Betting against extinction?

George Monbiot writes:

The gambling company Ladbrokes has been offering odds on the conservation status of various fish species. Until last night it was taking bets on mackerel; recently it has encouraged people to punt on the survival prospects of stocks of yellow fin tuna, swordfish and haddock. You can, if you wish, gamble on extinction. Betting on extinction, 1 February

The article is upsetting to read, though hardly surprising, but I will point out one unlikely potential plus. Suppose a group of wealthy non-governmental organizations, philanthropists and concerned members of the public got together and gambled against extinction? If the odds were decent and they raised a large enough bet then...

Then ...we would have, in effect, a Social Policy Bond which would pay up the specified fish species did not become extinct. The bettors would have an incentive not just to wait passively and watch what happens to the fish, but actively to finance projects that would keep the species going. Such projects could tackle the problem of over-fishing with far more vigour and success than the current shambolic system. The bettors could lobby governments for more effective controls; they could bribe fishers to take early retirement, or train them to do something else. They could produce educational videos aimed at convincing consumers and children about the benefits of alternative sources of protein. Unlike the current system, the bettors would be strongly motivated not just to make reassuring but vapid gestures in the right direction, but actually to do something to combat species extinction.

Kyoto is doomed

From the Economist:

On January 15th ... the most comprehensive study of black carbon yet conducted was published in the Journal of Geophysical Research: Atmospheres. It concluded that the stuff was the second-most-damaging greenhouse agent after CO₂ and about twice as bad for the climate as had been thought until now. The implications are profound. Global warming: the new black, the 'Economist', 19 January, [my emphasis]

Indeed. If we are serious about tackling climate change, we should reward people for tackling climate change, not for taking steps that, based on science stuck in the 1990s, might do something about climate change.

The climate, like many social concerns, is too hard for anyone fully to understand. Making policy on the basis of limited knowledge is what we do all the time. It's unavoidable. But, when we trying to solve huge, urgent problems and when our knowledge of the important scientific relationships is almost negligible, it is idiotic to waste resources on initiatives - like cutting greenhouse gas emissions (or, rather, pretending to) - that are just as likely to be irrelevant as helpful.

Which is why I advocate targeting outcomes, rather than the supposed means of achieving them. If climate change is seen as an urgent problem, and if we genuinely want to do something about it, we should acknowledge that our scientific knowledge is seriously deficient and instead of rewarding people for undertaking government-improved activities we should reward them for, yes, actually reducing climate change. Under a Climate Stability Bond regime, we could define our climate goals as an array of physical, social, and financial conditions, all of which have to be satisfied for a sustained period before the bonds are redeemed. We'd be rewarding people for achieving society's targeted outcome, however they did so. Crucially, these people would have incentives to investigate, start, adapt or terminate their initiatives, or those they finance, in line with our rapidly expanding knowledge of the myriad variables that influence the climate. The entire Kyoto process, as the quote above shows, is spectacularly inadequate in this. It is doomed to fail.

'It's me or the puppy': the importance of buy-in

Dear Virginia, My six-year-old son nagged me so much for the past year I gave him a puppy for Christmas. He loves it and so do I but my partner (not his dad) hates it. ... Yours sincerely, Esther

Virginia says, Obviously, if you just inflicted this puppy on the household at Christmas without giving your partner a say in the matter, I can understand why he might be pissed off. If nothing else, it would make him feel small and out of control, in the same way as if you’d moved your mother, say, into the spare room to live there for 10 years, without prior discussion. To bring in an animal – which is like a member of the family, or should be – without consulting all family members first is an incredibly thoughtless thing to do. ... Virginia Ironside's dilemmas: it's me or the puppy, 'The Independent' [London], 15 January

Buy-in is important, whether it's the politics of the household or the country. Democracies, when the function well, secure buy-in by allowing people to vote for different parties. The supporters of the losers know they have been consulted and, ideally, accept with good grace that they were given the chance to influence the outcome but were outvoted. Unfortunately, nowadays there isn't much linkage between what a ruling party says and what it does, and there are extremely obscure relationships between what it does and what actually happens. The result? We don't have buy-in; the gap between politicians and people widens, giving rise to cynicism and despair.

Social Policy Bonds could close that gap. Instead of politics and electioneering being about personalities, sound-bites, stated intentions, or vague notions of a messianic future, they would focus exclusively on outcomes. Outcomes, that is, that are meaningful to ordinary people, the voters. 'Growing the economy' is not an end in itself, nor is per capita Gross Domestic Product a reliable indicator of well-being. Another example: spending more on prisons or police is not the same as rewarding people for cutting the crime rate. Signing up to the Kyoto process is not the same as helping people cope with adverse climatic conditions.

