30 June 2015


 Max Fisher concludes his long piece, How World War III Became Possible:
We may have escaped the Cold War, but we have not escaped the nuclear threat, which not only remains but is growing. The sense that this danger is resigned to history books, common in Washington and other Western capitals, is precisely part of its danger. It is another echo of the months and years before World War I, when the world drifted unknowingly toward disaster.

In April of last year, just after Russia had annexed Crimea, the London-based think tank Chatham House published a report on the dangers of unintended nuclear conflict. It was not pegged to the events in Ukraine, and at that point few people, including the report's authors, saw Crimea as the potential beginning of a larger conflict. Even still, it was dire in its warnings. "The probability of inadvertent nuclear use is not zero and is higher than had been widely considered," it stated. "The risk associated with nuclear weapons is high" and "under-appreciated." Their warnings were widely ignored. As the report itself noted, the world has concluded, wrongly, that nuclear weapons no longer pose an imminent threat. Attention has moved on. But the seeds of a possible war are being sown in Europe. How World War III Became Possible, Max Fisher, 29 June

You don't have to agree with all Mr Fisher's contentions to be scared by his discussion about how Russia and NATO might be sleepwalking toward devastating conflict. Still less should we be concerned to allocate blame. Probably there are faults on both sides, but trying to weigh them so as to have an opinion about which side is worse than the other is something a self-indulgence; understandable perhaps, given how powerless we ordinary people feel.

But I'd say we can do better than watch and debate on the sidelines. I cannot suggest a way out of any impending nuclear conflict, but what I do suggest is that we offer incentives for people to find ways of avoiding such a conflagration. Rather than leave everything to the politicians, ideologues, military men and the war-gamers, we could encourage people to back Conflict Reduction Bonds that will be redeemed only when there has been a sustained period of nuclear peace. Backers could include any combination of governments, international organizations, non-governmental organizations and philanthropists, and their funds could be swelled by contributions from the rest of us.

The maintenance of nuclear peace is a goal that is ideal for solution via Social Policy Bonds:

  • it has an unambiguous, verifiable metric
  • existing policy doesn't seem to be working
  • nobody now knows the best ways of achieving the goal
  • the goal is long term
  • the goal is likely to require a multiplicity of diverse, adaptive approaches.   
Of course, the bond approach can run in parallel with existing policy, such as it is. It's likely to strengthen the hand of those whose activities seem to be working, as well as encourage new approaches, including those beyond current conception.

22 June 2015

SIBs can be better than existing policy

Though still skeptical about Social Impact Bonds - the non-tradeable version of Social Policy Bonds - I do now think that under some circumstances they will be an improvement over existing policy. My main concern with SIBs is the danger that, being necessarily more narrow and short term than Social Policy Bonds, they will stimulate achievement of their targeted goals at the expense of people whose well-being isn't targeted for improvement. This possibility is lessened when the beneficiaries of a SIB regime are markedly disadvantaged. I am thinking now of the use of SIBs to target goals such as improving the well-being of the mentally unwell. (Here are arguments for and against the issuing of SIBs to brighten the employment prospects of mentally unwell people in New Zealand.) There will need to be provisos and careful monitoring, of course, as not all attempts to game a SIB regime can be foreseen and written into the redemption conditions of the bonds. But at this point SIBs are controversial, which is a positive in that it means that bondholders will want to ensure compliance with the bond issuers' intent and not only the bonds' legal stipulations.  

The advantages of a SIB regime over existing policy arise from their rewarding of outcomes rather than activities. Not as effectively as a pure Social Policy Bond regime, to be sure, but they should nevertheless stimulate greater efficiency in current activities and some innovation of new activities - a big plus where existing policy is thought to be failing.

You'll notice that I still have my reservations about Social Impact Bonds. Being better than existing policy is not always a great recommendation, though it could mean a lot to those individuals who (as in the New Zealand example) are in urgent need of new approaches. A pure Social Policy Bond regime would represent a drastic change from current policy with, I believe, commensurate benefits for all. SIBs can be a useful intermediate step towards such a regime.

07 June 2015

Bonds in New Zealand

This post is a follow-up to my previous post, where I discuss why I don't like Social Impact Bonds. Today, Sunday, there was a short tv debate shown in New Zealand about using Social Impact Bonds to address mental health problems. My name is invoked at the five-minute mark. I would say that both protagonists are not quite correct. I'm against these SIBs only because they are not tradeable, because then there won't be much of the (necessary) innovation that the pro-SIB man, Stephen Franks, was talking about.

05 June 2015

Why I don't like Social Impact Bonds

When I first came up with the idea of Social Policy Bonds, their tradeability was an intrinsic part of their identity. Without tradeability, the bonds would be little more than prizes awarded to existing service providers for doing their jobs a bit more efficiently than previously. There's obvious scope for gaming here: perform badly, wait till the government issues SIBs, perform better, then cash in. But perhaps more important is the necessity for allowing new service providers - or, as I term them, outcome achievers - to buy the bonds at any stage and receive extra rewards, in the form of a rise in the market value of their bonds, for performing well. Without tradeability, that won't happen.

