How to bypass cultural imperatives

Philip Salzman writes:

Peace is not possible in the Middle East because values and goals other than peace are more important to Middle Easterners. Most important to Middle Easterners are loyalty to kin, clan, and cult, and the honour which is won by such loyalty. These are the cultural imperatives, the primary values, held and celebrated. When conflict arises and conflict-parties form based on loyal allegiance, the conflict is regarded as appropriate and proper. Why There Is No Peace in the Middle East, Philip Carl Salzman, 14 October

On first reading, this seems correct. If so, it would devalue my attempts to encourage the issuing of Middle East Peace Bonds. But what would ordinary people - men and women - in the Middle East or, indeed, anywhere else, say if they were given the chance to voice their opinions in private? I'd like to think that they would happily ditch tribal loyalties in exchange for peace and the consequent brighter prospects for themselves and their descendants. Middle East peace might seem overly idealistic, and it probably is, if we see tribal loyalties which, simply because they've persisted for a thousand years or more, as intractable. But slavery too, used to be considered part of the natural order of things, along with other physical and societal pathologies. Over the course of a conventional politician's planning horizon, of course, Salzman is correct. Conventional politicians, unfortunately, generate conventional policies; a particularly ineffectual approach when trying to address problems that will most likely require an array of possibly untried and adaptive approaches for their solution.

Applying the Social Policy Bond concept to armed conflict might be the way forward. For some regions, a definition of our peace goal might need to be more nuanced than 'cessation of conflict' (as measured, say, by numbers of people killed or made homeless). But the bonds can target peace, however defined, over a decades-long term, which means that bondholders would be motivated to bring about popular, sustainable peace agreements. 'Cultural imperatives' and other so-called 'intractable' problems, I believe, are amenable to solution: we might not know the exact nature of such solutions, but we can and should be giving people incentives to finding them.

Avoiding the disaster of disengagement

Peter Arnold writes:

Mimicking ‘the Trump phenomenon’, Emmanuel Macron did not win the French presidential election. The politicians who had, for decades, governed the country, lost. Mark Rutte’s governing party lost seats in the Dutch parliament to Geert Wilders and other small parties. Matteo Renzi’s governing party lost the 2016 plebiscite to change the Italian constitution. Theresa May’s governing party lost ten seats to minor parties. Malcolm Turnbull’s governing party lost seats to minor parties. As further proof my thesis, Angela Merkel will lose seats next month.

What is it about governing politicians in these democracies that has caused their electorates to vote against them? The French have a word for it, a word which emerged after Mr Macron, although lacking a political party, saw his opponents fall by the wayside – dégagement. ‘Disengagement’. Winning by default, Peter Arnold, 'Quadrant online', 13 October

We shouldn't be surprised at this all-pervasive disengagement. Policymaking is now so removed from the concerns of ordinary people and the process itself is so arcane, that only specialists, usually employed by large public- or private-sector bodies, can afford to follow it. Despite the odd referendum, the gap between the politico-bureaucratic complex and the people they are supposed to represent grows ever larger. In such a dysfunctional environment, disengagement would seem to be the least timewasting strategy for ordinary citizens to adopt.

Social Policy Bonds might be a way of closing the gap. Their aim is to inject market incentives into the solution of our social and environmental problems. But, as well as, and perhaps even more important than, the channeling of the market's incentives and efficiencies into such problems, they take as their starting point outcomes. Social and environmental outcomes, that is, that we want to achieve. Under a bond regime, the focus of political debate would be on these outcomes: the priority we attach to them and how much we are willing to spend on them. Current policymaking focuses on institutional funding and structures and esoteric aspects of law and regulation, all of which can be, and are, manipulated by those lobbyists and their paymasters. The rest of us have to live with the consequences. The underlying assumption is that, if we have a social problem, it's government who should decide how we'll try to solve it, and who shall be charged with doing so. With anything at all complex it's unsurprising that such a way of doing policy is at best inefficient, and at worst an opportunity for vested interests to delay or oppose anything that threatens their business model.

Social Policy Bonds, in centering policy debate on outcomes, would encourage less rarefied policymaking than the current system. People understand broad meaningful outcomes more than we do the obscurantist tactics of today's legislators. So we should be able - if we want - to participate for more fully than we can today. It's likely too that some of the heat would be taken out of politics: there's probably far more consensus over outcomes that we want to see - healthier citizens, less air pollution, universal literacy, say - than over the supposed means of reaching them.

