21 December 2014

Et tu, academia?

There are sound reasons for being disdainful of quantitative targets in policymaking - something that forms the very basis of Social Policy Bonds. But, perhaps unfortunately, in our highly aggregated, complex, societies, the alternative to targeting broad, explicit and, most important, meaningful goals is to target narrow, opaque goals that are devoid of meaning in that they do nothing to improve social well-being.

I've blogged before about the proliferation and futility of such Mickey Mouse micro- (here and here for instance) and macro-targets (here and here). So it's disappointing, though not surprising, that the academic world is following the trend. See here, for instance, to read about cash for citations. Or here, for how to find "outfits that offer to arrange, for a fee, authorship of papers to be published in peer-reviewed outlets. They seem to cater to researchers looking for a quick and dirty way of getting a publication in a prestigious international scientific journal."

If we are going to combine financial incentives with numerical targets then we need to make absolutely certain that those targets are, or are inextricably linked to, robust indicators of social well-being. The alternative? Well, it is what we have now: indicators defined not by society, but by vested interests within organizations who suspect that broad, meaningful indicators would threaten their way of doing things, their status, or indeed their existence. 

09 December 2014

Thinking strategically and taking responsibility

Garret Hardin, in his essay 'The Tragedy of the Commons', wrote:

[N]atural selection favors the forces of psychological denial. The individual benefits as an individual from his ability to deny the truth even though society as a whole, of which he is a part, suffers. The Tragedy of the Commons, 'Science', 13, December 1968
Governments supposedly serve society's interests by regulating and taxing individual and corporate activities that are essentially self-serving. It's a process that evolved over time and, while flawed, has proven evolutionary advantages over central planning. And, perhaps because central planning as practised by the Soviet Union and others has been totally discredited, our governments seem to have relinquished their role of thinking strategically on behalf of their citizens. They are subject to the same biases and incentives to deny the truth as individuals. Whether it's environmental disaster, or nuclear catastrophe, or less spectacular but just as grievous impacts of man's inhumanity to man, or financial crises or whatever, our governments take the easy route of waiting for things to happen and then reacting. 

It's inefficient at best, and could be calamitous at worst. Society is so interlinked and complex that major disasters of some sort are inevitable - and extremely difficult to foresee. But government should not then deny the real possibility that these events will occur: it could, and should, think strategically and on behalf of society. By issuing Social Policy Bonds it could reduce the likelihood of disasters, say, without trying to involve itself in how and when they are likely to occur.

For example: I'm reading Eric Schlosser's Command and Control, which tells alarming tales of accidents and blunders that came close to bringing about catastrophe. It's quite disturbing how little incentive the people in control, at all levels, had to think about the potential impacts on society rather than on themselves or the organization of which they were part. Social Policy Bonds that would be redeemed only after, say, 30 years of a complete absence of nuclear explosions, accidental or not, would be one way of giving people incentives to avoid such a disaster. A bond regime targeting such unforeseeable but plausible scenarios would make them less likely to occur and would do so as efficiently as possible. And by issuing Disaster Prevention Bonds government would be doing what it's supposed to do: looking out for all its citizens' interests by directing people's ingenuity into socially useful ends.





26 November 2014

The book: Kindle version

The definitive book on Social Policy Bonds, about 60 000 words in length, is now available on Kindle for approximately US$4.00.

24 November 2014

Solution aversion

From 'Duke Today':
A new study from Duke University finds that people will evaluate scientific evidence based on whether they view its policy implications as politically desirable. Denying Problems When We Don’t Like the Solutions, 'Duke Today', 6 November
I think this echoes a more general finding that we use reasoned arguments to justify prior beliefs, rather than base our beliefs on reason. What does this mean for policymaking? That we'd do best if (1) we are explicit and transparent about the outcomes we, as a society, want to see, and then (2) subordinate all activities, government or private sector, to those outcomes. Any other way of doing things, as in the current system, will bring about ... well, what we see now: the corruption of the policymaking process in the service of the not-always-well-hidden agendas of the rich and powerful. So 'helping small farmers' becomes corrupted into massive taxpayer-funded welfare for the very rich and agribusiness. 'Affordable transport' becomes massive subsidies to the fossil fuel industries. Misbehaving five-year olds are re-interpreted as a new market for the pharmaceutical industry. Even more wasteful, stupid and dangerous: 'being strong' becomes massive expenditure on so-called 'defence' and the acquisition of nuclear weapons.

If we want to support the very wealthiest and most powerful individuals and corporations, why don't we explicitly set out to do so? Why don't political parties promise that when they get into power they will divert resources from the relatively poor to the enormously wealthy? Could it be that such resource transfers would be unpopular?

The answer of course is 'yes', so views about issues such as climate change, or nutrition, or whether depression (for instance) is a chemical imbalance, or whether more armaments improve social well-being are the subjects not of reasoned debate based on the best available information, but means to ends that are usually sectional and mercenary. Interest groups act on what they believe are their narrow interests; their minds are made up, and they take whichever side of a genuine debate best serves their agenda.

It's a haphazard and destructive way of making policy. Social Policy Bonds offer a better approach: let society determine which broad social and environmental goals it wants to see achieved and their relative priority. Government and private-sector bodies would then be rewarded for doing what they can to achieve these goals: and they would have incentives to see and evaluate the scientific evidence in terms of how best they can serve society's interests, not their own. It might not sound revolutionary, and indeed it shouldn't be. But it is.

08 November 2014

Measureable versus immeasurable goals

Theodore Dalrymple writes:
[W]e suffer nowadays from an unease in talking about what cannot be easily measured, such as life expectancy. If I say something that would once have seemed perfectly obvious, such as that loneliness is undesirable, someone will demand the evidence. Life expectancy can be measured; and we are inclined to believe that what can easily be measured must be more important than what cannot. The result is a lot of pseudo-thought. ‘Hell is other people?’, Theodore Dalrymple, 'Salisbury Review', 20 October
In our large, complex societies, government bodies have enlarged their role and largely supplanted families, extended families, and communities in supplying a range of welfare services to a large proportion of their populations. Increasingly, and of necessity, government relies numerical indicators to manage its resource allocation.

But this use of indicators is relatively recent, unsystematic and unsophisticated. Few indicators are targeted explicitly for a sustained period: the targeted range of inflation is a rare exception, as is the coherent range of indicators presented in the UK Government’s attempt to tackle poverty.  Other indicators, such as the length of hospital waiting lists, don’t measure what matters to people or are prone to manipulation. Even when numerical goals are clear and meaningful they are rarely costed, they are almost always too narrow, and they are largely chosen to mesh in with the goals and capabilities of existing institutional structures. Those broad targets that are targeted with some degree of consistency tend to be economic aggregates, such as the inflation rate, or the rate of growth of Gross Domestic Product — which appears to be de facto indicator par excellence of rich and poor countries alike. But GDP’s shortcomings as a single indicator of the health of an economy are well known.

What would a Social Policy Bond regime, though, say about those things that cannot readily be measured, like loneliness? In the absence of objective, reliable indicators of mental well-being perhaps the best approach would be for government to step back and target only those quantifiable indicators or goals that are inextricably linked to those sorts of well-being that we can measure. But that would not be enough: some government activities aimed at, to take our current discussion, lengthening life expectancy could well increase loneliness. Think, for instance, of government support for roads, which may well have the effect of both lengthening life expectancy and increasing loneliness.

Facing this dilemma, I have a response, rather than an answer. A Social Policy Bond would set policy targets by consensus. People understand outcomes more than the means of achieving them, and so could and would participate in the policymaking process, including the setting and relative priority of social goals. There would be more buy-in to policy, which itself might go some way toward relieving the negative impacts of certain decisions. There's no perfect solution, but a bond regime, because of this additional opportunity for public participation that it offers, and because it forces clarity over exactly what we want to achieve as a society, could help to resolve conflicts between measurable and immeasurable goals.

