Two sorts of self-interest

If men were actuated by self-interest, which they are not — except in the case of a few saints — the whole human race would cooperate. There would be no more wars, no more armies, no more navies, no more atom bomb. Bertrand Russell, What Desires Are Politically Important?, 1950

Our current policymaking system gives undue priority to emotion, whim, and concerns that make for effective television footage. So our politicians give arguably too little attention to huge, important challenges that move too slowly for television, such as the piling up of armaments, climate change, the diversion of resources from the poor to the rich, and threats to the family and social cohesion. Our short-term, reactive self-interest is largely ideological, concerned more with shoring up our world view and creating bonding opportunities with people who think the same way than with solving the world's social and environmental problems. It's determined largely by a dangerous combination of emotion coupled with abstract intellectual thought. It concerns itself with the immediate, which means a focus on what can be done now rather than outcomes. And what can be done now to solve most social problems is inevitably the source of endless heated and destructive debate because our problems are so complex.

We should build into our policymaking system the fact that there is far more consensus over the sort of outcomes that we as a society want to see than there is over the supposed means of achieving them. The societal self-interest that Russell implicitly identifies - the sort that is beneficial to all of humanity - could then take over from the narrow, fear-based self-interest that animates so many of the world's political (and military) decisions.

Social Policy Bonds would encourage us to make the distinction. A bond regime would make decisions about society's long-term goals on the basis not of what government can do now or where it should allocate its funds, but on what needs to be done. This would take the ideology and emotion of how things shall be done and who shall achieve them. Social Policy Bonds could then target effectively those universal social goals that are currently either not being targeted, or not being achieved, or from which we actually moving away. A world of peace, for instance, or a world that seeks to prevent or mitigate catastrophes of any sort. For more on the Social Policy Bond principle and its applications see SocialGoals.com

Rewarding the rich and the dead

From the Economist:

According to the [United States] Government Accountability Office, between 2007 and 2011 Uncle Sam paid some $3m in subsidies to 2,300 farms where no crop of any sort was grown. Between 2008 and 2012, $10.6m was paid to farmers who had been dead for over a year. ... [W]ith crop prices now falling, taxpayers are braced to be fleeced again. Milking taxpayers, 'the Economist', 14 February

When government makes so many policy interventions, some of them are going to be bad. A working, viable, democratic, accountable and transparent policymaking system would, we'd hope and expect, weed out bad policies or, with judicious regulation and further intervention, convert them into better policies. But our current policymaking system is incapable of doing that. Instead, bad policies become worse policies, because rather than have mechanisms for getting rid of them they create interest groups who resist change and, as recipients of taxpayer funds, can afford expensive lobbyists to make these policies permanent features of the political landscape. 

So it is with agricultural policy, not only in the US, but in almost all of the developed countries. Forty years ago, or instance, the stupidity of the European Community's Common Agricultural Policy was well established and widely discussed. But very little has changed. These policies hurt consumers in the developed countries by raising food prices. They reward intensive farming with devastating effects on the environment and animal welfare. They penalise third-world countries by putting up barriers to their agricultural exports. They cost billions of dollars and their only beneficiaries, apart from the bureaucrats who administer them, are agribusiness corporates and wealthy landowners. From the same article: 

American farm subsidies are egregiously expensive, harvesting $20 billion a year from taxpayers’ pockets. Most of the money goes to big, rich farmers producing staple commodities such as corn and soyabeans in states such as Iowa.

I wrote about all this 15 years ago. Worth repeating and emphasising is that our policymaking system does not correct its errors. Instead, appallingly wasteful policies persist because they enrich people who lobby against their removal. We have a system that cannot correct errors but rather entrenches them. The current system, in brief, is dysfunctional.

A better alternative would be to focus on outcomes, and reward people for achieving them. People understand outcomes, and policies under an outcome-oriented system would not be subject to the smoke-and-mirrors manipulation that saw measures taken to 'protect the family farm' be transmuted into subsidies for agribusiness and billionaire landowners - alive and dead. Agriculture, of course, is not the only sector that government policy has corrupted in ways that hurt ordinary people, though it is one of those with the longest history of government intervention. Our failure to correct our policy mistakes in agriculture speaks volumes about how unfit is our current policymaking system.

