Adysforemenon-cracy

The title of this post I intend to mean: rule by the insecure. ChatGPT says that the Greek term for 'rule by the insecure' is 'τυραννία των αδυσφορημένων' (tyrannia ton adysforemenon), which is probably more correct, but less snappy. (If you know the correct term, please let me know.)

Isaac Chotiner writes about the President of Turkey:

[T]he Gezi protests, which were really about an environmental issue initially, were meant to overthrow him. He sees everything in that vein. How Erdoğan Set the Stage for Turkey’s Disastrous Earthquake Response, newyorker.com, 14 February

The Economist writes about the ruler of India:

After the prime minister’s many victories against his domestic critics, going after foreign ones is the logical next step. After silencing critics at home, Narendra Modi goes after foreign media, the Economist, 18 February

It's unfortunate that the politicians, having attained power, are so desperate to avoid losing it. It's also inevitable: one cannot now ascend the political ladder unless you really, really want to do so. The desire for power trumps all other qualifications, including competence and the wish to improve the well-being of one's citizens (see Anything except outcomes). Maybe it was different when there was a born-to-rule class, but the relevant message now is that our political systems are increasingly dysfunctional, as shown by the widening gap between our rulers and the people they are supposed to represent.

Social Policy Bonds would do something to cut out the middleperson: under a bond regime, politicians wouldn't have the power to allocate funds between competing bodies; their role would be limited to that of articulating society's goals and raising the funds necessary for their achievement. Funding would be decided by bondholders, whose sole criterion would be the efficiency with which society's scarce resources could be deployed to fulfil its wishes. Cutting out the middleperson might not be so necessary if our leaders were honourable, competent and caring. Unfortunately, more and more, and whether or not we live in a democracy, our leaders are not selected for those qualities. They possess one quality above all others: a thirst for power - and they are pathologically insecure about losing it. This doesn't make for effective governance.

Where's the vision?

I've long stressed the most obvious feature of Social Policy Bonds: their efficiency, which would be measured as the increase in social (or environmental) well-being per pound spent. Under a bond regime, bondholders would have incentives to achieve our social goals as efficiently as they can. Also, I've talked about the stability of the goals that a Social Policy Bond regime could target: there's more consensus about such goals than there is about the means of achieving them, the most efficient of which would anyway change over time. And I've mentioned the transparency of a bond regime, which would target explicit, verifiable goals. All these attributes are beneficial. They allow us to take a long-term approach to dealing with complex social problems that require a wide array of diverse, adaptive approaches to their solution. 

It's also important that the goals we can target with a bond regime are comprehensible and meaningful to ordinary citizens. Taking health, for example, most of us have little idea about the relative merits of certain interventions, and recent events have seen a growing distrust of corporations and governments who, we'd like to believe, are acting with good intentions. My (long) essay on applying the bond principle to a country's health discusses the possible use of Quality Adjusted Life Years as one way of measuring the physical well-being of the population that could be targeted. Such  measures have their technical difficulties but they would be broadly understood by citizens with an interest in health outcomes. This is a benefit in its own right, but also a stimulus to greater public engagement with health policy and, therefore, greater buy-in. 

Sadly, but not unexpectedly, the essay languishes on my website, and current policymaking in the UK at least, continues to be an incoherent and incomprehensible (to outsiders) mix of arguments about funding and structures, and short-term kludges. Where is the vision? The strategy? The buy-in?

Actuarially...

It concerns me that our biggest, urgent social and environmental problems are never going to be solved under our current political arrangements. The problems include global environmental depredations, the risks arising from ever-greater access to weapons of mass destruction and extreme poverty.

Their features make them ideal for targeting with Social Policy Bonds:

• they require many diverse approaches, depending on geography. So reducing the likelihood of war, say, in the Middle East requires a wholly different approach to reducing the chances of war originating in the Korea peninsula, or the horn of Africa.
  
• they are long term problems that require sustained attention - not necessarily from the same people; and
  
• they will take years or decades to solve, so they require adaptive approaches, which respond to changing circumstances.

