The case for non-ideological policymaking

At the end of a long review of the recent book US Federal Reserve Board ex-chairman Alan Greenspan, Robert Solow writes:

The Alan Greenspan I admired was a pragmatic central banker who was able to believe both the data and his eyes and to ignore the people who already knew the answer without looking. The author of this book makes a show of both, but not really. His eyes are too often closed and he seems to be listening to another voice, with quite conventional opinions, coming from somewhere stage right. Alan Greenspan Is Still Trying to Justify His Bad Decisions: What the maestro doesn't understand, Robert M Solow, 'New Republic', 16 December

If you are making policy, subscribing to an ideology is something of a cop-out, but very tempting all the same. Enormous quantities of data available to policymakers match the increasing complexity of our society and environment. As individuals, we cannot deal with these phenomena. In the face of so much complexity, it is so much simpler just go with our prejudices. That’s one reason we ought to subordinate policy not to ideology, but to outcomes. And that applies to any social or environmental problem with multiple causes and where a multiplicity of solutions need to be tried, refined and either terminated or promoted. In the developed world, most policy issues are that complex - the goals of monetary policy included.

Social Policy Bonds target explicit, transparent and meaningful goals, and they make rewards contingent on achieving those goals. By contracting out the achievement of social goals to the market, they maximise the efficient use of our scarce resources. A government that targets social goals, clearly and publicly, would have little use for the sort of ideologically driven policies propagated by Mr Greenspan. Monetary policy, under a Social Policy Bond regime, would instead be one means of achieving agreed social goals, rather than a way of confirming existing (and quite peculiar) prejudices in the mind of a single individual, however smart.

Transcending institutional decay

I won't discuss Professor Francis Fukuyama's long piece on The decay of American political institutions in detail. I think that the problem he discusses - the divergence of politicians from the electorate - applies to most of the western democracies, though the specific causes differ. The essay does confirm to me that any policymaking that does not reward explicit, verifiable outcomes, is doomed to fail. Even if the proponents of a policy are well-meaning, programmes that focus on institutions, structures, activities, inputs or outputs will inevitably be gamed or manipulated, especially at the national (or supra-national) level.

So, when it comes to bribery and corruption: 

The law bans only the market transaction, not the exchange of favors. The latter is what the American lobbying industry is built around. ...
The Decay of American Political Institutions, Francis Fukuyama, 'The American Interest', 8 December

Exchange of favours is only one of the myriad ways in which political institutions decay, but it is representative. 

Pluralist theory holds that the aggregation of all these groups contending with one another constitutes a democratic public interest. But due [sic] to the intrinsic over-representation of narrow interests, they are instead more likely to undermine the possibility that representative democracy will express a true public interest. 

'[T]hey' here refers to the US public sector trade unions, but it could stand for any interest group. 

There is a further problem with interest groups and the pluralist view that sees public interest as nothing more than the aggregation of individual private interests: It undermines the possibility of deliberation and ignores the ways in which individual preferences are shaped by dialogue and communication.

Quite so. It also crowds out the likelihood that people will think beyond their identity as members of their group. Perhaps more seriously, it also takes existing ways of doing things as a given, which is almost a definition of decay.

The answer? I think we need to re-orientate policy debate around outcomes; broad, meaningful outcomes that will engage ordinary people in the shaping of individual preferences 'by dialogue and communication'. Arcane legalistic discussion about structures and funding excludes people who aren't lawyers, politicians, lobbyists or academics, but that is the system we have today. If we could instead talk about outcomes - such as universal literacy, or reduced crime rates, or better health - then we could do so in debates that people can understand and in which we can participate.

Social Policy Bonds would allow the targeting of broad outcomes, whose achievement would transcend, in both time and purview, the compass of existing institutions and interest groups. Current ways of addressing war, or 'defence', say, focus almost exclusively on military spending or on treaties and coalition-building that do little to discourage war itself. Our current system doesn't supply meaningful incentives to create a world in which violent political conflict comes to an end. 

That is where a Social Policy Bond regime could enter the picture. For more, see this short article, or this longer one, both on the SocialGoals.com website.

Targeting well-being

Unfortunately the industry that has mushroomed around type 2 diabetes measures success in approvals for new drugs,  revenue earned, and money raised, not in suffering avoided or lives saved. Sugar Nation, Jeff O'Connell, 2011

It's the same at the level of national and international government. In the absence of coherent, explicit, policy goals that have been debated openly and bought into, we have accepted that corporate goals and a motley array of vague indicators, such as GDP per capita, or economic 'growth' as our default objectives. There might have been a strong correlation between the aggregation of such goals and societal well-being in the past, the society was less interlinked, the negative impacts of economic activity were less significant, less well known, or easier to escape. But for today? It's not good enough.

We need not only to target explicitly, broad indicators that are inextricably linked to social and environmental well-being; we need also to discuss them, and to engage the public with them so that, while we might not all agree on society's priorities, we can buy into them, and attempt to change them within a coherent and inclusive policymaking environment.

In short, we need to target outcomes; outcomes that are meaningful to ordinary people. That's where Social Policy Bonds can enter the picture. Yes, they channel market forces into the achievement of social outcomes - which makes them efficient. But as important is that they focus our boundless human ingenuity on things that matter: all the broad components that make up social and environmental well-being. We can do better nowadays than to hope that 'success' will appear as a by-product of the targets pursued by a motley array of corporations, politicians and other interest groups.

I've been updating the SocialGoals.com website. Comments or suggestions, on this or any other aspect of Social Policy Bonds, are welcomed.

You can't prove it

Climate sceptics are finding it ever harder to persuade the public that the climate isn't changing. So now some are turning to a more last-ditch line of attack: even if climate change is happening, it's not worth worrying about. Causes for climate concern, 'New Scientist', dated 7-13 December

If you're a politician, there's a genuine problem with climate change, as with many other environmental and social concerns: you can't do anything until cause and effect have been proven; and sometimes not even then. And that's supposing that you want to do something. When you don't really want to do anything, then obviously nothing will be done, except maybe you will perform some elaborate, expensive gestures, like participating in conferences, subsidising so-called green technologies (for a few years), and transferring token amounts of cash from taxpayers in the rich countries to rich people in the poor countries. Meantime, the challenge goes unmet.

Climate Stability Bonds could be the answer. Governments - or whoever actually wants to deal with climate change - could issue them without having to prove that climate change is actually happening, without knowing what's causing it, and without knowing what the best solution to it is going to be. The bond issuers would, in effect, be contracting out the discovery of what's happening, and how best to deal with it, to the market. And the market would have every incentive to be impartial and efficient about every aspect of the climate change challenge. That's a total contrast to the current policymaking environment, in which powerful interests can influence the interpretation and presentation of the science and policymaking. It's just not a rational way of dealing with the problem and it just might be leading us all into catastrophe.

Damn foolish things

Thomas Laqueur reviews The Sleepwalkers: How Europe Went to War in 1914, by Christopher Clark:

Many actors (the crowned heads of Europe, military men, diplomats, politicians and others), each with their own objectives, acting as rationally and irrationally as humans are wont to act, made decisions that foreclosed on others and collectively led the world into an unimaginable and un-imaged war. Some damn foolish thing, Thomas Laqueur, 'London Review of Books', dated 5 December

Millions of ordinary people had a vital interest in World War One not happening. Even when multiplied by what might have been thought a very low probability of its actually occurring, this should have represented a strong coalition in favour of peace. But there was no way this overwhelming wish for peace could have expressed itself. In those days the disconnect between policymakers and ordinary people was even wider than it is now. Calamitously, war broke out as the accumulated result of the perceived short-term interests of a tiny group of monarchs, aristocrats and generals.

