Health and efficiency

(No, not H&E!)

Dr Malcolm Kendrick, in the third part of his inquiry into the UK's National Health Service (NHS) What is wrong with the NHS?, summarises the problem: 

[I]n the last four to five years, productivity has fallen by around twenty per cent. ...[W]hat we have is twenty per cent more staff, working just as hard, probably harder. Yet, they are creating no additional clinical outcomes. Where does this leave us? ...There is only one possible conclusion. Which is the following. At least twenty per-cent of the work that clinical staff are doing is non-productive.

A large part of the problem appears to be the lamentable proliferation of regulatory oversight and overseers in the NHS. He quotes from a report (pdf) by the Institute of Government:

We found that hospitals that had more managers or spent more on management were not rated as having higher quality management in the staff survey, nor did they have better performance. The implication being the overall hospital performance is dictated by clinical actions and behaviour, while hospital management is focused on administrative tasks ensuring regulatory constraints are met. The number of managers in each hospital was largely determined by the administrative tasks that needed to be fulfilled, with the scope of management circumscribed to these well-defined tasks. (Dr Kendrick's emphasis)

Dr Kendrick illustrates this point by showing a picture of Dr Gordon Caldwell lying beside the paperwork necessary to admit one patient to the Accident & Emergency department of an NHS hospital.

'These are the forms that now have to be completed to admit one patient in Accident and Emergency.'

It's not uncommon, in my view, for large institutions, be they public or private, to lose sight of their original goals. After enough time these organisations' existence is taken as a given, and they cease to be judged solely on how good they are at achieving their stated objectives. In the case of NHS hospitals, the original goals would have been expressed in terms of clinical outcomes but, because of regulatory pressures from outside, those outcomes have ceased to be the over-arching measure of success. 

This is where a Social Policy Bond regime could help. It would set down our long-term social and enviornmental goals and inject market incentives into their achievement. At every stage of progress toward achievement of our goals, investors in the bonds would have efficiency as their over-riding criterion. The bonds would always be owned by those who can maximise the speed and cost-effectiveness of the targeted goals. 

A bond regime targeting the health of a country's population would express its goals in terms that are stable, and long term. A health bond would target a range of indicators that could include such goals as improvements in longevity, reductions in infant mortality, and improvements in Quality Adjusted Life Years. (It should exclude such indicators as five-year cancer survival rates, which can mislead.) Broad measures such as those a bond regime target would be readily comprehensible to the public, and so would attract more buy-in. Links to my work on applying the Social Policy Bond concept to health can be found here.

Investing in world peace

As a species, we know the solutions to a very limited number of social and environmental problems. If the motivation and resources are there, we can be quite effective at solving visible and localised problems, such as a polluted lake, or high levels of crime or unemployment in a small area. But with any degree of complexity and complexity we're out of luck. We simply don't know the best ways of reducing crime, eliminating poverty, dealing with climate change or ending large-scale conflict. These are problems that are:

• long term,
  
• broad,
  
• likely to need a mix of diverse, adaptive approaches to their achievement, and
  
• resistant to any current or envisaged efforts by policymakers to their achievement.
  

Such problems are exactly those that Social Policy Bonds are poised to solve. Take a goal such as sustained world peace, which many of us see as impossibly idealistic. Our efforts, for the most part made by hard-working and well-meaning people, are distinctly unsuccessful. It's a problem suited to the Social Policy Bond idea. The bonds would, by rewarding the sustained achievement of world peace, motivate existing bodies to do more. This is where criticism of the bonds usually begins and ends, as if I am suggesting that employees of such organisations as the United Nations are motivated purely by money, and need more of it to do their jobs effectively. There's a hint of disdain for such mercenary motives here, familiar to those of us brought up in a society pervaded by class conflict and snobbery. To which I have two answers:

• The bonds would not just see that existing organisations pay their people more; they would also give these bodies more resources to work with, provided that investors in the bonds regard them as efficient; and
• The bonds would represent a commitment to a stable, long-term goal. With incentives to achieve that goal, not only would efficient, existing bodies benefit, but new organisations could be created whose every action would be devoted to achieving peace quickly and efficiently.

