14 October 2018

They got away with it in agriculture, so why not everywhere else?

George Monbiot writes about the European Union's corrupt, insane Common Agricultural Policy:
I’m a Remainer, but there’s one result of Brexit I can’t wait to see: leaving the EU’s Common Agricultural Policy. This is the farm subsidy system that spends €50 billion a year on achieving none of its objectives. Farmed Out, 12 October
(I would say "stated objectives".) I'm not a remainer, and the CAP is one reason why. There's little to add to Mr Monbiot and others' litany of the CAP's disastrous effects on the environment, small farmers, animal welfare, Africa and human health, but the persistence of the CAP is illustrative:

(1) It's been widely challenged for decades, yet its beneficiaries are wealthy and powerful enough to resist any meaningful reform.

(2) Agriculture in all the rich countries is a sector in which government involvement has been pervasive and long lasting.

The key question is: in whose interests are these agricultural policies? The answer is clear: agribusiness and landowners (especially the biggest). The losers? The rest of us: people who eat, taxpayers, plus the farmed animal population, plus the physical environment. Even would-be farmers don't benefit: they have to buy land at prices inflated by government subsidies.

It's not just agriculture. Increasingly, the complexity both of society and our policymaking process is being weaponised in favour of the people who own and run corporations, or the people they pay (in or out of government) to understand and influence policy. Government and their paymasters can get away with this because we accept a policymaking system that doesn't explicitly target outcomes that are meaningful to ordinary people. Currently policymakers can - indeed must - express their decisions as vague declarations of intent and changes in institutional funding and composition, or legislation. Their focus is on the supposed means of achieving vague outcomes, rather than on the outcomes themselves.
 
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. Insane, corrupt programmes, such as Europe's Common Agricultural Policy, have platitudinous, vague, mutually conflicting goals, which sound lofty and high-principled but actually end up shovelling vast sums of taxpayers' and consumers' money into the bank accounts of agribusiness corporates and their lobbyists. If outcomes were built into policymaking, as they would be under a Social Policy Bond regime, such policies would get nowhere. Instead they have lasted for decades, at great cost to everybody except a few millionaire businessmen and landowners, a burgeoning, parasitical bureaucracy and lobbyists . Oh, and fraudsters.

It's the persistence of such stupid policies as the CAP, which swallows up about the 40 percent of the EU budget, that makes imperative a systemic change in the way we formulate policy. Twenty-seven years ago, P J O'Rourke could write this, about the American political system in general, and that country's Farm Bill in particular:
I spent two and a half years examining the American political process. All that time I was looking for a straightforward issue. But everything I investigated - election campaigns, the budget, lawmaking, the court system, bureaucracy, social policy - turned out to be more complicated than I had thought. There were always angles I hadn't considered, aspects I hadn't weighed, complexities I'd never dreamed of. Until I got to agriculture. Here at last is a simple problem with a simple solution. Drag the omnibus farm bill behind the barn, and kill it with an ax. Parliament of Whores, P J O'Rourke, 1991
Since then, little has changed in agriculture, but the complexities in society and policymaking have proliferated and continue to perplex ordinary people. Consequentially, the gap between our corporate-political caste and the people they are supposed to represent has continued to widen. Clarity and transparency about policy objectives are essential if that gap is ever to close. Rewarding people who actually achieve these goals, rather than bodies who merely say they will, will also be necessary. Social Policy Bonds would fulfil both requirements.

12 October 2018

The finance curse

Nicholas Shaxson writes about the UK's 'finance curse':
A growing body of economic research confirms that once a financial sector grows above an optimal size and beyond its useful roles, it begins to harm the country that hosts it. The most obvious source of damage comes in the form of financial crises – including the one we are still recovering from a decade after the fact. But the problem is in fact older, and bigger. Long ago, our oversized financial sector began turning away from supporting the creation of wealth, and towards extracting it from other parts of the economy. To achieve this, it shapes laws, rules, think tanks and even our culture so that they support it. The outcomes include lower economic growth, steeper inequality, distorted markets, spreading crime, deeper corruption, the hollowing-out of alternative economic sectors and more. The finance curse: how the outsized power of the City of London makes Britain poorer, Nicholas Shaxson, ''The Guardian',5 October
It's not just the finance sector that works to influence policy in ways that drain resources away from ordinary people and small businesses: governments the world over are in thrall to big business. They act as though the interests of big corporations coincide with those of the citizens they are paid to represent. Our economies and societies are so complex that they can believe this, or act as though they believe it, with impunity. The Social Policy Bond idea is an attempt to re-orientate policymakers so that they again think in terms of the well-being of citizens, rather than the financial health of private- or public-sector bodies whose operations might, or might not, generate net welfare gains.

Almost all of us want to see a healthy business sector and an effective welfare system for the most disadvantaged. Government, and often, only government, can and should do the basics: infrastructure, education, health up to certain levels. But when things become complicated we should be targetting ends, rather than the supposed means of achieving them. The finance sector, which should be the financial services sector, has become grotesquely enlarged because of this confusion. So:


Lending to businesses outside the financial world – which many people might think the principal activity of a bank – represents about 3pc of the activity of British banks. The City services only itself, John Kay, 'The Telegraph' (London), 9 September 2015
Fine if the bankers want to do other things, but they shouldn't siphon funds from the rest of the economy, nor manipulate the regulatory environment, to do them. A Social Policy Bond regime wouldn't confuse ends with means, and wouldn't subsidise big business at the expense of ordinary citizens and small businesses. As Mr Kay puts it: 'We do not need an army of the overpaid and overbonused buying and selling from each other.' We don't need it and we certainly shouldn't tax people to pay for it.

06 October 2018

Human nature is peaceful

People (like me) who believe world peace is possible are often put in a box labelled 'Idealists.' So weapons continue to pile up and when we see the horrors of war on our tv screens, we sigh as though violent human conflict were inevitable. The wealthiest amongst us plan escape routes or prepare for war's aftermath. The rest of us dutifully contribute to peacekeeping efforts by such bodies as the United Nations, though with no expectation that they will actually achieve very much.

In War, Peace and Human Nature, Douglas Fry et al argue that (1) the belief that war is part of human nature is itself destructive and (2) war is not part of human nature.

A view, erroneous though it may be that war is ancient and presumably thus reflects some natural feature of humankind or human social life, feeds a suspicious and hostile view toward other peoples and countries, making the preparation for war and the practice of war that much easier. The reasoning, or in many cases “gut reaction,” seems to be: if war is in human nature, then we’d better be prepared to fight and perhaps strike first. This implicit assumption, in great part simultaneously stemming from and reinforcing of the violent view of human nature, can be seen as contributing to arms races, preemptive strikes, excessive spending on weapons, hostility toward others, and inordinate fear of other nations or groups, who are by this thinking, naturally inclined to attack. I am suggesting, in other words, that in widespread assertions that war is ancient, we are seeing a cultural belief with very important real world ramifications. Such a view may be in the short-term self-interests of a minority (e.g., arms dealers), but it is not in the long-term interests of humanity overall.
It's an important point. And much of the rest of the book backs up the assertion, that over the whole period of human existence, war is not an intractable feature of humanity, Mr Fry has this to say, summing up the evidence gathered and written up by other contributors to the book:

[Steven] Pinker's thesis that chronic war stretches back over the far-reaching millennia before the agricultural revolution is not substantiated by the actual data. ... The worldwide archaeological evidence shows that war was simply absent over the vast majority of human existence .... —the time period beginning far to the left side of [an n-shaped] curve. But with a gradual worldwide population increase ..., the shift from universal nomadic foraging to settled communities, the development of agriculture, a transition from egalitarianism to hierarchical societies—and, very significantly, the rise of state-level civilization five thousand to six thousand years ago—the archaeological record is clear and unambiguous: war developed, despots arose, violence proliferated, slavery flourished, and the social position of women deteriorated. This comparatively recent explosion in pre-state and then state-based violence is represented on the rising left side of the letter n in the curve, but taking place within the last 10,000 years. (My emphasis.)
Conclusions? People who believe world peace is possible are not being irrational or going against human nature. Violent political conflict is not inevitable.

