Ending world poverty efficiently

Reading Peter Singer's The Life You Can Save: acting now to end world poverty, I'm pleased to see that someone else recognises the importance of solving social problems as efficiently as possible. It's not a given: institutions - even the best run, most dedicated - have their own priorities, of which self-perpetuation is paramount. Efficiency, as measured by improvement in well-being per dollar spent, should be an end in itself, in that optimal efficiency maximises the benefits from our scarce resources. But it is, in my view, also a means to an end, in that efficient poverty relief programmes would encourage more people to contribute to them. To quote Dr Singer: '[A]s people become more confident of the cost-effectiveness of charities, they will become more willing to give.' I haven't finished reading his book but, in it, Dr Singer quotes William Easterly:

The West spent $2.3 trillion on foreign aid over the last five decades
and still had not managed to get twelve-cent medicines to children to
prevent half of all malaria deaths. The West spent $2.3 trillion and
still had not managed to get four-dollar bed nets to poor families. …
It’s a tragedy that so much well-meaning compassion did not bring
these results for needy people. William Easterly, The White Man’s Burden, 2007

In a Social Policy Bond regime, the most important feature would be the targeted outcome, not the institution. A bond regime could target long-term goals in ways that current organisations cannot. All activities would be subordinated to the efficient achievement of the targeted goal. Existing institutional involvement would not be taken as a given: efficient organisations would thrive under a bond regime, but the less efficient would see a drop in their funding. The long-term feature of the bonds means there would be ample time to try diverse, adaptive approaches, and promote the most promising of those while, importantly, terminating those that show themselves to be inefficient. Consistent with Dr Singer's thesis, the best approach would be to issue bonds that target global poverty, with resources being channelled to wherever in the world they can do most good, regardless of the nationality, ethnicity etc of beneficiaries. A starting point could be to issue bonds targeting improvement in some refinement of the Human Development Index. For reasons I've recently given, existing bodies are unlikely to fund such bonds. Philanthropists could, in theory, but I suspect they too would not want to relinquish the control and kudos that come with dispensing large sums of money to needy people. It's certainly, and understandably, difficult for ordinary people to make suggestions along those lines to wealthy individuals, though I try.

Give cash payments a chance

Below is an article I've written recently and sent to a couple of UK newspapers. They won't print it, so I'm making it freely available here. For those familiar with the Social Policy Bond concept, there will be little new in this piece.

Give cash payments a chance: World Peace Bonds

Pay people to stop killing each other? Sounds crazy, and a long way short of ideal. But better, perhaps, than where we are headed.

As the rhetoric gets ever more heated; the piles of weapons ever greater and more lethal, it seems very much as if we’re in a pre-calamity phase. Along with other social and environmental problems, the likelihood of nuclear conflict is probably contributing to falling birth rates in the most liberal and wealthy societies that have ever existed. There are efforts being made by well-meaning, hard-working people and organisations doing what they can to facilitate dialogue, defuse tension, and limit deployment of, and trade in arms. But the sum of their efforts doesn’t change the portentous reality: we are in grave danger of a world war. As the Institute for Economics and Peace tells us, the world has become successively less peaceful each year since 2014. (Source: Institute for Economics & Peace. Global Peace Index 2022: Measuring Peace in a Complex World, Sydney, June 2022. Available from: http://visionofhumanity.org/resources (accessed 21 May 2023).

World Peace Bonds

There’s no single solution to the problem of violent conflict and I can’t offer one. But I can offer a means by which we can find solutions: solutions that will be diverse, adaptive and efficient – as they need to be. My suggestion is that philanthropists put up initial funding for a new type of financial instrument: World Peace Bonds. Funds for the redemption of the bonds could be further swelled by non-governmental bodies, and the wider public. Even governments could contribute, if they could bear to focus on the long-term interests of the people they are supposed to represent. The bonds would be floated by auction and redeemed for a fixed sum only when the number of people killed by violent political conflict fell to, say, 50 000 a year, for a sustained period.

