27 December 2013

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.

18 December 2013

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,
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.

11 December 2013

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.
  • 08 December 2013

    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.