Regulatory capture: the perversion of our public bodies

 James Lyons-Weiler writes about regulatory capture in the US:

When the airline industry has a disaster, it goes under review by the National Transportation Safety Board. When corporations dump a toxic brew of chemicals into ground surface waters, they are supposed to answer to the EPA. When drug companies’ products - drugs and vaccines - cause more health problems than they prevent or cure, they are supposed to be subject to recall by the FDA.

When regulatory agencies become dominated by the corporations they are supposed to control, that agency has been captured by the industry. The public interest becomes a lower priority than the bidding of the will of the industry, and the industry flourishes - most of the time at the cost of human health. Regulatory capture is killing us, and we are two steps away from the totalitarian fascist Regulatory States of America, James Lyons-Weiler, 24 December

Of course, this is not just a US phenomenon, and perhaps there is an inevitabililty about it, even in the absence of some coherent conspiracy influencing each or all regulatory agencies. People are paid to turn up at the office, and at some point, perhaps years or decades after the founding of the organisation for which they work, the aggregated individual incentives of employees to keep their job and to expand or at least maintain their remit, supplant the stated objectives of the organisation. Then conflict arises between - and within - the employees. Do they stay faithful to the ideals that drove them to take on the job and the stated goals of the organisation? Or do they take the safer option, put their own priorities and those of their family first? Unfortunately, as organisations, be they public- or private-sector, the conflict grows worse with time. In the private sector and in theory, competition should see older, scelerotic corporations die, to be replaced by more nimble upstarts. But regulatory capture means larger corporations have more in common with larger public agencies: neither wishes to rock the boat. The result is a slew of regulations that stifle competition and cement in place the bigger companies and their outdated and anti-competitive ways of doing business. The losers are the public.

There might be ways in the current enviroinment to prevent regulatory capture, but if so they are piecemeal and ineffectual. We are seeing the results everywhere: extreme polarisation in politics, in the academic world; an extreme reluctance by salaried professionals - who owe their livelhioods to the ossified regulatory framework within which they work - to question the prevailing narrative, whether it concerns public health measures, identity politics, climate change or just about anything else. Too many people have a vested interest in avoiding necessary reform. 

Short of revolution, which usually doesn't lead to improved social or environmental well-being, what can be done? Even western-style democratic elections change nothing. The identity of the politicians might change, but their commitment to a scelerotic system doesn't. 

I propose two major steps: 

First: we refine the mission statements and objectives of existing government agencies. We should aim to express their goals in verifiable, quantifiable terms that are meaningful to ordinary people. 

Second: we should inject incentives into the achievement of such goals. My suggestion is that we issue Social Policy Bonds. These bonds would reward the achievement of each organisation's stated goals, regardless of who achieves them and regardless of how they are achieved. 

These are both radical suggestions. If implemented they are likely to bring about a new sort of organisation: one of protean structure and composition, whose every activity would be devoted to achieving its targeted goals as quickly and efficiently as possible. The immediate replacement of our current, corrupted public bodies with those solely aimed at improving people's well-being is highly unlikely to happen. But if Social Policy Bonds were to be issued, whether by groups of interested persons or government, then a transition from the current system to a bond regime is feasible. I outline how that might occur in chapter 4 of my book.

Incentives and health

The first step is to give up the illusion that the primary purpose of modern medical research is to improve Americans’ health most effectively and efficiently. In our opinion, the primary purpose of commercially funded clinical research is to maximize financial return on investment, not health. John Abramson, Harvard Medical School, quoted by Robert F Kennedy Jr in The Real Anthony Fauci, November 2021

Government funding for health innovation is subsidising drug industry profits while providing little public health benefit, a report from leading health economists says. Most new drugs are not meeting public needs while economic and regulatory incentives have created a “highly inefficient pharmaceutical sector” which spends more on marketing than research and development, and focuses the research it does do on profits, the report explains. Drug companies are incentivised to profit not to improve health, says report, Melanie Newman, summarising this paper published 16 October 2018

Incentives are crucial. If people have incentives to improve the health of the population, then that is what they will work towards. If they have incentives to increase the short-term profits or revenues or funding of the organisations for which they work, public- or private-sector, then all their activities will be in pursuit of that goal. The dysfunctionality of our healthcare systems begins at the top. There may be vague goals in the form of soundbites or mission statements, but there is no link between them and the incentives on offer.

