09 November 2019

Effective policy needs experiments

Long-term, remote goals, such as universal literacy, the ending of war, or the elimination of poverty in developing countries, will require a range of solutions, varying over time and space, for their achievement. Conventional approaches to large-scale, complex problems rarely rely on hard evidence. Too often we read about the supposed 'root causes' of, for instance, violence being poverty and violence, with little supporting evidence. Sure, in some circumstances, tackling such alleged root causes might be the most efficient way of solving a problem. But in others such faith might be misplaced, or even counterproductive. Even Social Impact Bonds are limited when it comes to large-scale, remote goals, because they are inherently short term in nature, and don't allow for new entrants into the problem-solving services. (See here and here for why I am ambivalent about SIBs.)
 
Social Policy Bonds are different. Because they're tradeable, they can target long-term goals whose achievement might take years beyond the planning horizon of  investors. This allows bondholders to benefit from copious research aimed at finding, and funding, only the most efficient initiatives.

This sort of research and experimentation in matters of policy is rarely encouraged or rewarded, so I'm pleased that this year's Nobel prize for economics was awarded to three economists, Abhijit Banerjee, Esther Duflo and Michael Kremer, who used experiments to look at approaches to health care, education and entrepreneurship.

In the mid-1990s Mr Kremer ...began studying poverty with methods more commonly associated with chemists and biologists: randomised trials. If human capital—health, education, skills and so forth—is essential for development, then economists had better make sure they understand where it comes from. In Kenya he conducted field experiments in which schools were randomly divided into groups, some subject to a policy intervention and others not. He tested, among other things, additional textbooks, deworming treatments and financial incentives for teachers linked to their pupils’ progress. .... Educational resources—textbooks, say—turned out to do little for learning outcomes. Making pupils healthier improved their attendance, but did not necessarily mean they learned more. The experiments had a larger result, however: they taught the economics profession that randomised trials could work in the field. A Nobel economics prize goes to pioneers in understanding poverty, the 'Economist', 17 October
Right: they can work if the incentives are there to conduct them. The governments of all too many countries seldom think of offering such incentives. Philanthropists sometimes do, though (see here for example). They could take the lead in issuing Social Policy Bonds for the big, urgent goals that existing bodies are too small, too selfish or too incompetent to target effectively. See here for my piece on Social Policy Bonds published by a journal for philanthropists.

06 November 2019

It's all about outcomes

From Harper's Magazine

Percentage of [US] Democratic voters who cite a personal characteristic as the most important factor in selecting a president : 28 
Who cite a policy consideration : 27

Harper's Index, Harper's Magazine, November, derived from Pew Research Center (Washington).
What could we expect? Policymaking is so removed from ordinary people that we have little else to go on, other than what can be seen in the media. We choose our politicians according to their perceived personality. Promises, rhetoric come into it but outcomes? Not at all. This isn't specific to the US. The gap between policymakers and the public grows ever wider. We focus on crises in the same way as we choose our politicians: according to their profile in the media. Slow-moving, complex crises, like climate change or the ballooning of public and private debt, deteriorate over the years, until they manifest themselves unequivocally forms that can be covered in a short news bulletin. There's an inevitability about this, and it's perfectly explicable in a world in which we are bombarded by information. But it is not efficient, because resources are devoted to avoiding images of failure, rather than actual failure. Serious but non-visual crises, as we have seen in finance and the environment, slowly and undramatically gather pace until their effects become unavoidable. By that time, of course, it might be too late to do much about them, even with enormous quantities of spending.

A Social Policy Bond regime could be different. It would target society's social and environmental goals, such as dealing with climate change, extending nuclear peace, the mitigation of any sort of human catastrophe, however caused. We need to be given the chance to express our political views in the form of desirable outcomes, rather than in terms of personality.

26 October 2019

The new caste system

 Michael Hobbes writes:
“The sense that there’s a self-​sustaining and self-​dealing group at the top isn’t wrong,” Reeves said. “When you create a ‘meritocratic’ selection process where the production of merit is increasingly skewed by parental income, you end up with a hereditary meritocracy.” The 'Glass Floor' Is Keeping America's Richest Idiots At The Top, Michael Hobbes, 'Huffington Post', 13 October
True, but what is a meritocracy in one set of circumstances becomes something different when history moves on. What happens to what was (perhaps) a meritocracy is exactly what happens to any other organisation when faced with significantly changing circumstances: it begins to devote its time and energy to self-perpetuation rather than its stated, original, goals. Every organisation does it: be it a government body, a trade union, church or university. In the private sector too, large corporations, especially monopolies, find it more expedient to spend their time stifling competition and manipulating the regulatory environment to favour big, established firms like themselves. So I would not use the phrase 'hereditary meritocracy' to describe our ruling class: rather 'hereditary elite'. A caste, in fact.

We are beginning to see the result: a self-entrenching elite. In the English-speaking world (and perhaps beyond) we have a bifurcated society, in which those whose parents own property can aspire to own property, and those whose parents don't own property have very little chance of ever being able to buy a house, however hard working they might be.
Inequality in Britain is “now entrenched from birth to work”, according to a damning report by the government’s social mobility commission[.] Social mobility in UK 'virtually stagnant' since 2014, Richard Adams, the 'Guardian', 30 April
Part of the problem is that we have government of the people, by the people rich, and for the people rich. And one reason for that is that our policymaking processes are so obscure and protracted that only the rich (or their employees) have the means or capacity to follow it closely and thereby influence it. Ordinary people are alienated from the decisions that affect our lives.

One of the two underlying principles of the Social Policy Bond idea is that we - that is, society - should target goals that are meaningful to ordinary people; goals that we can understand and with which we can identify. So instead of politicians making themselves feel important by spending hours tinkering with various bodies' funding and regulatory arrangements, they would concentrate on articulating society's goals and raising the revenue for their achievement: things that government is actually quite good at. The achievement of these goals, on the other hand, is best done via a market. In economic theory, and on all the evidence, markets are the most efficient way of allocating society's scarce resources. By issuing Social Policy Bonds, government could target long-term, ambitious goals, without having to think about how to achieve them. That means, of course, that it would relinquish its power to decide who receives funding, and that is the sticking point. People rarely surrender power voluntarily.

So perhaps the more likely vehicle for the Social Policy Bond idea will be driven by philanthropists. I've tried to reach them, but so far without success.

16 October 2019

We don't like being held in contempt

Concluding their study of daily life in colonial Latin America, Ann Jefferson and Paul Lokken write of the conflict between the Roman Catholic Church  and those advocates of political and economic liberalism associated with Enlightenment thinking:
Conservative leaders often succeeded in rallying support for their program from native peoples and other marginalized members of society because liberal advocates of  “progress,” much like Spain’s “enlightened” Bourbon reformers in the late 18th century, generally made clear their disdain for the supposedly backward aspects of popular culture. Daily Life in Colonial Latin America, Ann Jefferson and Paul Lokken, August 2011
I think the authors are onto something here; something that applies as much to today's politics in western democracies as those of 200 years ago in the newly independent countries of Latin America. In the absence of a policymaking system that engages ordinary people, we react emotionally to the candidates and parties on offer. When we sense disdain from a political party, we vote for the other lot. The smugness of elites can be seen across the entire range of the spectrum, and our reaction to that combination of condescension and contempt explains much of contemporary politics.

We need a policymaking system that encourages us to further our understanding of the policy choices on offer - not the personalities, the sound-bites, the images or the rhetoric. We can do this by formulating those choices in terms of outcomes: outcomes that are meaningful to all of us; outcomes that we can understand and put into some order or priority.

