29 November 2018

A new type of organisation

Jerry Z Muller writes about the use of metrics in medicine:
But metrics tend to be most successful for those interventions and outcomes that are almost entirely controlled by and within the organization’s medical system, as in the case of checklists of procedures to minimize central line–induced infections. When the outcomes are dependent upon more wide-ranging factors (such as patient behavior outside the doctor’s office and the hospital), they become more difficult to attribute to the efforts or failures of the medical system. Jerry Z Muller, the Tyranny of Metrics, February
One of the advantages of the Social Policy Bond idea, in my view, is that they could target things that are outside the remit of most existing institutions. So, for instance, holders of bonds targeting the health of a population would have incentives to encourage non-medical health-improving practices. Not limited to the more obvious interventions - exercise and diet, for instance - bondholders could, for instance, aim to lobby local authorities to make neighbourhoods more walkable, or to subsidise employment for people who would otherwise be at high risk of becoming depressed. And not only in medicine: the most efficient ways of solving our social and environmental problems may currently lie outside the remit of any of our existing institutions. Only a broad, long-term approach, as encouraged by Social Policy Bonds, would encourage people to investigate this possibility.

What Social Policy Bonds would do, in effect, is redraw the boundaries of the organisation to take in factors that are currently untargeted, or targeted only incoherently and unsystematically. By focusing on broad metrics, applying to large populations, the bonds would encourage investors to consider all the important potential influences on the value of their bonds. A new type of organisation would come into being, composed of a protean coalition of bondholders, all of whose activities would be devoted to achieving our social goals as efficiently as possible. They would have powerful incentives to investigate and implement measures that achieve these goals regardless of whether or not they currently fall under the remit of existing bodies. Under a Social Policy Bond regime, efficiency and effectiveness in meeting our challenges would determine the structure and composition of our goal-achieving bodies.

23 November 2018

The jellyfish are taking over

Bill McKibben writes about the shrinking world:
Until now, human beings have been spreading, from our beginnings in Africa, out across the globe—slowly at first, and then much faster. But a period of contraction is setting in as we lose parts of the habitable earth. Sometimes our retreat will be hasty and violent; the effort to evacuate the blazing California towns along narrow roads was so chaotic that many people died in their cars. But most of the pullback will be slower, starting along the world’s coastlines. Each year, another twenty-four thousand people abandon Vietnam’s sublimely fertile Mekong Delta as crop fields are polluted with salt. As sea ice melts along the Alaskan coast, there is nothing to protect towns, cities, and native villages from the waves. How extreme weather is shrinking the planet, Bill McKibben, 'New Yorker', dated 26 November
Human, animal and plant life is under siege on many fronts. Any species closely attuned to its environment and incapable of moving to a different one is vulnerable. Loss and degradation of habitat, climate change: the human race is, in effect, prioritising current quality and quantity of (human) life at the expense of the long-term survival of the natural world, of which we are part. It's not been a deliberate choice, but it's what's happening.

The issues are too complex and slow moving for politicians to understand. Our policymaking systems are too cumbersome and corrupt to adopt policies that threaten the short-term interests of big corporations. Rather (or: as well as) despair at our collective fate, I suggest that we bypass our usual policymaking mechanisms and explicitly target the goal of long-term human survival.

The practical form of this could be the issuing of Social Policy Bonds that target an array of environmental indicators, including the well-being of human, animal and plant life. It's practical, in the sense that it doesn't require detailed scientific surveys or guesses as to how our targets will be achieved. Only the outcome - in the form of an acceptable range for each indicator - need be targeted; each indicator remaining in that range for a sustained period of, say, thirty years. Politicians could still play a role in raising the revenue for the achievement of this goal, and in articulating our species' exact wishes.

But it's not going to be happen. Governments aren't going to relinquish their power to allocate resources to favoured bodies. True, there is a good number of Social Impact Bonds around, but politics in general is ever less concerned with outcomes, and more with image, identity, personality and ideology. I don't think philanthropists either are going to fund anything that threatens the status quo. But on the off chance that there is any interest in aiming for the long-term survival of humanity and our planet, these two papers suggest how it could be done.