The Social Policy Bond concept, applied to health, would change that. I have described how they would work here, or in a lot more detail here. Essentially, they would give a coalition of investors incentives to look for and exploit the most efficient approaches to dealing with society's long-term health problems - on a continuing basis. Health would be defined broadly, using some index of which one component could be Quality Adjusted Life Years. And the goal would be long term. The coalition of investors would be a new type of organisation; one whose structure and composition could change over time, but who could profit with the long (perhaps 50-year) lifetime of the bonds by buying bonds, doing whatever they can to advance toward the targeted goal, then selling their bonds at a higher price.

Is organic farming better?

Dan Conable writes, in a letter published in the New Yorker, about his organic grain farming operation:

[T]hough my practices may have a relatively benign impact on my surroundings as compared with conventional farming, their larger environmental impact is not so clear. Controlling weeds without herbicides generally requires more tillage. Turning the soil more frequently means using more diesel fuel per ton of grain, as well as freeing more of the carbon stored in the soil. More important from a climate-change perspective, organic farmers’ reliance on manure as the critical nitrogen source for crops in the grass family (corn, wheat, oats, barley) makes us utterly dependent on animal agriculture. If the world were to feed itself wholly by organic methods, an increase in cattle, pig, and poultry production would be needed to provide the necessary fertilizer—at least until scientists can genetically modify grasses to capture their own nitrogen. But, then, G.M.O.s aren’t organic. Letter from Dan Conable, 'New Yorker', dated 20 December

The sort of life-cycle analyses (LCAs) required to establish the environmental benefits or otherwise of shifts in our behaviour are bedevilled by boundary issues, measurement difficulties and the difficulty of weighting one type of environmental impact against another. They might be better than going on the gut feeling that organic agriculture is 'better' than the conventional kind, or that vegan clothes are better than animal fabrics, rail is better than air travel, solar power is better than coal-fired power stations, etc, but for the making of robust policy LCAs would need to be continually reassessed in the light of our ever-expanding knowledge of the environment, our ever-changing environmental priorities, and our every-changing technological endowment. 

Government policy cannot ever be so responsive nor, probably, can any single organisation - at least not as currently structured. If government were to use life-cycle analysis with the aim of altering our behaviour, it would necessarily do so on the basis of a one-time, limited, and possibly subjective assessment of environmental costs and benefits. It’s not good enough, but even worse would be what we largely have now: environmental policy based on corporate interests, 'what feels right', media stories and the launching of visually appealing initiatives that attract air time but are otherwise useless. These often focus on trendiest problems, of which the current one is climate change, which tends to crowd out other, possibly more urgent crises.

The Social Policy Bond concept as applied to the environment would take a different approach. It would first clarify what environmental goals, national or global, we wish to achieve. Say, for instance, that we wish to preserve the Earth's marine environment. A Social Policy Bond issue that rewarded the sustained achievement of such a goal would generate incentives for bondholders to bring it about at least cost. They might well carry out life-cycle analyses in their attempt to do so. But there is an important difference between the way do they would conduct their research and the way government, or any supra-government body would do so: bondholders have continuous long-term incentives to achieve our goals efficiently. This is likely to mean responding to and stimulating increased knowledge of scientific relationships, and technical advances. Investors might conduct LCAs, but they would do so in ways that optimise the benefit to the marine environment per dollar spent.

Effective environmental policy must take a long-term view and for national or global goals, will need to encourage diverse, adaptive approaches. The environment and our knowledge about it are just too complex for the simplistic 'it feels good', command-and-control approach that, for instance, brands 'organic farming' as good, or plastic shopping bags as bad. Diverse, adaptive approaches to addressing complex problems are precisely the sort of responses that government does very badly. However, government does have crucial roles in articulating society’s environmental goals and in raising the revenue to pay for their achievement: in the democratic countries government performs these functions quite well. But actually achieving society's social and environmental goals is a different matter. Such achievement requires continuous, well-informed and impartial decisions to be made about the allocation of scarce resources. For that purpose, Social Policy Bonds, with their incentives to achieve targeted outcomes efficiently would, I believe, be far better than the current ways in which environmental policy is formulated.
 

For more about applying the Social Policy Bond principle to the environment see here. (For a personal policy paper on organic agriculture, see here.)