Social Policy Bonds are one way in which we can specify such outcomes, and have people vote for those they support. A bond regime would be a way of bypassing the neuroses and insecurities of the people in power and those who manipulate them. By targeting outcomes with which people can identify Social Policy Bonds could bring about more public participation in the policymaking process. That is an end in itself (see here (pdf) for example), as well as a means by which decisions become acceptable even to those who opposed them. Importantly too, there's more consensus about outcomes than about the supposed means of achieving them. A bond regime would focus policy debate on our social and environmental goals, and which ones shall be prioritised. The process itself would generate more mutual understanding and less of the anger and contempt that are such a feature of today's policymaking

As well, a bond regime would encourage us to think long term: our goals are far more stable than the ways in which we think we can best achieve them. They are also more transparent as would be their funding. Corporations, their lobbyists and the people in power whom they influence all have an interest in obscuring how funds are allocated, and in failing to monitor whether policies succeed or fail (see Why States Believe Foolish Ideas: Non-Self Evaluation by States and Societies, by Stephen Van Evera (pdf)). With government, big business and now, increasingly, the judiciary determining our economic and social environment, what hope is there for the rest of us? The gap between ruler and ruled is becoming ever wider. Social Policy Bonds could help close it.

For general information about Social Policy Bonds see here. For more about Social Policy Bonds and buy-in see here.

08 October 2019

They've weaponised complexity

When people's wishes clash with vested interests it's the vested interests (aka 'the deep state') that win every time. Our political systems are too complex, arcane or corrupt for ordinary people to stand a chance. One result is obvious: ever-rising income and wealth inequality. It's been seen as a problem for years, but where are we now? From yesterday's New York Times:
[T]he 400 wealthiest Americans last year paid a lower total tax rate — spanning federal, state and local taxes — than any other income group, according to newly released data. The Rich Really Do Pay Lower Taxes Than You, David Leonhardt, 'New York Times', 6 October
It's not only the US. Here Martin Lukacs writes about Canadian Prime Minister Justin Trudeau:
In late 2018, this avowed friend of labor legislated away the right to strike of a postal union that wanted safer working conditions; this champion of equality gave profitable multinational corporations giant hand-outs, maintaining multibillion-dollar subsidies to oil companies and granting $10.5 billion in tax breaks on the heels of similar measures by Trump; and this advocate of women’s rights set a record selling weapons to the theocratic, patriarchal Kingdom of Saudi Arabia, even as their war on Yemen escalated. Private wealth continued to soar, without any discernible benefit to the public good. Much-needed universal social programs like childcare or the extension of healthcare to cover the costs of medicines in Canada—which are the second highest of any country—never materialized. Justin Trudeau, Liberal Let-Down, Martin Lukacs, NYR daily, 7 October
Voting makes little difference. And, while we don't really know the intentions of the people in power, I suspect that whoever they are doesn't make much difference either. The vested interests are too powerful. They have perpetuated a policymaking process that effectively excludes influence from people outside their exalted circle. They have weaponised the complexity and obscurity of our systems of government for selfish ends.

They can get away with this because our political discourse centres on sound-bites, personality, and image. Actual policymaking is an entirely distinct process: much of it focuses on the structures and funding of government bodies, law and regulation; all of which are opaque to non-professionals - which is to say, ordinary people. The public. The rest of us. The only people who now really understand policymaking are those who are paid to do so, and the only people who influence it are those who have the millions of dollars necessary to pay them.You might even think the system has been specifically designed to keep ordinary citizens out of it.

So I suggest that policymaking instead focus on outcomes, rather than the alleged means of achieving them. Outcomes that are meaningful to ordinary people, so that we can engage with discussion about them, their funding, their relative importance. Such discussion would be more accessible than current policymakers' emphasis on legal pathways, funding arrangements, institutional structures and composition, and other arcana.

Meaningful outcomes: they form one essential element of the Social Policy Bond idea. The other is the injection of market incentives into their achievement: rewarding those who achieve our goals according to their efficiency in actually achieving them. The idea might sound outlandish at first hearing: handing over the solution of our social and environmental problems to investors. But our goals would be discussed and articulated by government - something that democratic governments are quite good at doing. Only their achievement would be subject to the market, which economic theory and all the evidence suggest is the most efficient way of allocating society's scarce resources. No doubt the Social Policy Bond idea could do with some discussion and refinement. But the real question is: what is the alternative? To continue as we are doing, where the gap between vested interests and ordinary people grows ever wider, risks, in my view, social collapse.

For more about Social Policy Bonds see the Social Policy Bonds homepage.

02 October 2019

Harlem trendsetters

Years ago John Fund asked:
“If you had a financial windfall and wanted to help the poor, would you even think about giving time or a check to the government?” Source
A story from the current Economist reinforces the sentiment behind that question: 
Harlem is a neighbourhood in upper Manhattan that was once a byword for poverty, crime and urban failure. It was a place where, as recently as 1980, black men had a lower life expectancy than in Bangladesh. Large parts of it look different today. Life expectancy has soared, and the neighbourhood has improved dramatically. Although a considerable share of children there—35%—remain poor, their life chances still look much better than a generation earlier.
That is in no small part because of the efforts of the Harlem Children’s Zone (HCZ), a non-profit group which has “adopted 100 blocks” and set itself the goal of breaking the intergenerational chain of poverty by providing good parenting advice, healthy food and education. New parents who attend the zone’s Baby College learn about proper nutrition and reading habits for their infants. Older children can attend free, full-day pre-kindergarten and some go on to attend the HCZ network of charter schools. Their impressive initial results are seen as a national model. The zone serves 14,000 children and 14,000 adults at a cost of just $4,600 per person per year (raised from a mix of public and private sources). That is not a large sum of money, points out Anne Williams-Isom, the zone’s boss. “We spend $167,000 on an inmate in Rikers [jail]. How much can enterprise and philanthropy help alleviate American poverty?, 'Economist', 26 September
When I first came up with Social Policy Bonds I thought that government bodies, at any level, would be the issuers. They have far more resources than private charities, non-governmental organisations and philanthropists.

It's true that they, along with other donors, back most of the Social Impact Bonds currently being issued in about 25 countries. But they have shied away from issuing SIBs that target long-term, large-scale goals like raising life expectancy or universal literacy. Imagine the possibilities if government funded such bodies as the Harlem Children's Zone, with their ambitious goals that can be reached only after many years.

I think the main reason Social Policy Bonds haven't been issued is that, unlike SIBs, they are tradeable. This means that the bodies that would receive funding for their projects need not be the same throughout the lifetime of the bond, which could be decades for remote goals such as the elimination of poverty or the achievement of universal literacy. A government that issued Social Policy Bonds would therefore be relinquishing its power to choose the recipients of funds. Under a bond regime the allocation of funds would be up to the market, which would have incentives to choose only the most efficient operators and to terminate failed projects. Bodies currently favoured by government would, if they were inefficient and incapable of adapting, lose their funding under a Social Policy Bond regime. That is a contrast today's funding arrangements. In conventional policy, outstanding failure is rarely penalised (and often rewarded). Even under a SIB regime, inefficient operators, while they wouldn't maximise their returns, wouldn't see their existence be threatened.


Under both conventional policy and SIBs there is the possibility that even bodies as the HCZ well-meaning, hard-working and idealistic as they are at the beginning of their mission, become inefficient. The tendency is for any organisation, be it a trade union, religious body, university, public sector body or monopolistic private sector corporation, to become inefficient or corrupt; forgetting its ideals and devoting most of its energies to self-perpetuation. Examples abound: only today for instance, we read of the huge salaries being paid to top charity employees. Just one recent example:
Former Labour Foreign Secretary David Miliband is being paid almost $1 million a year to run a humanitarian charity that receives massive sums from British taxpayers. His astonishing pay package as chief executive of International Rescue Committee has soared to $911,796 (£741,883) ... according to the US-based organisation’s latest tax return. Million-dollar Miliband!, mailonline, 1 October
Social Policy Bonds would eliminate that risk. They would generate a new type of organisation - one whose survival would depend absolutely on its efficiency, and whose composition and structure would adapt to changing circumstances. This organisation would be a formal or informal coalition of bondholders, whose every activity would be devoted to achieving society's targeted goal with maximum efficiency. It's unlikely that governments will take the lead here; they are far more comfortable dealing with established players. What about philanthropists? I haven't made much headway there - they probably filter out messages from unconnected members of the public. However, I did publish this article in one of their journals last year. I'm not aware of any follow-up....