The situation hasn't changed that much. Short-term goals predominate still amongst politicians and the military. Corporations have more power than monarchs and aristocrats these days, but are at least as adept at ignoring or manipulating public opinion. To paraphrase Otto von Bismarck: it's no stretch to imagine a catastrophic war breaking out nowadays over some damn fool thing in the East China Sea, or the Korean peninsular or the India/Pakistan border or ....

One way of making effective our wish to avoid another calamity would be to issue Conflict Reduction Bonds. Governments, philanthropists, NGOs or ordinary members of the public could all contribute to the funding of such bonds, which would be redeemable only after a sustained period of no major political conflict. In so doing, we would monetise our wish for peace, and act as a counterweight to the forces that, deliberately or not, propel countries into catastrophic wars or civil wars. There's nothing inevitable about war: it happens because people react, if not rationally, at least humanly, to the incentives on offer. Conflict Reduction Bonds, by rewarding people for achieving peace, could tip the scales in the other direction, and lead to what must surely be one of mankind's most noble goals: the ending, for all time, of war.

The great divergence, continued

It's not just that our western democratic governments stand apart from ordinary citizens, but that the gap grows every larger. Jim Newell writes about a US Senator, Jim DeMint, who is retiring to head up a think tank:

The whole curious DeMint affair bespeaks the ongoing shift of power in Washington away from the people’s business—and toward the ideological donor class....  At places like CAP, AEI, Heritage, and many of the other approximately 1,812 American think tanks, policy studies are still part of the operation, but their most vital public role is to act as partisan hacks for whichever side of the major-party duopoly they’re associated with. And the conservative think tanks are now reliable dispensers of ideological discipline on the right: they do exactly what is best in the short term for the Republican Party at all times and punish anyone who dissents. Good Enough for Government: WorkConservatism in the tank, Jim Newell, 'The Baffler', No. 23

Perhaps this sort of patronage-based corruption is built into any sort of policymaking system with which ordinary people cannot identify, whether that happens because government is too big, too remote, or its machinations too obscure. A government acting on a large scale need not necessarily be remote from or unconcerned with the well-being of its citizens. There are essential projects that require such a government: sanitation for example, or other major infrastructural works. But it does seem to be inevitable that interest groups, including big business and government agencies, interpose themselves between people and their government taking advantage of public funds in ways that are damaging to the public interest, self-enriching and therefore - because money buys votes - self-entrenching. Once that happens, elections become ever less meaningful; ordinary people become alienated from the political process and cynical.  Or worse.

One way of reconnecting people with the policymaking process might be direct democracy; frequent referenda along Swiss lines. Another might be to become familiar with expressing all policy goals in terms of outcomes that are meaningful to ordinary people, and to reward achievement of these outcomes, whoever achieves them and only once they have been achieved and sustained. By doing this, we could avoid today's corrupt favouritism of corporations or government bodies and de-emphasise the roles of political parties and their supporting donors and ideologues. Worthy though these aims might be in themselves, an outcome-based regime would, more positively, stimulate diverse, adaptive solutions to our urgent and large-scale social and environmental problems.

That's where Social Policy Bonds could enter the picture. They offer a way of achieving outcomes that rewards efficiency in achieving social goals above all other considerations. They inject market incentives into the solution of our social problems, impartially, with cost-effectiveness being the sole criterion for one approach being rewarded rather than another. A bond regime, because it would be efficient at achieveing social goals, and because its aims and means would be comprehensible to people other than politicians, bureaucrats, corporate lobbyists and think tank ideologues, could close the ever-widening gap between citizens and their government.

The great divergence

Only 40% of citizens in the mostly-rich countries of the Organisation for Economic Co-operation and Development expressed confidence in their national governments in 2012, down five percentage points from 2007. Eroding trust in government, 'The Economist', 15 November

 Brazilian Roberto Unger is a leading political philosopher and an advocate of progressive politics.He has taught at Harvard Law School for about 40 years and US President Barack Obama was one of his students in the 1980s. "There is no project in the United States responsive to the needs and aspirations of the broad working class majority of the country," said Mr Unger. Obama's law professor on his failures as president, Quote from BBC 'Hardtalk' programme, 15 November

It's not really surprising. Our governments have every incentive to respond more to corporate donors than to ordinary people. Big business and government have interests that grow ever further apart from those of the public and small businesses. They can get away with this because policymaking focuses on funding, institutional structures, legalistic debate and arguments about inputs, outputs or activities. Everything except meaningful outcomes in fact.

There is another way. A Social Policy Bond regime would subordinate all debate and decison-making to outcomes: what social and environmental goals should we be aiming for, and how much are they worth? These answers to these fundamental questions, ignored by the current system, would inform every project, every initiative and activity, launched under a bond regime. Apart from the incentives and efficiencies that the market for Social Policy Bonds would stimulate, the aims of the bonds would be explicit and clear to everybody. People might disagree about their relative priority, but they would know exactly what their government was trying to accomplish. Ordinary people could participate in policymaking and would engage with the inevitable trade-offs that have to be made when it comes to allocating society's scarce resources.

As a result, and crucially, we'd buy in to policy goals; perhaps not wholeheartedly but certainly more than we do today. Without such buy in, it's difficult to see how our governments, with their priorities so different from ours, are ever going to engage with the crucial social and environmental problems of our time, let alone solve them.

A world safe for high-frequency trading

Our boundless ingenuity, our immense technological knowledge: where are they being directed? Towards solving the problems that plague humanity? I refer to things like the piling up of nuclear weapons, catastrophic environmental disasters, murderous religious fanatiscism.... Well, no. Some, perhaps, most, of our best brains are going into answering this sort of question:

How will regulations impact the way traders are capturing alpha? Would there be restrictions that can possibly harm algorithmic trading?  ... What is the outlook for the markets when all participants engage in the arms race of super smart algorithms? Where will institutional and retail investors find opportunities? Conversely, could we imagine a world without high-frequency trading?

Yes, we are all relieved to know that the High Frequency Trading Leaders Forum 2013 - you know, the one that 'Every Trader and Quant in London is Talking About' - is to be held in London on 5 December. These traders and quants are some of the most brainy people there are. Hitched up to supercomputers these geniuses make a lot of money for themselves and their employers.

I can't condemn these people, whatever the net results of their collective actions. These people are reacting rationally to the incentives on offer. It's the incentives that are perverse. If people can make enough cash to bring up a family by shaving off one millisecond per financial transaction more than the next guy, then that is what they will strive to do. It just strikes one as sad that we don't have systems in place that would channel these bread-winners' undoubted immense ingenuity into more socially useful activities.

That's where Social Policy Bonds come in. Their tradability means that a bond regime can target broad, long-term goals that require diverse, adaptive approaches the nature of which we cannot currently conceive. The existing policymaking system deals with these goals, which include things like avoiding catastrophic disasters, stabilising the climate or even improving world or national health, haphazardly, if at all.

