Media news

Greg Bearup has written about the genesis of the Social Policy Bond idea, and applications of the non-tradeable version of it in Australia, in the cover article in the Weekend Australian Magazine, dated 10 October. If you cannot see the story on the WAM site, a pdf of the article (missing a picture or two) can be downloaded here.

Environmental policies that hurt the environment

As cities move beyond recycling paper and metals, and into glass, food scraps and assorted plastics, the costs rise sharply while the environmental benefits decline and sometimes vanish. “If you believe recycling is good for the planet and that we need to do more of it, then there’s a crisis to confront,” says David P. Steiner, the chief executive officer of Waste Management, the largest recycler of household trash in the United States. “Trying to turn garbage into gold costs a lot more than expected. We need to ask ourselves: What is the goal here?” The reign of recycling, John Tierney, 3 October

Say no more. Or rather, say it again and again: what is the goal? Recycling is not a goal: it is an alleged means to ends that remain unspecified. We'd do better to think about those ends, specify them, and then encourage people to achieve them. Recycling can and does play a role, but not always, as the article excerpted above shows.
We see something of the same lack of clarity about environmental goals in the recent Volkswagen debacle. A recent article title sums it up: The Volkswagen diesel scandal was driven by carbon obsession: 

From 2001, punitive rates of up to £500 were applied to cars [in the UK] which emit carbon emissions of more than 225g/km, while cars below 120 g/km were treated to token road-tax rates. As manufacturers quickly discovered, the only way to get many vehicles below these thresholds was to make them diesel.It was well known that diesel engines produced large amounts of tiny carcinogenic soot particles, but this was brushed over. Particulate emissions were meant to be dealt with by filters, yet these are known to become blocked if engines spend too much time idling, as they do on urban roads. Diesels also produce far higher levels of nitrogen oxides, the subject of the VW scandal. Ross Clark, 3 October

A Social Policy Bond regime would improve on this sort of  random policymaking. Certainly, the first steps would be difficult, but they are essential: defining the environmental goals we want to achieve. Most likely, we'd target for reduction pollutants that adversely affect human, animal and plant life. The bonds are sufficiently versatile that other objectives could be simultaneously targeted. The important thing is that, under a bond regime, we'd be targeting meaningful goals according to their lethality, rather than their media profile.

For more about application of the Social Policy Bond concept to the environment start here. There are also numerous posts about the environment on this blog.

Biology, engineering, and Social Policy Bonds

An academic paper about the use of the Precautionary Principle says:

Significantly, the failure of traditional engineering to address complex challenges has led to the adoption of innovation strategies that mirror evolutionary processes, creating platforms and rules that can serve as a basis for safely introducing small incremental changes that are extensively tested in their real world context. This strategy underlies the approach used by highly- successful, modern, engineered-evolved, complex systems ranging from the Internet, to Wikipedia, to iPhone App communities. Source (pdf)

The paper justifies the application of the Precautionary Principle where 'ruin', defined as low-probability, infinite cost policy outcomes, is a nonzero possibility.
Importantly, it also recognises the positive role that evolutionary processes play in engineering. As the authors say, this mirrors biological evolution. It results in more robust outcomes. I suggest we adopt the same mechanism for society's broad, long-term goals: create a policy environment within which diverse, adaptive approaches are tried, and only the most successful (in their place and time) are given the funds necessary to continue and proliferate. There's very little of this in today's policy world. The necessary first step, self-evaluation, is rare. Even less frequent are learning from failed policies and applying those lessons to current policymaking.
Explicit acknowledgement of the need for failed approaches is probably rare in engineering; it's equally unusual in the world of policy. But, society is approaching the complexity of that of biology. For those broad, long-term goals that we have failed to achieve (ending violent political conflict, for instance), it's clear that no single, top-down approach is going to work - especially one based on relationships that apply in only one part of society or at only one point in time.

That's where Social Policy Bonds can play a role. A bond regime would target society's long-term problems: problems that no single approach can ever solve. Investors in the bonds would have incentives to try many different approaches, and to continue to fund only those that are working efficiently at achieving society's goals. Unlike in today's world, failing projects would be terminated: bondholders would be motivated to end them swiftly, rather than, as today, lobby for government funds to keep them going. A Social Policy Bond regime would create new types of organization, whose activities would be entirely subordinated to achieving social goals efficiently. The bodies that currently are charged with achieving social goals are rarely paid in ways that encourage better performance. (Indeed, very successful organizations might even be punished by seeing their funding reduced.)

