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.

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.

'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.

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.

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.