Of course, quants and other high-earners possibly do contribute more to tax revenues than ordinary people  - especially if they are badly advised. But, as we can see, governments generally don't do a great job at deploying this revenue to deal with long-term, large-scale problems, like avoidance of conflict or climate change. Again, their incentives to do so are minimal and mostly focus on power; retaining it, or acquiring more of it.

A Social Policy Bond regime would allow us to target broad global and national goals explicitly, while channeling the market's efficiencies into the best use of our limited resources. Given that the survival of the planet itself is under threat, I think the case for such targeting is a strong one, even if we have to give up high-frequency trading to get there.

No surprises here

The United Nations says it is “less and less likely” that global greenhouse gas emissions will be low enough by 2020 to stop the atmosphere warming beyond the internationally-agreed safety threshold – 2°C above its pre-industrial level. A report by the UN Environment Programme says current undertakings by world governments to cut emissions fall short of that goal, and emissions “continue to rise rather than decline”. Source

No surprise. If world governments were serious about doing something to moderate climate change, they'd reward people who help moderate climate change. Instead they have agreed on an elaborate, expensive, divisive and ineffectual policy of hand waving. The relationships are too obscure, or can be made to appear so: cutting greenhouse gas emissions might reduce climate change. But it might not. Even if it does, any benefits are likely to be minuscule. The costs are immediate, the benefits obscure and remote. It's not happening and it's not going to happen.

There'd be more popular support for targeting climate change directly. Under a Climate Stability Bond regime we could define our goal in ways that encompass an array of indicators: physical, biological, financial, so that all targeted conditions would have to be satisified and sustained before taxpayers become liable. We could choose to target goals including the reduction of casualties from adverse climatic events - something that ordinary people can understand and with which we can identify.

Apart from being comprehensible, the other big advantage of a bond regime is that it would channel resources into where they will be most effective at achieving our climate targets. It would encourage diverse, adaptive approaches, of the sort that Kyoto, with its fossilized science, cannot. And we are going to need diverse, adaptive approaches: the scientific relationships are too uncertain, and our knowledge expanding so rapidly, that any approach that focuses exclusively on just one variable (like the concentration of the few compounds identified as greenhouse gases twenty years ago) is going to fail. And it would fail even if it enjoyed support that took the form of actually doing something about it.

SPBs, SIBs and SOBs

It's probably too early to say whether the doubts being expressed about Social Investment Bonds (SIBs) are fatal or not, but one thing is clear: at best the bonds will function like performance related contracts. An improvement on most current government approaches, perhaps, but in terms of ambition and potential for real change SIBs fall far short of Social Policy Bonds. They aren't tradeable, which sounds like a mere technical detail but in fact severely limits how useful they can be. I've outlined why here, so in this post I'll just concede that Social Impact Bonds is a better name than Social Policy Bonds.

I'm reminded about why I chose the name Social Policy Bonds by the website linked to in the first link, above. It's a long pdf, which documented the meeting at which I first pubicly presented the bond concept, in 1988. I'd originally used the name Social Objective Bonds, until a colleague read my draft paper and told me exactly what the acronym meant and how widespread it was.

Metrics must be broad

Social Policy Bonds rely heavily on targeting measures of social and environmental well-being. That's a potential problem. Sue Halpern is writing about algorithms and metrics in a different context, but what she says applies to policymaking on behalf of any but the smallest population:

But the real bias inherent in algorithms is that they are, by nature, reductive. They are intended to sift through complicated, seemingly discrete information and make some sort of sense of it, which is the definition of reductive. But it goes further: the infiltration of algorithms into everyday life has brought us to a place where metrics tend to rule. This is true for education, medicine, finance, retailing, employment, and the creative arts. Are we puppets in a wired world, Sue Halpern, 'New York Review of Books', dated 7 November

The potential problem is that the metrics we use in policymaking might not correlate with societal well-being. Unfortunately, the alternative to a coherent, explicit, considered use of metrics in national policymaking is our current system, which features the unsystematic and de facto use of incoherent metrics that are too narrow and short term in their scope to bring about a rational allocation of resources. Applying broad, meaningful metrics to the health sector, say, is going to be far more efficient and welfare-enhancing than targeting a particular disease, just because the scope for efficiency gains is far bigger when resources can shift between different activities according to where they will be most cost effective.

The other problem with narrow metrics, however well meaning, is that they can easily be gamed. Thus:

 Yet indicators of maternal health [in Laos] are worse than in Cambodia ... and levels of malnutrition are atrociously high. To make things look not quite as bad, NGO types say, the government deliberately went around feeding children in villages monitored by the UN for the Millennium Development Goals—until it was found out. The future of Laos: a bleak landscape, 'The Economist', 26 October

Congratulations

Congratulations to Robert Shiller of Yale University, one of the three winners of the 2013 Nobel Prize in Economics. Professor Shiller has over many years encouraged my work on Social Policy Bonds. Back in 1997 I received this letter from him, and more recently he mentioned the bond concept in his 2011 book Finance and the Good Society, and in a brief article about the book.

Mental health

Spiked's Tim Black asks lecturer and psychiatrist Joanna Moncrieff  "'Why are there so many more people being given a diagnosis that demands the prescription of powerful antipsychotics?' Moncrieff is quick to answer: ‘That’s an easy one - it’s the pharmaceutical industry.'"

That's probably part of the answer. But as the discussion continues it's clear that societal changes are another, possibly more significant, reason.

The withering of old forms of informal social life, the corrosion of the traditional mechanisms of support and struggle, be they based in politics or faith, [have] left the individual in a potentially more helpless position.

Dr Moncrieff sums it up: 'We’ve become a much more atomised society ... one in which suffering and difficulties are located increasingly not in the social world but in the individual. So previously, if someone was depressed, not happy, not coping with life, that was a social or a family problem. But now it’s the individual that needs to be rectified rather than the system around them.’

I know a lot less than Dr Moncrieff or Mr Black about psychiatry and mental health. But my concern is, I think, relevant. It is that we do not have the institutional structures in place that will identify major causes of suffering as they change over time and then do something to alleviate it. Instead we have institutions whose sole concerns are, essentially, self-perpetuation and self-enrichment; any overlap between achievement of their goals and solution of society's problems is coincidental.

Yes, we have drug companies, whose motives and methods are increasingly at odds with society, but who are powerful lobbyists and capable of influencing the regulatory environment in their favour.

But social atomisation involves more than drug companies: it probably has much to do with town planning, transport policy, immigration policy, government welfare schemes and much else besides. The point is that we do not have incentives in place that will encourage people to investigate these - and other possible - causes and do something about them. The reverse, in fact: our de facto and default targeting of GDP as the greatest social goal, and the short-term interests of corporations and politicians, mean that social atomisation is hardly seen as a problem. Big pharma benefits from depression, after all, and it's certainly not in the interests of powerful corporations to question things like the apotheosis of the car or coercive multiculturalism.

In today's policymaking environment it's more profitable to treat depression, however ineffectually, with pills than to look for long-term, possibly more edifying solutions, that could threaten the narrow interests of corporations and their clients in government. It's highly likely that those corporate interests are doing much to create depression in the first place, and it's even more likely that it's in nobody's interest to find out for sure.

