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.

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.

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

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.