Why no Social Policy Bonds?

Why have Social Policy Bonds not been issued?

Contrast Social Policy Bonds with Social Impact Bonds, now being issued in about 25 countries. SIBs are the non-tradeable version of Social Policy Bonds. While tradeability sounds like a technical detail, it actually has a few critical implications about which I have written here and here.

A major difficulty with issuing Social Policy Bonds is that they don't readily lend themselves to experimentation; small-scale trials over a limited geographic area, which are short term in nature. Neither do they show much advantage over conventional policy when we already (roughly) know how to achieve a specified social goal. For instance: take the goal of improving a lake's water quality. We could issue Social Policy aiming to reduce the levels of pollutants in the water. But, if the main sources of pollution are easy to identify, then there is no need to introduce middlemen, in the form of bond traders and investors in the bonds, to achieve that which regulation or taxes on polluters could do more simply.

No, where Social Policy Bonds work best is when we don't know how to achieve the goal, and where there is time for different approaches to be tried, the failures terminated, and the more promising ones implemented: goals that will require diverse (over different areas) and adaptive (varying with time) approaches, and a mix of them. That's what governments find difficult, but it's what is necessary to achieve broad, long-term, complex goals, such as ending war, or achieving universal literacy.

But when we basically know how to achieve a goal, Social Policy Bonds aren't necessary. In the lake example, and  assuming we are talking of a time frame of no more than a few years, regulation or polluter-pays taxation would achieve our goal without the need for an untried, controversial, and somewhat unconventional financial instrument. With a broader goal— something like improving an entire country's inland water quality— and over a longer time period then a bond regime could play a useful role. There would be time for motivated bondholders to research, experiment and continuously refine an array of approaches, optimised for time and space, to achieve the goal as cost-effectively as possible.


The danger is that applying Social Policy Bonds in ways that don't show their advantages over other, simpler, approaches will taint the concept. People would then see the bonds as a fancy means of enriching intermediaries (bondholders, financial market players), rather than a solution to social problems. (This might be happening with SIBs.) If there is anything society doesn't need, it's a financial services sector enriching itself still further by sucking the best mathematical brainpower out of the real economy, and contributing nothing of social value.

Le risque, ce n'est pas la mort de Schengen

The confusion between ends and means lies at the heart of our political systems. Here, the French President tells us what matters to him:

'Le risque, c’est la mort de Schengen'

The risk is the death of Schengen. Emmanuel Macron is certain: the foundations of the European Union (EU) are in danger owing to the epidemic of new coronavirus which strikes the Old Continent. l'Opinion, 27 March

Actually I think most of us would rate the risk of thousands of people dying as more significant than that of having to impose national border controls. I am sure Mr  Macron means well. But the EU project is a means to certain ends; peace and prosperity, most importantly. It is not an end in itself. Nor is 'proportion of energy derived from renewables' a valid, meaningful end. Nor, more fundamentally, is Gross Domestic Product. 

Social Policy Bonds have several advantages over our current ways of making policy. One is the way they would channel society's scarce resources into the most efficient ways of achieving social and environmental goals. But another is that they compel us to think about what those goals really are. If the goal, for instance, is to maintain a borderless European Union, or to keep the Euro going, then those are entirely different goals from improving the health and well-being of EU citizens. To an alarming degree, they are in conflict. There are plenty of other examples: school attendance, for instance, however measured, is not a social goal: better educational outcomes are. Shorter hospital waiting lists, or more mammography screenings, are not a social goal: better health outcomes are.

The failure of our leaders to distinguish between means and ends is disastrous. It has led to a widening gap between government and the people whom is supposed to serve. The results, throughout the democratic countries, are becoming all too clear: a widespread disenchantment with conventional politics, a growing cynicism and despair over government ever being able to deliver what ordinary people want and need. Social Policy Bonds, by channelling society's resources into the achievement of agreed, verifiable, meaningful social goals are one way in which we might begin to close that gap. 
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I have repaired the broken links at the Social Policy Bonds main website including, most importantly, the links to pdfs of the chapters in the definitive book.