In policy, as in biology and engineering, we should let evolution do what it does efficiently: encourage a wide array of approaches and reward only those that are most successful for their time and place. Social Policy Bonds would do exactly that.

For more about Social Policy Bonds, please go to my main website. For examples of previous posts about the bonds and evolution see here and here.

Five-year survival rates: another Mickey Mouse indicator

Health statistics are tricky and, when they're used to make a case for increasing or diverting funding, we need to be especially vigilant:

Research published in the European Journal of Cancer shows the UK has the worst survival rates for cancer in western Europe, with rates one third lower than those of Sweden. UK cancer survival worst in western Europe, 'Daily Telegraph', 26 September

The article gives examples:

Five-year breast cancer survival was 79.1 per cent in England, 78.5 per cent in Scotland, and 78.2 per cent in Wales. In Sweden the figure is 86 per cent, with an European average of 81.8 per cent. In England, 80.3 per cent of men with prostate cancer were alive five years later, compared with 90.2 per cent in Austria, 90 per cent in Finland and a European average of 83.4 per cent.

At first glance, this seems an indictment of the UK's approach to diagnosing and treating cancer. But the five-year survival rate needs interpretation: it is the proportion of patients still living five years after diagnosis. We can improve the five-year survival rate by better treatment, which is unambiguously good, or by earlier diagnosis, which is far more questionable. Earlier diagnosis can simply mean more intervention and more treatment (and more side effects), but does not necessarily lead to a reduction in the cancer mortality rate - which is a far better indicator of healthcare efficiency than the five-year survival rate.

A Social Policy Bond regime aiming at improving the overall health of a population would refine and target more-robust indicators, such as mortality and longevity, and would do so impartially. For more about Health Bonds, click here. For more about how misleading are five-year survival rates click here or here.

Volkswagen: no surprise

[D]rivers of almost half a million cars in the US have now suddenly found that they are driving round vehicles which are a lot worse for the environment than they thought. The rigged tests masked the fact that these cars emit up to 40 times the legal limit of pollutants. And now VW has said that as many as 11 million cars worldwide could be affected. VW scandal threatens 'Made in Germany' brand, BBC, 22 September

Social Policy Bonds have big advantages over conventional policy when addressing a problem like air pollution caused by millions of point sources. Conventional policy cannot effectively measure the pollutants emitted by any more than a few major sources, and then reward or punish the emitters accordingly. What might work for power stations or cement factories won't work for cars or households. Corporations (like Volkswagen) have every incentive to cheat the system, and individuals have every incentive to go along such cheating. The bureaucratic burden of measuring the pollution generated by millions of machines or people is not just a misallocation of resources: it's likely to be intrusive and divisive. Plus, it's not a very exciting job.

Social Policy Bonds can help. They're at once both more direct and more versatile. So instead of targeting the air pollution generated by millions of point sources, they can target an array of pollutants, weighted according to lethality, and let the market for the bonds work out, dynamically, the best ways of achieving our pollution reduction goal. I first wrote about this approach back in 1991. My views haven't changed since then, so I won't repeat them here.

The root causes of war: don't bother

A Social Policy Bond regime makes inescapable the need to think about what we want to achieve. This should be an essential discipline, but in some instances it's never followed. There's much obfuscation - deliberate or not - and far too much attention given to identifying supposed 'root causes' at the expense of effective policy.

Take violent political conflict. It's still going on, killing, maiming and making homeless millions of people every year. The numbers so affected might be falling, but that says nothing (short pdf) about possible major violent future events. We could spend years analysing past outbreaks of war, but still never get close to identifying root causes in ways that forestall future outbreaks. Society is just too complex, diverse and fast-changing. Policymakers should begin by specifying society's desired outcomes, rather than distracting or indulging ourselves by trying to identify root causes - except perhaps for simple, relatively static, policy environments.

A bond regime wouldn't try to identify the root causes of war, which are a moving target anyway. Instead it would start by specifying exactly the outcomes we want to achieve, and then injecting market incentives into achieving those outcomes. Conflict Reduction Bonds are the means by which I propose we begin to end all war for all time. It's not idealism. It's giving incentives to motivated people to find solutions, rather than simply to turn up to work for a bureaucracy, corrupt or not.