Under a bond regime, probably nobody would see exactly the policy priorities they want to see. But, compared with today's policymaking, (1) it's probably more likely that citizens' interests will be considered and taken seriously, and (2) public participation in the process can be seen both as a desirable goal in itself (see here, for instance), and as a necessary condition for buy-in, without which many of our most urgent challenges are unlikely to be met. Disengagement presages disaster. Social Policy Bonds could be the way to avoid it.

Emotion-based policy

What drives policy? And what should drive policy? Two entirely separate questions. What actually drives policy today is largely emotion, which seems to be supplanting other policy drivers, and is easily manipulated by large private- and public-sector bodies. Society is growing ever more complex as are the relationships between cause and effect in social and environmental policy. Emotion is easier to communicate and exploit than a rigorous accounting of which policies work and which don't. But as a policy driver emotion has obvious faults. It's far too easy to subvert for mercenary and more sinister ends.


I'd much prefer to see meaningful outcomes drive policy. These could bypass the complexities of our economy and society, so they would berelatively easy for non-specialists to understand. It's far simpler, say, to aim to reduce violent crime, or climate change, than it is to make a case for (say) subsidising leisure centres for youths or urging poor countries to stop building coal-fired power stations. These actions, at some point in time, might be necessary and efficient, but that should be an open question: one to be answered by informed and motivated investors, rather than remote, cumbersome, corruptible and monolithic central government.

Which is where Social Policy Bonds would enter the picture. One of the benefits of a bond regime is to bring transparency and stability into the policymaking process. Framing policy decisions in terms of costed outcomes would be an inescapable first step. Currently policymakers can - indeed must - express their decisions as vague, noble-sounding declarations of intent, backed up by funding programmes for favoured bodies, be they government agencies or other interest groups. As Milton Friedman said: “one of the great mistakes is to judge policies and programs by their intentions rather than their results”. (I would insert 'stated', before 'intentions' here.) Issuers of Social Policy Bonds, would in contrast, have to be explicit about their objectives: transparency and accountability are built into a bond regime, as surely as they are excluded from the current policymaking apparatus. as well as more efficient goal-achievement, formulating policy in terms of meaningful outcomes would generate more buy-in - something that we urgently need as the gap between citizens and the politicians they are supposed to represent is in danger of becoming unbridgeable.

Short termism: taking advantage of complexity

There's much of interest in John Kay's presentation at the Public Hearing on Sustainable Finance at the European Commission. The key point is this:

Short termism is the product of the intervention of intermediaries. Evolution of the financial system over the last 40 years has been characterised by the steady growth of the process of intermediation, a process which has taken finance further and further away from meeting the real needs of the underlying users and suppliers of finance. Market-based capital allocation and long-term decision-making do not fit easily together. John Kay, 18 July

There's a mismatch between people's long term goals, and the short-term focus of the people who are supposed to help us achieve those goals. The same sort of mismatch occurs not only in finance but also, though perhaps less pervasively, in healthcare and education. Reasons vary, and are not easy to pin down. Information asymmetry may play a big role: in finance, as in healthcare, providers know a lot more than customers. Society is complex and large institutions are adept at misusing that complexity to take advantage of our relative ignorance. In fact, they are not above manipulating the regulatory environment to add to our confusion.

The more important question, though, is how to close the gap between what we want to see, and what our public- and private-sector institutions deliver. My suggestion is that we articulate long-term social and environmental goals, and reward people for achieving them. We don't need to prejudge intermediate steps, nor specify who shall achieve our goals. If we issue Social Policy Bonds with the aim of improving our citizens' health, say, or achieving universal literacy, then intermediaries will proliferate only if bondholders think them necessary to reach our targets with maximum efficiency. Information asymmetry means that intermediaries can take advantage of our relative ignorance about how best to achieve our personal long-term goals and substitute their own, usually much shorter-term objectives, which rarely coincide with our goals and often, indeed, conflict with them. But whereas we might not know how best to achieve our personal goals, nor society's goals, we are not at all ignorant about what those goals actually are. Social Policy Bonds would recast the way we, as a society, do things. They would put our broad, long-term, goals back where they belong: as top priorities, to which our institutions and all their activities are entirely subordinate.

We're all human

As Kaiser, King, and Supreme War Lord, Wilhelm II was simply bound to be central to the decision-making processin July 2014, and a heavy responsibility rests on his shoulders for the terrible catastrophe that befell the world that summer. ... "The Serbs need sorting out - and soon." It was "now or never", [the Kaiser] declared, for a thoroughgoing settling of accounts with the Serbs. Wilhem II: Into the Abyss of War and Exile 1900-1941, John C G Rohl (English translation), 2014

What is particularly striking is how, at the highest level of national government, big decisions appear to be made on the basis of reactive, primal emotion. Rationality and the long-term interests of the people politicians are supposed to represent hardly figure at all. Reading some of the Kaiser's comments made in the run-up to World War I, one is struck by how their puerile, reactionary nature. Yes, monarch and policymakers are human - but so too are the millions of citizens for whom they make policy.

