Insiders, outsiders, and world peace

The Economist describes the French labour market as...:

 ...divided into “insiders”, those with permanent, protected, full-time jobs, and “outsiders”, whose work is insecure and temporary. .... And France’s biggest unions, for all their revolutionary rhetoric, have become talented and conservative defenders of insider privileges, at the price of shutting too many young people out of decent jobs altogether. Fighting French unemployment: mode d'emploi, 'The Economist', 16 January

It seems to be the way of all big organizations, be they trade unions, religious institutions, government bodies, large corporations or political parties. They start out well intentioned but at some point their interests diverge from those of the people they purport to represent, and their over-arching goal becomes self-perpetuation. Sometimes, especially during their early years, these bodies have interests that coincide with those of their members. Later, institutional growth or survival becomes an end in itself. Even when they do represent their members, large organizations do so only in their members' capacity as members - as distinct from human beings with interests that are longer term and broader than those encompassed by their membership. People outside these bodies suffer, either directly, because the organizations' rules benefit insiders at the expense of outsiders, or less directly, in that people expend a great deal of time and energy trying to become insiders because, largely thanks to big organizations' ways of working, that's the only way to improve one's quality of life. So, for instance, we see large corporations manipulating the regulatory environment to keep out smaller companies.

My own thinking is that of course there must be large organizations - including countries with borders - but they must be made to keep to their principles and so have broader goals than self-perpetuation. Many of our social and environmental goals are the responsibility of the large bureaucracies that, in common with other other large bodies, have self-perpetuation as their ultimate goal. That is why I think Social Policy Bonds could help. Under a bond regime the structure and composition of organizations responsible for achieving our social goals would be constantly changing. The market for the bonds would see to it that the people working for these organizations would be paid according to their efficiency in achieving our goals - which coincide exactly with society's goals. The market for would ensure that only the most efficient approaches to solving our social problems would flourish, and that unsuccessful approaches would be terminated. 

The organizations' structure, composition and all their activities, would be subordinated to the outcomes that we, as a society, want to see achieved. These new types of organization, because of the way the market for Social Policy Bonds work, would always have powerful incentives to achieve our social goals. For all these reasons, Social Policy Bonds mean that we could meaningfully target long-term, urgent, but  hitherto idealistic-sounding goals such as the achievement of world peace.

No one is in charge

'The Economist' writes:

Global problems are not tackled[,] because governments fail to co-operate; voters get angrier and push their leaders into more nationalistic positions. And it is hard to see things changing this year, with no country likely to take the lead. America will be consumed by its presidential election, Europe by refugees and fear of terrorism, China by its adjustment to slower growth. No one is in charge. Loathe thy neigbour, 'The Economist', 9 January

The column excerpted above is concerned mainly with the refugee crisis and economic problems. But other global concerns come to mind: the impacts of climate change, nuclear proliferation, or military tensions in south-east Asia and elsewhere. These are potentially serious problems that could lead to the death, injury or homelessness of millions of people and have devastating effects on the environnment. Our current political system ensures that those whose lives would be shattered by, say, nuclear war have little sway over how policy is made. There is a huge and widening gap between the concerns of ordinary people and those who make policy. It's not the policymakers who are at fault: it's the system.

Nobody is in charge, as the column says. That's bad enough. But worse is that nobody has an incentive to stop what they're doing at the moment and look for solutions to these global problems. Under the current regime the costs of giving up an income are upfront and certain. The benefits of helping solve global problems are remote and nebulous. International bodies like the United Nations agencies or non-governmental bodies do tackle some large-scale problems, but their efforts are haphazard and the people who work for them are not paid in ways that reward success. Some are corrupt.

Many of us, sensing the inadequacy of humanity's attempts to think globally, fall prey to some ideology that imposes meaning on our predicament. Such ideology can take the form of wishful thinking, at best, or a sort of revenge psychology, at worst. All ideologies, though, are insufficient to solve our global problems, in that they see one or other top-down, uniform and unresponsive mechanism as the solution. These ideologies are mutually incompatible and their leaders mostly corrupt, incompetent or insane. But helpless people facing huge uncertainties will seek reassurance from anybody who promises salvation in this world or the next.

