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Social Policy Bonds

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This paper is about 6000 words long, and was done in March 2017. It is (c) Ronnie Horesh

Most people agree on the challenges that humankind faces the biggest and most pressing include: war, terrorism, nuclear proliferation, environmental depredation, climate change and poverty. Yet, while there is almost universal consensus that these challenges need to be met, there is very little agreement about how to do so. Meantime, much human ingenuity is devoted to relatively trivial tasks: devising and promoting new brands of dog-food, for instance, or creating mathematical models to maximise the returns for traders in equities.

Our existing institutions, public- and private-sector, are manifestly unable or unwilling to address our most urgent challenges despite, in many cases, their being staffed by hard-working and well-meaning employees. It is not simply a question of a lack of resources. If these organisations were more efficient, there would most likely be less resistance to increasing their funding. A fundamental problem, in my view, is that people are paid for their time or their activity rather than for success; and, very often, funds are allocated not according to the urgency or magnitude of a social problem, but rather whether it makes for dramatic televisual imagery or threatens powerful interests. Often, much of an organisation’s undoubted expertise is devoted to ensuring its expansion or survival regardless of any benefit or otherwise that might bring to humankind.

Meantime, our most effective way of allocating scarce resources – markets – have been subverted and manipulated to favour interest groups at the expense of society and the environment. The benefits arising from self-interest, a powerful motivating force, are more and more being captured by a self-entrenching elite. The contrast between this ever-richer elite and ordinary people, is stark and growing.

Social Policy Bonds aim to deploy market forces in the service of wider society. They are a new financial instrument designed to inject self-interest and the market’s incentives and efficiencies into the solution of humankind’s social and environmental problems.

Social Policy Bonds

My proposal is to issue non interest-bearing bonds that are redeemable only when the social objective in question has been achieved. Social Policy Bonds would be issued by government, or private sector groups, at whatever price they will fetch on the open market and thereafter could be bought and sold by any willing individual or institution at their free market price. Importantly, these bonds can be issued by anybody - public or private sector, non-governmental bodies, philanthropists, individuals - or indeed any combination of such bodies that wants to solve a specific social or environmental problem. Once the targeted objective has been achieved, Social Policy Bonds would be redeemable, as are conventional bonds, for a fixed, predetermined sum. They therefore differ from conventional bonds in that they would have an uncertain redemption yield which, in combination with a fixed redemption value, implies an uncertain yield.

Take for example the goal of nuclear peace. We can define this as a sustained period during which the detonation of nuclear device that kills more than 100 people does not occur. That period could be fifty years. Assume that a fixed number of bonds is issued, redeemable for $1million only when that fifty years has expired. These bonds are floated, nationally and overseas, on open tender as at an auction: those who bid the highest price for the limited number of bonds available will be successful. Importantly, all bonds would find a buyer: the opening market price might be very low, but the bonds will all be sold. What factors will determine the opening price of these bonds? Most obviously, the market's assessment of how likely and when the objective will be achieved. (Interest rates on alternative investments will also be a factor.) The bonds could initially sell for as little as $100 if people thought there were virtually no chance of this particular social goal being achieved in any forseeable future. People will of course differ in their assessment of the value of the bonds, and their views will change with time as events make achievement of the targeted objective a more or less likely prospect. The bonds, once issued, would be transferable at any time; market prices would be publicly quoted just like those of ordinary bonds or shares.

Assume now that the bonds targeting nuclear peace have been issued and that their opening value is, in fact, just $100. People, or institutions, now hold bonds that can multiply in value by a factor of 10 000 once the fifty-year period of nuclear peace has ended. The bond issuers have little more to do: the holders of the bonds now have a strong interest in seeing the value of their bonds increase as quickly as possible. It’s unlikely that individuals will hold bonds over the entire length of time until they are redeemed, though an institution might. But because the bonds are tradable, people who can advance the cause of goal-achievement will buy them and see their market value rise, then sell them to others who, because they think they can further advance progress toward the goal, will bid more for the bonds than they are worth to the current holders. So Social Policy Bonds will flow into the hands of those who can best carry out the next stage in goal-achievement.