Climate change: current policy is doomed to fail

[T]he representation of clouds in climate models (and of the water vapour which is intimately involved with cloud formation) is such as to amplify the forecast warming from increasing atmospheric CO₂—on average over most of the models—by a factor of about three. In other words, two-thirds of the forecast rise in temperature derives from this particular model characteristic. Despite what the models are telling us—and perhaps because it is models that are telling us—no scientist close to the problem and in his right mind, when asked the specific question, would say that he is 95 per cent sure that the effect of clouds is to amplify rather than to reduce the warming effect of increasing CO₂. If he is not sure that clouds amplify global warming, he cannot be sure that most of the global warming is a result of increasing CO₂. Uncertainty, scepticism and the climate issue, Garth W Paltridge, in 'Climate Change: the Facts,' edited by Alan Moran, 2015

The 'forecast rise in temperature' referred to by Professor Paltridge is that made by the Intergovernmental Panel on Climate Change (IPCC). The book in which Prof Paltridge's essay appears is a collection of skeptical essays, and one which, like the website Watts up with that? is at first persuasive to non-scientists like myself. But then so too are most of the arguments on the other side of the debate; the ones agreeing with what has become the mainstream view, that anthropogenic climate change is happening. (There's also an equally convincing website: RealClimate.org.) 

We know that science is not a consensual process. So what are policy people to make of these irreconcilable differences? We can all agree that there are uncertainties, not only about the fact of climate change but also about the details: the magnitudes, the causes, the impacts. We can also agree that these uncertainties are not going to disappear any time soon. Conventional policy has a hard time trying to deal with such uncertainty. It seeks to identify, with a high degree of certainty, those causes, magnitudes and impacts of climate change, then come up with something to tackle the root causes. Conventional policy has identified greenhouse gases as those causes and keeps coming up with measures aimed at cutting emissions of those gases into the atmosphere. Or, more cynically, aimed at pretending that such cuts in emissions will happen: these measures are unpopular, divisive and expensive. As well, the costs are all upfront and the climate benefits - there's almost universal agreement about this too - will be slow in coming and probably not very significant. (It's likely any cuts will have beneficial effects on things other than climate, but they are not driving policy.)

Conventional policy, then, is failing. I think there's a broad consensus about that too. Some think it's too little; others think it's too drastic. But either way, it's not good enough. Even in their own terms, Kyoto and subsquent agreements are failing.

So here's my suggestion. Instead of targeting what might or might not be the cause of what might or might not be anthropogenic climate change, why not target exactly what we want to achieve? It could be an array of ranges within which physical, biological, social and financial indicators must fall, for a sustained period. We could aim for relative and sustained stability in those indicators that are important to plant, animal and human life. A Climate Stability Bond regime would do this, regardless of what we currently think is driving the climate. It is not only clouds (see excerpt above) whose contribution is uncertain: it's the relative contribution of the various greenhouse gases or any of a large number of other variables, anthropogenic or not. The conventional approach, which looks for root causes before doing anything significant, isn't working, and cannot work when our knowledge of such causes is expanding rapidly. Climate Stability Bonds, as well as being versatile in the range of variables that they target, would reward people who achieve our goals, whoever they are and however they do so. Bondholders would do the work of identifying the causes and effects of climate change on a continuous basis. They would research, explore and implement those measures that will achieve the best return on our scarce resources. They will, very probably, implement a very broad range of measures on a diverse, adaptive basis: something that no government or supra-national body can do. 

There are things that governments can do well. Indeed, there are things that only governments can do at all. These usually are areas in which causal relationships are clear and stable, and the benefits of an established approach are large and unchallenged. None of these conditions apply to climate change. It's time for a different approach.

BMI: the GDP of health

I've railed many times about the inadequacies, and worse, of using Gross Domestic Product as the de facto indicator of social well-being. Which it has become, in the absence of any serious thinking about the social goals we want to achieve and the priorities we give them.