In these cases, and many others, we see the interests of the political class - politicians and bureaucrats alike - diverging from those of ordinary citizens, or even conflicting with them. Under a Social Policy Bond regime, however, people would vote for comprehensible, meaningful outcomes, rather than who will control insufferably arcane processes of interest only to powerful vested interests and their lobbyists. As such, we'd be more inclined to participate in the policy-making process. We'd have a role, if we wanted it, in setting costs and priorities. In short, even if policies hardly changed at all and were opposed by the same numbers of people, we'd have more buy-in than at present. When we face such urgent and complex challenges the additional buy-in that we can get by consulting people about meaningful social and environmental targets, might prove crucial. It makes for happier people in both households and nations. Puppies would be better off too.

Fund goals, not research bodies

One of the problems with the current ways we go about solving social problems is the uniform way in which we approach them. This is largely because we have handed over to government the responsibility for dealing with an ever larger number of them. As scientific research funding becomes increasingly dominated by government there is a growing danger that it too will suffer from the same approach, wherein there's little room for dissidence, for questioning the consensus.

But science - real science - isn't a consensual process. Government is inherently uniform, top-down and one-size-fits-all in its approach. It stifles diversity. In the private sector, diversity and creative destruction are essential for generating wealth. Similarly in science: failed hypotheses must be seen to fail and allowed to die, not kept on life support with funding supplied by politicians who depend on vested interests, the status quo, for their tax revenue or campaign funding.

Perhaps research funding needs to be determined by, and integrated into, our broad, long-term, social goals. So instead of funding research into, say, cutting back carbon dioxide emissions with the aim of preventing climate change, we should fund the prevention of climate change. If we issued Climate Stability Bonds, then people would have incentives to find the most cost-effective ways of stabilizing the climate. That could mean funding scientific research into cutting back carbon emissions, but that decision would be made by people motivated to find the most efficient ways of achieving the overall goal. Not, as at present, by bureaucracies, academic, national and international, whose interests appear to range from, at best, securing more funding for themselves to, at worst and in the time-honoured way of most global aid, transferring funds from the poor in the rich countries to the rich in the poor countries.

Under a Social Policy Bond regime, where activities are entirely subordinate to society's desired outcomes, people would have incentives to investigate hypotheses that at first sight seem far-fetched (see here for one example), even if they would prove unpopular if proven. And once they are proven they would have incentives to act on that knowledge ...  rather than conceal it. 

Review

A relatively good year for Social Policy Bonds. There has been some interest in the novel concept of paying-for-results in social policy through the concept of Social Impact Bonds (a watered-down version of Social Policy Bonds). In April Professor Robert Shiller of Yale University suggest Social Policy Bonds as one of his Ten Ways Finance Can Be a Force for Good in Society. This was taken up here, for instance, and, in oral form, here, and has generated more views of this blog and my home site and some email correspondence.

One reason why no Social Policy Bonds have yet been issued is that their advantages over conventional policy are most marked on a large scale and for long-term or ambitious objectives. For such goals, diverse, adaptive approaches need to be researched, tried on a small scale, refined and implemented. The bonds, being tradeable, allow for and encourage such experimentation. There are few other ways of supplying explicit, transparent and stable incentives to bring about world peace, for instance, or to mitigate natural or man-made disasters. National goals, too, are amenable to a Social Policy Bond approach. Reducing crime, for instance, or improving health are goals that require multiple, adaptive solutions, rather than the one-size-fits-all, top down, reactive or fossilized approach characteristic of our current efforts.

For all such goals, people need to be motivated to shift resources, keep their eyes on the long term (though with incentives to achieve success in the short term) and, crucially, terminate failed approaches. For smaller goals, where relationships between cause and effect are readily identified and acted upon, conventional policy, if the incentives are right, can work. Social Policy Bonds issued on a trial basis to achieve such goals might just see problems exported to areas outside the bondholders' remit. But for national or global goals, which mean dealing with vastly complex linkages and time lags, Social Policy Bonds, I am convinced, are the way forward.

Incentives to sell off fountain pens

Academic research has suggested that human rights treaties either do not improve human rights at all or do so very little, for a limited group of treaty rights, and among a select group of countries, not the worst offenders. Why the U.S. Shouldn’t Sign On to Empty Human Rights Treaties, Eric Posner, 'Slate', 21 December

No surprises here. Not that different from the Kyoto process either. Motivation is important: but we need systems that supply motivation to achieve meaningful outcomes, not to sign useless treaties while grandstanding at the United Nations. Against what metrics are the current thug regimes tested for meaningful human rights outcomes? None of course. Perhaps we could persuade some genuine philanthropists to issue Human Rights Bonds, on the Social Policy Bond principle.

