Social Impact Bonds: tradeability would change everything

I'm not a great supporter of Social Impact Bonds (SIBs), with which I've had no involvement. They came on the scene after my first presentations of Social Policy Bonds and differ in that they are not tradeable. This seemingly minor difference is actually critical, and I've explained why here.

So I agree with most of the aspersions cast on Social Impact Bonds by the authors of the paper excerpted below, which echo my own sentiments expressed here and here. However:

The introduction of a profit incentive fundamentally alters the relationship between the service provider and user. The principal client and dominant stakeholder of any given SIB is its financier, not those who receive the services it finances and whose voice rarely figures into any discussion. The motivation propelling private investment in SIBs is profit or return on investment, rather than assisting or changing the circumstances of citizens in need. ... This does not seem to trouble SIBs’ many proponents, who blandly assume that the interests of private financiers can be aligned with the needs of service users, and who are content to see the changing fortunes of citizens instrumentalized as payment triggers. SIBs thereby transform citizens into commodities....  SIBs exemplify the financialization and privatization of social and public policy; they reduce the rights of citizens both as service users and as a polity. A Critical Reflection on Social Impact Bonds, Michael J. Roy, Neil McHugh, and Stephen Sinclair, 'Stanford Social Innovation Review', 1 May 2018

Social Policy Bonds, being tradeable, can take a very long-term view: they can target goals that will depend on a shifting cast of investors for their achievement. Their goals can be meaningful not only to a clique of financiers, but to the public, who can participate in decisions about which goals shall be targeted and their relative importance. With such transparency about broad social and environmental goals, it is society as a whole who will be the principal stakeholders of a bond regime, and many will also be the direct beneficiaries of such goals as cleaner air, reduced crime rates, or similar large-scale goals that a Social Policy Bond regime can target. 

I also think Social Policy Bonds would not lead to undue profits, as implied by the paper and as could readily be made in a SIB regime. It's true that organisations would make profits if they are successful in achieving the targeted goals - that is, those goals that society wishes to see achieved. But, again, tradeability and the ability to target long-term goals, mean that the identity of service providers, whether those invested in the bonds or their agents, can change over time. (See here, for how Social Policy Bonds could lead to a new type of organisation, whose every activity would be aimed at achieving our social goals.)

And, because there would be no barriers of entry into investment in Social Policy Bonds, any profits would tend to be competed away over time between the bonds' flotation and their redemption after long-term goals have been achieved. There would be profits, but they would not be excessive. I don't agree with the authors of the paper that such profits would transform citizens into commodities, any more than paying teachers or nurses transforms schoolchildren or patients into commodities. 

All that said, I think SIBs could play a positive role if they serve as a stepping stone toward Social Policy Bonds. The danger is that their practical disadvantages might discredit the whole idea of contracting out the achievement of broad, long-term social and environmental goals to a protean cast of motivated investors.