet Earth, are left behind in the policymaking process. We have to put up with whatever comes out of the bargaining between interest groups, be they large corporations, government agencies, trade unions or (so-called) religious bodies. For reasons social, financial and environmental, such a policymaking process cannot last much longer. If we are lucky, there might be time to turn towards making policy as if outcomes mattered.

17 June 2011

Government by the rich, for the rich

House keeps farm subsidies, cuts food aid as it passes food and farm spending bill 'Washington Post', 16 June
This should be no surprise. We have known for decades that farm subsidies are insane; that they transfer income from the poor to the rich and that they do much to destroy the natural environment and animal welfare. But our corrupt political systems are incapable of stopping them. Much easier to cut food aid to those who count for nothing under the current regime: the poor at home and overseas. This is government for the rich by the rich. It makes a mockery of democracy.

If we made policy as if outcomes mattered, such lunacy would not survive. The tiny number of people who benefit from it can do so only because policymaking is an arcane process focused on procedure, funding, structural and institutional arrangements and other concerns entirely removed from those of ordinary people.

That's where Social Policy Bonds would differ: under a bond regime, projects, funding, and activities would all be orientated towards achieving specified social goals. The connection between policy and targeted outcomes would be explicit and inextricable. The public could engage with policymaking, so goals would have greater buy-in. The current farm subsidy regime is a symptom of a much bigger problem: that of the disconnect between policymakers and the people they represent. Social Policy Bonds, with their focus on meaningful outcomes, could re-connect policy with the public.

11 June 2011

Government: picking winners, picking losers; who cares?

But progressive government -- as demonstrated by the Obama administration -- flunks any real test of fairness. It clearly favors unionized workers over non-unionized workers, just as it routinely favors the biggest and most politically connected corporations over smaller and more entrepreneurial enterprises. Crony capitalism and the practice of kowtowing to the biggest and most politically assertive unions are joined at the hip in this administration. Gambling Man, Andrew B Wilson, 'The American Spectator', 6 June
True, but if we simply change "unions" in the last sentence to "organizations" this would apply not only to the current US administration, but to virtually every other administration in every country in the world. It's convenient, at every level, for government to act as though the success of big organizations, including its own departments, implies the success of an economy, a society and the government itself. Not so. All organizations, whether they be government agencies, business of any size, religious and education bodies, and - yes - unions, have as their over-arching goal that of self-perpetuation. Even when that goal diverges from or conflicts with the wishes and well-being of society.

There's little to keep bigger organizations honest, especially when they are so big that they can work on other organizations, including government agencies, to manipulate trade, legislation, the market, and the regulatory environment with the goal of preserving their privileges. Government itself is folded into this process, such that unravelling the mess is going to be extremely difficult. A widespread sense of crisis might help, but there are no guarantees that that would lead to anything better, at least in the medium term.

Setting some broad, long-term goals might help. Government, with all its powers and influence, would, I think, be better advised to consult with the public about what's really wanted. Under a Social Policy Bond regime it could target, not only global goals such as dealing with the threat of man-made or natural catastrophe, or minimising the risk of nuclear conflict, but national goals such as improved health and education outcomes.

Instead, for its own petty reasons, it wastes time and scarce resources by, for example and as Mr Wilson points out, acting as an investment managers with taxpayers' money. Investment managers, or gamblers, moreover, who are paid however badly they perform.

07 June 2011

We need to target long-term goals

Democratic governments these days devote much of their energy to kicking problems down the road, for solving at some time in the future that's uncertain, but beyond the lifetime of their administration. It's a pattern. Nuclear weapons pile up; budget deficits rise; environmental challenges are evaded.

On reflection, it's not so surprising. The very idea of a stable society, one that can identify with its future members, has been undermined by the pace of technological change and porous borders. We vote for short-term fixes. Young people can't vote, and nor can threatened non-human species.

