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.