Where does the Social Policy Bond idea fit in? Simply: knowing that world peace is possible, we can issue World Peace Bonds as a way of rewarding the people who help achieve it. There are reasons why such bonds have not been issued (they're untried, they threaten existing institutions ...etc) but a big one is that people think that world peace is some Edenic, idealistic vision, not for this world. What Mr Fry and the other contributors to his book show is that world peace is not only possible, but it was, for the greater part of man's existence, a reality.

29 September 2018

Giving greed a chance

Looking at the scale of social and environmental problems that mankind faces, you might think that we don't have the resources necessary to make fundamental changes in the way we operate. Changes such as eliminating extreme poverty, improving health outcomes, dealing with environmental problems, and reducing violent political conflict. The good news, though, is that we are not short of funds to address these, and other, challenges.
Brooke Harrington in Capital without borders, writes about people working in the wealth management industry:
Their work radically undermines the economic basis and legal authority of the modern tax state.... Using trusts, offshore firms, and foundations, professionals can ensure that inequality endures and grows in a way that becomes difficult to reverse short of revolution. Brooke Harrington, Capital without borders, September 2016
And then there is corporate welfare.  Nathan Jensen writes, about the US:
Every year, states and local governments give economic-development incentives to companies to the tune of between $45 billion and $80 billion. Why such a wide range? It’s not sloppy research; it’s because many of these subsidies are not public. Do Taxpayers Know They Are Handing Out Billions to Corporations? 'New York Times', 24 April
People are behaving perfectly rationally given the incentives on offer. In most cases they are behaving perfectly legally too. But the result, from an ordinary person's point of view is a massive misdirection of resources into activities that are destroying our social and physical environment. We have greed - otherwise known as self-interest - and we have untold wealth. It's my contention that we could solve the world's problems without having to rely on changing human nature, by redirecting our greed and that wealth into unambiguously useful activities.

The vehicle by which we could do this is the Social Policy Bond. The idea is that Social Policy Bonds direct self-interest into achieving socially beneficial outcomes. Governments don't have to try to work out how to achieve these outcomes, nor who shall be charged with doing so. It is the self-interest of bondholders that ensures that resources flow only the most efficient ways of achieving our goals.With just a little bit (relative to the magnitude of the problems at hand) of tinkering, we can substitute 'our goals' meaning humanity's goals, for those individual and corporate goals, the pursuit of which is not only diverting resources from more useful activities, but is actively undermining our chance of survival. Social Policy Bonds would channel our self-interest into the achievement of these goals. It would seem to be safer and more humane to do issue Social Policy Bonds and give greed the chance to solve our problems, than to carry on as we are and hope that the revolution Ms Harrington fears turn out not to be catastrophic.

21 September 2018

The importance and neglect of sustained personal care

Michael Hobbes writes:
In 2017, the U.S. Preventive Services Task Force...found that the decisive factor in obesity care was not the diet patients went on, but how much attention and support they received while they were on it. Participants who got more than 12 sessions with a dietician saw significant reductions in their rates of prediabetes and cardiovascular risk. Those who got less personalized care showed almost no improvement at all. Everything You Know About Obesity Is Wrong, Michael Hobbes, 'Huffpost', 19 September
Markets can't readily capture things like 'personalised care', so our political system gives them little weight. Yet they prove to be crucial in determining not only meaningful outcomes like physical and mental well-being, but also more measurable quantities, such as morbidity; elements of which can be monetarily valued. Just as reducing crime doesn't - or shouldn't - mean simply giving more cash to police forces, so improving a nation's health shouldn't just mean dispensing spending more on doctors, hospitals, dietary advice or encouraging more exercise. Unfortunately, institutions have their own goals, and that includes government itself (the bodies that dole out taxpayer funds) and the public- or private-sector agencies (that allocate these funds). These bodies have little incentive to do things that fall outside their purview, however beneficial or efficient they might be. So if more 'personalised care' is found to be the best way of tackling not only obesity but also, say mild depression, or attention deficit disorder in children, then it's unlikely to be promoted over the diets or drugs that show an immediate, financial benefit to existing organisations.

Our large, complex societies need to take a broader approach; one that rewards social outcomes. Social goals should have primacy over institutional goals. We should reward approaches that solve our social problems, even if there is currently no organisation following that approach.

Enter Social Policy Bonds. Under a bond regime, it is the social goal that's targeted, and we do not asssume that existing bodies can implement the best ways of achieving it. Non-market approaches - such as personalised care - often fall through the cracks. And finding the best approach for a particular problem at a particular time in a particular place needs a suppleness that large, top-down organisations usually lack. Our social and environmental problems need diverse, adaptive approaches. Social Policy Bonds would stimulate the research, experimentation and adoption of the best of these approaches. They would reward people for solving our problems, rather than for simply turning up to work and carrying out an approved activity. They would reward innovative approaches if they are the most efficient and, if current bodies can't implement them, they will give rise to a new type of organisation: ones whose protean composition and structure would be entirely subordinate to their goals - which would be exactly those of society. It's unlikely that existing health bodies in most countries would find room for the sort of sustained, personalised diestary advice that Mr Hobbes mentions. Social Policy Bonds targeting health, on the other hand, would encourage people to investigate such an approach and, if they find it as beneficial as it appears, see that it's adopted.

11 September 2018

Conflict Reduction Bonds ex machina*

The Economist foresees an imminent human catastrophe in the Syrian city of Idlib: 
In the battle last year for Mosul, an Iraqi city of [fewer] than 1m[illion], the American-led coalition killed at least 1,000 civilians despite using mainly precision-guided, or “smart”, bombs. Idlib, whose population is three times larger, will face Russian bombs that are almost entirely unguided, or “dumb”, meaning they are quite likely to miss their targets and instead hit civilians. The battle for Syria’s last rebel redoubt looms, the 'Economist', 8 September
Meanwhile Katherine Bourzac writes about research into an innovative way of dealing with the brine generated by reverse osmosis, which would otherwise be dumped into the sea with possibly damaging effects on the marine environment:
[A]llowing forward, not reverse, osmosis [makes] it possible to get more and more water to flow across a salt-excluding membrane into a container of brine, increasing the pressure. That pressurised water can be used to drive a turbine and generate electricity in a process called pressure-retarded forward osmosis. Our thirst for water is turning the oceans saltier, Katherine Bourzac, 'New Scientist', 8 September 
The details aren't important. My point is the contrast between the two visions for humanity. On the one hand, we face a human-induced scene of carnage, avoidance of which is assumed to be beyond our capabilities. On the other, we have scientists and engineers researching ingenious ways of improving the environmental consequences of extracting fresh- from sea-water.

Is it too simplistic and naive to think that the immense human costs of the forthcoming Idlib catastrophe outweigh any benefits that might accrue to the competing factions in the Syrian conflict? And, if we accept that, why do we assume that we can't do anything about avoiding them?

The answer, I think, is that our multitudes of political systems aren't fit for purpose. They are incapable of aggregating the wishes of ordinary human beings, and weighting them against the perceived, narrow, self-interest of (in this case) politicians, warlords and arms merchants in Syria and beyond; maybe a couple of hundred guys who could halt the catastrophe, but choose not to. The problem, as we see from New Scientist, is not a lack of human ingenuity. The problem is that, while some of it's channelled into schemes that benefit humanity, far too much is channelled into endeavours you might think of as low priority or - much worse - into creating and prolonging human catastrophe.

We could, and many of us do, sneer at the profit motive as a solution to human problems. There are many, especially on the left, so blinded by ideology that they see monetary incentives as unacceptable ways of solving our human problems. Presumably these people are waiting for some sort of psychological revolution, or deus ex machina* or maybe they feel it more important to belong to a tribe of believers in their bankrupt ideas than actually pay people to solve problems that in their view, shouldn't exist and wouldn't exist if we were all nice to each other.