But we do have moments of clarity and rationality. We know that certain broad outcomes are desirable. Number one, most likely, is the survival of the human race in the face of natural or man-made catastrophe. Others would include the maintenance of a decent financial and physical environment for future generations. Sadly, our political campaigns are focused almost exclusively on who shall govern us for the next few years. We can choose one person over another (or one party over another), on the basis of what they claim to believe and the activities they promise to carry out over their few years in power. The link between politicians' promises and their activities is tenuous. That between their promises and short- or medium-term outcomes even more so. And long-term outcomes - the sort that will profoundly affect the lives of future generations - are rarely anything other than a by-product of the accumulated decisions. Distracted by the short term, we fatalistically surrender discussion of the long term to the religious, the chiliasts and the cultists; few of whom care dispassionately about the well-being of the entire planet, or the whole of humanity.

That's where Social Policy Bonds could enter the picture. Existing political activities could be subsumed within a set commitments to achieve society's broad, long-term goals. Under a bond regime, we could explicitly target such objectives as the survival of human beings and the avoidance of catastrophe. The bonds, because they allow the explicit targeting of such very long-term goals, would shift the focus of politics towards the well-being of future generations. We all know that such a shift is essential, but it's also clear that current politics is rigidly, almost obsessively, concerned with the short term.

28 May 2011

Wish I'd said that

The [UK] government has now promised to cut greenhouse gases by 50% by 2027, which means that, with a following wind, the UK could meet its legally-binding target of 80% by 2050. For this we should be grateful. But the coalition has resolved the tension between green and growth in a less than convincing fashion: by dumping responsibility for the environmental impacts on someone else. The carbon cut we have made so far, and the carbon cut we are likely to make by 2027, have been achieved by means of a simple device: allowing other countries, principally China, to run polluting industries on our behalf. George Monbiot, 'the Guardian', 23rd May
I have been saying this for years. In climate change, as in other social and environmental challenges, narrow targets are useless. They are far too easily evaded or gamed, so that any supposed social problem is shifted away from the scope of explicit targeting. We should be targeting not British greenhouse gas emissions, nor even global greenhouse gas emissions, but climate instability. If we did that by issuing Climate Stability Bonds, we'd be addressing this global, urgent concern with maximum efficiency. Other targets, as is the UK Government's, are likely to be inefficient and ineffective.

22 May 2011

Giving greed a chance

People sometimes challenge the Social Policy Bond principle because of its reliance on financial incentives - also known as 'greed'. I think they are right to do so. Who wants a society in which the lust for more money dictates every aspect of our behaviour? In which people won't do the right thing for society unless there's a financial incentive involved?

My response is that we have such a society already, in which millions of people perform functions that have little direct social content for the purpose of earning a salary. Within 25 metres of where I am typing this, there is a body piercing salon and a tattoo studio. Within several hundred metres there are old people who could do with a bit more help and company. And within a radius few thousand metres crime blights the lives of hundreds.

People do respond to financial incentives. Our problem is that many of the incentives are in place for people to do things that don't actually help society. And this applies to funds ostensibly in place for social or environmental purposes, not just the world of breakfast cereals and bodily mutilation. Government funding, typically, goes to activities or institutions that, are often only nominally linked to achieving social outcomes. In cases, like fossil fuel subsidies or agricultural subsidies, the net effects of these funds is almost entirely in conflict with rationalityLink itself, as well as society and the environment. The only beneficiaries are a tiny minority of powerful, well-organized, vested interests. So financial incentives, ostensibly for public purposes, already exist in the form of government funding. At best they are unsystematic and inefficient. At worst, they undermine our social and environmental goals. In all cases, they are uncorrelated to outcomes that are meaningful to ordinary people. Social Policy Bonds would rejig existing incentives in favour of such outcomes. People would, as they do today, respond to the incentives on offer, but under a bond regime they would be rewarded for efficiently achieving social and environmental outcomes. What they do with their rewards is up to them, but there's no reason to believe that they would spend them ignobly.

