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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problems than it is for a government, or any single body to try to develop top-down solutions, which are necessarily be out of date, uniform and inflexible.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.