DAOs and Social Policy Bonds

Decentralized Autonomous Organizations might be the sort of organization that I envisage here; organizations whose structure, composition and activities are all subordinated to the market's constantly changing view as to who is best placed to achieved targeted goals efficiently. A discussion on DAOs and Social Policy Bonds has started in this ethereum forum.

GDP and distribution

The current Economist (dated 30 April) features Gross Domestic Product and its inadequacies, here and here. It doesn't seem to mention distribution of income, which is important as many governments use GDP as a de facto target. I argue though that rises in GDP don't do much for welfare if they are increasingly concentrated in the hands of the top one percent or so. If we are trying to do something to improve welfare, we need to target an array of measures.

Raising GDP (or GDP per capita) has become the default goal for governments because they are unwilling or unable to target for improvement an array of broad outcomes that are meaningful to ordinary people: such as better health, universal literacy, full employment etc. The vague, slippery, and ever-revisable GDP metric is a handy smokescreen that allows government not to commit itself to improving the welfare of ordinary citizens. A Social Policy Bond regime would be a stark contrast: it would target for improvement explicit, meaningful and verifiable metrics that are inextricably linked to the welfare of ordinary people.

The business of America is lobbying

Broken at the top is a recent Oxfam report which, amongst other findings, reports that:

• From 2008-2014 the 50 largest US companies collectively received $27 in federal loans, loan guarantees and bailouts for every $1 they paid in federal taxes.


• From 2008-2014 these 50 companies spent approximately $2.6 billion on lobbying while receiving nearly $11.2 trillion in federal loans, loan guarantees and bailouts.  


• For every $1 spent on lobbying, these 50 companies collectively received $130 in tax breaks and more than $4,000 in federal loans, loan guarantees and bailouts. Broken at the top, Oxfam, 14 April  

When I talk about Social Policy Bonds I usually emphasise their efficiency. But they have another great advantage: transparency. Expressing policy in terms of targeted outcomes does mean that ordinary people can follow what’s going on - in contrast to the current system. So if society as a whole wanted to subsidise the largest, wealthiest corporations in the land, then we could do so, and we’d be doing so with our eyes open. But if, as seems likely, people would rather see society's scarce resources channelled into helping the most disadvantaged amongst us, then we could issue Social Policy Bonds targeting for improvement broad indicators of our citizens' basic well-being. Health, for instance, or literacy and other basic educational goals.

These are outcomes that are meaningful to ordinary people. Which means we could all participate in the policymaking process. This would be a huge improvement over the current system, which is - deliberately or not - made so obscure that the only people who can follow it closely are those whose ultimate sources of funding are the already wealthy.

Health is not an accountancy issue

Reading about psychiatry and obesity, and health generally, you can easily get the impresion that the incentives in play conflict with the stated goals of the professionals.

Psychiatry first: Dr Peter Breggin writes copiously and broadcasts about the over-prescription of psychiatric drugs to adults and children, in the US. Often these drugs have little in the way of robust scientific research to justify their use. Research can be shoddy or misrepresented. The organizations that encourage misdiagnosis and overtreatment are captured by powerful interests in, for example, the pharmaceutical industry.

Or obesity: there is an entire weight loss industry dedicated to selling diet books, supplements or food substitutes. There are television shows and exercise programmes, all supposedly aimed at reducing obesity. Yet the long-term results of almost all these interventions are almost invariably small and often negative.

Even in the less cash-driven, more socialized health services of, for instance, the UK, doctors come under pressure to over-prescribe, and defensive medicine - medical care performed primarily to reduce the risk of litigation - is significant.

Let's say that there are arguments on both sides: that some overdiagnosis and overtreatment is going on, but we're not sure how much, or how deleterious are their effects on health. I have no idea how close we are to optimal levels of treatment. Perhaps Dr Breggin and the other sites to which I link above are mistaken, but the important point is that nobody has incentives to find out. Instead, largely by default or historical accident, the major determinants of what interventions get prescribed to whom and how often, are the short-term interests of companies that have goods or other interventions to sell. Their incentives are to overprescribe. It is the narrow, short-term goals of corporations or professional organizations, or government bodies, that largely dictate how we shall tackle our health goals.