World Peace Bonds (unlike the similar Social Impact Bonds) would be tradeable on the open market. People would buy bonds only if they expect their market price to rise. Because bondholders could sell their bonds at any time, they wouldn’t have to hold them to redemption to make a profit. The bond issuers could therefore target very long-term goals, such as our world peace goal sustained for, say, three decades.

Importantly, the bonds would make no assumptions as to how to bring about greater peace, nor who would do so: these decisions would be made by bondholders. Unlike normal bonds, World Peace Bonds would not bear interest and their redemption date would be uncertain. Bondholders would gain most by ensuring that peace is achieved quickly.

As the level and likelihood of large-scale violence fell, so the market price of the bond would rise. Bondholders would have incentives to cooperate with each other to do what they can to achieve peace, see the value of their bondholdings rise, then sell their bonds, and realise their profit. The bond’s backers need decide only on the definition of peace to be targeted - not on how to achieve it. That would be left up to investors in the bonds, who would have every incentive to maximise their, and the backers’, reduction in violence per unit outlay. So, in contrast to the current approaches to achieving peace, a World Peace Bond regime would stimulate research into, and implementation of, ever more cost-effective ways of defusing and eliminating political violence.

Bondholders would be in a better position than governments to undertake a range of peace-building initiatives. They could lobby or work with governments to, say, change and enforce laws that make wars at home or overseas a less likely prospect. They could finance sports matches between potential protagonists, promote anti-war programmes on TV, or set up exchange schemes for students and schoolchildren. They could try to cajole the financial supporters of conflict into redirecting their funds along more edifying lines. They could offer poor countries innovative forms of aid, including education and scientific aid, and measures aimed at enlightening populations. They might even subsidise intermarriage between members of different ethnic or religious groups. And they could simply pay people to stop killing each other, when they think that’s the most cost-effective approach. The crucial point is that bondholders have more freedom and incentive to explore and carry out such diverse initiatives than governments or other international bodies.

By appealing to people's self-interest, World Peace Bonds are likely to be more effective than conventional efforts aimed at reducing violence. In channelling market forces into the achievement of this objective the bonds could bypass or even co-opt the corrupt or malicious people in government or elsewhere who stand in the way of peace.

In today's emotional climate decision-making is too often reactive. It is too easily swayed by those with a propensity for violence or those who benefit from it, financially or emotionally. There are enlightened, hard-working, supra-national organisations working for peace, but their funding is conditional on their carrying out the limited, short-term activities approved by their sponsoring governments. Private peace-building bodies work in admirable and diverse ways, but their efforts are small-scale and uncoordinated. For neither type of organisation are the financial rewards from building peace correlated with their effectiveness in actually doing so. World Peace Bonds, in contrast, would explicitly reward movement toward a long period of world peace, however it is done, and whoever achieves it. They would focus on an identifiable, meaningful outcome and channel market efficiencies into exploring ways of achieving it. They could be the most effective means of achieving the peace that people all over the world yearn for and deserve.

© Ronnie Horesh, May 2023

Ronnie Horesh was an economist for the New Zealand Government. He is currently based in the UK. Links to his work on World Peace Bonds can be found on his website: http://SocialGoals.com

Social Policy Bonds haven't gone very far

This is post number 1361; as good a time as any to look at why Social Policy Bonds haven't gone very far in the few decades since the idea has been in the public arena. 

Similar sounding Social Impact Bonds, with which I've had no involvement, have been issued in at least 25 countries. Unlike Social Policy bonds, they are not tradeable. I'm ambivalent about them for reasons I've explained more fully here and here, but in essence they are inherently short term in nature, and do not encourage new entrants nor much in the way of diverse, adaptive approaches; the range of social and environmental outcomes they can target is inherently narrow. However, they could be a stepping stone on the way to my original concept - or they could discredit the whole notion of injecting market incentives into the achievement of goals currently the remit of government.

The main reason why I think the original Social Policy Bond concept hasn't made much progress is that it threatens existing institutions, including those currently charged with allocating funds to service suppliers, and the service suppliers themselves. Under a bond regime, the government bodies that allocate funds to favoured service suppliers would relinquish that power, though government would still articulate society's wishes and raise the revenue used to redeem the bonds when targeted goals had been achieved. Existing service suppliers, would survive under a bond regime only if they were efficient, or deemed capable by bondholders of becoming so. 