A Social Policy Bond regime would work differently. It would certainly not take today's intitutional structure as a given. It would take a serious look at mental health, depression and social atomisation and construct reliable metrics that could be targeted for reduction. Investors in Mental Health Bonds would themselves benefit by looking at all potential causes of and solutions to problems like depression and doing whatever is required to alleviate them. In doing so, their interests and those of wider society would merge - in stark contrast to today's policymaking world.

Nobody asked us

John Lanchester, having seen the UK's GCHQ files, writes about the UK:

...we're moving towards a new kind of society. Britain is already the most spied on, monitored and surveilled democratic society there has ever been. This doesn't seem to have been discussed or debated, and I don't remember ever being asked to vote for it. The Snowden files: why the British public should be worried about GCHQ, John Lanchester, 'The Guardian', 3 October

This is just one critical decision about how we live that is made without reference to voters. Politicians can get away with almost anything they want under the guise of  'national security', just as they can by citing 'economic growth'. Nobody questions these claims, because the relationships between them, the policies they generate, and the outcomes of these policies are too complex, and too bedevilled by time lags, to identify clearly. Once started, the policies create institutions that have sufficient lobbying power to resist reform and grow endlessly.

How would a Social Policy Bond regime deal with 'terrorism'? Most probably, we'd get some perspective on the matter. As Mr Lanchester points out:

Since 9/11, 53 people have been killed by terrorists in the UK. Every one of those deaths is tragic. So is every one of the 26,805 deaths to have occurred on Britain's roads between 2002 and 2012 inclusive, an average of 6.67 deaths a day. ... This means that 12 years of terrorism has killed as many people in the UK as eight days on our roads.

It's not for me to try to divine society's preferences about how we die. But suppose that, away from the aftermath of a terrorist incident, when cool heads prevail, we value a life lost in a road accident - or any other cause - as highly as a life lost to a terrorist incident. We might then decide that instead of creating a vast, expensive, intrusive bureaucracy to reduce premature deaths by a trivial amount, we'd want to channel society's limited resources more efficiently. In that case, we'd issue Social Policy Bonds that target something like 'the avoidance of premature deaths', or an aggregated measure of longevity, perhaps expressed in terms of Quality Adjust Life Years.

Regardless of how much we weight a death due to road accidents against a death due to terrorism, a Social Policy Bond regime would ensure that our preferences are made explicit and transparent, and that our resources would be allocated according to our preferences. Something that obviously, and ominously, is not happening today.

Target crime, not recidivism

I've done a short piece on my main website about why I think Social Policy Bonds must be tradeable. In this they differ crucially from Social Impact Bonds. Because they can't be traded, SIBs must target fairly narrow objectives, and ones with relatively short lead times. This makes them easier to try out and, unlike Social Policy Bonds, SIBs have actually been issued. In the US and the UK SIBs have been issued that target recidivism. There are numerous problems with this, most of which are discussed by Theodore Dalrymple, who also succinctly points out their most important flaw: 

The public wants to be protected against crime, not against recidivism... What Does It Mean To ‘Punish’ Syria?, Theodore Dalrymple, 'Library of Law and Liberty', 8 September

Tradeability sounds esoteric, but it's not. It's a fundamental distinction, and one with large consequences: under a Social Policy Bond regime we can target exactly what we want to achieve; under a SIB regime we can aim at solving only narrow problems that are short term in nature. This means that they fail to capture the public imagination and perhaps even more importantly, lend themselves far more readily to being gamed or manipulated. My hope is that they don't discredit the whole notion of channelling self-interest into the achievement of broad social and environmental goals.

Kludgeocracy

Steven M Teles writes eloquently of the complexity and incoherence of US policy:

A "kludge" is defined by the Oxford English Dictionary as "an ill-assorted collection of parts assembled to fulfill a particular purpose...a clumsy but temporarily effective solution to a particular fault or problem." The term comes out of the world of computer programming, where a kludge is an inelegant patch put in place to solve an unexpected problem and designed to be backward-compatible with the rest of an existing system. When you add up enough kludges, you get a very complicated program that has no clear organizing principle, is exceedingly difficult to understand, and is subject to crashes. Any user of Microsoft Windows will immediately grasp the concept. "Clumsy but temporarily effective" also describes much of American public policy today. Kludgeocracy in America, 'National Affairs', Fall 2013

And, indeed, much of the public policy of most countries, and of supernational agencies too. I won't summarise Professor Teles' excellent article, which is required reading, except to mention some of his suggested cures for kludgeocracy. These include procedural changes aimed at increasing the power of the congressional majority leadership at the expense of committees, shifting the 'micro-design' of policies away from Congress and towards the government agencies actually implementing the policies; and handing entire policy areas, such as health or eductaion to the states or to the federal government - but not to both. As Professor Teles writes:

Few of the reforms sketched out above have much of a chance of being enacted at the moment, since the institutions and practices they propose to alter are too deeply entrenched to remove quickly.

 ...and I share his pessimism about that. Of course, a Social Policy Bond regime would be even more radical and, if we are to depend on government to initiate it, even less probable. But we don't need to wait for government. Social Policy Bonds can be issued by anyone with enough funds to finance their redemption, or with sufficient ability to raise these funds from bodies such as non-governmental organizations, philanthropists or ordinary citizens.

If that were to happen, and the Social Policy Bond approach were to prove successful in achieving social goals, it's not that difficult to imagine government itself changing, along the lines that Professor Teles and most of the rest of us would like to follow: towards open, explicit, costed, efficient and effective solution of our social problems.

The curse of party politics

It lasts for generations. Helen Epstein writes about Dr Sara Josephine Baker of the New York City Health Department:

In her first year at the Bureau of Child Hygiene, Baker sent nurses to the most deadly ward on the Lower East Side. They were to visit every new mother within a day of delivery, encouraging exclusive breast-feeding, fresh air, and regular bathing, and discouraging hazardous practices such as feeding the baby beer or allowing him to play in the gutter. This advice was entirely conventional, but the results were extraordinary: that summer, 1,200 fewer children died in that district compared to the previous year; elsewhere in the city the death rate remained high. The home-visiting program was soon implemented citywide, and in 1910, a network of “milk stations” staffed by nurses and doctors began offering regular baby examinations and safe formula for older children and the infants of women who couldn’t breast-feed. In just three years, the infant death rate in New York City fell by 40 percent, and in December 1911, The New York Times hailed the city as the healthiest in the world. Articles about Baker’s lifesaving campaigns appeared in newspapers from Oklahoma to Michigan to California. In the late 1910s, she and other reformers drafted a bill to create a nationwide network of home-visiting programs and maternal and child health clinics modeled on the programs in New York. But the American Medical Association (AMA)—backed by powerful Republicans averse to spending money on social welfare—claimed the program was tantamount to Bolshevism. The Doctor Who Made a Revolution, Helen Epstein, 'New York Review of Books', 26 September

And three generations later?

Today, nearly every other industrialized nation on earth provides some form of guaranteed support to families with young children. That America still does not is considered by many to be a national disgrace.

Once ideologues grab the reins of government, any notions of doing the best for society or even of rationality, are liable to be lost for ever. There's no inevitable reason why the aggregated interests of ideologues, corporations or powerful organizations of any kind are going to add up to a society that cares about the well-being of the majority of the population. Perhaps the next stop for the US is a banana republic?