So if, say, the best interventions, from the point of view of the unwell person, won't benefit, in cash terms, powerful interest group, it seems likely that they will be under prescribed. (A similar argument applies too to 'negative defensive medicine', where the fear of a cash loss motivates practitioners not to treat patients.) Dr Jason Fung, for instance, recommends fasting as a cure for Type 2 diabetes and obesity.

Again, the point is that there are too few incentives in place that encourage people to look for low- or no-cost ways of treating people that are better, from the patient's point of view, than high-cost ways.

This is where the Social Policy Bond principle can play a part. Health Bonds would target the broad, long-term, general health of an entire population. Bondholders would be rewarded if health outcomes improve, however that occurs. Bondholders would have incentives to research, investigate and exploit only the most efficient ways of improving people's health outcomes. If non-treatment or low-cost treatment is the best way of improving a person's health, then that is what bondholders will be motivated to supply. The important point is that, under a Health Bond regime, it is the ordinary citizen's long-term general health that is the priority for bondholders and not, as in the current system, the accountancy goals of existing organizations, be they public- or private-sector.

Subsidising obesity

Jason Fung writes:

The government is subsidizing, with our own tax dollars, the very foods that are making us obese. Obesity is effectively the result of government policy. Federal subsidies encourage the cultivation of large amounts of corn and wheat, which are processed into many foods. These foods, in turn, become far more affordable, which encourages their consumption. Large-scale consumption of highly processed carbohydrates leads to obesity. The Obesity Code: Unlocking the Secrets of Weight Loss (page 130), Jason Fung, 2016

What have this and other perverse subsidies got to do with Social Policy Bonds? Simply that the relationship between a policy and its effect is obscured by a policymaking process that focuses on supposed ways of achieving desirable outcomes, rather than the outcomes themselves. So, the US (and most other rich countries) justifies agricultural subsidies because they are supposed to protect the 'family farm'. But very little of these subsidies actually go to smaller farms: most of them are capitalized into farmland values, benefiting wealthy landowners, or end up as subsidies to large agribusiness corporates. And, as Dr Fung relates, they conflict with health objectives. They persist because our policymaking process allows the - deliberate or not - obscuring of the real goals of the powerful.

Expressing policy goals as broad outcomes that are meaningful to ordinary people would change this. If people truly wanted their tax payments and higher food prices to fund wealthy aristocrats and agribusiness then a government could achieve the same result without deceiving its citizens. But it's unlikely that the public actually wants to subsidise the very wealthy: it happens only because policymaking is effectively manipulated and disguised by the powerful. Social Policy Bonds would make the real goals of policy clearer to everybody, generating more public participation in the policymaking process and so, importantly, more buy-in.

Inequality

The Economist writes:

VOTERS’ anger over inequality is one explanation for the rise of politicians as varied as Donald Trump, Bernie Sanders and Marine Le Pen. Tough choices, the 'Economist', 26 March

Very true, and our governments don't seem very highly motivated to do anything about it. Many might not consider reducing inequality to be a goal worth targeting in itself. But, if we did move in the direction of targeting meaningful outcomes, that would be for society as a whole to decide. 

 

But Social Policy Bonds could reduce inequality in a less obvious, less direct way. A bond regime would be a means whereby private gain would be strongly, visibly and inextricably correlated with public benefit. Some bondholders, whether institutions or individuals, would start out rich and, if their bonds rose in value, would become richer. But working successfully to achieve desired social goals would most probably be seen as a laudable way of acquiring wealth. There are intangible benefits from having people or institutions grow rich in this way. There are many disaffected people who view with suspicion or alarm the very high incomes or profits of corporations engaged in activities of little obvious net social or environmental benefit. They are also unconvinced that ‘trickle-down’ occurs to any meaningful degree. Wealth, in these people’s eyes, must inevitably result from exploitation, either of other people or the commons. Social Policy Bonds could shift this worldview and, by helping people take a more positive view of the act of earning an income and accumulating wealth, could make for a more cohesive society. A socially acceptable way of becoming wealthy would also make it more politically feasible to tax less socially desirable ways more heavily – not necessarily an end in itself, but a means of raising more tax revenue for redistribution or increasing the number and quality of public goods and services.

Meantime the OECD is reporting that:

Income inequality in OECD countries is at its highest level for the past half century. The average income of the richest 10% of the population is about nine times that of the poorest 10% across the OECD, up from seven times 25 years ago.