The way of the world is that big business and government go hand-in-hand. The way of Social Impact Bonds is is equally familiar and equally dubious: government thinks it knows best who will deliver certain services and rewards them if they improve their performance. These will be existing service providers or, just possibly, new bodies upon which the government is equally keen to bestow favour for some reason or other. The whole point of my Social Policy Bond idea is to bring about creative destruction into the achievement of social and environmental outcomes. Under a Social Policy Bond regime new approaches and new organizations will be rewarded if, and only if, they are more efficient than anyone else. Social Impact Bonds won't do that: existing organizations will be favoured; they will have some incentive to perform their existing functions more efficiently, but little incentive to look at new approaches. For one thing, innovation risks rocking the boat. For another, SIBs, because they are not tradeable, are going to be restricted in their time horizon to that of existing organizations: they will take a short-term view, relative to the complexity of our social and environmental problems. This is a major deficiency: it restricts the scope of the bonds to narrow, short-term goals. As well, the costs of monitoring progress toward such goals is going to be large relative to sums at stake.

Contrast this with Social Policy Bonds, which are not limited by the prejudices of government (or anyone else) as to how our goals shall be achieved nor who shall achieve them. So we can target long-term social goals that will inevitably require diverse, adaptive approaches: reduced crime rates, for example, or improved health. We can even target global goals, like human development or the sustained avoidance of violent political conflict. Governments that issue Social Policy Bonds don't have to take a view as to which organizations are best placed to achieve such goals, nor as to how they shall go about achieving them. That work is done by bidders for the bonds who will be motivated by the rewards they get for helping achieve the targeted outcome. Note the word 'helping': a single organization need not achieve the entire goal to be rewarded under a Social Policy Bond regime: helping raise the likelihood of early achievement of the goal will generate reward in the form of the increased value of the bonds they (or a contracting agent) owns. Social Policy Bonds encourage a coalition of interests, whose composition and structure will change in response to changing circumstances, to co-operate in exploring and implementing a diverse, adaptive array of initiatives with the aim of achieving our broad social goals, even ones as seemingly remote and unattainable as universal female literacy or world peace.

For more on this see my short article: why the bonds must be tradeable. Also previous blog posts. For another critical view of SIBs (in New Zealand) see here. Contact me if you would like to know more.

02 June 2015

Chopping down trees to fight climate change

It's inefficient, at best, for central government to try to prescribe how to achieve most social or environmental goals. Society's just too complex for any large, fixed organization fully to understand. But politicians aren't known for their humility. This is what happens when government thinks it knows how best to achieve its environmental goal of reducing greenhouse gases (not to be confused with trying to prevent climate change, but that's another story):

For the sake of a greener Europe, thousands of American trees are falling each month in the forests outside this cotton-country town [Oak City, North Carolina, US]. .... Each day, dozens of trucks haul freshly cut oaks and poplars to a nearby factory where the wood is converted into small pellets, to be used as fuel in European power plants. Soaring demand for this woody fuel has led to the construction of more than two dozen pellet factories in the Southeast [of the US] in the past decade, along with special port facilities in Virginia and Georgia where mountains of pellets are loaded onto Europe-bound freighters. European officials promote the trade as part of the fight against climate change. Burning “biomass” from trees instead of coal, they say, means fewer greenhouse gases in the atmosphere. .... But ...scientists say, Europe’s appetite for wood pellets could lead to more carbon pollution for decades to come, while also putting some of the East Coast’s most productive wildlife habitats at risk. How Europe’s climate policies led to more U.S. trees being cut down, Joby Warrick, 2 June
 It's a typical government intervention; confusing the causes of a problem (climate change) with the supposed causes of a problem (coal burning) and imposing a restricted (geographically limited to the EU) pseudo-solution to a problem that goes beyond politicians' sphere of influence. The result: government intervention makes things worse even on its own terms.

The same confusion arises in other areas, especially those where experts think they have all the answers. So we see the targeting of a surrogate indicator like blood cholesterol in medicine, through the mass prescription of statins, which might, but probably won't, do anything to reduce the overall health of a population - with large upfront and certain costs in terms of finance and side effects. Of one thing we can be certain: government will not (pdf) look back at its policies and learn from its mistakes.

The solution, I think, is for governments to stick to what they are good at: articulating society's goals and raising the funds to achieve them. But, for complex social and environmental goals, government should contract out the actual achievement to a motivated coalition of interests, which will have incentives to explore diverse, adaptive ways of achieving our goals. A Social Policy Bond regime would effect such a contracting out. The bonds, being tradeable, would imply that this coalition could change, always to be composed of those who will be most efficient at achieving our goals. This, in turn, would mean that we could target long-term goals, including those, like climate change, that transcend national boundaries.