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.