For more about Social Policy Bonds see my main page here. For why I am ambivalent about Social Impact Bonds see here and here.

23 September 2019

It's too dam complicated

Some things are too complicated to understand, even for experts, let alone policymakers.

Dams have been thought a good way of reducing greenhouse gas emissions while satisfying our ever-increasing demand for electricity. Indeed, dams built in cool, dry places probably do reduce emissions per watt compared to fossil fuel generation. So, in 2012 the Intergovernmental Panel on Climate Change (IPCC) said that, taking into account construction and operation, hydroelectric power produces less than 3 percent of the warming of fossil-fuel power plants that burn coal, oil or natural gas. But, as Daniel Grossman writes:
That is true for some dams, such as those built in relatively cool, dry places with relatively little vegetation, which rots and turns into greenhouse gases. But the IPCC report ignored dams built in lowland tropical forests, where luxuriant jungle produces an unusually large amount of emissions. Daniel Grossman, the Sunken Rainforest, 'New Scientist', 21 September

In tropical dams, microbes digesting submerged trees produce methane as well as CO2. An expert based in Brazil says that "hydroelectric dams in
tropical lowlands are a climate disaster."

Why do we continue to make policy about systems that are too complex for us to understand? Partly it's historical. A century or two ago the link between the cause of a social or environmental problem and its effect would be more obvious. Effective policy could be made accordingly. But today the complexities have grown so profoundly that even the direction of causation isn't always clear. Policymakers, though, still make policy based on hunches or scientific knowledge that necessarily becomes out of date.

My suggestions is that, instead of making policy about complex but important issues as if we know what's going on, we should target outcomes, rather than the ways in which most experts currently think is the best way of achieving them. So, instead of targeting, say, 'proportion of electricity generated by renewable resources', we target for reduction the negative impacts of adverse climatic events. A Climate Stability Bond regime would leave it up to motivated bondholders to work out the most efficient ways of achieving our climate goal; and they would do so in ways that both generate and act on the basis of rapidly expanding scientific knowledge. They would have incentives to look more closely and on a continuing basis at, for example, where dams can help achievement of our goal and where they would hinder it.

The Social Policy Bond principle would stimulate, diverse, adaptive iniatives: projects that would take into account the differing and changing circumstances that any single conventional body, such as government at any level, just cannot.

Overwhelming complexity doesn't just affect big global problems. Here, Dr Malcolm Kendrick writes:
[I]n truth, almost all diets are perfectly healthy. Vegetarian, paleo, keto, vegan (with a few essentially nutrients thrown in, so you don’t die), HFLC [High Fat Low Carb], etc. In fact, the only non-healthy diet would be the one recommended by all the experts around the world.Namely, High carb, low fat (HCLF). The ‘eat well plate’, ‘the food pyramid’ – whatever it is now called. Stay away from that, and you will be fine. What causes heart disease (blog) part 65, Dr Malcolm Kendrick, 23 September
Government and their scientist advisors, would serve us better by showing a bit of humility. Targeting outcomes, rather than the ways they currently think we'll achieve them, would be a good start.

10 September 2019

Government+big business+judges vs. the people

Christopher Caldwell writes:
Once the judiciary rules politics, all politicians are just talkers....The transfer of competences from legislatures to courts is a superb thing for the rich, because of the way the [British] constitution interacts with occupational sociology. Where the judiciary is drawn from the legal profession, and where the legal profession is credentialed by expensive and elite professional schools, judicialization always means a transfer of power from the country at large to the richest sliver of it. Why hasn't Brexit happened?, Christopher Caldwell, claremont.org, 15 August
Mr Caldwell is writing in the context of Brexit, but this insight applies more broadly. I've often railed against the widening gap between politicians and the people they are supposed to represent. The gap between ordinary citizens and the judiciary is at least as wide. We, the public, have even less buy-in when decisions are made by judges rather than politicians. What happens with contentious issues on which ordinary people have no say? Here, the Economist writes about the abortion debate in the US:
Why did the two sides become so polarised? The main reason is the way abortion was legalised. In many countries, abortion laws were voted for by elected politicians or in referendums. In America, a seven-to-two majority of justices declared abortion a constitutional right. Anti-abortionists question the interpretation of the constitution that produced that ruling and are furious their voices were not heard. Abortion advocates remain fired up by the knowledge that Roe could yet be overturned. What explains Donald Trump’s war on late-term abortions?, the 'Economist', 24 August
Buy-in is important and, with big government, complex societies, and our emphasis on how policy is made and who makes it rather than outcomes, there's very little buy-in remaining at the national level. Corporations, politicians and, increasingly, the judiciary define the economic and social environment in which we live.

Social Policy Bonds, by targeting outcomes with which people can identify could bring about more public participation in the policymaking process. That is an end in itself (see here (pdf) for example), as well as a means by which decisions become acceptable even to those who opposed them. Importantly too, there's more consensus about outcomes than about the supposed means of achieving them. A bond regime would focus policy debate on our social and environmental goals, and which ones shall be prioritised. The process itself would generate more mutual understanding and less of the anger and contempt that are such a feature of today's policymaking.

As well, a bond regime would encourage us to think long term: our goals are far more stable than the ways in which we think we can best achieve them. They are also more transparent as, with Social Policy Bonds, would be their funding. Corporations, their lobbyists and the people in power whom they influence all have an interest in obscuring how funds are allocated, and in failing to monitor whether policies succeed or fail (see Why States Believe Foolish Ideas: Non-Self Evaluation by States and Societies, by Stephen Van Evera (pdf)). It's even more difficult to believe that our new policymakers - the judiciary - will be any more responsive to the needs and wishes of ordinary citizens. With government, big business and now the judiciary determining our economic and social environment, what hope is there for the rest of us? The gap between ruler and ruled is becoming ever wider. Social Policy Bonds could help close it.

For general information about Social Policy Bonds see here. For more about Social Policy Bonds and buy-in see here.

02 September 2019

It's not just dog-food

There is probably more human ingenuity going into devising new ways of selling dog-food than avoiding nuclear war or eradicating poverty or achieving universal literacy. But it's not just dog-food:
For decades, increasingly large numbers of America’s smartest and hardest-​working businesspeople have toiled in extractive pursuits, and the result is an economy that benefits an increasingly smaller percentage of its participants. Many structural reforms are necessary to change this. With regard to education, it is time to reform the top MBA programs. These schools shape our business culture, and, in so doing, exert an outsized influence on the business practices and the career pursuits of some of our most talented young people. The schools should begin with an explicit renunciation of shareholder capitalism. The Financialization of the American Elite, Sam Long, 'American Affairs', Fall 2019
By 'extractive pursuits' Mr Long means 'value extraction and short-term financial speculation'. There's nothing wrong with people choosing to make a career of financial shenanigans (see here for another example) or advertising dog-food. They're not greedy. They have children to bring up, elderly parents to look after.... These intellectual giants are simply reacting rationally to the incentives on offer. But it's a shame for the society that a high proportion of the smartest people on the planet their goals cannot meet their individual goals by helping to solve our huge, urgent social and environmental problems.

Social Policy Bonds are a way of aligning the incentives smart individuals face with those of society. They work by channelling our self-interest into the solution of our social problems. They do so by injecting market incentives into the solution of these problems. In economic theory, and on all the evidence, markets are the best way of allocating society’s scarce resources. So it is unfortunate that, largely for historical reasons, we leave the achievement of national and global social and environmental goals to a command-and-control mechanism that is often inefficient and open to abuse.

