This past Friday, the UK government launched more social impact bonds, building on the first official social impact bond working in the Peterborough prison. It’s a huge step in changing how society, not just government, tackles social issues within the UK. I say “society, not just government” because the bonds help bring a wide array of people together to tackle the issue – from social enterprises, to charities, to government bodies and financial institutions and investors. I think it is a positive move, but like anything new, it runs the risk of being seen as the saviour to our woes. It runs the risk of becoming the only way we address social challenges, which would be terrible.
Social Impact Bonds are a great innovation in this space. In very simplistic terms, for a particular issue – let’s say crime – there is a cost to society for the social ill. There are also organisations – usually not-for-profits, charities, and/or social enterprises – who are working with the offenders to help them in various ways with the goal of the offender not offending and becoming a productive person in society. Some financial folks have given a financial value to the cost to society of a person re-offending by looking at all the costs associated with the crime and keeping the person in prison etc. The idea behind the social impact bond is a way to raise financial capital for the organisations working with the offenders. Basically, it works like this – if the cost to society of a person re-offending is £200,000 and an organisation that helps them no re-offend costs £90,000 then the “investment” of £90K into the organisation “saves” society £110,000 if the person does not re-offend. Therefore, if the bond raises financial capital through normal financial market means for the funding of the organisation (the £90k) and the government says it will pay interest of a set percentage to the investors if the re-offending target rate is achieved. In essence, the cost to government (and society) is therefore reduced. Now if you want a better explanation by smarter folk, click here.
All in all, I think it is a wonderful innovation in the social space, but hopefully it does not become the only innovation or the only solution. I was shocked to read in the BBC article the following:
Looking at those sums, I have to wonder what would happen if we took the £100,000 and gave it to each family instead of spending it on all the various programmes it gets spent on, which are supposed to help them. Think about it, one hundred thousand per year – that’s quite the salary! What about even 50% of it – £50,000? Heck, even £25,000 could have quite the impact. Now I can hear people reacting already…”but they’ll spend it on alcohol and drugs; they’ll waste the money; it won’t help, it will only make things worse; etc. etc.” What a low view of humanity we have! Does our reaction tell us more about ourselves then about the issue?
Perhaps we also need to consider what we have learned in the international humanitarian aid world about cash transfers, where many of the same arguments were voiced. However, we learned that those less fortunate than ourselves can handle money and can make decisions for themselves – our fears were more about our desire to control things than anything thing else. Again, people much smarter than me have written a lot about the learning in this area – some of it can be accessed from the Overseas Development Institute. Of course, there are challenges and will always be problems. And of course, cash transfers aren’t the only solution, but perhaps one part? And then again, perhaps we could say we do cash transfers in our welfare system payouts?
The launch of the expansion of social impact bonds is a great move by the UK government. The opposition is right is saying the “devil is in the details”, but it is still a very good move for which the government needs to be commended. Let’s not stop here, let’s keep innovating. And additionally, I hope that we don’t try to monetize every aspect of life, as for me not all of life can be, should be, or is.