A new type of organization - Social Policy Bonds

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A new type of organization


This page first appeared in the Social Policy Bonds blog

The Economist of 16 January, 2016 describes the French labour market as:

...divided into “insiders”, those with permanent, protected, full-time jobs, and “outsiders”, whose work is insecure and temporary. .... And France’s biggest unions, for all their revolutionary rhetoric, have become talented and conservative defenders of insider privileges, at the price of shutting too many young people out of decent jobs altogether.

It seems to be the way of all big organizations, be they trade unions, religious institutions, government bodies, large corporations or political parties. They start out well intentioned but at some point their interests diverge from those of the people they purport to represent, and their over-arching goal becomes self-perpetuation. Sometimes, especially during their early years, these bodies have interests that coincide with those of their members. Later, institutional growth or survival becomes an end in itself. Even when they do represent their members, large organizations do so only in their members' capacity as members - as distinct from human beings with interests that are longer term and broader than those encompassed by their membership. People outside these bodies suffer, either directly, because the organizations' rules benefit insiders at the expense of outsiders, or less directly, in that people expend a great deal of time and energy trying to become insiders because, largely thanks to big organizations' ways of working, that's the only way to improve one's quality of life. So, for instance, we see the example from France, above, and large corporations manipulating the regulatory environment to keep out smaller companies.

Of course there must be large organizations but those tackling social and environmental problems must be made to keep to their principles and have broader goals than self-perpetuation. Many of our social and environmental goals are the responsibility of the large bureaucracies - including national and supranational bodies - thatin common with other other large bodies, have self-perpetuation as their ultimate goal. That is why I think Social Policy Bonds could help. Under a bond regime the structure, composition and activities of organizations responsible for achieving our social goals would be entirely subordinated to those goals, which would be chosen and largely financed by society. Because a bond regime encourages the targeting of broad, long-term goals, it's likely that the coalition of interests forming the organization would be constantly changing. The market for the bonds would see to it that the people working for these protean organizations would be paid according to their efficiency in achieving our goals - which coincide exactly with society's goals. The market for would ensure that only the most efficient approaches to solving our social problems would flourish, and that unsuccessful approaches would be terminated.

How would this happen? Consider what people buying bonds targeting world peace might do. They would want to see some appreciation of the value of their World Peace Bonds even if they have no intention of holding on to them until the long-term target of sustained world peace has been achieved. They would quickly see that their bonds will lose value unless they set up some sort of body with a longer-term commitment. One possibility is that larger bondholders would collude to set up an investment company for the lifetime of the bonds. This company would have a stable structure and its job would be to vet potential conflict-ending projects and help finance the efficient ones. The bondholders, once they’ve set up this company up 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, it’s no different from any other project. World Peace Bonds sold after the formation of this company would behave in the market like shares in the investment company. In keeping with the Social Policy Bond ethos, of course, all the company’s activities will be dedicated toward achievement of, in this case, world peace.

In short: the organizations' structure, composition and all their activities, would be subordinated to the outcomes that we, as a society, want to see achieved. These new types of organization, because of the way the market for Social Policy Bonds work, would always have powerful incentives to achieve our social goals. For all these reasons, Social Policy Bonds mean that we could meaningfully target long-term, urgent, but  hitherto idealistic-sounding goals such as a sustained period of world peace.

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