Sadly, our existing institutions, by which I mean government at all levels and the bodies they fund, are failing in their duties to respond effectively to our social and environmental problems. At the national level, our politicians and senior bureaucrats appear unresponsive to the needs and wishes of ordinary people. At the global level, a concern such as the increasing probability of large-scale war is a lower priority, as measured by where human ingenuity and creativity are  most in evidence, than generating profits for the wealthiest investors or advertising dog-food. The gap between our leaders and the people they are supposed to represent grows ever larger.

Existing bodies, I realise now, aren't likely to do anything. Like every other institution, from trade unions to universities to religious organisations, their main priority is self-perpetuation. I've tried to interest philanthropists, via their journals, but I don't think that has achieved anything: perhaps philanthropists, like governments, relish their power to distribute funds to favoured organisations rather than to the achievement of social goals. My goal now is to carry on, and to keep my body of work on the bonds accessible over the internet for some years, via this site and the main Social Policy Bonds site and the papers and book chapters that are linked there. 

For more about applying the Social Policy Bond concept to peace, click here.

Status ≈ wealth, unfortunately

One takeaway, after watching a documentary on the life of Justice Clarence Thomas of the US Supreme Court is that money is becoming almost the sole criterion by which many of us measure success or fulfilment.

Robert Locke, writing about Japanese society, argues persuasively that 'what people are pursuing in the workplace is not so much money as the respect of the people around them…. [The Japanese] have understood that a large part of what money-seeking individuals really want is just to spend that money on purchasing social respect, through status display or whatever, so it is far more efficient to allocate respect directly.'

Rather than offer financial rewards we could perhaps reward people who help achieve societal goals with higher social status. An honours system could go some way toward rewarding people who forgo financial fortune for the good of society. Indeed, many countries have honours systems that are - or were - intended to do this. People also gain status merely by being admitted to exclusive societies, by working for a reputable organisation, or are pleased simply to be recognised in their role by cognoscenti. And many social reformers are quite happy to toil away without needing their efforts validated by any external body. They might be happier knowing that they are helping to improve the society in which they live but, for a very large number, their reward lies simply in knowing that they are making a contribution.

But whether for good or ill, the context within which social status is barely correlated with financial status is fading from many rich countries: social status is becoming more and more a function of high levels of wealth and income. The British honours system, for example, which used to compensate dedicated people for the financial sacrifices they made for the public good, is more and more following the trend, making awards to entertainers and sportspeople who, whatever their other troubles, are not financially impoverished. There are still fields of activity, in the academic and religious worlds, for instance, wherein social status and monetary reward do not always go hand-in-hand, but they are shrinking or indeed reward activities that most of us would see as anti-social. Re-instatement of a popular culture that confers high status on those who achieve social and environmental goals would be a difficult task in our highly mobile world. But in the meantime, facing severe and urgent social and environmental challenges, what are we to do?

One of the benefits of a Social Policy Bond regime is that it would create a means by which financial rewards are inextricably linked to social benefit. Under such a regime it would be politically easier to tax the income and profits of activities that have little (or negative) social impact. Great wealth might then be less divisive than under the current regime, where too much of it is generated by questionable or corrupt activities.

Obscurity causes obesity

Recently I did a post describing how complexity can be used to obscure the effects of a policy or the true intentions of policymakers influenced by corporate interests or other powerful groups - such as farmers. 

