Why no Social Policy Bonds?

Why have Social Policy Bonds not been issued?

Contrast Social Policy Bonds with Social Impact Bonds, now being issued in about 25 countries. SIBs are the non-tradeable version of Social Policy Bonds. While tradeability sounds like a technical detail, it actually has a few critical implications about which I have written here and here.

A major difficulty with issuing Social Policy Bonds is that they don't readily lend themselves to experimentation; small-scale trials over a limited geographic area, which are short term in nature. Neither do they show much advantage over conventional policy when we already (roughly) know how to achieve a specified social goal. For instance: take the goal of improving a lake's water quality. We could issue Social Policy aiming to reduce the levels of pollutants in the water. But, if the main sources of pollution are easy to identify, then there is no need to introduce middlemen, in the form of bond traders and investors in the bonds, to achieve that which regulation or taxes on polluters could do more simply.

No, where Social Policy Bonds work best is when we don't know how to achieve the goal, and where there is time for different approaches to be tried, the failures terminated, and the more promising ones implemented: goals that will require diverse (over different areas) and adaptive (varying with time) approaches, and a mix of them. That's what governments find difficult, but it's what is necessary to achieve broad, long-term, complex goals, such as ending war, or achieving universal literacy.

But when we basically know how to achieve a goal, Social Policy Bonds aren't necessary. In the lake example, and  assuming we are talking of a time frame of no more than a few years, regulation or polluter-pays taxation would achieve our goal without the need for an untried, controversial, and somewhat unconventional financial instrument. With a broader goal— something like improving an entire country's inland water quality— and over a longer time period then a bond regime could play a useful role. There would be time for motivated bondholders to research, experiment and continuously refine an array of approaches, optimised for time and space, to achieve the goal as cost-effectively as possible.


The danger is that applying Social Policy Bonds in ways that don't show their advantages over other, simpler, approaches will taint the concept. People would then see the bonds as a fancy means of enriching intermediaries (bondholders, financial market players), rather than a solution to social problems. (This might be happening with SIBs.) If there is anything society doesn't need, it's a financial services sector enriching itself still further by sucking the best mathematical brainpower out of the real economy, and contributing nothing of social value.

Le risque, ce n'est pas la mort de Schengen

The confusion between ends and means lies at the heart of our political systems. Here, the French President tells us what matters to him:

'Le risque, c’est la mort de Schengen'

The risk is the death of Schengen. Emmanuel Macron is certain: the foundations of the European Union (EU) are in danger owing to the epidemic of new coronavirus which strikes the Old Continent. l'Opinion, 27 March

Actually I think most of us would rate the risk of thousands of people dying as more significant than that of having to impose national border controls. I am sure Mr  Macron means well. But the EU project is a means to certain ends; peace and prosperity, most importantly. It is not an end in itself. Nor is 'proportion of energy derived from renewables' a valid, meaningful end. Nor, more fundamentally, is Gross Domestic Product. 

Social Policy Bonds have several advantages over our current ways of making policy. One is the way they would channel society's scarce resources into the most efficient ways of achieving social and environmental goals. But another is that they compel us to think about what those goals really are. If the goal, for instance, is to maintain a borderless European Union, or to keep the Euro going, then those are entirely different goals from improving the health and well-being of EU citizens. To an alarming degree, they are in conflict. There are plenty of other examples: school attendance, for instance, however measured, is not a social goal: better educational outcomes are. Shorter hospital waiting lists, or more mammography screenings, are not a social goal: better health outcomes are.

The failure of our leaders to distinguish between means and ends is disastrous. It has led to a widening gap between government and the people whom is supposed to serve. The results, throughout the democratic countries, are becoming all too clear: a widespread disenchantment with conventional politics, a growing cynicism and despair over government ever being able to deliver what ordinary people want and need. Social Policy Bonds, by channelling society's resources into the achievement of agreed, verifiable, meaningful social goals are one way in which we might begin to close that gap. 
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I have repaired the broken links at the Social Policy Bonds main website including, most importantly, the links to pdfs of the chapters in the definitive book.

SocialGoals.com: housekeeping

I have repaired the broken links at the Social Policy Bonds main website including, most importantly, the links to pdfs of the chapters in the definitive book.

Preparing for disaster

This is a topical introduction to my paper on Disaster Prevention Bonds.

It’s easy to criticize governments for not being prepared for the coronavirus pandemic. But consider what preparing for a pandemic actually means. Thousands of hospital beds lying empty for most of the year, nurses and doctors on standby waiting for a crisis that might never happen. Testing kits, protective clothing, vaccine manufacturing capabilities unused in a sterile storage facility, and deteriorating with time…. And what’s so special about a pandemic? Why should we not prepare against other disasters that might arise with equal or greater probability?

An electromagnetic pulse, an asteroid hitting earth, a volcanic supereruption? The truth is that the best our governments do is react to something that actually happens. Our problem is not that governments are slow, reactive, blundering, doing too little—or too much—too late. It is that governments or supranational bodies like the World Health Organization are not necessarily the best bodies to trust with disaster preparedness. (Indeed, once this crisis is over, the WHO’s role in refusing to consider lessons from Taiwan needs to be looked at very carefully. It’s clear already, though, that in common with most other organisations of any kind, the WHO is at least as interested in self-perpetuation as in the health of the world’s population. ) So what is the problem with government, especially government at levels high enough to deal effectively with national or global disasters?

•  It has few incentives to watch out for disasters and react quickly and preemptively.
•  It’s is slow to react to crises, it prefers top-down, one-size-fits-all solutions, and is very slow to adapt its policies to changing circumstances.
• It has short time horizons, and though its individual members will be hard-working and well intentioned, it has no no incentive to correct its deficiencies.
• It is often concerned to prioritise actions that deal with visible problems at the expense of those that are too slow moving or unglamorous for television. Better solutions would not focus on appearances at the expense of societal well-being.
•  Related to the previous point—and of particular relevance to the current pandemic—a government will over-react to problems that have an immediate, visible impact. Such an over-reaction might be more detrimental to societal well-being than the crisis. 

In relation to this last point, a government over-reaction—the cure being worse than the disease—might have a baleful impact in the longer term too if, when faced with another serious threat, government, remembering previous over-reaction and the consequent public backlash, under-reacts. Disaster Prevention Bonds, in my view, would deal with all these weaknesses of humanity's current approach to disaster preparation.