30 December 2016

Working for a living

It doesn't matter whether the cat is black or white, as long as it catches mice. Deng Xioping
I'm not sure I fully understand the recent article entitled Shared stakes, distributed investment: Socially engaged art and the financialization of social impact by Emily Rosamund, but it did make me think about the apparent disdain that some have for worthwhile activities when they are undertaken mainly for financial gain. Social Policy Bonds have been in the public arena for something like 28 years now and their non-tradeable variant, Social Impact Bonds, are now being issued in about 15 countries. In my experience, it's been the ideologues on the left that are most opposed to the concept.

Often implicit, sometimes explicit, is their feeling, or argument, that Social Policy Bonds are a means by which investors make money out by doing what they should be doing anyway. It is true that some wealthy bondholders could become even more wealthy by first buying Social Policy Bonds, then doing something to achieve the outcome that they target, then selling their bonds for a higher price. This some call "profiting from others' misery" and it offends their sensibilities.

But it can also be called "working for a living while doing something socially useful". In the long run it's quite probably that only a few people or organizations will amass huge fortunes under a bond regime, even if they do successfully achieve society’s goals and profit from their bondholding. The way the market for Social Policy Bonds works would mean that excess profits could be bid away by competitive would-be investors. The market for the bonds would openly transmit a huge amount of information, that will indicate the constantly varying estimated costs of moving towards a targeted goal (see chapter 5 of my book for a full explanation). Barriers to entry into helping with target achievement could be low, especially if most bonds are held by investment companies who would contract out the many diverse approaches necessary to achieve most social and environmental goals.

The absolute sums of money at stake might be huge, particularly for Social Policy Bonds that target apparently remote, national or global goals, but there’s no particular reason to assume that, in the long run, it would be shared out any less equitably than, say, teachers’ salaries. Teachers? Yes, and nurses, doctors and social workers, all of whom perform socially valuable services for which nobody, even on the left, begrudges payment.

13 December 2016

Target environmental ends, not means

The current Economist looks at the the environmental cost of solar electricity generation and in particular at work done on quantifying the very big efficiency improvements in the production of solar cells since 1975. It appears that, over the lifetime of solar panels made today, there will be very significant cuts in emissions over those that would result from the consumption of fossil fuels in generating the same quantity of electricity. This is interesting but it doesn't actually tell us a great deal about the net environmental impact of substituting solar panels for fossil fuels. As one commenter puts it:
If you're going to measure the "clean" of solar power, why would you neglect the production of all of the minerals that are used in the process? These minerals include arsenic, bauxite, boron, cadmium, coal, copper, gallium, indium, iron ore, molybdenum, lead, phosphate, selenium, silica, tellurium, and titanium dioxide. Some of these minerals are difficult to source and mine, and almost always create a large degree of environmental damage in their wake. Source
There are also the environmental costs of providing backup (for when the sun isn't shining) in the form of batteries, or other storage, and the costs of disposing of the panels after their lifetime. As the Economist article says, "The consequence of all this number-crunching is not as clear-cut as environmentalists might hope."

This underlines what I have said in my previous post when it comes to making policy: rather than try government try to identify all the environmental implications of any policy with inescapably limited knowledge at fixed point in time, we should rather be identifying the outcomes we want to see and rewarding their achievement, however that is done. This would be more practical than attempting to conduct entire life-cycle analyses over all possible policy choices - which, even if it were possible, would be instantly made obsolete by new technology and our expanding scientific knowledge. It would also cohere more closely with goals that can be clearly articulated and that are meaningful to ordinary people: those that specify desirable levels of plant, animal and human health.

For more on applying the Social Policy Bond concept to the environment see here.

07 December 2016

Fossilised science is no basis for policy

How do we weight different environmental impacts? Take diesel, lauded at one stage as a way of cutting back greenhouse gas emissions, but known to have lethal effects through emissions of particulates and other pollutants:
Volkswagen’s rigging of emissions tests for diesel cars comes after nearly 20 years of the technology being incentivised in Europe in the knowledge that its adoption would reduce global warming emissions but lead to thousands of extra deaths from increased levels of toxic gases. increased levels of toxic gases. The rise of diesel in Europe, John Vidal, 'The Guardian', 22 September 2015
Or, take organic food. An organic field will certainly host more wildlife and biodiversity, and decrease or eliminate air and water pollutants. But the same field will most probably yield less than conventional farming. More land would then have to be devoted to supply the same volume of food. And it's likely too that organic food production results in higher greenhouse gas emissions than conventional farming. There are also questions about whether GM crops (foods genetically modified by modern techniques) are better for the environment because they could, for example, require less fertiliser, less land, less water and be more tolerant of salt.

What should policymakers do here? The difficulties of weighing environmental impacts are compounded by our imperfect, but ever-growing knowledge of, say, the effects of pollutants, and more and more research into how to reduce emissions from transport or agriculture. Fossilised science is no basis for sound policy, and getting it wrong, as did those who incentivised European diesel engines, can have disastrous effects.

This is where the Social Policy Bond idea could help. Instead of trying to work out whether, say, less petrol and more diesel is a good idea, or whether organic agriculture is better than conventional, we could instead target social and environmental outcomes, and let a motivated coalition of interested decide how best to achieve them.

How would this work? We first need clarity over what we are trying to achieve. Mostly, we'll be concerned about impacts on plant, animal and human health. Focusing just on human health, we would have broad, national, targets for an array of indicators, such as longevity, infant mortality, quality adjusted life years and others. These would be determined by government, articulating as it does society's goals. But the ways of achieving these goals, and who would achieve them, would be the function of a market in Health Bonds. It would be up to holders of these bonds to decide, on a continuing basis and in response to all new scientific knowledge, what will be the most efficient ways of achieving these goals. The most efficient ways will be those that maximise returns to the bondholders but also to society as a whole. Bondholders' interests will be exactly congruent with those of society, and they will remain so until the bonds are redeemed - which could be decades hence. 

Health Bonds would make it unnecessary for decision makers to try to anticipate new scientific knowledge, or to make decisions on trade-offs that can be, and have been, disastrous. They would stimulate the exploration and implementation of diverse, adaptive ways of improving the nation's health. It's unfortunate that we have very few people or institutions devoted to the healh of an entire country. We have instead organizations like Ministries of Agriculture, Transport, the Environment, and plenty of organizations advocating for solutions to specific health problems: cancer, heart disease, respiratory diseases, and so on. These organizations undoubtedly do good work and are staffed by well meaning, hard working individuals. But they cannot, in good conscience, make the trade-offs between, say carbon dioxide emissions and lung problems in ways that maximise the total health of an entire population. Sadly, that necessary policy perspective falls outside their remit and could even threaten their income and status.

For more about Health Bonds see here. For more about Social Policy Bonds, see here.

27 November 2016

Policy for the post-truth era

US President Barack Obama talks about the new media system which:
...means everything is true and nothing is true. ...An explanation of climate change from a Nobel Prize-winning physicist looks exactly the same on your Facebook page as the denial of climate change by somebody on the Koch brothers’ payroll. .... Ideally, in a democracy, everybody would agree that climate change is the consequence of man-made behavior, because that’s what 99 per cent of scientists tell us. And then we would have a debate about how to fix it. That’s how, in the seventies, eighties, and nineties, you had Republicans supporting the Clean Air Act and you had a market-based fix for acid rain rather than a command-and-control approach. So you’d argue about means, but there was a baseline of facts that we could all work off of. And now we just don’t have that. It happened here, David Remnick, 'New Yorker' dated 28 November
Science isn't a consensual process though, so even if the majority of scientists agree 
on one thing, whether it's anthropogenic climate change, or acid rain, or whatever, that should carry no more weight than the collective wisdom of experts in other fields, such as economists or opinion pollsters. There is a genuine problem here: how should we make policy when the relationship between cause and effect in our ever more complex societies is impossible to identify? It's not simply a question of following the opinions of existing bodies often backed by vested interests - nor of reflexively ignoring them: they might after all be right as well as self interested. Nor should we simply identify a problem then mindlessly dole out funds to the organizations whose stated objective is to solve it, but whose over-arching objective - in common, I think, with all organizations - is self-perpetuation.