So a sufficiently funded World Peace Bond regime would generate more resources for all bodies, existing or new, so long as they are efficient. The effect would be to encourage research into diverse approaches; to finance trials of the most promising ones (and, importantly, to terminate those that are failing), and to enable the refinement and implementation of only those approaches that are most effective. 

Peace: the long view

Financial incentives aren't going to prevent terror groups from killing civilians of a different persuasion. They're too far gone for that. But that fact doesn't undermine the workings of Middle East Peace Bonds or World Peace Bonds.

It's true that we are unlikely to be able to deflect a terrorist who's been brought up from birth to hate members of a different religion, sect or ideology, from murderous intent with some cash payment. It is, however, possible, though still unlikely, to prevent him or her acting on that intent. But it's far more likely that if bonds had been issued targeting sustained peace in the Middle East (say), that such a person would not exist. A long-term peace strategy, of the sort currently pursued by well-intentioned but under-resourced groups could not only try to staunch the conditioning of schoolchildren and set up alternatives to the hate-filled media that is often a precursor to war, but would have the incentives and resources to do so effectively.

Most likely, such an approach would need to be taken in parallel with others, including strong defences, controls on weaponry, more inter-faith dialogue and other trust-building exercises. The reasons for applying the Social Policy Bond concept which, at its heart, is about using financial incentives are that:

• Once bonds have been issued there would be no uncertainty about policy changes, so investors in the bonds would be sure that, if successful, they would be rewarded; 
• Given the long-term vision, a wide range of possible approaches could be researched and tried and, if promising, implemented and refined. The bonds would reward only the most successful approaches and, in contrast to current policy, ensure that failing approaches are terminated. 

So, yes, people are right to be sceptical that fanatical ideologues can be dissuaded from killing people by a some pecuniary reward. But once a system of incentives is in place, all types of people could work towards countering hateful ideologies, promoting the benefits of tolerance, and creating the conditions for peace. The relevant question here is less 'could it work?', that 'is it more likely to work than the current array of (in my view) failing approaches?'

Peace in the Middle East

Decades of negotiations and initiatives have failed. We might well be on the brink of a nuclear calamity, and the entire region is a seething cauldron of every sort of hatred: ethnic, confessional, sectarian and gender. I have no solution to the anxieties and potential catastrophes facing Israel, nor to the wider problems facing the citizens of all the Middle Eastern countries. What I offer instead is a way of encouraging people to find effective and efficient solutions. At this time, my vision of peace must sound like an impossible dream, but we can look at, for instance, the current relationship between Scotland and England; the long-running vicious battles between the two countries have ended and the border is one of the more peaceful in the world. There are other examples.

Most ordinary people in the region, given time to reflect and the freedom to express their opinions would like nothing more than to see an end to the violence in the region. But there are enough powerful people inside and outside the region with a vested interest in keeping conflict going. They include men of religion, ideologues, politicians and bureaucrats. There are also, of course, the weapons merchants and their corrupt beneficiaries in government. Well-meaning idealists on all sides do what they can, but their efforts are overwhelmed and relentlessly undermined by the powerful people and institutions that want them to fail.

Peace above all

We also need to focus exclusively on our goal of peace, which will mean putting aside feelings of fairness and justice, except insofar as they help our cause.

And we need ways of promoting peace that can modify or circumvent people's uncooperative or obstructive behaviour; ways that can co-opt or subsidise those people in positions of authority and power who want to help, and at the same time bypass, distract, or otherwise undermine those opposed to our goal.

Ideally too, we would deploy market forces. Markets are the most efficient means yet discovered of allocating society's scarce resources, but many believe that market forces inevitably conflict with social goals: accentuating extremes of wealth and poverty, for example, or accelerating the degradation of the environment. So it is important to remind ourselves that market forces can serve public, as well as private, goals.

We need to give people and organisations of all kinds the incentives to create and sustain peace, rather than conflict.  We also need a verifiable definition of peace, which will consist of a combination of conditions that have to be satisfied and sustained. These could include:

• a much-reduced number of people killed in conflict
• a much-reduced level of terrorist events, or military incursions
• minimal forcible expulsions of people        
• no use of nuclear weapons

As well, given the strong causal relationship between mass media incitements to violence and actual violence we could add to our definition of peace:

• a drastic reduction in mass media incitements to violence; and
• school texts to be approved by all sides of the conflict. 

