Whose goals?

There are two main elements to the Social Policy Bond idea. One is the injection of market incentives into all the processes necessary to bring about our social goals. The other is the focus on these goals themselves, and my contention that they be goals that are meaningful to ordinary people. Goals such as reduced crime, better health, and a cleaner environment. Under a Social Policy Bond regime we could target such apparently remote goals as world peace, or universal literacy.

Our current policymaking systems don't really consider either element. There's plenty of rhetoric about market forces but the people spouting it are, most likely, using them to justify decisions made in the favour of large corporations, typically multinationals. The hypocrisy is breathtaking: market forces imply competition, but large corporations typically try to maintain their status by undermining competition, usually by pressuring governments to manipulate the legislative, regulatory and trade environment in their favour.

Nathan Robinson's article about how Amazon is going about choosing its second headquarters in the US makes sombre reading:

There’s something sad about watching suffering post-industrial cities like Gary plead for an investment from Amazon. (Gary’s mayor issued a heartfelt appeal, on the mistaken assumption that Jeff Bezos possesses a conscience.) It feels like the peasants are coming before the king, bearing whatever meager offerings they can scrape together, and begging him for his favor. Having humbled themselves at Bezos’ feet, praised his products and promoted his brand, nearly all of them will walk away with… nothing. Even though Bezos could single-handedly transform the economic fortunes of a place like Gary, the spoils will almost certainly go to a place that is already prospering. The sad spectacle of cities groveling to Amazon, Nathan J Robinson, 'Current Affairs', 16 October

 A long article by James Meek looks at the human costs of such subservience to the interests of multinationals from a European perspective. I think it's time for us to ask the question: whose goals should have a higher priority: those of the multinationals or those of ordinary people? It's an important question, not only because these goals differ, but because they often conflict. Most of us as individuals have longer-term and more broad interests than large corporations, which are duty bound to put the interests of the company (though not specifically shareholders) above all. Because our political systems give little voice to our interests as individuals or as a society, we now have policymaking that is largely influenced only by those who have the means to follow it closely. That is, large corporations, including government agencies.

Which do you want? Do you want to live in a town patronized by some great combination of capitalists who pick it out as a suitable place to plant their industry and draw you into their employment? Or do you want to see your sons and your brothers and your husbands build up business for themselves under the protection of laws which make it impossible for any giant, however big, to crush them and put them out of business? Attributed to US President Woodrow Wilson, 1912

Social Policy Bonds could be a way of raising the influence of ordinary people at the expense of large corporations. They would take as their starting point our interests: as individuals, families, communities and societies. Being tradeable, the bonds could target goals whose end-point might be years or decades into the future. Large corporations could still play a part, but their goals would be congruent with those of wider society. In much the same way, governments issuing Social Policy Bonds while still, articulating society's goals and raising the revenue for their achievement, would be doing so with the aim of raising the long-term well-being of all society and not, as now, the short-term interests of large corporations.

How to bypass cultural imperatives

Philip Salzman writes:

Peace is not possible in the Middle East because values and goals other than peace are more important to Middle Easterners. Most important to Middle Easterners are loyalty to kin, clan, and cult, and the honour which is won by such loyalty. These are the cultural imperatives, the primary values, held and celebrated. When conflict arises and conflict-parties form based on loyal allegiance, the conflict is regarded as appropriate and proper. Why There Is No Peace in the Middle East, Philip Carl Salzman, 14 October

On first reading, this seems correct. If so, it would devalue my attempts to encourage the issuing of Middle East Peace Bonds. But what would ordinary people - men and women - in the Middle East or, indeed, anywhere else, say if they were given the chance to voice their opinions in private? I'd like to think that they would happily ditch tribal loyalties in exchange for peace and the consequent brighter prospects for themselves and their descendants. Middle East peace might seem overly idealistic, and it probably is, if we see tribal loyalties which, simply because they've persisted for a thousand years or more, as intractable. But slavery too, used to be considered part of the natural order of things, along with other physical and societal pathologies. Over the course of a conventional politician's planning horizon, of course, Salzman is correct. Conventional politicians, unfortunately, generate conventional policies; a particularly ineffectual approach when trying to address problems that will most likely require an array of possibly untried and adaptive approaches for their solution.

Applying the Social Policy Bond concept to armed conflict might be the way forward. For some regions, a definition of our peace goal might need to be more nuanced than 'cessation of conflict' (as measured, say, by numbers of people killed or made homeless). But the bonds can target peace, however defined, over a decades-long term, which means that bondholders would be motivated to bring about popular, sustainable peace agreements. 'Cultural imperatives' and other so-called 'intractable' problems, I believe, are amenable to solution: we might not know the exact nature of such solutions, but we can and should be giving people incentives to finding them.

Avoiding the disaster of disengagement

Peter Arnold writes:

Mimicking ‘the Trump phenomenon’, Emmanuel Macron did not win the French presidential election. The politicians who had, for decades, governed the country, lost. Mark Rutte’s governing party lost seats in the Dutch parliament to Geert Wilders and other small parties. Matteo Renzi’s governing party lost the 2016 plebiscite to change the Italian constitution. Theresa May’s governing party lost ten seats to minor parties. Malcolm Turnbull’s governing party lost seats to minor parties. As further proof my thesis, Angela Merkel will lose seats next month.

What is it about governing politicians in these democracies that has caused their electorates to vote against them? The French have a word for it, a word which emerged after Mr Macron, although lacking a political party, saw his opponents fall by the wayside – dégagement. ‘Disengagement’. Winning by default, Peter Arnold, 'Quadrant online', 13 October

We shouldn't be surprised at this all-pervasive disengagement. Policymaking is now so removed from the concerns of ordinary people and the process itself is so arcane, that only specialists, usually employed by large public- or private-sector bodies, can afford to follow it. Despite the odd referendum, the gap between the politico-bureaucratic complex and the people they are supposed to represent grows ever larger. In such a dysfunctional environment, disengagement would seem to be the least timewasting strategy for ordinary citizens to adopt.