A similar phenomenon seems to have occurred in the world of health, where the body-mass index (BMI) is a long-used measure of obesity. BMI is body mass in kilograms divided by the square of the body height in metres. Apparently, as measured by BMI, obesity in the US plateaued around the year 2004 at 35 percent of the population. But, just as GDP ignores such things as leisure time, state of the environment, income distribution; and counts useless or anti-social economic activities as positives, so too does BMI have its flaws:

It does not consider distribution of fat, type of fat, muscle tone, age, sex, or even big bones. In spite of these flaws, healthcare professionals continue to use BMI as a guideline. A BMI of 20-25 is considered ‘normal’, and anyone larger or smaller is automatically counselled to achieve a healthier weight. .... Obesity is generally understood as a risk factor for heart disease, stroke, cancer, and diabetes, as well as an increase in overall mortality. Excess body weight also increases stress on joints and internal organs. Given these concerns, it’s easy to understand why so many people have celebrated the plateau in BMI. Unfortunately...BMI may not be the best measure of obesity. Your percentage of body fat and waist or abdominal circumference are far more reliable personal indicators of health outcomes than BMI. For example, central obesity, measured by waist circumference, is a more accurate determinant of personal risk and shows an even stronger correlation with poor health outcomes. Caroline Weinberg, Fat but fit?,  'Aeon', 27 August 

There is no clarity about goals. If our intention is to improve the health of people, why not target indicators of people's health, instead of easy-to-calculate but flawed measures such as BMI? If our intention is to prevent disasters arising from adverse climatic events, why not target for reduction the negative impacts of such climatic events, instead of atmospheric carbon dioxide levels or temperatures recorded in weather stations? If our intention is to improve social well-being, why not target indicators of social well-being instead of those economic activities captured by GDP?

BMI, greenhouse gas emissions, GDP per capita: they might answer certain specific questions, but their use as policy instruments is inadequate at best, dangerous at worst. Policymakers need some humility here: neither they nor their advisors know the best ways of improving health, preventing climatic disasters or improving social well-being. Even if they did, at one particular point in space and time, circumstances vary with region and our knowledge grows with time. No government, no single organization can hope to use fossilised knowledge on a one-size-fits-all basis and achieve meaningful results. Instead, policymakers should set broad goals, and let a motivated coalition of interests explore diverse, adaptive approaches aimed at achieving society's broad social and environmental goals. Government can set these goals and, indeed, it is probably the organization best suited to doing so. And, if it concentrated on that, it would come up with a better array of target outcomes than the flawed indicators it now uses, whether explicitly or not.

Government can also raise the revenue to reward the people who achieve these outcomes. But it has no business dictating how they shall be achieved, nor who shall achieve them. We need diverse, adaptive approaches, and those are exactly the sort of approaches that government discourages.

Smoking and obesity; anxiety and sirens

The UK has seen an onslaught against tobacco smoking. At the same time cases of diabetes are soaring, such that 'diabetes medication now accounts for 10% of the NHS [National Health Service] drugs bill'. Research appears to show that people who give up smoking put on weight.

By doing everything possible to suppress smoking has the UK Government unwittingly encouraged obesity and diabetes?  Do the social costs of more obesity and diabetes outweigh the benefits of less smoking? I have no idea, but the important point is how little it is in anybody's interests to answer these questions and use their answers to influence government policy. With smoking the government has had an easy ride: 'everybody knows' that smoking is bad for you, just like 'everybody knows' that taking illegal drugs is bad for you, as is drinking alcohol. You see where I am going here: road traffic kills 1.24 million people annually worldwide, but there are benefits to it as well as costs, as there are for drinking, taking illegal drugs and, yes, smoking, especially, but not only, insofar as people who are denied the opportunity of smoking then may be more likely to be become obese and diabetic. These costs aren't easy to calculate of course, but government has created an environment in which nobody has an interest in doing those calculations. Instead, seeing that smoking directly and obviously causes some diseases, it reacts in the Pavlovian, short-term, one-size-fits-all manner that it, in common with other governments, adopts when they encounter the symptom of a problem. So now, in England: 'work smoking rooms and areas are no longer permitted. All smokers must take their smoke breaks outside.' I've no doubt that rates of lung cancer and other diseases directly related to smoking have fallen as a result. But, as well as the costs to freedoms of the campaign against smoking, there are also the indirect costs to physical health, possibly taking the shape of increased rates of obesity and diabetes. The cancer specialists, and the well-meaning (though perhaps hysterical and self-righteous) anti-smoking lobby have no incentive or capacity to see whether smoking bans help or damage the overall health of people. Nor, under the current policymaking regime, are there any incentives for others to do so. And smokers are an easy target. Car drivers not so much.