A better policymaking system would help. Social Policy Bonds, issued with the backing of all governments, supplemented by contributions from philanthropists and ordinary people, would articulate people's wishes for a world of peace, reduced poverty, and environmental health, to take three of our most urgent and serious challenges. It would separate the articulation of our wishes from their achievement. People - all people - would be in charge of specifying our broad, global goals. But the achievement of our goals would be in the hands of new types of organization: coalitions of people, government or not, who at any one time would have incentives to find the most efficient solutions to our global problems. These new organizations would take a long-term view, targeting goals that might seem remote and unachievable, but that are necessary for humanity. Goals such as a thirty-year period of nuclear peace, or the reduction of adverse climatic events. The organizations would probably have changing compositions and structures, and would have incentives to co-operate with each other. Their goals would be exactly the same as humanity's. The bond regime would reward them in ways that correlate directly with their efficiency.

The Social Policy Bond mechanism would see to it that market forces would serve humanity as a whole, by allocating our resources - all our resources - where they can do most good. The world needs diverse, adaptive approaches to our global problems. The current system does not and cannot supply them. Social Policy Bonds can. 

Social Policy Bonds: the past and the future

In the past year there has been a rise in the number of issues of Social Impact Bonds - the non-tradable variant of Social Policy Bonds, about which I have had mixed feelings. They essentially function as performance-related bonuses to service providers. Because they aren't tradable, they favour existing bodies and so, in my view, can be gamed or manipulated more readily than could Social Policy Bonds. However, there are social services that are currently so poorly provisioned that SIBs could well represent an improvement over existing policy. And they might be a first step - perhaps even a necessary first step - to the issuing of Social Policy Bonds. Tradability would greatly expand the range of goals that could be targeted, and I discuss this and other advantages of Social Policy Bonds over SIBs here and here. (You could also search for "SIBs" on this blog.) This wikipedia page summarises where SIBs are being issued and other details.

As far as I know, Social Policy Bonds are not being issued anywhere. I believe, though, that the need for outcome-based policy is becoming increasingly urgent. Society grows ever more complex, and its problems ever less amenable to solution with our existing government machinery. As ever, there is a much broader consensus about the outcomes we wish to see than the possible means of achieving them. The gap between governments and the people they are supposed to represent keeps widening. The recent Paris meeting, which was supposed to address climate change, is the example par excellence of policymaking entirely disconnected from citizens. It will fail for several reasons, foremost of which is the total absence of buy-in from ordinary people - that is, people who aren't involved in policymaking or lobbying. With efforts to address global problems, there would be huge benefits arising from a market-based solution, which in economic theory and on all the evidence would optimise resource allocation.

For reasons of both buy-in and efficiency, then, and because of our increasingly interlinked world, I remain optimistic that Social Policy Bonds will play a role in achieving social and environmental outcomes in the future. Perhaps not in 2016 but, I think, within the next ten years.

Paris will fail

Why I think the Paris deal on climate change, which concluded on 12 December, will fail.

• It may not be enough. It targets, using ossified science, cuts in greenhouse gas emissions. But what if that achieves nothing? What if the climate continues to change much more than expected, because the deal's underlying calculations and assumptions are wrong? What then? The emission cuts are a supposed means to unspecified, but crucial, ends. It would be preferable to do the hard work of identifying exactly and explicitly what those ends are, expressed in terms of impacts on human, animal and plant life, perhaps combined with social and financial targets. Then we could target those ends directly and, importantly, measure progress toward them more accurately.


• It may be too much, in the sense that resources could be diverted into reducing gas emissions and away from projects that could have a much more positive impact on human, animal and plant life. 


• No buy-in. Ordinary people don't know or care about greenhouse gas emission volumes. What we do understand is adverse climatic events, and their effects on humanity and the environment. If we were to target those directly not only would we be solving real problems more efficiently, we'd also have more public understanding and commitment to the process. In short, you would get buy-in from the public, which is as essential as it is absent from the Paris agreement.

That said, the $100 billion to be transferred from the rich countries (that is, their taxpayers) to the developing countries (that is, their governments) to adapt to climate change could be useful - if that's where the money actually ends up. But, on past form, what isn't spent on luxury goods or otherwise squandered will end up in Swiss bank accounts.

To read more about how Social Policy Bonds could be applied to climate change see my paper here, or recent blog posts here, here and here.