It is the last two points that require that the bonds must be tradeable, so that bondholders have incentives to do what they can to achieve our targeted goal in cooperation with other bondholders, and then realize the consequent rise in value of their bond-holdings by selling to investors who can better continue progress towards the goal. 

But all these features of our global problems show just how inadequate are our current attempts at solving them. Our politicians' purview is temporally or geographically extremely narrow. Our supra-national organisations do some good work, but cannot attract the people they need, nor the resources necessary to match the scale of our problems. As well, their structures and composition cannot respond to changing circumstances. We need a new sort of organisation whose structure, composition, and every activity are subordinated to its goal of solving a targeted social problem.

Social Policy Bonds have been in the public arena since 1988 (pdf). Others have taken the idea, made the bonds non-tradeable, and issued Social Impact Bonds, about which I am ambivalent. Actuarially, I'm unlikely to see my original concept deployed, despite the initial flurries of interest it has provoked over the last 34 years. I'll carry on, however, because I see no sign of any better way of addressing the multiple calamaties towards which we are heading.

Yet another post about nuclear war

The Financial Times discusses the ruler of North Korea:

In his New Year's address, he declared he would "exponentially increase" nuclear weapons production in 2023 and stressed his willingness to use his nuclear arsenal for offensive as well as defensive purposes. North Korea's nuclear threat (subscription), Financial Times, 9 January

He is certainly acquiring the capability:

[A recent test brought the North Korean] regime a step closer to acquiring a solid-propellant intercontinental ballistic missile that, unlike liquid fuel missiles, can be fuelled in secret before they [sic] are deployed, giving adversaries far less time to conduct a preventive strike.one of many recent examples of Pyongyang approaching or crossing key technical thresholds that are making its nuclear arsenal increasingly versatile and difficult to destroy or defend against. 

 How should we address such a possibility? The experts have no idea:

[S]ome analysts worry that a strategy to meet strength with strength risks making conflict even more likely. 

So whether the world does or does not suffer a nuclear exchange depends on the state of mind of the ruler of a hermit kingdom who is not renowned for a willingness to accept the status quo, nor a predisposition to negotiate in good faith. There are, of course, other potential nuclear flashpoints in our world. How are we going about dealing with these threats not only to millions of people, but to an already parlous physical environment? Well, we have international bodies such as the United Nations and numerous other organisations, staffed by hard-working, well-meaning employees with very limited resources doing their best to try to bring about peace, either regionally or globally.

Sadly, in comparison to those who benefit when tensions are high and rising, the people working for these organisations have little to work with. There are fewer incentives to achieve and sustain world peace than there are to foment war. People, especially on the left, don't like the idea that we should pay people for doing idealistic things and really dislike the idea of paying them more for doing an excellent job. But even if we share their disdain for paying people cash for success in performing a public service, we can see that giving such people and their organisations more resources with which to work can be helpful in bringing about their goals - which, in the case of nuclear conflict, are the goals of almost the entire world population. 

Yes, incentives matter. But there is no known way of reducing the likelihood of nuclear conflict: we need an array of diverse, adaptive approaches, many of which we cannot foresee in advance. So my proposal is to issue Nuclear Peace Bonds, which would reward the people who bring about nuclear peace for a sustained period, whoever they are and however they do so. I've written copiously about this idea both on this blog and on my main site: see here. Nobody's taken it up, probably because it's radical, possibly because it doesn't emanate from one of our esteemed institutions or highly acclaimed academics or celebrities. Yes, some wealthy people might become even wealthier if they succeed in bringing about thirty years of nuclear peace. Is that so bad, though, when compared to the alternative? The unfortunate fact is that our current policy choices are leading humanity and our physical environment to disaster.

Peace on Earth; worth paying for

Applying the Social Policy Bond concept to conflict reduction means, in effect, paying people not to kill each other. It doesn't sound very edifying, but I'll make the case for it anyway.

Of course, it is less than ideal that people don't freely choose to live in peace; and frequently invade and kill in pursuit of their goals or those of their leaders. Throughout the centuries, we haven't found ways of ending war. Conflict has so many causes and it's widely believed that war is an inevitable, intractable aspect of humanity. Given the human and resource cost of war and preparing for war, I think it reasonable to allocate funds to eliminating it for a sustained period. A Conflict Reduction Bond regime would aim to do this and, importantly, if it were to fail, no government funds would be lost. 