I don't think we can afford those views. The challenges we face on all fronts - environmental, as well as political and military - are too huge and too urgent. As well, just as teachers (these days) are paid, so too would providing incentives for people to, for instance, eliminate war, bring more people and more resources into that endeavour. Some might become rich by helping eliminate war (is that so terrible?); others might simply earn the same salary as they would say, by advertising pet-food or working as a warehouse person in a plant that manufactures chemical weapons.

For centuries religious leaders, monarchs, ideologues, international organisations and politicians of all stripes have failed to end war. Even now, as with Idlib, we think we are powerless to prevent it. Why does violent political conflict continue to cause untold suffering, despite most people’s deeply-felt wish to live in peace?

We cannot answer these questions now, but I don't think we need to. What we can do is reward peaceful outcomes, however they are achieved and whoever does so. Nobody can possibly identify and remove all the possible causes of violent political conflict. But what we can do is reward the sustained periods of peace and leave it to a motivated coalition to explore potential solutions and implement the most promising ones. Currently, instead of rewarding peace, governments finance activities, or institutions, or programmes, or policies that are supposed to work for peace, but have signally failed to achieve it. The answer, I think, is to make the rewards conditional on the ending of war.

Conflict Reduction Bonds would do this. Backed by governments, philanthropists, non-governmental organisations and the public, possibly under the auspices of the United Nations, they would be issued on the open market for whatever price they would fetch, and would be tradeable at all times. They would be redeemed for a fixed sum only when the number of people killed or injured by violent political conflict reached a very low level. Importantly, the bonds would make no assumptions as to how to bring about greater peace - that would be left to bondholders. Unlike normal bonds, Conflict Reduction Bonds would not bear interest and their redemption date would be uncertain. Bondholders would gain most by ensuring that peace is achieved quickly. The broad effect would be twofold:
  • More resources would be devoted to achieving the outcome of peace
  • Market incentives and efficiencies would be injected into every stage of peace building.
Many peace-building bodies, whether public- or private-sector, work in admirable and diverse ways, but their efforts are relative to the size of the problem, small-scale and uncoordinated. For all such bodies, the financial rewards from building peace are not correlated with their effectiveness in actually doing so. This negatively affects not only, as some would have it, the salaries of employees, but their number, the resources they have at their disposal, and their incentives. Conflict Reduction Bonds, in contrast, would explicitly reward movement toward a targeted peace outcome. They would focus on an identifiable outcome and channel market efficiencies into exploring ways of achieving it. They could be the most effective means of achieving the peace that people all over the world yearn for and deserve.

For more on Conflict Reduction Bonds and variants see here.  
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*Deus ex machina is a plot device whereby a seemingly unsolvable problem in a story is suddenly and abruptly resolved by an unexpected and seemingly unlikely occurrence...Its function can be to resolve an otherwise irresolvable plot situation [or]...to bring the tale to a happy ending.... Source

03 September 2018

Armed conflict and astrology: root causes distract

Just because we don't know everything about cause and effect, that doesn't mean we throw up our hands in frustration and decide to do nothing. Or, the more common reaction when a social problem becomes inescapably visible: or create ineffectual bureaucracies ostensibly aimed at solving them (climate change, nuclear proliferation) but actually doing very little.

Take armed conflict: it's not difficult to reel off whole screeds of plausible reasons for its occurrence, or even its inevitability. Poverty, ignorance, despair, and differences of wealth, ethnicity, religion, class, culture or ideology: all these are thought to be some of the 'root causes' of war and violence. As also are: inequalities in access to resources, scarcity and economic decline, insecurity, the violation of human rights, exclusion or persecution of sectoral groups, and state failures including declining institutional and political legitimacy and capacity. Other key foundations for conflict could be historical legacies, regional threats, the availability of weapons, economic shocks, and the extension or withdrawal of external support. Demography is also significant: large numbers of unemployed males can catalyse conflict.

Sometimes inward factors are cited; such as individual pathologies; perhaps a history of being abused that predisposes someone to take up violence in later life. Often blamed too are the media, and the frequency with which our children are exposed to images of violence - especially when violence is presented as an acceptable and effective way of solving problems.

No doubt all these factors can and do play a part in fomenting and fanning the flames of conflict. But (1) every 'root cause' will have its own root cause and (2) even aside from the impossibility of eliminating every potential cause of conflict, there is no inevitability that these causes will lead to armed conflict. Selective memory has strengthened these linkages in the collective mind, but for each of these 'root causes' there are examples that disprove any simple cause-and-effect relationship. There are, for example, dozens of countries in which people of different ethnicity and religion live happily side-by-side.

Perhaps Tolstoy summed it up best:
The deeper we delve in search of these causes the more of them we discover, and each single cause or series of causes appears to us equally valid in itself, and equally false by its insignificance compared to the magnitude of the event. War and Peace, page 85, Leo Tolstoy, 1867
Searching for alleged root causes, then, might not be the best way of trying to solve a problem. Applying the Social Policy Bond principle could be the answer.For instance, instead of policymakers' trying to look for and deal with root causes of armed conflict, they could raise the revenue to back Conflict Reduction Bonds. Then it would be up to bondholders to identify the most cost-effective ways of reducing conflict. That might involve looking for root causes, but only if doing so will be the most efficient way of achieving the outcome we seek. 


As an aside, I'll quote the former Grand Archdruid, John Michael Greer on the subject of astrology : 
Why do the positions of the planets relative to the 30° wedges of the ecliptic that astrologers call the zodiacal signs, and the position of these relative to another set of wedges of space, the mundane houses, which are calculated from the point of view of the observer, predict the future? Why do those 30° wedges have the effects they do, even though the stars that occupied those wedges in Babylonian times have moved on due to the precession of the equinoxes?  And why should the chart cast at the moment of the spring equinox of 2019 in London provide insight into how Britain will fare through Brexit? There’s a simple answer to this, which is that nobody knows. Astrology didn’t come into being because somebody decided to cook up an elaborate theory about planetary influence. It came into being because people who watched the skies in various parts of the world in ancient times noticed that certain relationships among those little bright dots in the night sky provided reliable advance warning of certain events down here on Earth. An astrological interlude, John Michael Greer, 29 August (my emphasis)
My point: the important thing is to solve problems, not try to work out why they have arisen. It might be a good idea to look for root causes, but it might be more efficient instead to aim for the outcome that we want without doing so. Trying to understand fully the relationships between cause and effect may be a waste of time, or actually delay and impede the achievement of our social and environmental goals. Outcomes are more important than theory, whether we are talking about ending war or predicting the future.

27 August 2018

Incentives to avoid long-term disasters

Someone by the name of Amaxen comments on a recent story about cybersecurity:
[T]o managers, security is not something you can point to as an achievement, isn't something you can really 'measure', doesn't make a contribution to the bottom line of whatever organizational goal you have, and ultimately you could spend infinite money on security and still not guarantee it, while on the other hand a system in development slipping schedule is very visible to managers, so there's always a tendency throughout the organization to push the priority for security down when it comes to making tradeoffs, and this despite the full knowledge by IT managers that this is a thing they should account for. Source
We overuse narrow, short-term, readily available numerical indicators, often to the exclusion of the bigger picture. Managers do it with cybersecurity but it happens universally; for instance when it comes to valuing equities or, more critically, when we target, implicitly or explicitly macro-economic variables such as Gross Domestic Product. We focus on aspects of reality that can be captured by numbers even when any correlation between those numbers and the well-being of a society or ecology is incidental or even negative.

This tendency works against our best interests, because those things that we can't accurately monitor can be crucial. An organisation cannot measure the probability of a cyberdisaster, but it can measure the money it spends on cybersecurity. We can't accurately measure societal well-being but we can measure economic growth. We can't measure the probability of a nuclear war, but we can measure the funding of bodies ostensibly aimed at reducing it.