Cascading incentives

Dr David Healy, towards the end of a long article entitled The Eclipse of Medical Care, summarises how medical science has been eclipsed: 

1. Clinicians do not have access to clinical trial data on medicines or vaccines.
2. Close to all of the medical literature reporting trial results for on-patent drugs and vaccines is ghostwritten, hyping the benefits and hiding the harms.
3. Clinical trials of these treatments that are negative on their primary or their most common outcomes are often published in prestigious journals as positive.
4. Clinical trials have their harms airbrushed out of ghostwritten publications.
5. Regulators (FDA, Health Canada, MHRA, EMA) do not get to see the full trial data.
6. Regulators approve treatments as working even when more people die on active treatment than on placebo.
7. Regulators approve medicines on the basis of negative studies and agree not to let the wider world know about this.
8. Regulators say nothing when companies publish negative studies as positive and make adverse effects of treatment, including death, vanish.
9. For many trials there are more deaths on active treatment than on placebo, but this does not lead regulators to warn about hazards as to do so would in their stated view deter people from seeking a benefit (even when the benefit is better characterized as a commercial benefit to a company rather than a benefit to the individual in terms of a live saved or a restoration of function).
10. Regulators do not have pharmacovigilance expertise and a variety of factors inhibit them from linking a treatment to a hazard after that treatment comes on the market. 

The Eclipse of Health Care, David Healy, 29 November

This is typical of the sort of corruption that blights so many of our public- and private-sector bodies. How does this happen? Often cited is regulatory capture which occurs when a regulatory agency that is created to act in the public interest, instead advances the commercial or political concerns of special interest groups that dominate an industry or sector the agency is charged with regulating. But why does that happen? 

I do think that there's been an erosion of trust is western societies, but that is subjective and does not point toward an actionable solution. So I'd like to suggest that, rather than rely on nebulous mission statements to guide our public-sector agencies (or an apparently weak moral compass), we instead focus on the outcomes that society as a whole wishes to achieve. In this example, then, medical care would be subordinate not to the goals of the organisations supposed to supply it, but to the broader and more meaningful goal of the health of society's health. 

Doing so using the Social Policy Bond concept would replace organisations' goals (essentially that of self perpetuation) with those of society. Incentives to improve society's health would cascade downwards from that over-arching goal.These incentives, as under the current system, would largely be financial, but that does not mean that the people responding to them be entirely motivated by greed. Rather, it means that they would find a way of making a living compatible with society's goals, the goals of the bodies for which they work, and ethical behaviour. 

For a short piece on how the Social Policy Bond concept can be applied to health, see here. For a longer treatment, see here.

Complexity provides cover for inefficiency and corruption

Robert Bryce testifies on electric vehicles before the US Congress, House Select Committee on the Climate Crisis. Two brief points from his testimony of 30 June (pdf):

• The average household income for EV [electric vehicle] buyers is about $140,000. That’s roughly two times the U.S. average. And yet, federal EV tax credits force low- and middle-income taxpayers to subsidize the Benz and Beemer crowd.

• Lower-income Americans are facing huge electric rate increases for grid upgrades to accommodate EVs even though they will probably never own one. 

It's a familiar story. Government sees a problem (climate change) and thinks it knows best how to solve it (emission controls, electric vehicles) - or perhaps that's not cynical enough. Maybe the reasoning goes: government identifies a possible problem, then is told how to appear to be solving it by vested interests (big corporations) in exchange for favours (directorships, cash). The problem isn't solved, but the rich do get richer. 

Here's another idea. If the problem is, say, climate change, let's reward people who prevent climate change. If the problem is too much crime let's reward the people who reduce crime. Government doesn't have to take a view on how to solve these problems, or which people are best placed to do so. When it does take such views government adds to the confusion, creating a cover behind which favours can be disbursed without public scrutiny. 

I am suggesting that society's complexity can be, and is, used to disguise inefficiency at best and corruption at worst. The explicit targeting of verifiable outcomes that are meaningful to ordinary people, in the way that Social Policy Bonds do, would be one way in which we could ensure that taxpayer funds are used to benefit everyone, not just an already wealthy elite. When it comes to climate change we need to be very clear what we want to achieve. Most importantly, are we more concerned about the climate, or about the impacts of climate change on human, animal and plant life? Once we are clear about our goals, we can issue Climate Stability Bonds, that reward the achievement of our explicit, verifiable goals. 