Here's another idea. Instead of making policy on the basis of ideology, or the short-term interests of powerful organizations, why not target outcomes? Outcomes that are meaningful to ordinary people - as people, rather than members of one interest group or another. Explicit, transparent outcomes that we can all understand and all participate in formulating and so buying into. That could be done with Social Policy Bonds, which could target broad, long-term social goals about which we could all be consulted and with much most of us would agree. How these goals were to be achieved would be a matter for motivated investors in the bonds, rather than politicians and their corporate or ideological paymasters. People would be rewarded for achieving social goals, rather than siphoning off government funds for their own narrow, short-term interests at the expense of everyone else.

It's a long way from where we are now, summed up by George Monbiot:

Our elected representatives look increasingly marginalised. Unable or unwilling to assert themselves against corporate power, media magnates and spies, they have been reduced to a class of managers, doing as they are told by their sponsors and lobbyists, seeking to persuade their constituents that what is good for big business and unelected agencies is good for everyone. Law of the landed, 19 September

Policy as if party politics is the only thing that matters

Elizabeth Drew writes about US politics:

In 2009, for the first time, defeat of the incoming president in the next election became the opposition party’s explicit governing principle. If that meant blocking measures to improve the economy, or preventing the filling of important federal offices to keep the government running, so be it. Wrecking became the order of the day. Confrontation became the goal in itself. Now the rightward trend in Republican politics is feeding on itself, becoming even more extreme until the preposterous becomes conceivable. The stranglehold on our politics, Elizabeth Drew, 'New York Review of Books' dated 26 September

It's the logical outcome of a political system subordinated entirely to existing institutions. Every organization - political, religious, educational or whatever - has as its over-riding aim that of self-perpetuation. In their resistance to reform the biggest and most powerful of these organizations do great damage. Sadly, the record of the sort of revolution needed to release the stranglehold of organizations as dominant as the two US political parties is not encouraging.

Here's another approach: instead of organizing our policymaking around the whims and caprices of political parties and their principal funders, why not focus on society's needs? And reward people who help achieve them? That is the underlying principle of Social Policy Bonds. Under a bond regime, organizations would no doubt come into being, but their structure, composition and all their activities would be entirely subordinated to the social and environmental outcomes that people want to see. The current system is broken. Party politics has taken over, at the expense of society. I have no doubt that change will occur; let's hope it's along the lines of a Social Policy Bond regime, which would channel market incentives into the achievement of society's goals, rather than those of the political party dinosaurs.

Surveillance

It's a familiar, but disastrous, train of thought: government perceives a problem, government thinks it knows the cause of the problem, government pumps resources into the agencies that allegedly deal with the alleged cause of the problem. So we have, for instance, not-very-effective overseas aid agencies, bloated militaries, corrupt farm support policies and, now, Stalinist surveillance bodies on which the US spends $80 billion a year. These agencies are self-entrenching. They have in common the power to resist reform that lavish government funding gives them. But the security industry has another weapon it can deploy to keep enriching itself: fear.

Only forty years removed from the blackmail-tinged reign of J. Edgar Hoover, the NSA [US National Security Agency] has developed an image which implies the agency is vacuuming up more than enough incriminating phone records, emails and text/sext messages to politically torpedo any rank-and-file congressman, should that congressman step out of line. And here's the thing: for all the agita intelligence officials express about new disclosures, those disclosures illustrate the sheer size and scope of governement surveillance. That doesn't weaken the NSA - on the contrary, it serves to politically strengthen the agency by constantly reminding lawmakers that the NSA 1) probably has absolutely everything on them and 2) could use that stuff against them. Saying Boo To A Ghost: It's No Secret Why Congress Fears Crossing The NSA, David Sirota, NSFWCORP, 22 August (link expires in 48 hours)

Here's another idea: why not decide what we really want to achieve - not as a government, but as a society - and target that? If we want to reduce the number of people killed by random acts of violence, why not issue Social Policy Bonds that target such a metric and reward people for working within the law to reduce terrorist acts. Perhaps we might think more broadly, and decide that we want to reduce all premature deaths, however caused. In which case, we could issue Health Bonds. Either way, we'd have a debate about exactly what we want to achieve, without having every aspect of our behaviour surveilled and recorded by government and its private sector contractors. Something which is quite possibly illegal, and which no ordinary people actually want.

Nothing new

Despite its radical-sounding novelty, there's nothing really new here:

The UN Security Council should assign itself the power to put a $50 million bounty on the head of a tyrant, defined as someone who is subject to an International Criminal Court (ICC) indictment for war-crimes/crimes against humanity and is a serving head of state. Holding tyrants personally accountable, Philosopher's Beard, 23 August

The Philosopher is writing about conflict in Syria and thinks he knows how best to end it. Of course, it's possible Bashar al-Assad of Syria were to die soon, then one particular conflict in Syria would diminish or even end. But it's not at all certain, and the Philosopher has about as much chance of being right about his particular brand of intervention as are policymakers generally.

Here's an idea: if we want to end any particular conflict, then let's pay people to end that conflict, rather than to do what we think, in our ignorance, at this moment, might end that conflict. Actually, I'd rather pay people to end all the conficts in Syria - and elsewhere - for all time, and to do so legally. Here's how that might happen.

Ordinary people? Who cares?

What happens when entrenched interests dictate government policy:

For most of modern history, your health care was a matter between you and your doctor. Since World War II, in much of the developed world, it’s been between you, your doctor, and your government. In America, it’s now between you, your doctor, your government, your insurer, your employer, your insurer’s outsourced health-care-administration-services company . . . Anybody else? Oh, let’s not forget [the Inland Revenue Service], which, in the biggest expansion of the agency in the post-war era, has hired 16,500 new agents to determine whether your hernia merits an audit.  Obamacare’s Hierarchy of Privilege, Mark Steyn, writing about the US Affordable Care Act, 'National Review Online', 23 August

This is truly policy as if outcomes are irrelevant, unless the outcomes targeted are those that improve things only for policymakers and bureaucrats, at the expense of the rest of the population. It's policy dictated by the needs and bargaining power of existing institutions. It has nothing to do with the well-being of the rest of the population.

If politicians were genuinely concerned about healthcare they'd measure success in terms of health outcomes. Who knows? They might even reward people on the basis of how well they achieve these outcomes. And if they wanted to channel market interests into the improvement of their citizens' health they might, eventually, issue Health Bonds. I'm not holding my breath: I think it's more likely that such bonds would first be issued by non-governmental actors; people not beholden to existing public- or private-sector interests.

Violence: incentives work

'People say that problems cannot be solved by the use of force, that violence, as the saying goes, is not the answer.' So writes Benjamin Ginsburg: 

That adage appeals to our moral sensibilities. But whether or not violence is the answer depends on the question being asked. For better or worse, violence usually provides the most definitive answers to three major questions of political life: statehood, territoriality, and power. Violent struggle—war, revolution, terrorism—more than any other immediate factor, determines what nations will exist and their relative power, what territories they occupy, and which groups will exercise power within them. Why violence works, Benjamin Ginsburg, 'Chronicle of Higher Education', 12 August

 As a result:

[M]ost regimes are the survivors or descendants of a thousand-year-long culling process in which those states capable of creating and sustaining powerful militaries prevailed, while those that could not or would not fight were conquered or absorbed by others. Similarly, when it comes to control of territory, virtually every square inch of inhabited space on the planet is occupied by groups that forcibly dispossessed—sometimes exterminated—the land's previous claimants. 

