Where we're at

How are Social Policy Bonds doing?

It's about 27 years since they first entered the public arena (see here). In that time the Social Policy Bond idea has won praise from distinguished economists (point 8 here), but no Social Policy Bonds have actually been issued.

It's not all doom and gloom though. There is widespread, though belated, recognition now that rewarding better performance in the public sector is a good thing, and non-tradeable variants of Social Policy Bonds are being issued on a trial basis in the UK, US, Australia and Israel. They are also being considered in New Zealand (see here for a short video discussion).These bonds have various names including Social Impact Bonds, Social Benefit Bonds and Pay for Success Bonds.

I have my reservations about them, which I've expressed here and here. Essentially, their being non-tradeable drastically reduces the scope - in breadth and time horizon - of the goals that can be considered. They favour existing service providers, and their administrative costs are likely to be relatively higher than Social Policy Bonds. As well, because they aren't openly traded, they generate no price information that could be extremely useful to policymakers. Nevertheless, these bonds do reward greater efficiency in achieving their limited objectives, and they might well improve on current policy where that is particularly inefficient. They could therefore be a handy (and though I am hesitant to say so, necessary) first step toward a fully-functioning Social Policy Bond.

That said, I'd disappointed that, as far as I am aware, the backers of all the Social Impact Bonds being issued have been, or will be, governments. I'd have much preferred the private sector, in the form of non-governmental organizations or philanthropists, take the lead. The bonds being issued are intended to help vulnerable or disadvantaged people and it seems regrettable in today's climate that the other beneficiaries of taxpayer funds will be financial intermediaries who will take their cut of the transaction costs. Indeed, it seems these bond issuers will benefit whether or not the bonds work as intended. If the bonds do work as intended, that's fine, but we should remember that they are an experiment and, it would be a shame if they come to be seen as a means by which the financial services sector syphons off yet more cash from taxpayers while contributing nothing (at best) to wider society. The other danger is that if Social Impact Bonds fail - and especially if they do so while the brokers benefit - they could discredit the Social Policy Bond concept. For many reasons, therefore, I hope they succeed....