Food processors appear to be doing something similar. Chris van Tulleken explains the UK's Nutrient Profile Model, NPM 2004/5, which was developed as a tool to regulate food advertisements directed at children:

If you struggle to make sense of the nutrient data table on the [package of food] to guide healthy eating for your child, then the NPM 2004/5 is going to blow your mind. You can’t look up the NPM score of a food easily – you have to calculate it using the following three steps, which I write out only to illustrate their complexity. First, you award a score for the bad stuff: calories, saturated fat, sugars and sodium. These are called ‘A’ points. Second, you add up the points for the good stuff: fruit, vegetables, nuts, fibre and protein. These are called ‘C’ points. (By the way, you may need to pay for access to something like the NielsenIQ Brandbank nutritional database to gather all this information.) After you’ve calculated the A and C points, there are other rules to be factored in, like: ‘If a food or drink scores 11 or more A points then it cannot score points for protein unless it also scores 5 points for fruit, vegetables and nuts.’ Clear so far? Well, then you subtract the C points from the A points to calculate a score out of thirty. Any food that scores more than four is classified as HFSS [High in (saturated) fat, salt and sugar]. But, even if you do all that, it isn’t clear whether children should eat these HFSS foods, or in what amounts. The designation determines only whether a food can be marketed to children at particular times and in particular ways. Chris van Tulleken, Ultra-Processed People, April 2023

By such means is the relationship between ultra-processed food and health obscured; and by such means do we understand how ultra-processed foods make up 60 per cent of the calories consumed by the average UK citizen, and at least 80 percent of the calories consumed by one in five citizens. So policies intended to safeguard the health of our children get corrupted in the black box of our policymaking, regulatory or legislative bodies. The result? As Mr van Tulleken tells us, over the past thirty years, obesity has grown at a staggering rate: '[A]mong children leaving primary school rates of obesity have increased by more than 700 per cent, and rates of severe obesity by 1600 per cent.' This is despite fourteen government strategies containing 689 wide-ranging policies addressing obesity having been published in England in that period. Oh, and children in the UK (and US) are shorter too: 'This stunting goes hand in hand with obesity around the world, suggesting that it is a form of malnutrition rather than a disorder of excess.'

Policymakers and their paymasters couldn't get away with such deceptive behaviour under a Social Policy Bond regime, in which the first step is an explicit setting of verifiable goals. Such goals would be meaningful to ordinary people, which means we could all engage in the policymaking process. So, for example, government would set broad health goals, using an array of indicators, such as longevity, infant mortality, quality-adjusted life years and others, all of which would have to fall into an agreed range for a sustained period before the bonds could be redeemed. (See here; or here for a longer essay on Tradeable Health Outcome Bonds.) Regulations to control adverts targeting children would be enacted only if they could be shown to have favourable health impacts. As with all Social Policy Bonds, investors would have as their sole criterion for the activities they undertake their efficiency in achieving the targeted goal. Currently, big corporations influence policy in their favour, and obscurity and complexity allow them to get away with it. By targeting broad, transparent, agreed outcomes, Social Policy Bonds could reclaim policy to the benefit of the people on whose behalf it nominally made.

Methane and supervolcanoes

This recent headline from ScienceNews says it all:

Methane may not warm the Earth quite as much as previously thought

There is much about the environment - and society - that we just do not know. Yet our policies are formulated as if we do know. We think climate change is mostly a result of our pumping greenhouse gases into the atmosphere. That may well be the true but, even now, we find that we don't know as much as we thought about the relative contribution of each greenhouse gas. In this instance, the original estimate was 30 percent off the latest estimate. But we are making policy as if the role of each greenhouse gas in climate change is certain and fixed. 

Not only is the science about each gas's relative contribution uncertain; so too is our knowledge about other determinants of climate change. Yet we enact policy as if we know everything. It's risky; especially as not only is our knowledge of the physics of climate change incomplete, so too is our ability to forecast the future. Eruption of a supervolcano is unlikely but:

[T]his gigantic eruption sent the world into a decade-long volcanic winter and caused the climate to be cold and dry for thousands of years after that. The resulting famine is theorised to have reduced the ancient human population down to just a few thousand individuals. Source

Lesser events, as well as surprises in the physics, could invalidate some or all of our efforts to deal with climate change. Policy should account for such gaps in our knowledge, and not only in environmental matters. Society is also too complicated for a policy approach that assumes that relationships are known and fixed. So, for example, reducing crime rates or increasing literacy is not simply a question of more funding for already-existing bodies. In my view, it's more a matter of putting in place incentives that reward people for achieving our goals, whoever they are, and however they do so. The risks of unanticipated events and failed approaches should be borne by those taking on the task.

