The gap widens

Another year, and the gap between policies and meaningful outcomes continues to widen, as does the gap between policymakers and the people they are supposed to represent. Much of the problem lies in an almost total refusal by policymakers to be open about the costs of their policies. The environment and future generations look like being the most grievous victims. Policies that benefit the rich, large corporations and the present generation of voters at the expense of everyone and everything else are always likely to be made under the current regime, where policymaking is so complex there need be no transparency about who are to be the real winners and losers. Policy goals are unstated, vague, uncosted or mutually conflicting and there is no follow up as to the success or failure of particular initiatives.

Social Policy Bonds offer a transparent alternative. Being entirely focused on outcomes that are meaningful to ordinary people, they are far less likely to be hijacked by corporations and their lobbyists, because outcomes are accessible to all - unlike the arcana of current policymaking.

So where are Social Policy Bonds going? They have been in the public arena now for more than twenty years, and I know of nobody who's actually issued any. I see my present role as one of maintaining my websites and making my work available to all, while standing by in case anybody does want advice. Right now I'm working on updating my book (a little) so that it can be marketed a bit more effectively.

Lies, damned lies, and policymaking

An ethical doctor decides to examine, discreetly, a patient who is being looked at by other doctors:

[S]he’s concerned that, like many patients, he’ll end up with prescriptions for multiple drugs that will do little to help him, and may well harm him. “Usually what happens is that the doctor will ask for a suite of biochemical tests—liver fat, pancreas function, and so on,” she tells me. “The tests could turn up something, but they’re probably irrelevant. Just having a good talk with the patient and getting a close history is much more likely to tell me what’s wrong.” Of course, the doctors have all been trained to order these tests, she notes, and doing so is a lot quicker than a long bedside chat. They’re also trained to ply the patient with whatever drugs might help whack any errant test numbers back into line. What they’re not trained to do is to go back and look at the research papers that helped make these drugs the standard of care. “When you look the papers up, you often find the drugs didn’t even work better than a placebo. And no one tested how they worked in combination with the other drugs,” she says. “Just taking the patient off everything can improve their health right away.” David H Freedman, quoting Dr Athina Tatsioni in Lies, Damned Lies, and Medical Science, 'The Atlantic', November 2010

A potential difficulty with Social Policy Bonds is that they rely, almost entirely, on meaningful correlations between measured variables and that which society wants to target: most likely, some component of well-being. It's a difficulty, because people can game the system, complying with the letter, but not the spirit, of any defined target-setting.

What's not so obvious is that it's an even bigger problem under current policymaking regimes. In our industrial societies, with their large, complex economies, government bodies and non-governmental organizations have extremely complicated tasks. Increasingly, and of necessity, government already relies on numerical indicators to manage its resource allocation. and largely supplanted families, extended families, and communities in supplying a range of welfare services to a large proportion of their populations. .

But this use of indicators is relatively recent, unsystematic, unsophisticated and incoherent. Indicators such as the number of medical tests performed, or the size of hospital waiting lists don’t measure what matters to people or are prone to manipulation. Even when numerical goals are clear and meaningful they are rarely costed, they are almost always too narrow, and they are largely chosen to mesh in with the goals and capabilities of existing institutional structures. Those broad targets that are targeted with some degree of consistency tend to be economic aggregates, such as the inflation rate, or the rate of growth of Gross Domestic Product — which has come to be the de facto indicator par excellence of rich and poor countries alike. But GDP’s shortcomings as a single indicator of the health of an economy are serious, and widely known. Government would do better to target ends rather than means: social and environmental outcomes that are meaningful to natural persons, as against government agencies and corporate bodies, rather than growth rates or other abstract economic indicators.

It would appear that the choice will increasingly be between (a) the current de facto targeting of per capita GDP along with an almost random array of narrow, easily manipulated indicators that have no necessary relationship to societal goals, and (b) the targeting of consistent, transparent, mutually supportive indicators that represent meaningful social outcomes, under something like a bond regime.