Reactive thinking is particularly dangerous when military conflict looms, and not much has changed in the 103 years since 1914. Except, of course, the destructive power in the hands of our leaders. An article about Henry Kissinger's role in US foreign policy quotes him saying to US President George W Bush’s speechwriter, about radical Islamic opponents: ‘We need to humiliate them’. Comments like this abound in high politics. George W Bush himself cried ‘bring ‘em on’ at an early point in the invasion of Iraq. These are not examples of high-level thinking.Current comments by political leaders are no more considered or sophisticated.

One of the benefits of a Social Policy Bond regime would be the clarification of social goals, and the transparency of the process that targets them. Goals would have to be articulated before targeting. They'd have to be thought through. There would have to be consultation and buy-in. It's unlikely that random, reactive emotional outbursts would crystallise into policy in such a inescapably level-headed policymaking environment, however eminent the people making them. Had the well-being of all their citizens been targeted for improvement, a Kaiser and his ministers would have had seriously and coolly to think of the  interests of the people they were supposed to represent. They would never have been allowed to lead (or 'sleepwalk', as Christopher Clark puts it) Germany and much of the rest of the world over the brink into catastrophe.

I don't know: Climate Stability Bonds edition

Social Policy Bonds aren't always the best way of solving a social or environmental problem. When such a problem has a clearly identified (and universally acknowledged) cause, or set of causes, then direct action, usually done, or organised, by government, is probably the most efficient way of solving it. Much of the raison d'etre of government arises from its ability to raise revenue to solve our social problems. Dealing with military threats, providing basic sanitation and transport infrastructure, and elementary education are examples of solutions that are usually best funded via, and designed, by government.

Other problems are trickier: crime, for instance, or health and education beyond universally achieved basic levels. Or, at the global level, risks of nuclear conflict. Tried and tested approaches can help, and many dedicated, hard-working people follow these, with some, limited, success. But, in my view, these problems have so many causes, and the relationships between cause and effect can change so radically over time, and differ so widely between geographic areas, that the one-size-fits-all, top down, approaches that characterise government action just don't work. Especially when our goals are inescapably long term in nature, we need diverse, adaptive approaches that government does not do well. It is for these goals, I believe, that the Social Policy Bond concept can show the most marked advantage over any other approach.

I am not sure about climate change. A correspondent, who knows a lot more about the science than I do, tells me that it is now beyond doubt that the causes of climate change (or climate breakdown, as George Monbiot puts it) are anthropogenic greenhouse gas emissions. If this is the case, then perhaps my suggested solution of Climate Stabiity Bonds aimed at addressing the depredations caused by climate change to human, animal and plant life might not be optimal. The most efficient solution might be to target greenhouse gas emissions directly, either through a carbon tax, or cap and trade, or (possibly) by a Social Policy Bond issue targeting the composition of the atmosphere.

Theoretical efficiency, though, isn't the only criterion. I said 'univerally acknowledged', in my first para, above. And I've written many times here and on the SocialGoals.com website about the importance of buy-in. For dealing with climate change, which is going to require the expenditure of massive resources, upfront, for an uncertain and inherently long-term benefit, buy-in is as elusive as it is crucial. I don't know whether there will ever be enough buy-in globally to deal adequately with greenhouse gas emissions. The Climate Stability Bond approach might yet have presentational advantages and more palatable money flows than such elegant solutions as a carbon tax. Any presentational advantages would be due to people's more readily identifying with the direct targeting for reduction of the impacts of adverse climatic events, whether they be short term - and televisual - such as hurricanes, or long term and drawn out, such as desertification. The money flows would be more palatable because, essentially, payment is for results: Climate Stability Bonds would not be redeemed until all targeted goals had been achieved. Another possible advantage of the bond approach is that it could be more ambitious than simply trying to return our atmosphere to something like its pre-industrial state. With a much greater global population than (say) 150 years ago, climatic disasters on an appalling scale would still occur, even if that very remote goal were achieved and sustained. A bond approach could, amongst other goals, target those disasters for reduction.

Set against those possible advantages is the more practical one of the atmosphere's composition being much more readily measurable than the multiple goals of a Climate Stability Bond regime.  