SocialGoals.com: housekeeping

I have repaired the broken links at the Social Policy Bonds main website including, most importantly, the links to pdfs of the chapters in the definitive book.

Preparing for disaster

This is a topical introduction to my paper on Disaster Prevention Bonds.

It’s easy to criticize governments for not being prepared for the coronavirus pandemic. But consider what preparing for a pandemic actually means. Thousands of hospital beds lying empty for most of the year, nurses and doctors on standby waiting for a crisis that might never happen. Testing kits, protective clothing, vaccine manufacturing capabilities unused in a sterile storage facility, and deteriorating with time…. And what’s so special about a pandemic? Why should we not prepare against other disasters that might arise with equal or greater probability?

An electromagnetic pulse, an asteroid hitting earth, a volcanic supereruption? The truth is that the best our governments do is react to something that actually happens. Our problem is not that governments are slow, reactive, blundering, doing too little—or too much—too late. It is that governments or supranational bodies like the World Health Organization are not necessarily the best bodies to trust with disaster preparedness. (Indeed, once this crisis is over, the WHO’s role in refusing to consider lessons from Taiwan needs to be looked at very carefully. It’s clear already, though, that in common with most other organisations of any kind, the WHO is at least as interested in self-perpetuation as in the health of the world’s population. ) So what is the problem with government, especially government at levels high enough to deal effectively with national or global disasters?

•  It has few incentives to watch out for disasters and react quickly and preemptively.
•  It’s is slow to react to crises, it prefers top-down, one-size-fits-all solutions, and is very slow to adapt its policies to changing circumstances.
• It has short time horizons, and though its individual members will be hard-working and well intentioned, it has no no incentive to correct its deficiencies.
• It is often concerned to prioritise actions that deal with visible problems at the expense of those that are too slow moving or unglamorous for television. Better solutions would not focus on appearances at the expense of societal well-being.
•  Related to the previous point—and of particular relevance to the current pandemic—a government will over-react to problems that have an immediate, visible impact. Such an over-reaction might be more detrimental to societal well-being than the crisis. 

In relation to this last point, a government over-reaction—the cure being worse than the disease—might have a baleful impact in the longer term too if, when faced with another serious threat, government, remembering previous over-reaction and the consequent public backlash, under-reacts. Disaster Prevention Bonds, in my view, would deal with all these weaknesses of humanity's current approach to disaster preparation. 

Not only pandemics

You might think that we'd be well advised, as a species, to prepare for global disasters. And it's true that many people are working, sometimes heroically, at ways of doing so. There are quite a few organisations, for instance, that seek to reduce conflict or eliminate diseases, such as malaria. The difficulty I have is that their work is unsystematic, uncoordinated, and is rewarded in ways that bear no relationship to their success or efficiency. As well, and perhaps more dangerously, there are policies in play that can only accelerate disaster, such as: subsidies to fossil fuel extraction and consumption, the accumulation of weapons of all kinds; and the failure seriously to pursue one of the main goals of the Cairo Population Summit, where 179 signatory countries agreed to provide access to family planning services to all the women who want them. And last, there are ways in which the survival of millions is threatened by entirely new phenomena, such as COVID-19, whose full implications cannot be foreseen.


We need therefore to re-orient the incentives, and to do so in a coherent manner that rewards the survival of our species against calamities of all kinds. This is where the Social Policy Bond principle can help. The issuers of Disaster Prevention Bonds need have no knowledge of the relative likelihoods of known or unforeseeable catastrophic events. Neither would they have to prejudge, with our current limited scientific knowledge, the most efficient ways of ensuring our survival. Instead, the bond mechanism could target the sustained avoidance of any - unspecified - catastrophe. It would do so in a way that encourages the exploration and investigation of all threats, known and new, impartially. Policymakers would not (and anyway could not) have to decide on how dangerous each threat is. That would be left to bondholders, who would have powerful incentives to do so continuously. Investors in the bonds would be rewarded only if they can adapt to rapidly changing events and to our ever-expanding scientific knowledge.

