22 August 2016

Alternative data and metrics for a bond regime

The Economist writes about 'alternative data':
The growth of small, low-cost satellites and machine learning means companies can quickly and cheaply parse millions of satellite images a day. A common trick is to analyse photos of car parks outside big-box retailers such as Walmart to get a sense of daily revenues. A Chicago-based data firm, RS Metrics, sells estimates on the productivity of factories by tracking the number of lorries parked outside. The watchers, the 'Economist', 20 August
Mindful of Campbell's Law, I've always thought that each Social Policy Bond issue should target a set of metrics, each of which has to fall within a specified range before the bonds can be redeemed. Also, that, if we target a broad national goal (universal literacy, say) the bond's issuers could stipulate that the bonds would be redeemed on the basis of data from a random sample of people of the country, so as to minimize the risks of manipulation. Alternative data could contribute to robust combinations of metrics for the purposes of a bond regime, especially those covering countries where official data is scarce or unreliable. As the article says: "Investors are particularly keen for firms to study pictures that yield rare data on, say, steel production in China or Russia, where official data can be patchy." It's not difficult to imagine scenarios in which alternative data could play a possibly indispensable role in the monitoring of progress toward environmental goals, or goals such as disaster prevention or conflict reduction.

20 August 2016

Poverty: the need for diverse, adaptive approaches

The Economist writes about US President Clinton's 1996 welfare reform package. Under the sub-head Blockheads:
Challenged to reduce the number of people receiving welfare, many states merely shifted people onto disability insurance instead, declared victory and sent the bill to Congress.... How might the reform be reformed? Most vitally, by concentrating attention and resources on those 1.5m families at the very bottom. Since this is the hardest group to reach, the federal government should use its money to encourage states to find new ways to help them. A patchy record at 20, the 'Economist', 20 August
Quite so. Clarity about aims is an essential and inescapable first step in implementing a Social Policy Bond regime. Unfortunately, policymakers under the current system can get away - or get rewarded for - with shifting people from 'receiving welfare' to receiving 'disability insurance'.

The article continues:
A useful model is “Race to the Top”, an education initiative from the Obama administration which rewards states that achieve improvements with extra money, in the hope that others will copy their success. There are plenty of policies worth experimenting with: expanding tax credits for those without children, extra government help with finding a job and even public make-work schemes. But this must be experimentation with the right purpose—helping the poorest into work rather than simply cutting welfare rolls.
True: the aim is not to cut the number of people on welfare. But I question whether raising the number of poor people in work is exactly what we want to achieve. I would think our over-arching goal is to eradicate poverty over a sustained period. Increasing employment among those currently poor may be one way of doing that, but we should not assume that it is the most efficient way. Nor the most compassionate: it's not difficult to think of people for whom employment would be less helpful than other interventions. For instance, a struggling single parent of several small children could benefit more from, for instance, help with childcare. Society as a whole would benefit more, in the long term, by improving the children's education and healthcare or their physical and social environment, or improving the parent's access to information about how best to nurture children. If parents were compelled to work, the benefits of a higher household income could be outweighed by the negative effects on the children.

As Barbara Ehrenreich put it:
The "working poor" ...  neglect their own children so that the children of others will be cared for; they live in substandard housing so that other homes will be shiny and perfect; they endure privation so that inflation will be low and stock prices high. To be a member of the working poor is to be an anonymous donor, a nameless benefactor, to everyone. Source
Social Policy Bonds targeting poverty could encourage the exploration and implementation of whichever approaches would best suit the varied and ever-changing circumstances of a population. Every one of those 1.5 million worst-off families referred to in the first excerpt above will face different challenges. Employment will be a solution for some, but not all. Social Policy Bonds would motivate people to find the diverse, adapative solutions that extreme poverty and many other social and environmental problems require if they are to be solved, rather than merely disguised.

