27 August 2016

Make them tradeable

Quite a bit going on with Social Impact Bonds, as is apparent from their Wikipedia page and the almost daily Social Impact Bond newsletter; one recent issue highlighting Japan's interest in the concept. I do have reservations about SIBs, which I have written about here and here, though they do seem to have been inspired by my early work on Social Policy Bonds. One weakness, in my view, is that because they are not tradeable, SIBs are more subject to gaming and manipulation than Social Policy Bonds. This could become a bigger problem if the SIB concept becomes so widely adopted that they avoid public scrutiny. There is a long and sorry history of (presumably) well-intentioned measures, ostensibly taken to boost efficiency in the public sector, ending up as subsidies to the already wealthy and powerful. See, for instance, this piece about the UK's Private Finance Initiative. This is corporate welfare wearing a thin disguise.

So, given my doubts about SIBs, do I have anything positive to say about them? Yes:

First, is that they aim to reward better performance in the provision of social services. True, their lack of tradeability drastically narrows the range of such services and severely restricts their applicability over space and, especially, time. Still, they do give incentives to service providers to do a better job, given such limitations: something that is more revolutionary than it should be, but nevertheless a definite step forward.

Second, whatever their weaknesses, SIBs might be an improvement in policy areas that are particularly poorly served by existing interventions. Such unglamorous policy areas as, for instance, provision of services to the mentally unwell or to newly-released prisoners to help prevent them from recidivism.

And third, of course, SIBs might serve as a helpful or necessary transitional step toward Social Policy Bonds. SIBs allow the bonds' issuers, whether public- or private-sector a greater degree of control than Social Policy Bonds over who shall go about achieving the bonds' objectives and (less directly) how they shall do so. Government and other backers of bonds are, understandably, reluctant to relinquish their control over these levers of power. But Social Policy Bonds could be introduced gradually, and government agencies - if they are truly efficient - need not fear their introduction. Exposure to competition from others motivated to achieve society's goals, as targeted by a Social Policy Bond regime, would stimulate the exploration and implementation of diverse, adaptive solutions to national and even global problems. If it takes a decade or two's experimentation with SIBs to get there, it's a worthwhile journey. My hope is that SIBs' weaknesses and the greater scope they give for manipulation do not falsely discredit the Social Policy Bond idea in the eyes of the public.  

For more about a transition to a Social Policy Bond regime, see chapter 3 of my book.

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