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.

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