16 October 2014

GDP versus mental well-being

I posted recently about how a the framing of healthcare issues as medical problems can lead to sub-optimal outcomes, drawing on the work of Dr Jocalyn Clark. I suspect it's symptomatic of a broader problem.

Western societies are built around the assumption that a healthy economy will either solve all our problems, or allow us to do so. In this sense, we are framing all our problems as economic. Now a successful economy does actually solve many of our problems, but there are parts of our economy that if successful, actually are in conflict with our goals as human beings.

Part of the problem is the definition of success that we use. Almost always we mean the accountants' definition of success: economic activity: Gross Domestic Product, which is equivalent to the volume of money times the velocity of circulation. GDP, or GDP, per capita has become the de facto goal of society. A higher GDP means a higher potential to achieve all our goals, we reason. Even if much of its gains are concentrated in relatively few pairs of hands, and even if certain generators of GDP create negative impacts, a higher GDP means we can compensate the losers - even if we don't actually do that.

There's a big flaw in this, similar to that which Dr Clark identified: we are framing all our social problems as economic ones. Very often this framing is not explicit: it's part of who we are and the society we live in.

In my work on Social Policy Bonds, I've attempted to make clear that economic growth is not actually an end in itself, but a means to various ends that it would be more efficient to target directly. If, for instance, we want to reduce crime, then we'd do better to reward people for reducing crime rather than simply increasing the funding of bodies that are supposed to be fighting crime. The Social Policy Bond framing allows for all sorts of experimentation with non-conventional ways of reducing crime. Under our current system there are few funds systematically given to help people run youth centres in areas of high youth unemployment. Under a bond regime, people would have incentives to fund such centres in places doing so would maximise the reduction in crime per dollar outlay.

So far, so (relatively) conventional. But suppose our problems have little to do with resources, or even with the allocation of scarce resources, but with economic activity itself? Take the recently highlighted (in the UK) studies showing that loneliness is a big and growing problem for both young and old. Loneliness and alienation are to some degree a product of our economic system, which is entirely dependent on specialization of labour. As well, consumption of goods and services is, along with government spending and investment, one of the drivers of GDP. We have a society with an over-arching, and not always explicit, imperative to buy things. We maximize GDP by buying things for ourselves, rather than sharing. Government can also contribute to social alienation by, for examples, subsidising environmental destruction, or encouraging without consulting the public mass unselective immigration with a view to keeping wages low and property values high (or to help it retain power or simply out of spite). Government looks at its own accounting flows, and knows well that increasing economic activity raises its tax revenues.

Our current system, then, is inherently geared to the monetisation of just about everything. A Social Policy Bond regime could actually subvert such a system. It could undermine the transactional way of conducting our affairs, and encourage other, less mercenary activities, where those would be the most efficient and effective ways of reaching our actual, explicit, goals. Doing so would not be its goal, but it could arise out of the goals we specify which would, one hopes, be more congruent with society's real goals than our current implicit goal of ever-increasing economic growth. There's an obvious paradox: a bond regime would pay people to achieve our goals, but if achieving our goals requires the cessation of payments and the ending of a transaction-based activity, then under a bond regime that is exactly what will occur. Bondholders have incentives to look for the most efficient ways of achieving our goals, regardless of whether they involve money flows or not. Under the current policymaking system, with its perverse incentives and its over-arching goal of maximising the number of transactions (so raising GDP), it is extremely unlikely to occur. The bias under the current system is always towards more transactions, more money flows and so more alienation and loneliness. And what is our society's default response to loneliness and depression? To increase economic activity still further: by manufacturing and marketing powerful drugs.

A well-specified Social Policy Bond regime would target for improvement reliable indicators of mental well-being. The effects of doing so, we cannot anticipate. But the possibilities are as immense as they are apparently paradoxical: the bonds, utterly dependent on financial flows as they are, could reverse the extreme specialisation of our society, the extreme individualistic nature of our consumption patterns, and the entirely transactional way in which we more and more see the world.


27 September 2014

Bertrand Russell anticipates Social Policy Bonds

Bertrand Russell (1872-1970) wrote: 
There is one peculiarly pernicious application of the doctrine that human nature cannot be changed. This is the dogmatic assertion that there will always be wars, because we are so constituted that we feel a need of them. .... If political organization were such as to make war obviously unprofitable, there is nothing in human nature that would compel its occurrence, or make average people unhappy because of its not occurring. Exactly the same arguments that are now used about the impossibility of preventing war were formerly used in defence of duelling, yet few of us feel thwarted because we are not allowed to fight duels. An outline of intellectual rubbish, first published 1943,from 'The Basic Writings of Bertrand Russell', Routledge Classics 2009
Incentives are important and so too is belief that we can end war. Of course, nobody knows how to end even a single conflict, but much human progress has happened serendipitously, with no overall plan. I think we can do better than that, and issue Conflict Reduction Bonds, for instance, which supply incentives for people to find ways of ending conflict that we cannot know in advance. The causes of war are many, complex and volatile. No organization as currently structured can possibly anticipate and address them. We need new types of organization that have incentives to research, adapt, and address all likely causes of war. War and any form of violent political conflict are too important to be left to government or the generals.


26 September 2014

Is global health overmedicalised?

Are we overmedicalising global health? is the title of a recent podcast by Dr Jocalyn Clark, who has also written an article (which I haven't read) on the subject. It's a great question, and one that needs answering. My suspicion is that, as in other policy areas, approaches are too much determined by existing institutions and their outlook and goals. These goals don't always coincide with those of society; sometimes they could even be in conflict with them. In global health, Dr Clark says, there is:

...a medicalisation of these global health problems which occurs when global health issues, which are so strongly linked to poverty and inequity, instead get defined and framed in medical terms and then the solutions developed for them are similarly medicalised.
As society becomes more complex, relationships between cause and effect in physical and mental health, and also in crime, environmental well-being, illiteracy and many other areas, become less easy to identify. But current approaches rely largely on government institutions to make a stab at identifying these relationships and then try to do something to influence them and so improve outcomes. For simple relationships, this can work well and, indeed, government might be the only organization that can deal with certain social and environmental problems. But for complex relationships, especially those that vary markedly over space and time, approaches that rely on government are going to be inefficient at best and in conflict with wider goals at worst. We need, instead, to subordinate institutional structures, outlook and goals to outcomes. And these outcomes must be broad, societal outcomes, rather than those articulated by  existing institutions.

'Health care is but one determinant of health', says Dr Clark, rightly. Targeting broad health outcomes would be a more reliable way of achieving health goals than, as is done now, framing health goals in terms of existing institutions and existing approaches. One solution might be to adopt the Social Policy Bond principle and issue Health Bonds, which would inject market incentives into the achievement of our health goals and reward whoever achieves these goals, whoever they might be, and however they might do so.

06 September 2014

When government should step back: higher education


Marina Warner writes:
[T]here is a central contradiction in the [UK] government’s business model for higher education: you can’t inspire the citizenry, open their eyes and ears, achieve international standing, fill the intellectual granary of the country and replenish it, attract students from this country and beyond, keep up the reputation of the universities, expect your educators and scholars to be public citizens and serve on all kinds of bodies, if you pin them down to one-size-fits-all contracts, inflexible timetables, overflowing workloads, overcrowded classes. Diary, Marina Warner, 'London Review of Books' dated 11 September

Quite. There are some easily quantifiable benefits of education, such as universal literacy and numeracy, but not many. Government can and should target such goals and it could also usefully target attendance at approved educational establishments for children up to the age of 16 or 18. But when it comes to higher education, government should perhaps step back; it could still fund institutions if there's a public will for it, but there is a strong case for making its funding conditional only on certain minimum standards, rather try to apply the narrow, accountancy-based, short-term goals that are a feature of the business world. The demand for tertiary education is relatively informed; students relatively mobile. Government in this, and other policy areas, needs to exercise some humility. Diversity of funding sources, as between government and other sources, and within government, would also be helpful. I've done a short piece here on how an outcome-focused Social Policy Bond regime could approach education.