So violence isn't something that just happens: we are violent because it gains us territory and other resources. As such, it's amenable to change. That's where Social Policy Bonds can play a part. Like many other social and environmental problems violent political conflict has many causes and, quite possibly, looking for those causes and trying to deal with them is not going to be the most efficient or quickest way of shrinking the role of war or civil war in world affairs. The best, most cost-effective ways might well mean innovations of a sort that hasn't been attempted yet, or that offend our sense of justice but are much less bloody than current methods: bribing tyrants to fly away to their own private luxury island, with full security for them and their families, for instance.

Nobody knows what will be most efficient, though we can be pretty sure that the current system, which pays people for undertaking edifying-sounding but ineffectual activities, is doomed to fail. (Think: climate change.) Perhaps it's now time for world governments or, more likely, opposition parties, NGOs and other interested groups to form a coalition and issue Conflict Reduction Bonds, which will reward what we actually want to achieve: world peace. A coalition of interested parties, perhaps with the help of philanthropists, could invest a large sum, and call for contributions from the public. It could then issue bonds redeemable for something like $1million each once current levels of violent political conflict have fallen by, say 50 percent. Yes, we'd need to discuss how exactly to define exactly what we mean, and how to monitor progress toward our goal. But once that's done, we'd have, in effect, contracted out the achievement of peace to a motivated group of investors, whose structure, composition and initiatives are entirely subordinated to that goal. They might buy the bonds for a very low price, reflecting the market's view that reduction in political violence are hard to achieve and necessarily will take a long time to appear.

As with our biggest environmental problems, so our biggest social problem, political violence, is going to need an array of diverse, adaptive approaches if we are going to solve it. The current system is too cumbersome, monolithic and slow moving to work at anything like the speed, scale and efficiency that we need. The incentives to create mayhem are plentiful. Unless a Conflict Reduction Bond regime (or something like it) comes into being, world peace will remain as utopian and distant a goal as it is today.

Social Impact Bonds: not very exciting

Toby Eccles earlier this year asked why uptake of Social Impact Bonds hasn't been spectacular. SIBs, you may recall, are similar to Social Policy Bonds, but they aren't tradeable.

And because SIBs are not tradeable, objectives have to be narrow, and so will fail to capture the public imagination. Also Mr Eccles says, '[g]overnment likes to know who it’s dealing with' and this, to me, is another problem with SIBs: they take current institutions, with their agendas, hidden or otherwise, as a given.

Tradeability makes Social Policy Bonds wholly different. With tradeability people can make a profit without holding the bonds until the targeted goal has been reached. So with Social Policy Bonds we can target broad, long-term goals that:

• appeal more to the public. With Social Policy Bonds goals such as universal literacy or world peace can be targeted. But with SIBs they are as unimaginably unrealistic policy goals as they are they are under the current system; and 


• therefore are far more likely to be be issued and backed by bodies other than government, including the public. 

Goals for education

A correspondent has kindly drawn my attention to President Obama's accreditation reforms for higher education, as outlined in his State of the Union address. There is much that seems of merit to me in these reforms, but these reforms have encouraged me to think more broadly about education.

My premise is that policymakers should target, above all, social and environmental outcomes. As with other variables, like income say or, more to the point, literacy, at the basic level there is a strong correlation between something measurable and human wellbeing. So, for instance, we can measure functional literacy quite well, and the outcome of 100 percent literacy is a worthwhile one to target. In this vein, I was pleased to see that President Obama proposed programs to provide early education for four-year olds from lower-income households. There are also measures to encourage higher graduation rates from high school. At these levels there is a strong correlation between attendance at an educational facility and real, meaningful outcomes.

But things are much more complicated at higher levels of education. We really need to think about what sort of outcomes we want. Some social outcomes result only indirectly from education and, under a Social Policy Bond regime, we'd do better to target those outcomes themselves. For example, it would be more efficient to target unemployment directly rather than indirectly through the educational system.
Under a Social Policy Bond regime we could do that explicitly, and investors in  Unemployment Reduction Bonds (or Employment Maximisation Bonds) might well decide that the school system needs some sort of overhaul to meet the targeted goal.

This indicates how I think about targeting the supposed means toward achieving an employment target via such things as "graduation rates, costs, average amount borrowed etc" that are the focus of President Obama's reforms. These are less ends in themselves than supposed means to an end (or various ends). All our experience tells us that such narrow, short-term, top-down, goals can - and will - easily be gamed or manipulated or will just not end up doing what they are supposed to. Obama's reforms concentrate heavily on strengthening the regulation of institutions. This might be praiseworthy, but I'd much prefer to see fewer administrative fixes and more targeting of specific broad outcomes, which, under a bond regime, would motivate investors in to make their own decisions about how best to achieve them. We need diverse, adaptive solutions of the sort that government just cannot manage. Government, under a bond regime scheme, would still ultimately subsidise or pay for the achievement of these goals, and raise the revenue for their achievement, but it would contract out the actual achievement to investors.

As happens so often with government everywhere, President Obama's proposals take the existing institutions as a given. They take the existing institutional framework as a given too. (I suspect Obama's healthcare proposals suffer from the same problem.) In the long run  I think we'd do better to think carefully about our real goals and target those specifically. I think these would include high employment, universal literacy, lower crime rates, better physical and mental health and a few others. Education is, in my view, a means to those ends - and others, less easily specified which perhaps should not be a government remit at all.

So...Obama's proposals for higher education reform are undoubtedly well meaning, and arguably positive, given the existing framework. But the existing framework should be challenged. Giving existing institutions more targets might well do some good, but I see them as entrenching the existing, and increasingly questionable, institutional structure at a time of rapid social and technological change. Instead of micro-managing the current system we need to clarify exactly what outcomes we, as a society, want to see, and which ones we think government can legitimately and usefully target, and which it can't.

Procedures or outcomes?

Freddie de Boer, in a review of Jaron Lanier's Who owns the future? writes about the United States (and other countries), which he calls 'proceduralist':

 A proceduralist views society not in terms of a necessary goal (say, happiness and opportunity for all its members) but instead as a set of rules that it must follow—because they are natural, because they stem from the Western tradition, because they comport with human behavior, because they follow God’s law, depending on whoever is justifying the current procedure. If these rules are followed, no injustice needs to be redressed. Rules can be discarded or changed if their intent is found to be problematic, but outcomes can be good or bad without issue. Problems arise only if the rules are broken. ...

But what happens when established procedures lead to unsustainable or immoral consequences, such as widespread and persistent unemployment? The [US] employment crisis reveals a conflict between the procedures of democratic capitalism, which ensure certain rights but promise nothing else, and the logic of the American social contract, which justifies the social order by assuring citizens that they can trade work for material security.

Talk of social contracts is passé in an America obsessed with technocapitalist visions of a prosperous future. ... This has led to an embrace of proceduralism by those true believers who want an app economy to be the engine of capitalism. And such people rule the world.

The problem for proceduralists is that social contracts exist for a reason. It turns out that there are, actually, certain outcomes that society must ensure if it is to go on functioning.

