02 March 2018

Feeling good about ourselves

Much of the opposition to Social Policy Bonds comes from people who regard any sort of explicitly money-making activity as distasteful. It's understandable. Market forces have been undermined, corrupted and abused. They've been manipulated in ways that have led to staggering inequality and, worse, the entrenchment of that inequality.

But the opposition to the parody of market forces that pervades society misses the point. Competitive markets are still the most efficient way yet devised of allocating scarce resources. They are not a complete solution, and they create problems that government, and sometimes only government, has to solve by, most importantly, looking after the poor and disadvantaged, and the environment. But in theory and in practice the alternatives, when applied at an aggregated level, have proven to be worse. If market forces could be directed into achieving society's goals, rather than those of the already wealthy who have no shame in using their influence to stifle competition, then those goals could be achieved more readily than ever. Social Policy Bonds are intended to do this.

Unfortunately, people who otherwise do have a social conscience treat money-making in general, and markets in particular, with disdain. They look down on the Social Policy Bond idea because it generates wealth in the form of capital gains, via the increased value of people's bondholdings. And it's a fact that people have made enormous capital gains through activities that have zero or even negative social value. I think Social Policy Bonds are different, in that they inextricably link the capital gains from bondholding to the achievement of society's social and environmental goals. If people become wealthy through owning Social Policy Bonds, they would do so only because society's goals are being achieved.

Two further points. Most of us, when we see terms like 'profit' and 'capital gain', forget the time element: holdings of assets take time to appreciate. We also focus on the final amount of profit, and forget the risk involved in holding an asset.

Second: at a school morning assembly years ago, we were told that it's better to raise £1 million from 5000 people for charitable purposes than £5 million from 1000 people. Sounds lovely doesn't it? Who could deny that the more people who raise funds for the social good, the better? But I had my doubts then and now. We raise funds for the benefit of people who need them, not for ourselves. There are many desperate, impoverished people in all societies. Let's take the example given by my usually impressive schoolmaster: if £1000 would be a significant help to people in need, then £1 million will help one thousand people, while the £5 million would help five thousand. So how about we ask the four thousand people deprived of help under my old schoolmaster's preferred scenario which option they'd prefer?

What I conclude from all this is simple. There is a clear difference between projects like Social Policy Bonds and those who hold them in disdain, bordering on contempt. A Social Policy Bonds regime has as its over-arching objective the solution of society's social problems. Those opposed, who also view business and capitalism in general with distaste, have as their prime goal that of feeling good about themselves.

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