Don't watch this space...

...well, not too avidly anyway.

My 800th post, so time once again to look at where Social Policy Bonds are heading. The answer is a little disheartening: nowhere. At least, not that I'm aware of. More dispiriting still, the distance between ordinary people and the politicians who are supposed (in the democracies) to represent them appears to be growing wider. But what about the Tea Party movement? Isn't that a genuine grass-roots, bottom-up, closing-the-gap, trend to be welcomed? At first sight, perhaps. But its funding sources raise suspicions and, more important (to me) is that it seems less interested in outcomes and more interested in the same distractions that bedevil conventional politics; foremost among them personality and ideology.

Politicians are becoming a class apart, sharing few of the concerns of their constituents. Corporations, and especially the biggest corporations, are ever more influential in determining policy. Natural persons view politicians with disdain; politics with indifference, cynicism or despair. A realignment, along the lines of Social Policy Bonds, whereby government targets outcomes that are meaningful to ordinary people cannot come soon enough.

What did they expect?

An analysis published a few days ago by the campaigning group Sandbag estimates the amount of carbon that will have been saved by the end of the second phase of the EU's emissions trading system, in 2012; after the hopeless failure of the scheme's first phase we were promised that the real carbon cuts would start to bite between 2008 and 2012. So how much carbon will it save by then? Less than one third of 1%. Source

Climate change might be our most urgent environmental challenge. Or it might not. It might lead to catastrophic changes in weather patterns around the world, threatening millions of those people who are least able to adapt. Or it might not.

Our policymaking system doesn't deal well with such uncertainty. It's in most policymakers' interests to delay significant action until it becomes impossible to ignore the consequences of doing so. In similar policy areas, perhaps in most, that isn't too disastrous a policy. But there are occasions when the scale of the consequent disaster is immense.

In all these years of discussion about climate change, I haven't been persuaded that there's anything more likely to meet the climate challenge effectively than Climate Stability Bonds. Under a bond regime, the private sector would bear the consequences of over- or under-estimating the severity of the problem. And they would do so adaptively. That contrasts with the current approach, whereby policymakers employ a limited number of experts using today's science in an attempt to grapple with tomorrow's events - at a time when our knowledge of the causes and consequences of climate change is small, but expanding at a prodigious rate.

It's no wonder then that, perhaps at the unconscious level, our policymakers have decided to do nothing, other than engage in bureaucratic displacement activity. There's an unknowable, but non-zero, probability that we shall get lucky, and that this approach will prove to have been wise; but we can know that only in retrospect. And even if that were to be the case, Climate Stability Bonds, because of the way they work, would still have functioned as an insurance policy. One that could have a massive positive payoff, and one that in any event would be no more costly than the pointless rituals that signify the current way of pretending to deal with the problem.

Incentives for peace

...I hear two of the wisest Israelis I know say quietly that, against all odds, these peace talks will succeed, because "we are all so tired, so weary for peace", then the Ararat test is the one to set. Can Jews and Arabs opt to forget en masse? When misery is a legacy, Peter Preston, 19 September

In truth, we don't really know whether tiredness - or forgetting, for that matter - lead to peace. Society is so complex, there are bound to be occasions when either condition could contribute to war. You might just as easily find an Israeli or Arab say "we are all so tired, so weary of being persecuted by the other side...". Which is not a gloomy hypothesis: it suggests that peace can break out at any time, regardless of expectations or the views of commentators or the opinions of political leaders.

But incentives matter, and the dice are still loaded in favour of protracted Middle East conflict. Entire bureaucracies and career pathways for ambitious politicians, arms companies and men (generally) of so-called religion depend depend on this and other conflicts continuing into the indefinite future. These people aren't not necessarily evil. They, for the most part, didn't deliberately or even consciously perpetuate the conflict or the conditions that keep it going. But they do depend on its continuing.