This is a stark contrast to the current approach; the one that has led to highly intelligent people giving our survival a baleful prognosis. The people who are currently working in favour of humanity do so in ways that, while worthy of great respect, are within a system that is heavily weighted to favour the short-term goals of large organisations, including governments, that have little incentive or capacity to care about our future in the long term. Disaster Prevention Bonds, issued with sufficient backing, could change all that.

Tyres kill

For decades now I've been saying that, when looking at complex social and environmental problems, we should reward solutions rather than try to guess the source of the problem then tax or regulate that. Current news gives another example as to why we might do better to act on my suggestion. By focusing exclusively on exhaust emissions, we are ignoring what is quite likely to be a much more dangerous source of vehicular pollution:

Emissions Analytics theorised that, based on 1.5kgs of mass being lost per tyre over a 30,000-mile life, a car emits 200 milligrams of tyre particulate matter every kilometre. At that level, tyre emissions would be 22 times higher than the permitted levels in current exhaust gas regulations, which are 4.5mg/km.

In testing, it stacked the odds up in case practice yielded immeasurably low results. Low quality tyres, high speeds, intense cornering, high load in the car and a poor surface quality, were intended to help produce a measurable result. The results were shocking – 5.8 grams per kilometre lost. That’s 29 times the hypothesised result, and more than 1,000-times the allowed particulate emissions from an exhaust pipe. Tyre emissions 1,000 times WORSE than exhausts, Ethan Jupp, 1 February (or 2 January)

Governments have form with this: their singular obsession with greenhouse gas emissions led them to encourage diesel engines, which emit higher levels than petrol of pollutants other than CO2 that probably cause more illness and death.

So what am I suggesting? That governments, instead of trying to identify causes of complex problems (a moving target anyway), target favourable outcomes and reward the people who reach them. When it comes to air pollution, then, rather than try (and fail) to identify the worst culprits, and regulate those, government should have targeted an air pollution goal, and motivated people to achieve it. Government would then have stepped out of the tricky, divisive and futile role of trying to stipulate how that goal could be best achieved, and who is best placed to achieve it. Government is too monolithic, too unwieldy and too fixed in its ways to come up with the diverse, adaptive approaches that we need to solve complex social and environmental problems.

A Social Policy Bond regime aiming at reducing air pollution, or environmental depredations in general, could be the answer. Such a regime would reward the achievement of our environmental goals, without specifying how those goals shall be achieved nor who shall achieve them. To see how the Social Policy Bond concept can be applied to environmental problems see here.

Targeting air pollution as a whole, rather than its more visible but less lethal components, would be an improvement over current policy. But perhaps an even better approach would be to target a range of broad indicators of health: see my essay here.

It's not just agriculture

They're still doing it! After at least forty years of being universally seen as corrupt, wasteful and stupid, the European Union's Common Agricultural Policy continues to subsidise aristocrats and wealthy landowners:

 An analysis by Greenpeace in 2016 revealed that the Queen was one of the top recipients of EU money, with her Sandringham farmland alone coining in £557,707 that year, with a similar sum every year. ... And What Do You Do?, Norman Baker, October 2019

Prince Khalid Abdullah al Saud, who owns champion racehorse Frankel, has reportedly described his farming interest as a hobby. Juddmonte Farms, which he owns through an offshore holding company in Guernsey, received £406,826 in farm subsidies [in 2015]. Source

The CAP's disastrous effects on the environment, small farmers, animal welfare, Africa and human health, have been well documented, but it is the persistence of the CAP, after years of its obvious failings, that should astonish us. It happens, in my view, because big government is remote government. It doesn't concern itself with the needs of ordinary people, because it's beholden to powerful vested interests: not just big business, but its own government agencies. 

And it's not just agriculture. Increasingly, the complexity both of society and our policymaking process is being weaponised in favour of the people who own and run corporations, or the people they pay (in or out of government) to understand and influence policy. Government and their paymasters can get away with this because we accept a policymaking system that doesn't explicitly target outcomes that are meaningful to ordinary people. Currently policymakers can - indeed must - express their decisions as vague declarations of intent and changes in institutional funding and composition, or legislation. Their focus is on the supposed means of achieving vague outcomes, rather than on the outcomes themselves.
 