We should instead recognize that resolving complex social and environmental problems, cannot wait for our receiving perfect information about causal relationships, and nor should we delay making decisions until such information becomes available - it might never happen. Take climate change: it's likely that, by the time we know the effects of man's greenhouse gas emissions on the climate, it will be too late to do anything to avoid or reverse their catastrophic effects on the environment. The current way of addressing the problem seems inadequate: extravagant gestures that might lead to some reductions in emissions that we think contribute to climate change, which might lead to some tiny, almost imperceptible (but unverifiable) effect on the climate some decades hence.

I think we can do better than this. We could use the Social Policy Bond idea, first to identify exactly what we want to achieve; and second to channel the market's incentives and efficiencies into achieving it. With climate change, we need to clarify whether we are more concerned about climate change, or about the impacts of climate change on human, animal and plant life. In other words, we define the outcome that we wish to achieve, then let the market decide how best to go about achieving it. Most social and environmental goals will embody an array of conditions that have to be satisfied for the goal to have been deemed met and the Social Policy Bonds redeemed. Our climate change goal should embody measures of physical, biological, social and financial variables that shall have to fall within a targeted range for a sustained period before the redemption of Climate Stability Bonds.

And as with climate change so with other major challenges.The important point is that the Social Policy Bond principle works even when the facts about what causes climate change, say, or crime, or war, are disputed. As such, Social Policy Bonds are the perfect policy instrument for today's post-truth politics.

Update 5 December: a version of this post for newcomers to the Social Policy Bond idea is available here

17 November 2016

Ideologues and vested interests impede good policymaking

A letter-writer reacts to the suggestion by the Economist that poor American consumers gain more from cheap imports than they would if imports were restricted and America produced the same goods:
Being able to buy a Chinese-made 50-inch TV when you work by flipping hamburgers for the minimum wage may be more efficient than working in a factory on wages where you can only afford the 30-inch American-made model. But Donald Trump’s voters weighed up factors that many economists and your newspaper often downplay: the marginal utility of consumer goods in a rich society, the distribution of wealth and a sense of self-worth. The medium through which they channelled their anxiety may be flawed, but their message is clear. Trump's triumph, Prof Diomidis Spinellis, the 'Economist' dated 19 November
Exactly so; countries as a whole benefit from free trade in that the benefits to the economy more than offset the losses, even if the losers - those whose jobs become obsolete - are fully compensated. The problem is that most of the gains are going to the wealthy, and the losers aren't being compensated.

One of the great advantages of the Social Policy Bond approach is clarity about ends and means. Free trade isn't an end in itself: it's a means to an end: the improved well-being of society. A bond regime targeting poverty or income levels would ensure adequate compensation to the losers from free trade (which could take the form of subsidies to struggling companies or laid-off individuals, or enhanced re-training opportunities). Or it could restrict trade, perhaps temporarily, if that were to better meet society's long-term income goal. Such measures would be heresy to the free trade ideologues, but in a bond regime it is outcomes that matter, not ideology.

We see similarly non-outcome driven approaches in other policy areas, where ideology or vested interests get in the way of rational, welfare-enhancing policies. Healthcare in the US is one example, where the interests of insurance companies and blind resistance to anything that could be called 'socialist' do so much to blight the security of even middle-class Americans.

09 November 2016

Bootlickers, yes men, liars

There are many ways we can interpret the US Presidential election result. I prefer to see it as the victory of ordinary people over the people who are supposed to look after their well-being. In domestic politics, just as in the international aid industry, a whole class of intermediaries, supposedly devoted to improving the condition of the ordinary man and woman, has grown and expanded so much that its interests have now diverged from the
very people they are supposed to represent. Mr Trump speaks for these people. Whether he will improve their lot remains to be seen, but it would difficult to do a worse job than the current motley coalition of politicians, bureaucrats, academics and media persons.

Two statements I take as axiomatic:
  • Every institution, whether church, government body, trade union, university, charity or whatever, however well meaning it began, however well meaning and hard working the people it employs will, sooner rather than later, have as its over-arching goal that of self-perpetuation.
  • Everybody - everybody - in a position of power, will always overplay their hand.
The US establishment - the political parties, the bureaucrats, the media, the countless lobbyists, academics and government bodies - are no better and no worse than innumerable other spinners of dreams, bootlickers, yes men, liars, whose corruption and degeneracy have let ordinary people down. Hence Brexit - and hence President Trump.

05 November 2016

Consensus and politics

Maria Bustillos introduces the concept of dismediation:
Dismediation is looking to make you never really trust or believe a news story, ever again. Not on Fox, and not on NPR. It’s not that we can’t agree on what the facts are. It’s that we cannot agree on what counts as fact. The machinery of discourse is bricked. That’s why we can’t think together, talk together, or vote together. ...
The peculiar mendacity of [George W Bush's] catastrophic presidency left us with worse problems than a bunch of lies to put straight and reflect on. There’s a broken trust to restore — to the extent that it’s possible to replace toxic cynicism with healthy skepticism — in media and in government. When truth falls apart, Maria Bustillos, 3 November
And, as this prolonged US Presidential election campaign reaches its end, she asks "How do we restore consensus in an age so divorced from fact?"

Here's my suggestion: we vote on social and environmental goals, rather than the supposed means of achieving them: namely, politicians or political parties. Personality is not a sound basis for choosing who shall make policy. Neither, we know now, are campaign sound-bites or media commentary. Currently though, we have little else to go on. We choose policymakers rather than policies; and we choose them on the basis of their image at worst, or their stated policy priorities or ideological leanings at best. Rarely are we given the chance to target desirable outcomes.

In theory, our current approach is practical: social, economic and environmental policymaking is complex and time-consuming. Ms Bustillos quotes Edward Bernays writing in 1928:
[E]very citizen makes up his mind on public questions and matters of private conduct. In practice, if all men had to study for themselves the abstruse economic, political and ethical data involved in every question, they would find it impossible to come to a conclusion about anything… Propaganda
But if we don't have the skills or energy to evaluate policy ourselves, and if we can't rely on the media any more, what can we do to bring about some consensus and repair what looks increasingly like a dysfunctional policymaking system?

I suggest outcome-based policy. Instead of voting for people or parties, we'd all participate in choosing and prioritising social goals. Social Policy Bonds lend themselves to a gradual transition to this sort of policymaking: by focusing on outcomes to be targeted they would be more transparent than the current policymaking process. A bond regime would generate more consensus - and, just as important - buy-in, about our chosen goals. A transition to a Social Policy Bond regime would be quite easy to arrange, with funding to existing activity-based bodies (mostly government agencies) being reduced gradually, at the same time as funds for Social Policy Bond redemption rise.

Choosing policymakers is fraught with problems, not the least of which is the raucous and destructive dialogue des sourds flooding out of our news media. It's time to target outcomes, issue Social Policy Bonds, and let motivated public- and private-sector bondholders work towards achieving society's goals.



25 October 2016

World Peace: the quick and efficient way

Keith Ward writes: 
There is any number of ways in which the Darwinian process of slow, gradual, cumulative adaptation could fail. This is not an argument for God. But it shows that reliance on the predictability of nature, and on its tendency to produce increasingly complex and adapted organic life-forms, is dependent on a very specific adjustment of physical laws that is itself hugely improbable. Why there almost certainly is a God: doubting Dawkins, Keith Ward, April 2009
Mr Ward is well aware that evolution - even if the human species represents its crowning achievement  - depends on very specific circumstances. We don't know (though we might believe) that there was a plan. Nor do we know whether the evolutionary path will continue to produce more complex life-forms.

There's a similarity here with the downward trend in violence that Stephen Pinker has identified: Professor Pinker tells us that over human history most forms of violence have steadily and steeply declined, and that we live in one of the most peaceful ages in history. This seems right to me looking, as Pinker does, at relative, rather than absolute levels of violence in human society.