Sure, a Social Policy Bond regime would probably see some enrichment of wealthy corporations or individuals, but only as a side-effect of their achieving society's agreed social and environmental goals. The incentives of the people owning Social Policy Bonds and the people they employ would exactly align with those of society. All their activities would be aimed at achieving society's goals as efficiently as possible.
 
A Social Policy Bond regime represents a new departure. It would not reward people merely for undertaking activities that sound worthy, nor for belonging to organisations whose ostensible aims are to help people but are, in reality, less edifying. Rather, a bond regime would reward the achievement of society's goals. Yes, it would divert some of society's scarce resources, including brainpower, away from marketing pet-food or maximising short-term share prices or other super-sophisticated, zero-sum financial manipulation. But we are talking about the potential solution to some of mankind's biggest and most urgent problems: poverty, climate change; even the ending of war. I think it's a worthwhile trade-off.

25 August 2019

How to prevent crime

 Dr Elliott Barker asks how we can prevent crime:
There should be a clear recognition that the only meaningful measure of success in child rearing is an adult with highly developed capacities for trust, empathy, and affection. It follows that the current worship of child rearing practices that evoke the highest possible I.Q., or the child with the greatest possible number of factual crumbs by the lowest age, or the child who can play the cello best at the earliest age should be suspect. How Do We Prevent Crime?, Dr Elliott Barker, the Natural Child Project
The question is not whether we believe (as I do) that we can reduce crime and other social pathologies by taking Dr Barker seriously but whether people have sufficient incentive to investigate how valid his argument is and then to act on their research. I don't think they do. Crime is today largely seen as a matter for policing and punishment. There may or may not be academic research pointing the validity of Dr Barker's arguments. But even if there is, who has the incentive to examine this research, check its validity and act on the results? Very few, and almost nobody with the financial clout to influence the way we bring up our children. Of course, there is good work being done by people such as Dr Barker, and eventually some of their findings do percolate through to a few dedicated researchers and parents. But work on the scale necessary to see widespread changes? The bodies, including government, that could fund such work are far too focused on the short term. And who thinks long term these days?

Social Policy Bonds targeting crime could be one answer. Under a bond regime, we could target a long-term halving of crime rates, sustained for a period of, say, thirty years. A combination of government, NGOs and philanthropists could back these bonds, which could be swelled by public contributions. Once issued, bondholders would form a de facto coalition, whose composition would most probably change over time, but all of whose activities would be aimed at achieving the targeted reduction in crime rates at lowest cost to society.

Long-term thinking and the notion of a coherent society that persists over decades: any attempt to improve social welfare and the environment requires both these qualities. They're not at all prevalent but policies like Social Policy Bonds that need them to work can also create and encourage their proliferation.

19 August 2019

Who thinks long term these days?

Social Policy Bonds haven't gone very far. It's true that their non-tradeable variant, Social Impact Bonds are being issued around the world and are the subject of much academic outpouring. (Academia.edu tells us that there are more than 190 000 papers mentioning 'Social Impact Bonds'.) But Social Policy Bonds? None have been issued that I'm aware of, and they generate little in the way of literature - apart from my own work, of course.

There are several reasons. One is that, while the tradeability of Social Policy Bonds sounds like a technical issue, in political terms it's a bit of a time-bomb. It means that whoever issues the bonds doesn't get to choose who will be rewarded for achieving the targeted goals. In this, Social Policy Bonds are quite different from the SIB model, under which only chosen service providers will benefit from investing in the bonds. These are generally existing service providers. This obviously limits the scope for innovation and the efficiencies it would bring about. Existing service providers have a vested interest in maintaining current ways of doing things. (Indeed, combined with the inherently short-term nature of SIBs, lack of tradeability creates a perverse incentive not to be too efficient, lest issuers of future SIBs targeting the same social problem consequently tighten their efficiency criteria.) In our current political systems there are few incentives to allow new, potentially much more efficient, operators into solving our social and environmental problems. The inherently short-term nature of SIBs mirrors too neatly the short-term goals of politicians and current service providers.

Other reasons for the absence of Social Policy Bonds? One that I've experienced is the disdain of those on the political left for anything that smacks of profit or capital gains, especially in the provision of benefits to the disadvantaged. A sentence from a recent post by Charles Hugh Smith sums it up: we substitute self-​righteousness for problem-​solving. The thinking is as simplistic as it is injurious to the disadvantaged: 'markets are right wing and therefore bad'. I am still hopeful though that there will come, in time, a government, a non-governmental organisation, or a group of philanthropists who will take a long-term view, forgo the pats on the back by established bodies in the public and private sectors, and put the interests of their country, our environment, or the world above their own.

For more about why I am skeptical of Social Impact Bonds see here and here.

07 August 2019

How to make capital gains ethical

A conference nearly three years ago looked at the ethics and morality of Social Impact Bonds. A concise summary of some of the issues discussed raised the question of:
...moral dilemmas that can arise when we place a financial value on social outcomes, and begin to see interventions in the light of the money they can save rather than on their inherent public value. Will it lead to us prioritising certain policy areas simply because they can save us money? Are we giving away too many decisions to unaccountable consultants and investors – and do the service users themselves get a say in any of this? Is it right that investors can gamble on the fortunes, or misfortunes, of others? Social Impact Bonds: are they ethical?, James Ronicle, 28th September 2016
Social Impact Bonds (SIBs) are a non-tradeable version of my original conception: Social Policy Bonds. Tradeability matters more than you might think. As I've explained here and here, when the bonds become tradeable the range of goals that we can target expands greatly, and our time horizons stretch much further into the future. The qualitative effect of a bigger range means that our social and environmental targets can embrace outcomes that a narrower, shorter-term target will exclude. Take for example recidivism rates, targeted by SIBs in the UK and elsewhere. Whereas a SIB regime will reward their reduction, even a large number of such SIBs would do nothing for the long-term health of society as a whole. For a start, narrow, short-term goals increase the likelihood of effective manipulation - a simple example springs to mind: investors in the bonds could subsidise superior legal representation to an offender accused of a new crime. But, more importantly, when we embrace broad, long-term goals, there is no need to prioritise 'certain policy areas simply because they can save us money'. Under a Social Policy Regime there need be no conflict. The policy 'areas' we can prioritise are large enough to include everybody.
It's not so different in other policy areas. SIBs currently target, for instance, academic performance among at-risk three- and four-year olds in Utah, or the number of housing units for the homeless in Massachusetts. Very laudable but, again, apart from these narrow goals being susceptible to crude manipulation (by fiddling test results for instance), they also reward the shifting of resources from untargeted goals to those that will generate short-term gains for bondholders.

This is the key. Social Impact Bonds have to focus on narrow short-term goals that are easily measured. Social Policy Bonds, in contrast, can take a broader, long-term view. They can encompass the goals of society as a whole. Rewards to holders of carefully crafted Social Policy Bonds might still benefit wealthy investors, but only as a by-product of benefiting all of society.

There are bigger possibilities: one of the participants at the above conference asked:
...whether development bonds, where investment is made in developing countries, create a new form of colonialism, as the West profits from interventions in developing countries.
Again, there need be no conflict. Social Policy Bonds targeting, for instance, regional or global conflict, or disaster prevention could benefit both western investors and developing countries. Large capital gains, though widely and understandably viewed with disdain in today's society, don't have to be unethical.

 


For more on this last topic see my previous post. For more on the topic of rewarding people for performing the socially useful function of, for instance, teaching see my blog post here. All my essays on the bonds are accessible from the main Social Policy Bonds site.