A Social Policy Bond regime would, in contrast, have to be explicit about its objectives: transparency and accountability are built into a bond regime, as surely as they are excluded from the current policymaking apparatus. Insane, corrupt programmes, such as the EU's Common Agricultural Policy (now accounting for 35 percent of the EU's budget), have platitudinous, vague, mutually conflicting goals that sound high-minded but actually end up shovelling vast sums of taxpayers' and consumers' money into the bank accounts of agribusiness corporates and their lobbyists. If outcomes were built into policymaking, as they would be under a Social Policy Bond regime, such policies would get nowhere. Instead they have lasted for decades, at great cost to everybody except a few millionaire businessmen and landowners, a burgeoning, parasitical bureaucracy and lobbyists. Oh, and fraudsters.

The CAP's continued existence is a clear signal that we need to make systemic changes in the way we formulate policy. Instead of allowing overworked or corruptible officials and politicians to guess how we can best solve our complex and dynamic social and environmental problems we would do better to target the outcomes themselves and reward the people who help achieve them. The goals of a Social Policy Bond regime would be clear and stable: the ways of achieving them would be up to bondholders who would at all times be motivated to be efficient in the pursuit of society's goals. Transparent, comprehensible, meaningful goals, and investors motivated to achieve them: that would be the most effective way of closing the gap between politicians and the people they are supposed to represent. 

Enough with the dog-food

Qatar has a population of about 2.6 million. Amongst other facts and figures about weapons sales to the Middle East, the Economist this week tells us that:

Qatar already has Chinese-made ballistic missiles. From muskets to missiles, the Economist, 15 February

Not, thankfully, nuclear. Not yet anyway - nuclear is available only to larger, responsible players on the world stage. Like Pakistan and North Korea. What are the odds, I wonder, against a nuclear attack in the near future? Luisa Rodriguez summarises her findings:

...I get a rough sense of how probable a nuclear war might be by looking at historical evidence, the views of experts, and predictions made by forecasters. I find that, if we aggregate those perspectives, there’s about a 1.1% chance of nuclear war each year, and that the chances of a nuclear war between the US and Russia, in particular, are around 0.38% per year. How likely is a nuclear exchange between the US and Russia?, Luisa Rodriguez, Effective Altruism Forum, 20 January

You'd think that we'd put a bit more effort into avoiding a nuclear attack and its dire consequences than we do. But much of our ingenuity is instead devoted to activities of comparatively little social merit: financial trading, property speculation or (one of my hobby horses) clever advertising campaigns aimed at selling more dog-food.

This is not just a question of efficiency. It's quite possible that the activities of peace-making organisations (like this one) are as cost-effective as they can be, given their limited resources. The question is more one of human priorities and translating what I (presumptuously) see as the likely wishes of most of the world's population for nuclear peace into funding for those bodies working to achieve it. The disconnect here between ordinary people and the politicians supposed to represent us is near total.

The answer could be Nuclear Peace Bonds. Targeting a sustained period of nuclear peace, they could be backed initially by a combination of governments, NGOs, philanthropists, and subsequently members of the public. Floated on the open market they would become redeemable for, say, $1m each only after a thirty-year period during which no nuclear detonation killing more than fifty people takes place. They might initially fetch say just $10000 each, if the market thinks the probability of thirty years’ nuclear peace is low. But these bonds would be tradeable: their value would rise and fall according to how likely people think the peace target will be reached.

Initial investors would buy the bonds and do whatever they can to increase that probability. Even helping existing ways of monitoring nuclear material might see the value of their bonds double. Others, with expertise in different areas, would buy their bonds and do what they can to raise the value of the bonds still further. At every stage, the bonds would be in the hands of those most able to bring about nuclear peace. The bondholders’ goal is exactly congruent with society’s: they make money only by achieving society’s goal. And at every stage of every process required to achieve that goal, incentives will motivate people to be as efficient as possible.

Rather than encourage endless speculation about what projects will make the world more peaceful the bonds would, in effect, contract out the achievement of world peace to the market. They would encourage a wide range of adaptive projects, whose sole criterion for funding would be that they would raise the probability of world peace being achieved. In this way, the governments and others who back the bonds would do what they are best at: articulating society’s goals and raising the revenue for their achievement. At the same time, the market would be doing what it is best at: allocating resources as efficiently as possible.

