30 November 2012

Screening is not a valid policy goal

In the absence of broad, clear, coherent policy objectives, we unfortunately default to Mickey Mouse micro-objectives that sound convincing, but whose achievement has little or nothing to do with social goals, and can even conflict with them. Narrow objectives are more likely to be gamed in this way, because resources can more readily be shifted from a similar goal that doesn't happen to be targeted. That is one of the reasons why, unlike with the well-publicised Social Impact Bonds, I have always insisted that Social Policy Bonds be tradable. (See here for an explanation of this logic.)

Mickey Mouse, Image Hosted by ImageShack.us
Here's another example of  a Mickey Mouse micro-objective which, after enough time has elapsed to prove its worthlessness, is at last being questioned:
Can we please stop using screening mammography as measure of how well our health care system is performing? That’s beginning to look like a cruel joke: cruel because it leads doctors to harass women into compliance; a joke because no one can argue this is either a public health imperative or a valid measure of the quality of care. Cancer Survivor or Victim of Overdiagnosis?,

27 November 2012

Creative self-entrenchment

The much-vaunted creative destruction that is supposed to underpin the wealth-generating bits of our economy fails to operate where government is concerned. Rather than terminate failed policies, government has powerful incentives to buy off the vested interests grown already rich from its largesse. Twelve years ago I wrote about the corrupt, insane agricultural policies of the rich world. At that time, the way these policies transfer wealth from the poor to the rich, their waste, their disastrous effects on the environment and animal welfare; all were well known and quantified, not least by the OECD - and had been for years. Yet, as George Monbiot eloquently points out, these policies persist:
It is a source of perpetual wonder that the people of Europe tolerate this robbery. Farm subsidies are the 21st century equivalent of feudal aid: the taxes mediaeval vassals were forced to pay their lords for the privilege of being sat upon. The fat of the land, 26 November
There is no systematic mechanism (pdf) for getting rid of discredited policies. If they are run by government, or any other monopoly, ludicrous policies are more likely to persist, at great cost to the rest of society, than be discontinued. They enrich powerful people, who use a small proportion of government's own largesse to lobby against their withdrawal. This is self-entrenchment and, as government accounts for every more of society's spending, it has hugely distorting, wasteful effects on our economy.

We need instead a system that will terminate failed policies. One that will supply incentives for people to solve problems, rather than to turn up for work for organisations that claim to solve problems. That is where Social Policy Bonds could come in. They would create a coalition of interests whose sole raison d'etre would be to achieve society's goals as efficiently as possible. The bonds would stimulate diverse, adaptive solutions to our social and environmental problems, and they would do so regardless of the identity or provenance of the investors. Under a bond regime, in stark contrast to today's politicians and bureaucrats, people would lose their own money if they persisted in failed projects.

15 November 2012

Peace in the Middle East

Don't laugh!

Here is a short and, despite my best efforts, as yet unpublished, article on applying the Social Policy Bond principle to conflict in the Middle East.

Peace in the Middle East: giving self-interest a chance

 Cards on the table: I have no solution to the anxieties and potential catastrophes facing Israel, nor to the wider problems facing the citizens of all the Middle Eastern countries. What I offer instead is a way of encouraging people to find effective and efficient solutions.

Decades of negotiations and initiatives have failed. Rockets are daily fired into Israel, we might well be on the brink of a nuclear calamity, and the entire region is a seething cauldron of every sort of hatred: ethnic, confessional, sectarian and gender.

Most ordinary people in the region, given time to reflect and the freedom to express their opinions would like nothing more than to see an end to the violence in the region. But there are enough powerful people with a vested interest in keeping conflict going. They include men of religion, ideologues, politicians and bureaucrats. There are also, of course, the weapons merchants and their corrupt beneficiaries in government. Well-meaning idealists on all sides do what they can, but their efforts are overwhelmed and relentlessly undermined by the powerful people and institutions that want them to fail. 

Peace above all

We need to give people and organizations of all kinds the incentives to create and sustain peace, rather than conflict.  We also need a verifiable definition of peace, which will consist of a combination of conditions that have to be satisfied and sustained. These could include:

·         a much-reduced number of people killed in conflict;
·         a much-reduced level of terrorist events, or military incursions;
·         no use of nuclear weapons;
  •    mass media incitements to violence.
We also need to focus exclusively on our goal of peace, which might mean putting aside feelings of fairness and justice, except insofar as they help our cause.

