16 January 2018

The costs of bad policy

The costs of bad policy are ... spread across the public at large, making it harder for them to organise. Getting it back: how America's economy is rigged by special interests. 'The Economist', 30 November 2017, in a review of The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality, by Brink Lindsey and Steven Teles, December 2017
The book looks at areas of the US economy where barriers to competition, mandated by government, have led to excess income. In the words of the reviewer:
Implicit and explicit government subsidies to the financial industry enrich bankers and sow the seeds of crisis, for example, but have done little to boost growth. Increasingly strong intellectual-property protections have not unleashed a torrent of new ideas, but have instead swelled the earnings of top firms, which wield their patents and copyrights menacingly at would-be innovators. ... Analyses of occupational licensing and land-use rules turn up similarly skewed policies: they benefit those already on top at the expense of society as a whole.
The book suggests 'a more deliberative politics' to loosen the grip of the powerful. It also proposes philanthropy and more government researchers. The reviewer, though, thinks that 'America’s institutional rot' might be 'too far advanced for mere deliberation to help'.

I agree; I think the same diagnosis applies to most countries, and I have another suggestion, which might have a better chance of succeeding: focus on policy goals, rather than the means of supposed means of achieving them. Government, and perhaps only government, can do two things well: articulating our social goals, and raising the revenue for their achievement. Where it fails is in areas where policy is too complex for it to actually achieve these goals. It sets up agencies that pay their employees according to activity, rather than outcomes, and are inherently inefficient in complex, changing environments. And policymaking itself, with its focus on organisations, their structures and funding, and on regulation, has been captured by exactly the interests outlined in the the Captured Economy: the already rich and powerful. Our policymaking processes are too arcane and long-winded for ordinary people to follow. Yet the results of these processes, and their failures, affect us all.

A government that issued Social Policy Bonds would concentrate on what it can do well: raising revenue and using it to reward the achievement of society's social and environmental goals. Incentives would cascade down from bondholders to all those working to solve these problems. The bonds, being tradable, would stimulate long-term initiatives to achieve goals currently thought to be too remote or idealistic: the ending of war, for instance, or universal literacy. A bond regime would encourage the exploration of diverse, adaptive, approaches and - crucially - the termination of failing approaches. Powerful interests could, as they do now, take an interest in achieving our social goals but the difference between a bond regime and the current system is critical and stark: they would be rewarded only to the extent they achieve society's goals, not their own.

07 January 2018

Experimenting with Social Policy Bonds

As far as I know, there's not been a single trial of the original Social Policy Bonds. Social Impact Bonds, on the other hand, are being issued in about nineteen countries. The main difference is that SIBs aren't tradable and, as I argue here and here, this drastically diminishes the range and timescale of the social problems that they can set out to solve. It also, again in my view, opens them up to exactly the sort of gaming and manipulation that feature so prominently in our current policymaking environment, and from which we are trying to escape.

That said, there are genuine difficulties in getting people interested in the Social Policy Bond concept. Principal amongst these is that it's never been tried. The difficulty is that Social Policy Bonds are at their best, in that they show their most marked advantage over current policies, when the problems they target are likely to require trialling and adapting many diverse approaches to their solution.

If we already know the best approach, there's no need real need for Social Policy Bonds, and if we know the people best placed to solve the problem, then SIBs, essentially functioning as a performance-based incentive, are adequate. My contention is that, for many of our biggest and most urgent challenges, neither of these conditions apply. We don't know how, for instance, to end war, nor which combination of people and organisations are best placed to do so.

All this implies large-scale goals with a relatively long time frame. So I've found it easy to write about applying the Social Policy Bond principle to goals like world peace, universal literacy, and climate change. It's more difficult to think of less grandiose goals, immune from the possibility of gaming, that could serve as experimental examples to prove the validity of the concept. Perhaps SIBs, despite my concerns, could serve as a stepping stone toward the issuing of a Social Policy Bond, and the subsequent refinement, development and implementation of the concept, so that it can meet our large-scale challenges.