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.

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