The fact is that monetary payments needn't corrupt. Many people under the current system do all sorts of socially valuable work in return for salaries that aren't very high. They might do more for higher salaries, or more people might do the same sort of work if there were more cash on offer to achieve, a la Social Policy Bonds, a stipulated social or environmental outcome. Salaries, needless to say, can be used for more than frivolous consumption. They can mitigate poverty, increase leisure time, and raise children. Adding to the numbers working for social goals, or paying more to those who do so efficiently, is not negative or evil.

21 May 2011

Philanthropy and outcomes

The Economist writes, in a review of three recent books about philanthropy:
For Mr Buffett, the main reason why giving is harder to do than making money is that in business “you go after the low-hanging fruit”, whereas in philanthropy you are trying to tackle problems that are inherently difficult, such as how to educate demotivated urban kids or end rural poverty. Giving for results, 'The Economist', 14 May (subscription)
Another of the books argues that:
philanthropists should create systems that force them to hear what may at times be unpleasant truths about the ineffectiveness of their work, and to be constantly challenged to improve.
I think philanthropy could do a lot more if it subordinated all its activity to meaningful outcomes. It's very clear why government has a built-in resistance to doing so: the jobs of public servants at all levels would be at stake. But philanthropists have their own, less pecuniary, incentives to avoid addressing the 'unpleasant truths'. We could speculate about the reasons, but they are less important than the result: philanthropists underachieve, and in doing so they deter philanthropy.

So there's a lot at stake. I think if philanthropists, instead of trying to prejudge the best ways of achieving noble outcomes, were to issue Social Policy Bonds, the efficiency gains would be large enough to make a difference in their own right, and to encourage more outcome-oriented funding, whether by the public or private sector. As another of the books reviewed says:
one of the key lessons is for philanthropists and non-profits to be clear about the outcomes they are trying to achieve— and to measure properly the progress they are making towards those goals.
It sounds an obvious discipline. But neither government nor philanthropists follow it. Social Policy Bonds would change that.

12 May 2011

How long have we got?

Only 0.01 percent of all species that have ever existed continue to do so. We happen to be one of them, for now. When [UK Astronomer Royal Sir Martin] Rees looked at the myriad ways in which the present is more perilous than the past in his 2003 book Our Final Hour, he set the odds of human extinction in the next century at 50 percent. [Nick] Bostrom, [an] Oxford philosopher, puts the odds at about 25 percent, and says that many of the greatest risks for human survival are ones that could play themselves out within the scope of current human lifetimes. “The next hundred years or so might be critical for humanity,” Bostrom says, listing as possible threats the usual apocalyptic litany of nuclear annihilation, man-made or natural viruses and bacteria, or other technological threats, such as microscopic machines, or nanobots, that run amok and kill us all. What will happen to us?, Graeme Wood, 1 May
You might think that we'd be well advised, as a species, to look at these survival probability estimates, and see if we can find ways of increasing them. And it's true that many people are working, sometimes heroically, at ways of doing so. There are quite a few organizations, for instance, that seek to raise awareness of the possibility of nuclear conflagration, and many more that seek to mitigate or prevent natural and man-made calamity. The difficulty I have is that their work is unsystematic, unco-ordinated, and is rewarded in ways that bear no relationship to their success or efficiency. As well, and perhaps more dangerously, there are policies in play that can only accelerate disaster, such as: subsidies to fossil fuel extraction and consumption, the accumulation of weapons of all kinds; and the failure seriously to pursue one of the main goals of the Cairo Population Summit, where 179 signatory countries agreed to provide access to family planning services to all the women who want them. And last, there are ways in which our survival is threatened that are beyond our current knowledge and imagination. Nobody is being encouraged to anticipate them.