01 August 2019

Re-jigging the incentives

George Monbiot writes:
The largest fortunes are now made not through entrepreneurial brilliance but through inheritance, monopoly and rent-seeking: securing exclusive control of crucial assets, such as land and buildings, privatised utilities and intellectual property, and assembling service monopolies such as trading hubs, software and social media platforms, then charging user fees far higher than the costs of production and delivery. In Russia, people who enrich themselves this way are called oligarchs. But this is not a Russian phenomenon, it is a global one.  Corporate power still exists, but today it is overlain by – and is mutating into – oligarchic power. Killer clowns, George Monbiot, 'The Guardian', 26 July
Imagine a political system in which people became wealthy by helping to solve society's problems rather than by the anti-social activities about which Mr Monbiot writes. Human ingenuity and entrepreneurial skills, currently channelled into self-enrichment via destructive or frivolous activities, would be channelled instead into achieving society's goals.

Social Policy Bonds could usher in such a system. The bonds would reward the achievement of targeted goals that are inextricably linked to improved social and environmental well-being.There are many benefits to a Social Policy Bond regime. Efficiency is the main one, as the market for the bonds would ensure that the people who can do most to achieve society's goals do so at the lowest cost. The bonds will always be in the hands of the most cost-effective operators who can out-bid the less efficient investors. Another advantage of the bonds is stability: whereas the best ways of achieving our goals vary over time and according to geography, the goals themselves are consistent, and there is far more consensus about our goals than about the supposed means of achieving them. The bonds would create a stable policy environment, in which long-term goals, including very remote goals such as world peace, could be targeted. Another advantage of the bonds is transparency: clarity of goals should be a first, essential step in policymaking, but too often it's, perhaps deliberately, obscured by the arcane, legalistic tactics beloved by today's policymakers.

These are all valuable benefits. But there's another one, less obvious. Social Policy Bonds would constitute a way of making money that is inextricably bound up with achieving society's goals. A government could therefore choose to tax any gains from holding Social Policy Bonds more lightly than other, similarly lucrative but less socially beneficial, operations. It would then be explicitly recognising that not all profit-making ventures are equal. Some, though they might raise that very flawed indicator and de facto target - GDP -  contribute very little to social or environmental well-being, while others are destructive of both. This advantage of Social Policy Bonds might not seem important compared to the bonds' other pluses, but it could become increasingly significant as society grows more complex, resources more limited and we perforce become more concerned about meaningful outcomes than the short-term goals of big business and politicians.

15 July 2019

The status quo is a tragedy

Tim Harford writes about healthcare in the US:
The US healthcare system is a monument to perverse incentives, unintended consequences and political inertia. It is astonishingly bad — indeed, it’s so astonishingly bad that even people who believe it’s bad don’t appreciate quite how bad it is. ... Reforming American healthcare will require an almighty effort. With politics gridlocked and soaking in lobbyist money, it’s not obvious that the US government is capable of running the kind of healthcare system that works elsewhere — even if Congress decides to try. But try it must, because the status quo is a tragedy. US healthcare is literally killing people, Tim Harford, Financial Times, 13 July
It's not just healthcare. Our political systems are comprised of, and help to sustain, institutions of all kinds that start out as well intended but, almost inevitably, become fossilised. They invest too much, emotionally and financially, in ways of doing things that might have been efficient at one point, but then become outdated as society and technology change. Eventually their overarching raison d'etre becomes that of self perpetuation. They become adept at resisting threats to their survival. In the private sector competition is supposed to keep businesses on their toes, but too often the smaller enterprises are smothered  by big business which, with its pals in government, regulates them out of existence. Nevertheless, there are still parts of the private sector where competition does its work, and creative destruction goes on.

It's much worse in the public sector or, rather, in the provision of social and environmental services, where people have much less information and power than service providers (healthcare) or where competition otherwise cannot operate effectively. The vested interests are government bodies, trade unions, big companies or, more and more these days, NGOs and charities. All have entrenched hierarchies and ways of doing things, and tend to resist changes that threaten their existence. So we get monstrosities like US healthcare, or the EU's Common Agricultural Policy, both of whose corrupt lunacies have been well documented for decades but about which little of significance has been done.

Social Policy Bonds might be the answer. They would inject competition into the solution of our social and environmental problems. They would lead to the creation of new sorts of organisation, comprising protean coalitions whose every activity would be aimed at achieving society's goals with maximum efficiency. They would have incentives to ensure inefficient approaches would be terminated - not, as nowadays, bailed out with eye-watering sums of taxpayers' money in order to save the face of their instigators.

To focus on health specifically: we need to reward the achievement of successful health outcomes, which, for a country, should be a combination of variables, each of which will have to fall into a specified range before the targeted outcome can be deemed achieved. The variables would be likely to include: longevity, Quality Adjusted Life Years, infant mortality and other objective data. Consider how far removed are the incentives in current healthcare systems - not only in the US - from rewarding good health. Today's incentives are, essentially, to screen, test and intervene - whether or not the intervening does any good at all. There's more about the application of the Social Policy Bond concept to health here

More generally, a bond regime would undermine the powerful institutions in the public- or private sector, whose existence is predicated on blocking reform. To give these bodies time to reform, and to shift their goal from self-perpetuation to serving the public, the bonds could be phased in over time, as I describe in chapter 4 of my book (all chapters downloadable free of charge here). Social Policy Bonds, at first sight, seem a radical, even zany, approach to the solution of the problems that we face. The question, though, is whether there's anything better. In health, the environment, nuclear proliferation, violence in poor countries, to take obvious examples, the challenges are huge and urgent, and it would doubtless be difficult to overcome the obstacles to progress. But, as Mr Harford would say: try we must, because the status quo is a tragedy.  

12 July 2019

Targeting economic indicators is a cop-out

Vassilis Serafimakis writes to the London Review of Books, telling us why focusing on one particular economic variable - the fiscal deficit - is misguided:
...Diana Stone notes that ‘Zimbabwe’s fiscal deficit is around 12 per cent of GDP’ and that a country ‘can’t run a deficit that size without stealing from the future’  ... Deficits cannot be assessed in isolation. We need to examine the whole economy, especially productivity, whose prime indicator is the level of employment. And we need to focus on the real aspects of the economy rather than worrying about economic conventions. The whole concept of ‘sound finance’, with its corollaries of ‘fiscal discipline’ and ‘prudent finance,’ all code words for austerity, must be discarded and replaced with functional finance. Japan is the outstanding example of a state that has done this, albeit inconsistently. It has continuously low interest rates, low unemployment, low yet steady growth, and most important, an unmatched standard of living. All this despite the fact that every year the budget hits deficits in excess of 15 per cent of GDP, while Japan’s Treasury has amassed a debt of some 230 per cent. Yet if, geography aside, Japan were to apply for Eurozone membership its application would be rejected outright because the country is in violation of the Eurozone’s deficit and debt limits. This is evidence enough of the folly behind the Eurozone set-​up.... Vassilis Serafimakis, Letters, 'London Review of Books', 4 July 
There's a large and, I think, growing gap, between such measures as fiscal deficits, debt levels, GDP; and social well-being. An increasingly out-of-touch political caste has little knowledge or experience of the world in which live the people they are supposed to represent. So they rely on these economic aggregates for information about how society is doing. Along with many others I've inveighed against GDP or GDP per capita and its de facto targeting by politicians. As well as their inherent deficiencies, such measures as GDP and the fiscal deficit are subjects to Campbell's Law, which tells us that:
The more any quantitative social indicator is used for social decision-making, the more subject it will be to corruption pressures and the more apt it will be to distort and corrupt the social processes it is intended to monitor.
Which is why I believe we should target outcomes that are meaningful to ordinary people: goals that are inextricably bound up with social and environmental well-being. Goals such as better health, universal literacy or, at the global level, regional or world peace. We should be targeting and rewarding the achievement of such goals, rather than abstract entities like deficit reduction or GDP growth. Economic variables are, at best, means to ends. They are increasingly inadequate as such but worse is that they enable politicians to distract us by deflecting our attention to those measures that have improved under their governance, or deteriorated under the governance of the other side.