Metrics for climate change

The Economist discusses metrics for climate change:

[T]aking the world’s temperature is not as easy as it sounds. Different parts of the planet warm at different rates, as do different layers of the atmosphere, so all sorts of corrections have to be applied to arrive at a single number. A truly simple, and arguably better, approach would be to use concentrations of greenhouse gases—the cause of the warming—as putative maxima. These gases mix rapidly into the atmosphere, so are easily sampled in ways that brook little dissent. Goal difference, 'the Economist, 5 December

I disagree, partly because greenhouse gases are not the sole cause of warming: we do not know, for instance, how big are the relative contributions of deforestation (through changes in albedo as well as carbon emissions) or different cloud types. Some proportion of climate change also comes from natural (non-anthropogenic) events. At least as importantly, our views about the greenhouse gases' relative contributions change dramatically with our growing scientific knowledge. There would, then seem to be a pragmatic basis, as well as the case for broader public engagement, for instead targeting for reduction the impacts on human, animal and plant life of adverse climatic events.

Climate Stability Bonds could set such impact reduction goals. If, in time, and with the market's incentives on offer, bondholders decide that the best way of achieving such goals is to reduce certain greenhouse gas emissions, then that is what they will do. But it would seem hubristic and inefficient for governments or UN bodies to assume that that this is the best way of achieving meaningful reductions in those impacts. There are too many uncertainties, and the science upon which such a policy is based is inescapably ossified. See also my other recent posts on this question.

But who allocates the funds?

From 'the Economist', in a feature about climate change:

Energy firms do not spend a lot on research because there is no product differentiation in energy (electrons are electrons) and thus nothing exciting to sell until the price falls below that of the existing technology. So taxpayers will have to stump up most of the cash. If more money were forthcoming, a good deal of it would be wasted on dead-end projects. But that is the nature of research and development. Second-best solutions, 'the Economist', 28 November

I'm not sure whether funding research into alternative ways of generating electricity is a goal that ordinary people would find meaningful. But putting that aside, and assuming that 'taxpayers will have to stump up most of the cash', there are better ways of allocating that funding than via the usual activity-based, outcomes-don't-matter, formula that typifies government research programmes.

My proposal would be for the government to do what it's good at: (1) raising the necessary funding and (2) specifying a goal to be achieved, but then to bow out and allow a motivated private sector to allocate the funding to its chosen projects - something that economic theory, and all the evidence, suggest it can do more efficiently than the central planners in government. Social Policy Bonds could directly target cleaner electricity production, though I'd prefer they target broader and more obviously meaningful goals. Either way, a bond regime would lead to diverse, adaptive projects and bondholders would have powerful incentives to back only the most efficient ways of achieving whatever goal is specified. When government allocates funding, all sorts of criteria other than maximising returns per taxpayer dollar creep in. And we don't need to go beyond the energy sector to see that.

Climate change, again

I posed this question before but it bears repeating: are we more concerned about climate change, or about the impacts of climate change on human, animal and plant life? The popular assumption is that the most efficient way of mitigating the negative impacts of climate change is to reduce that which current science suggests are one of its major causes: greenhouse gas emissions. But we don't know that for certain, and we don't know the degree to which we can do anything about it. And we'll never know whether any of the costly policies suggested in this article will have had any impact whatsoever. It would seem preferable to spend our scarce resources on dealing with the impacts of adverse climatic events - whether they're caused by greenhouse gases or not. Floods are just as devastating whether caused by greenhouse gas (ghg) emissions or not. Climate Stability Bonds would, in fact, encourage ghg emission cuts if they are found to be the most efficient way of dealing with the adverse impacts of climate change on human, animal and plant life.

When I wrote along the above lines to an internet comment forum, one respondent said: 'What you don't do is cause a problem, then ignore it while you "fix" the symptoms.' My response is that we should not be dogmatic about whether we tackle causes or symptoms. The 'cause' of a large proportion of the crime problem is 'young men': we don't force all boys to undergo a sex change just so we can save money on a justice system.

There are undoubtedly symptoms whose root causes we can identify readily and address. There are others whose root causes are currently unknown or too expensive to tackle. We could still, with Social Policy Bonds, target the symptoms for solution and motivate bondholders to work out whether or not the best way of dealing with them is to go after possible root causes. There are problems whose root causes might never be unambiguously identified. But if we issue Conflict Reduction Bonds, for instance, there's no need to resign ourselves to living on a planet wracked by war.