Social Policy Bonds are not perfect, but they still, I believe, would be better than the current system.

Government doesn't do diversity

Discussing some of the perils of the internet, Nicholas Carr mentions Frederick Taylor's system of scientific management. It brings great efficiency advantages to manufacturing, but took away the employee's need to:

'make his own decisions about how he did his work. ... After Taylor, the laborer began following a script written by someone else. ... The messiness that comes with individual autonomy was cleaned up, and the factory as a whole became more efficient, its output more predictable. Industry prospered. What was lot along with the messiness was personal initiative, creativity, and whim. Conscious craft turned into unconscious routine. Nicholas Carr, The Shallows (page 218)

The trade-off probably works in society's favour when the productivity gains are sufficiently great, and when employees have other outlets for their creativity. Where society stands to lose, though, is when ostensibly scientific scripts are applied inappropriately, and when there is no possibility of their being superseded either by better scripts, or adaptive behaviour. I think this applies to much of current policymaking, where we commonly see approaches that have been tried, tested and found to be inefficient or useless being applied again and again to social and environmental problems.

This need not be a total disaster, so long as there remains in the policy arena some approximation of the 'creative destruction' that characterises perfectly competitive markets. But, sadly, that condition applies less and less to our more serious global or national problems. Government wants to apply its monopolistic approach not only to those areas, such as provision of public services, where that can work well, but also to challenges, like climate change, that urgently demand diverse, adaptive approaches. Government at all levels increasingly takes away our autonomy and writes the script on our behalf. This tendency is partly a fear of litigation where, so long as you can prove that you've ticked all the boxes, you are covered. But it's also simple inertia, whereby government agencies react rationally to the incentives to enlarge their powers.

One remedy might be Social Policy Bonds, whereby government can still set targets and raise the revenue necessary to achieve them. But it can disengage from actually achieving them and from stipulating how they shall be achieved. For complex problems, where our current knowledge is scanty, and where a mosaic of different approaches is going to be necessary, we need to encourage 'creative destruction': that is, experimentation, with the termination of failed trials. We need, in short, diverse, adaptive approaches, of the sort that government (or any single, large organisation) cannot take. A bond regime, where highly motivated investors would always be on the lookout for better ways of doing things, could be the way forward.

Going where government cannot go

In many policy areas, government does about a good a job as we could expect any single agency to do. Government does well when it's clear what sort of action is required, and when it alone has the organising capacity and authority to get things done. These are generally areas where the problems are obvious, have obvious causes, and where the ways of solving them have been tried, tested and (by and large) successful. Much of the low-hanging fruit has been picked. In most developed countries sanitation is universal or at least widespread, as are literacy and basic health, education and housing. But there are still serious problems, which our current political system seems incapable of addressing.

Perhaps most important are the potentially catastrophic events, often man-made, which our political system is adept at postponing into a fast-approaching future. But, as well, and equally as significant to many, are those policy areas where government has done a lot, but is trying to do more - and failing. And, because it's still trying, it has crowded out initiatives from others, so that the problems remain unsolved.

Take crime, for instance. Most of the heavy lifting has been done. By the standards of even 100 years ago rates of almost all crime are low. But crime still blights many lives and we could perhaps open up crime prevention to diverse, adaptive approaches, of the sort that government cannot follow. Similarly with infant mortality, domestic violence, basic education, health and, more broadly, poverty. Government probably can't do much more than it's already doing so long as it monopolises the actual attempts to alleviate these problems. The single agency, top-down approach tends to be inflexible, incapable of adapting to differing or rapidly changing circumstances.

Government can't solve these problems, but it can tax its population under the pretext of trying to do so. And that's where Social Policy Bonds could enter the picture. Rather than try to reduce crime still further (or raise literacy to 100 percent, or whatever), which it is not doing efficiently, it could contract out the achievement of these goals to the private sector. Under a bond regime it would still be aiming for the same goals, and it would still be the ultimate source of revenue for funding their achievement, but it would be investors in the bonds who would actually achieve them. They would be motivated by the consequent rise in the value of their bonds, as they help achieve the targeted goal.