So where do Social Policy Bonds come in? They would change the identity of the people doing the measuring and they reward success and, just as crucially, terminate failures. An organisation wanting to reduce the threat of cyberdisaster could take out some form of broadly defined insurance against that sort of disaster: one that would apply beyond the career horizons of the security officers in that organisation. But, unlike a conventional insurance policy, the issuers of the policy would take an active role in monitoring the organisation's systems. It would be highly motivated to do so effectively, because its contract with the organisation would penalise any failure.

At the policy level, instead of (or as well as), for example, paying bodies of the United Nations or non-governmental organisations to turn up for work and write papers, we could issue Nuclear Peace Bonds that would reward people for achieving a sustained period of nuclear peace, whoever they are and however they do so.

What about societal well-being? Trickier. Thinking aloud: We could stop assuming it's correlated with Gross Domestic Product (or GDP per capita) and put more effort into measuring it and its components. We could stop ignoring things like inequality and levels of trust that are (currently) not that easy to measure but that, on all the evidence, are crucial components of social well-being. We could compile something like the Human Development Index with objective measures that correlate strongly with well-being. Government could target improvements in this and other objective indicators, rather than blindly aim for economic growth at all costs, which seems to be the default activity. Alternatively it could also concentrate solely on such undisputed components of well-being (health, for instance or, at a global level, absence of conflict) and, as in the previous examples, issue bonds that reward the absence of large falls in those components.

The important points are that the people doing the achieving of our goals should have incentives to be efficient and to take a long-term view. Social Policy Bonds, being tradeable, allow us to target remote goals, because the composition and structure of our motivated coalition of goal-achievers can change in response to changing events and circumstances. We need diverse, adaptive solutions to our problems, which are exactly the sort of solutions that government at any above the least aggregated level, can't provide. Social Policy Bonds would give people incentives to find those solutions and implement them.

19 August 2018

One size never fits all

Much of the world's strife originates in the emotional insecurities of the people in power. Piling up weaponry, seeing hostility when it's not there, stamping out any quibbles and dissent about the way things are done: these are not admirable traits, but they are widespread and destructive. Perhaps only the most psychologically secure leaders can allow a mixed economy with a healthy business sector to flourish, or question the accepted ways of doing things: the ways that created the hierarchy that gives them the power they enjoy.

A revealing joke in Beijing elite circles describes how Deng Xiaoping, father of the past 40 years of reform and economic opening, assembled two teams, one comprising the country’s best technocrats, and the other China’s most ingenious Marxist theoreticians. Deng asked the first team what policies the economy needed, and commanded the second team to define those policies as socialist. Reform-minded elites fear Mr Xi has reversed that process. How to read summer grumbles about China’s swaggering leader, the 'Economist', 11 August
Deng was pragmatic, and his reforms remarkable, and they helped lift hundreds of millions of Chinese out of poverty. The current regime seems to be less secure:
[L]ocal experiments with reform have been cited by some Western scholars as examples of China’s “adaptive authoritarianism”. This is a way of describing the party’s ability to avoid the fate of its counterparts in other communist-ruled countries by flexibly adjusting policy in order to satisfy public demands for greater prosperity. The pilot system has been an important means of achieving this. There are signs, however, that it is losing steam. Local experiments with reform are becoming rarer under Xi Jinping, the 'Economist', 18 August
If this is accurate, then I think it's unfortunate. Society is so complex and our social and physical environments are changing so quickly, that old ways of doing things need to be questioned. One approach will rarely work effectively over a wide geographical area, or for extended periods of time. Unfortunately, people in the grip of an ideology - who may, indeed, owe their livelihoods or lives to their belief in an ideology - rarely consider approaches that conflict with their conditioning.

I'm all for ritual, belief and ideology when practised by consenting adults. Less so, when they dicatate policy that denies our diversity and humanity. How often do we speak with good, well-meaning people who are committed to a particular political party, or who identify themselves with a particular political grouping? Then you come across their blind spot, where application of their ideology led to undeniably unfortunate results…but they can’t see that. We probably all have such blind spots. The richness and complexity of history, and the application of selective memory mean that most of us can plausibly attribute all the bad things that happen to the beliefs, politicians, countries or cultures that we don’t like, and all the good things to the successes of the ideology that we favour.

It won't work any longer, if it ever did. In an increasingly complex world, relationships between policy programmes and their outcomes are ever more difficult to identify and the consequences of failure ever more disastrous. Our lazy tendency to impose a binary worldview on such potential crises as climate change, ownership and control of resources could prove disastrous. It would be a tragedy if the excerpt above, about China's stifling of experimental approaches is accurate. The Chinese people in particular have seen where a top-down, monolithic approach leads.

It’s time to quit looking for an all-embracing ideology that tells us whom we can rely on, or how best to approach every political, social or environmental problem. We must accept that cannot rely on any god, religion, political approach or economic belief system - not when it comes to policymaking that affects people. We need diverse, adaptive approaches that transcend ideology.

My suggestion is that instead we subordinate policy to outcomes. It’s much easier to get consensus on what we as a society want to achieve than on the ways to achieve it or on who shall be paid for achieving it. Social Policy Bonds would allow this: governments would still get to raise revenue for achieving our social and environmental goals and still articulate society's goals. But under a bond regime they would relinquish control over how our goals shall be achieved and who shall achieve them. In this way, they could target long-term problems whose solutions have so far eluded us and for which there is no obvious single pathway. National problems such as poor health, crime, unemployment. And global problems such war, climate change, or nuclear catastrophe.

05 August 2018

How to avoid a nuclear war

Andrew Cockburn quotes a four-star general, Lee Butler, former head of the US Strategic Air Command, and who wrote recently:
Arms control is now relegated to the back burner with hardly a flicker of heat, while current agreements are violated helter-skelter. ...Sad, sad times of the nation and the world, as the bar of civilization is ratcheted back to the perilous era we just escaped by some combination of skill, luck, and divine intervention. How to start a nuclear war, Andrew Cockburn, 'Harper's Magazine', August
Eric Schlosser's Command and Control, bears this out, with its alarming tales of accidents and blunders that came close to bringing about catastrophe during the Cold War. It's quite disturbing how little incentive the people in control, at all levels, have to think about the potential impacts on society rather than on themselves or the organisation of which they were part.

The goal of sustained nuclear peace makes an ideal target for the Social Policy Bond idea. It's a complex, long-term goal that will require diverse, adaptive solutions. It's a goal that, from all indications, is unlikely to be reached under current policy. And it's an easy goal to verify.

My proposal would be to issue bonds that reward a sustained period of nuclear peace. This could be defined, as, say the non-detonation of a nuclear device that kills more than 50 people for 30 years. They could be backed by a combination of governments, non-governmental organisations, philanthropists and members of the public. With sufficient backing the bonds would help offset and (one hopes) outweigh the the incentives currently on offer, which essentially are those of the military and weapons manufacturers to maintain a nuclear posture.

Those billions of us who would benefit from nuclear peace are presumably a massive numerical majority, but we have few means of expressing our wishes in a way that is likely to bring it about. The tendency is to assume that governments will do what's necessary, with the support of hard-working, well-intentioned people in the private sector.
But these people are not rewarded for success, which is not only problematic in itself, but also discourages people from investing in their efforts. More cogently, it's not working.

We need to reward those who achieve nuclear peace at least as much as those working to undermine it. We don't know exactly how to reduce the chances of a nuclear exchange, nor who will be best placed to do so, over the long period during which our goal is to be achieved, but we have no excuse for not encouraging people to find out. Nuclear Peace Bonds would apply the Social Policy Bond principle to this goal. Investors in the bonds would form a protean coalition of people dedicated to achieving it as efficiently as possible. Their goal would be exactly the same as society's. Human ingenuity knows no limits. Currently, too much of it is devoted to relatively unimportant or socially questionable. Nuclear Peace Bonds would encourage some of that ingenuity into helping avoid a global catastrophe.

