Tuesday, May 07, 2013

Canadian Government Explores Social Impact Bonds

There are a number of social problems that don't lend themselves easily to being solved by markets... so the solution that some have proposed? Create artificial markets, bounties and contests to solve them - identifying new solutions and experiments that pay only if they produce the objective outcomes desired. The Canadian government just announced its support for social impact bonds (GlobeandMail via Brian H on FB):

The Conservative government is throwing its support behind social-impact bonds – an experiment that rewards private investors for putting cash toward social causes.

The government on Monday released a list of projects that could be financed in this way, such as programs to build housing for people with disabilities, reduce recidivism among young offenders or encourage more young aboriginals to learn a skilled trade. Ottawa said it will work with interested groups toward launching projects.

The arrangement is not a bond in the traditional sense. An investor pays a group such as a non-profit to deliver a social service and is rewarded with an agreed upon sum from the government if the non-profit achieves a measurable goal. The financial risk falls on the investor. If the goal is not met, no government money is spent and the investor is out of pocket.
This is an idea that's also being explored in the US (NationalPost):
In August, New York Mayor Michael Bloomberg announced the country’s first concrete program, which is aimed at reducing the rate at which young offenders return to crime after their release.

“Currently, nearly 50 percent of adolescents who leave the New York City Department of Correction return within one year,” according to the press release unveiling the plan. “The new program announced today, ABLE, aims to reduce the likelihood of reincarceration by providing education, training and counseling to improve personal responsibility skills, including decision-making and problem-solving.”

Goldman Sachs will finance the plan for four years, which will be operated by MDRC, a non-partisan New York non-profit organization. The loan will be partly guaranteed by a grant from Bloomberg Philanthropies, the mayor’s family foundation. To be judged a success, the program will have to reduce the number of youths returning to jail by 10%, as measured by an independent third party organization. If it works, the city will repay Goldman, plus a profit; if not, the city pays nothing.

Massachusetts is seeking proposals on a similar initiative, and a second program intended to provide stable housing for the chronically homeless. Both homelessness and recidivism are high-cost items for government; if the programs succeed, the public savings would be well worth the profit paid to the backers.


CCK said...

You have made a few errors:
There are no such things as social problems. Because society isn't an entity that can have problems, individuals can have problems and large numbers of individual problems can have a cumulative or exponential effect but we don't do things to benefit society. we do things to make life better for individuals.

Second, the only reason there is ever a perceived market inefficiency is when some other body (namely, likely government) has stepped in and said that this market is exclusively their purview.

When left to their own devices to quote Michael Crichton "life will find a way"

If there is a need, people will find a way to fill it. And if left to do so freely a market will spontaneously arrive to do so.

A lack of market is not a failing humanity. It is too much trust in government.

Clement Wan said...

I won't deny that I have discomfort with most forms of government intervention but take the issue of recidivism and imprisonment for instance. Few people deny we have a need for basic laws and governance - and when laws are broken, why wouldn't it be in everyone's interest to ensure these individuals - in NYC's case, adolescents who presumably are not yet of age, from committing additional crimes?

In a way it's sort of like the X-Prizes. Acknowledging that politically government will play a role isn't to also claim that it should have a role necessarily. In this case, it is reducing its role by opening itself up to private solutions that it doesn't even pay for if goals are met.

I agree with you insofar as I think faith in governments is often misplaced - which is why acknowledgement that this is just one of many tools that can be used to solve issues that democracies agree exist - and it's a tool that will hopefully prove less bureaucratic and less stifling than a public implementation and that leverages private resources. I would further agree with you though that there is a great deal of grey here in terms of what constitutes an "issue" that needs to be solved.