Who would buy the bonds?

Some might buy the bonds with no intention of doing anything to help achieve the targeted goal.

These include:

  • casual purchasers, who might buy bonds in the same way as they would a raffle ticket;

  • speculators, who believe that the likelihood of the targeted objective being achieved is greater than the rest of the market thinks it is; and

  • hedgers, who stand to lose if the particular objective is actually achieved. They might buy bonds as a form of insurance against this possibility.


All these passive investors would want to become 'free-riders', hoping to benefit from any increase in the bond price without actually participating in any objective-achieving projects. But the way markets work would limit the opportunities for these would-be free riders. The more bonds these passive investors own, the more remote the targeted objective becomes, and the more they would stand to lose as the value of their bonds falls. So passive investors may find that, collectively, their holdings were so significant that they would be better off selling them, even at a loss. They would then choose either to sell their bonds on the market to those who will help solve the targeted social problem, or become active themselves.

Active investors in the bonds would comprise:

  • people and organisations working to achieve a targeted goal, whose anticipated gains from bond-holding would subsidise the activities they undertake in pursuit of that goal; and

  • investors or brokers who would use their own capital, or borrow on the strength of the increased value of their bond holding, in order to support projects aimed at helping achieve the targeted objective.


Active holders, in the nuclear peace example, could be expected to reduce the chances of nuclear conflict by using part of the present value of their expected above-normal yield from early redemption of the bonds to finance their own, or others', peace-building projects. Active investors in the bonds are likely to co-operate with each other to help achieve the targeted objective.

Prospective holders of Social Policy Bonds have an incentive - and given free capital markets, the means - to buy them from current holders if they think they can do a better job of achieving the targeted objective. Bondholders, therefore, will be under constant pressure to be efficient. And their efficiency means that the backers of the bonds, including taxpayers, will maximise the returns they receive in terms of social and environmental progress per dollar spent. In a Social Policy Bond regime, no group of bondholders, however big, can be complacent about the ways in which it tries to achieve our social goals: market discipline will ensure that if its projects are inefficient, their bonds will be bought by others with ideas for more efficient approaches.

The coalition of interests

Bondholders would, in effect, be a coalition of interests who might decide tacitly to co-operate with each other, or they might think that a formal organisation, even one with a constantly changing structure and composition, would be best placed to achieve their over-arching goal – which, remember, would be exactly that targeted by society as a whole.

How could such a protean organisation of bondholders work to address problems that necessarily require a long time to solve? Consider the actions that people buying Social Policy Bonds targeting a long-term objective, such as our fifty years of nuclear peace example, might take. They would want to see some appreciation of the value of their bonds even if they have no intention of holding on to them until the expiration of the fifty-year period. They might believe, quite early on, that their bonds will lose value unless they set up a body with a definite, continuing, legal structure. One possibility is that larger bondholders would co-operate in setting up an investment company for the lifetime of the bonds. This company would have an appropriately sized, relatively stable, composition and structure and its job would be to vet potential peace-building projects and help finance the ones it thinks will be most efficient. The bondholders, once they had set up this company could of course always sell their bonds on the open market: the setting up of the investment company could be one of the first projects they undertake in order to maximise the appreciation of their bonds. In principle, the setting up of such an organization would be no different from any other objective-achieving project. If the market considers it to be efficient, it will not be outbid by other market participants. In keeping with the Social Policy Bond ethos, of course, all the company’s activities would be tightly focused on the efficient achievement of, in this case, a sustained period of nuclear peace.

The important points are:

  • That there need be no formal organisation set up to achieve a targeted goal.

  • That the composition and structure of any organisation that is set up will be entirely subordinated to achieving that goal.

  • That any organisation will have to be efficient to survive.