My short piece on Nuclear Peace Bonds is here. The links in the right-hand column of that page point to papers on similar themes: Conflict Reduction, Disaster Prevention, and Middle East Peace

03 August 2018

Climate change: we're not really doing anything

David Roberts asks: 
Are any of the countries that signed the Paris agreement taking the actions necessary to achieve that target? No. The US is not. Nor is the world as a whole. Source: No country on Earth is taking the 2 degree climate target seriously, David Roberts, 'Vox', 29 April 2017
Disappointing, but hardly surprising. The two degree climate target is too abstract, too remote for most of us, who have far more (apparently) urgent, short-term priorities. As individuals, we might be lucky to receive subsidies for driving electric cars. But what good do they really do:
"...China’s 1m-plus electric cars draw their oomph from an electricity grid that draws two-thirds of its power from coal, so they produce more carbon dioxide than some fuel-efficient petrol-driven models. The world is losing the war against climate change, the 'Economist', dated 4 August.)
In essence, the incentives are all wrong. A broad definition of subsidy that includes tax write-offs can generate this headline, which tells us all we really need to know:
America spends over $20bn per year on fossil fuel subsidies, Dana Nuccitelli, the 'Guardian', 30 July
Even ignoring subsidies, if the incentives are there for us to extract and burn fossil fuels, then that is what we shall do. Similarly, if the incentives are there for landowners, car manufacturers, politicians and officials to engage in bickering, lobbying in defence of their own interests, and competing with other interest groups for subsidies - then that is what they will do. Much serious brainpower is being spent on resisting change or extracting privileges from government.
 
We need to target meaningful goals, and we need to motivate people to achieve them. The outcome we should be targeting must be a composite definition of climate stability, which should include indicators of plant, animal and human well-being as well as climatic variables and the rate of change of those variables. This targeted outcome would include reductions in the negative impacts of climate change. Targeting climate like this means that we don’t prejudge the best way of achieving it, which might well be reducing greenhouse gas emissions as the main approach, but would motivate people to look at all other potential approaches, including ones we cannot anticipate. We are learning more and more about the links between greenhouse gas emissions and the climate, and about ways in which we can prevent or mitigate climate change. 

We also need to enlarge and motivate the pool of people prepared to do something to tackle climate change. The fact is that the rewards to a successful pet food campaign manager can be in the millions of dollars, while someone trying to generate new ideas for tackling climate change that don’t fit in with Kyoto will have difficulty getting attention, let alone adequate funding. This points to the need to divert some private sector resources away from trivia and towards solving our most urgent environmental problem.

There’s more. We also need people to buy in to solving the climate change problem. Paris type agreements (or 'agreements') don’t do this. Just the opposite in fact: most people-instinctively resent imposed pseudo-solutions originating in remote bureaucracies.Climate change has become politicised. 

It is for all these reasons that I believe Climate Stability Bonds would be an improvement over current policy. Climate Stability Bonds would be backed by the world’s governments. They would be redeemable once a specified climate stability goal had been achieved and sustained. They would be freely tradeable and their value would rise or fall as the targeted goal become more or less likely to be achieved. The goal could be specified as a combination of climate and other indicators. The bonds would not prejudge the best ways of achieving their goal. They would reward the achievement of climate stability, however it is achieved. Investors in the bonds would have incentives to respond quickly and appropriately to new knowledge about what is causing climate change and to new ways of dealing with it. Governments would be the ultimate source of finance for achieving climate stability, but the private sector would allocate society’s scarce resources.

A Climate Stability Bond regime would express its aims in terms that people can understand. Its explicit goal would be climate stability. If people understand what a policy is all about, they can participate more in its development, refinement and implementation. This matters hugely when, as with climate change, government will probably have to rein in activities to which we have become accustomed. Current policy discourages buy-in to the extent that it is focused on the cutting back of net anthropogenic greenhouse gas emissions, which will impose heavy, and up-front, financial costs in pursuit of nebulous, much-delayed benefits.

Climate Stability Bonds, on the other hand, have a comprehensible, meaningful goal: the achievement of broadly- meaninfully-defined,  climate stability. They would channel the market’s incentives and efficiencies into the solution of our most urgent environmental problem. But with their focus on a set of meaningful goals, rather than a supposed means of achieving them, they would also encourage greater public participation and buy-in to the solutions they generate. We need a widely supported, coherent, and efficient response to climate change. Climate Stability Bonds have all those features. Paris and its predecessor, Kyoto, have none.

27 July 2018

Environmental goals need diverse, adaptive approaches

David Lauterwasser writes:
Free energy is nowhere around the corner, neither is truly sustainable energy.  Solar panels are made from sand, which is running out. The production of photovoltaic plates for solar panels requires tremendous amounts of energy, involves the excessive use of highly toxic chemicals and creates vast amounts of waste products such as silicon tetrachloride (three to four tons of which are produced for every ton of the desired polysilicon), which forms hydrochloric acid upon contact with water, is often casually dumped somewhere and already devastated landscapes in China. The Collapse of Global Civilization Has Begun, David B Lauterwasser, 'Medium', 14 November 2017

The life-cycle assessments required to establish the environmental benefits or otherwise of shifts in our behaviour are bedevilled by boundary issues, measurement difficulties, and the difficulty of weighing one type of environmental impact against another. They are better than blandly assuming that rail is ‘better’ than air travel, that solar power is better than coal-fired power stations but, for the making of robust policy, they would need to be continually reassessed in the light of our ever-expanding knowledge of the environment and our ever-changing environmental priorities. Government policy cannot be so responsive: if government did use life-cycle analyses with the aim of altering our behaviour, it would probably do so on the basis of one-time, necessarily limited, and possibly quite subjective assessments of environmental costs and benefits. It wouldn't be good enough, but even worse would be what we have now: environmental policy largely dicated by corporate interests, with attempts to mitigate disasters that are fast-moving and visual enough to make the television news.

Social Policy Bonds would take a different approach. They would subordinate environmental policy to targeted environmental outcomes. It might be, for instance, that society wishes to reduce its use of fossil fuels. A Social Policy Bond issue that rewarded achievement of such a reduction would generate incentives for bondholders to bring it about at least cost. They might well carry out life-cycle analyses in their attempt to do so. But there is an important difference between the way do they would conduct their research and the way government would do so: bondholders have incentives to achieve their goal efficiently. This is likely to mean responding to and stimulating: increased knowledge of scientific relationships, and technical advances.

A single environmental goal, such as reduction in fossil fuel use, entails diverse, adaptive responses. These are precisely the sort of responses that government does very badly. Government can and should articulate society’s environmental goals, and can raise the revenue required to pay for their achievement: in the democratic countries it performs these functions quite well. But actually achieving these goals requires continuous, well-informed and impartial decisions to be made about the allocation of scarce resources. These, government does badly. For that purpose, the Social Policy Bond principle as applied to the environment, with their incentives to achieve targeted outcomes efficiently would, I believe, be far better than the current haphazard, one-size-fits-all approach.

19 July 2018

Wanted: humble billionaires

Most of our chronic social and environmental problems don't have simple solutions. Governments, though, are reluctant to relinquish power and therefore keen to control the funds and institutions whose ostensible purpose is to solve our problems - even when these bodies are manifestly overwhelmed, incompetent, or corrupt. It shouldn't be surprising that politicians, whose lifetime ambition has been to accumulate power, behave like this. It's a bit more surprising that billionaires are subject to the same conceit: 
Tech billionaires from Mark Zuckerberg to Bill Gates have done impressive philanthropic work, but they have both applied their hubris and their cash to failed efforts to try to reform education in America. It turns out that being great at computer software doesn't necessarily make you great in other areas. ...
Memo to tech billionaires: Just because you solved one problem with a simple solution doesn't mean all problems have simple solutions. Let's continue to register our displeasure with tech titans when they show their arrogance, and let's be a little more skeptical when they want to reinvent everything from food to space travel. Stop worshipping guys like Elon Musk, David R Wheeler, CNN, 17 July
So it seems that those who have power or money, having achieved their personal goals, think they are the people best placed to achieve society's goals. Social Policy Bonds are a means by which government or billionaires could both articulate society's wishes and channel funds into satisfying those wishes, without actually doing the work themselves. They could, instead, reward the achievement of our goals, without dictating who shall achieve them nor how they shall be achieved. They would still have the power to articulate these goals and to raise, or spend, the revenue required for their achievement - things that they are good at. But, under a bond regime, they would relinquish the control over how these goals are to be achieved. That would be difficult for politicians or billionaires to accept. But the stakes are high: our social and environmental challenges are too big and too urgent to be left to to those whose expertise lies solely, it seems, in the accumulation of power or money.