The same reasoning applies at all levels, and to problems, such as the ending of war or the avoidance of catastrophe, where government hasn't even picked the low-hanging fruit.

For more about Social Policy Bonds, click here. For the application of the Social Policy Bond principle to catastrophe, click here.

What drives policy?

What does drive policy? Ideology, soundbites, emotion, personality, and institutional inertia are all prime motivators. Another is the desire to be associated with glamour. As the UK Government looks at spending £30 billion of taxpayer funds, which it can ill afford, on high-speed rail, it's all too easy to see the appeal of the grandiose, at the expense of the public, the environment...well, everything really.

The macho culture of local and national politics means that councillors, county surveyors and politicians want to be associated with grand projects: building a bypass, or a bridge, or a tram or fast train line. Car Sick: solutions for our car-addicted culture, Lynn Sloman, 2006

Transport is typical policy-as-if-outcomes-are-irrelevant territory. You might think that poverty, housing, health and education are more obvious policy areas: in which government intervention can bring about meaningful improvements in wellbeing for society's most disadvantaged people. You might also think, with me, that if it's worth spending billions of pounds to upgrade rail links that will shave a few minutes off journey times, then the private sector should be bear all the risk. But no, politicians feel they must get in on the act.

A Social Policy Bond regime wouldn't put up with such wasteful nonsense. Transport is a means to various ends, not an end in itself. Government should target those ends, and let motivated investors in Social Policy Bonds work out the best ways of achieving them. Clarity, in particular about the distinction between means and ends, is missing from today's policymaking environment. The result is we get lumbered with expensive, futile projects, while those things that government should be doing - and that only government can do well - are too often neglected.

Safe prediction: Cancun will fail

It's too early to say whether the Cancun climate change summit will be deemed a success or not. By keeping expectations low, the myriad bureaucracies involved will be able to term any agreed string of words a victory. One thing though is certain: in any meaningful sense, Cancun will fail. How can I be so sure? For one thing, it is not concerned with climate change: it is entirely preoccupied with (1) political jockeying and finger-pointing, and (2) greenhouse gas emissions. For another, any agreement or commitment (or, more accurately, declared commitment) will be based on current science; it will not have the capacity to adapt to our rapidly expanding scientific knowledge. Bureaucracies understand top-down, one-size fits all, centralised decision-making. They don't understand diverse, adaptive approaches, and they certainly don't like relinquishing control to people who might be better at actually getting things done than government agencies or their pals who run gigantic corporations. Their real expertise at the international level is in making declarations of intent and organising the transfer of large sums of cash from taxpayers in the rich world to such corporations and third-world elites.

So is there anything positive I can suggest? I've talked and written about Climate Stability Bonds for many years now. As far as I know, nobody's thinking about issuing them. Yet they are the only instrument that I've heard of that can address the doubts (genuine or otherwise) about whether climate change is happening, the huge uncertainties over its likely effects and the best ways of dealing with it, and our rapidly expanding scientific and technological knowledge. Even more important, they are the only suggestion I've seen that will subordinate all policies and all activities and intervention to what we actually want to achieve, rather than to the supposed means of reaching it: a stable climate. That's a versatile and adaptive goal, which can encompass plant, animal and human health, and physical, social and financial targets and ranges.

Current policy, including Cancun, will focus on net emissions of those gases thought to be greenhouse gasses. That's not the same as climate stability. So, in the unlikely event of an agreement in Cancun with which the signatories will actually comply, you can be sure that in any meaningful terms the summit will fail.

