Profits in public services: Louise Sylvan on social impact bonds

By Stephen Easton

September 15, 2015

New ways to invest taxpayers’ money that keep the focus on outcomes can break down government silos and bring innovative approaches to bear on the “wicked problems” years of traditional funding have failed to solve.

That’s the good news about social impact bonds and public service commissioning, says former Australian National Preventive Health Agency CEO Louise Sylvan, who will be exploring how and why governments are looking at new ways to invest in service delivery at next week’s Power to Persuade Symposium in Canberra.

Louise Sylvan. Image:
Louise Sylvan. [Image:]
The one-day seminar is focused on the increasing entry of for-profit companies in government service delivery. Sylvan, who has also held senior roles at the Productivity Commission, the Australian Competition and Consumer Commission, and in the world of consumer advocacy, will give her presentation before joining a panel to discuss whether social impact bonds are in fact “a wolf in sheep’s clothing”.

The Victorian, New South Wales and Queensland governments are all trying out the new-fangled financial instruments and the federal Department of Social Services is reportedly looking at doing the same.

According to Sylvan, Australian governments are looking to these new ways to partner with external organisations using private capital for two main reasons. Firstly, the pressure to spend less and still achieve positive outcomes for the community has increased. At the same time, she says, there is tremendous scrutiny of ministers and low tolerance for failure in the community, so new ways to invest in service delivery are attractive as a way of shifting some risk to players outside government.

“They’re now actually commissioning — if I can use that word, which is the new ‘in’ word for contracting out — with much wider performance measures, into the NGO or private sector to deliver for them,” Sylvan told The Mandarin. “So I think part of the risk aversion strategy of governments is driving this.”

“Commissioning and the change in language and the change in emphasis should mean that you are actually approaching the problems together.”

One positive benefit of social impact investment by government is the opportunity to solve long-term problems that traditional programs of public service delivery have failed. Sylvan nominates Aboriginal disadvantage and long-term unemployment as just two quick examples, but there are plenty of others.

“Governments are actually going into partnerships in relation to these highly complex problems, so what that does is pull in the ideas and innovation from the private sector,” she said. “That’s the positive side of it.”

Another positive is the more rigorous and collaborative process of working out the performance measures on which the bonds provide a return, which comes out of the savings to government that should arise if the KPI is met. For example, Uniting Care Burnside is to receive $7 million in funding from investors who buy the New South Wales government’s first social benefit bonds, to expand an existing service that aims to support struggling new parents. The ultimate aim, which the KPI should reflect, is fewer children from being removed from their parents and put into foster care.

Sylvan sees value in the more collaborative process of making those KPIs meaningful to government, to a service provider funded through the bond, and to private investors.

“It’s a real rigour that attaches in a way that perhaps doesn’t when it’s just a government grant. It adds in the private sector saying: ‘We want to get our money back, so exactly how are you going to pay for performance in this regard?’ So that’s a positive.”

In the same way, the increasing use of the term ‘commissioning’ is intended to emphasise more advanced performance measures that describe the outcomes the government wants to pay for, not just the basic outputs that describe the mechanism for achieving those goals.

“Commissioning, to me, and the change in language and the change in emphasis should mean that you are actually approaching the problems together,” said Sylvan.  “In other words, it should be much, much closer to the social impact bonds space, but without the private sector involvement [in determining outcome measures].”

Out of the silos

“When you approach the problem with that much more ‘whole’ sense of an impact investment, it forces the departments out of their silos to address the issues.”

Of course, measuring whether desired outcomes are actually achieved is much more difficult than simply counting outputs, but it is the critical difference between genuine commissioning and simple outsourcing that public servants must understand, according to Sylvan.

“It doesn’t mean you don’t have output measures; they’re critical as well,” she added. “They give you the little steps along the road, if I can put it that way … but that’s not the measure. That’s not the key thing that you’re looking for.”

“It implies to me a real partnership, and I’m not sure government is going to do this well. It is looking like a lot of people are just using it as a new bright term for contracting out the service.”

Another benefit of changing the focus from outputs to outcomes is more impetus to silo-breaking collaboration between different departments, she adds.

“So if you look at an area like mental health, for instance, you cannot actually deal with a whole lot of mental health issues without starting to address some of the homelessness issues,” said Sylvan.

“But there’s no way that the health department’s going to hand a whole lot of money over to the department that does public housing or vice-versa.

“When you approach the problem with that much more ‘whole’ sense of an impact investment, it forces the departments out of their silos to address the issues.”

There is plenty of blanket opposition to any kind of privatisation, and social impact bonds have their sceptics too, but Sylvan says she’ll be “sidestepping” the ideological debate in her presentation. She expects that among the members of her “very thoughtful” audience at the symposium, there will be those with concerns, especially about using for-profit service providers. But she will make the case that achieving outcomes is what is important.

“I’m taking a very pragmatic approach to answering this question, which is, government’s almost saying they can’t succeed on [some issues]; that we’ve had 50, 60, 70 years in some cases of trying to address these problems and we have not succeeded. Look at where our closing the gap reports are in terms of Aboriginal disadvantage.”

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