Just as with the evolution of life-forms, we cannot know whether this decline was inevitable, nor whether it will continue. What we can be sure of is that both trends have been have been extremely inefficient. Millions of species have no doubt been created and become extinct as complex life-forms developed. It's been a slow and wasteful process, if we are to take today's ecosystem as an end point. Similarly, and even more tragically, countless millions of human beings have been killed or maimed in deadly conflicts in our history - and it's still happening.

And we have no reason to assume that either our history as a species or as social animals will continue to play out favourably. Professor Pinker is writing descriptively rather than prescriptively and he does not say the trend will continue. Some would argue (see here, scroll down to "...Taleb's major complaints...") that the risk of catastrophic violence has risen, even as the actual level of physical violence has fallen.
What's all this got to do with Social Policy Bonds? Simple: whether or not initial circumstances are God-given, I think we could use the bonds consciously and deliberately to guide our progress toward a world of peace, and to speed it up.

Instead of relying on centuries of history, during which numberless millions of innocent people's lives have been destroyed, to bring about the tentative and incomplete peace that most of us enjoy today, my suggestion is that we issue World Peace Bonds. These bonds would be redeemable for a fixed sum only when a targeted array of indicators of peace had been achieved and sustained for a long period. They would reward people who do what they can to end violence. Backed by a combination of governments, non-governmental organizations, philanthropists and ordinary people, they would encourage a vast number of peace-generating approaches. Some would inevitably fail; the way the market for the bonds would work means that these efforts would be terminated and resources diverted into more promising initiatives.

The effect of World Peace Bonds would be to give incentives to accelerate and guide our progress toward a less violent world more efficiently than has happened so far: a protracted, haphazard and bloody path that has, true, given us a less violent world, but also one that has left us fearful of self-induced catastrophe. We can do better than that. By acknowledging that not all approaches are going to work, and supplying incentives for those that do, we can guide and accelerate evolutionary processes to bring about, quickly and efficiently, what is surely our most urgent goal: world peace

19 October 2016

The EU: killing its citizens and destroying rainforests


Craig Sams writes, in a letter to the New Scientist:
... In 1993 my company Whole Earth Foods launched a trans-fat-free spread, branded Superspread. Other manufacturers objected to our advertising: the Advertising Standards Authority banned it, effectively killing our product. We presented the ASA with the medical evidence, which was abundant 23 years ago. They accepted its validity but said we violated their code because we were “appealing to fear” by suggesting trans fats could damage your heart health. When Denmark banned trans fats the food industry replaced them with coconut and palm fats, and the EU was faced with a rapeseed oil glut, as that was the oil that was mostly hydrogenated. So the Renewable Transport Fuels Obligation required rapeseed oil to be blended with diesel. That requirement overshot. So we are now deforesting Indonesia to grow palm oil to make up the quota for vegetable oil in diesel. If there is anything to be learned from this tragic fiasco that continues to cost tens of thousands of lives annually and blights many more with ill health, it is that agricultural policy should never trump health policy. The tragic fiasco of trans fats, letter to the 'New Scientist', 16 October
In short, the European Union couldn't care less about the health of its subjects, and helps destroy Indonesian rainforests. It keeps on doing it. And there are no mechanisms in place either to stop the insanity, nor to make the decision makers accountable, nor even to identify the decision makers, still less to get rid of them. That's why I voted for Brexit, and hope that this whole tragic experiment, which began so nobly, gets dragged behind the barn and killed with an ax.




17 October 2016

How not to address climate change

How not to address climate change:

Government Subsidies to Fossil Fuels are 22 Times Larger than Government Support to Adaptation on Climate Change

That's the header to article by Laura Merrill, put online on 2 June by the Global Subsidies Initiative. And here's my suggestion.

14 October 2016

Make democracy work: target outcomes directly

George Monbiot writes about the weaknesses of democracy. He ends on a vague note but does ask: 'What if democracy doesn’t work? What if it never has and never will?' To which I would reply with another question: 'how do we know if it's working?'

I think there are two elements to an answer. One: democracy is working when people have buy-in to the way society runs. Two: it's working when things are generally getting better for ordinary people. The two go hand-in-hand. Buy-in is important, because unanimity over virtually anything in any large society is impossible and if we have been consulted we are more likely to go along with what wider society decides, even if it's not what we would choose. 

We do occasionally consult ordinary people over certain decisions. But - and this is where the other essential element comes in - these decisions are rarely expressed in terms of outcomes. Instead we are asked questions such as: which political party do you want to form the government? Whom do you want to be President?
Prospective politicians say what they hope to achieve; we vote for them on the basis of what they say and on factors such as their looks, delivery, public image, or their experience in or out of office. These attributes might tell us something about candidates' intentions but they tell us very little about the impact they will actually have on the things that matter to us.

Which is why I think policy should focus on broad, meaningful outcomes. Things like better health, a cleaner environment or, at a global level, world peace. We know something about how to achieve the first two of those examples: essentially, throw more money at them. But neither we nor any politician has a clue about how to achieve them with maximum efficiency. And world peace? We are completely clueless on that one.

Social Policy Bonds could be the answer. Instead of wasting time with political parties, public images, or simplistic and inescapably inadequate (at best) ideologies, we could instead move toward a policymaking system that targets outcomes directly. A bond regime would do that, and would inject the market's incentives and efficiencies into the every process needed to achieve our social and environmental goals. Because the bonds would be tradable, we could target goals that will require many approaches and that are inevitably going to take many years to achieve - such as, yes, world peace. Bondholders (or the people they contract) would have incentives to explore numerous approaches, to boost the successful ones and - something that seldom happens in the public sector nowadays - terminate the failures.


Our current policymaking systems fail because they don't engage the wider public. Buy-in is a lost cause. Political processes are arcane, legalistic, complex and time-consuming. The only people who follow it closely are those who have a strong financial interest in doing so; mainly big corporations, lobbyists and think-tanks. Social Policy Bonds could both widen public participation and achieve society's goals more efficiently. Then we'd know that democracy is working.

09 October 2016

Why I voted for Brexit

Some colleagues and friends were surprised by my voting for Britain to leave the European Union. I have tried to explain my reasons to them but, invariably, disappointingly, revealingly, they choose to ignore my arguments. It's not lack of interest in the topic: it's that they just know they're right. I agree with them that the European project began as a noble, well-intentioned and extremely successful way of anchoring democracy and helping keep the peace in Europe. I also value its helping to free trade within Europe and its promoting democracy in eastern Europe. Where we differ is that they think the EU retains its noble character and continues to be a force for good. I disagree and these are my reasons why.

First, as I wrote here and here: the persistence of the Common Agricultural Policy, in the face of four decades of its environmental depredations, its raising of food prices for European families (by around 17%), and its subsidies to the extremely wealthy:
Greenpeace analysed the top recipients of CAP subsidies in the UK for the first time. Some 16 of the top 100 are owned or controlled by individuals or families who feature on the 2016 [UK's] Sunday Times rich list, receiving a total of £10.6m last year in “single payment scheme” subsidies alone, and £13.4m in total farm subsidies.... The Queen, aristocrats and Saudi prince among recipients of EU farm subsidies, the 'Guardian', 29 September
Worse than all this is the CAP's crippling of trade opportunities for Africa, with the tragic results that we are seeing in the Mediterranean. Some would say that the EU's refugee crisis is largely self-inflicted. Bad karma.

Now the EU, again led by France, wants to do to Latin America what it did to Africa:
But 13 European countries, led by France, want to scupper the talks [about a trade pact] because their farmers are scared of Mercosur [a trading bloc whose core countries are Brazil, Argentina, Paraguay and Uruguay], the world’s most competitive producer of grains and meat. They forced the EU to withdraw, at the last minute, proposed tariffs cuts on beef. A trade pact between the blocks would make shopping cheaper for 750m consumers. Mercosur's missed boat, the 'Economist', 14 May
This is no small matter: the Common Agricultural Policy, still swallows up 40 percent of the EU budget. The EU has had 40 years to solve the CAP problem, but it has failed. The persistence of the CAP, in the face of all the evidence of its destructive insanity shows very clearly that the EU is systemically incapable of reforming itself.