Innovation is a threat to the public sector

But the benefit of competition is not just that it serves customers’ needs today, but that it is a mechanism for adapting to what they will need tomorrow. The dynamism of a market economy comes from innovation in products and processes, and radical innovation in products and processes often – in fact usually – comes from outside the existing market structure. Apple is changing the nature of the phone industry, Amazon the book business. But anyone who had approached these industries from the marketing or the legal standpoint would have concluded that there was enough competition already. Radical innovation rarely comes from within, John Kay, 'Financial Times', 24 November

There are bodies, whose weaknesses Mr Kay discusses, that are charged with improving competition in the private sector. And it's true that they are often needed. It's unfortunate, though, that there's no such mechanism for public sector monopolies, because it's these bodies, typically government agencies, that are supposed to bring about social outcomes that, from a broad perspective, are far more important than reasonably priced books or phone calls. We rely on various levels of government to, for example, relieve poverty, reduce crime rates or insure against environmental - or financial - catastrophe. The absence of innovation in achieving these outcomes is an embarrassment. Yes, there have been some minor changes in the identity of the service-deliverers, some contractings-out and quite a few privatisations. But on the whole, the contrast between the private and sectors is stark. Our political system, like any other institution, has as its over-arching goal that of self-perpetuation, and its interests are not only different from those of ordinary people; they are often in conflict with them.

Perhaps Social Policy Bonds could re-align the goals of our policymakers with those of the citizens they are supposed to represent. Under a bond regime how outcomes are delivered, and who delivers them, would be less important that the fact of their delivery. There would be less discussion about structures and spending; instead there'd be a constituency of highly-motivated investors whose goals would be entirely congruent with those of society. By maximising their own rewards, bondholders would be necessarily achieving social goals, whether they be local, national or even global, as efficiently as possible. Innovation, to investors in Social Policy Bonds, would be an opportunity not, as under the current system, a threat.

Catastrophe avoidance: we're not doing it

Stepping back from the society's turmoil for a moment, it's pretty clear that we aren't developing ways of dealing with our social and environmental problems. The negative impacts of a person or firm's profit-making used to be either small, or uncertain, or simply ignored because society as a whole counted for too little against the power of wealth. There was much distress, then, as costs of economic activity were socialised, while most of the gains accrued to the few. In response, we have laws, rules, and regulations. But the disparity between the wealth of the corporate sector and the ever more constricted and degraded lives of most individuals has rarely been so striking as today. On the whole, the aggregation of corporate incentives is not, these days, seen as improving the quality of life of most of the population. The planet is too small for the corporate sector's bye-products, social and environmental, to be absorbed or ignored as in the past. And corporate incentives now influence (to put it mildly) much of government: the form of organisation whose legitimacy is entirely based on its role in enhancing the lives of most of its citizens. No wonder, then, that we are facing multiple crises, taking the forms of cynicism and despair about politics, and threats of massive financial, economic and environmental disruption.

In response, I believe we need to make a conscious effort to re-align incentives. Society and the environment are too complex and rapidly changing for market failure to be addressed by laws, regulations and small-scale tax or price adjustments. We urgently need to give priority to things that really matter. I'd target, above all else, the avoidance of catastrophe, however caused.

Social Policy Bonds are one way in which we can give catastrophe avoidance the priority it deserves. It's clear now that it needs explicitly to be targeted, and Disaster Prevention Bonds are one way of rewarding people for maintaining a habitable planet. How would they work? Governments (and non-governmental organisations) would set up a fund that would be used to redeem bonds, issued on the open market, that would become valuable after a sustained period during which no major disaster has occurred. Investors in the bonds would have incentives to anticipate potential catastrophes and seek out those ways of avoiding them that are most cost-effective. The advantages over the current way of doing things are many: The exact nature of the catastrophe need not be known in advance. We'd stimulate a diverse, adaptive range of approaches. Cost-effectiveness is built into the bond mechanism. In effect, we'd be creating a new, protean, type of organisation: one that, in contrast to the current multiplicity of, mostly, ineffective bureaucracies, would be motivated not merely to turn up for work and perform various activities, but actually to achieve an explicit, urgent, and vital goal: the survival of human beings on planet Earth.