  • That it will have the same long-term perspective in relation to goal-achievement as those who define the goal to be achieved.


All this makes for a completely new type of organisation, and avoids the bureaucratisation of large organisations with the all-too-common supplanting of their founding ideals by the less edifying goal of self-perpetuation. In general, to maximise the value of their Social Policy Bonds, those who buy them at flotation or soon thereafter will have incentives to set up the most efficient objective-achieving institutional structure they can, formal, informal or, indeed, non-existent.

Social Policy Bonds: how they compare

Some of the initiatives that would be stimulated by, for example, Social Policy Bonds targeting nuclear peace, are taken by governments and other bodies nowadays, but the critical difference is that, under a bond regime the initiatives are stimulated by the self-interest of the bondholders who will be rewarded in ways that correlate to their success in promoting nuclear peace. Social Policy Bonds provide a strong motivation for bondholders to seek out those ways of achieving nuclear peace that will give them the best return for their outlay. This ensures that the backers of the bonds, be they taxpayers, or others, achieve the best return on their investment. The bonds direct self-interest into those processes necessary for achieving their goal that will respond most readily. The backers and issuers of Social Policy Bonds do not have to plan this: it is the self-interest of bondholders that ensures it.

Many social and environmental problems are currently neglected because of their slow-moving and undramatic nature, or by the structures, assumptions and composition of existing institutions. ‘Gesture politics’ doesn’t help either especially when it comes into play only when a problem assumes too high a profile to ignore. Our political systems are characterised by reactive, short-term approaches that can work for some problems, but fail to deal with slower-moving problems that demand long-term, diverse and responsive strategies. And some overwhelmingly important goals, such as a decades-long period of nuclear peace, have never even been considered for explicit targeting because they are thought to be beyond the realm of human aspiration.

Key criteria for policy areas within which Social Policy Bonds would show the most marked improvement over current programmes are:

  • existing policies have objectives that are unstated, obscure, and uncosted;

  • existing policies are failing;

  • our knowledge of the problem, its causes and solutions, while incomplete, is improving all the time;

  • financial rewards to those involved in achieving objectives are uncorrelated to their effectiveness in doing so; and

  • a particular problem requires a wide array of diverse, adaptive approaches for its solution.


Many national and global social and environmental problems satisfy these criteria, especially those that are currently the responsibility of governments or are not targeted at all. So, for instance, health care or crime prevention are largely dependent on government-financed bodies whose employees have little incentive to be efficient and no incentive to look beyond their body's typically narrow, short-term remit. Global problems, such as civil war, or war between countries, are seldom (if ever) targeted for reduction in any explicit, effective way - and certainly not in ways that reward effectiveness, or that allocate resources to their prevention in proportion to the suffering they cause.

Social Policy Bonds could allow the targeting of such problems, each of which probably requires diverse, adaptive approaches of the sort that cannot be organised by any government nor, indeed, any conventional institution. A Social Policy Bond regime could target long-term goals, such as nuclear peace, effectively because it would reward those who actually solve the problem, rather than those who are simply charged with that goal and who are paid regardless of how well they perform. The bonds reward only those ways of achieving policy goals that are efficient: these can be direct or indirect, and they can be completely different from any currently carried out.

What could Social Policy Bonds target?

Some examples of goals that are ideal for targeting by the Social Policy Bond model at global or national levels include:

Health
In many cases priorities for health services are strongly influenced by groups of medical specialists with little incentive or capacity to see improvements in the general health of a country or the world as an objective. So funding of medical specialities depends on the strength of their lobby groups. And what is arguably the most efficient way of spending the taxpayer's health dollar - preventive medicine - receives derisory funding, because it has no powerful lobbyists. Mental health too, appears to have been neglected in favour of less unglamorous specialities. Targeting general indicators of well-being - such as mental health, life expectancy, infant mortality and Quality Adjusted Life Years - would ensure that scarce resources are allocated in ways that would impartially achieve society's health objectives. Social Policy Bonds targeting such broad health goals would divert funds into those areas of policy that would most efficiently use them to achieve the targeted objectives; this would probably mean they would stimulate exploration and implementation of ways of improving health that are currently outside the purview of existing healthcare providers.  

