Meghan Joy and Dr. John Shields
In a post sub-prime mortgage induced financial crisis, another financial tool that risks increasing precarity for those most vulnerable is becoming increasingly popular in a political climate of austerity.
Social Impact Bonds (SIBs) are a social policy tool that claims to solve complex policy problems, such as homelessness, unemployment, and recidivism, through the scientific methods of financial modelling. Actively supported by several governments worldwide – there are currently 54 projects in 13 countries – SIBs provide a mechanism to turn the risky behaviours of vulnerable individuals into a form of profit making for private impact investors. SIB projects target population groups, such as the homeless, troubled youth, and obese, whose problems result in costly use of emergency-oriented public services such as shelters, prisons, and hospitals. In this way, SIBs are positioned as preventative, allowing future savings on costly public programs. These savings, also known as impacts, outcomes, or results are measured for their social value created (Dowling & Harvie, 2014). The SIB instrument places a current price on anticipated social value based on the assessed future risk that participants will not be reformed. Risks become a reward as investors bet on the extent to which vulnerable people will be transformed.
SIBs extend the public private partnership model to the social sector. A government department contracts a project intermediary to engage in SIB design and coordination. This intermediary then selects one or more private or non-profit social enterprises to deliver services that target vulnerable individuals. Private impact investors are sought to fund, and profit, from public service delivery. Rather than engaging in a broad public debate about social policy, SIB projects are often negotiated behind closed doors, subject to the rules of commercial confidentiality. SIBs are part of a broader trend for philanthropic actors – philanthrocapitalists – to make money off of their charitable endeavours through impact investments (McGooey, 2014; 2015). Here, the tools of venture capitalism are translated to the social sector as private investors select social enterprises that can deliver the best value for money. Non-profits risk being valued as apolitical and cheap delivery agents best situated to target vulnerable individuals (Joy & Shields, 2013). The institutions of the state are used to create new markets for private profit, sold as being in the public interest. While the idea is that SIBs provide value for money for the public sector, the state still has to pay for results and often at higher private sector interest rates. Furthermore, private investors are not risk averse and seek market rates of return and subsidies on their investments. The public subsidizes private risk while private investors reap the rewards.
The financial mechanisms of the private market attempt to solve complex policy problems that have long burdened the state by turning individual vulnerability into a form of profit-making (Kish & Leroy, 2015; Lake, 2015). SIBs in fact ignore the complexity of social problems as the underlying causes are considered behavioural and not social in nature. Problems are individualized and a complexity of variables are unexamined to prove causation and trigger a result. Individuals are blamed and shamed for their risky behaviour and socialized systems of inequity such as market failure, racism, sexism, ageism, and ableism are ignored as they are too complex. Individuals with the greatest need risk being excluded from SIB projects because the complexity of their vulnerability makes causation difficult to verify. SIB programs focus on behavioural change related to enhancing and flexibilizing job skills, parenting advice, nutrition and health education, mental toughness training and empathy. These measures ignore the importance of public programs such as childcare, access to affordable housing and recreational facilities, and job creation that recognize the larger structural and environmental realities that confront vulnerable populations. SIBs risk undermining social solidarity and mutuality as vulnerable individuals are recognized as commodified units that are a costly drain on responsible citizens, while worthy citizens are independent and active economic producers and consumers.
The measurement of social value tied to the incentive for profit opens the door for the oversimplification of problems to what can most easily be measured, the risk of quick-fixes rather than long-term policy solutions, and malpractice. It is thus not a surprise that SIBs have failed to prove that they work to produce social value. SIBs solidify the pre-existing social relations of capitalism, intersected with other modes of stratification such as race and gender. Though sold as neutral and technical instruments, SIBs are ultimately about the politics of inequality and are a deeply unethical policy tool (Dowling & Harvie, 2014; Kish & Leroy, 2015). An innovative approach to policy seeks to understand rather than tame complexity through over-simplistic behavioural solutions. Public policy must address the lack of good jobs, affordable and accessible housing, public transit, health care and social supports at the same time as tackling systemic issues of market failure and other ideological systems of inequity that limit opportunities for citizens.
If you enjoyed this blog post, you may also be interested to read Need and poverty by Seosamh Mac Cárthaigh