And that's why the Social Policy Bond principle can break the circle. The politicians, the generals, the men with beards and countless others are reacting rationally to the incentives on offer. Those incentives are geared toward perpetuating conflict, and not only in the Middle East. Changing these incentives so that peace is rewarded instead of penalised could change everything. And a bond regime could do that. The backers of Middle East Peace Bonds don't need to work out who or what is responsible for the conflict; they don't need to devise road maps or put their livelihoods (or lives) on the line. All they need to do is to define the sort of peace they want to see, and pump as much of their own and other people's money into redeeming the bonds once their peace target has been achieved and sustained. It would be up to investors in the bonds to work out the most effective and efficient ways of reaching that target. They would probably deploy a diverse range of approaches; they would have incentives to explore, implement and adapt the more promising of these, and to terminate the failures. The bonds' backers would be recasting the incentives to encourage peace making, and if there were sufficient funds behind them, there's no reason why they would not succeed.

People casually talk about conflicts that are 'intractable'. I say, read up about the 300-year conflict between England and Scotland, then take a look at the Anglo-Scottish border. It's pretty quiet these days.

What drives policy?

Sometimes rationality takes a back seat:

Based on surveys ...the top five worries of parents are, in order:

1. Kidnapping
2. School snipers
3. Terrorists
4. Dangerous strangers
5. Drugs

But how do children really get hurt or killed?

1. Car accidents
2. Homicide (usually committed by a person who knows the child, not a stranger)
3. Abuse
4. Suicide
5. Drowning

Quoted by Bruce Schneier, orignally from NPR

Unfortunately, policy is often made on the basis of public perception, rather than a cool, rational appraisal of the facts. It's a widespread problem:

…policies are often adopted on the basis of less careful analysis than their importance warrants, leaving wide room for mistakes and misperceptions. Forces of knowledge destruction are often stronger than those favoring knowledge creation. Hence states have an inherent tendency toward primitive thought, and the conduct of public affairs is often polluted by myth, misinformation, and flimsy analysis. Source (pdf)

Social Policy Bonds could make a difference here. We react to events impulsively and irrationally but we do so for a reason: generally, to return to the status quo ante. Often, in our irrationality, we overreact. 'Too much, too late', is the common, and destructive, impulse. A bond regime, in contrast, would supply incentives to achieve the same goal, but more rationally. So, for instance, if our goal is to minimize the dangers to children, we could issue Social Policy Bonds that would aim to reduce the numbers of people dying or suffering serious injury, from any cause, before the age of 18. This goal would be stable over time, despite events that in today's environment would sway politicians and lead to irrational policy. But at the same time, investors in the bonds would have incentives to react rationally and efficiently to genuine changes in the number and severity of threats to children.

The American ruling class

Today, few speak well of the [American] ruling class. Not only has it burgeoned in size and pretense, but it also has undertaken wars it has not won, presided over a declining economy and mushrooming debt, made life more expensive, raised taxes, and talked down to the American people. Americans' conviction that the ruling class is as hostile as it is incompetent has solidified. The polls tell us that only about a fifth of Americans trust the government to do the right thing. The rest expect that it will do more harm than good and are no longer afraid to say so. America's Ruling Class -- And the Perils of Revolution, by Angelo M. Codevilla, 'The American Spectator', July-August

Even years after policies have been implemented, it's often difficult to know whether they were right or wrong. For that reason alone, public buy-in is increasingly necessary, as society becomes still more complex and interdependent. One reason such buy-in is difficult to bring about in today's policymaking environment is the casting of policy in terms of activities, lofty but vague ideals, spending patterns, and arcane legislative decisions. It's difficult for ordinary people to understand and follow the policymaking process.

Social Policy Bonds could help generate more public participation and more buy-in. Their starting point is the targeting of outcomes that are meaningful to natural persons - as distinct from abstractions like corporate profits, or 'the economy'. Discussion would centre on these outcomes, their costs and relative priority.

It's dangerous, I think, when people become feel so alienated from the political class that we become cynical or despairing. Even sound, sensible policies then become objects of suspicion. Buy-in to crucial policy decisions, in times such as these, is not a luxury. It's a necessity and one that the current system is failing to provide.

