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.

01 May 2019

A Mickey Mouse micro-objective from Mexico

Why we need to target broad indicators that either actually are, or are inextricably linked to, the goals we actually want to achieve: 
A 2014 law compelling parties to nominate equal numbers of men and women for elections has led to a phenomenon known as Juanitas—women who participate as candidates, only to resign after their election to give way to men. The Mexico tragedy, Shephard Barbash, 'City Journal', Spring 2019
I don't myself think that diversity is necessarily a helpful goal but, if people genuinely value it, they need to be explicit about what their diversity goal actually is. This emphatically applies to a Social Policy Bond regime, where there would be direct financial rewards to people who successfully manipulate or game targeted indicators. But it also applies to our current policymaking systems in which where the relationship between a policy and the beneficiaries of its perverse effects can be more readily obfuscated. 

To be useful then, indicators and targets should be inextricably correlated with well-being – and it is the well-being of natural persons that we should be targeting, not that of corporations or institutions, which have entirely different goals; nor that of abstract entities like 'the economy'. With national governments being the size they are, and with global social and environmental depredations bound to assume greater importance, poorly thought out global policies could be a lot more serious than Mexico's Juanita phenomenon. Some years ago, George Monbiot wrote about the rush to subsidise biofuel production:
It used to be a matter of good intentions gone awry. Now it is plain fraud. … The reason governments are so enthusiastic about biofuels is that they don't upset drivers. They appear to reduce the amount of carbon from our cars, without requiring new taxes. It's an illusion sustained by the fact that only the emissions produced at home count towards our national total. The forest clearance in Malaysia doesn't increase our official impact by a gram. If we want to save the planet, we need a five-year freeze on biofuels, George Monbiot, ‘The Guardian’, 27 March 2007
I was inclined to think insanity rather than dishonesty but Mr Monbiot may well be right. The implications for the planet are the same either way. Unfortunately, big government is far more concerned with adhering to its own agenda than it is about actually achieving worthwhile outcomes. And what is this agenda? What animates all this perverse policymaking, the targeting of meaningless micro-objectives, of means rather than ends, and the persistent, destructive subsidies to vested interests? Confusion, certainly, but there is also what I consider to be the ultimate goal of government, or indeed that of any big organisation, private- or public-sector, once they are old enough for their founding principles to be forgotten: self-perpetuation. Policymakers and their paymasters can get away with ineffective or - let's be frank - corrupt policies (see for instance, this more recent Monbiot piece) because ordinary people haven't the time, energy, resources or legal expertise to master the arcane and protracted policymaking process.

A Social Policy Bond regime would change that. Policymaking would focus on meaningful outcomes, rather than the supposed means of achieving them. We can all understand outcomes, so we can all take an interest, if we want to, in which ones should be given priority. A policymaking process centred on outcomes would, in my view, be far more enlightening and generate far more - essential - buy-in, than the current political circus, which is failing the non-millionaires amongst use quite spectacularly.

22 April 2019

Disaster in the antiobiotics market

Jeremy Farrar writes: 
There is no viable route to market for new antibiotics, however valuable they may be to society. A disaster is unfolding in the antibiotics market, Jeremy Farrar, 'Financial Times, 21 April
Incentives matter, which is why we urgently need to overhaul the ways in which healthcare is currently managed. Typically, the rewards to companies developing a drug are directly proportional to sales of that drug. Antibiotics are typically prescribed only for short periods: days and weeks,
Private investors backing such [drug development] companies counted on revenues being buoyed either by growing need for their products or by governments responding to calls to fix the market. 
What would it take to 'fix the market'? My suggestion, more radical than it should be, is that we reward anybody who improves society's health, including drug companies, in ways that correlate to their success in improving society's well-being. This could be done by (1) explicitly targeting 'improved societal well-being', and (2) setting up a system that supplies incentives for people and companies to do just that. We are getting to the stage where step 1 is a possibility. Quality Adjusted Life Years are one attempt to measure well-being. Step 2 is more difficult. My suggestion is that we apply the Social Policy Bond concept to health and that, at a national level, governments issue Health Bonds, which would reward those who bring about improvements in the long-term health of a country's citizens. For less developed countries, funds for the backing of Health Bonds could come from philanthropists, NGOs or rich countries.

'Anybody who improves society's health', I say above, because worthwhile improvements can originate in people and companies whose remit does not explicitly extend to health. A factory opening in a region of high unemployment, for example, might do a lot to improve the well-being of people living nearby. Under our current system, the factory would reap little reward for such a positive externality. Under a Health Bond regime, though, investors in the bonds would have an incentive to help an otherwise hesitant company to get their factory up and running. At all times, Health Bonds would encourage people to focus on the outcome we want to achieve - improved health - rather than the fortunes of drug companies, doctors, hospitals or other surrogate endpoints.

16 April 2019

Make votes matter

Make Votes Matter, is the title of a leaflet being distributed in the streets of the UK. It is the name of a 'cross-party campaign to introduce Proportional Representation to the House of Commons'. Currently, UK General Elections use the First Past the Post voting system, which has the merit of being immediately comprehensible, but the apparent disadvantage of under-representing small parties whose votes are widely distributed, and wasting the votes of people who oppose the occupiers of  'safe' constituencies. There's a lot more to be said for and against PR and FPTP. I suppose it's understandable, though regrettable that, in today's politics, people think their Member of Parliament cannot be expected to represent them if s/he is from a party they oppose. There's little magnanimity in party politics these days.