A misconception of those who disdain the Social Policy Bond principle is that they think paying for results means huge cash prizes for the already wealthy. It's true that, under a bond regime investors in the bonds would benefit if the targeted social goal are achieved quickly but, in the long run, what's more likely is that more people would be attracted to working to achieve achieve the targeted goal. The most efficient of these should see some higher financial rewards but, more importantly, they will have more resources with which to work. It's my impression that, if there were bodies with a proven record of bringing about peace in a wide range of circumstances, they'd enjoy very high levels of funding.

Underlying all this reasoning, though, are two points:

• Incentives matter. Weapons manufacturers, ideologues, military bodies all respond rationally to the incentives on offer. Not all these are financial incentives, but there are sufficient monetary rewards to those who manufacture and use weapons to make sustained periods of world peace unlikely. A Conflict Reduction Bond regime would offset such rewards, to a degree dependent on their backing.
  
• While it would be lovely if people's humanity alone were sufficient to ensure peace on earth and goodwill to all, the Conflict Reduction Bond option of making explicit, taxpayer-funded payments in exchange for world peace would be preferable to the situation we have today.

The benefits of relinquishing power

The problem with philanthropy is that philanthropists and their employees are reluctant to relinquish control over how their goals shall be achieved and who shall be seen to be achieving them. (Politicians are similar in that respect, but we have higher expectations of wealthy individuals with noble intentions spending their own money.) Sadly, this wish not only to be a benefactor to humanity, but to be seen to be such a benefactor means that our biggest, most urgent challenges are being neglected. Philanthropists - and politicians - want to be identified with successful initiatives. It's a natural human tendency, but it's holding us back. Society is too complex for most of our serious social and environmental problems to be to be traced to a discrete set of causes. Insecticide-drenched bed nets might be the best way of dealing with malaria somewhere at some time - but not everywhere, and not always. We need a policy environment that encourages initiatives that are capable of adapting to differing and changing circumstances, and that have a long term focus on achieving outcomes.

Which is where the Social Policy Bond idea can play a role. Under a bond regime the role of philanthropists - or government - would be limited to supplying and raising funds to be used to redeem the bonds, and defining the outcome that they wish to achieve. They would not stipulate how that outcome is to be achieved, nor who will achieve it. By relinquishing those powers, groups of philanthropists or governments could greatly expand the range of goals they could target to include such global goals as sustained periods of world peace or climate stability - goals that have no single, identifiable cause, and that will necessarily take many years to achieve. It would be unfortunate if, solely because of people's wish to be publicly identified with successful initiatives, our most urgent problems depend for their solution on a small number of dedicated people with pitifully inadequate resources.

A sane alternative to MAD

Paying people not to hate each other - or, at least, not to express their hatred militarily: that's a crude, but fairly accurate description of the workings of Peace Bonds, a term that encompasses World Peace Bonds, or more geographically limited applications of the Social Policy Bond concept, such as Middle East Peace Bonds.

Some commenters are reluctant to contemplate the financial transfers implicit in these bonds; shouldn't we be peaceful for more edifying motives? I agree, that would be ideal, but I think humanity is too far gone for that. (Readers unfamiliar with the Social Policy Bond concept should look first at a short overview.)

First, this disdain for paying people to bring about socially and environmentally beneficial outcomes needs some grounding. I am aware of, and agree with, the work of Professor Bruno Frey who found that monetary incentives can undermine our willingness to do the right things for ethical and moral reasons. People perform valuable social or environmental services not only for monetary gain, but also because they enjoy doing them for their own sake, because they believe them to be the morally right things to do, or because they believe that their actions will advance some cause to which they are committed. These ‘intrinsic’ motives are qualitatively different from external, monetary incentives, and offering monetary rewards might ‘crowd out’ or undermine these less mercenary and more civic-minded motivations. Crowding out internal motivation can occur, writes Professor Frey, because, monetary incentives can undermine people’s feelings of self-determination and self-esteem. Also, when external incentives are supplied, the ‘person acting on the basis of his or her intrinsic motivation is deprived of the chance to exhibit this intrinsic motivation to other persons.’