Climate change
A fundamental question, which is rarely posed in policymaking circles or indeed anywhere else is whether we should be more concerned about climate change, or about its negative impacts on human, animal and plant life? There seems to be a pervasive assumption that the most efficient way of mitigating the negative impacts of climate change is to try to influence the climate, either by reducing that which current science suggests are the major causes of climate change - greenhouse gas emissions – or by geoengineering.

Unfortunately this assumption has led to the creation of a large bureaucracy, is politically divisive, relies on ossified science, and imposes large, upfront, costs in expectation of uncertain, possibly minuscule, certainly delayed, benefits. A Social Policy Bond regime targeting climate change would not make that assumption. Instead it would specify very clearly what we want to achieve. We would express our policy goal as a combination of physical, social, biological and financial measures all of which must fall within specified ranges for a sustained period before the bonds can be redeemed.

Crime prevention
Another advantage of the Social Policy Bond approach is that, simply because bondholders would not be acting as direct agents of government, they can be more discerning as to the type of projects they promote and the cities or regions in which to promote them, and can consider factors that lie outside the purview of legacy institutions.Targeting crime efficiently, for instance, does not necessarily mean allocating funds to crime-fighting or crime-prevention agencies; it might mean focusing on particular crime hotspots. Examples of such measures that bondholders might take include:

  • encouraging parents to monitor their children’s activity more closely;

  • opening sports facilities or youth clubs in deprived regions;

  • encouraging neighbourhood watch schemes; or

  • subsidising the recruitment and employment of unemployed young men in certain cities or regions only.


Disaster prevention
Unfortunately, many of the new problems arising from denser, more linked, populations and complex technology are difficult even for a well-resourced government, or indeed any single big organisation, to anticipate, let alone do much to forestall. Hurricanes, tsunamis or pandemics are only a subset of a range of disasters that threaten humankind. Others include the risks arising from new biological advances or scientific experiments that concentrate energy, or natural disasters such as asteroid impacts or volcanic super-eruptions. These threats are in addition to the ‘known unknowns’ of more widely understood catastrophes. Social Policy Bonds are versatile: depending on society’s wishes, and the views of the bonds’ backers, bonds could target any type of disaster that results in, say, the deaths of 10 000 people within one week, in any part of the world. Holders of such bonds would be able to redeem them only after a period of, say, five years, during which no such loss of life occurs.

Other policy areas
Key criteria for Social Policy Bond targets are:

  • that they can be quantified accurately and

  • that they be inextricably linked to social well-being.


At low levels of income, nutrition or, literacy, there is an especially strong correlation between indicators that we can measure easily and robustly and societal well-being. So, for instance, we can measure functional literacy quite well: we can hardly fault universal literacy as a valid, worthwhile social goal. Other targets could include the reduction and eventual elimination of extreme poverty or unemployment.

More comprehensively, at the low levels of well-being prevailing in many developing countries, the United Nations Human Development Index (HDI) is an excellent indicator of a society’s achievement and one that a Social Policy Bond regime could target for improvement. The HDI comprises three basic components: a long and healthy life, as measured by life expectancy at birth; knowledge, as measured by the adult literacy rate and the combined gross enrolment ratio for primary, secondary and tertiary schools; and a decent standard of living, as measured by Gross Domestic Product per capita in purchasing power parity. The index is constructed from indicators that are readily available, using a methodology that is simple and transparent. Social Policy Bonds could target goals like universal literacy or improvements in the HDI nationally, regionally or globally.