In short, we need to re-orient the incentives, and to do so in a coherent manner that rewards the survival of our species against calamities of all kinds. This is where the Social Policy Bond principle can help. The issuers of Disaster Prevention Bonds need have no knowledge of the relative likelihoods of known or unforseeable catastrophic events. Neither would they have to pre-judge, with our current limited scientific knowledge, the most efficient ways of ensuring our survival. Instead, the bond mechanism could target the sustained avoidance of any - unspecified - catastrophe. It would do so in a way that encourages the exploration and investigation of all threats, known and new, impartially. Policymakers would not (and anyway could not) have to decide on how dangerous each threat is. That would be left to bondholders, who would have powerful incentives to do so continuously. Investors in the bonds would be rewarded only if they can adapt to rapidly changing events and to our ever-expanding scientific knowledge.

This is a stark contrast to the current approach; the one that has led to highly intelligent men giving our survival such a baleful prognosis. The people who are currently working in favour of humanity do so in ways that, while worthy of great respect, are doing so within a system that is heavily weighted to favour the short-term goals of large organizations, including governments, that have little incentive or capacity to care about the long-term future of the whole of humanity. It's very regrettable, and Disaster Prevention Bonds, issued with sufficient backing, could change all that.

05 May 2011

Why are we not surprised?

Tom Philpott writes:
During the Bush II administration, I used to groan that the closest thing we had to a concerted policy response to climate change was the federal government's slew of goodies for corn-based ethanol. It was a monumentally depressing situation, because propping up corn-derived fuel is expensive and (despite industry hype) doesn't actually do much, if anything at all, to mitigate climate change -- but contributes actively to ecological disasters like the Gulf of Mexico "dead zone." Now, two years into the Obama administration, we still have no concerted policy response to climate change, and the corn ethanol program abides, sucking up resources that could be going to actual green technologies.
What actually determines policy in democracies these days? It's not the long-term good of a nation, a society, or the environment. It's not the needs or wishes of ordinary people. No, nowadays it's essentially the medium-term accoutancy goals of large corporations, as interpreted by the politicians they pay for. Society's growing complexity and, in this instance, genuine scientific uncertainties, are smokescreens behind which powerful interest groups operate, manipulating markets, funding decisions, and the regulatory environment for their selfish purposes. Sometimes these coincide with broader long-term social and environmental goals. Very often they don't. And, increasingly, as the scale on which government and corporations operate grows bigger, the stakes are higher, and the goals of large organizations - corporations or government agencies - actually conflict with those of society. The distance between policies and their effect is too large, the relationships too complex, the time lags too intricate, for anyone except specialists employed by the largest corporations to understand and exploit. The result is often as Mr Philpott indicates: a trashed environment; and a trashed society.

Social Policy Bonds might be the answer. The democratic process needs to be re-orientated to respond to the needs and wishes of ordinary people, not large organizations. Expressing policy goals in terms of meaningful outcomes, as the bonds would do, would encourage more public participation in policymaking. The bonds would also subordinate all activity to society's goals, rather than to those of the organizations supposedly achieving them. Under a Social Policy Bond regime, organizations might grow and prosper, but only if they are efficient at achieving society's goals - a stark contrast with the current setup.

28 April 2011

Where we're at

The world seems beset by systemic crises: financial, economic, environmental and social. We appear to be approaching limits on all fronts. The overwhelming reaction has been to do what we've been doing before, except more so. In the economic sphere, this means going for growth, as if that will solve all our problems. It won't. The mis-identification of growth with human well-being is clear to most these days: growth takes no account of distribution, leisure time or its externalities; in particular the environmental and social impacts of growth that is geared entirely to the narrow, short-term indicators of accountants on behalf of senior executives and major shareholders of large corporations. Government, supposedly the major corrective to these negative impacts, has become complicit with the large corporations. The world more and more looks like a contest between government and big business on the one side, and ordinary people and small businesses on the other, with the odds overwhelmingly in favour of the big and global at the expense of the small and local.

If government is going to use its clout, and is serious about doing so for the benefit of ordinary citizens, it would do better to go above the heads of the large corporations. Even if, at one point in history, it made sense to identify the success of big business with that of economy and society as a whole, it no longer does so. That doesn't mean government should actively campaign against big business. It does mean that it should focus directly on the outcomes that it wants for ordinary people, rather than assume that the health of 'the economy' (by which it usually means large corporations) means a better-off population.

