The system is rigged

David Brooks asks Where are the liberals?:

Americans...don't trust the federal government. A few decades ago they did, but now they don't. Why don't Americans trust their government? It's not because they dislike individual programs like Medicare. It's more likely because they think the whole system is rigged. .... [R]ent seeking groups are dispersed across the political spectrum. The tax code has been tweaked 4428 times in the past 10 years, to the benefit of interests of left, right and center. 'International Herald Tribune', Asia Edition, 11 January

This malaise is common to all the western democracies. Interestingly, Mr Brooks mentions sugar subsidies, which benefit just a few wealthy individuals, while "imposing costs on millions of consumers". It's the persistence of such subsidies, in the face of decades of evidence pointing out their disastrous economic, distributional and environmental impacts, that makes one despair about whether our governments can ever reform themselves. And, if they can't, then where is the initiative going to come from?

Perhaps the most benign impetus for reform would come from a shift toward rewarding outcomes, rather than, as now, the specific interest groups - public or private sector - that currently seem to run government. Social Policy Bonds would subordinate all government funding to meaningful results. Under a bond regime only the most efficient achievers of social and environmental goals would receive taxpayer funding.

Clearly the current system is losing the consent of the majority of the people it's supposed to serve. Perhaps it's time to try Social Policy Bonds. My book suggests how a transition to a bond regime need not be too drastic, but could be gradually managed.

Selective memory

From The Great Derangement, by Matt Taibbi:

[US] national politics was doomed because voters were no longer debating one another using a commonly accepted set of facts.

Life and society are so rich and complex that we can easily extract evidence that supports (or appears to support) virtually any outlandish claim we want to make - or its complete opposite. There are plenty of funds and incentives to make the effort worthwhile. Sometimes these exercises are cynical. But often not. We can see this very clearly when looking at the current financial crisis: respectable commentators put forward coherent arguments for much more, or much less, stimulus spending.

Social Policy Bonds would bypass such arguments and all their attendant cynicism by targeting desired outcomes, rather than what people think, or are paid to say they think, are the means of achieving them. It would be up to holders of the bonds to identify and exploit the relationships between cause and effect, which is so difficult to do in our complex society. By focusing on outcomes, policymakers could concentrate on working out exactly what we want to achieve, rather than get bogged down by the interest groups, vested or not, who have their own agenda.

If this sounds far-fetched, we need look only at climate change to see how the debate has been effectively side-tracked into an expensive and ineffectual irrelevance by doing things the conventional way: trying to prove something to the satisfaction of people who oppose doing anything before taking action. A bond regime would instead be rewarding people for achieving certain specified goals, or a combination of them, which could be expressed as a wide array of physical, financial and social variables. It would be up to the investors in the bonds to work out the relationships, and they would be rewarded for doing so and for continuing to do so, until our goals have been achieved. In this case, as in others, there need be no general (and often impossible to achieve) agreement on the facts before taking meaningful action.

Half full

It's nearly the end of the year, so time to sum up my view of where policymaking in general and Social Policy Bonds in particular are headed. The latter is easy to summarise: I have had a few expressions of intellectual interest in Social Policy Bonds, but the bond concept remains untested. More generally though, I think the concept of payment for results is gradually gaining ground in government circles. This is generally a positive trend, though I have reservations. Chief amongst these is that the 'results' targeted are rarely outcomes that are meaningful to ordinary people. More often they are outputs of existing organisations, as measured by criteria intrinsic to that organisation. So results targeted include things like 'savings made' or (increasingly) number of employees sacked. In recent history it has usually been the case that well-meaning intentions to improve social and environmental outcomes founder on the solid, immovable rocks of existing institutions and their ways of doing things.

But I remain optimistic that something like Social Policy Bonds will eventually be issued. One reason is that society and the environment are becoming increasingly complex, so that existing methods are becoming useless. We only need to look at climate change for a spectacular and costly example of failure to manage human affairs. The other reason is that the existing system's failings are becoming obvious to all. Our economic system has been gamed to benefit the one percent - or 0.1 percent - and our political systems throw up uninspiring candidates for whom the concerns of most of us and the environment appear well down the list of things to worry about. It's clear that the current system cannot continue. I remain hopeful that someone, somewhere, in the public or private sector, will issue Social Policy Bonds for a worthwhile goal, and enable the concept to be tested, discussed, refined and eventually deployed to solve some of the world's urgent social and environmental problems.

Madness

Who benefits from the Common Agricultural Policy, which consumes 43 percent of the European Union's budget and costs households $296 per annum? Well:

The Duke of Devonshire gets £390,000, the Duke of Buccleuch £405,000, the Earl of Plymouth £560,000, the Earl of Moray £770,000, the Duke of Westminster £820,000. The Vestey family takes £1.2m. You'll be pleased to hear that the previous owner of their Thurlow estate – Edmund Vestey, who died in 2008 – managed his tax affairs so efficiently that in one year his businesses paid just £10. We're all paying for Europe's gift to our aristocrats and utility companies, George Monbiot, 28 November

This insanity has been documented, qualified and widely promulgated continuously for thirty years. It is not the transfers from the poor to the rich that are inexcusable; it is their persistence over three decades and many administrations. Their persistence underlines the inadequacy of the current policymaking approach: there is no self-correcting mechanism for policies that are self-evidently absurd. Current policymaking is so arcane, so inaccessible to ordinary human beings, that only the powerful - individuals, corporations, government agencies or trade unions - have the resources to negotiate it and make it serve their purposes. And their purposes not only differ from those of most people; they conflict with them.