Dog food or doomsday

A longer version of a previous posting:

It's a puzzle to me how we have created regimes that allow financial incentives to operate creatively in interesting but ultimately not very important aspects of our lives - advertising dog food, for example - while ways of dealing with the most serious determinants of mankind's well-being rarely reward efficiency. So employees of companies selling dog food have sales and revenue targets to meet, stringent deadlines, and they are offered meaningful incentives backed up by robust reporting and analysis systems to monitor progress and so achieve maximal dog food market penetration. In contrast, responsibility for what you might think should be major priorities for homo sapiens is given over to the dead hand of government or brave, well-meaning, hard working but under-resourced non-governmental organizations.

What are these priorities are? Most of us would probably give a high rating to things like avoiding the deaths of many millions of people in a nuclear exchange. Or the ending of any violent political conflict of the sort that, amazingly, in the 21st century, still kills, maims or makes homeless countless thousands of us around the globe. Or minimising the deaths caused by natural disasters, or pandemics.

Climate change too: it's no different from other potential catastrophes in that we don't know when or how it will strike. The most fortunate amongst us can insure against some of the financial costs of some adverse climatic events. But even there, markets cannot fully redress the balance. The uninsured, whether uninsurable or not, cannot be compensated at all. Markets are even less capable of addressing the more global calamities of nuclear war, or large-scale violence.

Some years ago I came up with the Social Policy Bond idea, which aims to channel market incentives into the achievement of social goals. Much of this idea has been taken up by governments worldwide, in the form of Social Impact Bonds. But SIBs leave out one crucial aspect of the Social Policy Bond principle: tradeability. When the bonds are tradeable on a secondary market, we can greatly enlarge their scope, because we do not have to specify which organizations shall achieve our goals, and because we can target goals that might be too remote to interest existing organizations.

Take something that has recently made the news: nuclear catastrophe. As the members of the Bulletin of Atomic Scientists shift the hands of their doomsday clock to three minutes to midnight, where are the incentives that will mobilise large numbers of us actually to do something to avoid the doom represented by midnight? There aren't any - we're all doing better by devoting our ingenuity to selling dog food.

The answer could be Social Policy Bonds. Targeting nuclear catastrophe they would be backed by governments, NGOs, philanthropists and anybody with a strong interest in human well-being. Floated on the open market they would become redeemable for, say, $1m each only after a thirty-year period during which no nuclear explosion takes place. Floated on the open market, they might fetch just $10000 each, if the market thinks the probability of thirty years’ nuclear peace is low. But these bonds would be tradeable: their value would rise and fall according to how likely people think the peace target will be reached.

Initial investors would buy the bonds and do whatever they can to increase that probability. Even helping existing ways of monitoring nuclear material might see the value of their bonds double. Others, with expertise in different areas, would buy their bonds and do what they can to raise the value of the bonds still further. At every stage, the bonds would be in the hands of those most able to bring about nuclear peace. The bondholders’ goal is exactly congruent with society’s: they make money only by achieving society’s goal. At every stage of every process required to achieve that goal, incentives will motivate people to be as efficient as possible.

Rather than encourage endless speculation about what projects will make the world more peaceful the bonds would, in effect, contract out the achievement of world peace to the market. They would encourage a wide range of adaptive projects, whose sole criterion for funding would be that they would raise the probability of world peace being achieved. In this way, the governments and others who back the bonds would do what they are best at: articulating society’s goals and raising the revenue for their achievement. At the same time, the market would be doing what it is best at: allocating resources as efficiently as possible.

If nuclear peace sounds too lofty a goal, then we could start by aiming for something like peace in the Middle East. The same principle would work for natural disasters or climate change. In every case, we'd be rewarding the successful achievement of a sustained, desirable outcome, without - as now - distracting ourselves by self-indulgent irrelevancies such as who shall achieve it and how they shall do so. It is a shame to me that few people seem to think along these lines.