And the jellyfish? As Mr McKibben writes: "we have found ourselves unable to swim off beaches, because jellyfish, which thrive as warming seas kill off other marine life, have taken over the water."

11 November 2018

Metrics and their limits

Stefan Collini summarises the most important weaknesses of using quantifiable data - metrics - as described in Jerry Z Muller's book The Tyranny of Metrics
Misdescription of purpose is fundamental: in the attempt to find outcomes that are measurable, complex characterisations of purpose are replaced by quantifiable results. ‘Goal displacement’ is also a major problem: where a metric is used to judge performance, energy will be diverted to trying to improve the scores at the expense of the activities for which the metric is supposed to be a proxy. ... But there are less obvious effects too, such as discouraging risk-taking, undervaluing co-operation and common purpose, and the degradation of the experience of work. Kept alive for thirty days, Stefan Collini, 'London Review of Books' (subscription), 8 November
I see the need to rely on metrics as a product of big government, itself a function of the highly complex, highly aggregated societies in which we live. What is termed multiculturalism doesn't help either. Lacking a common history and common values, our needs are less readily appreciated by any large centralised body. So our politicians have to rely on quantifiable data. In this, our national governments have more in common with other big organisations (corporations, trade unions, other governments) than with the people it's supposed to represent. All these institutions have two main things in common: first, that their over-arching objective is that of self-perpetuation, about which I've writen before. Second, that they rely heavily on easily quantifiable data.

Things were simpler in earlier days:
[W]e prefer to take our chance of cholera and the rest than be bullied into health. A leading article from the [London] Times, 1 August 1854, in response to government measures to provide basic sanitation.
Problems themselves were more obvious; the causes of problems could be more readily identified, and so could solutions to some of them. Governments were largely successful in their policy interventions on behalf of the disadvantaged: they instituted basic health and education for their own populations. They provided other public goods, such as law and order, and sanitation. And they did so with great success and sometimes, as the quote shows, against strident opposition.

In our industrial societies, with their large, complex economies, government bodies have far more complicated tasks, but they still believe that the best way solving problems is to look for causes and try to treat those. And they still believe that they are best placed to perform these tasks. Government has enlarged its role and largely supplanted families, extended families and local people in supplying a range of welfare services to those who need them. Increasingly government is turning to numerical indicators to manage its resource allocation.

But this use of indicators is relatively recent, unsystematic and unsophisticated, as Messrs Collini and Muller relate. Few indicators are targeted explicitly for a sustained period: the targeted range of inflation in, for instance, the UK, is a rare (and not especially helpful) exception. Other indicators, such as the size of hospital waiting lists, don’t measure what matters to people, or are prone to manipulation. Even when numerical goals are clear and meaningful they are rarely costed, they are almost always too narrow and short term, and they are largely driven by existing institutional structures. Those broad targets that are targeted with some degree of consistency tend to be economic aggregates, such as the inflation rate, or the rate of growth of Gross Domestic Product — which appears to be the de facto measure of success of rich and poor countries alike.

But GDP’s shortcomings as a single indicator of the health of an economy are well known: amongst other failings, GDP does not take into account changes in the quality of the environment, or the distribution of income, it ignores human capital (the education and skills that are embodied in the work force) and leisure time, and it ignores such social problems as crime and homelessness.

Much of what matters most to us - family, relationships, connection with nature, meaningful work etc - is impossible to quantify. Unfortunately, the underlying assumption, as Mr Collini tells us, is that:

...the right structure of incentives and penalties will ultimately improve the bottom line of any business. Organisations whose rationale is not the maximisation of profit, such as schools, hospitals, universities, museums and so on are a challenge to this idea because their ‘product’ does not take financial form. So some equivalent has to be found – the numbers passing certain exams or being treated within certain times – on the basis of which quantitative targets can be set and performance rewarded or punished accordingly.
What's to be done? My suggestion is that we target broad, long-term goals that are meaningful to ordinary people. They should be quantified by indicators or targets that are inextricably linked to people's well-being. Achievement of these goals must be exactly congruent with achievement of society's wishes, as articulated by democratic governments in consultation with its citizens. And the achievement of these goals should be contracted out in a way that lets market forces - the most efficient way yet devised of allocating our scarce resources - play their role in maximising efficiency.