The EU's Common Fisheries Policy is another disaster, also with grave environmental implications.
The EU, meaning Brussels bureaucrats, knows the CFP is crazy. Top European Commission officials say the current quota system is indefensible. The problem is that certain key national governments, eg, France, Italy, Greece, Malta, Poland (it is a long list), are adamantly opposed to any reforms that would lead to wholesale restructuring and consolidation of fishing fleets. Britain and the EU, Bagehot's notebook, 13 January 2011
Again, the real problem is not simply that the CFP is deranged, corrupt and environmentally disastrous. It is that, even knowing this and having known it for decades, the decision-makers at the EU won't reform it. Worst of all we, the common people, cannot even identify who's making these decisions; still less boot them out of office.

Nor are the Eurocrats addressing the problems caused by a common currency - including high unemployment in southern Europe - or immigration.

I regard these two statements as axiomatic:
  • Big government is remote government, and 
  • People in power always overplay their hand. No exceptions. 
The EU has morphed into an unaccountable, anti-democratic, opaque, self-interested, coercive body. Its structure and activities are creating precisely those most poisonous forms of nationalism that it was supposed to eradicate. The consequences of this threaten to negate all the undoubted good that European integration has brought about.

Divorce is always painful but sometimes it's necessary. Relationships, however glorious their beginning, frequently turn sour or abusive. Brexit might just be the shock that stimulates the EU to reform itself. I hope that happens, but I wouldn't bet on it.

04 October 2016

Limitations of the Payment by Results model

An interesting comment from Mr Toby Lowe on an article extolling the benefits of Payment by Results (PbR):
[I]n order for PbR to work, 'results' must be directly attributable to particular interventions .... In complex systems, results are never attributable to particular interventions, and so PbR cannot work. This is not a technical issue about measures, it is an inescapable consequence of the way that complex systems operate. Toby Lowe, commenting on The next step in payment by results by Rodney Schwartz, 28 September
You might think that this - valid - point undermines the Social Policy Bond concept. But I would disagree. PbR as practised today differs from Social Policy Bonds in that the bodies that are paid to perform better are (1) conventionally structured, and (2) generally known in advance.

Both these features multiply the opportunities for gaming and manipulation. Bodies that are paid by results under current regimes are service providers that have a persistent composition and identity, and mainly for that reason are committed to a fairly limited range of activities. The 'results' for which these bodies are paid, though termed 'outcomes' are therefore quite narrow. So a body can, for instance, game the PbR scheme by simply exporting a targeted problem to areas not covered by that scheme. More importantly, the very scope of the 'outcomes' targeted is greatly restricted in time and space by the constraints imposed by the structures and activities of existing organizations. I belive that to tackle broad social problems we need a new type of organization; one of protean structure and composition, so that at each point along the outcome-achieving path it forms a coalition of the bodies that will be most efficient at solving the targeted problem. Social Policy Bonds would bring about such organizations.

What about the difficulty of attributing results to interventions in complex societies? Again, I agree with Mr Lowe. But under a Social Policy Bond regime, there would rarely be a need for direct, deliberate (and manipulable) attribution. Take for example the goal of targeting a nation's health for sustained improvement over, say, thirty years, as measured by a combination of such indicators as longevity, infant mortality and quality adjusted life years. Under a Social Policy Bond regime, such Health Bonds would be valued not by some cash-doling bureaucracy, but by the market for the bonds. Any activities undertaken by holders of the bonds would raise the value of their bonds only if they, in the market's view, make the early achievement of society's health goal more likely. Bondholders can undertake, or finance, a vast range of health-improving activities, some of which might benefit from a PbR approach, others of which will not (and might even conflict with one). It will be for motivated bondholders to decide. Such broad outcomes, undertaken by bodies that come and go during the lifetime of the bonds and overseen by a motivated market, cannot be manipulated. The complexity of the interventions and their effects is matched by the complexity of the bondholders', their coalition and the vast range of approaches that they will try in their efforts to achieve the targeted goal. Direct attribution of payment to successful interventions is no more necessary in such a long-term, broad project than it is to employees of a hospital.

Most of the PbR schemes that are being talked about involve Social Impact Bonds (also known as Payment for Success bonds), which are non-tradeable versions of Social Policy Bonds. I have discussed the limitations of such bonds, and my ambivalence toward them, here and here and in many posts in this blog: here and here, for examples, or search this blog for Social Impact Bonds. Long ago I did a post on New Public Management, which is also relevant.

27 September 2016

Policymaking is incomprehensible to outsiders

Lee Drutman writes:
The organizations that are most likely to be the winners in the modern policymaking process are those that:
•  are able to lobby on multiple issues over multiple years;
•  can pay the increasingly high price of entry necessary for effective participation; and
•  gain from policy complexity, both because it gives them more opportunities to insert narrow provisions with limited public scrutiny and because they are more capable of supplying expertise to overworked staffers.
More and more, the only organizations that are capable of marshaling the resources to do all these effectively are business organizations,—both individual companies and the associations that represent them. The business of America is lobbying, Lee Drutman, 2016
I've long railed against the increased complexity of policymaking in western countries. It is now too complicated for ordinary people to follow. So, on the one hand we have government and big business in a mutually enabling relationship, and on the other we have ordinary people and small enterprises. The gap is widening and so we see rising and potentially dangerous levels of alienation and cynicism.

Social Policy Bonds could narrow that gap. Ordinary people understand broad national or global goals, such as better health, a cleaner environment, or world peace. Governments could target these goals by issuing Social Policy Bonds. The current system is arcane, long-winded and incomprehensible to outsiders - presumably by accident rather than design. It's focussed on process and decisions about funding and organizational composition and structure. It rewards activity, rather than outcomes.

Achieving goals such as better health or world peace would in most cases mean that governments relinquish control over those organizations that are currently charged with achieving these goals. Governments, naturally, are not keen to do so willingly, so perhaps the first issuers of Social Policy Bonds will be philanthropists, non-governmental organizations or members of the public: or some coalition of all three, who would put up the funds necessary to redeem the bonds. I discuss the transition to a Social Policy Bond regime here and in chapter 4 of my book.

24 September 2016

Polluter Pays Principle: Social Policy Bonds as a meta-system

The Polluter Pays Principle (PPP) says simply that those who pollute the environment must pay for the damage they have caused. The idea originated in the 1970s when members of OECD countries sought a means by which pollution control costs would be financed by the polluters rather than the public in general. Its principal defect is that it does not guarantee efficiency of pollution control and environmental protection.

The PPP assigns environmental rights to those who benefit from environmental improvement, so polluters pay. The Beneficiary Pays Principle (BPP), on the other hand, says that whoever benefits from a cleaner environment should bear the costs of pollution control. 

Especially for diffuse sources of pollution, it's not always obvious who should pay: the polluter or the beneficiary. One of the virtues of a Social Policy Bond regime is that it would leave it to holders of Environmental Policy Bonds to decide how to allocate the costs of a cleanup. They would do so not according to the the subjective and possibly divisive criterion of 'fairness', but on the basis of which principle will be more efficient at ensuring the maximum reduction in pollution per dollar spent. 
 
Social Policy Bonds are versatile in that respect; they also scale up. So: assume that we want to target global levels of air pollutants, according to their lethality. A global fund, backed by contributions from governments and possibly non-governmental organization, could be set up to reward bondholders once a targeted reduction in global air pollution levels has been achieved and sustained. No single approach - PPP or BPP or any other - will work best over the entire planet for a period of (say) decades. Instead, a mosaic of approaches, varying with time and space, will maximise the pollution reduction per dollar spent by our global fund. There will be some circumstances, especially when polluters can be clearly identified, where the PPP will work best. But even under very similar circumstances, politics might make that approach unacceptable.

