31 January 2011

Different or divergent?

The protests in Tunisia and Egypt are not difficult to explain. Rising aspirations are colliding with the inability and unwillingness of governments to meet them. The interests of the politicians and the other pillars of the establishment (the police, the military) are not different from those of their people but, increasingly, in conflict with them. And there's no mechanism, other than by revolution, by which the widening gap can be closed. So it's not just that people's expectations aren't being met under the current regime; it's that the regime is systemically incapable of aligning itself with those expectations.

It's not that different in the rich countries. Our policymaking is in thrall to special interests; mainly big corporations, trade unions, wealthy individuals, and their lobbyists. Policies that turn out to be counterproductive (to put it mildly) are not just implemented, which would be excusable, but they persist. So we see agribusiness corporations and wealthy landowners in Europe and the US subsidised by taxes on the poor to the tune of billions of dollars annually: not just for a short time during which there is a transition to saner policies, but for decades. Our collective response to the unsustainability of ludicrous policies has been to borrow more money to keep them going; to prop up a corrupt system, at all costs to everyone and everything except the special interests. The special interests are the only winners. The losers are ordinary people, our social environment, and our physical environment.

It doesn't have to be like this. Instead of the special interests dictating policy we could find a way of orienting our politics to society's interests rather than those of the powerful. This is where outcome-based policy in general should play a role. Social Policy Bonds are one way by which all government activity and funding would be subordinated to the greater good. Under a Social Policy Bond regime, government would do what it's good at: articulating society's goals, and raising the revenue for their achievement. These goals would be expressed not, as today, in terms of vague, high-sounding but unverifiable ideals, but in terms of quantifiable outcomes, whose achievement would be inextricably bound to improvements in social and environmental well-being. So, rather than target 'economic growth', say, or GDP per capita, we'd be targeting things like universal literacy, or reduced crime rates, or a cleaner environment. We'd target ends, rather than the supposed means of achieving these ends.

No longer would policy, despite the best intentions of the hard-working people in our government agencies, drift away from the the concerns of ordinary people and align itself with those of large corporations and other special interest groups. Policymaking under a Social Policy Bond regime would be entirely subordinated to society's wishes. Rewards would benefit only those who help make such wishes a reality. Only when the interests of government and people are aligned can we be sure of avoiding north-Africa-style turmoil and social collapse.

24 January 2011

Accountants shape society

Who, any more, sees social well-being as anything other than a set of numerical variables to be optimised, subject to financial constraints?
Patients are to be told to examine themselves at home and email their GP with the results rather than meeting face to face. They would send in a short message describing symptoms which would be answered by a doctor between appointments or at the end of the working day. Now you must email your GP, Sophie Borland, ' [UK] Mail Online', 24 January
Perhaps because easily quantified units of manufacturing output used to be strongly correlated with well-being, we tend to think that something like Gross Domestic Product per capita is a reliable indicator of social welfare. An extrapolation from the corporate sector seems to be going on. Corporations measure their success almost entirely in terms of financial variables; with considerations such as market share or employee welfare only really entering the picture insofar as they affect the long-term financial figures. Any negative impacts of their activities that can be successfully offloaded onto society or the environment will be - and have been, spectacularly so in recent years by the financial sector. All that matters is the numbers. Extrapolating from this, we tend to think that corporate success equals a society's success. It isn't true though. Apart from the non-market social and environmental costs of corporate activity there is, increasingly relevant, the concentration of the financial rewards into ever fewer hands.

It's up to politicians to articulate society's concerns, to regulate the corporations, and to redistribute according to society's wishes. And it's failing. Even when it tries, as with the UK's National Health Service, it apes the corporations in choosing a narrow range of micro-indicators as a way of measuring success. Increasing a doctor's throughput, measured in terms of numbers of patients dealt with per day is, like targeting hospital waiting lists, a waste of time. These indicators are too narrow and too easily manipulated to do much good. We should be targeting broad health outcomes: things like longevity, infant mortality and Quality Adjusted Life Years. Unfortunately, government takes the current institutional structures as given, and applies a set of accountancy-type objectives to them. The incentives, as with doctors reading emails, are to satisfy pre-determined criteria - to tick boxes and apply algorithms - rather than to consider the overall health of the patient.

A Social Policy Bond regime would be different. Under a bond regime, broad outcomes that are meaningful to real people (as distinct from corporations) would be explicitly targeted. Any institutions that arise as a result would be well advised to subordinate all its activities to achieving these social goals, or it will find its bonds bought up by a more efficient investor.

21 January 2011


There are two simple facts about climate change that are worth emphasising. First, climate change could devastate animal, plant and human life across the planet. Second, we're doing nothing to prevent it. Actually, 'nothing' might be an overstatement: we're still encouraging greenhouse gas emissions through subsidies on fossil fuel extraction and consumption. And for all the endless, divisive, bureaucratic wrangling, we're not actually cutting back global emissions. Elegant so-called solutions, apart from diverting intellectual resources away from the actual problem, attract fraud of the sort that is technically illegal, or are designed to be gamed by the major players.

