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.

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