The crucial points are that the Social Policy Bond principle:
  1. is versatile enough to encompass both the PPP and the BPP, or any combination; and
  2. maximises efficiency, expressed as maximum reduction in pollution per dollar spent.
Social Policy Bonds are, then, a meta-system. They do not dictate how goals shall be achieved, nor who shall achieve them. They do require some source of funding, but raising funds for widely agreed environmental outcomes is likely to be less contentious than the current system, whereby contributors and beneficiaries have to be identified in advance of projects that for the most part reward activity rather than success.

21 September 2016

Industry concentration discredits market forces

The 'Economist' writes about the direction in which our economies appear to be heading: briefly, the concentration of business into fewer big companies:
The share of GDP generated by America’s 100 biggest companies rose from about 33% in 1994 to 46% in 2013. The five largest banks account for 45% of banking assets, up from 25% in 2000. In the home of the entrepreneur, the number of startups is lower than it has been at any time since the 1970s. More firms are dying than being born. A giant problem, the 'Economist', 17 September
The dangers of such concentration extend beyond the 'too big to fail' paradigm that in the past few years has brought about a massive transfer of wealth from the poor and middle class to banks and wealthy investors. It's the usual scenario: government and big business on the one side, ordinary people and small enterprises on the other. I have two objections to increasing industry concentration: first, that it widens the gap between governments and the people they are supposed to represent. This results in a public disengaged from policymaking, which can lead to flawed policymaking or, just as bad, the creation of otherwise good policies that have no buy-in.

My other objection is simply that industry concentration discredits our economic systems in general and markets in particular. The 'Economist' identifies technology and globalisation as two of its causes. But, as the journal points out, some of the consolidation of business represents the triumph of the anti-market approach. Big business is adept at taking advantage of and manipulating trade rules and other important parts of the regulatory environment to stifle competition:
Regulation inevitably imposes a disproportionate burden on smaller companies because compliance has a high fixed cost. ... The complexity of the American system also serves to penalise small firms. The country’s tax code runs to more than 3.4m words. The Dodd-Frank bill was 2,319 pages long. Big organisations can afford to employ experts who can work their way through these mountains of legislation; indeed, Dodd-Frank was quickly dubbed the “Lawyers’ and Consultants’ Full-Employment act”. General Electric has 900 people working in its tax division. Why giants thrive, the 'Economist', 17 September
Society needs some guidance. Not, heaven forbid, central planning, but some sense of direction over where both market and anti-market forces are taking us. We're now on a path that is taking western countries into a world of entrenched wealth and class differences and widespread, growing alienation. It's not a healthy outlook.

Which is where Social Policy Bonds could enter the picture. A bond regime wouldn't randomly allow influential players to throw their weight around with the government (if we're lucky) coming in to deal with the adverse consequences or (if we're unlucky) being co-opted to join with big business in stifling competition and extracting funds from taxpayers. In contrast, Social Policy Bonds would reward people who achieve universally wished for social and environmental outcomes. They would do so in ways that inject the market's incentives and efficiencies into the achievement of social goals. The skills and energies of, for instance, those 900 tax experts working for General Electric, would be channelled into socially useful projects. Incentives matter and we need to give big business and its pals in government incentives to work for all citizens, and not just for their own narrow short-term interests. 


15 September 2016

New world disorder

Walter Russel Mead writes about the world we actually live in:
The problem isn’t that the goals of the liberal internationalists are bad goals. They are excellent goals: no war, the spread of democracy and human rights, limits on weapons of mass destruction, strong institutions. The world they dream of is a much better world than the one we have now. And the liberal internationalists are also right that the world can’t afford to go on in the old way. Given 21st century technology and the vulnerability of our large urban populations to anything that disrupts the intricate networks on which we all depend, old-fashioned great-power politics with its precarious balance of power shored up by recurring wars is a recipe for utter disaster and, maybe, the annihilation of the human race. But the difficulty that over and over sinks hopeful efforts by liberal internationalists is this: Liberal internationalist methods won’t achieve liberal internationalist goals. It’s Kim Jong-un’s World; We’re Just Living In It, Walter Russell Mead, 'The American interest', 9 September (my emphasis)
It's not an optimistic view, but it's one that I mostly share. A world in which North Korea and other small, poor countries acquire nuclear weapons is not going to be safe for the liberal values under which most of us, mainly in the west, are lucky enough to live. We can see the pessimistic scenarios as a clash of civilizations, or a clash of values, or shifts in geopolitical power, but I choose to see it as a problem of perverse incentives.

To be simplistic, but not wholly inaccurate: for most of the people in politics, more power is an end in itself. Solution of social problems can be a means to that end but, for example, whipping up nationalistic fervour at the expense of improving your citizens' well being can work just as well, with Kim Jong-un being today's exemplar par excellence. Our political systems reward the acquisition of power and on the international stage as currently set up is strongly correlated with the acquisition of nuclear weapons.

Social Policy Bonds can drastically re-orientate the operating incentives and reward the proliferation not of nuclear weapons but of what Mr Russell Mead calls liberal internationalist values. I would assign a high priority to ensuring sustained nuclear peace, but we could also strive for 'the spread of democracy and human rights'. Social Policy Bonds with sufficient backing and a long-term focus could give incentives for people to focus on achieving these goals. The current system will always be vulnerable to people like Kim Jong-un (or worse) because it does not encourage people to find ways of stopping those who are psychopathically hungry for power from ascending into influential positions. There's very little upside to seeking to depose Mr Kim. We need to change that. Nuclear Peace Bonds could help to do this. Mr Russell Mead continues his article saying that '[p]ower, not communiqués, is what makes the world go round.' But money correlates strongly with power. And while it's nice that our cats and dogs have a huge range of foods to choose from, I'd like to think that, given the choice, they'd rather see some of that human ingenuity channelled into making the world safe from nuclear apocalypse. 
--
The first cross-border Social Impact Bond has been issued. I have no involvement in this project, and I have written about my reservations about SIBs here and here. However, I have always hoped that the bonds would be used on a level higher than the national level, as in my post above. It might be that these first cross-border SIBs are a necessary first step toward internationally-backed tradeable Social Policy Bonds. 

08 September 2016

Health: better late than never

The Economist looks at the UK's National Health Service
A better model [than the NHS]would be to give health providers a budget based on the population they serve, and pay them according to their ability to meet targets of better public health. This would increase the incentives to use new technology that would give patients more responsibility for their own health. If private outfits can do this with a profit margin to spare, good for them. Bitter Pills, the 'Economist', dated 10 September
Quite right. The current system is staffed by dedicated, well-intentioned, hard-working people, but its goals, explicit or implicit, have little to do with raising the general health of the population. In this the NHS is like many other social services: it began at a time when (1) relationships between cause and effect were easier to identify and (2) resources and expectations were constrained, so that only the most urgent and obvious challenges could be met. Times have changed. Society is more complex, time lags more important, and expectations are higher.

Targeting broad, general, health outcomes, and injecting market incentives into doing so, would greatly improve society's well being, as the Economist (belatedly), suggests. My 2013 essay on applying the Social Policy Bond principle to health goes into more detail.

03 September 2016

Impediments to a radical transformation

My 27 August post pointed out the advantages of making Social Impact Bonds tradeable. In other words, of issuing Social Policy Bonds rather than SIBs. Why then have Social Policy Bonds, to my knowledge, not yet been issued?

One reason is that Social Policy Bonds work best on a large scale and over long time periods during which resources can most readily find their optimal deployment. I've pointed out the necessarily narrow scope of Social Impact Bonds here and here. Because SIBs cannot be traded, their ownership is restricted to a specified (small) number of service providers with an inescapably short time horizon as compared with the long time usually needed to solve important social and environmental problems. But SIBs' restricted scope acts as reassurance to policymakers in general, and the bonds' issuers in particular: it gives them control over who shall undertake the activities that help achieve the targeted goal. Yes, the bonds do reward more efficient performance, but only for specified service providers.