I still have some hope that governments will move towards something like Social Policy Bonds, at least in the long run. Society is so complex and intertwined that any relationship between conventional policy and its outcomes is just too difficult to identify. We see governments doing all sorts of bizarre things that do little except benefit its favoured interest groups while alienating the rest of the population: bombing Libya, doling out massive sums of taxpayer revenues to wealthy landowners and agri-business corporates, subsidising the banks, the fossil fuel industry, piling up nuclear weapons and the rest. It cannot be sustained. My hope is that government, rather than carry on diverging from the wishes of the people it's supposed to represent while ramping up the repression, will instead begin to express its goals in terms of outcomes that are meaningful to ordinary people, and target them directly.

18 April 2011

It's broken

Fareed Zakaria writes about the US political system:
We have a political system geared toward ceaseless fundraising and pandering to the interests of the present with no ability to plan, invest or build for the future. And if one mentions any of this, why, one is being unpatriotic, because we have the perfect system of government, handed down to us by demigods who walked the earth in the late 18th century and who serve as models for us today and forever. Are America's Best Days Behind Us?, 'Time', 3 March
(To 'pandering to the interests of the present...' I would add '...and the wealthy...') How has this come about? I think it's largely because policymaking is opaque to most ordinary people. It's focused on arcane discussion about laws, organisational structures and institutional funding. All these things are necessary of course, but they should be the by-product of policy geared to the interests of society: what I call outcomes. Opacity and complexity are being exploited - perhaps cynically, perhaps not - in the interests of government and big business, at the expense of small enterprises, the public and the physical environment and, as is becoming ever more apparent, our future.

How to re-orient policymaking so that it focuses on things that are important to people? The essential step is to make it comprehensible, which will encourage greater public participation, and hence buy-in. One way of doing that would be to focus discussion entirely in terms of outcomes. Transparency would generate realistic expectations about what government can and cannot achieve. The notion of trade-offs, absolutely central to politics, would be clear to everyone, not hidden from public discussion.

Social Policy Bonds are one way in which our politics could be re-jigged so as to focus on meaningful outcomes for society as a whole. A bond regime would express its goals in terms of broad social and environmental outcomes, while the market would not only provide best estimates, on a dynamic basis, of their costs, but also reward only the most efficient ways of achieving them. It would represent a radical departure from the existing set-up but, as I explain in my book, a gradual transition could occur, with spending to existing bodies gradually reducing in line with increases in funding allocated to redeeming the bonds.

15 April 2011

'World targets in megadeaths'

The Economist sums up the conflict in Libya:
Significantly, the earlier chorus of criticism from rebels doubting NATO’s stomach for the fight has subsided. Mustapha Abdulrahman, a rebel spokesman, declared that there had been a “positive change” in the intensity of NATO attacks over the weekend. In short, all sides now seem ready to dig in for the long haul. Libya versus Libya: the Colonel's fake diplomacy, 'the Economist', 14 April
This is the logical outcome of policy driven solely by institutional goals. Does anyone in Nato really think that if they topple Gaddafi the Libyans - or anyone else - will be better off? What exactly is the purpose of this intervention? Is there any objective other than the short-term needs of unpopular politicians and the military? It's a game of "formulate the objective as we go along", conducted at huge expense with funds borrowed from the next generation.

It's also a particularly tragic and visible manifestation of Policy as if Outcomes Don't Matter in the Least; the same idiocy that has led to the poor being taxed to subsidise agribusiness and wealthy landowners, our absolute dependence on fossil fuels, and the desperate fragility of the world financial system - to give just a few examples. It's no longer good enough to assume that the aggregation of government and corporate goals advances human well-being. The planet is no longer big enough to absorb for us to learn from our mistakes, nor do we have that much time. We urgently need to take over from the politicians and corporations that run our lives, and target goals that are meaningful to ordinary people. We need to subordinate all the actions of the powerful to those goals. And the over-riding goal, the one that we need to target most of all, is survival of the human species. Faced with urgent social and environmental challenges our politicians solemnly decide to inflame obscure, inconsequential tribal squabbles, at huge cost. Madness.