And we need ways of promoting peace that can modify or circumvent people's uncooperative or obstructive behaviour; ways that can co-opt or subsidise those people in positions of authority and power who want to help, and at the same time bypass, distract, or otherwise undermine those opposed to our goal.

Ideally too, we would deploy market forces. Markets are the most efficient means yet discovered of allocating society's scarce resources, but many believe that market forces inevitably conflict with social goals: accentuating extremes of wealth and poverty, for example, or accelerating the degradation of the environment. So it is important to remind ourselves that market forces can serve public, as well as private, goals.

Middle East Peace Bonds

My suggestion is that philanthropists perhaps with governments and other interested organisations and individuals, collectively raise a large amount of money, put it into an escrow account, and use these funds to redeem at some future time a new financial instrument: Middle East Peace Bonds. These would be sold by auction for whatever they would fetch. They would be redeemed for, say, £100 000 each only when all the conditions for peace, as defined by the issuers, had been satisfied and sustained.

Importantly, the issuers of the bonds would make no assumptions as to how to bring about greater peace. The circumstances that fan the flames of conflict vary radically from place to place and over time. No one solution, nor even an array of solutions will work all the time. The bonds instead will stimulate diverse, adaptive solutions.

Nor do we need to know who would hold the bonds or carry out peace-creating projects. Those decisions would be made by would-be investors in the market for the bonds. Unlike normal bonds, Middle East Peace Bonds would not bear interest and their redemption date would be uncertain. Bondholders would gain most by ensuring that peace is achieved quickly. As the prospects for peace brighten, the value of the bonds will rise.

Trading the bonds

Middle East Peace Bonds, once floated, must be readily tradable at any time until redemption. Many bond purchasers would want or need to sell their bonds before redemption, which might be a long time in the future. With tradability,  these holders would be able to realise any capital appreciation experienced by their holdings of Middle East Peace Bonds whenever they choose to do so.

The bonds will be worth more to those who believe they can do most to help reduce the violence, who will then own most of the bonds. Large bondholders might decide to subcontract out peace-building projects to many different agents, while they themselves held the bonds from issue to redemption. The important point is that the bond mechanism will ensure that the people who allocate funds have incentives to do so efficiently and to reward successful outcomes, rather than merely pay people for undertaking activities.

Too large a number of small bondholders could probably do little to help achieve peace by themselves. If there were many small holders, it is likely that the value of their bonds would fall until there were aggregation of holdings by people or institutions large enough to initiate effective peace-building projects. As with shares in newly privatised companies the world over, Middle East Peace Bonds would mainly end up in the hands of large holders, be they individuals or institutions. Between them, these large holders would probably account for the majority of the bonds. Even these bodies might not be big enough, on their own, to achieve much without the co-operation of other bondholders. They might also resist initiating projects until they were assured that other holders would not be free riders. So there would be a powerful incentive for all bondholders to co-operate with each other to help bring about peace in the Middle East. They would share information, trade bonds with each other and collaborate on conflict-quelling projects. They would also set up payment systems to ensure that people, bondholders or not, were mobilised to help build peace. Large bondholders, in co-operation with each other, would be able to set up such systems cost-effectively.

Regardless of who actually owns the bonds, aggregation of holdings, and the co-operation of large bondholders, would ensure that those who invest in the bonds are rewarded in ways that maximise their effectiveness in bringing about peace.

So, in contrast to today’s short-term, tried, tested and failed approaches, a Middle East Peace Bond regime would stimulate research into finding the  most cost-effective ways of achieving peace. Indeed, bondholders would be in a better position than governments to undertake a range of peace-building initiatives, having more freedom to try innovative approaches. They might, for example, finance sports matches between opposing sides, promote anti-war programmes on TV, set up exchange schemes for students of the opposing sides. They might try to influence the financial supporters of conflict outside the region to redirect their funding into more positive ways. They could offer the Palestinians and the citizens of neighbouring Arab countries different forms of aid, including education and scientific aid, and measures aimed at providing a secular education for all Arab citizens.

