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.

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