05 April 2011

The masonic option for inefficient organizations?

Francis Fukuyama writes of the US:
Trade unions, agribusinesses, drug companies, banks, and a host of other organized lobbies often exercise an effective veto on legislation that hurts their pocketbooks. It is perfectly legitimate and indeed expected that citizens should defend their interests in a democracy. But at a certain point this defense crosses over into the claiming of privileges, or a situation of gridlock where no one's interests may be challenged. This explains the rising levels of populist anger on both the Right and Left that contribute to polarization and reflect a social reality at odds with the country's own legitimating principles. Francis Fukuyama, The origins of political order
Exactly, and it applies the world over. Every institution - and I would explicitly include corporations, religious bodies, universities and government agencies in Mr Fukuyama's list - has one over-arching aim: that of self-perpetuation. Given the power of these lobbies, it's no surprise that human beings, that is, even those of us who are members of these bodies, are seeing our quality of life eroded. We might be 'organization men', but our humanity is increasingly denied by the organizations that run the planet. If this sounds far-fetched you need only look at the way our cities are almost entirely subordinated to the needs of the car and its attendant interest groups: car manufacturers, fossil fuel suppliers, the construction industry and all the rest. The interests of society and those of large corporations are not merely different, they are divergent and they conflict.

One way of re-orienting society is to re-jig the incentives. Instead of supporting lobby groups that (usually) start out with benign intentions, we could support those benign intentions themselves. We could learn to express our wishes in terms of desirable social outcomes, rather than allocate resources to groups of people who are paid to achieve them, but who inevitably end up serving the institution they work for rather than its ostensible ends. Social Policy Bonds are a financial instrument that can focus our attention on our social goals and reward the achievement of these goals rather than activities or institutions that might have, in the past, been helpful in bringing them about. My book describes the advantages of a Social Policy Bond regime and how we could gradually introduce them, in ways that divert resources away from current institutions only if they are inefficient.

If inefficient organizations want to survive under a bond regime, they have two clear alternatives: they can become more efficient, in which case holders of Social Policy Bonds will fund them. Or, like the stonemasons who used to build cathedrals, they can change the nature of their organization, become self-funding, and devote their energies to activities other than subverting markets and resisting change at the expense of society.

03 April 2011

Postponing and off-loading catastrophe

It's unlikely governments are going to be the first to implement a Social Policy Bond regime. Some private bodies and government agencies are making tentative first steps along the road to paying for the achievement of favorable outcomes (search for, and see my posts on, 'Social Impact Bonds' and 'Payment for Success Bonds). But typical efforts to bring about social and environmental goals focus on the tried, tested and (largely) failed approaches. So while there has been a downward trend in violent political conflict, for example, and increases in the aggregate level of human well-being, it's quite likely that present-day successes are being bought at the cost of more extreme calamities in the future. That is certainly how the current and still unresolved world financial and environmental crises seem to be shaping up.

The underlying reasons can probably be found in the too close relationship between government and large corporations, but identifying them is less important than fending off catastrophic risks to human well-being, which could take the form of an unravelling of our complex financial and economic systems, or large-scale warfare, or calamitous environmental disasters.

I've written a short paper about using Social Policy Bonds to reward people who help avoid such catastrophes. Perhaps the people with the strongest financial incentive to issue such bonds are the combination of private insurance companies, national export credit agencies and multilateral bodies such as the World Bank's Multilateral Investment Guarantee Agency which, according to the current Economist (subscription), offer businesses cover against political shocks such as the 'sudden imposition of currency controls, expropriations, conflicts and terrorism, and for governments failing to keep their part of an investment deal, such a supplying a new factory with electricity.'

