The continuing destruction of tropical forests

The Financial Times summarises  a recent report by the University of Maryland and the World Resources Institute's Global Forest Watch:

The equivalent of 11 football fields worth of primary tropical forests disappeared per minute last year[.] Tropical forest loss rises 10% despite pledge by 145 nations, Financial Times, 28 June

The article concludes:

'Market forces driving deforestation were "much greater" than those behind protecting woodland' according to Mikaela Weisse director of the Global Forest Watch.

There's nothing inevitable about market forces when there are no markets for negative externalities and markets themselves are undermined or manipulated by large corporations, or subject to legislative and regulatory constraints. Rather this is a tragic case of market failure. It could conceivably be addressed by doing some complicated and divisive calculations as to the likely impacts of lost woodland and attendant atmospheric pollution, and applying a contentious discount rate to some highly aggregated cash-equivalent figures. That's practically and politically impossible to do. However, I do not believe that a perfect market for, say 'woodland services', with all externalities accounted for, even if it were possible to create one, is an end in itself. It would be a means to an end, and we'd do better to focus on what, actually we want to achieve. 

My suggestion is that we stipulate the environmental goals we want to achieve. One such goal could be a limit on the area of primary woodland destroyed over a period of, say, 30 years. Then Social Policy Bonds could be issued that would be redeemable only when that goal had been achieved. Redemption funds could be raised by a consortium comprising some or all of world governments, NGOs, corporations or philanthropists. The funds would be held in escrow until the targeted woodland preservation goal had been achieved. It would be up to bondholders to decide how to limit the destruction of woodland, and they would have a powerful incentive - the increase in value of their bonds - to do so effectively and quickly. They could take steps that current bodies cannot or will not take, such as bribing illegal loggers to undertake some other activity. A bond regime, rather than eschew market forces, would channel them into the preservation of the world's primary tropical forest. 

For more about applying the Social Policy Bond concept to the environment, click here

Ending world poverty efficiently

Reading Peter Singer's The Life You Can Save: acting now to end world poverty, I'm pleased to see that someone else recognises the importance of solving social problems as efficiently as possible. It's not a given: institutions - even the best run, most dedicated - have their own priorities, of which self-perpetuation is paramount. Efficiency, as measured by improvement in well-being per dollar spent, should be an end in itself, in that optimal efficiency maximises the benefits from our scarce resources. But it is, in my view, also a means to an end, in that efficient poverty relief programmes would encourage more people to contribute to them. To quote Dr Singer: '[A]s people become more confident of the cost-effectiveness of charities, they will become more willing to give.' I haven't finished reading his book but, in it, Dr Singer quotes William Easterly:

The West spent $2.3 trillion on foreign aid over the last five decades
and still had not managed to get twelve-cent medicines to children to
prevent half of all malaria deaths. The West spent $2.3 trillion and
still had not managed to get four-dollar bed nets to poor families. …
It’s a tragedy that so much well-meaning compassion did not bring
these results for needy people. William Easterly, The White Man’s Burden, 2007

In a Social Policy Bond regime, the most important feature would be the targeted outcome, not the institution. A bond regime could target long-term goals in ways that current organisations cannot. All activities would be subordinated to the efficient achievement of the targeted goal. Existing institutional involvement would not be taken as a given: efficient organisations would thrive under a bond regime, but the less efficient would see a drop in their funding. The long-term feature of the bonds means there would be ample time to try diverse, adaptive approaches, and promote the most promising of those while, importantly, terminating those that show themselves to be inefficient. Consistent with Dr Singer's thesis, the best approach would be to issue bonds that target global poverty, with resources being channelled to wherever in the world they can do most good, regardless of the nationality, ethnicity etc of beneficiaries. A starting point could be to issue bonds targeting improvement in some refinement of the Human Development Index. For reasons I've recently given, existing bodies are unlikely to fund such bonds. Philanthropists could, in theory, but I suspect they too would not want to relinquish the control and kudos that come with dispensing large sums of money to needy people. It's certainly, and understandably, difficult for ordinary people to make suggestions along those lines to wealthy individuals, though I try.

Give cash payments a chance

Below is an article I've written recently and sent to a couple of UK newspapers. They won't print it, so I'm making it freely available here. For those familiar with the Social Policy Bond concept, there will be little new in this piece.

Give cash payments a chance: World Peace Bonds

Pay people to stop killing each other? Sounds crazy, and a long way short of ideal. But better, perhaps, than where we are headed.

As the rhetoric gets ever more heated; the piles of weapons ever greater and more lethal, it seems very much as if we’re in a pre-calamity phase. Along with other social and environmental problems, the likelihood of nuclear conflict is probably contributing to falling birth rates in the most liberal and wealthy societies that have ever existed. There are efforts being made by well-meaning, hard-working people and organisations doing what they can to facilitate dialogue, defuse tension, and limit deployment of, and trade in arms. But the sum of their efforts doesn’t change the portentous reality: we are in grave danger of a world war. As the Institute for Economics and Peace tells us, the world has become successively less peaceful each year since 2014. (Source: Institute for Economics & Peace. Global Peace Index 2022: Measuring Peace in a Complex World, Sydney, June 2022. Available from: http://visionofhumanity.org/resources (accessed 21 May 2023).

World Peace Bonds

There’s no single solution to the problem of violent conflict and I can’t offer one. But I can offer a means by which we can find solutions: solutions that will be diverse, adaptive and efficient – as they need to be. My suggestion is that philanthropists put up initial funding for a new type of financial instrument: World Peace Bonds. Funds for the redemption of the bonds could be further swelled by non-governmental bodies, and the wider public. Even governments could contribute, if they could bear to focus on the long-term interests of the people they are supposed to represent. The bonds would be floated by auction and redeemed for a fixed sum only when the number of people killed by violent political conflict fell to, say, 50 000 a year, for a sustained period.