Social Policy Bonds might be a way of closing the gap. Their aim is to inject market incentives into the solution of our social and environmental problems. But, as well as, and perhaps even more important than, the channeling of the market's incentives and efficiencies into such problems, they take as their starting point outcomes. Social and environmental outcomes, that is, that we want to achieve. Under a bond regime, the focus of political debate would be on these outcomes: the priority we attach to them and how much we are willing to spend on them. Current policymaking focuses on institutional funding and structures and esoteric aspects of law and regulation, all of which can be, and are, manipulated by those lobbyists and their paymasters. The rest of us have to live with the consequences. The underlying assumption is that, if we have a social problem, it's government who should decide how we'll try to solve it, and who shall be charged with doing so. With anything at all complex it's unsurprising that such a way of doing policy is at best inefficient, and at worst an opportunity for vested interests to delay or oppose anything that threatens their business model.

Social Policy Bonds, in centering policy debate on outcomes, would encourage less rarefied policymaking than the current system. People understand broad meaningful outcomes more than we do the obscurantist tactics of today's legislators. So we should be able - if we want - to participate for more fully than we can today. It's likely too that some of the heat would be taken out of politics: there's probably far more consensus over outcomes that we want to see - healthier citizens, less air pollution, universal literacy, say - than over the supposed means of reaching them.

Under a bond regime, probably nobody would see exactly the policy priorities they want to see. But, compared with today's policymaking, (1) it's probably more likely that citizens' interests will be considered and taken seriously, and (2) public participation in the process can be seen both as a desirable goal in itself (see here, for instance), and as a necessary condition for buy-in, without which many of our most urgent challenges are unlikely to be met. Disengagement presages disaster. Social Policy Bonds could be the way to avoid it.

Emotion-based policy

What drives policy? And what should drive policy? Two entirely separate questions. What actually drives policy today is largely emotion, which seems to be supplanting other policy drivers, and is easily manipulated by large private- and public-sector bodies. Society is growing ever more complex as are the relationships between cause and effect in social and environmental policy. Emotion is easier to communicate and exploit than a rigorous accounting of which policies work and which don't. But as a policy driver emotion has obvious faults. It's far too easy to subvert for mercenary and more sinister ends.


I'd much prefer to see meaningful outcomes drive policy. These could bypass the complexities of our economy and society, so they would berelatively easy for non-specialists to understand. It's far simpler, say, to aim to reduce violent crime, or climate change, than it is to make a case for (say) subsidising leisure centres for youths or urging poor countries to stop building coal-fired power stations. These actions, at some point in time, might be necessary and efficient, but that should be an open question: one to be answered by informed and motivated investors, rather than remote, cumbersome, corruptible and monolithic central government.

Which is where Social Policy Bonds would enter the picture. One of the benefits of a bond regime is to bring transparency and stability into the policymaking process. Framing policy decisions in terms of costed outcomes would be an inescapable first step. Currently policymakers can - indeed must - express their decisions as vague, noble-sounding declarations of intent, backed up by funding programmes for favoured bodies, be they government agencies or other interest groups. As Milton Friedman said: “one of the great mistakes is to judge policies and programs by their intentions rather than their results”. (I would insert 'stated', before 'intentions' here.) Issuers of Social Policy Bonds, would in contrast, have to be explicit about their objectives: transparency and accountability are built into a bond regime, as surely as they are excluded from the current policymaking apparatus. as well as more efficient goal-achievement, formulating policy in terms of meaningful outcomes would generate more buy-in - something that we urgently need as the gap between citizens and the politicians they are supposed to represent is in danger of becoming unbridgeable.

Short termism: taking advantage of complexity

There's much of interest in John Kay's presentation at the Public Hearing on Sustainable Finance at the European Commission. The key point is this:

Short termism is the product of the intervention of intermediaries. Evolution of the financial system over the last 40 years has been characterised by the steady growth of the process of intermediation, a process which has taken finance further and further away from meeting the real needs of the underlying users and suppliers of finance. Market-based capital allocation and long-term decision-making do not fit easily together. John Kay, 18 July

There's a mismatch between people's long term goals, and the short-term focus of the people who are supposed to help us achieve those goals. The same sort of mismatch occurs not only in finance but also, though perhaps less pervasively, in healthcare and education. Reasons vary, and are not easy to pin down. Information asymmetry may play a big role: in finance, as in healthcare, providers know a lot more than customers. Society is complex and large institutions are adept at misusing that complexity to take advantage of our relative ignorance. In fact, they are not above manipulating the regulatory environment to add to our confusion.

The more important question, though, is how to close the gap between what we want to see, and what our public- and private-sector institutions deliver. My suggestion is that we articulate long-term social and environmental goals, and reward people for achieving them. We don't need to prejudge intermediate steps, nor specify who shall achieve our goals. If we issue Social Policy Bonds with the aim of improving our citizens' health, say, or achieving universal literacy, then intermediaries will proliferate only if bondholders think them necessary to reach our targets with maximum efficiency. Information asymmetry means that intermediaries can take advantage of our relative ignorance about how best to achieve our personal long-term goals and substitute their own, usually much shorter-term objectives, which rarely coincide with our goals and often, indeed, conflict with them. But whereas we might not know how best to achieve our personal goals, nor society's goals, we are not at all ignorant about what those goals actually are. Social Policy Bonds would recast the way we, as a society, do things. They would put our broad, long-term, goals back where they belong: as top priorities, to which our institutions and all their activities are entirely subordinate.