Policy as if process is the only thing that mattered

Mark Steyn writes about the US healthcare bill:

A 2,700-page law is not a "law" by any civilized understanding of the term. Law rests on the principle of equality before it. When a bill is 2,700 pages, there's no equality: Instead, there's a hierarchy of privilege microregulated by an unelected, unaccountable, unconstrained, unknown and unnumbered bureaucracy. It's not just that the legislators who legislate it don't know what's in it, nor that the citizens on the receiving end can ever hope to understand it, but that even the nation's most eminent judges acknowledge that it is beyond individual human comprehension. Just reading Obamacare cruel and unusual punishment, 1 April

The problem is systemic. The policymaking process is more about the process than about the policy. And the process itself is arcane and obscure; comprehensible only to specialists and those who can afford to employ them to follow and influence it. Yes, society is complex, and the ways of achieving social goals are similarly bound to be complex. But that does not mean that government has to try to anticipate all these ways and legislate for them. A much more accessible approach would be one that specifies targeted outcomes and rewards people for achieving them, however they do so. Government could then concentrate on what it does quite well: articulating society's goals and raising the revenue to achieve them. If it issued Social Policy Bonds, it could then contract out the actual achievement of these goals to the private sector. As well as the efficiency benefits of channeling market forces into the achievement of social and environmental outcomes, there would be the buy-in that would come from a public that understands a relatively simple policymaking process, including necessary limitations and trade-offs involved in targeting a range of social goals. What we have now is policy as if process is the only thing that mattered. What we need - urgently - is policy as if outcomes mattered.

Entrenching corruption

Matt Taibbi writes:

In a pure capitalist system, an institution as moronic and corrupt as Bank of America would be swiftly punished by the market - the executives would get to loot their own firms once, then they'd be looking for jobs again. But with the limitless government support of Too Big to Fail, these failing financial giants get to stay undead forever, continually looting the taxpayer, their depositors, their shareholders and anyone else they can get their hands on. Too crooked to fail, Matt Taibbi, 'Rolling Stone', 29 March

Yes, a pure capitalist system would be an improvement on the current model, in that it would respond to people's wishes, rather than the interests of monopolies or government. What we have in the west, more and more, is government that is reponsive not so much to the citizens whom it's supposed to represent, but to powerful institutions. These include large corporations, trade unions, or government agencies, including the military. They all have one over-riding goal: self-perpetuation, regardless of the interests of society or the environment. Unfortunately, there is little in the way of self-correction, especially when government gets involved. Indeed, the dynamic works in the other direction: corrupt favouritism entrenches itself along the lines that Mr Taibbi describes. Interests groups whose influence is out of all proportion to their contribution to society benefit from direct subsidy or regulatory manipulation to such an extent that they become wealthy enough to resist any change.

If this sounds far-fetched take a look not only at the Bank of America, but also at farmers and agribusiness in virtually every rich country. The insanity of agricultural support policies has been widely understood and quantified for several decades now. Its persistence is a savage indictment of our so-called capitalist model.

Social Impact Bonds and Social Policy Bonds

Social Impact Bonds, about which I have blogged before, are a small step in the right direction. (I have had no input into their creation, though I have spoken to their lead developer.) Their best feature is that they target outcomes, rather than activities, inputs, or outputs. To my mind they suffer from the deficiency that they are not envisaged as being tradeable. This means they have to focus on narrow and short-term goals, for which the purchasers of the bonds can expect to hold them until redemption. This in turn means that the arrangements for each issue are more along the lines of contracts whose reporting requirements (monitoring progress toward the goal etc) seem quite burdensome in relation to the intended outcome.

Social Policy Bonds, being tradeable, can target broad, long-term goals, such as peace in the Middle East, or the avoidance of any sort of catastrophe, man-made or not. This is a huge advantage. Targeting outcomes, which both SIBs and Social Policy Bonds do, works better than the current, command-and-control system when we do not know in advance how best to achieve our social and environmental goals. If we target broad, long-term goals there is both: (1) less chance that targeted goals will achieved at the expense of goals that are not specifically targeted, and (2) more scope for investors to explore different ways of achieving these goals and follow and refine the best approaches. As well, reporting requirements will be a lesser proportion of the sums at stake.