Social Policy Bonds are a way of channelling the market's incentives and efficiencies into the achievement of our social and environmental goals. That's one of their big advantages. But the other is more fundamental: the bonds require us, as a society, to clarify what are our goals and to come up with some sense of their priority. You would think this would be an essential feature of any democratic political system but no: what we experience today are sound bites, character assassination, personality cults or, as a very poor best: the targeting and manipulation of economic variables that don't really matter and about which none of us really care.

06 July 2019

The JAMES Bond

Cao Honghui writes about a new type of bond that may be about to be issued in Hong Kong. The original Chinese is here; this is from the Google translation:
Inspired by socially functional bonds, the concept of Justice Achievable Market Enabler Savings Bond (JAMES BOND) can be used as a starting point for the financing of infrastructure companies. The justice market savings bond is inspired by the [Social Impact Bond] SIB and can be said to be SIB 2.0. The justice market savings bonds are different from the social function bonds. The justice market savings bonds will have a larger amount of funds, but the expected social benefits will be greater. Justice Market Savings Bond: JAMES BOND, Cao Honghui, Master-Insight.com, 3 July
I can't tell from the translation whether these bonds are actually being issued, nor whether they would be tradeable. Would any reader who understands the Chinese be able to comment? Tradeability is the crucial distinction between the (non-tradeable) Social Impact Bonds currently in issue in about fifteen countries, and the original Social Policy Bond idea. I write about the importance of tradeability here and here.

27 June 2019

'Recruit to deny'

This is what happens when we blindly use badly-thought out metrics:
[M]any of our [ie, the US'] greatest universities have lately adopted an even more egregious new practice—“recruit to deny,” a policy in which schools actively encourage students whom they know will be turned down to apply anyway, despite the waste of time and money and effort and the disappointment that such a process must entail. This seems to be done mostly in order to increase each school’s rejection rate, a figure that plays a key role in where they end up in U.S. News & World Report’s annual rankings of American colleges and universities. What we do in the shadows, Kevin Baker, 'Harper's Magazine', 27 June
I write quite a bit about metrics here, but how are the blog's own metrics doing? Not very well, is the answer. The number of readers looking at this blog daily has dwindled into the single figures. Not many more look at my home page, or access any of the essays, papers, book chapters, linked to thereon. That's according to the (free) analytic tools that I use.

Nevertheless, the non-tradeable version of Social Policy Bonds, about which I've expressed ambivalence, is in the policy mainstream and, largely because of that, I'm hopeful that, in time, the much greater possibilities that the tradeable bonds offer will be discussed and implemented. Until that hope is realised, mainly for my own edification and as a discipline, I will continue to post here and to maintain the SocialGoals.com site.

21 June 2019

Metrics in mental health

An interesting article from two years ago looks at the use of simple questionnaires, metrics and big data in psychotherapy. It's a field that is in need of objective data:
Risk alerts [derived from clients' feedback] allow therapists to adjust treatment, and can help them compensate for natural overconfidence and clinical blind spots. In one study, 48 therapists, seeing several hundred clients at a single clinic, were asked to predict which of their patients would “get worse.” Only one of the therapists accurately identified a client at risk. What your therapist doesn't know, Tony Rousmaniere, 'The Atlantic', April 2017
Dr Rousmaniere points out that for the therapist merely to ask clients how they think they're doing doesn't work. Clients aren't willing to tell therapists face-to-face that their treatment isn't working, but they are more honest when completing a questionnaire before appointments. Metrics derived from these performance feedback questionnaires 'significantly improve the effectiveness of psychotherapy, reducing dropout rates and shortening the length of treatment.'

In our large and complex societies metrics, with all their potential flaws, are the only really robust way in which we can measure outcomes and progress toward them. I've wondered about the use of metrics in mental health, but this article points to the ways in which carefully crafted and aggregated metrics and their aggregation (big data) can be used not only to measure outcomes objectively, in what one would think would be an inescapably subjective field, but also to help improve those outcomes.

13 June 2019

Climate change: do we care?

Do we care about climate change? We know that some do, passionately, and most of us, if asked, will say we do. But the evidence is clear that our collective, honest, answer to the question Do we care about the threat of climate change? is a resounding no, not really. Despite innumerable high-level conferences, apocalyptic rhetoric, doom-laden prognostications and worthy-sounding declarations, what have we actually achieved?

David Wallace-Wells tells it like it is:

The Kyoto Protocol achieved, practically, nothing; in the twenty years since, despite all of our climate advocacy and legislation and progress on green energy, we have produced more emissions than in the twenty years before.

Recent headlines confirm this:

·        Faking it on climate change;

·        UK is failing to meet almost all of its climate action targets;

·        Accept people don’t, and may never, give a toss about climate change.

Why, if climate change is likely to be as catastrophic as the scientific consensus paints it, are we so reluctant to do anything about it?

One answer is that the issue is so politicised that changing your mind on the issue is seen as a sign of weakness.

The other answer, though, is a bit more subtle. Science appears to tell us that it’s our emissions of carbon dioxide and other greenhouse gases that are causing changes in the climate, and accompanying changes like rising sea levels. Accordingly, these emissions have been the focus of our climate change policy, to minimal effect.

It’s not working, because:

1.   the science is not convincing,

2.   our goal is not really to stop the climate changing, so we have very little buy-in, and

3.   focusing on the alleged root cause might not be the best way of achieving what we actually want to achieve.

Not convincing


When I say the science isn’t convincing, that’s not my personal opinion. I mean that the science is literally unconvincing. It’s not convincing most of us to allocate our scarce resources into solving a problem that could well be catastrophic but, the way it’s formulated, requires big upfront costs for uncertain gains that that will probably be nugatory, slow to materialise, and whose provenance will never be able to be confidently attributed to past sacrifices.

No buy-in


The way it’s formulated. To solve this potentially calamitous problem, requiring spending huge sums now, we need buy-in. Saying that the problem is to do with the composition of the atmosphere might be accurate, but neither the proportion of greenhouse gases in the atmosphere, nor the average rise in our planet’s temperature have meaning for ordinary people; you know, the vast majority of the human population who have more pressing concerns, but whose backing for the huge task ahead is critical. Limiting the Earth’s rise in temperature to two degrees Celsius, or reducing the level of carbon dioxide to 350 parts per million: these are not goals with which ordinary people can identify. They are abstractions. They are means to ends, and we’d do better to decide exactly what ends we want to achieve and aim to achieve them.

Our problem is not the composition of the atmosphere nor the planetary temperature: it’s adverse climatic events, however they are caused, and their impact on human, animal and plant life. That is how the problem should be formulated to generate popular support for policies addressing climate change. There's no good scientific or moral reason for a policy that prioritises the adverse impacts possibly attributable to man over those caused by nature. It doesn’t matter whether the floods, hurricanes or rising sea levels that kill people or make them homeless are caused by man-made contributions to carbon dioxide levels in the atmosphere or anything else. We should aim to reduce the impacts of adverse climatic events on ourselves and our environment rather than what current - or rather, 1990s - science tells us is its most likely cause.

Tackle the symptoms as well as the cause


We waste a lot of energy trying to identify the root causes of social and environmental problems when it might be more efficient to address the symptoms. Even when we do know the root cause of a problem, getting rid of it isn’t always the best way to go. Take a weather-related example: people with vitamin D deficiency in northern latitudes. The root cause is readily identifiable: lack of exposure to the sun’s rays. But the solution isn’t to shoot laser beams upwards on overcast days to vaporise the cloud layer. In this instance, at least, we do the sensible thing and dispense vitamin D tablets. Often it’s best to tackle symptoms and causes simultaneously, which is how we approach most serious health problems. With climate change we think we know that greenhouse gas emissions are the culprit. It is scientifically plausible, but not certain. It is even less certain that we have correctly identified all the greenhouse gases, and correctly weighted the ones we can directly control according to their long-term impact on the climate. And it's not at all certain that reducing these emissions will stop the climate changing. We’ve staked so much on trying to identify and deal with greenhouse gas emissions that we have lost sight of what should be our priority, which is to look after our environment, rather than try to stop the climate changing. It’s a serious distraction. Our almost obsessional focus on greenhouse gases led the UK to cut the duty on diesel fuel, which emits less CO2 than petrol but more nitrogen oxides and particulates. This switch contributed to 12 000 premature deaths in the UK attributable to nitrogen dioxide emissions. We seem now to be considering a similarly indirect and demented approach – this time on a global scale – by taking geoengineering seriously.