The market for Social Policy Bonds: the importance of tradability

For the Social Policy Bond mechanism to work it is essential that active investors purchase the bonds and help to solve social problems. So long as there are sufficient funds available for the bonds’ redemption, there would be no need artificially to boost investor interest in the bonds: the anticipated supernormal profit arising from early redemption of the bonds generates the required self-interest and so supplies the motivation for achieving the government's objective. Non-tradable variants of Social Policy Bonds (commonly known as Social Impact Bonds) have been issued in about 15 countries (February 2017) but, in my view, these are limited in scope and benefit because they are not tradable. The full benefits of the Social Policy Bond principle rely on there being a buoyant secondary market for the bonds.

There are several reasons for this:

  • Tradability encourages the targeting of broad social goals that might require a long time to be achieved and for that reason might otherwise never be explicitly targeted, as with our nuclear peace example. People would buy the bonds only if they expect to make a profit on them. If the bonds were not tradable, people would have to hold them to redemption to profit from their investment. That in turn means that would-be investors would want any targeted goal to have a realistic chance of being achieved within their time horizon, which might be quite short, and certainly within a single lifetime. And that means that remote goals, such as universal literacy, or the ending of war and poverty, are not explicitly targeted. Tradability attracts investors over a longer time horizon; necessary if many different possible solutions to our problems are to be investigated, trialled, refined and implemented.


  • Another important reason why the bonds should be tradable, is that the identity of the people best placed to achieve a targeted objective will change over time. Most social and environmental goals will require multiple steps before they are reached. The people who are best at step one will not necessarily be those who are best at step two and all subsequent steps. We cannot specify in advance what step one, or indeed any subsequent step, will entail; still less can we identify those best placed to take them. Tradability would ensure that the bonds are always in the hands of the most efficient operators. The market for Social Policy Bonds would favour the most cost-effective operators at every stage on the way to achieving social goals.


  • If the bonds weren't tradable, there would be no would-be investors after flotation, and much less interest in monitoring progress toward the achievement our social goals. All the monitoring would have to be done by the backers of the bonds. There would be no market for non-tradable bonds, so there would be no bond price nor changes in bond price to indicate how close the objective is to being achieved. That backers of the bond would have to be more diligent about monitoring than under a tradable regime.


Advantages of Social Policy Bonds

Clarity of policy goals
Social Policy Bonds impose a useful discipline on policymakers. They oblige us to be very clear about what we want to achieve. We saw this with climate change (above), but it applies also to other policy areas. A Social Policy Bond regime would demand answers to critical questions before policy can be made and goals targeted. These questions are meaningful to all of us, and so all of us can participate in trying to answer them, rather than, as now, ignore them or sweep them away from public scrutiny. Take for instance the questions of whether gross inequality, large-scale unemployment, or population growth are undesirable in themselves, or whether it is their negative impacts on other social and environmental goals that we want to be targeting? Currently, policymakers escape having to answer, or even pose, such questions.

Efficiency
Social Policy Bonds make the achievement of social and environmental objectives more efficient by injecting self-interest into every necessary stage along the way. Investors in the bonds will have incentives to seek out and develop those ways of achieving our goals that are most cost effective, while terminating failed approaches. The bondholders' incentives cascade downwards to all bodies, public- or private-sector, contracted via the bond market to help achieve our social goals. The existence, structure, and activities undertaken by bondholders and any formal or informal body they create will be entirely subordinate to their over-arching objective which will be to achieve society's targeted goal at minimum cost. To this end they will explore diverse, adaptive approaches, impartially with respect to the identity of the beneficiaries. Bondholders will have the incentive to take a long-term view, and to research, experiment and implement the most efficient of what will probably be a large number of approaches to solving our social and environmental problems.

Stable policy goals
Social Policy Bonds guarantee stability of policy objectives. Policy instability is an important reason why people do not undertake projects or activities that could benefit society. If objectives with a necessarily long lead time are targeted by government-issued Social Policy Bonds, holders of the bonds would not be deterred from taking measures to achieve such goals by fears of a reversal of government policy - or indeed, changes of government. In the current policymaking environment, decisions about projects are plagued by policy uncertainty arising from government decisions that are subject to the whims and inefficiencies of political expediency.