Complex societies don't need to have a complex policymaking process. Government could, as under a Social Policy Bond regime, target a few broad, widely agreed goals, such as better health, universal literacy, lower crime rates and a cleaner environment. Rather than try to achieve these goals itself and distract itself with easily gamed legislation and regulation, government could concentrate on articulating society's goals and raising the revenue for their achievement. Things that government, in fact, can do very well, and which, indeed, only government can do. The actual achievement of our social and environmental goals would best be contracted out to a motivated private sector, where incentives, diverse approaches and adaptiveness could all serve social purposes.

The Common Agricultural Policy, and the persistence of its lunatic subsidies to the rich at the expense of the poor, is the logical endpoint of the contrary approach, which only the powerful have the time and resources to subvert.

Targeting outcomes: there's no alternative

When it comes to climate change, the uselessness of the current policy approach is plain. The way we do things now is: get the government or some bureaucracy to identify some activity that has an effect, then try to encourage or discourage that activity. In our complex society, that way of doing things is increasingly futile. Take climate change. Current reasoning has it that (1) climate change is caused by man's greenhouse gas emissions and that (2) cutting back those emissions will stabilise the climate. There are huge scientific uncertainties here, but let's move on to step (3) we need to cut back those emissions. So we end up with the Kyoto process, whereby some, but not all, countries say they will cut their emissions. And in the unlikely event that those countries do actually cut their emissions what do we find?

[A] significant and growing share of global emissions are from the production of internationally traded goods and services. Although this finding may follow directly from increases in international trade itself, it could have unintended consequences for climate policy, as it leads to a spatial disconnect between the point of consumption and the emissions in production. Source

or, as Naomi Klein puts it:

the rise in emissions from goods produced in developing countries but consumed in industrialized ones was six times greater than the emissions savings of industrialized countries. Capitalism vs the climate, 'The Nation', 28 November

We're going nowhere on climate change, because we refuse to accept that, if we want to stop the climate changing, we have to target climate change. We have to reward the achievement of climate stability. What we shouldn't do is exactly what we are doing: using fossilised science to prejudge how we shall achieve climate stability, and building all our hopes and a huge bureaucracy on top of that science only to find that: the science is faulty or outdated and the bureaucracy is failing anyway. In short, cutting back emissions may or may not be helpful but, either way, we're not even doing that.

I really don't think there's a better way of tackling climate change and its consequences than Climate Stability Bonds. Nothing, in the years since my paper was published, has changed my view.

Consult on ends, rather than means

From a letter to the editor of the London Times:

Sir, Your endorsement of the Greek referendum so that the Greek people can determine their own future surprised me. Personally, I will endorse referendums on economic policy once we also put the question of what medicine doctors should use to cure certain illnesses to a public vote. Jacob Williamson, 'The Times', 4 November

Mr Williamson has a point: economic policymaking is now so complex and specialised that consultation with the public might well be a bad idea. On the other hand, harsh austerity measures need quite a lot of buy-in if they are to be successful; the sort of buy-in that might only be possible with public approval.

The answer could be to consult the public on meaningful outcomes, rather than on policies that may or may not achieve them. We understand the ends more readily than the means. When we buy a plane ticket, we are concerned more with the destination than the identity of the pilot or the detailed operation of the plane. Social Policy Bonds are a means by which the public can articulate the goals and priorities of policy. Under a bond regime, social and environmental outcomes would not only be identified and targeted, but also continually costed via the market for the bonds. Referendums about policy goals then would be a meaningful exercise, one that encourage broad engagement with the policymaking process, and the buy-in that's necessary for difficult decisions.

Matt Taibbi gets it

Matt Taibbi writes:

Our world isn't about ideology anymore. It's about complexity. We live in a complex bureaucratic state with complex laws and complex business practices, and the few organizations with the corporate willpower to master these complexities will inevitably own the political power. Griftopia

This is something I have been saying for years (here, here, here and here, for examples). Complexity has had the effect of excluding ordinary people from the policymaking process. My suggestion is to reformulate policy in terms of outcomes that are meaningful to ordinary people - as distinct from corporations, government bodies or billionaires. Social Policy Bonds would do that, and they would channel market forces into the achievement of these outcomes.

The logical end-point of the alternative - policy made by the rich for the rich - is being played out before us. But even if the political process weren't being subverted by the powerful, our society is so complex that the effects of even well-intentioned policy measures can rarely be identified. Typically, if such identification is attempted at all (which it hardly ever is) there are too many variables, linkages, unquantifiables and time lags to get a handle on cause and effect. As well, there are very few incentives to get policy right. A policy's impact horizon usually extends beyond politicians' time in office, and few bureaucrats work within a system that rewards achievement rather than activity.