Outcomes versus root causes


In summary: trying to identify and eradicate the root causes of adverse environmental impacts might not be the best way of preventing them. With climate change, it's (currently) impossible to persuade enough people that cutting back greenhouse gas emissions is going to make an appreciable difference to their quality of life or that of the environment. Focusing on the supposed root causes serves, at best, as an excuse for inaction; at worst, as a distraction from, or cause of, serious environmental problems. And we need to be clear that even if we can show that greenhouse gases are the root cause of adverse climatic events, cutting emissions might not be the best way of solving that problem. Scientists, politicians and bureaucrats talk endlessly about degrees Celsius, parts per million, climate models and scenarios. They should be talking instead about the actual, current impacts of adverse climatic events on human, animal and plant life.

03 June 2019

Kicking the (nuclear) can down the road

Sometimes we can achieve a short-term goal only by worsening prospects for the long term. Kicking the can down the road, in other words. It's something we may be doing when it comes to peace:
[I]t’s the same with [Steven] Pinker and war. 2011’s Better Angels of Our Nature argued that violence had been in decline steadily and we are now living in an unprecedented era of peace and prosperity. It was an absurd book, because it required readers to treat our own era, when thousands of nuclear weapons are stationed around the world ready to be fired, as “peaceful.” This is like saying that if somebody puts a gun to your head, they are being “nonviolent” until they actually fire it. A “Mexican standoff” is “peace” in the Pinker sense. The world's most annoying man, Nathan J Robinson, 'Current Affairs', 29 May
We can't say whether the nuclear weapons deployed over recent decades have increased or decreased the probability of a catastrophic nuclear exchange. But for me the more important question is how do we best ensure nuclear peace now and in the future? At first glance, current trends are encouraging:
The good news is that, as poverty has receded worldwide, the proportion of humankind who die in wars and civil strife has fallen sharply, from nearly four per 100,000 each year in the 1980s to less than one in the past decade. How to think about global warming and war, the 'Economist', 23 May
I wouldn't link poverty with war so unambiguously: there's no proof that poverty leads to war, and we don't really know why war and civil strife have declined, nor anything about whether it will continue to decline, whatever happens to poverty. Again, though, the question is how to ensure that the benign trend continues. It's quite possible that some proportion of the world's nuclear weapons stockpile will be used any time now, and the potential for catastrophic war doesn't seem to have diminished. It's quite possible, as many believe, that piling up nuclear weapons did ensure the peace (for a while). It's also quite possible that these weapons will be used, to catastrophic effect, some time soon. Indeed, the period of 'peace' might in future be seen as nothing more than a period of re-armanent or proliferation: a period during which a future war became more likely and more deadly. We simply don't know.

Conflict reduction makes an ideal application for the Social Policy Bond idea because ending war is one of those complex social goals whose causes (1) cannot be reliably identified, (2) vary considerably according to region, and (3) change with time. But the holders of Conflict Reduction Bonds wouldn't need to go about trying to find and address war's supposed root causes. Their goal would be to keep the peace, by whatever means are most cost-effective. Sometimes, in some places, it might be most efficient to try to identify root causes. Sometimes, in some places, it might be best to reduce the number of weapons in the protagonists' arsenals; in other circumstances it might be better to increase the number of weapons. As with many of our social and environmental ills, we need a mix of diverse, adaptive solutions: exactly the sort of solutions that don't come easily to governments or supra-national bodies like the United Nations. It doesn't help that the employees of these bodies aren't rewarded in ways that encourage long-term success in their peace-keeping mission. We need to be rewarding a sustained period of peace, so that short-term peace is not achieved by kicking the can down the road.

The past few decades have seen a heartening reduction in conflict. But have they merely been the prelude to a catastrophic global conflict? Conflict Reduction Bonds that reward a period of nuclear peace sustained for several decades would put in place a system of incentives that would channel our resources and ingenuity into achieving what must surely be one of our most important goals: the removal of the threat of nuclear catastrophe. 

27 May 2019

Buy-in vs big government

Making policy is very much like thinking, in that it’s limited by the way it abstracts from reality the finite range of facts available to it. For makers of policy whose remit covers more than a family, clan, tribe or village, this should be a lesson in humility, because policymaking for large numbers of people inevitably entails the use of quantifiable data. Such data are equivalent, at the level of the individual, to our thoughts. Either way, they are extremely limited; what our minds can grasp, articulate and work on do not describe reality. They are individual facts, selectively taken from memory or, when making policy, aggregated, quantifiable information. Unfortunately, as the saying has it, ‘if the only tool you’ve got is a hammer, you’re going to see every problem as a nail’. And the only policymaking tool we have is our intellect backed up, sometimes, by statistics, themselves often contentious.

In the individual our thoughts have not (yet) completely crowded out our insight. We know, most of us, at some level, that our well-being is not defined by a set of discrete quantifiable circumstances, but is rather a state of mind, which we’d find very difficult to describe using the limited vocabulary of whatever language we speak.

Policymaking though is in a more parlous state; at the national and super-national levels anyway. For a start, it cannot interpret unprecedented threats, such as climate change or nuclear proliferation, in any but its own terms: that is, things to be negotiated, dealt with through the political process by existing institutional structures or new ones modelled on them. It cannot see social well-being as anything other than aggregated targets, with maximum Gross Domestic Product (or GDP per capita) as the target above all others. But GDP is grotesquely flawed for that purpose, and most other numerical goals are hardly more reliable indicators of social welfare. There are quantifiable measures that do correlate fairly strongly with meaningful social goals, but these tend to be at the lower levels of wealth, income, nutrition or education. At these levels, quantifiable increases do generate real, meaningful rises in opportunity and welfare.

But government has expanded far beyond helping the disadvantaged. It’s expanded into areas where its reliance on aggregated data is not only leading it awry, but into activities that crowd out the more adaptive, responsive and responsible instincts of real people. At the same time, the planet is confronted with challenges, such as climate change and nuclear proliferation, that government cannot meet. Most of the population is now so used to handing over responsibility to a large and remote public sector that we think that government will solve such problems. Or we think that if government cannot solve them, they cannot be solved. The remarkable ability of humans to adapt and survive, our prodigious energy and ingenuity, is stunted, or channelled into cynicism, despair or such flippant, but lucrative, pursuits such as the marketing of dog food, where the goals are immediate, identifiable and no threat to the existing order.

There is a widening gap between government and the people it’s supposed to represent. It wouldn’t matter very much of the public sector were small, and satisfied to remain so, and if real people controlled their own destiny. But the public sector is none of those things. It’s big, remote and intrusive, and it’s failing to meet our most urgent challenges. This combination could mean calamity, not just for millions, or hundreds of millions of human beings, but for the entire planet. 

Social Policy Bonds could help close the ever widening gap between politicians and people. By targeting social and environmental goals, rather than the supposed means of achieving them, they could bring ordinary people into the policymaking process. Ends are meaningful; means are not, especially when they are (deliberately?) obscured by complex, arcane and protracted policymaking processes. By focusing on ends we should be clarifying exactly what we want to achieves. But perhaps more important than clarity and even their advantages of greater efficiency, transparency and policy stability over time, Social Policy Bonds would generate buy-in. By participating in making policy, people would be more readily accepting of the trade-offs that are inescapable when choosing which social and environmental goals should have priority.