An update: released today (8 September) is a report done by the charity Save the Children, which says, referring to the UK: "The most comprehensive study of pre-school and primary school-aged children in a generation found disadvantaged children are the worst affected, with four in ten not reading well by the age of 11."


27 August 2014

Who cares about outcomes?

Politicians are skilled at doing the exact opposite of what they make us think they're doing. The policymaking process in the public mind is a tedious discussion of organizational structures, organizational funding, and regulation. The tedium is so ingrained that few of us take a deep interest unless we're being paid to. It's probably deliberate, at some level. So when politicians say they want to cut back on subsidies paid for fossil fuel consumption, it shouldn't really shock us that not only are such subsidies still being paid, they're actually increasing. The International Energy Agency tells us that:
The IEA’s latest estimates indicate that fossil-fuel consumption subsidies worldwide amounted to $544 billion in 2012, up from $523 billion in 2011, with subsidies to oil products representing over half of the total.World Energy Investment Outlook 2014, IEA, June 2014
As pointed out here, this is four times the level of aid given by the OECD's Development Assistance Committee ($134 billion in 2013). 

24 August 2014

Wisdom

I've long argued that social policy needs institutions that must be subordinated entirely to broad, meaningful outcomes. Instead, we have institutions whose over-arching purpose is self-perpetuation. Francis Fukuyama writes, wisely in my view:
The very stability of institutions, however, is also the source of political decay. Institutions are created to meet the demands of specific circumstances, but then circumstances change and institutions fail to adapt. One reason is cognitive: people develop mental models of how the world works and tend to stick to them, even in the face of contradictory evidence. Another reason is group interest: institutions create favored classes of insiders who develop a stake in the status quo and resist pressures to reform. America in DecayThe Sources of Political Dysfunction, Francis Fukuyama, 'Foreign Affairs', September/October
The current regime takes existing organizations as a given. Debate centres around their funding, composition, remit and structure. A Social Policy Bond regime would instead fund outcomes, and let bondholders decide on the optimal organizational form; one that, especially for remote social goals, would - or just as importantly - could change shape, size, and the projects it supports, constantly, in response to changing circumstances and our expanding knowledge.
[M]any [of the US's] political institutions have become increasingly dysfunctional. A combination of intellectual rigidity and the power of entrenched political actors is preventing those institutions from being reformed. And there is no guarantee that the situation will change much without a major shock to the political order.
Exactly. Social Policy Bonds would target outcomes directly, and let motivated bondholders and would-be bondholders compete continuously  to decide how best to achieve them. Intellectual rigidity under a bond regime would be penalised. Efficiency would be rewarded. All in stark contrast to the system not only in the US, but in much of the rest of the world. 

07 August 2014

Public service reform

The Economist talks about public service reform:
But voters, and thus politicians, are especially intolerant of civil-service inefficiency nowadays. One prompt is austerity. Another is technology, which is changing not only how public services are delivered—think of “massively open online courses” in education—but also the way they can be measured. Social networks enable users to grumble about hospital waiting-times and mathematics results. Perhaps the biggest pressure is the passing of time: private-sector workers are incredulous as to why civil servants should escape the creative destruction that has changed other offices around the world. Mandarin Lessons, 'the Economist', 9 August 2014
Quite. Why is it that the achievement of social goals remains (largely) a government monopoly? No good reason, other than vested interests and highly successful patch protection.

The Economist goes on to talk about pay and the need for long-term, strategic thinking. Politicians love to restructure and re-prioritize, to tinker with funding, and to appoint placemen in powerful positions. The remedies the journal suggests include better pay, reduced security for top public service positions and, perhaps, appointing some overlord who takes an exceptionally long-term view.

I have another suggestion: target broad, meaningful outcomes, and let a motivated market decide on organizational structures, composition and the projects they undertake. Under a Social Policy Bond regime there might or might not be 'destruction' of such organizations, as envisaged by the Economist and as occurs in a well-functioning private sector, but such destruction is a means not an end. Social Policy Bonds would ensure that any such destruction would occur only if it were truly 'creative' in the sense of better achieving society's goals, as defined in the redemption terms of the Bonds.

It's likely that a new type of organization would result: one subordinated to the efficient achievement of meaningful social and environmental outcomes rather than, as now, the caprice of powerful interests, be they government or private sector.

26 July 2014

New procurement in Barcelona and Philadelphia

Christopher Swope writes about changes in procurement in the cities of Barcelona and Philadelphia: 
Typically when cities buy goods or services, they spell out in strict detail exactly what it is they want to buy. But that level of specificity stifles innovation, because it restrains the inventiveness of companies who might bid on the work. It also limits the pool of bidders to established companies familiar with the sort of solution the tender asks for. Barcelona’s less proscriptive approach turns the old system on its head. Rather than laying out exactly what it wants to buy (say, bike lockers), Barcelona is laying out six problems it wants to fix (such as reducing bike theft). How Barcelona and Philadelphia Are Turning Procurement Upside Down, citylab, 18 July

Anyone familiar with Social Policy Bonds will see the similarity: specify outcomes, rather than the supposed means of achieving them: 
Responses could involve buying things, but they might also suggest new services, regulatory changes or any other means of accomplishing the goal.
Excellent - as far as it goes. This procurement system will stimulate diverse, innovative solutions. The difference, and it's a big one, between this mechanism and Social Policy Bonds, lies in how these various possible solutions are decided upon and rewarded.

It appears that after gathering together various diverse possible approaches, a selection is made, presumably of those approaches deemed (I'm not clear by whom) to be the most promising. And the reward?
Anyone around the world with a creative idea, including startup companies or even individuals, has a shot at a contract and all the market legitimacy that comes with that.
It's an improvement over the current system, but in comparison with Social Policy Bonds, I think it has weaknesses:
  • The selection of the most promising approaches might be open to favouritism, image, or corruption - in short, qualities that have little to do with efficiency. More seriously, it's a one-off selection, made under circumstances that will be very likely to change so as to make the selection sub-optimal. 

  • Once the selected approaches are made and implemented, there seems to be no further discipline: the team working on the selected approaches has little incentive to be or remain efficient. They've won the contract; there's every incentive to sit back and relax. 

Things would be different under a Social Policy Bond regime, whereby bondholders, that is those who are charged with implementing solutions, can continue to reap the rewards of doing so only if, in the eyes of motivated competitors, they are the most cost-effective provider of solutions. There is a continuous incentive on bondholders to be efficient. If they are seen to be inefficient, their bonds will be worth more to operators who think they can be more efficient, who will then buy them.

Also, under a bond regime, taxpayers (or whoever else backs the bonds) lose nothing if the specified goal isn't achieved. And if the goal is achieved, rewards will tend to be distributed to bondholders according to the contribution they make to achieving it, and their efficiency in doing so. All this makes a Social Policy Bond regime more versatile than this new procurement initiative, and one more capable of achieving larger, more remote goals, for which a single, unvarying, combination of operators is unlikely to remain at all times the team best placed to achieve society's goals efficiently.


12 July 2014

War and peace, and GDP

Readers interested in a meta-solution to the conflicts in the Middle East could do worse than read my short piece on Peace Bonds. Defining peace in terms robust enough for our purposes might not be easy, but the necessary thinking will help clarify exactly what we want to achieve. As in many other policy areas, there are plenty of statistics already being gathered and with some verification and supplementation a combination of them could be targeted by a Peace Bond regime. See, for instance, this site, for some indicators that we could target. 

On another note, David Pilling asks: has GDP outgrown its use? As I have repeatedly posted (here, for instance), the answer is an unqualified yes.

26 June 2014

Er ... we meant wind-powered cars

The Economist urges cuts in greenhouse gas emissions with this compelling argument:

Moreover, high temperatures do not affect only outdoor workers. [A] study found that a week’s worth of outside temperatures over 32°C cuts production in car plants by 8%. The costs of doing nothing, Economist, dated 28 June
Wow, this climate change business is serious: we must cut back on greenhouse gas emissions - and quickly - or we could see big falls in the numbers of cars being produced!