14 August 2016

Social Policy Bonds: state of play

I don't think any Social Policy Bonds have yet been issued, despite their having been in the public arena for 28 years. That said, more national and local entities are issuing or considering Social Impact Bonds, the non-tradable variant of Social Policy Bonds. This wikipedia page summarises the history and current deployment of SIBs. I'm pleased to say that they are becoming more widespread. Countries in which they have been issued include the UK, Australia, the US, and they are also being considered in Brazil, Israel and New Zealand. Dan Corry of New Philanthropy Capital in London summarises the current (9 August) state of play with SIBs in the UK here, while Patrick Young, in Australia puts out the Daily SIB Newsletter.

I do have reservations about SIBs, which I have expressed here, here, and in several blog posts (search this page for Social Impact Bonds). Perhaps necessarily, they are narrow in scope and, in my view, will be prone to manipulation and gaming, especially if they become so commonplace that they escape public scrutiny. Because of their limitations they are also, as I expected, relatively costly to administer, as Alliance 54 reported in July: 'SIBs are gaining traction with 57 models operating, but they have proven complicated and costly to design and implement.' I haven't been consulted about, and have no involvement in, any of these SIB issues. My hope is that SIBs, will advance, rather than discredit, the Social Policy Bond concept.

07 August 2016

Health funding needs to be more impartial

Priorities for healthcare funding are heavily influenced by factors other than the ratio of benefit to cost.
[A] review by Cancer Australia (pdf) showed that between 2006 and 2011, breast, colon and prostate cancer all received funding greater than their proportional toll on society — measured in years of healthy life lost. By the same measure, research into lung cancer, along with lymphoma, pancreatic cancer and cancer of the brain were underfunded. Lung cancer research underfunded compared to societal impact, ABC news, 12 August 2015
In this graph, taken from the above link, 'DALYs' on the vertical axis means disability adjusted life years lost to the type of cancer on the horizontal axis. Funding is given in millions of Australian dollars.
 Research funding for different types of cancer compared to healthy life lost
Some disparities are striking: "Lung cancer, which takes the heaviest toll on years of healthy life, received less than a quarter of the funding given to breast and colon cancer research."

Governments have to make their resource allocation decisions on the basis of data that are necessarily incomplete and constantly changing. So, by default, health expenditure is influenced by groups of medical specialists with little incentive or capacity to see improvements in the general health of the nation as an objective. As a result, funding of these specialities depends to a great and varying extent, on the strength of their lobby groups or on their public profile rather than on what would best meet the needs of society.

The problem is the same sort of top-down, one-size-fits-all, fossilised systems of funding that bedevil other (well-meaning) attempts by government, or any large organisation, to keep track of multiple variables across any but the smallest geographic area. In health, as in education, housing, crime prevention, or environmental pollution we need diverse, adaptive approaches to solving our problems. Society is just too complex now for simple approaches to work effectively, except in those increasingly rare cases were cause and effect can be readily identified and relatively stable over time and space.

The Social Policy Bond principle can be applied to health. Essentially, under a bond regime, government would target for improvement the health of the entire population as measured by (probably) DALYs in combination with other measures. Resources woudl then be allocated impartially according to where they will yield the most benefit per dollar spent. Any target could be long term: if it were several decades bondholders would have an incentive to investigate numerous approaches, including preventive measures, research and education, on a dynamic basis and always with an eye to cost-effectiveness. For more on this, see my brief piece on Health Bonds.