Why wait centuries?

The late Tony Judt, historian, in an interview published in The Nation, 17 May:

Democracy has always been a problem. The truly attractive features of the Western tradition that we accidentally - and it really is accidentally - get the benefit of are the rule of law, liberalism and tolerance, all of which are virtues inherited from predemocratic societies, whether they were based in eighteenth-century Anglo-American aristocratic individualism or nineteenth-century European forms of a type of developed postfeudal legal state.

Indeed, the accidental effects of human actions can be beneficial as well as disastrous. Adam Smith's Invisible Hand generates material benefits, as does government planning. But they also create social and environmental problems, and only partly because of market failure. In my view, the world is too small now for the solution of social and environmental problems to be left to chance. And, once we have achieved, however haphazardly, virtues such as the rule of law, liberalism and tolerance, and once we see recognise their importance, we can consciously set out to maintain them.

This is what Social Policy Bonds could do. One of the great advantages of the bond approach is that we can encourage people to achieve social goals without anyone knowing in advance how they will do so. Issuers of 'Rule of law' Bonds could target the achievement of rule of law, in societies that currently don't have it; and its continuance in societies that do. The accidental achievement of rule of law (and liberalism and tolerance) in the societies that have it took centuries of conflict and bloodshed. We cannot know how best to achieve these virtues in remote, complex societies, nor how to sustain them in more fortunate societies. But we can offer incentives for people to do so. Yes, defining what we mean by 'rule of law' poses difficulties. But the alternative, waiting for societies to achieve it accidentally is unlikely to be any easier.

No way...

No way to check emissions puts climate deal in danger reads the header of a recent article by Fred Pearce in 'New Scientist'. One example:

China does not record CO2 emissions from its small coal-burning factories and long-standing fires in mines which may result in under-reporting by as much as 20 per cent. The uncertainties for other greenhouse gases are even greater.... 'New Scientist', 9 October (page 12)

Another article, Dead Oceans, in the same issue (page 37) talks about the possible consequences of oxygen-deprived dead zones in the oceans; a result of warmer waters and the smaller quantity of dissolved oxygen they can contain. These regions:

...could come to host bacteria that emit nitrous oxide, a powerful greenhouse gas. Working out the likely extent of such feedback processes...will be a major preoccupation for scientists in the coming years.

We might not have those years. Our policymaking systems are incapable of dealing with a problem like climate change. Focussing as they do on processes and institutions they seek, at their best, to identify the causes of problems before they set up institutions supposed to solve them. Of course, these institutions develop their own agenda, and the people working for them aren't paid in ways that reward successful solutions but, given sufficient funding and sufficiently robust knowledge of the relationships between cause and effect, and plenty of time, this mechanism has been known to work.

Sadly, though, the deficiencies of such an approach become serious flaws with potentially disastrous challenges like climate change. The relationships, as the two snippets quoted above suggest, are just too uncertain and complex. Our knowledge of them, though expanding rapidly, is too sparse to generate the buy-in required to deliver effective solutions. We need diverse solutions that can adapt to changing circumstances and our expanding knowledge. And we need to target the outcome we want to achieve, rather than waste years trying (and, most likely, failing) to identify the important scientific and economic relationships before we take effective action.

That's where Climate Stability Bonds could help. They'd be issued by some global organisation, and be backed by contributions from national governments. They would define some climate target, probably in terms of a combination of physical, biological and financial indicators. The bonds would reward the maintenance of a climate whose index fell within defined boundaries. It would be up to investors in the bonds to decide how best to deploy resources to achieve our goal. They would have incentives to do so as cost-effectively as possible. It would be up to them to keep abreast of all the important science. They would adapt their approaches as our knowledge expands. Every aspect of this behaviour would be far, far better than the current approach, which, to put it mildly, is not working.