Legislation impact bonds
Moving politics from big interest to social interest
We live in interesting times. Technological developments push us forward, but they don’t seem to improve governance, and thus do not fundamentally improve our quality of life. ‘It has become appallingly obvious that our technology has exceeded our humanity,’ as Albert Einstein famously said. It’s time we change that.
Software engineering and finance attract many of our brightest minds. And we have proven ability to build amazing things. And now we look at future technologies with hope for improving our lives with Google glasses, self-driving cars, life-extending enzymes and nanotechnology. We feel like we’re the lucky generation, for we can access the world’s information at our fingertips via the Internet, shop cheaply online, professionally collaborate online, ride in Uber cabs, and engage with leading thinkers on Twitter.
However, technology does little to make governments more accountable to us, their electorate and pass laws that would improve our lives. Western democracies, led by the US, are prone to large-scale political corruption. We can’t reach a deal to reduce CO2 emissions, Americans can’t get the federal taxes to increase in order to implement free public childcare and maternity leave of 6+ months, reduce number of prisoners by offering desperate people better opportunities, bother to respect human rights when it comes to homeland security with its horrifying acts like NSA, Drone killings, and Guantanamo.
None of technologies that big capital so ambitiously pursues is nearly as liberating as one asset that the Internet could provide us: a democracy where everyone has direct influence over the political agenda, where we start breaking down the skepticism around politics and trusting our institutions again. The lobbying culture on Capitol Hill allows affluent individuals and corporations’ disproportionate control over policy-making. More worryingly, the election procedure in the USA gives the richest 80 families in the country control over who may and may not run, as Lawrence Lessig points out in his excellent TED talk.
We have to do something.
In the past five years, there have been increasing attempts to change the political system to give more control to citizens. In another TED talk, Clay Shirky told us how the Internet could generate its most important and relevant service for our age: a system or process for direct democracy. Piraten Partei (Germany) was probably the movement that has so far had the most serious and promising result around the world. Its sole aim is to give citizens more power via the Internet through a system called liquid feedback. The party received approximately 10% in various regional elections in Germany in 2011. Neither the 99% movement in the US nor the movements in Turkey, Italy, Spain, Greece, Egypt and other regions where citizens are frustrated about the existing political structures were able to develop a serious alternative system that empowers individuals in a truly innovative manner.
I believe a new era of public decision-making could be launched with what I will call “legislation impact bonds”. The concept is a blend of social impact bonds and idea markets. It’s a new method for opening up a publicly participatory legislative process, where policies would be selected and implemented based on their proven potential to solve the issues at hand.
Social impact bonds were introduced in the UK in 2011. They are a method for generating innovative public services to address a public challenge, wherein a public organization defines a challenge, private service providers develop a proposed solution, and private investors provide funding for the implementation. If the projects succeed, the investors receive their money back with interest. The investors’ return depends on how successful the solution they invested in becomes based on pre-agreed social measures.
The most famous example of social impact bonds is the first one implemented in the UK, at Peterborough prison. In the project, Third Sector was the service provider that introduced programs and services to ensure that ex-prisoners would not go back to prison for another term as repeat offenders. They did this by providing innovative services for ex-prisoners after they had reentered society, such as good places to live, social connections, access to various social services and jobs.
Legislation impact bonds (LIBs) would work in a similar way. Public organizations would define a challenge and invite citizens to develop and invest in legislation proposals. The challenge could address complex issues such as how to reduce crime rates or obesity, or how to increase vertical mobility. Unlike in current politics, people participating in LIBs would be pushed to think about legislation not only in light of its implications for their personal interest, but also based on its demonstrable positive social impact based on specific social measures. Investors would bid on the potential social impact of these legislation proposals, just like investors bidding on the interventions’ outcomes in the case of social impact bonds.
The concept of idea markets evolved from prediction markets, where there are a set of possible answers to a question whose best solution can be verified by future events. Participants use their best judgment and the information at hand to predict which answer is closest to the truth. It turns out that prediction markets provide the best method for aggregating information that is spread out across a large group.
In the concept of idea markets, and in the proposed legislation impact bonds, the proposals would be “valued” by collective investments. Legislation proposals would have “shares” that people could buy into, which would place a value on how likely the market deems each proposal is to achieve predefined social goals. These shares would bear financial returns if and when the legislation is implemented, and depending on how much it improves the social problem at hand.
The concept of attaching shares to ideas was developed in the past decade. One of the economists who first promulgated the idea, Robin Hanson, also went so far as to propose a concept called policy analysis markets. He also proposed a future model for governance based on policy analysis markets, futarchy.
Back in 2004, his ideas did not find much resonance. But nearly a decade later, a somewhat related concept—social impact bonds—is receiving a lot of attention: Obama proposed $300m in his 2014 budget for experimenting with them. On a more local level, they are also gaining traction: they are the center piece in Gina Raimando’s political campaign for Rhode Island governor.
What changed in the past decade was public access to data. Data is becoming increasingly available thanks to many initiatives launched by public and private groups, including the White House Open Government Initiative. We are getting better and better at calculating the impact of interventions, thanks to greater computing power. We are at a stage where we can observe the implications of public policy according to almost any parameters of our choice. This is great news, because we no longer have to speculate about which beliefs or approaches are best for fixing social problems; we can now bid on them, and the bidders with wrong approaches will lose out financially for backing the wrong proposals.
The proposed legislation impact bonds are not that different from social impact bonds, and would be a lot easier to implement. There would be no service providers running around with large project budgets. Each initiative would start with a public authority that had the right to legislate. The authority would open up a challenge of interest (reducing crime, obesity, alcoholism, traffic, etc.) and collect proposals for how to achieve it. The proposal or proposals that attracted the highest bids would then be voted on — by representatives or by a California-style referendum. If a proposal passed the voting, it would be implemented. After some number of years, depending on the challenge and proposal, its impact would be measured. The bidders would lose or win money based on how much impact their proposal had. The payout to the bidders would be fixed somewhere below the public gain, which would ensure that LIBs always result in a net gain for the public.
The concept of legislation impact bonds is not completely straightforward, and there is much still to be figured out. The idea that people could influence legislation with their money could have unexpected consequences even though they would be investing in a social aim that legislators agree upon and the people endorse through their votes. Perhaps it would become necessary to cap how much anyone could invest, or give people citizenship credits to invest with instead of cash. Still, I think we will come a long way if we can shift the focus of political debate toward achieving measurable impact and empowering those who speak with reliable knowledge on social matters, rather then those who simply defend the position of their interest groups.