Not mentioned by Professor Frey, but also plausible is that financial incentives can undermine the cognitive outlook that sees socially and environmentally beneficial services as worthwhile in their own right, rather than as a cost for which compensation and payments must be paid by taxpayers.

When it comes to war and peace, though, I think there are valid arguments on the other side. First, is that fact that there is no moral reason not to pay people for pursuing goals that have society's well-being as their goal. We pay teachers and nurses a salary; we pay many people who work for charities a salary; and we pay people who work for peace organisations, including the United Nations, a salary. There is nothing inherently immoral about paying people to do things that have an idealistic underpinning. Peace Bonds would certainly see more funds going to people involved in anti-war activities. They'd probably benefit from higher salaries, at least in the short term. But not only would their renumeration rise; so too would their numbers: anti-war bodies would have more resources, including more personnel, with which to pursue their activities. 

Second is that much conflict is driven by monetary incentives. There would, for instance, be much less availability of destructive power if corporations didn't generate revenue by manufacturing it. Monetary incentives play a similar, though indirect, role in financing the spread of hatred and pro-war propaganda. Holders of Peace Bonds could, therefore, achieve results simply by paying corporations to cease production of weapons, or fomenters of conflict to change their rhetoric. It wouldn't, of course, be as simple as that, and bondholders would probably also have to follow more sophisticated approaches, but we should not underestimate what even unsubtle monetary payments could achieve. Even if bondholders did little more than match the monetary incentives of the pro-war complex, that would be an improvement on the current situation. This need not conflict with Professor Frey's findings: achieving world (or regional) peace is already the goal of many hard-working low-paid workers and volunteers, and the enhanced likelihood of achieving peace that a bond regime would confer would increase their intrinsic motivation - and encourage more people to join them.

And third: what is the alternative? War between the big nuclear powers has been unthinkable in recent decades only because of Mutually Assured Destruction. Are Peace Bonds any more outlandish than MAD? And while the number of nuclear warheads appears to have fallen, the number of nuclear powers has risen. In the future it's likely that more rogue powers, including non-state actors, will possess nuclear or biological weapons whose use, or threats of use, would have calamitous consequences. There are well-meaning hard-working organisations trying to restrain our capacity to destroy ourselves and our environment, but they don't have large budgets and, crucially, their financial rewards are independent of their success or otherwise in achieving peace.

Actually, Peace Bonds need not be an alternative: they can be issued in parallel with current efforts. Holders of Peace Bonds would probably increase the funding those bodies they deem to be most efficient at achieving and sustaining peace. 

In summary: Peace Bonds could complement and strengthen the most promising current approaches to securing and sustaining peace. As with all Social Policy Bonds, they'd encourage diverse, adaptive solutions to what now appears to be our species' most urgent, most dangerous problem.

Why organisations fail to work for the public good

The Economist reviews For Profit by William Magnuson: 

[Mr Magnuson]draws sensible conclusions .... Corporations cannot hope to put public interest above all else for long; what the public wants is far too complicated for them to fathom. When businesses wade into politics, they play an outsize role in shaping it. Yet the belief that the pursuit of profit will always benefit society as a whole is also sadly erroneous, the author says.“For Profit” offers thrilling tales of commercial endeavour:Corporations often start out with the public good in mind. It doesn’t last, the 'Economist', 10 November

The same, in my view, applies to organisations whose mission statements explicitly say they will put aspects of the public interest first, including charities, universities, religious bodies, trade unions and government agencies. At some point their original purpose becomes subordinated to the goal of self-perpetuation. As organisations grow in size, ownership or governance becomes more diffuse, and society becomes more complex, there are fewer incentives for managers to stick to their organisation's founding remit. 

Which is why I believe that, when it comes to social and environmental policy, the way forward is to reward only the actual achievement of explicit, verifiable and meaningful social outcomes. Issuing Social Policy Bonds would do that and would be likely to lead to the creation of a new type of organisation: ones whose structure, composition and every activity would be subordinated to achieving society's targeted social goals as cost-effectively as possible.