Social Impact Bonds, though, are already being issued, while Social Policy Bonds, despite being in the public arena since 1989, have not. As well, I will readily concede that "Social Impact Bonds" is the better name. I was originally going to give my bonds the name "Social Objective Bonds" until one of my colleagues, more worldly than me, pointed out the meaning and widespread usage of the acronym.

Should evidence determine policy?

There seems little to choose between evidence-based policy-making and policy-based evidence-making. See this discussion: "the idea that we've moved from ideology-based policy-making to evidence-based policy-making...is completely misleading, because the evidence-gathering process is itself value-laden." Life is so rich and complex, and the stakes so high, that so-called experts will always be able to find evidence that justifies whichever policies serve the interests of the highest bidder. So my answer to the question in my header is: no. And my suggestion is just as simple: outcome-based policy.

Emissions trading not working - who would have thought it?

No surprises here:

Emissions trading, the European Union hoped, would limit the release of harmful greenhouse gases. But it isn't working. The price for emissions certificates has plunged, a development that is actually making coal more attractive than renewable energy Source

Here's another idea: instead of using fossilised science, and then allowing corporate interests and their friends in government to dictate policy, why not target the outcome that we want to achieve? A more stable climate, defined in terms of some combination of human, animal or plant health indicators. And why not reward people for achieving this outcome, rather than for performing some activities that might, but actually don't, achieve it. See here for more.

Bad Policymaking

Ben Goldacre writes:

[F]or ... assessing causal relationships, intuitions are often completely wrong, because they rely on shortcuts which have arisen as handy ways to solve complex cognitive problems rapidly, but at a cost of inaccuracies, misfires and oversensitivity. Bad Science, Ben Goldacre (page 238)

This becomes a problem for policymaking under the current system, where government is often charged with identifying causal relationships and, if it gets them wrong, the consequences can be calamitous. For murky, complex social, economic and ecological relationships, we need a mechanism other than the one-size-fits-all, top-down approach that is a feature of the current policymaking system (and which can work well, when causal relationships are obvious). Central planning, a catastrophic failure when applied to economies, fails too in policy areas where there is a compelling need for diverse, adaptive approaches.

But central planning is precisely the approach we are taking in tackling extremely complex social and environmental problems: climate change, or warfare, for instance. They seem to be failing in much the same way as in the economy. There's little response to expanding knowledge or to changing circumstances. There's little diversity. Most important, failed approaches aren't terminated. The incentives are to maintain existing institutions, rather than to achieve the stated outcome.

That's where Social Policy Bonds could be a better alternative. They would reward people only if a specified outcome is actually achieved and sustained. A body that issues the bonds doesn't have to have an opinion about what causes a social problem. It just has to reward the people who solve it. Incentives are built into the system: only efficient solutions will be rewarded.

For more about Social Policy Bonds, please download my book (see right-hand column).

The triumph of process

It's a familiar story: in so many policy areas - health, education, the environment, for instance - adherence to process is more highly rewarded than socially desirable outcomes. So we have a blizzard of micro-targets combined with a disintegrating physical and social environment and a disengaged electorate. Policymaking itself is an arcane process, comprehensible only to those who are paid to participate in it or who are lobbyists for powerful interests.

And it's the same in the justice system, at least in the US, where "Six million people are under correctional supervision in the U.S.— more than were in Stalin’s gulags." Adam Gopnik explains:

accused criminals get laboriously articulated protection against procedural errors and no protection at all against outrageous and obvious violations of simple justice. You can get off if the cops looked in the wrong car with the wrong warrant when they found your joint, but you have no recourse if owning the joint gets you locked up for life. You may be spared the death penalty if you can show a problem with your appointed defender, but it is much harder if there is merely enormous accumulated evidence that you weren’t guilty in the first place and the jury got it wrong. The caging of America, Adam Gopnik, 'New Yorker', 30 January

Mr Gopnik's article goes on to point out that the large falls in US crime rates over the past three decades, especially in New York, have many explanations, few of which could be known in advance.