Social Policy Bonds, in contrast, work best when service providers are subject to creative destruction: the impetus that rewards successful firms and winnows out failures. It's a discipline rarely seen in the provision of social services which, being very often government agencies, are immune from penalty for poor performance (and often, if too successful, will face a reduction in funding, or even dissolution). The time period required for the solution of most major social problems will necessarily be long; longer in most cases than the planning horizon of existing service providers and probably, in the case of very remote goals (world peace, for instance) longer than most people's life expectancy. The creative destruction that will be a necessary byproduct of efforts to solve these large-scale problems discourages existing service providers, be they government or non-governmental organisations of any type, from advocating for, or themselves issuing Social Policy Bonds. Existing bodies, in this view, are impeding the achievement of some of humanity's most urgent goals, not so much through any active lobbying on their part, but because of an understandable wish not to jeopardise their survival.

It is the interests of existing organisations, public- and private-sector, and their wish either to control who shall achieve social goals or to survive that, I think, are impediments to the radical transformation of humanity's prospects to which Social Policy Bonds could give rise.

30 August 2016

Social Policy Bonds as a meta-system

I haven't read The Moral Economy: Why good incentives are no substitute for good citizens, by Samuel Bowles, but I have read reviews. Mr Bowles points out that, in some circumstances, monetary incentives alone cannot make people behave as we should wish and can even encourage perverse behaviour. This echoes the work of Professor Bruno Frey who found that monetary incentives can undermine our willingness to do the right things for ethical and moral reasons. People perform valuable social or environmental services not only for monetary gain, but also because they enjoy doing them for their own sake, because they believe them to be the morally right things to do, or because they believe that their actions will advance some cause to which they are committed. These ‘intrinsic’ motives are qualitatively different from external, monetary incentives, and offering monetary rewards might ‘crowd out’ or undermine these less mercenary and more civic-minded motivations. Crowding out internal motivation can occur, writes Prof Frey, because, monetary incentives can undermine people’s feelings of self-determination and self-esteem. Also, when external incentives are supplied, the ‘person acting on the basis of his or her intrinsic motivation is deprived of the chance to exhibit this intrinsic motivation to other persons.’

Not mentioned by Frey, but also plausible is that financial incentives can undermine the cognitive outlook that sees socially and environmentally beneficial services as worthwhile in their own right, rather than as a cost for which compensation and payments must be paid by taxpayers.

What do these findings mean for Social Policy Bonds, which at first sight seem to be entirely dependent on monetary incentives that will encourage achievement of socially desirable goals? First, it's important to note that, as Frey points out, the crowding-out effects are not always significant. In markets, which are based on relationships amongst essentially self-interested strangers, financial incentives as exhibited through the price effect do work as classical economics predicts. That is, they work to increase supply. And when (as they would be under a Social Policy Bond regime) external rewards are seen as correlated with civic duty rather than an attempt to ‘buy’ one’s civic performance, they may well support, rather than undermine, moral and other intrinsic motivations. This would be especially true if, partly because of the role that a bond regime could play in raising taxes on less socially valuable forms of wealth accumulation.

Second: Social Policy Bonds are not merely a system by which monetary incentives are funneled into the most efficient providers of public goods and services, but a 'meta-system' that motivates bondholders to find the best ways of encouraging socially beneficial behaviour - whether these be monetary or not. A bond regime could give bondholders incentives to explore further the insights of Mr Bowles and Prof Frey, looking in detail at the relationships between financial incentives and civic performance. They could use this knowledge to minimise the costs of achieving targeted objectives by, for example, finding out when monetary incentives are least likely to supplant the intrinsic motivations of people who help achieve objectives, and concentrating their use in those circumstances.

Social Policy Bonds, then, are not a relatively crude financial instrument that rewards payment for performance in a narrow sense (that would be Social Impact Bonds), but rather a way of rewarding people for encouraging socially beneficial behaviour, however they do so.

27 August 2016

Make them tradeable

Quite a bit going on with Social Impact Bonds, as is apparent from their Wikipedia page and the almost daily Social Impact Bond newsletter; one recent issue highlighting Japan's interest in the concept. I do have reservations about SIBs, which I have written about here and here, though they do seem to have been inspired by my early work on Social Policy Bonds. One weakness, in my view, is that because they are not tradeable, SIBs are more subject to gaming and manipulation than Social Policy Bonds. This could become a bigger problem if the SIB concept becomes so widely adopted that they avoid public scrutiny. There is a long and sorry history of (presumably) well-intentioned measures, ostensibly taken to boost efficiency in the public sector, ending up as subsidies to the already wealthy and powerful. See, for instance, this piece about the UK's Private Finance Initiative. This is corporate welfare wearing a thin disguise.

So, given my doubts about SIBs, do I have anything positive to say about them? Yes:

First, is that they aim to reward better performance in the provision of social services. True, their lack of tradeability drastically narrows the range of such services and severely restricts their applicability over space and, especially, time. Still, they do give incentives to service providers to do a better job, given such limitations: something that is more revolutionary than it should be, but nevertheless a definite step forward.

Second, whatever their weaknesses, SIBs might be an improvement in policy areas that are particularly poorly served by existing interventions. Such unglamorous policy areas as, for instance, provision of services to the mentally unwell or to newly-released prisoners to help prevent them from recidivism.

And third, of course, SIBs might serve as a helpful or necessary transitional step toward Social Policy Bonds. SIBs allow the bonds' issuers, whether public- or private-sector a greater degree of control than Social Policy Bonds over who shall go about achieving the bonds' objectives and (less directly) how they shall do so. Government and other backers of bonds are, understandably, reluctant to relinquish their control over these levers of power. But Social Policy Bonds could be introduced gradually, and government agencies - if they are truly efficient - need not fear their introduction. Exposure to competition from others motivated to achieve society's goals, as targeted by a Social Policy Bond regime, would stimulate the exploration and implementation of diverse, adaptive solutions to national and even global problems. If it takes a decade or two's experimentation with SIBs to get there, it's a worthwhile journey. My hope is that SIBs' weaknesses and the greater scope they give for manipulation do not falsely discredit the Social Policy Bond idea in the eyes of the public.  

For more about a transition to a Social Policy Bond regime, see chapter 3 of my book.



22 August 2016

Alternative data and metrics for a bond regime

The Economist writes about 'alternative data':
The growth of small, low-cost satellites and machine learning means companies can quickly and cheaply parse millions of satellite images a day. A common trick is to analyse photos of car parks outside big-box retailers such as Walmart to get a sense of daily revenues. A Chicago-based data firm, RS Metrics, sells estimates on the productivity of factories by tracking the number of lorries parked outside. The watchers, the 'Economist', 20 August
Mindful of Campbell's Law, I've always thought that each Social Policy Bond issue should target a set of metrics, each of which has to fall within a specified range before the bonds can be redeemed. Also, that, if we target a broad national goal (universal literacy, say) the bond's issuers could stipulate that the bonds would be redeemed on the basis of data from a random sample of people of the country, so as to minimize the risks of manipulation. Alternative data could contribute to robust combinations of metrics for the purposes of a bond regime, especially those covering countries where official data is scarce or unreliable. As the article says: "Investors are particularly keen for firms to study pictures that yield rare data on, say, steel production in China or Russia, where official data can be patchy." It's not difficult to imagine scenarios in which alternative data could play a possibly indispensable role in the monitoring of progress toward environmental goals, or goals such as disaster prevention or conflict reduction.

20 August 2016

Poverty: the need for diverse, adaptive approaches

The Economist writes about US President Clinton's 1996 welfare reform package. Under the sub-head Blockheads:
Challenged to reduce the number of people receiving welfare, many states merely shifted people onto disability insurance instead, declared victory and sent the bill to Congress.... How might the reform be reformed? Most vitally, by concentrating attention and resources on those 1.5m families at the very bottom. Since this is the hardest group to reach, the federal government should use its money to encourage states to find new ways to help them. A patchy record at 20, the 'Economist', 20 August
Quite so. Clarity about aims is an essential and inescapable first step in implementing a Social Policy Bond regime. Unfortunately, policymakers under the current system can get away - or get rewarded for - with shifting people from 'receiving welfare' to receiving 'disability insurance'.