Anti road rage

George Monbiot writes about city planning in England, and the lack of playing space for children: "In the places built 10 or 20 years ago, there’s plenty of shared space, but almost all of it is allocated to cars." It's sad how little input ordinary people have into the layout of our towns and cities, and it's tragic that subordinating our entire way of living to motoring (as distinct from motorists) has had such negative consequences for our physical and mental health. People from the new world travel for thousands of miles to experience, for a week or two, vibrant, safe cities that invariably were developed before motoring became important. There's no reason people shouldn't live in the sort of suburbs or satellite towns against which Mr Monbiot inveighs if that is what they want to do, but there are good reasons why such lifestyles shouldn't be heavily subsidised; indeed, so heavily subsidised that any alternative has become forbiddingly expensive or dangerous for the middle classes. What are these subsidies? As well as subsidised to oil extraction and consumption, there is, essentially, free parking. And the costs of accidents, injuries and the damage done to mental health by roading are, of course, borne by the entire population.

Once a particular lifestyle has received subsidies for many years it's very difficult (though not impossible) to withdraw them. As well, cause and effect are difficult to identify and far more difficult to translate into meaningful political action. That is where Social Policy Bonds might offer a way forward. Under a bond regime we could target things that are not amenable to direct government action: things like the loneliness of the elderly, or the broader physical and mental health of an entire population. We cannot know in advance what are the best ways of achieving such targets. But a motivated coalition of investors holding bonds targeting these goals is far more likely to achieve them than a ruling political party beholden to its friends in big business and government. If holders of bonds targeting such goals decided that the best way of enabling people to live fulfilling, healthy lives is to make everyone dependent on cars, then that is what they will do. But they would only do so if that is what the evidence told them. For myself, I suspect that there is no such evidence, and it's a catastrophe that governments the world over are acting as though there were.

Et tu, academia?

There are sound reasons for being disdainful of quantitative targets in policymaking - something that forms the very basis of Social Policy Bonds. But, perhaps unfortunately, in our highly aggregated, complex, societies, the alternative to targeting broad, explicit and, most important, meaningful goals is to target narrow, opaque goals that are devoid of meaning in that they do nothing to improve social well-being.

I've blogged before about the proliferation and futility of such Mickey Mouse micro- (here and here for instance) and macro-targets (here and here). So it's disappointing, though not surprising, that the academic world is following the trend. See here, for instance, to read about cash for citations. Or here, for how to find "outfits that offer to arrange, for a fee, authorship of papers to be published in peer-reviewed outlets. They seem to cater to researchers looking for a quick and dirty way of getting a publication in a prestigious international scientific journal."

If we are going to combine financial incentives with numerical targets then we need to make absolutely certain that those targets are, or are inextricably linked to, robust indicators of social well-being. The alternative? Well, it is what we have now: indicators defined not by society, but by vested interests within organizations who suspect that broad, meaningful indicators would threaten their way of doing things, their status, or indeed their existence. 

Thinking strategically and taking responsibility

Garret Hardin, in his essay 'The Tragedy of the Commons', wrote:

[N]atural selection favors the forces of psychological denial. The individual benefits as an individual from his ability to deny the truth even though society as a whole, of which he is a part, suffers. The Tragedy of the Commons, 'Science', 13, December 1968

Governments supposedly serve society's interests by regulating and taxing individual and corporate activities that are essentially self-serving. It's a process that evolved over time and, while flawed, has proven evolutionary advantages over central planning. And, perhaps because central planning as practised by the Soviet Union and others has been totally discredited, our governments seem to have relinquished their role of thinking strategically on behalf of their citizens. They are subject to the same biases and incentives to deny the truth as individuals. Whether it's environmental disaster, or nuclear catastrophe, or less spectacular but just as grievous impacts of man's inhumanity to man, or financial crises or whatever, our governments take the easy route of waiting for things to happen and then reacting. 

It's inefficient at best, and could be calamitous at worst. Society is so interlinked and complex that major disasters of some sort are inevitable - and extremely difficult to foresee. But government should not then deny the real possibility that these events will occur: it could, and should, think strategically and on behalf of society. By issuing Social Policy Bonds it could reduce the likelihood of disasters, say, without trying to involve itself in how and when they are likely to occur.

For example: I'm reading Eric Schlosser's Command and Control, which tells alarming tales of accidents and blunders that came close to bringing about catastrophe. It's quite disturbing how little incentive the people in control, at all levels, had to think about the potential impacts on society rather than on themselves or the organization of which they were part. Social Policy Bonds that would be redeemed only after, say, 30 years of a complete absence of nuclear explosions, accidental or not, would be one way of giving people incentives to avoid such a disaster. A bond regime targeting such unforeseeable but plausible scenarios would make them less likely to occur and would do so as efficiently as possible. And by issuing Disaster Prevention Bonds government would be doing what it's supposed to do: looking out for all its citizens' interests by directing people's ingenuity into socially useful ends.

