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.

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.

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.

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.