It's difficult to get the attention of such bodies. But perhaps even if they did know of Social Policy Bonds they wouldn't be particularly interested. There is huge, tragic, and maybe a growing, mismatch between human suffering and the market. The people who are least able to escape from or adapt to catastrophe of any sort are the ones who cannot afford to buy insurance but who need it most. We could well be seeing not only escalation of problems that aren't dealt with early enough, but the off-loading of these problems onto those least able to bear them. The victims of these escapes from responsibility and are future generations and the poor.

It's unlikely that any coalition of insurance companies or government and multilateral bodies will spontaneously form to mitigate or avoid potential disasters as climate change or, say, large-scale warfare involving poor countries. They have little incentive to do so since the main victims have little market power. My hope is that some combination of philanthropists, non-governmental organizations, and the public will get the ball rolling and together issue Social Policy Bonds that will address the concerns of those who cannot enter the marketplace for conventional insurance.

23 March 2011

A single quality of life target?

Narrow social policy targets don't work. Take a goal like "halving the number of deaths from road accidents in the city centre". One response could be for city authorities to make driving attractive in all parts of the city other than the centre, with the same number of deaths occurring outside the target area. Another response (and one which would appeal to drivers in my neighbourhood) would be to encourage driving on the sidewalk, and exclude deaths occurring there from 'road' death statistics.

Even broad goals, such as improved health or educational outcomes, could conceivably be subject to the same manipulation or gaming, under a Social Policy Bond regime. Without very careful targeting, investors in the bonds could make unforeseen, negative trade-offs between societal goals.

Why not then target a single ‘quality of life’ indicator for the whole of society, taking into account all quantifiable social and environmental objectives: quality of life, physical and mental health, education level, environmental pollution, crime, homelessness unemployment, leisure time and any others? Surely targeting one single aggregated ‘social welfare’ indicator would be the optimal approach?

The more obvious objection to doing this is the daunting practical problem of defining a meaningful and measurable indicator of social welfare. The second is even more fundamental. Aiming for an increase in a single social welfare indicator carries with it an assumption that society’s needs can be traded off against each other. But for many of the needs for which government usually assumes responsibility such trade-offs cannot be made. For the neediest beneficiaries of government’s welfare programmes, a massive increase in priority for, say, health care would be unlikely to compensate for a total withdrawal of government funds from, say, basic education. ‘Safety net’ programmes in particular are scarcely amenable to trade-offs. In the same way a lowering of the crime rate, say, however welcome it might be, could hardly compensate for the total collapse of a country’s physical environment.

So experimentation and continuous refinement of the Social Policy Bond principle are going to be necessary. Issuers, public or private sector, will have to be vigilant to ensure that any particular bond issue does not break the spirit of society's stated and unstated goals, as well as the letter of the redemption terms. Of course, this sort of monitoring is necessary in today's policy environment as well - and it's not often practised.

16 March 2011

Providing incentives to prevent humanitarian catastrophe

We have fairly well-developed markets to insure against financial disaster. Catastrophe bonds, for instance, as well as conventional insurance policies. But financial resources rarely correlate with human life and well-being. So incentives to prevent or alleviate humanitarian disasters are left to the caprice of well-intentioned (usually) governments, or superb charitable organisations, which respond quickly and efficiently to crises. Unfortunately, these efforts are unsystematic. There is probably less emphasis on prevention than there should be and there are no systematic efforts to maximise the humanitarian benefit per dollar spent.

Disaster Prevention Bonds could be one way of bringing the prevention of human suffering into the market, and so injecting efficiency into that goal. Markets these days are associated, rightly, with grotesque income and wealth inequalities, and the pursuit of private goals at the expense of social and environmental amenity. But markets can be made to serve the public good, and the Social Policy Bond principle would be one way of harnessing the market's incentives and efficiencies in the service of society's needs. The contrast between the insurance available for financial disasters as against human disasters is stark and quite tragic. But it is not inevitable.