As well as clarifying and targeting society's actual goals, rather than the supposed means of achieving them, the Social Policy Bond concept injects the market's incentives into every stage of the processes necessary for their achievement, meaning that more can be done with society's scarce resources.

Self-interest can help the environment

Patrick J. Buchanan points out the similarity of the current COP26 talks, supposedly aimed at addressing climate change, to the Kellogg-Briand Pact of 1928:

On Aug. 27, 1928, 15 High Contracting Parties signed on to renounce war as an instrument of national policy. The signatories that day were the United States, Britain, Germany, Italy, Japan, France, Poland, Belgium, Czechoslovakia, Canada, South Africa, Australia, New Zealand, Ireland and India. Within 15 years, all 15 nations, Ireland alone excepted, were ensnared in the greatest war in history. Like the pledges at the climate summit, the Kellogg-Briand Pact provided for no means of enforcement or sanctions against nations that failed to live up to their commitment.

'No means of enforcement' - true - and no incentives either. It is unfortunate to some degree that money is such a critical driver of behaviour but, if we recognise that climate change and other environmental problems are largely caused by financial incentives, then we can make efforts to withdraw those incentives or, if that's too difficult, offer countervailing incentives that would help offset our environmental depredations. We can do this only when there is an over-arching, inextricable link between the financial incentives we offer and the outcomes we wish to see. It is not simply a case of rewarding behaviour that directly improves the environment. Environmental Policy Bonds, globally backed, would reward such indirect approaches as lobbying governments or paying bad actors to cease their destructive activities. Just as big corporations can manipulate regulations to achieve their ends (including stifling competition), so could bondholders encourage government to strengthen environmental legislation. The alternative - the current approach, frankly - is to say nice things in the full knowledge that our destruction of the environment will continue unimpeded.

An alternative to the blah, blah, blah approach

The current Spectator using figures from Our World in Data, tells us how much 'carbon' the world was emitting at the time of previous climate summits:

1992, Rio  22.44 bn tonnes 

1997, Kyoto  24.19 bn tonnes 

2002, Johannesburg  25.91 bn tonnes 

2009, Copenhagen  31.46 bn tonnes 

2015, Paris  35.21 bn tonnes 

2021, Glasgow  (2019) 36.44 bn tonnes 

Taking greenhouse gases (ghgs) as a whole, more figures from Our World in Data confirm this trend: according to that source global emissions totalled 35.0 bn tonnes in 1990, rising to 49.4 bn tonnes in 2016.

The current Economist tells us that in 1992: 

78% of the world’s primary energy—the stuff used to produce electricity, drive movement and provide heat both for industrial purposes and to warm buildings—came from fossil fuels. By 2019 the total amount of primary energy used had risen by 60%. And the proportion provided by fossil fuels was now 79%. What the Paris agreement of 2015 meant, The Economist, 30 October

The same publication tells us that 1002 coal-fired electricity generating plants are planned or under construction around the world. 

I have been skeptical about ghg emission targets for many years. My thinking is that we need, first of all, to be clear about whether we are more concerned about climate change, or about the impacts of climate change on human, animal and plant life. We should then define exactly what we want to achieve and reward the people who help achieve it, whoever they are and however they do so. We should not assume that cutting back on ghg emissions is either necessary or sufficient to bring about the solution to whatever combination of depredations we deem to be the climate change problem. That is what these summits purport to do. They don't actually do it, as shown by the statisitics above. Nor do they do anything else. In the words of another, more prominent, summit skeptic, they are just so much blah, blah, blah. 

My suggestions for addressing climate change are conceptually quite simple:

• define the problem, and
• reward people for solving it.

Climate Stability Bonds use the market's incentives and efficiencies to channel our limited resources into where they will do most to solve the problem. Were they to be issued with the appropriate backing they would stimulate exploration of diverse, adaptive initiatives with the clear goal of solving the climate change problem as efficiently as possible.

Crypto, Social Policy Bonds, and the climate

My recent post about Decentralized Impact Organizations mentioned Olli Tiainen's proposed pilot DIO to to test the Social Policy Bond concept as applied to climate change. Mr Tiainen's proposal has now been officially published and is available here. The twitter thread on the topic is here.