How broad?

Though this discussion is unlikely to have practical application in the next few years (or decades), I will pose the question anyway: should a single Social Policy Bond issue target one social ill, or more than one? Say that we are aiming to reduce climate change and its impacts. Doing so, we could issue Climate Stability Bonds that target a range a physical, biological, social and financial indicators. Because targeting climate change makes sense only at a global level, and because of the wide range of indicator variables necessarily targeted, I am inclined to think that, yes, it would be better to issue Climate Stability Bonds independently of measures to target other disasters. By this I mean that Disaster Prevention Bonds, which could encompass a range of natural or man-made disasters, could or should be issued separately from Climate Stability Bonds. 

Then again, should political violence (wars and civil wars) be targeted by Disaster Prevention Bonds, or should they be the subject of a more narrowly targeted bond issue, such as Conflict Reduction Bonds?

The answers depend partly, as I've suggested, on the range of indicators to be targeted. It would be simpler to keep track of a smaller number of variables, which makes monitoring and verification easier and would focus the minds of bondholders and their agents more effectively. Much would also depend on who would be paying for the bonds' redemption: a global problem like climate change is more likely attract funds from a wider range of governments than a more general bond issue that folds climate change in with other disasters to which some countries are less prone. Since taxpayers would supply the public-sector funding, popular support is relevant here too. 

Against this argument, is that it could be more efficient to target the broadest possible goal, so that bondholders would have incentives, depending on events, say, to shift resources away from targeting climate change and towards conflict reduction, if they believe that doing so would minimise human suffering at least cost. They would be more likely to do this if there were no mismatch between the time horizon of the bond issues; for example, if Climate Stability Bonds required an array of indicators to fall within approved ranges for thirty years, and Conflict Reduction Bonds likewise stipulated a thirty-year period of sustained peace before they could be redeemed. My thinking, though, is that any such efficiency gains would be outweighed by the lack of focus that a very broad targeting implies, and the enhanced difficulty of monitoring a very wide range of targeted indicators. 

For these reasons, and for the funding reason, even Conflict Reduction Bonds might be too broad to attract much interest, which is why I have also written about Middle East Peace Bonds, though any region could of course be the subject of bonds aimed at conflict reduction. 

To summarise, I would think that at a national level, broader is generally better when considering the targets of a Social Policy Bond issue. At the global level, I think that the broadest possible bond issue might be suboptimal. However, I'm open to discussion. 

Not so outlandish

I'm aware that Social Policy Bonds can seem outlandish - at least at first reading. They imply the outsourcing of the achievement of our social goals to anybody, public- or private-sector, with no directive as to how they shall achieve our goals, except that they comply with legislation. That said, many social and environmental problems have resisted all attempts at solution. You are immediately dismissed as an idealist for suggesting, for instance, that war can be abolished, or that poverty or crime can be drastically reduced. In response, I might say Could a Social Policy Bond regime do worse than our current efforts? It's true that a bond regime could be completely ineffectual: people could simply refuse to buy the bonds on flotation, or they could buy them, then do nothing to help solve the targeted problem. If nobody buys the bonds, then that tells the issuers that they have allocated insufficient funds for redemption. If bondholders do nothing, then the value of their bonds would fall until either they have a powerful incentive to do something, or to sell their bonds to people who would do something. In all such cases, however, there would be no cost to taxpayers, even if the bonds had been issued by government, unless the targeted social problem is solved.

As important is that Social Policy Bonds can be issued in parallel with existing efforts to solve social problems. Bondholders could undertake their own initiatives, but would also have incentives to look at current approaches and boost the finances of the more promising ones.

Below is an excerpt from my book showing how this transition could work when addressing UK health problems. The excerpt is from Chapter 4. That chapter, and the complete book can be downloaded free of charge from here. Simpler, shorter explanations of the Social Policy Bond concept can be found via my homepage.