World Peace Bonds (unlike the similar Social Impact Bonds) would be tradeable on the open market. People would buy bonds only if they expect their market price to rise. Because bondholders could sell their bonds at any time, they wouldn’t have to hold them to redemption to make a profit. The bond issuers could therefore target very long-term goals, such as our world peace goal sustained for, say, three decades.

Importantly, the bonds would make no assumptions as to how to bring about greater peace, nor who would do so: these decisions would be made by bondholders. Unlike normal bonds, World Peace Bonds would not bear interest and their redemption date would be uncertain. Bondholders would gain most by ensuring that peace is achieved quickly.

As the level and likelihood of large-scale violence fell, so the market price of the bond would rise. Bondholders would have incentives to cooperate with each other to do what they can to achieve peace, see the value of their bondholdings rise, then sell their bonds, and realise their profit. The bond’s backers need decide only on the definition of peace to be targeted - not on how to achieve it. That would be left up to investors in the bonds, who would have every incentive to maximise their, and the backers’, reduction in violence per unit outlay. So, in contrast to the current approaches to achieving peace, a World Peace Bond regime would stimulate research into, and implementation of, ever more cost-effective ways of defusing and eliminating political violence.

Bondholders would be in a better position than governments to undertake a range of peace-building initiatives. They could lobby or work with governments to, say, change and enforce laws that make wars at home or overseas a less likely prospect. They could finance sports matches between potential protagonists, promote anti-war programmes on TV, or set up exchange schemes for students and schoolchildren. They could try to cajole the financial supporters of conflict into redirecting their funds along more edifying lines. They could offer poor countries innovative forms of aid, including education and scientific aid, and measures aimed at enlightening populations. They might even subsidise intermarriage between members of different ethnic or religious groups. And they could simply pay people to stop killing each other, when they think that’s the most cost-effective approach. The crucial point is that bondholders have more freedom and incentive to explore and carry out such diverse initiatives than governments or other international bodies.

By appealing to people's self-interest, World Peace Bonds are likely to be more effective than conventional efforts aimed at reducing violence. In channelling market forces into the achievement of this objective the bonds could bypass or even co-opt the corrupt or malicious people in government or elsewhere who stand in the way of peace.

In today's emotional climate decision-making is too often reactive. It is too easily swayed by those with a propensity for violence or those who benefit from it, financially or emotionally. There are enlightened, hard-working, supra-national organisations working for peace, but their funding is conditional on their carrying out the limited, short-term activities approved by their sponsoring governments. Private peace-building bodies work in admirable and diverse ways, but their efforts are small-scale and uncoordinated. For neither type of organisation are the financial rewards from building peace correlated with their effectiveness in actually doing so. World Peace Bonds, in contrast, would explicitly reward movement toward a long period of world peace, however it is done, and whoever achieves it. They would focus on an identifiable, meaningful outcome and channel market efficiencies into exploring ways of achieving it. They could be the most effective means of achieving the peace that people all over the world yearn for and deserve.

© Ronnie Horesh, May 2023

Ronnie Horesh was an economist for the New Zealand Government. He is currently based in the UK. Links to his work on World Peace Bonds can be found on his website: http://SocialGoals.com

Social Policy Bonds haven't gone very far

This is post number 1361; as good a time as any to look at why Social Policy Bonds haven't gone very far in the few decades since the idea has been in the public arena. 

Similar sounding Social Impact Bonds, with which I've had no involvement, have been issued in at least 25 countries. Unlike Social Policy bonds, they are not tradeable. I'm ambivalent about them for reasons I've explained more fully here and here, but in essence they are inherently short term in nature, and do not encourage new entrants nor much in the way of diverse, adaptive approaches; the range of social and environmental outcomes they can target is inherently narrow. However, they could be a stepping stone on the way to my original concept - or they could discredit the whole notion of injecting market incentives into the achievement of goals currently the remit of government.

The main reason why I think the original Social Policy Bond concept hasn't made much progress is that it threatens existing institutions, including those currently charged with allocating funds to service suppliers, and the service suppliers themselves. Under a bond regime, the government bodies that allocate funds to favoured service suppliers would relinquish that power, though government would still articulate society's wishes and raise the revenue used to redeem the bonds when targeted goals had been achieved. Existing service suppliers, would survive under a bond regime only if they were efficient, or deemed capable by bondholders of becoming so. 

Sadly, our existing institutions, by which I mean government at all levels and the bodies they fund, are failing in their duties to respond effectively to our social and environmental problems. At the national level, our politicians and senior bureaucrats appear unresponsive to the needs and wishes of ordinary people. At the global level, a concern such as the increasing probability of large-scale war is a lower priority, as measured by where human ingenuity and creativity are  most in evidence, than generating profits for the wealthiest investors or advertising dog-food. The gap between our leaders and the people they are supposed to represent grows ever larger.

Existing bodies, I realise now, aren't likely to do anything. Like every other institution, from trade unions to universities to religious organisations, their main priority is self-perpetuation. I've tried to interest philanthropists, via their journals, but I don't think that has achieved anything: perhaps philanthropists, like governments, relish their power to distribute funds to favoured organisations rather than to the achievement of social goals. My goal now is to carry on, and to keep my body of work on the bonds accessible over the internet for some years, via this site and the main Social Policy Bonds site and the papers and book chapters that are linked there. 

For more about applying the Social Policy Bond concept to peace, click here.