23 June 2014

Biodiversity

How much biodiversity do we want? It's unfortunate that we even have to ask this question, but until we answer it we're likely to see more and more extinctions, along the lines described by Elizabeth Kolbert. Biodiversity is difficult to measure but, again unfortunately, unless we do, and somehow set quantifiable targets, we shall lose it at a high rate as habitat loss and other mankind-induced environmental changes continue apace. Biodiversity, along with other unquantified but crucial contributions to quality of life is something else that is being be sacrificed by default in pursuit of an ever-higher Gross World Product; our de facto over-arching target.

How would a Social Policy Bond regime address biodiversity? We could target it quite directly, using a combination of proxies such indicator species, and areas (and contiguity) of land and sea set aside for conservation.We could also target for reduction the negative impacts of loss of biodiversity.


Myself, I'm no expert in these matters. But there are experts who, if we were motivated, could be brought into a discussion, culminating in biodiversity goals and priorities in ways that maximize society's well-being per dollar spent.

It's not being done, partly because our policymaking is stuck with a system that doesn't allow governments to set goals unless they also achieve them - something that, when it comes to complex, long-term, goals, requiring adaptive, diverse approaches, they cannot do well.

The Social Policy Bond principle is different. Under a bond regime governments - or any wealthy group of people, corporations, or non-governmental organizations - could set goals as lofty and long-term as a world of maximum biodiversity (however it's defined), and reward the people who achieve these goals. We need now, more than ever, diverse, adapative approaches to challenges such as biodiversity loss or, for that matter, violent political conflict; huge threats, but ones that are largely ignored in pursuit of goals whose only virtue is that they can be measured by accountants.

09 June 2014

Foundations of bone and sand

Twenty-five years after the world first moved to protect the ozone layer, British scientists have found three new potentially damaging gases in the atmosphere. While they do not expect the gases to do much damage to the ozone layer, think they may add to global warming. Threat from new gases found in air, Alex Kirby, 4 June
For years now I've been railing against building policy on fossilised foundations. To put it briefly, government does not know how best to achieve society's goals. When it looks at climate change it relies on science done in the 1990s; its policy is to cut back on greenhouse gas emissions - or rather, those gases identified as greenhouse gases more than 15 years ago. But what if, as I've been asking for not quite15 years, the science is wrong? Or outdated? The policymakers, true to form, have no answer except to continue building on crumbling foundations.

When society is changing so rapidly, when our scientific knowledge is expanding at an ever-increasing rate, then policy should target outcomes, rather than the supposed means of reaching them. A Social Policy Bond regime would do this. It would encourage diverse, adaptive approaches to whatever it identifies as the problems arising from, in this example, climate change. Our current policymaking system cannot adapt. It puts the interests of current organizations, be they public or private sector, first, and if it does build new organizations, it does so on ossified foundations.

04 June 2014

Targeting human devastation

I've posted before about the flawed nature of what has become, by default, society's de facto indicators of success: Gross Domestic Product (or GDP per capita) and its rate of growth. In the absence of any targets that are actually correlated with societal well-being, GDP has been enshrined as the target, par excellence, by which our governments measure their progress. It's highly misleading at best, for reasons I've outlined previously, so it comes as no great surprise that on 22 May:
Istat, Italy’s statistical body ... will from October ..include drug trafficking, prostitution, and alcohol-and-tobacco smuggling in its economic-output numbers.... In fact, then as now, Italy was merely one of the first countries to announce its compliance with international accounting standards. Reporting illegal economically productive activity in which all parties take part voluntarily is required under EU rules known as the European System of Accounts.... Sex, drugs and GDP, 'the Economist', 31 May
Well why not? It's no more illogical than doing what we have been doing for decades: assuming that economic activity generates societal well-being - an assumption that is increasingly at odds with reality. 

We urgently need to target explicitly things that we actually want to achieve: universal literacy, for instance, world peace, or even the survival of the human race. In the absence of such targets, the vaccuum is filled by that grotesque proxy for success: Gross Domestic Product. It's a shambles.

22 May 2014

The moral case for tax avoidance

George Monbiot writes about Scotland's deer-stalking estates and grouse moors:
Though the estates pay next to nothing to the exchequer, and though they practise little that resembles farming, they receive millions in farm subsidies. The new basic payments system the Scottish government is introducing could worsen this injustice. [Andy] Wightman calculates that the ruler of Dubai could receive £439,000 for the estate in Wester Ross he owns; the Duke of Westminster could find himself enriched by £764,000 a year; and the Duke of Roxburgh by £950,000. I'd vote yes to rid Scotland of its feudal landowners, George Monbiot, 'the Guardian', 19 May
It's not so much the wastefulness of such subsidies, nor the environmental devastation they wreak, nor even the lunacy of taking money from ordinary people to subsidise wealthy aristocrats and monarchs. Rather, the issue is the persistence of such stupid, corrupt policies, which have hardly changed in the several decades since they were first exposed and their impacts quantified. We have no systems in place to act on the voluminous evidence of their disastrous (for more than 99 percent of the population) effects. This is one big disadvantage of making policy as if outcomes are irrelevant: nobody has incentives to terminate failed policies. Instead, the beneficiaries of lucrative-but-stupid policies, have every incentive to oppose their withdrawal, and the means by which to do so.

Mr Monbiot goes on to describe the visual impacts:
The hills in many parts look as if they have been camouflaged against military attack, as they have been burned in patches for grouse shooting. It is astonishing, in the 21st century, that people are still allowed to burn mountainsides – destroying their vegetation, roasting their wildlife, vaporising their carbon, creating a telluric eczema of sepia and grey blotches – for any purpose, let alone blasting highland chickens out of the air. Where the hills aren't burnt for grouse they are grazed to the roots by overstocked deer, maintained at vast densities to give the bankers waddling over the moors in tweed pantaloons a chance of shooting one.

19 May 2014

Eradicating war without blueprints

Richard English writes:

[T]o pursue the eradication of war would be as naïve as to pursue human or moral perfection; the effective curtailment of particular wars, or specific war-time brutality, almost certainly depends instead on recognizing our appalling capacity for (and even our historical tendency towards) justifying and practising violent atrocity. ...
For the prospect of establishing human behaviour along lines guided too closely by idealized blueprints probably exaggerates human capacity for improvement. Modern War, Richard English, 2013
I don't agree with the first clause; 'naive' implies that eradicating war will be impossible to achieve. I do agree that being 'guided too closely by idealized blueprints' will, in itself, not be sufficient to eradicate war, though it might be one necessary approach. This is where the Social Policy Bond principle enters the picture: we aim to eradicate war; we raise funding to achieve that goal, but we do not ourselves draw up blueprints as to how to achieve our goal, nor do we try identify who might best achieve it. Instead we issue Conflict Reduction Bonds (or Middle East Peace Bonds, or World Peace Bonds). These are no idealized blueprints: they are means by which motivate people to solve mankind's most grievous social problem.

Much that is good in this world has come about almost randomly, often as a by-product of some persons' pursuit of short-term financial gain. Or only after calamitous experience and exhaustion. I think we can do better: we can supply incentives for people to achieve social goals and let the market - the best way of allocating resources ever discovered - decide which approaches are best and which should be terminated. Idealized blueprints won't always work and, as Mr English also says, "most of our attempts to set out prophylactic measures and structures against modern war have seemed (and continue to appear) frequently doomed to blood-spattered failure." But sometimes, some of these approaches and institutions do actually work. A bond regime would encourage people to persist in those circumstances, and to explore, and refine other approaches too. I don't think that's naive.