Social Policy Bonds are one way of addressing the complexity of society and the environment. They reward the achievement of desirable outcomes, rather than the supposed means of achieving them. They set up incentives to reward promising approaches and - importantly - to terminate failing approaches. They transfer the risk of failure from the bonds' issuers (usually government) to investors in the bonds. They encourage investors to keep an eye on events as they unfold, and to respond to them appropriately. So, for example, investors in bonds targeting climate change would react to the research referenced above (if they did not carry it out themselves) by refining their attempts to deal with methane emissions. Under the current regime, nobody has incentives to change the assumptions on which existing models are based.

What happens if nobody does anything?

In my book I speculated that, if a goal targeted by a Social Policy Bond issue remains remote, the bonds' backers could issue more bonds, or swell the redemption funds and, by doing so, increase the incentive for bondholders to work to achieve the goal. I now see that this was probably naive, and that there would be a perverse incentive for investors to acquire as many bonds as they could, do nothing, and watch the value of their holding rise if the backers did as I speculated. 

So I have modified the original text of the relevant paragraph in chapter 3 of the book to read:

Note that the issuing body could add to the number of bonds in circulation after floating at any time, if it wanted to boost the efforts going into achieving a particular social goal, but this could encourage people to buy the bonds, and do nothing to achieve the targeted goal so that, when more bonds were issued, the value of their holding would rise. A better approach might be to declare the initial bond issue invalid, which would act as a spur to encourage would-be passive investors to become active, or to sell to active investors. If the issuers wanted, for whatever reason, to reduce such efforts, the situation would be a little more complicated. It could buy bonds back from holders, but doing so would reduce the total funds to be spent on achieving the targeted objective, and so would lower the value of all bonds in circulation. People might therefore be unwilling to buy bonds in the first place if they thought there were a high probability of the issuing body's buying some of them back in this way. They would demand some sort of premium for taking that risk. Alternatively, the issuing body could undertake either that it would never buy Social Policy Bonds back or that, if it did, it would pay the market price ruling before it announced its purchase intentions.

The intention is to deal with the criticism presented on this page; that is, the sixth criticism (beginning 'Expectations...'). Chapter 5 of the book is also slightly modified to reflect the same concern.
 

Taking advantage of complexity

Powerful interests use complexity to hide their anti-social behaviour:

Since 2013, ProPublica has exposed how Intuit, the maker of TurboTax, and other companies have resisted efforts to make tax preparation easier and less costly, including lobbying to ban the IRS from offering free, simple tax filing and deceiving customers who should qualify for the Free File product. Source

The evidence indicates that low-income Americans are not taking full advantage of government programs for a much more banal reason: we’ve made it hard and confusing. People very simply often don’t know about aid designated for them or are burdened by the application process. When it comes to increasing enrollment in social programs, the most successful behavioral adjustments have been those that simply raised awareness and cut through red tape and hassle. The High Cost of Being Poor, Matthew Desmond, New York Review of Books, 20 April

One of the advantages of the Social Policy Bond concept is its transparency. Policymakers would have to explicit about their intentions. So, for example, if they want to shovel billions of dollars from taxpayers and consumers to a small group of wealthy landowners who have devastated the environment, and helped impoverish developing countries, they would have to say so openly, instead of, as at present, waving their arms and mumbling about 'food security', 'saving the family farm', 'looking after the countryside', and relying on people's inevitably limited attention span. Likewise, as with poverty alleviation, it's not enough to put in place a few programmes with impressive-sounding titles that might be well meaning, but access to which is difficult for those without an abundance of time and energy; which is to say: those who need them most. Lack of transparency also allows politicians and bureaucrats to avoid accountability: if there are no explicit, verifiable goals, then success or failure are a matter of spin.