The bias against unglamorous diseases

From a letter to the editor of the Economist:

[R]oughly speaking, mental health receives only about half the research funding it should in America, based on its health burden. The problem is that many interest groups lobby Congress vigorously for research funding for their disease. Patients with mental illness do not yet exert that kind of political pressure. letter from Michael Hanna of Mercury Medical Research & Writing, 'the Economist' dated 21 November

It's striking how unrelated is healthcare funding to need. Medical experts have little capacity or incentive to see beyond their own institution or speciality. Government - and not only in the US - responds to pressure from interest groups and allocates funds accordingly. Slipping through the cracks are unglamorous diseases including mental illness. Even within a class of diseases, such as cancer, funding discrepancies are stark: this paper looks at the UK. I think government here is failing in its purpose. It should target for improvement the broad health of all its citizens rather than merely respond to lobbyists, however dedicated, sincere and hard working. It should, as far as possible, be impartial as to the causes of ill health, and direct resources to where they can return the biggest health benefit per dollar spent. Applying the Social Policy Bond principle to health could do this. For more, see my short paper on Health Bonds.

Terror: too much too late

There is one simple solution to the problem of terrorism: kill lots of people, of which some are certain to be terrorists. Choose a terrorist-rich area, and if you kill everybody within it, then you can be sure no terrorists will originate from there ever again. It's a cruel policy and also a stupid one, in that it's likely to create resentment outside the killing zone, which will generate more terror later. Of course you can enlarge the killing zone, create a desert, and call it peace, but you cannot do that indefinitely, and the costs to everybody rise hugely as your killing zone expands. Unfortunately, politicians, the military and the public want a simple solution, and the Tacitean desert approach seems to be the policy of choice in today's world. It's the 'too much, too late' option, which, arguably, has led to numerous devastating wars.


I have another idea. Let's recognise that there is no simple solution. That it's likely that only a combination of different approaches, varying with time and over geographical area, will work, and that our goal is a sustained period during which terror will not occur. There are initiatives now that can help achieve that goal, But they're not co-ordinated and are heavily outweighed by the reactive policies of governments under pressure to 'do something' when an outrage occurs. Almost all the incentives on offer are to those with a strong interest, conscious or not, in keeping conflict going. This means the military, the men of religion, the ideologues on all sides, and the millions of intimidated and frightened ordinary citizens.

We need to put in place a system of countervailing incentives; one that encourages diverse, adaptive approaches, and one that will reward people who oppose or undermine the interests that generate conflict. We should focus on the long term, so that our goal would not be undermined by policy changes or unconsidered reactions to outrages. One way of doing this would be by issuing Conflict Reduction Bonds. These could be backed by any combination of governments, non-governmental organizations, philanthropists and ordinary citizens, whose funds would reward the achievement of a sustained period of global (or regional) peace. Incentives under a bond regime would cascade down into all sorts of initiatives, glamorous or not, high level or low level, bottom up or top down, old-fashioned or innovative: efficiency in reducing the prospects of conflict would be the sole criterion for the allocation of funds. For more see this previous post, or my papers on applying the Social Policy Bond concept to conflict reduction.

"There's no money in health..."

Suzanne Beachy talks to Dr Peter Breggin about the loss of her son 'due to psychiatry's failure to offer beneficial, caring human services, and indeed due to psychiatry's opposition to them.':

There's no money in health; there's only money in managing illness. Suzanne Beachy, Dr Peter Breggin Hour, 4 November

Ms Beachy is relating her experiences in the US, but the same applies to most western countries. The concept of 'health' is not one that can be readily addressed by our existing institutions. It suffers because it results from a huge number of influences, and because our institutions have grown up during times when that number of influences was much smaller. So these institutions and the systems they embrace aren't as good a fit in today's complex society's as they used to be. Curing short-term illnesses is a relatively visible and quantifiable activity. Treating or managing poor health can also be reduced to a series of procedures that can be performed by our current health care providers. Sure, clinical trials are performed, pills and equipment sold, and a whole array of indicators is measured and targeted. But much about the clinical trials - who performs them, how they're performed and which ones are quietly ignored - is questionable, and many of the targeted indicators are Mickey Mouse at best. They have evolved to measure highly specific rates of activity, rather than outcomes that are meaningful to ordinary people, healthy or sick. The result is exactly what Suzanne Beachy experienced: a system that motivates people and institutions to manage illness rather than optimise health. 

Here's another approach: measure the broad health of society, and target that for improvement. Society is so complex, and our knowledge about society and science is growing so rapidly that no government, however altruistic, generous, or far-sighted, can know how best to maximise our physical and mental well-being. But what a government can do is put in place a system that gives people incentives to find the most efficient ways to maximise society's health continuously. In short, government  can apply the Social Policy Bond principle to society's physical and mental well-being and issue Health Bonds.