A Social Policy Bond regime could change all that. It would create a coalition of people and organizations whose interests were exactly congruent with those of ordinary people, and who would be motivated to monitor continuously how efficient and effective were their initiatives.

Social Policy Bonds: absurd (at first sight)

Mark Schmitt, reviewing The Submerged State: How Invisible Government Policies Undermine American Democracy by Suzanne Mettler, writes:

We often hope that citizens will be able to deliberate thoughtfully about policy choices, but that is impossible if the policies are shrouded in complexity and in blurred responsibility. ... It is time for a new era of reinventing government, in which the goal is to establish certain clear, unambiguous public functions, and put energy and resources behind them — to row, and not merely to steer. Row! Row!, Mark Schmitt, 'The New Republic', 4 October

Exactly. This has been my theme for two decades now. Even if you do not think Social Policy Bonds are worth trying, you must surely agree with Mr Schmitt and myself that we, the public, cannot engage with current policymaking because of its complexity, and that it is time for reinventing government in such a way as to "establish certain clear, unambiguous" outcomes. Ok, I have substituted 'outcomes' for Mr Schmitt's "functions" because to me it is outcomes rather than processes that are important, and I think Mr Schmitt would agree with me.

So what about Social Policy Bonds? At first sight, I will admit that they do seem radical. They are likely to mean that the private sector tries to perform broad functions currently undertaken by government: the achievement of health, law and order, or environmental goals, for example. There are dangers in that, some of which I address in my book, others of which might not be anticipated. So I actually don't advocate that Social Policy Bonds be deployed widely. Not immediately, anyway. I do advocate that they be discussed, tried, refined, tried again, and then, perhaps, issued to solve our most urgent national and global problems.

The current system is failing us. Social Policy Bonds would represent a discontinuity in the way we approach policy. They are untried and untested. They use right-wing methods to achieve goals usually articulated by the so-called left. Yes, at first sight, they do seem absurd. But in defence of the Social Policy Bond concept, I call Albert Einstein, who said: “If at first, an idea isn't absurd, then there is no hope for it”.

Government by distraction

Brendan O'Neill writes:

The otherworldly nature of [UK] party conferences is a consequence of some huge political shifts in recent years. It is the hollowing-out of the mainstream parties, their speedy and profound jettisoning of members and grassroots supporters and their subsequent disconnection from the public, which creates today’s strange and alien political culture. Meet the PC oligarchy that now rules Britain, 'Spiked', 6 October

Exactly so. At a time when we need maximum public participation and buy-in to policymaking, we have a system that is guaranteed to alienate ordinary people. Much can be explained by our politicians' relentless focus on things that are irrelevant to normal citizens: gestures, sound-bites, institutional structures, prestige projects, quirks of personality, Mickey-Mouse micro-targets, and many other distractions. We lose sight of the big issues: facts like unsustainable levels of government borrowing or the proliferation of nuclear weapons. Who benefits from government by smoke-and-mirrors? Those who can afford to pay think-tanks, lawyers and lobbyists to follow and influence the policymaking process. That means billionaires, big corporations, trade unions and other interest groups - including government agencies. It doesn't mean ordinary people.

Recasting policy in terms of outcomes could close the ever-widening gap between politicians and the people they are supposed to represent. Social Policy Bonds would refocus policy onto outcomes that are meaningful to ordinary people, who would be better able to understand and participate in policymaking. A bond regime would reward only those who help achieve our social and environmental goals. All government-financed initiatives would be undertaken with the aim of achieving these goals as efficiently as possible. And, in stark contrast to the current system, 'creative destruction' would operate: failed projects would be terminated.

Five jumbo jet disasters a year in the UK

Despite clear improvements in road safety, the annual cost to the UK economy of all [road] deaths and injuries remains significant at around £13 billion (i.e. around 1% of GDP), with damage-only accidents estimated to cost a further £5 billion. Source (pdf), quoted on Man's Greatest Mistake

A shark attack anywhere in the world means instant headlines, as does a plane crash or a terrorist atrocity that kills a few dozen civilians. Rightly so, perhaps, but then we - or rather, policymakers - should make a lot more of the everyday killing that occurs on our roads. By some measures, the UK has the safest roads in Europe but even so, 1850 people were killed in 2010. Road accidents are so routine, or so difficult to film for televistion, they don't merit much in the way of media attention. Policymakers should do better. The most cost-effective way of saving lives would be to allocate funds across all life-threatening causes, however mundane and unspectacular.

Social Policy Bonds have amongst their advantages that of being able to target such broad goals as longevity. They reward outcomes, not activities. Under the current system, funding for activities that are supposed to improve longevity is allocated according to a range of often spurious criteria, such as media attention, past levels of funding, or the identity of likely victims. A Social Policy Bond regime would allow policymakers to target all threats to longevity (however defined) impartially. This cannot be done under the current system, as funding is allocated to bodies that have little interest and incentive to consider the overall health of the nation. Funding goes to bodies according to criteria that may have little to do with outcomes. It's funding as if outcomes - real outcomes that are meaningful to ordinary people - don't matter.