03 August 2016

Government of the people, by the rich, for the rich

Elizabeth Drew quotes John Tanner, a former US congressman, explaining extremist attitudes in US primary elections:
If a Republican strays from the far ideological right ... they put themselves in political peril. They know better—some of them—but it’s not worth the political fallout to wander into the sensible center and try to sit down and work something out. No one will do what they all know has to be done to keep the country from going adrift. (My emphasis.) American democracy betrayed, Elizabeth Drew, 'New York Review of Books', dated 18 August
I've always maintained that there is more consensus about our social goals than there is on how to achieve them. Even so, as Mr Tanner indicates, there is also wide agreement over what needs to be done: that is, over activities. And yet the way we conduct our politics makes us incapable even of undertaking those activities. Divisiveness, which in its less virulent form may on balance have served us well over history, has become toxic. In the US particularly, it has become self-entrenching, through cynical manipulation of constituency boundaries, as in this example given by Ms Drew in the same article:
[A] a tiny peninsula was added at the last minute to a new district in northeast Ohio not because it contained certain residents but because it was the site of a large manufacturing company that could produce campaign contributions.
To put it bluntly, our system has been hijacked by experts who have little interest in the well-being of broader society. The result is becoming clear to us all: a wide and widening gap between government and big business on the one hand, and ordinary people and small business on the other. The political systems, not only of the US, but in all countries, have become too complex for ordinary people to follow. The dangers are becoming apparent: growing cynicism, extremism and nihilism.

To close the gap between people and their supposed representatives, I offer Social Policy Bonds. They aim to inject the market's efficiencies into the achievement of our social and environmental goals. But perhaps even more important, they demand clarity of these goals. Meaningful, explicit goals, which all of us can understand. Goals such as universal literacy, improved health, reduced crime and pollution and, at an international level, peace. With greater comprehension of our politics, we'll see more public engagement, and hence more buy-in: an end in itself, as well as a means towards more efficient ways of solving our social problems. What we have now is a travesty: government of the people, by the rich, for the rich. I don't think it's sustainable. By switching deliberately and slowly towards something like a Social Policy Bond regime we could ensure that, instead of a likely collapse followed by anarchy or tyranny, we'd see politics geared towards the well-being of all society and not, as now, those who are powerful enough to manipulate the system.

30 July 2016

Policy for the Middle East

Philippe Sands discusses the recently released Chilcot report into the UK's role in the Iraq conflict:
There’s nothing really new, since the material emerged when the hearings took place, but these 169 pages of tightly woven narrative and assessment nonetheless offer a unique insight into the place of legal advice within government: how law is made to fit around policy, rather than the other way round. ....  [T]he decision to remove Saddam Hussein and wage war in Iraq was taken early, and ...  intelligence and law were then fixed to facilitate the desired outcome.  A grand and disastrous deceit, Philippe Sands, 'London Review of Books', 28 July. (My emphasis.)
The Iraq debacle is a tragic story of how policy is made without regard not only for the law, or the truth, but also for the well-being of people in Iraq. It's a typical conceit of those in power. Here's a problem: Saddam's regime is nasty. And here's our solution: remove Saddam and wage war in Iraq.

I can't offer a better solution. But what I can offer is a way of generating better solutions. The first step is to be clear about our goals. I'd say our over-arching goal should have been to improve the well-being of all the Iraqi people. A second goals would be to remove any threats to non-Iraqis arising from weapons of mass destruction. For each of these two goals we need reliable indicators that we could then target by issuing Social Policy Bonds. A quantifiable indicator of well-being could target for improvement a combination of such measures as the human development index, the numbers of political prisoners, the numbers killed in sectarian violence, numbers of emigrants and refugees, and some measures of media incitement to hatred and violence. Importantly, such Iraq Peace Bonds would not assume that, for instance, Saddam must be removed and his regime dismantled. It would be up to bondholders, motivated by financial incentives, to calculate how best to achieve peace in Iraq. Financial incentives - not emotion - would dictate their decisions.

What about the second goal: the elimination of the threat arising from real or imagined weapons of mass destruction? This goal could have been targeted by a second bond issue, which would reward bondholders for achieving the non-use of such weapons over a sustained period of, say, several decades.

In both bond issues, bondholders would have incentives to generate diverse, adaptive approaches to meeting their goals. This means that they would not impose top-down solutions on the basis of how they feel at one point in time, and that they would have a continued strong interest in the long-term success of their approaches. I've written about bonds targeting peace in the Middle East here, and about bonds targeting sustained nuclear peace here.

