Social bonds need time

The National Business Review
19 June, 2015

Labour has launched an open letter imploring the cabinet to stop the implementation of social bonds. It argues “social bonds are an untried and unproven experiment that have failed overseas.”

Let’s reflect on this a bit. They are untried – so there is a lack of evidence – but how do we already know they are a failure? Labour’s stance is wrong in more than one way.

First, social bonds are not an untried model. Social bonds (known as Social Impact Bonds in the UK, Social Benefit Bonds in Australia and Pay-for-Success contracts in the US) have been implemented in a number of countries.

A 2014 assessment by the UK-based Policy Innovation Research Unit found more than 100 SIBs were in development worldwide. Assessment and evaluations of the social bonds are available.

Perhaps Labour means the model is untried in New Zealand. That is certainly true. But that doesn’t justify never trying something new. New and innovative approaches to social services are being tried all the time. But it is rare to hear any political party protesting the work of a charity or social enterprise, no matter how experimental their methods are.

If opponents truly oppose experimenting on vulnerable populations, or trying unproven methods, surely that would extend to the charities sector, too.

The form of contracting is also not a completely untried method. A number of social services operate under performance-based contracts, as well as public-private partnerships. Social bonds fit in well within the context of government reforms, many of which are already in practice. These include the social investment approach used in welfare, better public services targets, children’s teams, whanau ora, social sector trials and social housing reform.

Financial implications

What seems to really be getting opponents worried is the financial instrument in the social bonds model. Or, to put it harshly, “profiting off the mentally ill.”

But let’s flip that around. Is it really so bad that those investors who fund successful social services, and significantly improve the lives of vulnerable populations, earn a bonus for their efforts?

Labour may more accurately describe social bonds as an unproven model. That is true to the extent that no social bond has yet reached its full term. As a relatively new model, the pool of evidence is therefore shallow.

However, we do know the Peterborough prison social impact bond (SIB) in the UK was producing results.

Aimed at reducing the recidivism rate, the Peterborough pilot involved three cohorts of released prisoners.

A consortium of service organisations provided wraparound services to participants, ranging from counselling and housing to job seeking. The results for the first cohort were released in August 2014 and showed the programme reduced the recidivism rate by 8.4% more than the national average.

Pilot programme curtailed

While the Peterborough pilot was cancelled before all the cohorts had completed the programme, this was not a sign of failure. In fact, the risk that the programme may be ended early was addressed at the contractual stage.

It could even be interpreted as successful, as the programme proved a successful method for reducing recidivism that was then rolled out universally.

Because of the similarity between the nationwide programme and the SIB, the SIB could no longer be tested against a control group to determine comparable outcomes.

The purpose of a pilot, apart from proving the effectiveness of the model, was also to provide lessons that can be used throughout the public sector. Evidence suggests social bonds can encourage better practice in government services.

Even at an early stage, general government processes have been encouraged to reform in New South Wales. The Centre for Social Impact reports that this is due to the greater emphasis social bonds place on outcomes, transparency and contracting.

Too early to tell

A successful social bonds pilot, then, will not only improve outcomes for vulnerable populations but encourage better practices for social services overall.

It’s too early to announce social bonds as an international success. But it is also too early to deem the model a “complete and utter failure.” At the very least, judgment on the New Zealand implementation of the model should be withheld until more details are released.

Of great importance will be how outcomes are defined. The number of participants who gain employment will surely be one measure. The duration of that employment will also be an important measure, to guard against gaming the system and to ensure the jobs are appropriate and sustainable.

Given the unique needs of the population, the wellbeing of the participants should be monitored.

Including wellbeing as a performance metric would also guard against exploitation.

Another detail that has yet to be released is how participants will be selected – for instance, whether the participation would be voluntary. Opponents to social bonds have already brought up cherry picking as an inherent risk of the model. However, this challenge can be mitigated through careful contracting, to ensure neither the private sector nor the government has an advantage in selection.

Types of investors

The types of investors will be another interesting factor that is yet to be announced. Already, the involvement of private investors has sparked images of Wall Street types who only care about making a profit. However, private investors could be institutional or philanthropic.

Overseas, social bonds investors are often those who have previously contributed to philanthropic causes but are now motivated by innovative practices and the potential to earn a profit. Given the financial risks associated with the model, it is hard to believe that investors are not motivated by achieving social outcomes. Even if they are motivated by profit, this is not a reason in itself to believe they would employ dishonest means to achieve their goals.

More details needed

Finally, we don’t even know yet what the specific programme looks like, nor who the service providers are. Perhaps the programme will try a completely new and promising means of getting people with mental illnesses into employment.

Perhaps it is a programme that has worked overseas but has not yet worked in New Zealand. Or perhaps we will find that the programme will closely follow what has already been tried and tested in New Zealand but now with a different contracting and funding mechanism.

Until further details on the social bonds programmes are released, opposition to the trial is premature (as would lauding the trial be). If implemented successfully, private investors will not be the only ones who benefit.

Service providers benefit by enjoying an alternative funding stream, greater flexibility than traditional government contracting and opportunities to scale their work.

Most importantly, people suffering from mental illnesses could benefit from receiving specific and tailored assistance toward greater independence, financial security, and social integration.

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