It's too complicated for current politics

James Fenton writes to the New Scientist, questioning whether planting trees will mitigate climate change:

It may not always work. Planting trees on open ground may change the reflectivity, or albedo, of land. At higher latitudes this can cause a warming effect, as three-dimensional woodland absorbs more radiation than the essentially two-dimensional open ground that it replaces. In many places new planting is likely to be targeted at upland areas, which generally possess stratified soils with a high organic carbon content. In the UK there is an order of magnitude more carbon stored in soil carbon than plant biomass. Tree planting on such soils can oxidise this carbon, potentially releasing more than the amount taken up by the trees. And practices such as ploughing land before planting can dry out the soil, causing carbon release. At the other end of the forestry cycle, modern tree extracting machines can similarly churn up the soil. So it isn’t clear to me whether tree planting will benefit the climate. Can planting trees combat climate change very much?, James Fenton, letter published in New Scientist, 8 February

When scientists can't be certain about relationship between tree planting and atmospheric levels of carbon dioxide, we need a climate change policy that allows for such uncertainty. For many years I've been advocating that we need clarity over what we are trying to achieve. Let's assume that we are trying now to slow down and stop the climate changing by reducing the level of greenhouse gases in the atmosphere. (That sidesteps the question of whether we should be concentrating on reducing climate change, or reducing the negative impacts of climate change - see here.) Planting trees might have an important, even crucial role, in determining climate outcomes. But we don't have a policymaking system that allows for the uncertainties that Mr Fenton cites, nor for any other massive uncertainties such as the effects of certain sorts of cloud - see my post here.

Our policymaking system relies on our being able to identify with reasonable certainty the relationship between cause and effect. But our society and environment are now too complex for that blithe assumption to work. We just don't know whether planting trees will mitigate or accelerate climate change, but we cannot currently make policy in any other way. l.

Which is why I suggest we target the goal we want to achieve, and reward the people who find the best ways of achieving them: ways that we cannot now identify with any certainty. Any efforts, then, must be long-term in nature, and they must encourage research, experimentation and, finally, implementation, all of which means that policy must be consistent over time. We cannot at this point convincingly advocate, say, tree planting, but what we can do is provide a system of incentives that will reward tree planting (more accurately: the right sort of tree planting) to the degree that it helps achieve society's climate change goal. We reward the outcome, and let investors work out the best ways of achieving it, giving assurances that their successful long-term efforts, which will doubtless entail many failed experiments, will be rewarded.

Long time readers will know that, of course, I'm advocating the application of the Social Policy Bond concept to climate change. We urgently need to reward people who (1) are investigating exactly the sort of relationships about which Mr Fenton writes and (2) are implementing the most successful of their activities and terminating those that are less promising. We need to encourage a wide range of diverse, adaptive approaches and we need to reward the most useful of these. Our current policymaking system is too sclerotic to contemplate such a flexible approach.  

It's not just climate change, where at least we think we can identify many of the likeliest explanatory variables. There are just as urgent, big issues, such as nuclear peace, or disaster reduction, where the complexities are so obvious even to policymakers that any activities now being undertaken to address them are half hearted, scattered, incoherent, and too poorly-financed to achieve anything useful. The Social Policy Bond concept can be applied to those issues too.

Climate change, conflict reduction, nuclear peace: these are huge, urgent problems whose causes we cannot identify with any certainty, and vary with time and geographic area. Conventional policy cannot cope with the diverse, dynamic nature of these problems, which are going to be solved only with an array of diverse, adaptive approaches. Social Policy Bonds, by targeting outcomes rather than the supposed ways of achieving them, can deal with uncertain, complex relationships between cause and effect. Current politics can't.

See here for links to my papers on Climate Stability Bonds, and here for my work on conflict reduction.