The article continues:
A useful model is “Race to the Top”, an education initiative from the Obama administration which rewards states that achieve improvements with extra money, in the hope that others will copy their success. There are plenty of policies worth experimenting with: expanding tax credits for those without children, extra government help with finding a job and even public make-work schemes. But this must be experimentation with the right purpose—helping the poorest into work rather than simply cutting welfare rolls.
True: the aim is not to cut the number of people on welfare. But I question whether raising the number of poor people in work is exactly what we want to achieve. I would think our over-arching goal is to eradicate poverty over a sustained period. Increasing employment among those currently poor may be one way of doing that, but we should not assume that it is the most efficient way. Nor the most compassionate: it's not difficult to think of people for whom employment would be less helpful than other interventions. For instance, a struggling single parent of several small children could benefit more from, for instance, help with childcare. Society as a whole would benefit more, in the long term, by improving the children's education and healthcare or their physical and social environment, or improving the parent's access to information about how best to nurture children. If parents were compelled to work, the benefits of a higher household income could be outweighed by the negative effects on the children.

As Barbara Ehrenreich put it:
The "working poor" ...  neglect their own children so that the children of others will be cared for; they live in substandard housing so that other homes will be shiny and perfect; they endure privation so that inflation will be low and stock prices high. To be a member of the working poor is to be an anonymous donor, a nameless benefactor, to everyone. Source
Social Policy Bonds targeting poverty could encourage the exploration and implementation of whichever approaches would best suit the varied and ever-changing circumstances of a population. Every one of those 1.5 million worst-off families referred to in the first excerpt above will face different challenges. Employment will be a solution for some, but not all. Social Policy Bonds would motivate people to find the diverse, adapative solutions that extreme poverty and many other social and environmental problems require if they are to be solved, rather than merely disguised.

14 August 2016

Social Policy Bonds: state of play

I don't think any Social Policy Bonds have yet been issued, despite their having been in the public arena for 28 years. That said, more national and local entities are issuing or considering Social Impact Bonds, the non-tradable variant of Social Policy Bonds. This wikipedia page summarises the history and current deployment of SIBs. I'm pleased to say that they are becoming more widespread. Countries in which they have been issued include the UK, Australia, the US, and they are also being considered in Brazil, Israel and New Zealand. Dan Corry of New Philanthropy Capital in London summarises the current (9 August) state of play with SIBs in the UK here, while Patrick Young, in Australia puts out the Daily SIB Newsletter.

I do have reservations about SIBs, which I have expressed here, here, and in several blog posts (search this page for Social Impact Bonds). Perhaps necessarily, they are narrow in scope and, in my view, will be prone to manipulation and gaming, especially if they become so commonplace that they escape public scrutiny. Because of their limitations they are also, as I expected, relatively costly to administer, as Alliance 54 reported in July: 'SIBs are gaining traction with 57 models operating, but they have proven complicated and costly to design and implement.' I haven't been consulted about, and have no involvement in, any of these SIB issues. My hope is that SIBs, will advance, rather than discredit, the Social Policy Bond concept.



07 August 2016

Health funding needs to be more impartial

Priorities for healthcare funding are heavily influenced by factors other than the ratio of benefit to cost.
[A] review by Cancer Australia (pdf) showed that between 2006 and 2011, breast, colon and prostate cancer all received funding greater than their proportional toll on society — measured in years of healthy life lost. By the same measure, research into lung cancer, along with lymphoma, pancreatic cancer and cancer of the brain were underfunded. Lung cancer research underfunded compared to societal impact, ABC news, 12 August 2015
In this graph, taken from the above link, 'DALYs' on the vertical axis means disability adjusted life years lost to the type of cancer on the horizontal axis. Funding is given in millions of Australian dollars.
 Research funding for different types of cancer compared to healthy life lost
Some disparities are striking: "Lung cancer, which takes the heaviest toll on years of healthy life, received less than a quarter of the funding given to breast and colon cancer research."

Governments have to make their resource allocation decisions on the basis of data that are necessarily incomplete and constantly changing. So, by default, health expenditure is influenced by groups of medical specialists with little incentive or capacity to see improvements in the general health of the nation as an objective. As a result, funding of these specialities depends to a great and varying extent, on the strength of their lobby groups or on their public profile rather than on what would best meet the needs of society.

The problem is the same sort of top-down, one-size-fits-all, fossilised systems of funding that bedevil other (well-meaning) attempts by government, or any large organisation, to keep track of multiple variables across any but the smallest geographic area. In health, as in education, housing, crime prevention, or environmental pollution we need diverse, adaptive approaches to solving our problems. Society is just too complex now for simple approaches to work effectively, except in those increasingly rare cases were cause and effect can be readily identified and relatively stable over time and space.

The Social Policy Bond principle can be applied to health. Essentially, under a bond regime, government would target for improvement the health of the entire population as measured by (probably) DALYs in combination with other measures. Resources woudl then be allocated impartially according to where they will yield the most benefit per dollar spent. Any target could be long term: if it were several decades bondholders would have an incentive to investigate numerous approaches, including preventive measures, research and education, on a dynamic basis and always with an eye to cost-effectiveness. For more on this, see my brief piece on Health Bonds.

03 August 2016

Government of the people, by the rich, for the rich

Elizabeth Drew quotes John Tanner, a former US congressman, explaining extremist attitudes in US primary elections:
If a Republican strays from the far ideological right ... they put themselves in political peril. They know better—some of them—but it’s not worth the political fallout to wander into the sensible center and try to sit down and work something out. No one will do what they all know has to be done to keep the country from going adrift. (My emphasis.) American democracy betrayed, Elizabeth Drew, 'New York Review of Books', dated 18 August
I've always maintained that there is more consensus about our social goals than there is on how to achieve them. Even so, as Mr Tanner indicates, there is also wide agreement over what needs to be done: that is, over activities. And yet the way we conduct our politics makes us incapable even of undertaking those activities. Divisiveness, which in its less virulent form may on balance have served us well over history, has become toxic. In the US particularly, it has become self-entrenching, through cynical manipulation of constituency boundaries, as in this example given by Ms Drew in the same article:
[A] a tiny peninsula was added at the last minute to a new district in northeast Ohio not because it contained certain residents but because it was the site of a large manufacturing company that could produce campaign contributions.
To put it bluntly, our system has been hijacked by experts who have little interest in the well-being of broader society. The result is becoming clear to us all: a wide and widening gap between government and big business on the one hand, and ordinary people and small business on the other. The political systems, not only of the US, but in all countries, have become too complex for ordinary people to follow. The dangers are becoming apparent: growing cynicism, extremism and nihilism.

To close the gap between people and their supposed representatives, I offer Social Policy Bonds. They aim to inject the market's efficiencies into the achievement of our social and environmental goals. But perhaps even more important, they demand clarity of these goals. Meaningful, explicit goals, which all of us can understand. Goals such as universal literacy, improved health, reduced crime and pollution and, at an international level, peace. With greater comprehension of our politics, we'll see more public engagement, and hence more buy-in: an end in itself, as well as a means towards more efficient ways of solving our social problems. What we have now is a travesty: government of the people, by the rich, for the rich. I don't think it's sustainable. By switching deliberately and slowly towards something like a Social Policy Bond regime we could ensure that, instead of a likely collapse followed by anarchy or tyranny, we'd see politics geared towards the well-being of all society and not, as now, those who are powerful enough to manipulate the system.

30 July 2016

Policy for the Middle East

Philippe Sands discusses the recently released Chilcot report into the UK's role in the Iraq conflict:
There’s nothing really new, since the material emerged when the hearings took place, but these 169 pages of tightly woven narrative and assessment nonetheless offer a unique insight into the place of legal advice within government: how law is made to fit around policy, rather than the other way round. ....  [T]he decision to remove Saddam Hussein and wage war in Iraq was taken early, and ...  intelligence and law were then fixed to facilitate the desired outcome.  A grand and disastrous deceit, Philippe Sands, 'London Review of Books', 28 July. (My emphasis.)
The Iraq debacle is a tragic story of how policy is made without regard not only for the law, or the truth, but also for the well-being of people in Iraq. It's a typical conceit of those in power. Here's a problem: Saddam's regime is nasty. And here's our solution: remove Saddam and wage war in Iraq.