The book: Kindle version

The definitive book on Social Policy Bonds, about 60 000 words in length, is now available on Kindle for approximately US$4.00.

Solution aversion

From 'Duke Today':

A new study from Duke University finds that people will evaluate scientific evidence based on whether they view its policy implications as politically desirable. Denying Problems When We Don’t Like the Solutions, 'Duke Today', 6 November

I think this echoes a more general finding that we use reasoned arguments to justify prior beliefs, rather than base our beliefs on reason. What does this mean for policymaking? That we'd do best if (1) we are explicit and transparent about the outcomes we, as a society, want to see, and then (2) subordinate all activities, government or private sector, to those outcomes. Any other way of doing things, as in the current system, will bring about ... well, what we see now: the corruption of the policymaking process in the service of the not-always-well-hidden agendas of the rich and powerful. So 'helping small farmers' becomes corrupted into massive taxpayer-funded welfare for the very rich and agribusiness. 'Affordable transport' becomes massive subsidies to the fossil fuel industries. Misbehaving five-year olds are re-interpreted as a new market for the pharmaceutical industry. Even more wasteful, stupid and dangerous: 'being strong' becomes massive expenditure on so-called 'defence' and the acquisition of nuclear weapons.

If we want to support the very wealthiest and most powerful individuals and corporations, why don't we explicitly set out to do so? Why don't political parties promise that when they get into power they will divert resources from the relatively poor to the enormously wealthy? Could it be that such resource transfers would be unpopular?

The answer of course is 'yes', so views about issues such as climate change, or nutrition, or whether depression (for instance) is a chemical imbalance, or whether more armaments improve social well-being are the subjects not of reasoned debate based on the best available information, but means to ends that are usually sectional and mercenary. Interest groups act on what they believe are their narrow interests; their minds are made up, and they take whichever side of a genuine debate best serves their agenda.

It's a haphazard and destructive way of making policy. Social Policy Bonds offer a better approach: let society determine which broad social and environmental goals it wants to see achieved and their relative priority. Government and private-sector bodies would then be rewarded for doing what they can to achieve these goals: and they would have incentives to see and evaluate the scientific evidence in terms of how best they can serve society's interests, not their own. It might not sound revolutionary, and indeed it shouldn't be. But it is.

Measureable versus immeasurable goals

Theodore Dalrymple writes:

[W]e suffer nowadays from an unease in talking about what cannot be easily measured, such as life expectancy. If I say something that would once have seemed perfectly obvious, such as that loneliness is undesirable, someone will demand the evidence. Life expectancy can be measured; and we are inclined to believe that what can easily be measured must be more important than what cannot. The result is a lot of pseudo-thought. ‘Hell is other people?’, Theodore Dalrymple, 'Salisbury Review', 20 October

In our large, complex societies, government bodies have enlarged their role and largely supplanted families, extended families, and communities in supplying a range of welfare services to a large proportion of their populations. Increasingly, and of necessity, government relies numerical indicators to manage its resource allocation.

But this use of indicators is relatively recent, unsystematic and unsophisticated. Few indicators are targeted explicitly for a sustained period: the targeted range of inflation is a rare exception, as is the coherent range of indicators presented in the UK Government’s attempt to tackle poverty.  Other indicators, such as the length 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 appears to be 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 well known.

What would a Social Policy Bond regime, though, say about those things that cannot readily be measured, like loneliness? In the absence of objective, reliable indicators of mental well-being perhaps the best approach would be for government to step back and target only those quantifiable indicators or goals that are inextricably linked to those sorts of well-being that we can measure. But that would not be enough: some government activities aimed at, to take our current discussion, lengthening life expectancy could well increase loneliness. Think, for instance, of government support for roads, which may well have the effect of both lengthening life expectancy and increasing loneliness.

