Review

A relatively good year for Social Policy Bonds. There has been some interest in the novel concept of paying-for-results in social policy through the concept of Social Impact Bonds (a watered-down version of Social Policy Bonds). In April Professor Robert Shiller of Yale University suggest Social Policy Bonds as one of his Ten Ways Finance Can Be a Force for Good in Society. This was taken up here, for instance, and, in oral form, here, and has generated more views of this blog and my home site and some email correspondence.

One reason why no Social Policy Bonds have yet been issued is that their advantages over conventional policy are most marked on a large scale and for long-term or ambitious objectives. For such goals, diverse, adaptive approaches need to be researched, tried on a small scale, refined and implemented. The bonds, being tradeable, allow for and encourage such experimentation. There are few other ways of supplying explicit, transparent and stable incentives to bring about world peace, for instance, or to mitigate natural or man-made disasters. National goals, too, are amenable to a Social Policy Bond approach. Reducing crime, for instance, or improving health are goals that require multiple, adaptive solutions, rather than the one-size-fits-all, top down, reactive or fossilized approach characteristic of our current efforts.

For all such goals, people need to be motivated to shift resources, keep their eyes on the long term (though with incentives to achieve success in the short term) and, crucially, terminate failed approaches. For smaller goals, where relationships between cause and effect are readily identified and acted upon, conventional policy, if the incentives are right, can work. Social Policy Bonds issued on a trial basis to achieve such goals might just see problems exported to areas outside the bondholders' remit. But for national or global goals, which mean dealing with vastly complex linkages and time lags, Social Policy Bonds, I am convinced, are the way forward.

Incentives to sell off fountain pens

Academic research has suggested that human rights treaties either do not improve human rights at all or do so very little, for a limited group of treaty rights, and among a select group of countries, not the worst offenders. Why the U.S. Shouldn’t Sign On to Empty Human Rights Treaties, Eric Posner, 'Slate', 21 December

No surprises here. Not that different from the Kyoto process either. Motivation is important: but we need systems that supply motivation to achieve meaningful outcomes, not to sign useless treaties while grandstanding at the United Nations. Against what metrics are the current thug regimes tested for meaningful human rights outcomes? None of course. Perhaps we could persuade some genuine philanthropists to issue Human Rights Bonds, on the Social Policy Bond principle.

We'd need to devise reliable targets for human rights, raise some funds, then issue Human Rights Bonds that would be redeemable once our human rights targets had been achieved. Not very glamorous perhaps, and no possibility of selling off the pens used to sign meaningless treaties. But a Human Rights Bond regime could hardly be less effective than the current corrupt system.

Ticking boxes is not the same as achieving goals

Josie Appleton, of the UK's Manifesto Club, reads 'a lot of child protection policy documents':

They are often hundreds of pages long, yet I have never seen a proposal that would prevent a paedophile from getting access to children. Instead, there are all sorts of rules – rules about how you transport children to football matches, rules about how you take photographs, rules about late pick-up policies for when the parents don’t turn up on time to take their kids home from some activity or other. So there is this morass of bureaucracy, yet there’s not one identifiable useful functional element within it. What you have then really are rules for the sake of rules. Why everyday life is tied up in red tape, 'Spiked', 18 December

It's the triumph of process over outcomes. Ticking boxes has become more important than achieving society's goals. Avoidance of litigation becomes the guiding principle. Compliance with procedure is what matters. We see this in so many policy areas: from climate change to health care, where it takes the form of defensive medicine.

Society is increasingly dominated by government and big business. As Ms Appleton suggests, bureaucrats have as their goal the proliferation of rules and ensuring compliance with them. Politicians have the de facto goal of maximising Gross Domestic Product. And the private sector goal of maximising profits as measured by accountants, and ignoring any non-market negative impacts of their activities. In a crowded, complex world, with so many time lags and linkages, these goals are increasingly irrelevant to those of ordinary people. Worse, they often conflict with them.

Social Policy Bonds could realign the interests of government and big business with those of society. Instead of processes that are supposedly aimed at achieving outcomes, government would target the outcomes themselves. At the global level, it could target the negative impacts of climate change. At the national level, it could target meaningful health outcomes. A bond regime would encourage government to do what it does well: articulate society's goals and raise the revenue to achieve them. Where the current system goes awry is in government's trying to identify the processes that will lead to certain outcomes. In a complex, changing world, it cannot often do this effectively. So it's prone to listen to lobbyists for groups whose interests rarely coincide with those of society. The gap between government and people grows. Social Policy Bonds could close that gap.

Health Bonds

I have posted a short (1500-word) article on applying the Social Policy Bond principle to health here.

Another climate change shambles

Practically half of the EU’s renewable energy currently comes from wood and wood waste ... but a lack of sustainability criteria for measuring its environmental impact is stoking fears of a hidden carbon debt mountain.  Source

This highlights the flaw of using anything other than outcome-based policy for relationships that we just do not yet understand. Under the current system our politicians, preoccupied as they with things like the economy, identify 'renewable' as good, and burning trees as 'carbon neutral'. The result:

If living wood is simply burned for energy, a temporary carbon debt can be created until CO2 emissions caused by the release of all the carbon it has absorbed, and the loss to the carbon sink, are compensated for by fully-grown replacement trees. Climate scientists say that this time lag can run over many decades – sometimes centuries – causing environmental tipping points to be reached in the interim that render any expected eventual carbon savings moot.

This is what happens when we rely on our well-meaning, overworked, distracted or scientifically challenged politicians and bureaucrats to craft a policy that is supposed to anticipate our rapidly expanding knowledge. We are relying on them to identify a relationship - that between energy source and climate change - amidst myriad variables, using current science. Then we assume that they have tackled the problem. They haven't.

Here's another idea: target what we actually want to achieve. If it's a reduction in fossil fuel use, target that. If it's climate change, target that. Contract out the identification of the relevant relationships to people who are motivated to get the answer right and to adapt to our rapidly expanding scientific knowledge. We can best do that for long-term, complex goals by issuing Social Policy Bonds.

Health and Social Policy Bonds

An interesting discussion here, on Ben Goldacre's book, Bad Pharma: a Manifesto to Fix the Pharmaceutical Industry. My contribution reads:

Here's another idea: government targets broad, explicit health goals: a combination of longevity, Quality Adjusted Life Years and other impartial data. It issues and backs a large number of tradable non-interest bearing bonds, redeemable for (say) $1m each once the target health goals have all been achieved and sustained. That way government rewards successful initiatives for improving health (including, but by no means limited to, new drugs) regardless of how these initiatives work, or who implements them. Government still articulates society's broad desired health outcomes, and still raises the revenue for their achievement. But it contracts out the achievement to a motivated private sector in a way that rewards success, and only success. This sort of bond, which are an application of Social Policy Bonds, would stimulate diverse, adaptive ways of achieving goals and refocus efforts on the long term.