I''ll conclude inconclusively, by suggesting that perhaps the best approach would be to target (1) atmospheric composition and (2) the impacts of adverse climatic events, independently. Social Policy Bonds could be used to achieve either goal, or both, or neither. Much depends on how willingly people will pay upfront for the abstract-sounding goal of aiming to reduce greeenhouse gases in the atmosphere to their pre-industrial levels.

Climate change: humility recommended

The Economist, in a long article about the US state of Louisiana's coastal erosion problem (much of which is caused by factors other than climate change) says:

The state’s impressive coastal policy illustrates America’s ability to adapt to a natural disaster that is already upon it. It does not seem to have nudged the state, or the Republican Party, any closer to policies that might slow the warming that is contributing to that disaster. (My emphasis) Louisiana fights the sea, and loses, the 'Economist' 26 August

I approve of the tentativeness implied by 'might', and it's good to see others implicitly question whether stopping greenhouse gas emissions is the best way of achieving whatever are our goals concerning the climate. I would argue that the fundamental question we should be asking ourselves is:

Are we more concerned about climate change, or about the impacts of climate change on human, animal and plant life?

Accepting that there is a climate change problem, and that anthropogenic greenhouse gases are responsible (to an uncertain degree) for it, we need, I think, to challenge the pervasive assumption that the most efficient way of mitigating its negative impacts is to reduce those same greenhouse gas emissions. With the word 'might', the Economist would seem to agree.

A Social Policy Bond regime would specify very clearly what we want to achieve. We would express our policy goal as a combination of physical, social, biological and financial measures that must fall within specified ranges for a sustained period. Only then would holders of Climate Stability Bonds be paid out. These bonds would, in effect, contract out the achievement of our multiple climate goals to the private sector, leaving it to respond to our ever-expanding scientific and technical knowledge. Current policy is rigid and arrogant, in that it is based entirely on current science and assumptions about future trends. It cannot adapt to new knowledge. We shall need a multitude of diverse, adaptive approaches to achieving our goals relating to climate change and its impacts - many of which will have nothing to do with greenhouse gas emissions. Climate Stability Bonds would encourage them. Current policy, as well as being politically divisive and imposing extremely high upfront costs, will not.

What exactly is the problem?

'When greenbacks are on offer, American schoolchildren seem to try harder': the Economist discusses how financial incentives can change test results:

[R]esearchers conducted an experiment in secondary schools in Shanghai and America. In each place pupils were split into two groups. The first answered 25 maths questions that had appeared in PISA. The second took the same test, but before the pupils did so, they were presented with an envelope with 25 dollar bills or the equivalent in yuan. The teens were told that for every wrong answer they would be docked a dollar. [The researchers] found that the ploy boosted scores among American students relative to their compatriots without a cash incentive, but not among the Chinese ones. Effort, not ability, may explain the gap between American and Chinese pupils, 'the Economist', 19 August. PISA is the Programme for International Student Assessment

The boost was significant: 'According to some rough calculations, if extrapolated to the main PISA test, the improvement in performance would have moved America from 36th to 19th in the ranking [of 69 countries], in which Shanghai came top.' It's an interesting result, and one that should make us question what the tests are trying to measure, and whether there are wider policy implications.

Test scores will most likely continue to play a big role in determining policy and the allocation of resources in education. That would be true whether or not we issue Social Policy Bonds that aim to achieve, say, universal literacy. So, in the light of the research results summarised above, should we offer cash incentives to pupils about to take literacy tests?

I'm inclined to think not, at least when it comes to measuring basic literacy. One reason is that motivation, or the lack of it, are significant in themselves. If children of school age find a basic reading test too burdensome to pass without a financial incentive, then that in itself can  be seen as a problem that needs to be solved. The nature of that problem might be a general cultural one, or one that's specific to certain classes of pupil. We might even interpret the difference between performance with a financial incentive and without as a social problem; and aim to narrow it.

There's no definitive answer though. Much depends on how we're going to use test scores, and whether there are other indicators that can usefully be targeted at the same time. As a society, we do need to think carefully about what we are trying to achieve. 'Teaching to the test' is problematic in itself and, while I do think universal literacy and numeracy are valid goals in themselves, and not very susceptible to the effects described above, we might do better to target for reduction as well as, or instead of, illiteracy, the social problems of unemployment and poverty.