Locusts, potato crisps, and nuclear catastrophe

The Economist writes:

The last big locust crisis, in north-west Africa, lasted from 2003 to 2005 and caused an estimated $2.5bn worth of damage to harvests. Getting it under control cost almost $600m, with donors footing much of the bill. That is enough to cover preventive measures in the same region for 170 years, say experts. But prevention does not attract much funding. “This is a Catch-22,” says Keith Cressman, the Senior Locust Forecasting Officer at the FAO. “Donors are interested in funding big emergencies, big problems.” And governments, unlike locusts, move slowly. East Africa is reeling from an invasion of locusts, the Economist, 1 February

So it goes. We pay attention to fast-moving problems that make a vivid visual impact. Slow-moving, unglamorous problems that cry out for policy initiatives go neglected. Prevention of emergencies, like locusts, are one example; climate change, and loss of habitat for the world's animal and plant life are others. By the time their worst effects are known and we belatedly respond, the problems have taken on overwhelming dimensions.

We respond to events if they are fast moving enough. That is a failure, in that early response to less obvious problems would be more efficient. But it's a failure too in that we are wedded to responding to noticeable events. We do not have policies that to deal with unknowable disasters whose provenance and scale we cannot foresee. We need to recognise that the maintenance of the status quo is worth targeting, even if we cannot foresee how it is threatened and especially if we cannot think about how best to go about dealing with those threats.

This is where Social Policy Bonds can play a role. They can motivate people not only to solve visible but slow-moving problems, but also to work so as to prevent those unforeseeable problems. Take, for instance, the threat of nuclear conflict. We know one would be catastrophic but we  have so few ideas about how to lower the threat level that we devote far more ingenuity (and quite possibly, funding) into digital marketing strategies for dog-food, or into developing new flavours for potato crisps. There are well-intentioned, hard-working people working to reduce threats like nuclear conflict, but their resources are limited by our historic and inefficient practice of responding only to events that are actually occurring. And we have no mechanism for rewarding the institutions that are working for peace in ways according to how well they do so. This means they are not as motivated as they otherwise might be, but more importantly that these bodies do not receive funding commensurate with the importance of their goal. Everybody in the world would suffer grievously from a nuclear exchange, but there is no means by which we can currently channel our well-founded fears into ways that will help avoid one. We have to rely on bodies such as the United Nations, non-governmental organisations, and philanthropists, most of which are - inevitably, and in common with all organisations - pre-occupied with self-perpetuation.

The answer could be Nuclear Peace Bonds. Targeting nuclear catastrophe they would be backed by governments, NGOs, philanthropists and anybody with a strong interest in human well-being. Floated on the open market they would become redeemable for, say, $1m each only after a thirty-year period during which no (lethal) nuclear explosion takes place. Floated on the open market, they might initially fetch just $10000 each, if the market thinks the probability of thirty years’ nuclear peace is low. But these bonds would be tradeable: their value would rise and fall according to how likely people think the peace target will be reached.

Initial investors would buy the bonds and do whatever they can to increase that probability. Even helping existing ways of monitoring nuclear material might see the value of their bonds double. Others, with expertise in different areas, would buy their bonds and do what they can to raise the value of the bonds still further. At every stage, the bonds would be in the hands of those most able to bring about nuclear peace. The bondholders’ goal is exactly congruent with society’s: they make money only by achieving society’s goal. At every stage of every process required to achieve that goal, incentives will motivate people to be as efficient as possible.

Rather than encourage endless speculation about what projects will make the world more peaceful the bonds would, in effect, contract out the achievement of world peace to the market. They would encourage a wide range of adaptive projects, whose sole criterion for funding would be that they would raise the probability of world peace being achieved. In this way, the governments and others who back the bonds would do what they are best at: articulating society’s goals and raising the revenue for their achievement. At the same time, the market would be doing what it is best at: allocating resources as efficiently as possible.

If nuclear peace sounds too lofty a goal, then we could start by aiming for something like peace in the Middle East. The same principle would work for natural disasters or climate change. In every case, we'd be rewarding the successful achievement of a sustained, desirable outcome, even if it's as unglamorous as maintaining the status quo in the shape of nuclear peace. It is a shame that few people seem to think along these lines.

My short piece on Nuclear Peace Bonds is here. The links in the right-hand column of that page point to papers on similar themes: Conflict Reduction, Disaster Prevention, and Middle East Peace