I suggest that we issue Social Policy Bonds to target such goals as: stabilising the climate, achieving universal literacy, improving citizens' health, and preventing nuclear conflict. By issuing the bonds, a government, or coalition of governments and others, need not specify how such long-term goals are to be achieved, nor who shall achieve them. Broad national or global goals can be more reliably quantified and are much less costly to monitor than narrow, short-term goals which, amongst other deficiencies, allow problems to be shifted to non-targeted areas or time periods.

What about things that cannot be readily or reliably quantified? Family, mental health, some aspects of the Commons? Perhaps government's role here should be that of laying down minimum standards based on those criteria that can be measured, and then backing off: making sure it doesn't discourage diverse approaches, ensuring that its regulations do not favour the large at the expense of smaller concerns, be they voluntary, non-profit, co-operative or smaller businesses. Neither this approach, nor a Social Policy Bond regime, will come about easily. They would mean government relinquishing some of its power to create bodies, allocate funding, and have a large say in how to solve our social problems. But, in our ever more complex world, it's not particularly good at these things, and a bond regime would still need government to articulate society's wishes and to raise the revenue for their achievement. These necessary functions, democratic governments are actually quite good at. If all this sounds far fetched the question to ask is: in a world of increasing social and environmental complexity, facing urgent, huge challenges (climate change, nuclear proliferation etc), and rising political impotence and extremism... what is the alternative?

03 November 2018

Between gods and government

The Actuary interviews Maurice Ewing, managing director of Conquer Risk:
"I thought economics would be talking about 'big picture' issues, but realised that, over time, the profession  had become focused on purely academic questions. What was noticeable was the inability of neo-classical economics to explain financial crises." Richard Purcell quotes Maurice Ewing, 'The Actuary', October
I share Dr Ewing's disenchantment with the economics profession, and have written elsewhere (here, for instance) about how all institutions, including not only universities, but also government agencies, religious bodies, trade unions, large corporations and the rest have as their over-arching goal that of self-perpetuation. Which is why I advocate instead a new type of organisation; one whose structure and composition are adaptive and determined solely by their effectiveness in achieving society's goals. Mr Purcell's article continues:
To help monitor risk culture and policies designed to nudge behaviour, Ewing thinks we also need to change key performance indicators so that they are not arbitrarily set and are designed with the people meeting the target in mind.
This makes sense if we take the 'people meeting the target' as a given - which presumably will be the guiding assumption for companies. Extrapolated to the achievement of broad social goals, however, it doesn't work. Our larger goals should not be limited by the capabilities of people currently charged with helping to achieve them. We can and should aim for ambitious targets: eliminating poverty, universal literacy, the ending of war. These are long-term goals, but we can target them by issuing Social Policy Bonds. Under a bond regime, the coalition that works to achieve our goals would not take 'the people meeting the target' as a given. The coalition would be a protean body; its composition and structure changing adaptively, wholly determined by their efficiency in achieving its targeted goal.

Sadly, we all seem to share the limited purview of governments. The goals that I espouse, (world peace, universal literacy etc), we assume are beyond the reach of mortal man and delegate responsibility for achieving them to deities or their supposed representatives on Planet Earth. People do good work in making incremental gains in social and environmental well-being but, for the big picture goals, we need to do things differently. A Social Policy Bond regime need not be constrained by the unambitious and self-interested goals of existing organisations. Rather than rely on divine intervention it could realistically target our most ambitious goals by deploying the best way of allocating society's scarce resources yet devised - market forces - in ways that encourage and reward only the most efficient and effective initiatives.