We'd need to devise reliable targets for human rights, raise some funds, then issue Human Rights Bonds that would be redeemable once our human rights targets had been achieved. Not very glamorous perhaps, and no possibility of selling off the pens used to sign meaningless treaties. But a Human Rights Bond regime could hardly be less effective than the current corrupt system.

Ticking boxes is not the same as achieving goals

Josie Appleton, of the UK's Manifesto Club, reads 'a lot of child protection policy documents':

They are often hundreds of pages long, yet I have never seen a proposal that would prevent a paedophile from getting access to children. Instead, there are all sorts of rules – rules about how you transport children to football matches, rules about how you take photographs, rules about late pick-up policies for when the parents don’t turn up on time to take their kids home from some activity or other. So there is this morass of bureaucracy, yet there’s not one identifiable useful functional element within it. What you have then really are rules for the sake of rules. Why everyday life is tied up in red tape, 'Spiked', 18 December

It's the triumph of process over outcomes. Ticking boxes has become more important than achieving society's goals. Avoidance of litigation becomes the guiding principle. Compliance with procedure is what matters. We see this in so many policy areas: from climate change to health care, where it takes the form of defensive medicine.

Society is increasingly dominated by government and big business. As Ms Appleton suggests, bureaucrats have as their goal the proliferation of rules and ensuring compliance with them. Politicians have the de facto goal of maximising Gross Domestic Product. And the private sector goal of maximising profits as measured by accountants, and ignoring any non-market negative impacts of their activities. In a crowded, complex world, with so many time lags and linkages, these goals are increasingly irrelevant to those of ordinary people. Worse, they often conflict with them.

Social Policy Bonds could realign the interests of government and big business with those of society. Instead of processes that are supposedly aimed at achieving outcomes, government would target the outcomes themselves. At the global level, it could target the negative impacts of climate change. At the national level, it could target meaningful health outcomes. A bond regime would encourage government to do what it does well: articulate society's goals and raise the revenue to achieve them. Where the current system goes awry is in government's trying to identify the processes that will lead to certain outcomes. In a complex, changing world, it cannot often do this effectively. So it's prone to listen to lobbyists for groups whose interests rarely coincide with those of society. The gap between government and people grows. Social Policy Bonds could close that gap.

Health Bonds

I have posted a short (1500-word) article on applying the Social Policy Bond principle to health here.

Another climate change shambles

Practically half of the EU’s renewable energy currently comes from wood and wood waste ... but a lack of sustainability criteria for measuring its environmental impact is stoking fears of a hidden carbon debt mountain.  Source

This highlights the flaw of using anything other than outcome-based policy for relationships that we just do not yet understand. Under the current system our politicians, preoccupied as they with things like the economy, identify 'renewable' as good, and burning trees as 'carbon neutral'. The result:

If living wood is simply burned for energy, a temporary carbon debt can be created until CO2 emissions caused by the release of all the carbon it has absorbed, and the loss to the carbon sink, are compensated for by fully-grown replacement trees. Climate scientists say that this time lag can run over many decades – sometimes centuries – causing environmental tipping points to be reached in the interim that render any expected eventual carbon savings moot.

This is what happens when we rely on our well-meaning, overworked, distracted or scientifically challenged politicians and bureaucrats to craft a policy that is supposed to anticipate our rapidly expanding knowledge. We are relying on them to identify a relationship - that between energy source and climate change - amidst myriad variables, using current science. Then we assume that they have tackled the problem. They haven't.

Here's another idea: target what we actually want to achieve. If it's a reduction in fossil fuel use, target that. If it's climate change, target that. Contract out the identification of the relevant relationships to people who are motivated to get the answer right and to adapt to our rapidly expanding scientific knowledge. We can best do that for long-term, complex goals by issuing Social Policy Bonds.

Health and Social Policy Bonds

An interesting discussion here, on Ben Goldacre's book, Bad Pharma: a Manifesto to Fix the Pharmaceutical Industry. My contribution reads:

Here's another idea: government targets broad, explicit health goals: a combination of longevity, Quality Adjusted Life Years and other impartial data. It issues and backs a large number of tradable non-interest bearing bonds, redeemable for (say) $1m each once the target health goals have all been achieved and sustained. That way government rewards successful initiatives for improving health (including, but by no means limited to, new drugs) regardless of how these initiatives work, or who implements them. Government still articulates society's broad desired health outcomes, and still raises the revenue for their achievement. But it contracts out the achievement to a motivated private sector in a way that rewards success, and only success. This sort of bond, which are an application of Social Policy Bonds, would stimulate diverse, adaptive ways of achieving goals and refocus efforts on the long term.