We need diverse, adaptive solutions, with time horizons longer than those of individual lifetimes. As a species, we now have massive potential to solve those problems that have bedevilled mankind for millennia: war, for instance, poverty, illiteracy, disease. Social Policy Bonds are a means by which we could motivate people toward solving these problems. Governments aren't likely to be the first to issue them. They owe too much to existing career paths, methods, and institutions. But billionaires? They could be more amenable to persuasion. They want to see the right thing done. All it would take is a bit of humility on their part so that they don't feel they have to be the ones doing it.

10 July 2018

Solitudinem fecerunt consilium canis cibum*

Douglas Rushkoff, after chatting to 'five super-wealthy guys — yes, all men — from the upper echelon of the hedge fund world', fills us in on their priorities:
they were preparing for a digital future that had a whole lot less to do with making the world a better place than it did with transcending the human condition altogether and insulating themselves from a very real and present danger of climate change, rising sea levels, mass migrations, global pandemics, nativist panic, and resource depletion. For them, the future of technology is really about just one thing: escape. Survival of the Richest, Douglas Rushkoff, 5 July
It's an unedifying picture. Would it look any different if a coalition of governments, non-governmental organisations, philanthropists, and the public backed Social Policy Bonds, aimed at solving our global problems?  It might just be that our current policymaking systems are so obviously inadequate that even those of us not wealthy enough to contemplate escape are so resigned or distracted that we remain passive when confronted by an array of potentially calamitous social and environmental problems. Perhaps a more coherent, well-financed, range of policy goals would encourage the super-rich to solve our problems rather than attempt to escape them, and enable more of the rest of us to be employed in such solutions, rather than in devising ingenious ways of advertising dog food. Possibly not, but isn't it worth a try?

*The Latin, according to Google Translate, for They make a desert and advertise dog food

02 July 2018

Target world peace actively, explicitly

John Lanchester quotes Adam Smith:
‘Commerce and manufactures gradually introduced order and good government, and with them, the liberty and security of individuals, among the inhabitants of the country, who had before lived almost in a continual state of war with their neighbours and of servile dependency on their superiors. This, though that has been the least observed, is by far the most important of all their effects.’ After the Fall, John Lanchester, 'London Review of Books', dated 5 July
Mr Lanchester doubts that this still applies: 'elites seem to have moved from defending capitalism on moral grounds to defending it on the grounds of realism. They say: this is just the way the world works,' and then writes cogently and readably about the crash of 2008, subsequent policy changes, and inequality. My focus here though is on the Adam Smith's point: "So according to the godfather of economics, ‘by far the most important of all the effects’ of commerce is its benign impact on wider society."

Francis Fukuyama pointed out that, once you have a common agreement to engage in voluntary, good-faith transactions, people engaging in market transactions can be highly individualistic and do not even need to like each other. It's hard to disagree, but trade, and especially international trade, can be disrupted by politics, with rancorous results. So here's my question: instead of relying on a highly politicised world trading system to achieve peace between countries, why not reward people directly for achieving peace? Perhaps it's because we believe at some level, like the ancient Greeks, that war is part of the natural order of things, so there's no point trying to do anything about it. Or perhaps it's because we think that bodies like the United Nations will succeed in bringing about world peace. Or it could be because our politicians and bureaucrats, and many of the rest of us, don't think there's much point looking too far ahead; and achieving a sustained period of world peace, by any definition, is going to be a long-term undertaking.

Which is where the Social Policy Bond principle applied to violent political conflict, can play a role. No single way of stopping war will work. We therefore need to encourage diverse, adaptive solutions, including feedback mechanisms that ensure that promising approaches are encouraged and, crucially, that failing approaches are terminated. It's unlikely that existing organisations, however well resourced, however well meaning, could do this, even if they had proper incentives. Organisations have their own objectives, of which the over-riding one is self-perpetuation; they have few incentives to be imaginative in their approaches to social problems. What is needed are highly motivated new organisations, whose goals are exactly congruent with society’s. Under a Conflict Reduction Bond regime these organisations might not have a stable structure, nor a stable composition, but their societally defined goal would be stable: a sustained period of peace would be the raison d’etre of such organisations. Their rewards would be inextricably tied to their achieving it. Conflict Reduction Bonds would be redeemable only when absence of conflict had been sustained for a defined period. These bonds would contract the achievement of peace to the market, instead of to the inevitably poorly-resourced, distracted or corrupted bureaucracies that are currently charged with the task. Peace, then, would not be an incidental side-effect of commerce and an ever more rickety world trading system, but the direct, targeted, explicitly rewarded a goal for highly motivated coalitions and their agents.

22 June 2018

Make Social Impact Bonds tradeable

It’s now thirty years since I first floated the idea Social Policy Bonds at a meeting of the Australian Agricultural Economics Society in Blenheim, New Zealand. My aim was to inject the market’s incentives and efficiencies into the achievement of social and environmental outcomes. Under a Social Policy Bond regime, bonds are issued on the free market for whatever price they will fetch. The bonds would be backed by either government or the private sector. They would not bear interest and would be redeemable for a fixed sum only when a targeted social or environmental objective has been achieved and sustained. The idea is that the holders of the bonds would form a coalition whose over-arching goal is exactly that of society: to achieve the targeted goal as quickly as possible.

If this sounds familiar, it’s because my work led to the creation of Social Impact Bonds of which about 60, involving investments of more than $200m, have been launched in 15 countries, aimed at meeting various social challenges. There are 32 in the UK alone, with such goals as reducing recidivism rates and housing rough sleepers in London.

There’s one important feature, though, about my original idea that differentiates it from Social Impact Bonds: my intention has always been that the bonds be tradeable, whereas SIBs, also known as ‘Pay for Success’ bonds, are not. This is, in fact, a critical difference, and it is one that makes me ambivalent about SIBs (with which I’ve had no involvement). I believe their lack of tradeability limits the usefulness of SIBs in several ways.

Most importantly, it means they can tackle only short-term problems. Investors will buy the bonds only if they expect to profit from them. Because SIBs are not tradeable, people will have to hold them to redemption to make a profit. That in turn means that would-be investors would want any targeted goal to have a realistic chance of being achieved within their time horizon, which might be quite short, and certainly within their lifetime. This narrows the scope of the goals we can target and, indeed, SIBs have invariably narrow goals. Because their goals are so limited, so too are the opportunities for shifting resources to and from different approaches to solving a particular problem, and varying them as circumstances change. With a short payback period, investors in SIBs have no incentive to research and experiment with innovative approaches that have anything other the shortest lead time or are otherwise almost risk free.

Another important reason why the bonds should be tradeable, is because the identity and composition of the groups best placed to achieve a targeted objective will change over time. Our most urgent and challenging social and environmental problems will require multiple steps before they are solved. The people who are best at step one will not necessarily be those who are best at step two and all subsequent steps. We cannot even specify in advance what step one, or indeed any step, will entail; still less can we identify those best placed to take these steps. Tradeability means there be a market for Social Policy Bonds, which will ensure that the bonds will find their way into the hands of the highest bidders for them – who will be the best-placed to advance progress towards society’s targeted goal most efficiently. When the bonds are not tradeable, then we have something similar to the the way social policy is currently implemented: government identifies some organisation (most likely an existing body, often one of its myriad own agencies), and pumps money into it. If this agency is paid for performance (as in Social Impact Bonds), it has an incentive to perform well. This might be an improvement on the way things are usually done. But if, as so often, one or all of the steps necessary to resolve the targeted problem optimally lie beyond the imagination or competence of such a designated agency, then we are going to be stuck with current (woeful) levels of under-achievement in social and environmental policy.

