Designing institutions?

Again and again, we prefer to design systems, laws, regulations and institutions that will, we hope (or pretend to hope) bring about certain outcomes. So:

The root problem of decarbonizing energy supplies, climate change, and many other aspects of environmental sustainability is the lack of institutions to reconcile the conflicting incentives of people involved in national democracies and other governments, globalization, and environmental sustainability. What will it take to save the Earth?, Joel E Cohen, 'New York Review of Books', dated 26 April (subscription)

and again:

The difficult challenges of our energy future include, first, designing and creating institutions that adjust the incentives of globalization and national governments .... (ibid)

I disagree. I think the composition, structure and activities of an organisation should be not a precursor to, but a consequence of the way it achieves its goals. Designing institutions smacks of self-indulgence when facing urgent, potentially catastrophic challenges. Far better to reward the solution of our problems, whoever carries them out and however they do so, as would happen under a Social Policy Bond regime. Many of our problems are unprecedented in scale, and our knowledge of them and potential solutions is rapidly expanding. Designing institutions is in such circumstances will most likely be a waste of time; a laborious, contentious and divisive process that can easily be derailed, corrupted or endlessly delayed by vested interests opposed to any real change. (See also this earlier post.)

Why have Social Policy Bonds gone nowhere?

A correspondent asks about Social Policy Bonds:

Given how interesting [the] idea is and how much high-level attention it's received (e.g., from the likes of [Professor Robert] Shiller), what would you say are top 2-3 reasons that it has not been implemented?

I answered along the following lines:

1. The concept works best on a larger scale: that is where efficiency gains are maximised as there is more scope to shift resources between different projects and different approaches. This makes it difficult to test on a small scale in a way that would encourage uptake of the concept. For instance, Social Policy Bonds issued by one local authority would be very unpopular if one effect would be that polluters or criminals simply transfer their activities from one city to another. Bonds targeting cancer mortality rates might end up raising total mortality rates. For similar reasons, the advantages of the concept would probably be most marked over over long time periods, which again makes testing tedious.

2. Its chief proponent, until now at any rate, has been me. I have little status in the academic, business or bureaucratic world. Most people of influence would (understandably, I guess) be disinclined to take seriously any ideas originating in such a source; especially ideas that have never been tested, or at least advocated by people with more status and credibility. One instance: I have not once received a single reply, not even an acknowledgement, to my numerous emails to philanthropists, or organizations for philanthropists, or journals for philanthropists. No doubt they are swamped by emails from all sorts of people, and they have powerful filtering algorithms.

3. ...which is really (2) restated: tried, tested and failed is a better tactic for anybody in a large organization to follow. The incentives these days are to follow due process and tick boxes rather than to achieve results. The costs of trying something very new that might fail are higher than those of replicating existing approaches, even if they are doomed to fail. I think this applies within NGOs as well as government agencies.

I find that the idea generates enthusiastic support from individuals (including Prof Shiller who first wrote to me back in 1997 and senior members of governments of New Zealand and other OECD countries), but also that such support does not influence the larger systems within which the individuals operate, which rarely reward performance.

Finance as a source of good in society

It's been a fallow time for Social Policy Bonds, but today Professor Robert Shiller of Yale University mentions the concept in the Huffington Post. It's the eighth of his Ten Ways Finance Can Be a Force for Good in Society. Professor Shiller also mentions Social Policy Bonds in his recent book Finance and the Good Society.

Policy as if process is the only thing that mattered

Mark Steyn writes about the US healthcare bill:

A 2,700-page law is not a "law" by any civilized understanding of the term. Law rests on the principle of equality before it. When a bill is 2,700 pages, there's no equality: Instead, there's a hierarchy of privilege microregulated by an unelected, unaccountable, unconstrained, unknown and unnumbered bureaucracy. It's not just that the legislators who legislate it don't know what's in it, nor that the citizens on the receiving end can ever hope to understand it, but that even the nation's most eminent judges acknowledge that it is beyond individual human comprehension. Just reading Obamacare cruel and unusual punishment, 1 April

The problem is systemic. The policymaking process is more about the process than about the policy. And the process itself is arcane and obscure; comprehensible only to specialists and those who can afford to employ them to follow and influence it. Yes, society is complex, and the ways of achieving social goals are similarly bound to be complex. But that does not mean that government has to try to anticipate all these ways and legislate for them. A much more accessible approach would be one that specifies targeted outcomes and rewards people for achieving them, however they do so. Government could then concentrate on what it does quite well: articulating society's goals and raising the revenue to achieve them. If it issued Social Policy Bonds, it could then contract out the actual achievement of these goals to the private sector. As well as the efficiency benefits of channeling market forces into the achievement of social and environmental outcomes, there would be the buy-in that would come from a public that understands a relatively simple policymaking process, including necessary limitations and trade-offs involved in targeting a range of social goals. What we have now is policy as if process is the only thing that mattered. What we need - urgently - is policy as if outcomes mattered.