Social Policy Bonds: a sonnet

 I asked ChatRPG to write a sonnet about Social Policy Bonds:

In policy circles, talk of Social Bonds
Has grown in strength and scope in recent days
A tool to tackle ills that have prolonged
By focusing on outcomes, not just ways

And in this field, one name stands apart
Ronnie Horesh, a pioneer so bright
His insights help policymakers chart
New paths to achieve the social right

The bond's concept, to put it simply, shows
That we can make a market for progress
And fund the goals that society chose
By issuing bonds that we can all invest

So here's to Horesh and his vision bold
A brighter future for us all he'll hold.

Why poverty persists in rich countries

Without even mentioning corporate welfare and subsidies to agriculture, Matthew Desmond writes about the tragedy of US poverty. Longish excerpts, because it's paywalled:

The evidence indicates that low-income Americans are not taking full advantage of government programs for a much more banal reason: we’ve made it hard and confusing. People very simply often don’t know about aid designated for them or are burdened by the application process.

 In 2020 the federal government spent more than $193 billion on homeowner subsidies, a figure that far exceeded the $53 billion allocated to housing assistance for low-income families.

I can’t tell you how many times someone has informed me that we should reduce military spending and redirect the savings to the poor. I’ve met far fewer people who have suggested we boost aid to the poor by reducing tax breaks that mostly benefit the upper class, even though we spend over twice as much on them as on the military and national defense. According to recent data compiling spending on social insurance, means-tested programs, tax benefits, and financial aid for higher education, the average household in the bottom 20 percent of the income distribution receives roughly $25,733 in government benefits a year, while the average household in the top 20 percent receives about $35,363. The High Cost of Being Poor, Matthew Desmond, New York Review of Books dated 20 April

If we allow that programmes ostensibly designed to relieve poverty are actually intended to relieve poverty, then these facts point to a tragic failure of policy. Perhaps the system isn't wholly cynical, in that policymakers find the programmes just as confusing as do the intended beneficiaries. Assuming good intentions, then, my solution would be to:

1. recognise that poverty is a complex problem, requiring long-term, diverse, adaptive approaches;
   
2. decide exactly the goals we want to achieve, in quantitative, robust, verifiable terms;
3. reward people for achieving those goals.

Sadly, policymakers do not work like this. When it comes to poverty alleviation, as with climate change, water pollution, housing and the rest, if there are stated goals at all, they will be vague and incoherent sound bites. There will be changes in the funding of established bodies, or the creation of new bodies and, perhaps, some Mickey Mouse micro-targets set in the sure knowledge that nobody will actually check on whether their achievement or otherwise has done anything useful. 

Politicians can escape blame for absurd, destructive and corrupt programmes such as their supposed policy alleviation efforts because they are not expected to express society's goals in terms of outcomes. One of the advantages of a Social Policy Bond regime is that policymakers would have to express policy goals in explicit, transparent and verifiable terms. These would be expressed in ways that ordinary people can understand. Few would argue for programmes that favour wealthy corporations, farmers and individuals, but those are the policies in place now. Making poverty goals transparent would go a long way to solving the poverty problem. A bond regime would generate further gains by providing incentives for those working to relieve poverty to do so cost-effectively.

It's not uncommon to hear the wealthier beneficiaries of government largesse bemoaning the cost of supporting single mothers, the homeless and other unfortunate and genuinely struggling individuals. The politicians deceive the people, and the rich welfare beneficiaries deceive themselves.

Tax breaks are nice if you can get them. In 2020 the mortgage interest deduction allowed more than 13 million Americans to keep $24.7 billion. Homeowners with annual family incomes below $20,000 enjoyed $4 million in savings, and those with annual incomes above $200,000 enjoyed $15.5 billion. Also in 2020, more than 11 million taxpayers deducted interest on their student loans, saving low-income borrowers $12 million and those with incomes between $100,000 and $200,000 $432 million. In all, the top 20 percent of income earners receives six times what the bottom 20 percent receives in tax breaks. We have chosen to prioritize the subsidization of affluence over the alleviation of poverty. And then we have the gall—the shamelessness, really—to fabricate stories about poor people’s dependence on government aid and shoot down proposals to reduce poverty because they would cost too much.

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I have finished adding several pages to SocialGoals.com under the Criticism header