26 July 2013

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.

18 July 2013

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 organization or to give funds to one of the numerous organizations 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 Bondss 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 organizations 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 organizations 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.

06 July 2013

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.