Exactly so; and for many of us, society is becoming less efficient at ensuring these outcomes. The negative impacts of corporate activities have become larger or less equitably distributed; a larger proportion of the benefits is accruing to a tiny, powerful and self-entrenching elite. Real median salaries aren't increasing by much, relative to the costs of a middle class life. One way of dealing with this might be a negative income tax: a payment to every citizen regardless of their employment status (here is a UK proposal). That might help mitigate the worst impacts of unemployment but the sums don't look encouraging.

A second way, of course, would be a Social Policy Bond regime. This would give priority to outcomes, rather than procedures, and it is those outcomes that would underlie a new social contract. They would be agreed, explicit outcomes that are meaningful to ordinary people: ends in themselves rather than the means to ends on which policymakers currently focus. In comparison to a bond regime, proceduralism is too random and its failures too big and fast-moving for government bureaucracies to do much about. Social Policy Bonds would subordinate all social spending, and much corporate activity, to welfare-enhancing goals. Policy, indeed, as if outcomes for real human beings, mattered.

Issuers and purchasers?

A correspondent asks: Who do you see as the most likely issuers and purchasers of bonds?

My reply goes like this:

Governments are unlikely to be the first to issue Social Policy Bonds. "Tried, tested and failed" will always be preferable to governments than something radical that might not work. Nor are NGOs or other foundations, as they are currently configured, likely to get involved with buying Social Policy Bonds themselves. I envisage brokers filling the gap between the backers of the bonds and the people carrying out goal-achieving activities. If the bond issue is big enough, these brokers would act as investment companies: allocating funds to those bodies that, in their view, are carrying out the most efficient goal-achieving activities. They could do this with their own funds or, possibly, borrow on the strength of any anticipated appreciation of the bonds they hold. Social entrepreneurs and NGO's could make presentations to these brokers in an effort to convince them that their activities are leading to, or will lead, to the fastest appreciation of the bond price. They might have to do this on a continuing basis (every five years, say) for long-term goals.

There are broad social and environmental goals for which there is potentially a huge coalition that, under a bond regime, could actually put up funds to get things done. People might be more happy to contribute towards a specific, beneficial social outcome, rather than to a charity or to a government that has its own ideas about how to spend taxpayers' money. As well, most existing bodies have relatively specific objectives, compared to those that would be best served by the Social Policy Bond approach.

Take something like universal literacy in the Middle East and Asia. Most people would like to see this. We might not feel strongly enough to join a specific organisation or to give funds to one of the numerous organisations that are trying to bring about this outcome (or claim to be doing so). But some people do already give to such charities, and they and new contributors could well give more if they know that their funds will be used to reward successful achievement of universal literacy, rather than activities or institutions that may not be very efficient. The great merit of focusing on outcomes with Social Policy Bonds is that it will enlarge the range of beneficial goals that can be targeted and, with ingenuity, achieved. Unlike under the current system, people will not be put off targeting and financing the solution of problems just because nobody currently knows how best to do so.

Or take a goal for a developed country: improving the health of the nation's population. Currently in the UK, for instance, this is mostly financed by taxes. In my book I discuss how we could follow a transition pathway away from funding institutions that are supposed to improve health, and towards funding the health outcome itself. With this objective the bonds would (gradually) replace the current ways of allocating funding (government fiat, basically) with more rational ways. Whoever buys the bonds would have powerful incentives to allocate funds to the most efficient health-improving bodies. We cannot know in advance who these bondholders would be, especially as they themselves would be subject to the same pressure to be continuously efficient as the bodies to whom they allocate funds. At some point, it will be profitable to set up these companies whose sole job is to do this resource allocation efficiently. We cannot even know the structure and composition of these bondholder investment companies: these will be subordinate to the goal itself.

As I say, government itself is not going to take the lead with issuing Social Policy Bonds targeting national health. But there are goals, like the literacy one, or world peace, or reduced crime rates etc, about which there is a very wide consensus and towards which people will contribute, even from their after-tax income, if they can be sure, as in a bond regime, that only successful efforts will be rewarded. There is a much wider consensus over such outcomes than there is about the bodies that, today, are allegedly achieving them. Many who would not dream of donating to the United Nations, or to pay more tax so that health services can be improved, would happily give to fund the outcomes that these bodies are supposed to be achieving. '

The issuers of these bonds would not resemble current foundations. What I envisage is that people concerned about, say, literacy in the Middle East, would raise awareness of the problem or rather tap into people's existing concerns about the problem, and raise donations to be used to back literacy bonds. (They could undertake to return funds if their specified goal is not achieved.)

In short: the goals best targeted by a Social Policy Bond regime are broad and long term, and likely to attract support from a very wide range of people such as philanthropists and the public who might be more prepared to fund outcome-achieving goals, especially because only efficient actors will be rewarded and also perhaps because if the actors fail, then their donations could be returned. Existing bodies might or might not get involved in some stage of this process, whether as consciousness-raisers or as recipients of funding from the new bodies that I envisage would be created to allocate funds. Would these new bodies just spontaneously come into being? Not initially, perhaps, but with sufficient funds from whatever source backing the bonds, and if the bonds fall in price as a result of the absence of such bodies, then there will be motivation to create these bodies, whose sole job will be to allocate funds to efficient goal-achieving activities and bodies.

The important thing is to have sound objectives that will generate lots of support and are broad and otherwise a good fit with the Social Policy Bond concept. Then it will be in some entrepreneurs' interest to create resource allocation bodies. We can no more identify the nature and identity of these organisations than we can the activities they will promote, but there is no real need to do that.

So, to sum up: the issuers of the bonds (until governments get involved) are likely to be concerned individuals, philanthropists and existing charitable bodies, who would use their own funds and solicit public donations to back the bonds. I envisage bondholders (after some initial trading) mostly to be new organisations along the lines of investment companies, who will back whatever they think are the most efficient activities at any time. Of course, and interestingly, for large enough issues, a government itself may buy Social Policy Bonds backed and issued by concerned groups outside its country, and then do something to bring about (say) improved literacy in their country.

A better way of becoming rich

A Social Policy Bond regime could have many advantages over the ways in which we currently try to achieve social goals. These include, most obviously, efficiency, stability (of policy objectives), transparency leading to greater public engagement and buy-in. 

A less obvious benefit of a Social Policy Bond regime is that they would be a means whereby private gain would be strongly, visibly and inextricably correlated with public benefit. Some bondholders, whether institutions or individuals, would start out rich and, if their bonds rose in value, would become richer. But working successfully to achieve desired social goals would most probably be seen as a laudable way of acquiring wealth. There are intangible benefits from having people or institutions grow rich in this way. There are many disaffected people who, in some cases no doubt justifiably, view with suspicion or alarm the very high incomes or profits of corporations engaged in activities of little obvious net social or environmental benefit. They are also unconvinced that ‘trickle-down’ occurs to any meaningful degree. Wealth, in these people’s eyes, must inevitably result from exploitation, either of other people or the commons. Social Policy Bonds would shift this worldview and, by helping people take a more positive view of the act of earning an income and accumulating wealth, could make for a more cohesive society. 

A socially acceptable way of becoming wealthy would also make it more politically feasible to tax less socially desirable ways more heavily – not an end in itself, but a means of raising more tax revenue for redistribution or increasing the number and quality of public goods and services. Corporations, to ensure their own survival, would move out of activities that are financially profitable, but socially and environmentally destructive. 