I can't offer a better solution. But what I can offer is a way of generating better solutions. The first step is to be clear about our goals. I'd say our over-arching goal should have been to improve the well-being of all the Iraqi people. A second goals would be to remove any threats to non-Iraqis arising from weapons of mass destruction. For each of these two goals we need reliable indicators that we could then target by issuing Social Policy Bonds. A quantifiable indicator of well-being could target for improvement a combination of such measures as the human development index, the numbers of political prisoners, the numbers killed in sectarian violence, numbers of emigrants and refugees, and some measures of media incitement to hatred and violence. Importantly, such Iraq Peace Bonds would not assume that, for instance, Saddam must be removed and his regime dismantled. It would be up to bondholders, motivated by financial incentives, to calculate how best to achieve peace in Iraq. Financial incentives - not emotion - would dictate their decisions.

What about the second goal: the elimination of the threat arising from real or imagined weapons of mass destruction? This goal could have been targeted by a second bond issue, which would reward bondholders for achieving the non-use of such weapons over a sustained period of, say, several decades.

In both bond issues, bondholders would have incentives to generate diverse, adaptive approaches to meeting their goals. This means that they would not impose top-down solutions on the basis of how they feel at one point in time, and that they would have a continued strong interest in the long-term success of their approaches. I've written about bonds targeting peace in the Middle East here, and about bonds targeting sustained nuclear peace here.





24 July 2016

How we select our policymakers

How do we select our policymakers? By what criterion do we judge our potential leaders? No, it's not good looks, or ability to generate soundbites, or 'the common touch', or gender, race, or sexual orientation. Still less does competence have anything to do with it. Politico.com supplies the answer:
Inside the VP hunt: How Clinton picked Kaine

How tough was the vetting? Finalists had to turn over every password for every social media account for every member of their families.They had to turn over every password for every social media account for every member of their families. They had to list every piece of property they’d ever owned, and copies of every résumé that they’d put out for the past 10 years. Every business partner. Every gift they’d ever received, according to those familiar with the details of the vetting process. Inside the VP hunt, Edward-Isaac Dovere and Gabriel Debenedetti, 'Politico.com', 23 July 

23 July 2016

Political parties are divisive and unnecessary

John Lanchester writes about UK politics:
Political parties are the mechanism through which divisions in society are argued over and competing interests asserted. The trouble with where we are now is that the configuration of the parties doesn’t match the issues which need to be resolved. Brexit Blues, John Lanchester, 'London Review of Books', dated 28 July
Quite so. Society has become too complex for the old political parties which, I believe, will have to evolve much as the stonemasons did, into organizations that are less concerned with improving material circumstances than with ritual, bonding and inner development. In their place we could see new types of organization: ones with protean structure and composition that are dedicated to single issues.
In a Social Policy Bond regime, these organizations would target social or environmental outcomes. All their activities would be devoted to achieving broad, meaningful outcomes as cost-effectively as possible. Most of us agree that we need a society that both looks after its disadvantaged members and has a healthy, efficient business sector that will generate surpluses to pay for a welfare state. Broad, meaningful goals would encompass (for examples) health, education, the state of the environment, crime, and poverty; at an international level we could target the elimination of all war and civil war.

Of course there will be disagreements about priorities, but there will be more consensus about these goals than there is about the supposed means of achieving them. Political parties are failing. They cannot cope with society's complexities and are unnecessarily divisive. They're unlikely ever voluntarily to relinquish their over-sized role in making policy, but a transition toward a Social Policy Bond regime could see them decline or encourage them to reinvent themselves as something different, much as did the old stonemasons. For my thinking as to how this transition could be managed, see chapter 4 of my book.

12 July 2016

From operative to speculative politicians

The more I chat with politically interested people, the more I become disillusioned. Outcomes for the people they purport to represent mean far less to them than the other things that go along with identification with a political party or opinion: belonging to a group of like-minded (good or 'compassionate') people; the joy of differentiating themselves from the other (evil) lot; participation in group events and rituals; the convenience of having an ideology that both explains the world and generates apparent solutions to its problems.

I am respectful of all this. I recognize the need of all humans to engage with each other, to sing or dance together, to share our hopes, to be with people who have a similar world view for whatever reason, to identify with a clan or tribe; above all: to belong.What I do find problematic, though, is that the 'rightness' of such belonging, the elation and joy that come with satisfying a genuine human need, can lead participants to prescribe policies that they try to apply to people outside their in-group, without seeking the outsiders' buy-in - without, indeed, thinking it necessary or desirable. I've written (frequently!) about how the over-arching goal of any institution, however well intentioned, initially, however hardworking its members, becomes more and more that of self-perpetuation.

Most of us, if we're allowed to express ourselves coolly and freely, want to live in some sort of welfare state, with a safety net for the disadvantaged. We also want a healthy, productive, wealth-generating business sector. Yes, there will be differences of emphasis and priority, disagreements about procedure. But our overall goals are not that different. Not so different, surely, as to justify the mutual hatreds that we are seeing in the politics of many western countries today. These hatreds could bring about calamity, in the form of weakened societies, prey to those with far less edifying ambitions. The old Arab proverb comes to mind: 'a falling camel attracts many knives'.

My response is twofold. The first (predictably!) is to advocate Social Policy Bonds. The ostensible reasons for our polarized, dysfunctional politics, are not so much about our goals, but about the ways we think they shall be best achieved. We could instead debate social and environmental outcomes, about which there is more consensus and more objectivity. On a global scale, for instance, we could target the sustained survival of our species, or world peace, or the non-deployment of nuclear weapons. At a regional level, we could target Middle East peace. At a national level we could target universal literacy, or improvements in crime rates or environmental health. People understand these outcomes far more than we do the intricacies and legalisms of policymaking under the current system, and the structures and activities of those charged with achieving our social goals. And because we understand outcomes, we can participate in the policymaking process. Nobody would be perfectly satisfied by the array of specified targets, but there would be buy-in - something we need and something missing in today's organization- and activity- based policies.

Less frequently have I mentioned my second response: the deliberate refocusing of ideological politics away from policymaking and towards other, more inward-looking, activities. You might have thought that the economic and social shambles that was Marxism would have expired with the old Soviet Union. But it survives in China and elsewhere, not as an economic system, but as an extraordinarily potent ideology about an economic system. Freudian psychoanalysis, though discredited as a therapy, survives as a cult revolving around the life and work of Sigmund Freud. There is not a single proven example of a visit to Earth by an alien spacecraft – yet opinion polls consistently show that more than half of adult Americans believe in such an event.

Could our political parties and their associated ideologues take the same steps? They probably wouldn't take the initiative, but if it became the only means by which they survive, then they would surely do so. A Social Policy Bond regime could accelerate the process. Parties and ideologues are concerned with personalities, ideologies, activities, funding and institutional structures, all of which are the supposedly rational basis for their existence from which derives the positive features of belonging. Social Policy Bonds would lead to new types of organization which would erode that basis - but not the more edifying need for bonding. There is a precedent, and it is the world of Freemasons. Some groups of working or 'operative' stonemasons began to allow non-masons into the guilds. Operative masonic lodges raised money by charging the gentry for admission to their "mysteries".  (See here.) The guilds and mysteries persisted after the great British and European cathedrals had been built. Operative masons declined in number; 'speculative' masons took over, and today there are around six million freemasons worldwide.

Could our politicians and those with a vested interest in the power-structures to which they belong and from which they derive inspiration be persuaded to give up their dysfunctional organizations and divisive politics, and become 'speculative' policymakers? Then we'd be free to focus on social and environmental outcomes that are meaningful to ordinary people. I think everyone - politicians and public - would be happier if our potentially catastrophic 'operative' way of making policy became 'speculative' and focused more on inward enlightenment than on making an impact on the world.