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.