Social Policy Bonds have the advantage in that they not only do not stipulate how society's goals are to be achieved, nor who shall achieve them. They will leave those decisions to the market, which will favour the most cost-effective coalition of operators at every stage on the way to achieving social goals.

Another advantage of the bonds being tradeable is that a market for the bonds would generate extremely useful information both for would-be investors and for policymakers. The value of the bonds will rise and fall depending on whether the market thinks the targeted goal will be achieved more or less quickly. These prices, and their changes, will be immensely valuable to those having to decide where to allocate society’s scarce resources, be they in the public or private sector.

One of the problems with SIBs is that, because their goals are relatively narrow, the costs of monitoring progress toward or away from their achievement will always be a higher proportion of the total administrative costs than they would under a regime that could target broader goals. It's almost as easy (or not much more difficult) to monitor national crime indicators, say, as to look at the behaviour of group of a few hundred specific ex-prisoners in one part of the country over several years.

And it is to achieve these broader goals that my original idea was intended. Goals such as improving the health of a population, eliminating poverty or achieving universal literacy. Social Policy Bonds could target global goals too: the ending of war, civil war, terrorism; the mitigation of climate change (or its negative impacts) or any global environmental problem, such as loss of biodiversity and preservation of the marine environment. These broad problems require a long-term outlook well beyond the purview of investors in Social Impact Bonds. To solve such problems, we shall need Social Policy Bonds which, because of their tradeability, will encourage the exploration, refinement and implementation of diverse, adaptive approaches.

Most people would agree that humankind faces huge and urgent challenges, including war, nuclear proliferation, climate change and poverty. Yet, while there is almost universal consensus that these challenges need to be met, our politics is crippled by venomous, divisive tribalism, obsessed by ideology and personality. The gaps between policy and goals, and between people and politicians grow ever wider. Social Policy Bonds, by injecting the market’s incentives into achieving humanity’s long-term ideals could help close these gaps.

A shorter version of this post appeared recently on the Alliance Magazine website.

16 June 2018

The environment: it's complicated

 From the current New Scientist
It turns out that vegan-friendly alternatives to fur and leather, as seen on display at Australia’s recent Fashion Week (above), can harm sea creatures, because they are made of that other pervasive ecovillain: plastic (see Vegan-friendly fashion is actually bad for the environment). The evidence is not yet clear, but some animal fabrics may be the least harmful choice overall. Such unintuitive outcomes crop up again and again when we try to make ethical lifestyle choices. As New Scientist has reported, ditching disposable plastic bags for a fetching cotton tote only pays off after you have used it 131 times, due to the large environmental burden of cotton – which is also an issue for clothes. Beware the bandwagon, 'New Scientist', 13 June
The sort of life-cycle analyses (LCAs) required to establish the environmental benefits or otherwise of shifts in our behaviour are bedevilled by boundary issues, measurement difficulties and the difficulty of weighting one type of environmental impact against another. They might be better than blandly assuming that vegan clothes are 'better' than animal fabrics, rail is better than air travel, solar power is better than coal-fired power stations, etc, but for the making of robust policy LCAs would need to be continually reassessed in the light of our ever-expanding knowledge of the environment and our ever-changing environmental priorities.

Government policy cannot be so responsive nor, probably, can any single organisation - at least not as currently structured. If government did use life-cycle analysis with the aim of altering our behaviour, it would necessarily do so on the basis of a one-time, limited, and possibly subjective assessment of environmental costs and benefits. It’s not good enough, but even worse would be what we largely have now: environmental policy based on corporate interests, 'what feels right', media stories and the launching of visually appealing initiatives that attract air time but are otherwise useless.

Social Policy Bonds would take a different approach. They would subordinate environmental policy to targeted environmental outcomes, which could be national or global. Say, for instance, that we wish to preserve the Earth's marine environment. A Social Policy Bond issue that rewarded the sustained achievement of such a goal would generate incentives for bondholders to bring it about at least cost. They might well carry out life-cycle analyses in their attempt to do so. But there is an important difference between the way do they would conduct their research and the way government, or any supra-government body would do so: bondholders have continuous long-term incentives to achieve our goal efficiently. This is likely to mean responding to and stimulating increased knowledge of scientific relationships, and technical advances. Investors might conduct LCAs, but they would do so in ways that optimise the benefit to the marine environment per dollar spent.

Effective environmental policy must take a long-term view and for national or global goals, will need to encourage diverse, adaptive approaches. The environment and our knowledge about it are just too complex for an 'it feels good', command-and-control approach that, for instance, brands animal-derived clothing, or plastic shopping bags as bad. Diverse, adaptive approaches to addressing complex problems are precisely the sort of responses that government does very badly. However, government does have crucial roles in articulating society’s environmental goals and in raising the revenue to
pay for their achievement: in the democratic countries government performs these functions quite well. But actually achieving society's social and environmental goals is a different matter. Such achievement requires continuous, well-informed and impartial decisions to be made about the allocation of scarce resources. For that purpose, Social Policy Bonds, with their incentives to achieve targeted outcomes efficiently would, I believe, be far better than the current ways in which environmental policy is formulated.

For more about application of the Social Policy Bond principle to the environment see here

13 June 2018

Superbugs: disastrously misaligned incentives:

William Hall and others write: 
When asked what she would do with a useful new antibiotic, the chief medical officer for England, Sally Davis, said that the drug “would need a stewardship program”—that is, that systems would have to be in place to make sure that the antibiotic was only prescribed when absolutely necessary. Indeed, limiting unnecessary use is essential to keep bacteria from becoming resistant to new antibiotics, and thus essential for our continued health.
While this is a cogent strategy, it doesn’t coincide with the marketing goals of the drug industry: “When a really useful new antibiotic is found, the company that invests in it cannot rely on high sales for return on investment.”  William Hall et al, Superbugs: an arms race against bacteria, quoted by Jerome Groopman, The bugs are winning, 'New York Review of Books', dated 28 June
The interests of the drug companies - and of those who target, implictly or explicitly GDP - don't merely fail to coincide: they are in conflict with each other. Discovering and manufacturing a new antibiotic is expensive so, when a pharmaceutical company succeeds, it has every incentive to maximise sales in the relatively short period before its patent runs out. With such misaligned objectives, you'd hope government would take the long view and give the health of its citizens (and, incidentally, the welfare of farm animals fed prodigious quantities of antibiotics so that they'll grow more rapidly) a higher priority than the short-term interests of pharmaceutical companies. But no: it's the farmers and the pharmas who override the interests of ordinary people. You know, those of us who can't afford to follow and manipulate an absurdly complex policymaking process, nor pay others to do so.

The authors of Superbugs estimate that the total number of people dying annually from resistant microbes is at least 1.5 million and, extrapolating from US estimates, they estimate the costs to health services at about $57 billion and the loss in world productivity at $174 billion. There are currently no financial incentives for anyone to take the long-term view, though it's in almost everybody's interests for somebody - most likely government - actually to do so. As individuals, we know what needs to be done: ensure that doses of antibiotics are carefully regulated and that research into new antibiotics continues. Developing effective antibiotics, Hall et al write, should be recognised as a public good, which would justify government intervention. They blame short-term thinking for the absence of such intervention.

Applying the Social Policy Bond principle to the health field could be one way of meeting the challenge, and might be easier and less contentious for government to do than more direct intervention. Government could issue Health Bonds aiming for improvements in the general health of the population over a period of decades. One necessary approach would then be to optimise the use of, and research into antibiotics. Doing this would generate rises in the value of the bonds, and so reward investors. Government would have to do little more than raise the funds for the bonds' redemption and articulate, with the help of experts and input from the public, health goals for the population. After that, it would be up to bondholders to pursue these goals. The overarching objective of investors in the bonds would then coincide with those broad, long-term goals. The investors, and the people they contract, would have incentives to bring about society's health goals as efficiently as possible - a stark contrast with the current system.