Incentives and health

Dr James DiNicolantonio writes about the influence of the sugar industry on nutritional guidelines:

Throughout the years, the effects of conflicts of interest with the sugar industry were never quantified, until a recent systematic review of systematic reviews was published in 2013 in the journal PLOS Medicine. The review found that in studies with a conflict of interest with the food industry, 83.3 percent found no evidence linking sugar-sweetened beverages with weight gain/obesity. In contrast, when only studies without conflicts of interest with the food industry were analyzed, the same percentage (83.3 percent) found a positive association—that sugar-sweetened beverages have a definitive connection with weight gain and obesity. This one study provides just a small glimpse of how much science has likely been affected by these types of influences. The Salt Fix: Why the Experts Got it All Wrong and How Eating More Might Save Your Life, Dr. James DiNicolantonio, June 2017

Nothing particularly new, but we do need reminding of the importance of incentives even on hard-working, well-meaning, highly talented members of the medical profession. Of course, financial incentives can reinforce public health as well as degrade it. The Social Policy Bond concept, as applied to health, would align our national health goals with rewards to those who are efficient at achieving them. It's unfortunate that, under our current healthcare systems, there is little to encourage people to seek out those ways of improving our health at least cost. Medical specialists, expert in their field, advocate effectively for their share of limited resources, but the overall health of the nation isn't effectively targeted. Few people have any financial incentive to consider it, and especially not to question the current ways in which funding is allocated.

Health Bonds would be different. They would target our broad health goals, probably in the form of a range of indicators such as longevity and Quality Adjusted Life Years. For the bonds to be redeemed, each indicator would have to fall into a specified range, representing an improvement over the current level. Significant improvements in a nation's health will probably take decades to achieve, but Health Bonds would be tradeable, meaning that any coalition of interests who improve our health, however marginally, can profit from their doing so by virtue of the increased value of their bondholding. By backing and issuing Health Bonds, a government could effectively maximise the health gains per tax dollar spent without having to specify how such gains shall be achieved, nor who shall achieve them. Opportunities for the sort of corruption (whether deliberate or not) hinted at by Dr DiNicolantonio and the authors of the paper he cites, would disappear, to be replaced by a healthcare system in which the interests of practitioners and population would be entirely congruent.

Health: too important to be left to the healthcare industry

Brian Nelson writes: 

That our payment incentives have had the unintended consequence of often harming patients has been recognized by payers (government included) and efforts are underway to change. Can we devise a system that pays for outcomes rather than paying for services regardless of effectiveness? Unless we do, I fear things will not change. A review by Brian W Nelson (orthopaedic surgeon), of Crooked: Outwitting the Back Pain Industry and Getting on the Road to Recovery, 21 May

There's an idea: pay for favourable health outcomes, rather than activities or institutions purporting to deliver those outcomes, but at least as concerned for their own well-being as those of the people they are supposed to be helping. We see this not only in orthopaedics, but in other areas of physical and mental health. There's nothing particularly startling about this: practitioners have their own families to support, and are reacting perfectly rationally to the incentives on offer. And those incentives encourage over-screening and over-treatment, and the neglect of commercially nonnviable preventive interventions. As the British Medical Association puts it, in a recent paper:

Despite the clear acknowledgement across the UK of the need to prioritise ill-health prevention and public health activities, the data analysed in this briefing show this is not matched by funding commitments. Funding for ill-health prevention and public health in the UK (pdf), British Medical Association, 2017

It's the same, or worse, in the US:

Almost 1.3 million people went to U.S. emergency rooms due to adverse drug effects in 2014, and about 124,000 people died from those events. [R]research suggests that up to half of those events were preventable. ... An estimated $200 billion per year is spent in the U.S. on the unnecessary and improper use of medication, for the drugs themselves and related medical costs.... Too many meds?, Teresa Carr, 'Consumers Reports', dated September 2017

It's time for a new approach. My suggestion is that rather than policymakers' focusing on the means by which they think good health can be achieved, they instead focus on targets for good physical and mental health, and provide incentives for people to achieve those targets. The Social Policy Bond concept, applied to health, would do this, and more: it would inject the market's incentives and efficiencies into all the processes necessary to improve a nation's health. Health Bonds would channel our scarce resources into the most efficient means of improving our health, including those currently neglected or not even considered by our current healthcare bodies, most of which have little incentive or capacity to consider broad health outcomes that fall outside their increasingly specialised remit.

Health Bonds wouldn't stipulate how our health goals shall be achieved, nor who shall achieve them. This allows a broader approach. For example: our current compartmentalised accountancy-driven policy approach would not take into consideration the adverse health impacts of subsidising advanced courses for young drivers of motorbikes or cars. But holders of Health Bonds would look at such measures, investigate their possible health impacts, and make an informed decision as to whether any improvement they might bring to the nation's health is worthwhile, compared to other possible interventions.