Also, note that explicit targeting of objectives is likely to lead to an estimate of the approximate value of their achievement - a useful discipline, but one rarely followed by today's politicians.

Transparency and buy-in
Social Policy Bonds would target broad social and environmental outcomes that are meaningful to ordinary people. Such outcomes would be more comprehensible to more people than the current unstated or unconsidered, vague, or platitudinous justifications for policies undertaken by current governments. This would make the policymaking process itself more accessible. And when people understand what a policy is all about, they can participate more in its development, refinement and implementation. They will better understand the limitations and trade-offs that are intrinsic to public policymaking when resources are limited – as they always are. A hugely important benefit arising from this will be buy-in: having been consulted when our social goals are being formulated, we are more likely to participate in achieving them. The widening gap between politicians and the citizens they are supposed to represent would begin to close.

Information
The market for Social Policy Bonds will generate extremely valuable information for policymakers. They will do so even as the bonds are issued: the price they fetch will be an important indicator of how remote the market believes is the targeted objective. Thereafter bond prices, and the way in which they change, will supply continuously updated information on which policy programmes and events are, in the market's view, likely to be most effective at achieving the targeted goal.

The Social Policy Bond principle is superior to existing budgetary mechanisms in that the funds devoted to the achievement of a social goal would be limited in advance by the amount of funds raised by the backers and deposited into escrow. If no progress is being made toward a targeted goal, the backers can deposit more funds into escrow. (Unusually for a financial instrument, if the supply of bonds is so increased, the value of the bonds already in circulation would rise.) They would know that, even if they had to do so, they would be getting the best return for their outlay, in terms of maximum progress toward the targeted goal per dollar spent.

Complementary and gradual
Social Policy Bonds can be issued without any need to attenuate existing efforts to solve the problems they target. Efforts undertaken by bondholders can complement existing efforts. Or bondholders could look at existing organizations and their approaches and choose to replicate or enhance their most successful activities. At all times, bondholders or would-be bondholders would be motivated to be flexible about which approaches are best for which geographical area. Social Policy Bonds can be introduced gradually, giving time for existing organisations to adapt to the new incentives on offer.

Social cohesion
A less obvious distributional benefit would arise from the existence of a means of acquiring wealth with which private gain is inextricably correlated with public benefit. Many bondholders would be rich and, if their bonds were redeemed early, they would become richer. But this would be a socially acceptable way of acquiring wealth. And the existence of such a way of accumulating wealth would allow other, less socially beneficial ways to be taxed more heavily.

Potential problems
Social Policy Bonds would target urgently and aggressively the ending of war and other large-scale armed violence. Targeting of global goals will see bondholders allocate funds impartially, without reference to the identity of the beneficiaries. Their over-arching criterion for investment will be the best return (in the form of improved health, say, or improved literacy) per dollar spent. Ethnic minorities worldwide could be protected, again explicitly, by Social Policy Bonds aimed at respecting the basic human rights of all people on the planet. War, civil war or any violent political conflict, could be targeted for reduction and elimination.

Freed from the burden of achieving our social goals, government bodies could concentrate on overseeing, and ensuring the success, of the Social Policy Bond model. In the first place, they must ensure that goals are capable of being accurately and robustly quantified, or that be a strongly correlated proxy for the objective, whose targeting would inevitably result in the objective being achieved. This is easy enough with goals like nuclear peace, but more thought will have to be given to the definition of other goals. As well, bond issues will require reliable and accurate monitoring of the targeted problem so that progress toward its solution can be reliably and unambiguously assessed. This surveillance must also be seen to be independent of the government or interest groups, both of which could benefit unfairly from dubious data collection. The nature of the monitoring would depend on the objective being targeted and, to some extent, on the amount of funds at stake.

