We need to direct ends, not means

John Kay, reviewing Mission Economy, discusses the author, Mariana Mazzucato's, contention that 'we need a “solutions based economy”, driven and co-ordinated by more powerful governments engaged in every stage of the process of innovation' in order to solve urgent global problems as effectively as the Apollo space programme achieved its goal of landing men on the moon and returning them to Earth. But, Mr Kay writes:

Apollo was a success because the objective was specific and limited; the basic science was well understood, even if many subsidiary technological developments were needed to make the mission feasible; and the political commitment to the project was sufficiently strong to make budget overruns almost irrelevant. Centrally directed missions have sometimes succeeded when these conditions are in place; Apollo was a response to the Soviet Union’s pioneering launch of a human into space, and the greatest achievement of the USSR was the mobilisation of resources to defeat Nazi Germany. Nixon’s war on cancer, explicitly modelled on the Apollo programme, was a failure because cancer is not a single illness and too little was then — or now — understood about the science of cell mutation. Mao’s Great Leap Forward, a vain bid to create an industrial society within five years, proved to be one of the greatest economic and humanitarian disasters in human history. At least 30m people died.

With political direction of innovation we regularly encounter grandiosity of ambition and scale; the belief that strength of commitment overcomes practical problems; an absence of honest feedback; the suppression of sceptical comment and marginalisation of sceptical commentators. Mission Economy by Mariana Mazzucato — could moonshot thinking help fix the planet?, John Kay, 15 January (emphasis added)

I agree: political direction of innovation doesn't work. But political direction of the outcome, I believe, can work, if the necessary innovation is contracted out to motivated bodies, be they in the public or private sector. Governments are good at specifying goals, and democratic governments are good at specifying society's goals. They are also efficient at raising the revenue necessary for their achievement. Where they are not so effective is in dictating how that revenue shall be spent and who will do the spending. As Mr Kay continues: 

All these were seen in Britain’s experience with Concorde, the Channel Tunnel and the AGR nuclear reactor programme, some of the worst commercial projects in history. More recently, there is the £12bn wasted on the NHS computerisation programme ....

This is why I continue to advocate the Social Policy Bonds concept, which allows governments to do what they are best at: specifying a desirable outcomes, while letting motivated bodies compete for the right to join a protean coalition that will co-operate, continuously, until the outcome has been achieved. In that way, goals can be long term in nature - see my piece on global goals, for example. The composition and structure of that coalition can and, most likely, will change, but at every point in time, its attributes will be subordinated to the over-arching goals specified by government, in consultation with the public. Whoever issues Social Policy Bonds - and it needn't be government - cannot specify the diverse, adaptive policies that will be necessary to solve our most urgent, big, complex problems. But they can specify the outcome, and in so doing ensure that the most efficient problem solvers are rewarded in ways that directly correlate with their contribution.

How better to solve our global problems?

At the very outset (pdf), I envisaged that Social Policy Bonds could be used to solve global problems, because that is where their advantages over other policy mixes would be most marked. These advantages arise because:

• Current global solutions are lacking. Take climate change, or the possibility of nuclear war. There are many initiatives being undertaken by well-meaning, hard-working people in many institutions worldwide. But measured in terms of outcomes - reduced probability of adverse climatic events, or nuclear war - the results of all this endeavour are unimpressive.


• Under a bond regime, resources can readily shift to where they will do most good. 'Good' being measured as objectively as possible, with such tools as Quality Adjusted Life Years. Consider just two areas into which huge quantities of human ingenuity are concentrated: financial trading and marketing. The financial rewards from excelling in these activities far outweigh those who that accrue to people involved in efforts to diminish the prospects of, say, violent political conflict. The mismatch between what could be done, and what is being done can be seen by considering the co-existence of both neglected tropical diseases and high-frequency trading.
  


• A mix of diverse solutions are required. No single solutions, of the type favoured by governments or supra-national bodies, are going to solve humanity's global problems. We need a mix of diverse, adaptive solutions, which vary continually with both space and time - always with the aim of being maximally efficient. Governments can specify, and raise funds for, the ends of such solutions, not their means.
  


• Most global problems require long-term solutions; they extend beyond the lifetime of individuals, corporations or government bodies. But people today receive their income from such organisations, and organisations have goals that differ from those of humanity. Their prime goal, after their idealistic beginnings, often becomes self-perpetuation, which can not only be inconsistent with humanity's goals - it can even conflict with them.
  

For all these reasons, I believe Social Policy Bonds offer the best hope for humanity. Our goals are more stable than those means of achieving them currently thought to be optimal. Our governments are good at raising revenue, and they can articulate society's goals, but they are not very good at solving complex problems or thinking for the long term good of society, even when that is their goal. There is no shortage of human ingenuity or other resources, but we do need incentives to divert such resources into areas where they can do most good. Social Policy Bonds, backed by national governments and issued by a global body (it could even be an private-sector organisation) are, in my view, the best way forward. I cannot think of a better alternative.

Centrally planned goals are fine

I haven't read Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed, by James C Scott, published in 1999. (There is a good review of it here.) The description on the Amazon page sums it up: 

Centrally managed social plans misfire, Scott argues, when they impose schematic visions that do violence to complex interdependencies that are not -- and cannot -- be fully understood. Further, the success of designs for social organization depends upon the recognition that local, practical knowledge is as important as formal, epistemic knowledge. The author builds a persuasive case against "development theory" and imperialistic state planning that disregards the values, desires, and objections of its subjects. He identifies and discusses four conditions common to all planning disasters: administrative ordering of nature and society by the state; a "high-modernist ideology" that places confidence in the ability of science to improve every aspect of human life; a willingness to use authoritarian state power to effect large-scale interventions; and a prostrate civil society that cannot effectively resist such plans.

While we're content to let the market's efficiencies work in the private sector, our current way of solving social and environmental problems is, in essence, centrally managed. The result is something like a policy monoculture, and the results are predictably lamentable. But the important distinction to make is that between centrally planned outcomes and centrally managed ways of achieving them. We all want to see such centrally planned goals reduced poverty, the ending of violent political conflict, and universal literacy, for examples. Government does a good job at articulating our wishes in these and other areas. But centrally planning the ways of achieving these goals just does not work. We need diverse, adaptive solutions; ones that take into account circumstances that vary with time and space. Central planning can't do that and the results of its failure are widespread and tragic. 

Which is why I advocate Social Policy Bonds. Under a bond regime we would set goals and contract out their achievement to people motivated to investigate and implement the only the most efficient projects. These projects would adapt to changing circumstances, and be sensitive to local conditions. Under a bond regime, the complex interdependencies about which Scott writes, which cannot be understood by government, need not be understood by government. Instead, via an automatic system of cascading incentives, Social Policy Bonds would encourage diverse, adaptive initiatives that would contribute to achieving our large-scale - even global - goals.