Whole Environment Bonds

 George Monbiot writes:

The living world is being hit by everything at once: the only way to stop our full-spectrum assault on Earth systems is to reduce our economic activity. Level down, George Monbiot, 4 October

David Allen said is quoted as saying ‘You can do anything, but not everything’. In much the same way, we can solve any environmental problem, but not every environmental problem. The linkages are too tight and too complex; the time lags too obscure. Mitigating one problem is likely to worsen another. So, as Mr Monbiot writes:

[I]f we were to build sufficient direct air capture machines to make a major difference to atmospheric carbon concentrations, this would demand a massive new wave of mining and processing, to make the steel and concrete.

Mr Monbiot’s solutions to this broad environmental crisis are to ‘ramp down economic activity’ and to redistribute wealth. He indicates how unlikely this is to happen by calling it secular blasphemy. I agree with his assessment of the likelihood of its occurring. So I try here to offer a more positive vision.

The first thing to emphasise is that Mr Monbiot coyly (and, from the point of view of his own well-being, wisely) avoids the question of population. Yet this need not be contentious. At the 1994 Cairo Summit, more than 180 countries promised ‘access to reproductive and sexual health services including family planning’ to all their citizens. That should be done for ethical reasons; it would also alleviate future environmental pressures. I do not see a reduced population as a goal in itself; rather it is one way in which environmental depredations could be reduced.

I now believe that targeting even such broad problems as climate change or atmospheric pollution is inadequate. Current environmental depredations are too complex, linked and pervasive so that, as Mr Monbiot implies, any attempt at solving one problem could well worsen others.

What I propose here is a possible way in which we can provide incentives for people to tackle all environmental problems, simultaneously, over a very long time period.

It is essentially a more panoptic variant of my Environmental Policy Bonds and Climate Stability Bonds ideas. However, rather than target a single group of metrics such as those encompassing climate change and its impacts, the aim here is to improve all aspects of the environment over the entire planet Earth.

I suggest that we take an inventory of a random sample of the Earth’s sea and land resources. We could take, say, 5000 areas of 1km squared over the entire globe and thoroughly inventory them for biodiversity, degree of air or water pollution (at different heights and depths). Every ten years thereafter we could take a random sample of, say, 100 of these areas, conduct exactly the same environmental inventory and note the direction of the environmental indicators for each area. As a starting point, we could target every metric for improvement in every sampled area. If every metric in every sampled area shows a sustained improvement, then the bonds would be redeemed. It would take many decades before such a widespread improvement had been achieved. Nevertheless, because such Whole Environment Bonds would be tradeable, people could make improvements and expect to be rewarded for doing so.

There would need to be intense, informed discussion as to which metrics to include. There would, for instance, be the question of whether we take temperature (air or sea) as a metric for targeting, or whether the concerns we have about the climate would be fully subsumed within the other indicators (biodiversity, for example), being targeted. (Are we concerned about climate change, or the impacts of climate change on plant, animal and human life?) Much work is being done on environmental indicators: see, for example, this pdf document.

More those unfamiliar with the Social Policy Bond concept, the basic idea is that a group of people (governments, non-governmental organisations, philanthropists, the public) contribute to a fund that will be used to redeem non-interest bearing bonds only when a specified goal has been achieved and sustained.

I don’t think I’m quite as pessimistic as Monbiot and other environmental commentators, but I recognise that the chances of Whole Environment Bonds ever being issued as I envisage are remote. After more than thirty of years, very little in the way of outcome-based incentives is being offered in a way that encourages broad, long-term solutions to our social and environmental problems. (See here and here for why I think the non-tradeable version of my idea, which is being implemented, has little to offer.) The relevant question though is: what is the alternative?

Decentralized Impact Organizations for the Climate

'Olliten' has writen an essay proposing that a pilot Decentralized Impact Organization be formed to test the Social Policy Bond concept as applied to climate change:

Crypto has transformed grassroots-level organizing. For the first time in history, it is possible to economically align networks of strangers into working together by using programmable incentives and by providing them with tools to make decisions and govern shared resources in a decentralized manner. These new organisms are called by many “DAOs”, Decentralized Autonomous Organizations.