I have posted before about how Social Policy Bonds could bring about a new type of organization: one whose structure, composition and activities would be entirely subordinated to the goals that society wants to achieve. In doing this, a bond regime could bring about the gradual, but perhaps necessary, demise of corporations whose long-term negative impacts, simply because they do not register in today’s markets, substantially outweigh their positive contribution to society.

Institutionalised hypocrisy

"The role of citizens, of Christians, of humanity is to take care of each other, but not for Washington to steal from those in the country and give to others in the country.”

These are the words of [US] tea party Congressman Stephen Fincher of Frog Jump, Tennessee [who] argued passionately in favor of ...gut[ting] the federal food stamp program by over $20 billion and push[ing] an estimated two million people—mostly retirees and poor families with kids—further into poverty and hunger.

The reason? Rep. Fincher is a Crusader for small government...but he’s also one of the biggest welfare queens in his home state of Tennessee. According to federal subsidy data compiled by the Environmental Working Group, Stephen Fincher has personally cashed in on $3.5 million in federal farm welfare payments (aka agricultural subsidies) since 1999. Fincher’s average welfare payout comes out to $300,000 annually—200 times bigger than the $1,586.40 an average family in Tennessee receives in food stamp benefits a year. Small Government, Huge Hypocrite, Yasha Levine, nsfwcorp, 28 June

And so it goes on. It's 35 years since the corrupt insanity of farm subsidies was obvious to informed undergraduates; 30 years since the huge cost of these subsidies began to be accurately quantified and promulgated...and yet they persist. Our policymaking system just does not have the mechanisms to terminate failed policies if they are backed by large corporations and, especially, if they take money from the poor to give to the rich. The rich, that is, who can afford to pay people to follow our arcane policymaking process and manipulate policy for the benefit of their paymasters.

We'd stand a better chance of achieving social goals if we clarified policymaking by targeting outcomes: meaningful outcomes that ordinary people can understand, engage with, and influence. One of the advantages of a Social Policy Bond regime is that it would do exactly that: target explicit, transparent, meaningful outcomes and reward people who achieve them. The complexity and obscurity of today's policymaking procedures work in favour only of the corrupt and the hypocritical.

Evidence-based policymaking

John Bridgeland and Peter Orszag write about evidence-based spending decisions. It's a form of data mining, and has been applied to baseball "...replacing scouts’ traditional beliefs and biases about players with data-intensive studies of what skills actually contribute most to winning" but "is just as applicable to the battle against out-of-control health-care costs."

Based on our rough calculations, less than $1 out of every $100 of government spending is backed by even the most basic evidence that the money is being spent wisely. As former officials in the administrations of Barack Obama (Peter Orszag) and George W. Bush (John Bridgeland), we were flabbergasted by how blindly the federal government spends. In other types of American enterprise, spending decisions are usually quite sophisticated, and are rapidly becoming more so: baseball’s transformation into “moneyball” is one example. But the federal government—where spending decisions are largely based on good intentions, inertia, hunches, partisan politics, and personal relationships—has missed this wave. Can Government Play Moneyball, 'the Atlantic', July/August

It's encouraging that, after wasting billions of dollars in programs that do little other than subsidise the lifestyles of opponents of their removal, the US Government is looking at a more rational basis for allocating funding. The authors concede that change in this direction will be difficult:

Still, linking evaluation to program funding will be tough, as both of us have seen in practice, again and again. One thing that is essential to a more results-driven government is holding politicians accountable for their support of failing programs. Interest groups regularly rate politicians on their adherence to a particular perspective. What if we had [an index] easily accessible to voters and the media, that rated each member of Congress on their votes to fund programs that have been shown not to work?

OK; certainly an improvement on the dogs' breakfast that is the current policymaking environment. But we could, perhaps, envisage a system that doesn't require politicians to react to information in ways that conflict with their own interests? A Social Policy Bond regime would do this, because it would contract out the development and implementations of programmes to investors in bonds targeting a social goal. It would take resource-allocation decisions out of the hands of government, and put them into the hands of entrepreneurs, with no inherited resistance to change.

A Social Policy Bond regime would have other advantages over the system advocated by Messrs Bridgeland and Orszag. The evidence-gathering wouldn't be prone to corruption and gaming, as there would be no vested interests to keep happy. And it would be done on a dynamic basis, not as a one-off exercise designed to set policy for an indefinite number of years into the future.

Still, it's encouraging to read about evidence-based policymaking. The authors refer to a non-profit organization called Results for America, which is advocates for it. See here for more.

 

Self-interest and social goals: inevitably in conflict?

Some people don't like the idea of using market incentives to solve social problems. The motivation for such opposition might be patch protection, or a more general suspicion of any radical new approach. But some of it centres on the apparent conflict between the values of the market and a vision of social justice.

These arguments need to be addressed. The fact is that markets have been abused, and that the 'markets' and their efficiencies have been used to justify ludicrous accumulations of wealth for activities of little or negative social merit, at the expense of ordinary people.

It’s true that corporations are self-interested; further, their interests are very narrowly defined, largely by the accountancy profession. Corporations are less interested in free markets, and more interested in doing whatever is necessary to ensure their survival. If that is at the expense of free markets, or most of a corporation's employees, or the environment, or society in general, then that is not the corporation's concern. Cleaning up after a corporation's rampage is something that is done by governments, if at all. Corporations, as they grow bigger, will do what they can to corrupt and undermine markets and manipulate the regulatory environment in their favour - all to the cost of wider society. The reckless activities of the financial institutions who siphoned off the financial benefits of their activities and socialized the enormous costs are only the most spectacular example of this anti-social behaviour. So people are right to be cynical about the benefits of so-called markets. 

But self-interest can do good things, and if we re-jig the incentives we can channel it into the public good. In economic theory, and on all the evidence, markets are the best way of allocating society’s scarce resources. It is unfortunate that, largely for historical reasons, we leave the achievement of social goals to the sort of command-and-control mechanism that is often inefficient (and can also be abused).

A Social Policy Bond regime would probably see some enrichment of corporations, new or existing, but only as a side-effect of their achieving society's agreed social and environmental goals. It could lead to the creation of entirely new organizations, dedicated to finding and implementing the most efficient solutions to our social problems. The bonds are all about building a coalition of motivated investors whose self-interest would be exactly congruent with those of society. If these investors fail to achieve society's goals, their bonds will lose value and they will receive nothing. If they achieve society's goals efficiently they will benefit. Much of this benefit will take the form of salaries for employees of these corporations. It is very like paying people to be teachers: in some societies this would be seen as sacrilegious, but we recognise today that, however idealistic they or their employers might be, teachers need to earn a salary.

 

A Social Policy Bond regime represents a new departure: rewarding people for achieving society’s long-term goals, and doing so in a way that encourages efficiency and effectiveness and punishes incompetence. Sadly, this has never been tried before. In the long run, the existence of this unambiguously socially beneficial way of accumulating wealth could make it easier to raise the tax rates on other profitable, but less edifying activities.

Aligning self-interest with social justice could generate huge benefits, and it would be a shame if these were to be denied to the people who need them most for reasons of ideology or because market forces in general, rather than their abuse and manipulation, have been discredited in the eyes of well-intentioned policy makers.