I estimated that the subsidy for off-street parking [in the US] in 2002 was between $127 billion and $374 billion, or between 1.2 percent and 3.6 percent of the gross domestic product. In comparison, in 2002 the federal government spent $231 billion for Medicare and $349 billion for national defense. Donald Shoup, Shoup to O’Toole: The Market for Parking Is Anything But Free, 1 September

How do we get ourselves into this sort of mess? Bureaucracy and the big corporations have their own agenda. When it comes to parking, it takes the form of mandated parking spaces for new buildings, residential and commercial. To the vast majority of us who are turned off by the whole policymaking process, minimum parking requirements sound sensible, at first hearing. (So too, did subsidies to 'family' farms, many decades ago.) The end result is the apotheosis of the car; subsidies from the poor (who have no, or minimal access, to cars) to the rich, and an aesthetic and environmental calamity.

One thing that outcome-based policy would do right from the start is bring into question such superficially appealing notions as minimum parking requirements. By focusing on ends, rather than means, Social Policy Bonds would lead to a total reappraisal of transport and town planning policy - and one in which ordinary people could participate. Is easy transport a means to an end, or an end in itself? What exactly are town planners trying to achieve? Are ordinary people consulted? Perhaps we'd all be better off if government at all levels were to target the minimal well-being of all its citizens rather than (inadvertently, perhaps, and surreptitiously, almost always) the agenda of big corporations.

Through failure to success

If you want to be more successful, increase your failure rate. Attributed to Thomas Watson, founder of IBM

We can probably all attest to the wisdom of that dictum. The problem, as I see it, is that with highly centralised government and huge corporations, we are creating a policy environment that eliminates the diversity that gives rise to success through repeated experimentation and adaptation. Decisions in policy areas such as the environment or finance are taken at such a high level of aggregation that there is no realistic chance of comeback if they fail. Government favours the uniform approach, and big corporations can attribute much of their size to their ruthless elimination of competition - in defiance of their much-lauded 'market forces' - with the full connivance of government. The entities that dictate how our ever-smaller planet shall be run now are so large that we can't afford an increase in the failure rate.

We need to revert to an environment in which failure can not only be tolerated, but can perform its necessary function of generating improved policy. Social Policy Bonds are one possibility. Under a bond regime decisions could still be taken with the aim of improving outcomes at the global level. But, unlike under the current system, the bonds would stimulate the exploration, implementation and refinement of diverse solutions. By contracting out the achievement of broad social and environmental outcomes to the private sector, the bonds would encourage diverse approaches, many of which would fail to be efficient and effective solutions to our social problems. Et voila: an increased failure rate!

Surrogate markers, in medicine and policy

A surrogate marker is an event or a laboratory value that researchers hope can serve as a reliable substitute for an actual disease. A common example of this is blood cholesterol levels. These levels are surrogates, or substitutes, for heart disease. If a medical study demonstrates that a medication can lower cholesterol level 10%, then we assume that this will also lower the risk of cardiovascular disease. Why doesn’t this same study determine if an anti-cholesterol drug decreases heart attack rates directly? After all, most folks would rather be spared a heart attack than have a silent decrease in their blood cholesterol levels. ...Surrogates often take on a life of their own, far removed from the actual disease they represent. Patients shouldn’t care if their ‘surrogates’ are improving; their objective should be to prevent disease, feel better and live longer. Evidence-based medicine in disguise: beware the surrogate, 'MD Whistleblower' (blog by Michael Kirsch), 1 August

Quite so. And as in medicine, so it is in policymaking, and for much the same reasons: 'It's much easier and cheaper ...to measure surrogates than actual disease events.' It's much, much easier to measure a government agency's spending than it is to measure its success or otherwise in delivering meaningful outcomes.