14 May 2014

07 May 2014

Social goals: neither barmy nor simplistic

Yves Smith does us all a service in exhuming and refuting Milton Friedman's claim that "corporations exist to maximise shareholder value". Friedman wrote, in 1970:
That responsi­bility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while con­forming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.... The Social Responsibility of Business is to Increase its Profits, 'The New York Times Magazine', 13 September 1970
Perhaps that was believable back in 1970. Since then, it's become clear that the basic rules of society are there to be manipulated or ignored in pursuit of corporate earnings. As Mr Smith reminds us, corporations pursue corporate goals, rather than those of shareholders. Nevertheless, Mr Smith concludes:
Friedman’s simplistic, barmy idea found fertile ground. And it became self-reinforcing as executives learned to use it to line their wallets. The long-lived, difficult to displace but not lavishly paid corporate chieftain was over time supplanted by wildly overpaid straight-from-central-casting CEOs. Why worry overmuch about longevity if you can rake it in a 3 to 5 year tenure? ....  So again, repeat after me: “maximizing shareholder value” is an idea made up and promoted by economists, starting with Milton Friedman and his Chicago School cronies. And like many ideas that came out of the Chicago School, the public as large has suffered from treating a soundbite like a serious policy proposal.

All true and important. But perhaps the deeper and broader problem is the mismatch between metrics that become targets, and the well-being of society.

My hypothesis is this: In an older, less complicated, world the correlation between an accountant's view of a corporation and that corporation's success would be strong. So too would be the correlation between the success of a corporation and its contribution to social well-being. Since those days, as population has grown, as society has become more complex, and as our more basic needs have been more satisfied (largely thanks to the activities of these corporations), the correlations have become weaker. A corporation's success can have negative, non-market, impacts on the environment about which we feel more strongly. Its activities and products or services can contribute very little to social well-being, or even detract from it.

All this is not to deny that there are a lot of positive externalities arising from corporate activity. My point is that we have no systemic means of encouraging corporations to, in Friedman's words, conform to the  basic rules of society. If a corporation creates havoc in the social or physical environment, then we rely on government to put a stop to it: but often this is too little, too late, partly because of inevitable time lags, partly because government relies on corporate taxes, and partly because big business and government are just too close and corporations find it easy to subvert or ignore those basic rules.

Accountants' measures of success are less and less reliable indicators of social well-being. And the single over-arching accountancy-derived metric is that of Gross Domestic Product (or GDP per capita) which is explicitly or implicitly targeted by almost all governments (except, probably, that of Bhutan).

We need new targets; targets that correlate strongly with society's real aspirations. Targets that reinforce conformity with existing and enhanced basic rules; that countervail current incentives to subvert or ignore them.

That's where Social Policy Bonds could enter the arena. The bonds would act as a meta-system, into which corporate activity would fall. They would target broad social and environmental goals and reward people for achieving them. They would reduce the incentives for corporations, and their friends in government, to aim for goals that satisfy accountants as distinct from, or against, society and the environment. It's time we moved on from identifying the narrow, short-term goals of big business with those of ordinary members of society. They aren't identical; they can conflict, and they might even be diverging.

26 April 2014

Democracy in danger

Multivariate analysis indicates that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence. Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens (pdf), Martin Gilens and Benjamin I Page, 9 April

The authors came to this conclusion after reviewing answers to 1779 survey questions asked between 1981 and 2002 on public policy issues. They broke the responses down by income level, and then determined how often certain income levels and organised interest groups saw their policy preferences enacted.

There's little prospect of this changing so long as policymaking is conducted in terms of things that alienate ordinary people. Sometimes our politicians speak eloquently of lofty, high-minded goals whose time lines stretch so far into the future that they can be sure they will not be held accountable for their failure to realize them or that are otherwise unverifiable because they are just too vague. More often, though the stated goals of policy have to do with dollars spent, institutional structures and composition, legalisms, regulations or outputs - all of which are too arcane, complex and obscure for anyone other than lawyers, lobbyists and ideologues to follow closely. The only people who understand policymaking today are those who are paid to do so, and the only people  who influence it are those who have the millions of dollars necessary to pay them. These are Gilens' and Page's 'economic elites and ... business interests'. They continue:
When a majority of citizens disagrees with economic elites and/or with organised interests, they generally lose. Moreover, because of the strong status quo bias built into the US political system, even when fairly large majorities of Americans favour policy change, they generally do not get it.
Yes, our societies are complex and highly aggregated. But people's goals are far more easily articulated than the alleged means of reaching them. One solution to the problem described by Gilens and Page, and felt by almost everyone, could be to express policy goals in terms of outcomes that are meaningful to ordinary people. Things like pollution levels, crime rates, poverty rates, literacy standards. There wouldn't be universal agreement about target levels and priorities, but there would be engagement by the public in the policymaking process. With such engagement, there would be influence and buy-in.

A Social Policy Bond regime would start by expressing our social and environmental goals in terms that people can understand and influence. Government, instead of trying to guess how best to achieve our goals (which it is not good at doing) would instead concentrate on articulating society's goals and raising the revenue for their achievement (both of which democratic governments can actually do quite well). The other essential element of a Social Policy Bond regime is to inject the market's incentives and efficiencies into the achievement of our social goals - something that rarely happens nowadays. (For more, see my SocialGoals.com website.)

The alternative? Gilens and Page conclude:
Americans do enjoy many features central to democratic governance, such as regular elections, freedom of speech and association and a widespread (if still contested) franchise. But we believe that if policymaking is dominated by powerful business organisations and a small number of affluent Americans, then America's claims to being a democratic society are seriously threatened.






24 April 2014

Mickey Mouse targets: gargantuan impact

From The Economist:
Like almost every other local government in China, Xianghe’s has an urbanisation target: 60% by 2017, up from around 50% today and ahead of the national target of 60% by 2020. Since the global financial crisis in 2008, governments have been hardening such objectives as a way of stimulating growth, and have been borrowing heavily to meet them. Emerging from the shadows, 'The Economist', 19 April
Targets such as these, including especially the universal (apart from perhaps in Bhutan) and much-revered de facto target of governments everywhere, Gross Domestic Product, are Mickey Mouse in conception and in their relationship to ordinary people's well-being, but not, unfortunately, in the impact they have on us all. They are top-down targets, favoured by the political caste and their functionaries. They become the sole focus of bureaucrats' attention to the exclusion of anything else. When it comes to urbanisation in China, the impacts are socially and environmentally disastrous: local governments scramble to meet the targets by throwing peasants off the land they and their families have been farming for generations. One result, The Economist continues, is...
 ...the rampant urban sprawl encouraged by local governments’ ability to seize rural land at will. Such unrestrained expansion may work in parts of America where there is plenty of empty land (albeit at a cost to the environment and often to the quality of life). In China, where urbanisation has forced around 40m farmers off their land over the past three decades, usually with little or no compensation, it will not.
There's a stark contrast between the ad hoc, spurious, almost random nature of targets like urbanisation rates, and the serious negative impacts they have on everyone other than the people who dream them up. 

People who make policy for large societies need to rely on some sorts of numerical indicators of society's goals and how quickly we are reaching them. But indicators and targets should be well thought out and as consensual as possible. They should be in themselves, or be inextricably linked to, things that we actually want to achieve. In other words, they should not merely have (perhaps) been associated with social well-being in the past. They should be outcomes that are meaningful to ordinary people, because that's what matters most and that is what will encourage people's engagement with policymaking and hence buy-in to policies that affect us. Mickey Mouse indicators like urbanisation, or GDP are just not good enough. They speak of a growing and dangerous alienation of rulers from ruled.

17 April 2014

Non-random incentives for world peace

The average person is now roughly 20 times less likely to die violently than the average person was in the Stone Age. The Slaughter Bench of History  Ian Morris, 'The Atlantic', 11 April
How did this come about?  According to Professor Morris:

For most of our time on earth, we have been aggressive, violent animals, because aggression and violence have paid off. But in the 10,000 years since we invented productive war, we have evolved culturally to become less violent—because that pays off even better.
I can't argue with Professor Morris. Human beings are rational, and respond rationally to the incentives on offer. It's tragic, though, that the incentives not to prosecute war seem to have come about quite randomly; through experimentation over millennia with every sort of conflict, fought with ever-improving technology, at calamitous human cost.