The biggest potential problem of Social Policy Bonds is probably the incentive they will give bondholders to achieve specified objectives at the expense of other societal goals. For instance, assume that the concentration of atmospheric lead is targeted in a bond issue. It might be that targeting lead in this way would cause people to increase their use of substitutes - which could be more dangerous than the original levels of lead. One way of anticipating this problem could be to aim initially at unambitious reductions in the lead level. Depending on the effects of this reduction on the use of offending substitutes, other bonds could then be issued targeting these substitutes, or further targeting the level of lead.

A better approach though would be to target, more comprehensively, atmospheric pollution. This could be expressed, perhaps, as an index of atmospheric pollutants weighted according to their lethality and other factors. In general, objectives that are complementary and that, if not pursued jointly, could conflict, should be targeted by a single bond issue.

Another safeguard against legal, but negative activities undertaken in pursuit of a targeted objective, could be provisos on the bonds specifying indicators of social welfare which, while not explicitly targeted by the bond issue, must be satisfied for the bonds to be redeemed. Thus Social Policy Bonds targeting unemployment could embody provisos to the effect that the bonds would not be redeemed if the inflation rate exceeded a certain limit.

Illegal activities could, of course, be dealt with by existing laws, possibly backed by a system of bondholder registration, which would identify those with the biggest incentive to commit them.

Another possible problem arising from the integration of the bonds into the current policymaking system arises from the government's role as creator of statutes. Laws affecting the bond price could be passed. For instance, government could come under great pressure not to increase unemployment benefits from holders of bonds targeting unemployment. Note though, that the source of the pressure, and the motivation for it, would be easy to identify. In any case, the threat of such pressure has a positive aspect: for bond issues to be as successful as possible, governments would have to give assurances as to their future behaviour. This could be another means by which Social Policy Bonds stabilise political objectives.

These problems should not be overstated. Existing laws, careful choice and specification of targeted objectives, and tighter rules on investments and declarations of interest by lawmakers would probably circumvent them.

And the question of how well Social Policy Bonds would achieve societal goals needs to be considered alongside current policymaking methods. In today's environment policymakers can escape or deflect censure because the adverse results of their policies are difficult to relate to their cause. If the bonds were to lead to negative effects, the relationship between these effects and their cause would be identifiable, and the filtering out of negative effects would be a simple matter compared to the methods available to today's policymakers.

Immense possibilities
Resources are always going to be limited and Social Policy Bonds will not change that. At least for the foreseeable future, most resources for the achievement of our social and environmental goals will remain in the hands of government, mainly at the national and local levels, but also at the supranational level. But while democratic governments are good at representing and articulating their people's wishes, they are not so successful at working out the most efficient ways of achieving these goals, particularly when such goals require diverse, adaptive approaches. This achievement is really a matter of allocating scarce resources: in economic theory, and on all the evidence, markets are the best way of allocating scarce resources to achieve prescribed ends. Social Policy Bonds allow governments to do what they are best at - prescribing ends and raising the revenue for their achievement - and markets to do what they are best at: allocating resources to meet these ends. In so doing, Social Policy Bonds can achieve society's goals more efficiently and less randomly than the current combination of ad hoc, short-term, one-size-fits-all policies.

Even at the national level, the surrendering of policy instruments to the private sector, even with the aim of achieving social objectives, will be politically difficult. But the potential benefits should not be ignored. Western governments' spending on education, health, the environment and other items continues to grow, despite all efforts to restrain it. Even relatively small gains in efficiency in this spending could greatly benefit those who are most in need.

In the longer run the widespread acceptance of the fact that self-interest can benefit all of society, including those who are currently very poor, or dispossessed or threatened by conflict, climate change or any other calamity, would have more far-reaching implications, transcending national boundaries. The possibilities are entrancing and, I believe, attainable. For the first time in history we could explicitly and realistically target and raise funds to invest in the achievement of some of humanity's most noble, urgent goals: universal literacy, the permanent cessation of war, and the elimination of hunger and poverty.

(c) Ronnie Horesh 2017

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