I think this well-written piece helps make the case for targeting outcomes, as I have advocated, whether or not by using Social Policy Bonds. Society is so complex that a single group of policymakers cannot know in advance with any certainty the underlying relationships between, say, prison sentences and crime rates. Or between spending on schools and literacy. Or between greenhouse gas emissions and the numbers of people killed or made homeless by adverse climatic events. Where cause and effect are clear - as say, between inoculation rates and disease - there is a strong case for government working to achieve a social target. Where it is not there is still a strong case for government setting the target and raising the revenue for its achievement. But, instead of trying to achieve it directly, it would, I think, do better to contract out the achievement to a motivated, diverse and adaptive private sector. Social Policy Bonds are one way in which this division of labour could be carried out efficiently.

Japan is different. Oh really?

But the LDP [of Japan] shows the same intransigence that has been its stock-in-trade since it lost power in 2009. It vows to block the tax bill, even though raising the consumption tax has long been a plank in its own policies. Generational Warfare, 'The Economist', 28 January

Once more, we see the unimportance of outcomes to today's politicians. The right policy rejected because it's proposed by the people on the other side. We - that is, the entire democratic world - desperately need a new political system. One that targets outcomes that are meaningful to ordinary people, not politicians, corporates or government agencies. The old system is just not fit for purpose.

New Zealand opts for Mickey Mouse micro-targets

Cancer patients who need chemotherapy should receive it within four weeks of being assessed, under new [New Zealand] government health targets. The cancer target at present requires hospitals to provide radiation therapy within four weeks of assessment. From July 1, hospitals would also have to ensure that patients needing chemotherapy received treatment within four weeks. Source

It's a shame that the New Zealand Government has learned nothing from other countries' mistakes. Targets like this have nothing to do with the broader health of the population. They will be so manipulated as to become meaningless or, worse, divert resources into (apparent) compliance and away from health care. In the UK, for instance, we have seen ambulances delaying their arrival at hospitals, so that targets for seeing patients within four hours of arrival can be met. It's not difficult to imagine ways in which New Zealand's new chemotherapy target will be similarly gamed, at the expense of people's health. This is the sort of micro-management that did so much to cripple the Soviet Union. Private corporations with a narrow focus on a few accountancy ratios are prone to similar errors. In theory at least competitive pressure would ensure that the mismatch between targets and reality cannot continue to worsen indefinitely. (In practice, if the corporations are big enough, they subvert government and change the rules.) But when government applies these micro-targets, there's little to bring them back into line. High-sounding, well-meaning experiments like this are rarely terminated.

We need to bring government back to its core focus: if its goal is to improve the health of its citizens, that's what it should target. Let a competitive private sector work out how best to achieve that goal. Government can still set broad health targets, and it can, and should, raise the revenue to achieve those goals. But it cannot possibly keep up to date with science, nor respond adequately to changing events or diverse circumstances. Only something like a Social Policy Bond regime, where people are rewarded for being efficient achievers of meaningful targets, can do that.

Mickey Mouse micro-targets

Numerical targets, though they can never accurately measure everything of importance, are going to have to play a role in determining the efficiency and effectiveness of policy instruments. Many of our social and environmental problems can be attributed to (1) the private sector's use of accountancy measures, to the exclusion of anything else, in evaluating its own performance, and (2) the failure of the public sector to use any meaningful numerical targets.

Governments do use plenty of meaningless targets. Here's Theodore Dalrymple:

The Times Educational Supplement is Britain’s most important journal for the teaching profession. In the January 6 edition, it described the methods school principals use to deceive the official inspectorate of schools. The inspectorate’s reports, in the words of the TES, “are vital checks on the performance of schools, relied on and trusted by parents and those running and working in the system.” The precise extent of the principals’ cheating is, in the nature of things, difficult to measure. But once the principals know that an inspection is coming, many employ techniques such as paying disruptive pupils to stay home, sending bad pupils on day trips to amusement parks, pretending to take disciplinary action against bad teachers, drafting well-regarded teachers temporarily from other schools, borrowing displays of student work done in other schools, and so forth. It’s Gogol’s Government Inspector translated to the educational sphere. The Less Deceived, 'City Journal', 10 January

What government should be doing is targeting broad measures that are meaningful to real people. Real people, as opposed to government agencies or corporate accountants. In education government should be targeting, at the very least, functional literacy and numeracy.