24 July 2016

How we select our policymakers

How do we select our policymakers? By what criterion do we judge our potential leaders? No, it's not good looks, or ability to generate soundbites, or 'the common touch', or gender, race, or sexual orientation. Still less does competence have anything to do with it. Politico.com supplies the answer:
Inside the VP hunt: How Clinton picked Kaine

How tough was the vetting? Finalists had to turn over every password for every social media account for every member of their families.They had to turn over every password for every social media account for every member of their families. They had to list every piece of property they’d ever owned, and copies of every résumé that they’d put out for the past 10 years. Every business partner. Every gift they’d ever received, according to those familiar with the details of the vetting process. Inside the VP hunt, Edward-Isaac Dovere and Gabriel Debenedetti, 'Politico.com', 23 July 

23 July 2016

Political parties are divisive and unnecessary

John Lanchester writes about UK politics:
Political parties are the mechanism through which divisions in society are argued over and competing interests asserted. The trouble with where we are now is that the configuration of the parties doesn’t match the issues which need to be resolved. Brexit Blues, John Lanchester, 'London Review of Books', dated 28 July
Quite so. Society has become too complex for the old political parties which, I believe, will have to evolve much as the stonemasons did, into organizations that are less concerned with improving material circumstances than with ritual, bonding and inner development. In their place we could see new types of organization: ones with protean structure and composition that are dedicated to single issues.
In a Social Policy Bond regime, these organizations would target social or environmental outcomes. All their activities would be devoted to achieving broad, meaningful outcomes as cost-effectively as possible. Most of us agree that we need a society that both looks after its disadvantaged members and has a healthy, efficient business sector that will generate surpluses to pay for a welfare state. Broad, meaningful goals would encompass (for examples) health, education, the state of the environment, crime, and poverty; at an international level we could target the elimination of all war and civil war.

Of course there will be disagreements about priorities, but there will be more consensus about these goals than there is about the supposed means of achieving them. Political parties are failing. They cannot cope with society's complexities and are unnecessarily divisive. They're unlikely ever voluntarily to relinquish their over-sized role in making policy, but a transition toward a Social Policy Bond regime could see them decline or encourage them to reinvent themselves as something different, much as did the old stonemasons. For my thinking as to how this transition could be managed, see chapter 4 of my book.

12 July 2016

From operative to speculative politicians

The more I chat with politically interested people, the more I become disillusioned. Outcomes for the people they purport to represent mean far less to them than the other things that go along with identification with a political party or opinion: belonging to a group of like-minded (good or 'compassionate') people; the joy of differentiating themselves from the other (evil) lot; participation in group events and rituals; the convenience of having an ideology that both explains the world and generates apparent solutions to its problems.

I am respectful of all this. I recognize the need of all humans to engage with each other, to sing or dance together, to share our hopes, to be with people who have a similar world view for whatever reason, to identify with a clan or tribe; above all: to belong.What I do find problematic, though, is that the 'rightness' of such belonging, the elation and joy that come with satisfying a genuine human need, can lead participants to prescribe policies that they try to apply to people outside their in-group, without seeking the outsiders' buy-in - without, indeed, thinking it necessary or desirable. I've written (frequently!) about how the over-arching goal of any institution, however well intentioned, initially, however hardworking its members, becomes more and more that of self-perpetuation.

Most of us, if we're allowed to express ourselves coolly and freely, want to live in some sort of welfare state, with a safety net for the disadvantaged. We also want a healthy, productive, wealth-generating business sector. Yes, there will be differences of emphasis and priority, disagreements about procedure. But our overall goals are not that different. Not so different, surely, as to justify the mutual hatreds that we are seeing in the politics of many western countries today. These hatreds could bring about calamity, in the form of weakened societies, prey to those with far less edifying ambitions. The old Arab proverb comes to mind: 'a falling camel attracts many knives'.