The problem isn't always that of measurement, or of short-term interests trumping long-term benefits. There is also the inescapable subjectivity of an important components of welfare: psychological wellbeing. To take one example that has obvious policymaking implications: in the UK for several years crime appears to have fallen, while fear of crime has risen (see here). The answer, if there is one, might be to re-localise some policymaking. Some of the most important components of wellbeing simply cannot be quantified and aggregated for efficient use by our highly centralised bureaucracies. Withdrawing unemployment benefit, for instance, could actually help someone who's lacking in motivation and would gain by being made to find a job. To another person, though, the loss of a welfare payment could mean calamity. No bureaucracy can make such a distinction, and we might not want one with the intrusive powers that could.

Social Policy Bonds are no different from conventional policy in that respect, except that they have to answer, upfront, the difficult question of whether a specified goal is a surrogate (a supposed means to an end) or an end in itself. Having to do that at the outset of making policy, is probably an advantage over the current system in which, too often, objectives are vague, conflicting, and only tenuously related to policy instruments allegedly supposed to bring them about.

Biodiversity and Social Policy Bonds

Already the UN has conceded that the targets for safeguarding wild species and wild places in 2010 have been missed: comprehensively and tragically. Talk has not halted biodiversity loss - now it's time for action, Guillaume Chapron and George Monbiot, Guardian.co.uk, 13 August

It's a tough one. Some Guardian readers' ideas, many of them worth considering, are presented here. Could the Social Policy Bonds principle help? Part of the problem is to clarify whether biodiversity is a means to an end or an end in itself; and another is how to quantify what biodiversity is and what we want from it.

One option could be to for experts to list their top, say, 10000 plant and animal species, according to their intrinsic value, or their status as indicator species, representing the broader state of the environment, including biodiversity. It would probably be impractical to legislate effectively against serious depredations of such a large number of species. But a Biodiversity Bond, following the Social Policy Bond principle, could be issued, perhaps by a combinatin of governments, non-governmental organizations, and environmental bodies. What would such Biodiversity Bonds target? Not the health or survival of the full panoply of 10000 species; that would be too complex and expensive. But what about the health and habitats of, say, 100 of these species? That would be a fairly simple matter. The key to such a regime is that the 100 species would not be known in advance by either the bonds' issuers or investors in the bonds.

Instead, the 100 species could be randomly chosen from the 10000 towards the end of bonds' stipulated expiry period. The bonds could target a broad definition of biodiversity, encompassing the 10000 species, 30 years hence. Towards the end of that 30 years, 100 out of those 10000 species or habitats would be randomly chosen. If all 100 were doing well, surviving and thriving, the bonds would be redeemed. If not, they wouldn't.

Bondholders would then have incentives to preserve biodiversity of all the 10000 species (or ecological systems), but there need be no onerous, contentious and expensive monitoring of all 10000 species. Only a fairly small sample, randomly chosen after 29 years, need be examined. That, in my view, would make targeting biodiversity a practical proposition.

Your thoughts or comments on this idea are particularly welcome.

An argument for a governing aristocracy?

Or perhaps, lottocracy? In a review of Philip Ziegler's biography of the former British Prime Minister, Edward Heath, Ferdinand Mount says:

[Heath] promised a 'quiet revolution', in terms which understandably convinced his right wing that he had come over to their way of thinking. By instinct, though, he preferred to control things rather than let them run free and endure the consequences. Plonking, Ferdinand Mount, London Review of Books, 22 July (subscription)

I wonder whether this is a feature of all non-aristocratic policymakers. Which is to say, those politicians - almost all of them nowadays, and definitely Mr Heath - who had to struggle mightily to get to their position. Effort is all very well but, especially when it has successfully advanced a person's career, it will predispose to a controlling mindset; one that will be predisposed to work on problems, rather than let them solve themselves. One that will be biased toward intervention and top-down, one-size-fits-all planning, rather than creating an environment whereby adaptive, diverse policies can achieve outcomes without government prejudging how they shall do so.

Social Policy Bonds could perhaps be a compromise. Under a bond regime, politicians would still articulate our social goals, and control their funding and priority; they would, though, relinquish their power to dictate how these goals shall be achieved.