10 June 2018

Outcome-based policy and buy-in

In my efforts to promulgate Social Policy Bonds I’ve usually emphasised their efficiency, which arises from a number of sources, including their harnessing of market forces, their encouragement of diverse, long-term approaches, and their capacity to adapt to changing circumstances. I’ve also stressed their transparency: because the bonds target broad, meaningful outcomes, ordinary people will understand them more.

This, in turn, means another hugely important benefit: buy-in. When we understand what a policy is all about, we can participate more in its development, refinement and implementation. This would apply even if our views are over-ridden by others: at least, we'd have been consulted. A Social Policy Bond regime would express its goals as outcomes that are meaningful to real people. Such outcomes would be more comprehensible to more people than the current unstated or unconsidered, vague, or platitudinous goals that characterise current policymaking all over the western democracies. Discussion about outcomes, rather than the alleged means of achieving them, would be more accessible than current policymakers' emphasis on legal pathways, funding arrangements, institutional structures and composition, and other arcana. You might even think the system has been specifically designed to keep ordinary citizens out of it.

If people have the chance of participating in such discussion, we shall come to understand the limitations and trade-offs that are intrinsic to public policymaking. This means quite a few things, but to my mind buy-in is the most important. It's likely this would reconnect citizens with our policymakers; it would entail the sharing of responsibility and concern for policy initiatives.

This matters hugely when government has to do things that hurt people's narrow, short- or medium-term interests. Dealing with environmental depredations for instance; or raising taxes for a multitude of purposes. The current system discourages buy-in because it's difficult to follow. As such, it's easily influenced by the wealthy or powerful, be they in the private- or public sector. This does much to widen the gap between politicians and the people they are supposed to represent. Social Policy Bonds, because of their focus on outcomes, would help close that gap.

25 May 2018

Heart disease: too complicated for government

When the cause of a social problem cannot - yet - clearly be identified then targeting the outcome we wish to achieve, and rewarding people for achieving it, could be the way to go. This is the Social Policy Bond approach. Many social and environmental problems fall into that category, including climate change, crime, poor health and war. We need long-term, diverse, adaptive approaches to the solutions of these problems - unfortunately these are exactly the sort of approaches that government is ill-equipped to discover.

The same limitations apply in microcosm in some areas of medicine; those such as cardio-vascular disease (CVD), for instance, where the relationship between high LDL and CVD appears to be too complex to form a basis for sound policy. Unfortunately, once a hypothesis is widely accepted, it becomes difficult to dislodge. Dr Malcolm Kendrick writes:
If your hypothesis is that a raised LDL causes CVD, then finding someone with extremely high LDL, and no CVD, refutes your hypothesis. Unfortunately, but predictably, the authors of the paper have not questioned the LDL approach. Instead, they fully accept that LDL does cause CVD. So, this man must represent ‘a paradox’. They have phrased it thus:
Further efforts are underway to interrogate why our patient has escaped the damaging consequences of familial hypercholesterolemia [FM] and could inform future efforts in drug discovery and therapy development.’
To rephrase their statement. We know that high LDL causes CVD. This man has extremely high LDL, with no CVD, so something must be protecting him. I have an alternative, and much simpler explanation: LDL does not cause CVD. My explanation has the advantage that it fits the facts of this case perfectly, with no need to start looking for any alternative explanation. Very high LDL and no cardiovascular disease – at all!, Dr Malcolm Kendrick, 12 May
Dr Kendrick goes on to to cite the longest and one of the world's largest studies of people diagnosed with familial hypercholesterolaemia (FH). Contrary to current popular thinking it shows that 'people with FH have a lower than expected overall mortality rate – in comparison to the ‘normal’ population. Or, to put this another way. If you have FH, you live longer than the average person.'

This to me means that government policymakers should be more humble: when it comes to complex problems outside their expertise, they should admit to themselves that they don't know the best solutions. That doesn't mean they should do nothing: government can, and should, identify our social problems and raise the revenue to help solve them. It can actually do those quite well. But when it comes to solving our complex problems, it should consider issuing Social Policy Bonds, which do not presuppose how our problems shall be solved, nor who is best placed to solve them.

For more about Social Policy Bonds see here. For application of the Social Policy Bond principle to health, see here.

15 May 2018

Government by intuition

In our complex, interlinked societies, it's increasingly difficult to identify cause and effect. This matters when making policy, because policy is supposed to have a beneficial effect. Linkages are sometimes easy to identify: that between, say, water quality and infectious disease rates, for instance. Others are much more difficult and, with our scientific knowledge rapidly growing, often impossible: So, facing problems such as crime or war or nuclear proliferation, where there are huge numbers of contributing variables, and our knowledge of relationships is both imperfect and expanding, should government do nothing, waiting for certainty?

What governments actually do is create bureaucracies, or shovel funds into bodies that might once have been successful (when society was simpler) but have become useless or, worse, obstacles in the way of achieving our goals.

A much better approach, in my view, is to target long-term outcomes, and let investors decide, continuously, what are the best approaches to solving our problems. Especially for longer-term goals, the optimal mix of approaches will vary with time in ways that nobody, including governments, can foresee. We need to reward people for coming up with new, efficient, solutions to our problems, many of which are so complex that only diverse, adaptive approaches will work. These are precisely the sorts of solutions that governments cannot identify. That, in essence is the Social Policy Bond approach.

Alternatively, we could opt for an easy life:
Peter Navarro, the head of the White House National Trade Council, told an interviewer, “My function, really, as an economist is to try to provide the underlying analytics that confirm [President Trump's] intuition. ...” Trump vs. the 'Deep State', Evan Osnos, 'New Yorker', dated 21 May
Unfortunately, Mr Navarro's way of doing things predominates.

12 May 2018

Safety, going backwards

Charles Hugh Smith, writes about US attitudes to health and safety:
If you've bought a new vehicle recently, you may have noticed some "safety features" that strike many as Nanny State over-reach. You can't change radio stations, for example, if the vehicle is in reverse. ...  The narrowness of this obsession with safety comes into focus if we ask: how can a society so obsessed with safety have spawned an opioid addiction crisis that kills tens of thousands of people and ruins the lives of millions of Americans? How Safe Are We? Our Blindness to Systemic Dangers, Charles Hugh Smith, 10 May
An excellent question. The safety bureaucracy has goals that differ markedly from those of the health care sector, and both have goals that have little to do with maximising the well-being of citizens per dollar spent. And that should be the guiding criterion for both health and safety: from the policy point of view, they shouldn't be distinct.


Policy decisions about health policy, broadly interpreted to include safety, are heavily influenced by the public profile of a disease or its victims, rather than on what would best meet the needs of society. It’s also a question of diet, exercise, transport, and culture. Recent research shows, for instance, the beneficial effects on health of green spaces in our cities (see here (pdf) for instance). The way government is structured, with its discrete bureaucracies and funding bodies, makes it unlikely that such benefits will influence funding decisions.

We cannot expect a government nor any single organisation to identify the huge numbers of variables, with all their time lags and interactions, that influence the nation’s health - and to do so dynamically, taking into account our rapidly expanding scientific knowledge. We can, though, devise a system that rewards people who explore and implement the most cost-effective health solutions, even when circumstances and knowledge are changing continuously. I have tried to show how this can be done with my essay on Health Bonds, which would aim to distribute scarce government funds to where they would do most good, as measured by such indicators as Disability Adjusted Life Years. Under a Health Bond regime, investors in the bonds would have continuous incentives to maximise their returns on the bonds at all times: their objective, assuming we have carefully defined our targeted health goal, will be exactly congruent with those of society. Bondholders might well decide that, for instance, we should implement measures to switch off the ability to flip radio stations while a car is going backwards - but only if they think that to be one of the most cost-effective ways of reaching society's health goal. Indeed, Health Bonds would ensure that every decision, every activity, that bondholders contemplate or implement will be entirely subordinated to that objective. A stark contrast with the current system, under which officials have goals entirely distinct from, and sometimes in conflict with, the broader interests of society.