By appealing to people's self-interest, Middle East Peace Bonds would be more
effective than conventional efforts aimed at reducing violence. In channelling market forces into the achievement of this objective the bonds could bypass or even co-opt the corrupt or malicious people in government and elsewhere who currently benefit from conflict.

Middle East Peace Bonds would focus on an identifiable peace outcome and channel market efficiencies into diverse, adaptive ways of achieving it. They might sound implausible and radical but - let’s be frank - the alternatives are leading us into the abyss.

© Ronnie Horesh, November 2012.

12 November 2012

Health, impartiality, and Social Policy Bonds

At a global or national level, Social Policy Bonds could target a combination of health indicators, including longevity, infant mortality and Quality Adjusted Life Years. One contribution to their enhanced efficiency in comparison with current health programmes would be their impartiality:

[A]t least 55 percent of people with lung cancer [in the US] either never smoked or no longer smoke; some quit decades ago. And yet, because lung cancer is generally associated with smoking, and smoking is an addiction and something only “morons” and “idiots” (to use Tea Party terminology) would ever, ever do, lung cancer does not get anything like the research funding from the National Institutes of Health that other cancers get, relative to the number of deaths it causes. There are no telethons or star-studded Hollywood galas, no race for the lung cancer cure, none of those weirdly cheerful “awareness” campaigns. Even the afflicted and their families tend to stay quiet—the stigma is too great. The You're-on-Your-Own Society, Katha Pollitt, 'The Nation', dated 26 November
 A Social Policy Bond regime would not discriminate between different causes of ill health, unless explicitly mandated to by qualifications to the bonds' redemption terms. Apart from being more recognizable as a fairer system of resource allocation, a bond regime's greater freedom to shift resources between different health programmes, and its incentives to do so, would lead to better outcomes with the same resources. See also this previous post.

06 November 2012

Ending war

Contrary to the common perception, political alliances during civil wars are not formed along immutable religious, ethnic or linguistic lines.... How civil wars evolve, Peter Dizikes, MIT News Office, reviewing 'Alliance Formation in Civil Wars', by Fotini Christia
In other words, there's nothing intractable about these, or any other conflicts. Solutions are possible. The challenge is to put in place incentives to solve conflict, rather than create it. We can't expect the United Nations, NATO or any other government-backed initiative to help us here. We need diverse, adaptive approaches; ones that cannot be corrupted or undermined by interest groups of any kind. We need, in short, to issue Conflict Reduction Bonds.

03 November 2012

The unimportance of being right

From 1493: Uncovering the New World Columbus Created, by Charles Mann:
Provincial, county, and village officials [in present day China] are rewarded if they plant the number of trees envisioned in the plan, not whether they have chosen tree species suited to local conditions (or listened to scientists who say that trees are not appropriate for grasslands to begin with). Farmers who reap no direct benefit from their work—they are installing trees that do not produce fruit, cannot be cut for firewood, and supposedly stop erosion miles from their homes—have little incentive to take care of the trees they are forced to plant. The entirely predictable result is visible on the back roads of Shaanxi: fields of dead trees, each in its fish-scale pit, lining the roads for miles. “Every year we plant trees,” the farmers say, “but no trees survive.” (page 230, my emphasis)
It's not only in China. Everybody makes mistakes, but we have political systems that don't look back on obviously failed experiments and learn from them. Very often instead they pump more scarce resources into them, afraid of admitting to themselves and others that there's something wrong with their policymaking process. Perhaps the politicians and bureaucrats believe that the system in which they are so invested must not be seen to be faulty. It might, then, be questioned. Whatever the reason, the consequences are dire.

Social Policy Bonds would change that paradigm. They would reward successful, efficient ways of achieving society's social and environmental goals. They would stimulate diverse, adaptive approaches, in stark contrast to the uniformity that afflicts government programmes in the west as well as in China. Crucially, under a bond regime, failed experiments would be terminated: their proponents would have every incentive to administer the axe themselves, freeing up resources to investigate better approaches, with their sole guiding principle that of being more efficient in achieving society's targeted goal.