My role here is not to criticise, but to offer a better solution than those currently on offer. Let's state another simple fact: if we want to reduce climate change, then we ought to reward people who reduce climate change. Definitions are crucial, but there's no need to go into detail here. 'Climate change' can be defined to include physical, biological and financial variables (and rates of change of variables), and 'reduce' can be defined in terms of those costs. What is important is to to set up systems that will see climate change, however defined, reduced. But how are we to convince people that the inevitable costs of preventing climate change are worth paying? The many vested interests who are willing to take refuge in the scientific uncertainties have largely blocked any meaningful international agreement. Well, one huge advantage of a Climate Stability Bond regime is that it wouldn't need to persuade the vast majority of people that climate change is actually happening. Instead, it transfer the risk of doing too much or too little to those willing to bear it, in return for big rewards if they call it correctly. Another is that whereas scientific uncertainty (and there are some huge ones, over the role of clouds for instance, or methane clathrates) could dramatically undermine the success of the current approach, a bond regime would simply absorb such uncertainty through the market for the bonds. The current approach requires scientists to take a position now on physical and biological relationships that just cannot be identified and quantified. Climate Stability Bonds would adapt to our rapidly expanding knowledge.

It's clear that no better solution is on offer. Resources are going instead into gaming the current approach or defending against climate change - which is something that only rich countries can afford to do (and then, only partially). Kyoto, Cancun and all the rest are a distraction. They are "policy as if outcomes don't matter in the least". They represent payment for activity rather than results. They are doomed to fail, and the outcome will be disastrous for many millions of human beings.

11 January 2011

Large organizations are not human beings

Large organizations aren't human beings. More pointedly, their success does not inevitably mean improvements in human well-being. I am glad that former US labour secretary, Robert Reich, realizes that fact.
“Corporate America is in a V-shaped recovery.... That’s great news for investors whose savings are mainly in stocks and bonds, and for executives and Wall Street traders. But most American workers are trapped in an L-shaped recovery.” Robert Reich, quoted in Deepening crisis traps America's have-nots, by Ambrose Evans-Pritchard, 'Daily Telegraph', 11 January
In former decades it was perhaps reasonable to identify corporate health with social well-being. But that doesn't apply now. Government, with its power and responsibility, would do better to target directly social outcomes that are more strongly correlated with well-being than the financial status of large corporations (or what passes for their financial status under a debased accountancy system).

Social Policy Bonds are one way in which governments could target essential elements of social welfare directly. Elements such as: a cleaner environment, universal literacy, better health and housing outcomes. Under a bond regime, governments would define and target such goals, and raise the funding necessary for their achievement. But it would be up to investors in the bonds to work out the best ways of achieving them. Corporations, some of them large and wealthy, might well become larger and wealthier under a bond regime (though new types of organization can be expected to arise), but if they did they would be doing so only because they are efficient at achieving society's aims, rather than, as under the current system, their own.

10 January 2011

The unimportance of being right...

...if your organisation is a monopoly. Discussing a book by Richard Aldrich about about the UK's intelligence agency, Government Communications Headquarters, Bernard Porter write:
The list Aldrich gives of GCHQ's...failures of prediction doesn't make for comfortable reading: the Korean War; the Russian atomic bomb; the Soviet invasion of Czechoslovakia; the Yom Kippur war; the rise of Middle Eastern terrorism...; the overthrow of the shah of Iran; the Falklands invasion; the end of the Cold War; the attack on the Twin Towers; and the non-existence of WMDS [in Iraq]. Thank God for Traitors (gated), Bernard Porter, 'London Review of Books', 18 November 2010
Another example of policy as if outcomes didn't matter: these agencies secure funding merely because they secured it in the past. Like agribusiness and wealthy landowners, or large corporations in general, the subsidies these organizations receive go to support their own self-perpetuation. It's the Special Interest State, and ordinary people aren't special interests. We urgently need to re-align policy priorities so that the undoubtedly hard-working and well-intentioned people employed by GCHQ and the others, have incentives to do more useful work instead.

Social Policy Bonds are one possible way of bring about that realignment. Under a bond regime organizations wouldn't receive funding just because they received it the previous year. Funding decisions would be made by investors who would be rewarded for choosing only the most efficient agencies. The current system allows large corporations to subvert the market and government agencies to monopolise the supply of many public goods and services. Efficiency, effectiveness and the public interest come very low on the list of priorities. A bond regime would be entirely different. It would inextricably tie rewards to outcomes. And those outcomes - in contrast to the current system - would be meaningful to ordinary people, rather than special interests.

03 January 2011

The gap widens

Another year, and the gap between policies and meaningful outcomes continues to widen, as does the gap between policymakers and the people they are supposed to represent. Much of the problem lies in an almost total refusal by policymakers to be open about the costs of their policies. The environment and future generations look like being the most grievous victims. Policies that benefit the rich, large corporations and the present generation of voters at the expense of everyone and everything else are always likely to be made under the current regime, where policymaking is so complex there need be no transparency about who are to be the real winners and losers. Policy goals are unstated, vague, uncosted or mutually conflicting and there is no follow up as to the success or failure of particular initiatives.

Social Policy Bonds offer a transparent alternative. Being entirely focused on outcomes that are meaningful to ordinary people, they are far less likely to be hijacked by corporations and their lobbyists, because outcomes are accessible to all - unlike the arcana of current policymaking.

So where are Social Policy Bonds going? They have been in the public arena now for more than twenty years, and I know of nobody who's actually issued any. I see my present role as one of maintaining my websites and making my work available to all, while standing by in case anybody does want advice. Right now I'm working on updating my book (a little) so that it can be marketed a bit more effectively.