I actually don't think the differences between PR and FPTP are worth bothering about. We'd still be voting about things that don't really matter: for Members for Parliament, for their party, for what they say in their manifesto. For people, parties, promises, image, ideology, sound-bites and slogans, rather than meaningful goals. About those goals, I believe, there's far more scope for consensus than about all the paraphernalia that characterise current election campaigns. Politicians rarely do what they say they will do; still more rarely can they be held to account for what transpires to our economy, society or environment. But their campaigning and subsequent activities, as well as consuming great gouts of brainpower, sow the seeds of division: the 'narcissism of small differences'.

I advocate refocusing our attention on goals, and the inevitable trade-offs between them, rather than political parties or the voting systems. I think we should be choosing between outcomes that are verifiable and meaningful to all of us, rather than allow our policymaking to be steered by interest groups - be they billionaires, corporations or government agencies - which are the only bodies that have the resources and motivation to understand our arcane, protracted, policymaking mechanisms. You might almost think that the obscurantism of our political systems is a ploy to keep ordinary people away from positions of power. A political system focused on social and environmental outcomes would represent a threat to the political hierarchy but, I believe, it's necessary for reasons of both efficiency and buy-in.

What would such a system look like? A Social Policy Bond regime would be one such system. It would set broad, long-range targets about which there is almost universal agreement. At the national level it could target better health, universal literacy, a cleaner environment. At the global level it could target conflict reduction, and the prevention and alleviation of disasters, whether natural or man made. Political debate would be about the exact definition of these goals rather than, as now, the supposed means of achieving them or peripheral issues such as institutional structures and funding arrangements. There would be healthy debate, under a bond regime, about priorities and time frames, but the way the bonds work would mean that there need be little discussion of who shall achieve society's goals or how those goals shall be achieved. The market for the bonds would ensure that they are always be held by the most efficient operators. And efficiency is a moving target: what is efficient today or in one part of the world today might be highly inefficient in future years or in a different region. Long-term goals will most probably require an array of diverse, adaptive approaches for their achievement - exactly the sort of approaches that government, or any single ordinary organisation, is incapable of encouraging, but that a Social Policy Bonds regime would stimulate. The bonds would lead to the creation of a new type of organisation, whose structure, composition and activities would be entirely subordinate to its goal, which would be exactly the same as that of the society that set it; a stark contrast with today's organisations, which have their own goals, independent of, and sometimes in direct conflict with, those of ordinary citizens.

09 April 2019

What should we target?


Policymakers rarely use explicit targets and still more rarely do they use them in a coherent manner. Take two high-level targets: the inflation rate, targeted by the UK, and the less-than-two degrees Celsius warming targeted by the Paris Agreement. Near explicit and implicit targets – de facto targets – are more common. National governments routinely target economic growth. As well as these macro-targets, there is a proliferation of  micro-targets: in the UK, waiting times at hospital Accident and Emergency departments, for instance. 
What do all these targets have in common? One is that they are set by people who are not charged with achieving them, and will be little affected whether they are achieved or not. Another is that they have little directly to do with social or environmental well-being. There might be a strong correlation between, for instance, GDP and material prosperity; there is likely to be a strong correlation between the two-degrees Celsius target and plant, animal and human well-being. But it's my view that, because there is no direct link, these targets fail to achieve societal buy-in. The two degrees target is too abstract. If more than two degrees leads to unacceptable depredations, why not aim directly to reduce the severity of those depredations? That would be a goal with which people other than scientists and policymakers could identify.

The implicit GDP target is also rapidly becoming discredited. It says nothing about the distribution of the gains from economic growth, and with the dramatic divergence between incomes of those at the top of the scale from all others, risks becoming as detached from social well-being as are indices of share prices – and for much the same reason.

If anything, the micro-targets are worse. Again, they are set by people who have little direct interest in seeing them achieved. As well, they are very easily manipulated or gamed, leading to perverse outcomes, none of which benefit people, and some of which worsen well-being.

Where does that lead us? Most components of social well-being are not explicily targeted. Sadly, as society grows more complex and diverse, unless things are explicitly targeted they tend to fall through the cracks. The environment has throughout recent history has suffered this fate, as have other essential, but similarly unquantifiable determinants of well-being such as social cohesion. In smaller societies, these elements of The Commons would be the subject of informal arrangements, often arrived at after a long evolutionary process.

That won’t work in today’s highly aggregated and increasingly diverse societies. People in positions of power are increasingly detached from everyday concerns – the things that microtargets or, more importantly, the market, fail to capture. Unlike in traditional societies, when things are neglected by the people who lead today’s societies they are ignored. Political discourse and resources get channelled into the few things that are targeted, including economic growth, and away from those elements that escape the market or some other form of quantification. As well as the environment, and these include some important components of mental and physical health. They aren’t targeted directly, so attract fewer resources than they should.

But, given that a return to traditional societies is not going to happen, targets based on aggregate numbers are essential. So: what should we target? My thinking is that we need to target broad social and environmental goals whose achievement would be inextricably linked to improved social well-being and generate buy-in. Economic growth doesn’t cut it; nor does the two degrees target. So what would qualify? Alleviation of poverty, improved physical and mental health, reduced impact of adverse climatic events on human, animal and plant life: these are all broad, meaningful goals, whose achievement would be both meaningful to all, and generate the buy-in sadly lacking when we target GDP, two degrees, or hospital waiting times. I am more ambitious even than such targets would indicate though. If, as I hope, we begin to target genuine, verifiable, meaningful outcomes, why stop at national goals? A Social Policy Bond regime, not having to specify how our goals shall be achieved, or who shall achieve them, could and should aim for global goals. I suggest that we explicitly target for reduction the adverse effects of both natural disasters and violent political conflict.