[A Social Policy Bond]and its bondholders together form an entity very similar to a DAO: the bondholders form a grassroots level organization and share an economic fate via the bonds they own. What is special about this type of "DAO" is that its token (the bond) derives its value from the quality of a public good. To distinguish them from generic DAOs, we’ll call these organizations "DIOs", Decentralized Impact Organizations.

The technology for creating crypto-native DIOs already exists. Six months ago, UMA Protocol launched a new crypto-derivatives product called "Key Performance Indicator Options". KPI options were originally created so that crypto protocols could trustlessly guarantee that their community receives rewards for hitting milestones such as increasing Total Value Locked (TVL). However, their design allows them to be used for SPBs, too.

KPI options are synthetic (ERC-20) tokens that will pay out rewards if a KPI reaches predetermined targets before the given expiry date. Every KPI option holder has an incentive to improve that KPI because then their option will be worth more.

The complete essay can be found here.

Paying people not to shoot

 Charles Fain Lehman writes:

San Francisco has a new plan to stem a recent surge in deadly shootings: pay potential shooters. That’s the principle behind the city’s new Dream Keeper Fellowship, which will enroll 30 individuals deemed at high risk of shooting or being shot and pay them a $300 monthly stipend. They can collect an additional $200 per month for completing such milestones as taking job interviews, complying with probation, or meeting with the life coach assigned to them. We'll pay you not to shoot, Charles Fain Lehman, City Journal, 17 September

 Mr Lehman is unenthusiastic: 

[W]e shouldn’t pay people specifically for their willingness to refrain from deadly violence—any more than we should pay them for not selling drugs or abusing their children.

My position? I don't have one. Social Policy Bonds reward outcomes, whoever achieves them and, so long as the means are within the law, however they are achieved. If paying a small number of people not to inflict casualties on others is more cost-effective than heavy policing, and interventions by the justice and corrections departments, then why not do so? Careful crafting of Crime Prevention Bonds' redemption terms could minimise some of the risks, and allow resources to be diverted into preventing or punishing activities that currently seem to receive little attention, such as white-collar crime.

However, Social Policy Bonds are versatile. If the ethical or moral arguments against paying people not to commit crime are thought to outweigh those in favour, then the bonds' redemption terms could stipulate that such payments would invalidate the bonds. 

More likely, in my view, is that Crime Prevention Bonds targeting the sorts of violent crime committed by a small number of people in the long term might see such direct payments at first, but these would be replaced by or co-exist with other, less controversial but more long-lasting projects, such as subsidising employment in crime-ridden districts, setting up sports or youth facilities, and other more creative routes out of crime.

Prioritising health rather than hospital design

Sadly, but not unexpectedly, my 9500-word essay submitted to a competition concerned with hospital design failed to progress into the final stages of the competition. The question posed was: How would you design and plan new hospitals to radically improve patient experiences, clinical outcomes, staff wellbeing, and integration with wider health and social care? I gave an example, early on in the essay, showing how what is good for the hospital can conflict with what is good for the patient, and went on to explain how the Social Policy Bond concept could maximise what, in my view, we should be trying to achieve: improvements in health, rather than hospital design.The essay can be seen on my website here, and a pdf downloaded from here. A shorter treatment, also describing the application of the Social Policy Bond concept to health is here.

Social Policy Bonds and their variants

Partly to simplify the exposition of the bonds, I haven't delved into  variants of the basic Social Policy Bond principle. These variants include such possibilities as:

• bonds that expire; ie, if the targeted social or environental goal isn't achieved by a certain date, they become worthless;
• bonds that yield a partial payout if the goal is only partially achieved;
• redemption funds that are not placed in escrow, but guaranteed, either by public- or private-sector bodies; and
• payouts indexed to some measure of inflation.

There are many other possible variations on the basic theme: the Social Policy Bond concept is a versatile one and, because it is best deployed on large scale and for long-term social problems, it would be worth exploring the potential of variants on a case-by-case basis. 

On a related note, I have been asked what would happen to the funds intended to be paid out if the terms of a Social Policy Bond issue were not met. I would think that much would depend on who is undertaking to redeem the bonds. If it's a government body, or some supranational body (like the United Nations), I would imagine that any funds placed in escrow could be diverted to other uses within that body. More likely, though, such bodies, being credible, would merely guarantee payout, as in my third bullet point above. These bodies would want to minimise any perception that they will not pay out, partly to reduce their costs (ie, bolster the float value of the bonds) and partly to maintain faith that they will pay out in future bond issues. 