"Take health, for example. In the UK, central government provides funding for regional health authorities (for spending on doctors, hospitals and prescriptions) according mainly to population level, age and need. Government also supplies funds directly to medical research organizations and academic institutions. A transition to a Social Policy Bond-based, rather than institution- or activity- based, funding programme would see the direct funding government gradually decline, while expenditure allocated by bondholders to the outcomes that all these institutions are collectively trying to achieve — longer life spans and a better quality of life, say — would gradually rise.
On introducing such a bond regime a government could decide to reduce its funding of health authorities and research institutes by 1 percent a year, in real terms. (The government could allocate the saved funding to the future redemption of the health bonds it has issued.) So after five years, each health authority would be receiving directly from central government only 95 percent of the funding that it formerly received. But bondholders could choose to supplement the income of some of these health bodies. They may judge a particular group of health authorities to be especially effective at converting the funds they receive into measurable health benefits, as defined by their bonds’ redemption terms. Particularly effective health authorities might be working in deprived areas, where small outlays typically bring about larger improvements in health. Or bondholders might judge a particular research body to be
worthy of additional funding, because it was conducting excellent research into a condition that would be likely to respond especially effectively, in terms of health outcomes, to additional expenditure. In such cases, bondholders would supplement their selected health authorities’ or research institutes’ funding. It may well be that these favoured bodies end up receiving a large boost in income throughout the lifetime of a bond regime.

It could also happen that investors in bonds targeting health look at completely new ways of achieving health objectives; ways that currently receive no, or very little, funding. To give a plausible example, they may be convinced that one of the best ways of achieving society’s longevity objectives is to deter teenage drinkers from driving. Following this logic, they may find that one of the most efficient ways of doing so would be to lay on subsidised taxis for teenagers attending parties on Friday and Saturday nights – but only in certain parts of the country. It is difficult to imagine how our current centralised government fund allocation mechanisms could go about implementing such a programme. A Social Policy Bond regime would quickly eliminate some of the less rational distortions in other health care matters, amongst them the British National Health Service’s terminal-care budget, 95 percent of which was allocated to the 25 percent of the UK’s population who die from cancer, and just 5
percent to the 75 percent who die from all other causes. 

It is also likely that holders of bonds targeting health outcomes would greatly expand funding in areas such as health education or preventive medicine that rely on expertise outside those bodies traditionally devoted to health care. 

Could bonds targeting remote objectives, such as a large rise in longevity, or a halving of the crime rate, be compatible with a gradual transition of the type described above, where funding to existing health institutions reduces by 1 percent annually? At first sight there would seem to be an apparent mismatch between such incremental reductions in government spending and the time scale needed to reach long-range objectives. The critical point here is that bondholders would be investing not on the basis of the annual reductions in government expenditure on existing health institutions, but on the basis of the redemption value of all the bonds issued. To be more precise, it would be this total redemption value, minus the bonds’ existing market value, that would inform bondholders’ investment decisions. This sum could be many times each year’s incremental reduction in government’s institution-based spending. One of the virtues of a Social Policy Bond regime is that bondholders could expect capital gains in the short run from investments that will begin to impact on the targeted goal only in the long run. By doing the initial groundwork efficiently and speedily – not usually a very lucrative proposition in the current regime – they could see short term rises in the bond price
and early capital appreciation. The accumulated reductions in spending to existing institutions would be one, but not the only, factor influencing how much government decides to spend on achieving a specified social goal. Also important would be the financial savings (if any) that achieving the objective would bring about, and the value society would place on any nonfinancial benefits. Similarly gradual transitions would be warranted in other areas, such as education and crime, where schools and police forces, some of which are bound to be much more effective than others, are well entrenched. These institutions would receive slowly diminishing absolute levels of funding directly from government, while bondholders would again focus their spending on especially rewarding, in terms of specified education and crime outcomes, projects and institutions. As with health, it is likely that those areas that are initially most disadvantaged would again provide bondholders with the greatest return per unit outlay. In newer policy areas, particularly the environment, it may be possible to expand spending allocated via the bonds at a faster rate: expertise in the environment is still relatively mobile, and it would be easier to quickly establish new outcome-based institutions or to reorientate existing ones."