I think we can do better - and we should. Instead of relying on the slow, random and painful process of learning through direct experience, we could actively create or magnify the incentives for peace. We could, simply, make a conscious, deliberate decision to increase the incentives for people to avoid war.

How? We could apply the Social Policy Bond principle to violent political conflict. We could issue World Peace Bonds or, say, Middle East Peace Bonds. We don't have to know how people who invest in these bonds will use their expected returns from bondholding to reduce the chances of conflict breaking out. Nor do we need to know who, exactly, will buy the bonds and undertake peace-building activities. What we would do, by issuing Peace Bonds, is motivate people who are currently pre-occupied with other, probably less socially beneficial, concerns, to get involved in peace-building and explore, refine and implement the most efficient ways of ending war. 

War has been a curse for generations and remains an existential threat: the full title of Professor Morris's piece excerpted above is: How war created civilization over the past 10,000 years—and threatens to destroy it in the next 40. Peace Bonds could generate bigger incentives to end war far less randomly and at lesser human cost, than through the the current process of random blundering accompanied by painfully slow, fitful, learning; a process that may yet culminate in unrestrained nuclear conflict with the deaths of millions.

12 April 2014

Metrics for peace

Social Policy Bonds have their most marked advantage over conventional policy when trying to solve complex solutions for which there is no single, knowable, solution. Climate change (or some of its impacts), crime, or infant mortality in the poorest countries are examples of such problems, as too is violent political conflict: war or civil war.

For issuers of World Peace Bonds, or Middle East Peace Bonds the challenge is not how to achieve peace - that will be left to bondholders - but how to define it in such a way that its achievement will robustly and verifiably have brought about societies in which most of us would be happy to live.

A start would be to issue bonds that would become redeemable when there has been no nuclear explosion that kills more than, say 100 people before 1 January 2050. We could of course issue bonds targeting nuclear peace for decades beyond that date. Similarly, we could target sustained periods of peace relative to today's world: bonds that would become redeemable if the annual numbers of people killed in conflict fall below 50 percent of the average levels from 2007-2012, say, for a period of 10 years.

But a ruthless and powerful dictator could impose those sorts of peace by simple blackmail. We could perhaps therefore combine our main peace goal with other conditions that will have to be satisfied for the bonds to be redeemed. These could include broad quality of life indicators, including the well-being of all communities in a population. It might also be worthwhile to classify as outcomes such essentials for war as weapons, or the sums spent on them, or the number of men and women under arms, and target these for reduction too. We might also want to target attitudes of people towards people of different countries, ethnicities or religions, in ways that will discourage politicians and others from provoking conflict.

Feeding into such attitudes, or possibly as another target to be considered by bond issuers might be to encourage intermarriage between communities that are currently antogonistic. For most governments, advocating or even discussing such an idea would be political suicide. But for holders of Middle East Peace Bonds, for example, it would merely be another tool that can choose to use or not, depending on their view of how effective it will be. Under a bond regime targeting the end of violence between communities in conflict, no official programme of sponsored intermarriage need be contemplated. Bondholders, though, could do, or cause to be done, things that governments cannot do. There would be no sinister motives underlying their actions; their motive, clear and comprehensible to all, would be explicitly mercenary with no sinister overtones: to raise the value of their bond holdings. As human beings, most of us agree that anything that resolves conflict peacefully and at a bearable cost should be encouraged. Apart from fanatics, even the devout on both sides of most conflicts, away from public fora and in their cooler moments, would put human survival above ethnic purity or identity politics. Even a little intermarriage between two warring factions could go a long way.

Most likely, under an enlightened Peace Bond regime, intermarriage, rather than being directly encouraged, would be the happy outcome of a range of projects aimed at increasing informal contacts between two sides of a conflict, including such trustbuilding measures as lower barriers to trade, school exchange visits, or mixed sports teams. One of the benefits of the Social Policy Bond concept is that it can stimulate actions like these including, if necessary, the direct sponsoring of intermarriage, or the birth of mixed-ethnicity children which, if governments were to undertake them directly, would be met by near universal disdain and opposition.






27 March 2014

Bad Policymaking

Ben Goldacre writes in Bad Pharma (2013):
[I]t’s possible for good people, in perversely designed systems, to casually perpetrate acts of great harm on strangers, sometimes without ever realising it. The current regulations – for companies, doctors and researchers – create perverse incentives; and we’ll have better luck fixing those broken systems than we will ever have trying to rid the world of avarice.
Dr Goldacre is discussing the medical profession, but his point applies to any regulatory system. In medicine, as in so many other policy areas, the complexity and obscurity of relationships between cause and effect make it easy to generate outcomes that are suboptimal at best and murderous at worst. Where large sums of money are at stake, the manipulation of a regulatory environment creates the means by which the minor tendency towards avarice (or, more politely, self-interest) of the few can be leveraged against the well-being of the many. Systems are put in place to deal with the problem when it becomes to obvious too ignore. But they themselves are subject to hijacking and gaming by the beneficiaries of the current regulatory environment. In short, we have no mechanisms to terminate failed policies, especially those that create or enrich powerful interest groups, including those who genuinely believe they are acting for the good of wider society.

We need to subordinate policymaking to society's needs, not those of interest groups whose over-arching goal, despite all their good intentions, vision statements and lofty idealism, is self-perpetuation. If one doubts this, one need only continue reading Bad Pharma, to see that universities and ethics committees deny doctors the opportunity to see crucial data from the many medical trials that result in unfavourable outcomes for the pharmaceutical industry. Even worse:
So universities and ethics committees may have failed us, but there is one group of people we might expect to step up, to try to show some leadership on missing trial data. These are the medical and academic professional bodies, the Royal Colleges of General Practice, Surgery and Physicians, the General Medical Council, the British Medical Association, the pharmacists’ organisations, the bodies representing each sub-specialty of academia, the respiratory physiologists, the pharmacologists, the Academy of Medical Sciences, and so on. These organisations have the opportunity to set the tone of academic and clinical medicine, in their codes of conduct, their aspirations, and in some cases their rules, since some have the ability to impose sanctions, and all have the ability to exclude those who fail to meet basic ethical standards. We have established, I hope, beyond any doubt, that non-publication of trials in humans is research misconduct, that it misleads doctors and harms patients around the world. Have these organisations used their powers, stood up and announced, prominently and fiercely, that this must stop, and that they will take action? One has: the Faculty of Pharmaceutical Medicine, a small organisation with 1,400 members. And none of the others have bothered. Not one.
Dr Goldacre speaks about the British environment, but there's nothing unique to the UK about his analysis.

So what can Social Policy Bonds do about this systemic failure to put the interests of ordinary people against those of powerful corporations and regulatory bodies?

Continuing with the example of medicine, Social Policy Bonds would target directly and explicitly that which the pharmaceutical industry, the professional bodies and the policymakers who create the regulatory environment all say they are trying to improve: the health of society. Government would continue to raise funds for the improvement of society's health, but instead of dispensing these funds in ways that benefit organizations that are supposed to put society's interests first would only those who achieve society's health goals. It would issue Health Bonds, redeemable only when these goals have been achieved and sustained. The goals would be broad and transparent, comprehensible to ordinary people and so not subject to the smoke-and-mirrors manipulation that features so prominently within our current framework. The bond mechanism would ensure that only activities that actually help achieve our health goals would be rewarded.

A Health Bond regime would be a drastic change from any existing health care system. In my book, which is freely downloadable from my website, I describe how we could move gradually from current systems to such a regime. Health Bonds would lead to a new type of organization: ones whose interests are entirely congruent with those of society. The current system, as Dr Goldacre makes inescapably clear, is broken to the extent that it kills many of the people it's supposed to beneft. I propose instead that we revolutionise health policy by putting the interests of ordinary citizens above those of vested interests.