What about smaller bodies, such as a group of philanthropists, with less credibility? In such an instance the funds could remain in escrow, hopefully earning interest, until the goal is actually achieved and sustained. It's likely that these smaller bodies would target goals with a shorter overall time horizon. If, say the goal were the elimination of serious armed conflict: while a UN body, say, could target a sustained period of peace of, say 30 years, I could envisage that a group of philanthropists or non-governmental organisations would have a less ambitious target; perhaps peace in the Middle East sustained for a period of five years. Then, if a conflict were to erupt within that five-year period they need do nothing with the funds; they could patiently wait until a five-year period of peace arises. Or when issuing the bonds, they could have specified the time period during which the goal had to be achieved and, if the bonds fail to achieve the goal within that period, they could simply withdraw their funds from escrow.

For this and further queries see the bonds' FAQ page.

Social goals and the Karpman Drama Triangle

I've written about the crippling limitations imposed on Social Policy Bonds by making them non-tradeable here and here. And I'm sometimes asked why Social Policy Bonds haven't yet been issued, either by government or the private sector, whereas their non-tradable variant (most often known as Social Impact Bonds), are now issued in about 25 countries.

My thinking goes like this. Governments and non-governmental organisations including charities, do not want to relinquish their power to decide who shall supply the goal-achieving services (and so benefit from redeeming the bonds). Nor do they wish to lose complete oversight over how the targeted goals shall be achieved. Ultimately, in my view, it's about power and control, which to many of us are not key drivers, so we may find it difficult to understand their potency. This also, and more disappointingly, applies to philanthropists as well as politicians: it is gratifying to be seen to be granting funds directly to beneficiaries or to people who help those beneficiaries. It is not so appealing merely to contribute to a fund whose eventual beneficiaries cannot be identified. As well, Social Policy Bonds are best deployed when they aim to achieve long-term goals and on a large scale, where the beneficiaries are even less easy to identify and, indeed, might not yet be born.

Another explanation is that, at some level, governments, foundations and philanthropists might be playing the role of Rescuer in what is known as the "Karpman Drama Triangle", involving a Victim, Persecutor and Rescuer, as modelled in transactional analysis. Perhaps this paragraph, from here is pertinent in some cases:

The Rescuer: The rescuer's line is "Let me help you." A classic enabler, the Rescuer feels guilty if they don't go to the rescue. Yet their rescuing has negative effects: It keeps the Victim dependent and doesn't allow the Victim permission to fail and experience the consequences of their choices. The rewards derived from this rescue role are that the focus is taken off of the rescuer. When they focus their energy on someone else, it enables them to ignore their own anxiety and issues. This rescue role is also pivotal because their actual primary interest is really an avoidance of their own problems disguised as concern for the victim’s needs.

I had hoped that SIBs would be stepping stone on the way to Social Policy Bonds. That is still possible, and new technologies are generating are encouraging more interest in my original concept. However, it is also possible that the lack of evidence (pdf) justifying the SIBs that have been issued could discredit the whole bond concept. We shall see. 

Make Xenophobia History: Introducing the Consortium of the Competent

A short, unpublished article, suggesting that people in failed states and badly-run countries be allowed to vote for, or otherwise install, politicians and ex-politicians from different countries who have a record of competence and integrity. It has nothing to do with Social Policy Bonds.

Bees, war, and root causes

From the current issue of the Economist: 

Detecting covid with bees, meanwhile, involves a method that goes back to ivan Pavlov and his dogs. The insects are offered sugar-water alongside SARS-CoV-2-infected saliva samples, but not with uninfected samples. The thus learn to extend their probosces when they sniff covid. The nose knows: Flies, worms and bees could help detect illness, the 'Economist', 31 July

What does this have to do with Social Policy Bonds? It's often suggested that in order to tackle such social and environmental problems as crime, violence, war or climate we need to identify the 'root causes' before we can devise ways of solving them. I disagree. I think our first step should be to clarify exactly what we want to achieve, and then reward the achievement. Let investors in the bonds decide whether it's worth looking for root causes or whether it's more efficient, and quicker, to find different ways of solving our problems. We could (and, effectively, do) delay, say, reducing conflict, by postulating some ideal world in which there is no poverty and everyone is nice to each other. The implicit assumption is that war is an intractable part of human nature, as the ancient Greeks thought. It's a convenient excuse, especially as the search for root causes - usually the task of people whose lifetime earnings are correlated with the time taken to find them - need never end. As Tolstoy put it:

The deeper we delve in search of these causes [of war] the more of them we discover, and each single cause or series of causes appears to us equally valid in itself, and equally false by its insignificance compared to the magnitude of the event.  Leo Tolstoy, 'War and Peace', Norton Critical Editions, New York, 1996 (page 536)

Just as we can train bees to detect covid without knowing about the mechanisms underlying how they do so; so we can target such goals as world peace, reduced crime, or the elimination of poverty without wasting time and energy on endless searches supposedly aimed at identifying their root causes.

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Social Policy Bonds: an evolutionary approach to social policy

Society is today is so complex and ever changing that it would be more efficient to reward evolutionary solutions to many of our social problems than it is for a government, or any single body to try to develop top-down solutions, which are necessarily be out of date, uniform and inflexible. Just as evolution in nature leads to diverse, adaptive solutions to the problem of surviving in a complex, changing environment, so would an evolutionary approach – given the right incentives - lead to diverse, adaptive solutions to our social and environmental problems. No conventional policy approaches, with their emphasis on fossilised science, self-interested institutions and insufficiently flexible funding arrangements can adapt in a timely way to changing circumstances including our expanding knowledge. Take health: our understanding of the scientific relationships and our technological capabilities are constantly expanding. Most of the interdependencies between intervention and outcome are impossible to identify. In former times links between cause and effect, while not always obvious, were at least discoverable by dedicated medical individuals, such as John Snow who could trace an outbreak of cholera in London in 1854 to one water pump. Today, no single conventional body, public- or private-sector, can effectively monitor all relevant new developments and react accordingly. But while our understanding of the determinants of our health is constantly changing, the goal of better health, as measured by an array of metrics including longevity, infant mortality and quality adjusted life years, is stable. It is some combination of these goals that I believe government should target, not the means by which current science thinks we can achieve them.

The same applies to other social and environmental problems, including those that are deemed intractable, such as eliminating crime, climate change and war. Our ingenuity is boundless: witness the superbly creative television adverts for dog-food, or the ballistic missiles whose nuclear warheads can accurately target and destroy thousands of members of our species on the other side of the planet. I have no doubt that, channelled into more edifying outcomes, our ingenuity could achieve what today seem like remote, impossible, goals.

In economic theory, and on all the evidence, market forces are the most efficient way of allocating our scarce resources. Sadly, markets have a bad press, having been undermined, abused and manipulated so that they now are seldom associated with the public interest.

To ensure that the market’s efficiencies and incentives are directed into public benefit, I suggest that governments issue Social Policy Bonds: a new financial instrument that would inextricably link the rewards gained by efficient resource allocation to the achievement of our social goals. These non-interest bearing bonds would be redeemable for a fixed sum only when a specified social goal – such as improved health – had been achieved and sustained. Whereas their non-tradeable variant, Social Impact Bonds, favour existing institutions, are inherently narrow and short-term in scope, and impose relatively high monitoring costs, Social Policy Bonds’ tradeability would allow the targeting of national, or even global, long-term goals, using approaches many of which will require years of research, trials and refinement before they can be successfully implemented. Investors could buy the bonds and make a profit on them within a limited time frame: the time-till-redemption of the bonds would be much longer than any investor's time horizon. This would encourage long-term planning: bondholders could try an array of innovative approaches, and the incentives would be there for them to refine and implement the most efficient of these and, importantly, to terminate those that are unpromising. This is how evolution selects those species that are best adapted to an ever-changing environment.

The optimal mix of approaches cannot be conceived by any single conventional organisation, which is why I expect that issuing Social Policy Bonds would generate a new type of organisation, whose protean structure, composition and activities would at all times be solely dedicated to achieving society's social and environmental goals at least cost to the taxpayer. 

Under a Social Policy Bond regime government would be doing what it does best: articulating society’s social and environmental goals and raising the revenue for their achievement. But the actual achievement of these would be contracted out to the market, which would continuously direct society’s scarce resources into their most efficient use – all for the benefit of ordinary citizens and the environment.