15 May 2019

Transcending narrative

We waste a lot of energy trying to identify the root causes of social and environmental problems; energy that would be better spent trying to solve those problems. With climate change we think we know that greenhouse gas emissions are the culprit: it's scientifically plausible, but not certain. It is even less certain that we have correctly identified all the greenhouse gases, and correctly weighted them according to their long-term impact on the climate. And it's even less certain that reducing these emissions will stop climate change or reduce its negative impacts. (And which of those options do we actually want?) This uncertainty, or the appearance of uncertainty, is probably the reason that, despite years of apocalyptic rhetoric, high-profile conferences, celebrity calls to action and all the rest, nothing has been done to curb greenhouse gas emissions. I quote myself:
We can, though, be more certain about whether we really care about the threat of climate change. And the answer is a resounding: not really. Lots of conferences, exhortations, subsidies for renewables (though not as many as for fossil fuels - see below), stirring rhetoric and doom-laden prognostications. Some change? Sure, at the margins. But meaningful results? No, no, no.
We'd get more traction, I believe if, instead of focusing on what probably are, but might not be the causes of climate change, we clarify exactly what we want to achieve in regards to the climate and its effects, and then reward people who achieve it.

Trying to identify root causes is at least as dangerous when we're talking about human conflict. After a several chapters on the structure of the mammalian brain, Professor Alex Rosenberg sums up:
If the historical record is anything more than a chronology, it’s not verifiable. It’s wrong. And wrong in the most dangerous way, the way pretty much guaranteed to ensure that the mayhem of the last 5,000 years of recorded history will continue into the future. Narrative history is not verifiable because it attributes causal responsibility for the historical record to factors inaccessible to the historian. And they’re inaccessible because they don’t exist. The causal factors narrative history invokes—the contentful beliefs and desires that are supposed to drive human actions—have all the reality of phlogiston or epicycles. So narrative history, even at its best, is just wrong about almost everything besides the chronologies it reports. How History Gets Things Wrong, Alex Rosenberg, October 2018
More succinctly: 
By and large, the historian will get the kind of facts he wants. History means interpretation. EH Carr, quoted in History according to EH Carr, Helen Carr, 'New Statesman', 8 May
So what does all this mean? This: trying to identify the root causes of a social or environmental problem might not be helpful. With climate change, it's (currently) impossible to identify the root causes sufficiently to convince enough people to solve the problem. The lack of obvious root causes serves as an excuse for inaction. It's possible also that even if we can correctly and apodictically remove root causes, doing so might not be the best way of solving a problem.

In the social sphere the real or spurious identification of root causes is even more dangerous. The debates never end. Clair Wills writes about Northern Ireland:
Who began the killing? At root, arguments about the genesis of the Troubles are arguments about responsibility for murder, and that’s one reason it has proved so hard to disentangle history from blame in accounts of Northern Ireland since the late 1960s. No Waverers Allowed, Clair Wills, 'London Review of Books', dated 23 May
How about we take another seemingly intractable goal - Middle East Peace - and let a coalition of motivated investors decide whether or not trying to identify root causes is the most efficient way of achieving it. Our current political systems fail to do that, but Social Policy Bonds could succeed where they fail

Issuers of Social Policy Bonds targeting peace in the Middle East would first have to define what they mean by peace. They could do this in consultation with politicians, technical experts and, crucially, ordinary people. Once achieved, peace should be sustained for a period of, say thirty years. Because Social Policy Bonds are tradeable, holders would benefit by doing what they can to achieve such a long-term goal, then selling their bonds  once they have seen their value rise as a result of their efforts. The investors in the bonds would all be animated by the fact that the important thing is to solve the problem of conflict in the Middle East - and not to try to work out how it started.

In general, it might be a good idea to look for root causes of social or environmental problems, but it might be more efficient - and generate more buy-in - instead to aim directly for the outcome. 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 and less inflammatory than history, whether we are talking about dealing with climate change or ending war. Social Policy Bonds would focus all of our attention and ingenuity on achieving our goals and less on what policymaking today seems to be all about: blaming the other side.

06 May 2019

Make them tradeable

I've explained why I don't like Social Impact Bonds and it turns out that, ten years after the issue of the first SIB - Peterborough Social Impact Bond - others don't either.
Professor James W Williams, in a report he summarises here, looks at the record of SIBs in Canada, the UK, and the US. 
[A]lthough SIBs promise a win-win-win scenario in which providers, government, and investors all benefit, in practice the circumstances in which this alignment of interests is possible (what respondents described as the “SIB sweet spot”) are much more limited than is often acknowledged. In practice, the interests of these groups have been difficult to align with many prospective projects foundering between feasibility and execution. From visions of promise to signs of struggle: social impact bonds in Canada, the US, and UK, James W Williams, 2 May
The key, I think, is that the issuers of SIBs nominate the providers, who are generally the current providers, and whose identity will not change during the lifetime of the bonds. Crucially, SIBs aren't tradeable, so the set goals are short term, and providers can profit only if they become more efficient during the short time period before the bonds' term expires. They cannot profit by realising any appreciation in the value of their SIBs before the bonds expire. Making the bonds tradeable, as I have argued here, would greatly enhance the range of social problems that we can solve, and would do so partly because it would allow new providers, who think they will be more efficient than current providers, to buy the bonds and benefit from their greater efficiency. Competition for the bonds in an open market would ensure that all providers would be kept on their toes: would-be investors in the bonds who think they can be more efficient would bid more for the bonds than they are worth to current holders, and get a chance to prove, and benefit from, their greater efficiency.

Social Policy Bonds are, essentially, tradeable SIBs. A Social Policy Bond regime would not assume that the best achievers of social goals are the current providers - a fatal assumption, in my view and one that, as well as restricting the value of the bonds, makes them liable to gaming and manipulation.

Professor Williams allows that "SIBs could be reserved for testing programs that are truly innovative and preventative in nature with an emphasis on systems-level change." They could, in other words, be a way of rewarding successful innovative approaches that can scale up. I would say, though, that the scope for innovation would still be constrained by the short time horizons built into the SIB mechanism. So I agree with Professor Williams' conclusion that "SIBs are, and are likely to remain, a relatively small, niche market."

Another recent paper for, as far as I can tell, different reasons, is even less enthusiastic. It concludes:
We do not think that [SIBs] can facilitate the maintenance and development of public services that meet society’s needs, particularly the needs of its vulnerable members. In Finance and the Good Society, Nobel laureate Robert Shiller (2012) argues that “we need more financial innovation not less.” We disagree. We have had quite enough financial innovation. Nor do we agree with [his] contention that we can “reclaim finance for the common good.” A quarter-century after first making its appearance, the Private Finance Initiative, a previous example of financial innovation—once popular among policymakers but derided by critics—has at last fallen from favor....  We do not want to wait a similar period to witness the popular discrediting of SIBs: our policy recommendation is that the experiment ends now. S Lilley et al, Using derivative logic to speculate on the future of the social investment market, Journal of Urban Affairs, 18 April
Despite my reservations, I do see pluses in the Social Impact Bond experiment. The first is that they compel us to think in terms of outcomes; the second, that they reward more efficient achievement of these outcomes. These qualities, a commonplace in the private sector, are revolutionary when applied to our social and environmental goals, where 'more efficient' applies to the improved well-being for ordinary citizens, rather than the narrow, short-term, accountancy goals of corporations.

The danger, from my point of view, is that SIBs' failings will discredit, in the public eye, all approaches that reward efficiency in the public sector. But it could go the other way, and I hope that it will: policymakers might come to see SIBs as a step towards Social Policy Bonds and, though it would involve ceding their power to choose service providers, make them tradeable.