We see the same in the area of mental health. The small city in which I currently live is blighted, maybe 20 or 30 times in every 24-hour period, by emergency vehicle sirens. Designed to create alarm and panic, that is what they do, to thousands of people, day and night. I have no doubt that these sirens shave a few seconds off the average journey time of the police, fire and ambulance vehicles. And those few seconds, might, on occasion, make the difference between life and death. But has anybody looked at the costs in terms of mental health of these sirens? It's no surprise that urban living is 'found to raise the risk of anxiety disorders and mood disorders by 21% and 39% respectively'. Physical health too: we may well be at the point where, as well as their reducing the quality of life of thousands of citizens every day, these sirens create more accidents than they help ameliorate by disturbing sleep patterns and inducing panicky responses in other road users and members of the public. Again, under the current policymaking regime, it's in nobody's interests to find out.

If government is to intervene in matters of health, it must look at the overall physical and mental health of its citizens. There have been, and no doubt still are, areas in which relationships between cause and effect are easy to identify. Provision of sanitation for instance, is clearly beneficial. I'd also support bans on smoking in all areas where there will be children and adults who don't choose to be exposed to the fumes. (That would be on aesthetic as well as health grounds.) But society is complex, as are the human body and mind. Most scientific relationships aren't easy to identify; and they vary over space and they change with time. We need policies that allow for diverse, adaptive approaches and that target broad mental and physical health, rather than particular maladies.

I offer my suggestion in this essay, which applies the Social Policy Bond principle to health care. Briefly: governments would target for improvement the health of the population, as measured in Quality (or Disability) Adjusted Life Years. Bonds would be redeemed only after sustained periods of improved health. A bond regime would reward the most efficient ways of improving health by channelling society's scarce resources into the areas where they could do the most good. Unlike today's healthcare systems, it wouldn't assume that a one-size-fits-all approach, based on fossilised science, is good enough for everybody, for all time.

Where we're at

How are Social Policy Bonds doing?

It's about 27 years since they first entered the public arena (see here). In that time the Social Policy Bond idea has won praise from distinguished economists (point 8 here), but no Social Policy Bonds have actually been issued.

It's not all doom and gloom though. There is widespread, though belated, recognition now that rewarding better performance in the public sector is a good thing, and non-tradeable variants of Social Policy Bonds are being issued on a trial basis in the UK, US, Australia and Israel. They are also being considered in New Zealand (see here for a short video discussion).These bonds have various names including Social Impact Bonds, Social Benefit Bonds and Pay for Success Bonds.

I have my reservations about them, which I've expressed here and here. Essentially, their being non-tradeable drastically reduces the scope - in breadth and time horizon - of the goals that can be considered. They favour existing service providers, and their administrative costs are likely to be relatively higher than Social Policy Bonds. As well, because they aren't openly traded, they generate no price information that could be extremely useful to policymakers. Nevertheless, these bonds do reward greater efficiency in achieving their limited objectives, and they might well improve on current policy where that is particularly inefficient. They could therefore be a handy (and though I am hesitant to say so, necessary) first step toward a fully-functioning Social Policy Bond.

That said, I'd disappointed that, as far as I am aware, the backers of all the Social Impact Bonds being issued have been, or will be, governments. I'd have much preferred the private sector, in the form of non-governmental organizations or philanthropists, take the lead. The bonds being issued are intended to help vulnerable or disadvantaged people and it seems regrettable in today's climate that the other beneficiaries of taxpayer funds will be financial intermediaries who will take their cut of the transaction costs. Indeed, it seems these bond issuers will benefit whether or not the bonds work as intended. If the bonds do work as intended, that's fine, but we should remember that they are an experiment and, it would be a shame if they come to be seen as a means by which the financial services sector syphons off yet more cash from taxpayers while contributing nothing (at best) to wider society. The other danger is that if Social Impact Bonds fail - and especially if they do so while the brokers benefit - they could discredit the Social Policy Bond concept. For many reasons, therefore, I hope they succeed....