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 organisations, 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 and women 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 organisations, 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.