I would aim to issue Middle East Peace Bonds, which would reward investors only when all the conditions for peace have been satisfied and sustained for two or three decades.

Middle East Peace Bonds

My suggestion is that philanthropists ideally with governments and other interested organisations and individuals, collectively raise a large amount of money, put it into an escrow account, and use these funds to redeem at some future time a new financial instrument: Middle East Peace Bonds. These would be sold by auction for whatever they would fetch. They would be redeemed for, say, £100 000 each only when all the conditions for peace, as defined by the issuers, had been satisfied and sustained.

Importantly, the issuers of the bonds would make no assumptions as to how to bring about greater peace. No one solution, nor even an array of solutions will work all the time. We need diverse approaches that are adaptive, and therefore unlike anything our current institutions can envisage. The bonds instead will stimulate diverse, adaptive solutions.

Nor do we need to know who would hold the bonds or carry out peace-creating projects. Those decisions would be made by would-be investors in the market for the bonds. Unlike normal bonds, Middle East 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 prospects for peace brighten, the value of the bonds will rise.

Trading the bonds
Middle East Peace Bonds, once floated, must be readily tradable at any time until redemption. Many bond purchasers would want or need to sell their bonds before redemption, which might be a long time in the future. With tradability,  these holders would be able to realise any capital appreciation experienced by their holdings of Middle East Peace Bonds whenever they choose to do so.

The bonds will be worth more to those who believe they can do most to help reduce the violence, who will then own most of the bonds. Large bondholders might decide to subcontract out peace-building projects to many different agents, while they themselves held the bonds from issue to redemption. The important point is that the bond mechanism will ensure that the people who allocate funds have incentives to do so efficiently and to reward successful outcomes, rather than merely pay people for undertaking activities.

Too large a number of small bondholders could probably do little to help achieve peace by themselves. If there were many small holders, it is likely that the value of their bonds would fall until there were aggregation of holdings by people or institutions large enough to initiate effective peace-building projects. As with shares in newly privatised companies the world over, Middle East Peace Bonds would mainly end up in the hands of large holders, be they individuals or institutions. Between them, these large holders would probably account for the majority of the bonds. Even these bodies might not be big enough, on their own, to achieve much without the co-operation of other bondholders. They might also resist initiating projects until they were assured that other holders would not be free riders. So there would be a powerful incentive for all bondholders to co-operate with each other to help bring about peace in the Middle East. They would share information, trade bonds with each other and collaborate on conflict-quelling projects. They would also set up payment systems to ensure that people, bondholders or not, were mobilised to help build peace. Large bondholders, in co-operation with each other, would be able to set up such systems cost-effectively.

Regardless of who actually owns the bonds, aggregation of holdings, and the co-operation of large bondholders, would ensure that those who invest in the bonds are rewarded in ways that maximise their effectiveness in bringing about peace.

So, in contrast to today’s short-term, tried, tested and failed approaches, a Middle East Peace Bond regime would stimulate research into finding the  most cost-effective ways of achieving peace. Indeed, bondholders would be in a better position than governments to undertake a range of peace-building initiatives, having more freedom to try innovative approaches. They might, for example, finance sports matches between opposing sides, promote anti-war programmes on TV, set up exchange schemes for students of the opposing sides. They might try to influence the financial supporters of conflict outside the region to redirect their funding into more positive ways. They could offer the Palestinians and the citizens of neighbouring Arab countries different forms of aid, including education and scientific aid, and measures aimed at providing a secular education for all Arab citizens.

By appealing to people's self-interest, Middle East Peace Bonds would 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 and elsewhere who currently benefit from conflict.

Middle East Peace Bonds would focus on an identifiable peace outcomes and channel market efficiencies into diverse, adaptive ways of achieving it. They might sound implausible and radical but - let’s be frank - the way things are currently going, with no end of well-meaning inter-faith dialogue and not-always-well-meaning interventions by UN bodies, governments outside the region and NGOs, isleading all of us into the abyss.

For another version of this essay, see here. For applying the Social Policy Bond principle to conflict reduction more generally, see here.