Facing this dilemma, I have a response, rather than an answer. A Social Policy Bond would set policy targets by consensus. People understand outcomes more than the means of achieving them, and so could and would participate in the policymaking process, including the setting and relative priority of social goals. There would be more buy-in to policy, which itself might go some way toward relieving the negative impacts of certain decisions. There's no perfect solution, but a bond regime, because of this additional opportunity for public participation that it offers, and because it forces clarity over exactly what we want to achieve as a society, could help to resolve conflicts between measurable and immeasurable goals.

GDP versus mental well-being

I posted recently about how a the framing of healthcare issues as medical problems can lead to sub-optimal outcomes, drawing on the work of Dr Jocalyn Clark. I suspect it's symptomatic of a broader problem.

Western societies are built around the assumption that a healthy economy will either solve all our problems, or allow us to do so. In this sense, we are framing all our problems as economic. Now a successful economy does actually solve many of our problems, but there are parts of our economy that if successful, actually are in conflict with our goals as human beings.

Part of the problem is the definition of success that we use. Almost always we mean the accountants' definition of success: economic activity: Gross Domestic Product, which is equivalent to the volume of money times the velocity of circulation. GDP, or GDP, per capita has become the de facto goal of society. A higher GDP means a higher potential to achieve all our goals, we reason. Even if much of its gains are concentrated in relatively few pairs of hands, and even if certain generators of GDP create negative impacts, a higher GDP means we can compensate the losers - even if we don't actually do that.

There's a big flaw in this, similar to that which Dr Clark identified: we are framing all our social problems as economic ones. Very often this framing is not explicit: it's part of who we are and the society we live in.

In my work on Social Policy Bonds, I've attempted to make clear that economic growth is not actually an end in itself, but a means to various ends that it would be more efficient to target directly. If, for instance, we want to reduce crime, then we'd do better to reward people for reducing crime rather than simply increasing the funding of bodies that are supposed to be fighting crime. The Social Policy Bond framing allows for all sorts of experimentation with non-conventional ways of reducing crime. Under our current system there are few funds systematically given to help people run youth centres in areas of high youth unemployment. Under a bond regime, people would have incentives to fund such centres in places doing so would maximise the reduction in crime per dollar outlay.

So far, so (relatively) conventional. But suppose our problems have little to do with resources, or even with the allocation of scarce resources, but with economic activity itself? Take the recently highlighted (in the UK) studies showing that loneliness is a big and growing problem for both young and old. Loneliness and alienation are to some degree a product of our economic system, which is entirely dependent on specialization of labour. As well, consumption of goods and services is, along with government spending and investment, one of the drivers of GDP. We have a society with an over-arching, and not always explicit, imperative to buy things. We maximize GDP by buying things for ourselves, rather than sharing. Government can also contribute to social alienation by, for examples, subsidising environmental destruction, or encouraging without consulting the public mass unselective immigration with a view to keeping wages low and property values high (or to help it retain power or simply out of spite). Government looks at its own accounting flows, and knows well that increasing economic activity raises its tax revenues.

Our current system, then, is inherently geared to the monetisation of just about everything. A Social Policy Bond regime could actually subvert such a system. It could undermine the transactional way of conducting our affairs, and encourage other, less mercenary activities, where those would be the most efficient and effective ways of reaching our actual, explicit, goals. Doing so would not be its goal, but it could arise out of the goals we specify which would, one hopes, be more congruent with society's real goals than our current implicit goal of ever-increasing economic growth. There's an obvious paradox: a bond regime would pay people to achieve our goals, but if achieving our goals requires the cessation of payments and the ending of a transaction-based activity, then under a bond regime that is exactly what will occur. Bondholders have incentives to look for the most efficient ways of achieving our goals, regardless of whether they involve money flows or not. Under the current policymaking system, with its perverse incentives and its over-arching goal of maximising the number of transactions (so raising GDP), it is extremely unlikely to occur. The bias under the current system is always towards more transactions, more money flows and so more alienation and loneliness. And what is our society's default response to loneliness and depression? To increase economic activity still further: by manufacturing and marketing powerful drugs.

A well-specified Social Policy Bond regime would target for improvement reliable indicators of mental well-being. The effects of doing so, we cannot anticipate. But the possibilities are as immense as they are apparently paradoxical: the bonds, utterly dependent on financial flows as they are, could reverse the extreme specialisation of our society, the extreme individualistic nature of our consumption patterns, and the entirely transactional way in which we more and more see the world.