07 March 2011

Special interests benefit from obscurity and complexity

John Lanchester writes of the former chief economist of the International Monetary Fund:
[Simon Johnson's] day job involved going into crisis-struck countries and banging heads together to get them to accept reforms as a price of IMF aid. He acquired an extensive experience of countries which had effectively been captured by a ruling elite who governed entirely in their own interests. His startling conclusion about the current crisis is that the US has become of those countries. As the banking sector got richer, its power and influence over US government policy increased - power and influence which the bankers weren't at all afraid to use. John Lanchester, in Whoops!
Or rather 'abuse'. It's becoming a familiar pattern: special interests deploy complexity and obscurity as devices by which they can attract taxpayer funds away from a disengaged public. More regulation seems to be the obvious solution; but that adds to the complexity and obscurity. My suggestion, is, instead, to target outcomes, in such a way that ordinary people engage in policymaking and ensure that rewards are inextricably linked to the public interest rather than, as now, the private interests of those wealthy enough to pay lobbyists and lawyers to manipulate policy for their own purposes.

Social Policy Bonds would do that. One target, for instance, could be the 'sustained avoidance of financial and economic collapse'. Such a collapse could be targeted as an array of financial, economic and social indicators, which would all have to fall within a defined range for a sustained period before the bonds would be redeemed.

More generally, bonds could be issued that targeted any sort of disaster, defined in terms of a combination of, amongst other things, numbers of deaths and serious injuries caused, financial costs, numbers of homeless, and an array of other social, physical and financial indicators. See my paper on Disaster Prevention Bonds. The Social Policy Bond principle though, is a broad one. Essentially, society would decide on what it wants to see, and target the achievement of these goals. It's 'policy as if outcomes mattered', where the outcomes are those that favour society as whole not, as now, a cartel of interest groups and their lobbyists.

28 February 2011

Black swans

In the Introduction to his book Whoops!, about the 2008 crash, John Lanchester says:
Many bright, literate people have no idea about all sorts of economic basics, of a type that financial insiders take as elementary facts about how the world works.
Nor can many of us follow the technical debate about climate change or the dangers of strangelets or supervolcanoes.... Along with the esoterica of the financial markets, the complexities and obscurities of the relevant scientific relationships just cannot be unambiguously fathomed by policymakers - or even teams of experts.

That's why I advocate that, instead of attempting the impossible task of trying to identify such relationships and their consequences, policymakers target outcomes instead. We don't have fully to understand the climate change debate to know that it would be to our advantage to avoid climate catastrophe. Nor should we have had to anticipate the myriad derivatives that the finance industry constructed to avoid the derailing of the entire global economic system. It's the outcomes that matter, not how we reach them.

Under a Social Policy Bond regime, we could define the circumstances we want to avoid, and issue bonds that become redeemable only when these circumstances have not arisen for a sustained period. Defining such circumstances would not necessarily be a simple matter. It could involve constructing an index that combines measures of human, animal and plant health, or physical and financial indicators. No, it would not be simple - but it would be preferable to the current policy, which is basically that of reacting to crises only after they have occurred and caused immense, and possibly fatal, damage. For more on using the Social Policy Bond principle to avoid catastrophe, however caused, see my paper on Disaster Prevention Bonds.

On another note, the Economist of 19 February has an article on Pay for Success Bonds (subscription), a US version of Social Impact Bonds. At first glance they suffer from the same (as I see it) weakness as SIBs: they would not be tradable, and so would be limited to fairly narrow, short-term goals whose would-be achievers are known in advance. (See my previous post, on Social Impact Bonds.) These bonds are definitely a step in the right direction, in that they reward successful achievement of social outcomes, rather than merely pay people to undertake ostensibly beneficial activities. But I think that, because they are non-tradable their scope is necessarily limited, and also that, as a result monitoring their success or otherwise might be too costly in relation to their benefits.