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.

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