My response is twofold. The first (predictably!) is to advocate Social Policy Bonds. The ostensible reasons for our polarized, dysfunctional politics, are not so much about our goals, but about the ways we think they shall be best achieved. We could instead debate social and environmental outcomes, about which there is more consensus and more objectivity. On a global scale, for instance, we could target the sustained survival of our species, or world peace, or the non-deployment of nuclear weapons. At a regional level, we could target Middle East peace. At a national level we could target universal literacy, or improvements in crime rates or environmental health. People understand these outcomes far more than we do the intricacies and legalisms of policymaking under the current system, and the structures and activities of those charged with achieving our social goals. And because we understand outcomes, we can participate in the policymaking process. Nobody would be perfectly satisfied by the array of specified targets, but there would be buy-in - something we need and something missing in today's organization- and activity- based policies.

Less frequently have I mentioned my second response: the deliberate refocusing of ideological politics away from policymaking and towards other, more inward-looking, activities. You might have thought that the economic and social shambles that was Marxism would have expired with the old Soviet Union. But it survives in China and elsewhere, not as an economic system, but as an extraordinarily potent ideology about an economic system. Freudian psychoanalysis, though discredited as a therapy, survives as a cult revolving around the life and work of Sigmund Freud. There is not a single proven example of a visit to Earth by an alien spacecraft – yet opinion polls consistently show that more than half of adult Americans believe in such an event.

Could our political parties and their associated ideologues take the same steps? They probably wouldn't take the initiative, but if it became the only means by which they survive, then they would surely do so. A Social Policy Bond regime could accelerate the process. Parties and ideologues are concerned with personalities, ideologies, activities, funding and institutional structures, all of which are the supposedly rational basis for their existence from which derives the positive features of belonging. Social Policy Bonds would lead to new types of organization which would erode that basis - but not the more edifying need for bonding. There is a precedent, and it is the world of Freemasons. Some groups of working or 'operative' stonemasons began to allow non-masons into the guilds. Operative masonic lodges raised money by charging the gentry for admission to their "mysteries".  (See here.) The guilds and mysteries persisted after the great British and European cathedrals had been built. Operative masons declined in number; 'speculative' masons took over, and today there are around six million freemasons worldwide.

Could our politicians and those with a vested interest in the power-structures to which they belong and from which they derive inspiration be persuaded to give up their dysfunctional organizations and divisive politics, and become 'speculative' policymakers? Then we'd be free to focus on social and environmental outcomes that are meaningful to ordinary people. I think everyone - politicians and public - would be happier if our potentially catastrophic 'operative' way of making policy became 'speculative' and focused more on inward enlightenment than on making an impact on the world.

02 July 2016

Compassionate woman, compassionate policy, cruel outcome

Compassionate woman, compassionate policy, cruel outcome:
IOM [International Organization for Migration] reports an estimated 222,291 migrants and refugees entered Europe by sea in 2016 through 26 June, arriving in Italy, Greece, Cyprus and Spain. Deaths in the Mediterranean so far this year are 2,888, compared with 1,838 through the first six months of 2015. Source
Nobody, least of all, Chancellor Merkel, wanted this. Compassion works in everyday life, with people whom we know, or with people whose need is desperate and urgent. As a policy, though, it fails. I think we should do better to target outcomes, rather than the supposed means of achieving them. If our goal is to reduce drownings in the Mediterranean, then reward people for achieving that outcome. If our goal is to improve the quality of life for ordinary Africans, then we should reward people for achieving that outcome. And if our goal is to reduce or eliminate conflict in the Middle East, then why not put in place a system of incentives that motivates people to achieve that?

Social Policy Bonds allow us to set these long-term objectives and to reward the people who achieve them. They don't sound compassionate relying, as they do, on monetary incentives, and many on the left disdain or despise the idea (and their originator!) for that reason. But monetary incentives - often known as salaries or wages as well as prizes or bonuses or profits - are the very basis of whatever prosperity there is on this planet. The wish to acquire more cash can be directed into social and environmental causes, as well as frivolous or destructive ones. The world would be better served if we all got over our hang-ups about money and with our wish to appear compassionate, and actually worked towards more compassionate outcomes. Or, as a line from the 1981 movie, Southern Comfort has it: "Comes a time when you have to abandon principles and do what's right."