15 March 2014

Insanity

From Bloomberg Businessweek:

Global fuel subsidies cost as much as $1.9 trillion a year.... In 2011, US subsidies for petroleum products were more than 2 percent of GDP. ...
Egypt spends 9 percent of [its] GDP to keep gasoline prices low. ... The IMF says 61 percent of gasoline subsidies goes to the richest 20 percent of citizens, who own cars....Why fuel subsidies in developing nations are an economic addiction, and The cheap fuel trap, Brendan Greeley, 'Bloomberg Businessweek', dated 17 March
What is it about our policymaking system that perpetuates this insanity? It's clear that the fossil fuel industries are powerful and so can lobby effectively for the subsidised extraction and consumption of their products. And we might not have known, at first, what we know now: that these subsidies transfer funds from the poor to the rich, accelerate the destruction of our environment, and are extremely wasteful. But now that we do know...what then? It's the persistence of these insane subsidies, in the face of decades of evidence of the social and environmental damage they do that is the biggest indictment of our current policymaking system.

Policies as crazy as these get implemented because they sound quite plausible. Reducing the cost of fuel, say, 'stimulates the economy, which creates jobs and benefits everybody'. Nobody bothers to ask why, if we are intent on giving out scarce resources to favoured groups, we don't give them directly to the people we say are going to benefit: poorer people, let's suppose, who can then make their own decisions about the sort of society they want to live in. Our current system takes some plausible-sounding relationship and makes it the basis of policy. That can work well when social and environmental relationships are easy to identify and don't change much over time. It works less well when we are talking about much more complex, intricate relationships, with thousands of variables and time lags. To reduce the negative impacts of climate change, for instance, or to bring about world peace: these are beyond the scope of any organization that first identifies (or claims to) a relationship between cause and effect and then formulates policy accordingly.

The better alternative is to target outcomes directly, and let motivated people work out the best ways of achieving them. These ways will vary dramatically over time and space, the more so for bigger goals. A Social Policy Bond regime would not only target these outcomes and reward people for achieving them; it would also inject the market's incentives and efficiencies, ensuring that they would be achieved in the most cost-effective ways possible.

The old way of making policy has been corrupted, such that we cannot even discontinue our most obvious, spectacularly stupid and destructive subsidy schemes. It's time to target outcomes directly, and contract out the achievement of our social and environmental goals to people who will be rewarded, not because they are powerful or smart or well connected, but because they achieve society's goals most efficiently. 




11 March 2014

No excuses

"National Security", "family farms", "international aid" and now "climate change": a small sample of concepts that become corrupted by government and used to justify transfers of resources from the poor to the rich.

Under the current policymaking regime, politicians can get away with using phrases like these to justify setting up departments and initiating activities that sound as though they will help deal with a problem, but end up shoring up vested interests. They can do this because they absolutely refuse to reward the achievement of explicit, agreed, meaningful outcomes. Instead they channel funds into organizations whose names suggest to the naive that they are striving to achieve an outcome or deal with a problem. These can be government agencies, supra-national government organizations, or large and favoured corporations.

This came about largely because setting up bureaucracies for many social and environmental problems was originally the most efficient way of solving them. Society was less complex, the linkages less intricate, the time lags shorter. The nature of, responsibility for, and solutions to, our most glaring problems were often easier to identify than nowadays.

But times have changed. Nobody today can identify how to achieve world peace, though the need to do so is probably greater than at any time in history. Nobody really knows how to tackle climate change: the much-vaunted greenhouse gas explanation may or may not be totally wrong, and anyway cutting emissions might not be the best solution or, more likely, might just be one of many necessary approaches.

Yet we persist in attempting to solve problems only after a single cause has been identified. Once that happens, the response of government is to channel resources into bodies and activities that ostensibly deal with the cause of the problem, but whose own exists depends on failing to be efficient at doing so. Somewhere along the way, accountability is lost. So to help 'family farms' taxpayers and consumers spends billion on higher food prices to support wealthy landowners. 'National security' has become an excuse for mass surveillance, the setting up of an embryonic police state, and ruinously expensive accumulation of weapons systems. 'International aid' is a byword for corruption and waste.


Climate change looks like going the same way: becoming an excuse to set up massive bureaucracies that will allegedly cut greenhouse gas emissions - or what were thought to be greenhouse gas emissions back in the 1990s.

With Social Policy Bonds, there's no excuse for this sort of deception. Instead of vaguely targeting 'terrorism', or 'climate change', or 'rural poverty', we can specify exactly what it is we want to achieve. So if there is a societal consensus that poor people should pay more for their food so that enormously wealthy landowners can afford a second helicopter, we could choose to do exactly that. But if we actually want to help poor people, or to alleviate the problems caused by adverse climatic events, or to achieve world peace, then we can issue Social Policy Bonds that reward people only when they have achieved these goals. We do not have to wait until cause and effect have been identified; nor till the optimal solutions have been found. Under a Social Policy Bond regime it would be bondholders who would do all that; and the more efficient they are at doing so, they more they will be rewarded. Diverse, adaptive approaches are going to be necessary to solve our most urgent social and environmental problems. The current policymaking environment stifles such approaches. A Social Policy Bond regime, in contrast, would encourage them.

03 March 2014

Place your bets

What is government for? Obviously, it's for distributing taxpayer funds to those who are most in need:
The much-anticipated first film of “The Hobbit” trilogy [could] gross about $3 billion. So how much taxpayer money, would you guess, did Warner Bros. Entertainment Inc. need to produce the films based on the J.R.R. Tolkien book? The answer is zero. The studios are investment companies, and the films are almost certain to be immensely profitable. But now you aren’t thinking like a studio. The real question is: How much taxpayer money can Warner Bros. demand from the government of New Zealand to keep production there (rather than, say, in Australia or the Czech Republic)? That answer turns out to be about $120 million, plus the revision of New Zealand’s labor laws to forbid collective bargaining among film-production contractors, plus the passage of three-strikes Internet-disconnection laws for online copyright infringement, plus enthusiastic and, it turns out, illegal cooperation in the shutdown of the pirate-friendly digital storage site Megaupload and the arrest of its owner, Kim Dotcom. Kill the Hobbit Subsidies to Save Regular Earth, Joe Karaganis, 'Bloomberg View', 4 December 2012

The Government is talking up lavishing taxpayers' dollars on Avatar sequels - but the Treasury has already panned the spending as a turkey. As part of the deal announced yesterday by Prime Minister John Key, two fellow ministers and Avatar director James Cameron, the movies' producers will get at least $125 million in taxpayers' money in return for spending at least $500m making the films in New Zealand. Critical Eye on Avatar Deal, Ben Heather, 17 December 2013
This is government as an investment company: thinking it knows how best to gamble with other people's money. Or it's a desperate attempt by politicians to associate themselves with something glamorous, at the expense of the millions of people who aren't as photogenic, so must pay for government and its whimsical bets. Either way, doling out millions to rich corporations is irresponsible at best, corrupt at worst. Governments can get away with this because they don't formulate policy in terms of outcomes. In our currently policymaking environment it's quite acceptable for politicians to act on the basis that, for instance, cutting back greenhouse gases will solve the climate change problem, or that building more roads will boost economic growth or, indeed, that boosting economic growth will enhance people's well-being.

The days when easily identifiable cause-effect relationships were significant enough to drive policy effectively and efficiently are gone. Society is too complex, the time lags too great, the linkages too murky, for that to work any longer. A better alternative would be to target outcomes, and let motivated people work out how best to achieve them, through adaptive, diverse approaches. A Social Policy Bond would do this and, as well, inject the market's incentives and efficiencies into every stage of every such approach.

For more details, see the SocialGoals.com website which, if you haven't been there recently, has been polished a bit, and now includes, on this page, links to pdf files of all the chapters in my book. 

I suppose things could be worse. Well, they are worse: as well as distributing scarce funds from the poor to the rich, government takes from taxpayers to subsidise the destruction of our environment. It makes our involuntary donations to Warner Brothers look like enlightened policy:
The UN Development Programme says rich countries should switch some of the staggering $35 billion a year they spend subsidising fishing on the high seas (through things like cheap fuel and vessel-buy-back programmes) to creating marine reserves—protected areas like national parks. In deep water, 'The Economist', 22 February (subscription)

22 February 2014

Nobody's perfect

Freeman Dyson reviews Brilliant Blunders, by Mario Livio, "a lively account of five wrong theories proposed by five great scientists during the last two centuries." The examples Livio writes about:
give for nonexpert readers a good picture of the way science works. .... Wrong theories are not an impediment to the progress of science. They are a central part of the struggle. .... The five chief characters in Livio’s drama are Charles Darwin, William Thomson (Lord Kelvin), Linus Pauling, Fred Hoyle, and Albert Einstein. Each of them made major contributions to the understanding of nature, and each believed firmly in a theory that turned out to be wrong..... [W]rong ideas can be helpful or unhelpful to the search for truth. No matter whether wrong ideas are helpful or unhelpful, they are in any case unavoidable. The case for blunders, Freeman Dyson, 'New York Review of Books' dated 6 March
Even more so in social policy, where underlying relationships change over time and are rarely independent of the psychic makeup of the principal actors and stakeholders. We need to encourage diverse approaches to our social problems, and ones that can adapt when they are seen to be inefficient or counter-productive. As with science, though, social policy practitioners, be they politicians, bureaucrats, academics or members of think-tanks, frequebtly commit their egoes - and public funds - to deficient theories or ideologies.

The chief difference between science and other human enterprises such as warfare and politics is that brilliant blunders in science are less costly.
Quite: when great scientists commit themselves to wrong ideas the costs can be high, but when politicians do so they can be calamitous.

Social Policy Bonds would penalise failed or inefficient pseudo-solutions to our social problems, and reward only the most cost-effective ways of achieving our social goals. Bondholders would be motivated to terminate failing projects and divert funds into only the ones that are cost effective. If they don't do this quickly enough, others would bid more for the bonds than they are worth to the current holders. The bonds, being tradeable, would always be in the hands of people who are motivated to be efficient. Commitment to wrong theories would be penalised in immediate, pecuniary ways - a stark contrast with the current policymaking system, within which failed policies, instead of being terminated, often receive more and more funding in an effort to shore up vested interests.

17 February 2014

Greenhouse gases, recidivist rates, cholesterol, and the one percent

What do greenhouse gas emissions, recidivist rates and cholesterol readings have in common? They are all surrogate indicators; that is, they are things that governments target, thinking (or pretending to think) that by doing so they are benefiting society. They aren't. Whether the associated loose thinking - or just plain dishonesty - originates in government or in the people who pay governments to shape the regulatory environment in their favour, surrogate indicators have little to do with human well-being.

Perhaps we need to ask in whose interest it is that we target things like greenhouse gas emissions, or recividist rates or cholesterol readings? Surely, if we want to reduce the adverse impacts of climate change on humans and the environment, we'd be better off, with all the scientific uncertainties, to target reductions in those negative impacts? Similarly, if we actually want to reduce crime rates, why don't we target crime rates rather than recidivist rates, which have very little, if anything, to do with crime? And if we want to target physical health, why don't we reward improvements in physical health, rather than encourage the mass ingestion of statins, whose long-term effects are nebulous at best and dangerous at worst?

One reason that I am a less-than-enthusiastic supporter of Social Impact Bonds is that they are targeting recidivism rates. Their targeting of an indicator that has nothing to do with things that matter to ordinary people risks discrediting the whole idea of channeling the market's incentives and efficiencies into the public good. We have had plenty of recent and disastrous experience of financial instruments being gamed to death, with calamitous effects on ordinary hard-working citizens. So we need to be very careful about introducing new financial instruments. There is, unfortunately, every reason to be cynical. Bankers, consultants, the financial services sector, big corporations, government agencies and even non-governmental organizations all have made lots of money doing things that are purportedly in the public interest, but in fact have done nothing for ordinary people.

That is why I suggest that Social Policy Bonds target only metrics that are, or are inextricably linked to, indicators of societal well being. The bond mechanism allows for that sort of targeting, because it does not specify how our goals shall  be achieved, nor who shall achieve them. Unfortunately, without that sort of guarantee, there is every reason to expect that the well-meaning targeting of rhetorically persuasive but flawed indicators will continue to enrich only the one percent.

09 February 2014

The system's broken

 The Economist discusses the US Farm Bill, passed on 4 February:
[M]ore than 10,000 policyholders received over $100,000 from crop-insurance subsidies in 2011. The new bill tries to cap the amount that any one farmer can receive; but if the weather is bad, it could lead to higher payouts than planned. Taken together, these subsidies distort behaviour and trade in unhelpful ways. They have created products that make no economic sense in the rest of the world, such as making sugar from corn. As a penalty for keeping cotton subsidies in place, the World Trade Organisation’s rules require the American government to pay $147m a year to compensate farmers in Brazil. A trillion in the trough, 'The Economist', 8 February
It's the persistence for decades of these economically and environmentally disastrous policies that indict our entire policymaking system. Yes, policymakers will make mistakes; all the more reason why we should have systems in place to ensure that failed policies are terminated. But instead, we have the systems that ensure that appalling policies become more and more entrenched because of political inertia, because they subsidise resistance to their termination, or because they become capitalised into high asset values that would create genuine but temporary hardship if they were withdrawn. Governments have a long history of meddling in agriculture; they persist even though it's been known for decades that they are, to put it kindly, irrational.

And corrupt. The Economist continues:
How could Congress write such a law? One answer can be found in the register of political donations. The ten members of the House, nine Republicans and one Democrat, who accepted most money from agriculture lobbyists took in an average of $225,000 in political contributions during 2013, according to Open Secrets, which tracks donations—almost as much as some farmers received in return.
Not much is black or white in politics and policymaking, but as P J O’Rourke put it twenty-three years ago (in Parliament of Whores):
I spent two and a half years examining the American political process. All that time I was looking for a straight forward issue. But everything I investigated – election campaigns, the budget, lawmaking, the court system, bureaucracy, social policy – turned out to be more complicated than I had thought. There were always angles I hadn’t considered, aspects I hadn’t weighed, complexities I’d never dreamed of. Until I got to agriculture. Here at last is a simple problem with a simple solution. Drag the omnibus farm bill behind the barn, and kill it with an ax.

01 February 2014

Another useless indicator creeps in

Social Policy Bonds embody two main principles: targeting outcomes; and the use of markets to achieve these outcomes most efficiently. Even if discussion of Social Policy Bonds just leads to a rational discussion of which outcomes we want to achieve, then my work on the bonds would not be in vain.

I've discussed the futility of over-narrow objectives before, when discussing  Social Impact Bonds. (See also why I think the bonds must be tradeable.) But broad indicators too can, by default, become de facto targets, and they can be similiarly flawed; by which I mean that they are not inextricably linked to society's well-being. We have a tendency not to think through the implications of certain indicators: the biggest one is GDP. But another that is creeping into policymaking dicussion is five-year survival rates for cancer. The Economist casually slips it into an article about managing heatlh care:
Deciding where to seek treatment might seem simple for a German diagnosed with prostate cancer. The five-year survival rate hardly varies from one clinic to the next.... Need to know, 'the Economist', 2 February
But the five-year survival rate is meaningless:
[I]n the U.S. prostate cancer is being diagnosed earlier, a lead-time bias, and the cancer is being over diagnosed, that is, a pseudodisease is detected" in the form of screening-detected abnormalities that "meet the pathologic definition of cancer but will never progress to cause symptoms in the patient’s lifetime." Source (Scroll down to Incorrect metrics.)
The article in the Economist ends:
[D]octors ... have long focused on clinical outcomes such as infection and re-admission rates. But by thinking about what matters to patients, providers can improve care and lower costs at the same time.
Exactly so. We need to be focusing on broad, meaningful indictors of well-being, such as Quality Adjust Life Years, and target those, rather than casually accept the use of flawed measures such as five-year survival rates.